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, 2000

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 LIMITED LIABILITY COMPANY)
                       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 February 20, 2001.

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

                         2000 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..............................   17
              Business of Midwest Capital..................................   17
Item 2    Properties.......................................................   17
Item 3    Legal Proceedings................................................   19
Item 4    Submission of Matters to a Vote of Security Holders..............   20

                                     Part II
Item 5    Market for the Registrant's Common Equity and
            Related Stockholder Matters....................................   21
Item 6    Selected Financial Data..........................................   21
Item 7    Management's Discussion and Analysis of Financial
            Condition and Results of Operations............................   21
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.......   21
Item 8    Financial Statements and Supplementary Data......................   21
Item 9    Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosure.........................   21

                                    Part III
Item 10   Directors and Executive Officers of the Registrant...............   22
Item 11   Executive Compensation...........................................   23
Item 12   Security Ownership of Certain Beneficial Owners
            and Management.................................................   23
Item 13   Certain Relationships and Related Transactions...................   23

                                     Part IV
Item 14   Exhibits, Financial Statement Schedules and Reports on Form 8-K..   24
Signatures ................................................................   85
Exhibit Index..............................................................   86

                                      -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  with  MidAmerican  Energy  Holdings  Company  as its sole
member.  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 Company,  Inc., 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 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  retail  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.

     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,  provides customer service
and  conducts  related  activities.   Retail  includes  marketing,  and  related
functions for core and complementary products and services.

(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, MidAmerican Services and MEC Construction.
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  and  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,  2000,  98.2% of  MidAmerican  Funding's
operating  revenues were from  MidAmerican  Energy,  1.7% were from  MidAmerican
Capital and 0.1% were from Midwest Capital.

     MidAmerican  Funding and its subsidiaries had 3,737 full-time  employees as
of December 31, 2000.

                                      -4-

<PAGE>


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

     MidAmerican  Energy is the largest  energy company  headquartered  in Iowa,
with  assets  and  2000  revenues   totaling  $3.8  billion  and  $2.3  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,  2000,  MidAmerican  Energy had  669,000  retail
electric customers and 646,500 retail natural gas customers.

     In addition to retail sales,  MidAmerican  Energy sells electric energy and
natural  gas  to  other  utilities,  marketers  and  municipalities  outside  of
MidAmerican  Energy's delivery system.  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 4% of its total 2000 electric  operating  revenues or 2%
of its total 2000 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,  2000,   MidAmerican   Energy  derived
approximately  52% of its gross operating  revenues from its regulated  electric
business,  28% from its  regulated  gas business  and 20% from its  nonregulated
business activities.  For 1999 and 1998, the corresponding  percentages were 66%
electric,  25%  gas  and 9%  nonregulated;  and  69%  electric,  25%  gas and 6%
nonregulated,  respectively. The change in revenue mix for 2000 was driven by an
increase in natural gas prices and in nonregulated natural gas sales activity.

                                      -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

                                      2000         1999         1998
                                     -----        -----        -----
Residential                           20.7%        21.0%        22.2%
Small General Service                 15.9         16.7         17.5
Large General Service                 28.6         26.9         28.1
Other                                  5.4          4.5          4.4
Sales for Resale                      29.4         30.9         27.8
                                     -----        -----        -----

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

                                           Retail Electric Sales
                                                 By State

                                      2000         1999          1998
                                     -----        -----         -----
Iowa                                  89.3%        88.9%        88.4%
Illinois                              10.0         10.4         10.9
South Dakota                           0.7          0.7          0.7
                                     -----        -----        -----

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

     Refer to  Nonregulated  Operations  for a discussion  of electric  supplier
choice in Illinois.

     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

                                      2000         1999          1998
                                     -----        -----         -----
Residential                           64.0%        63.5%        62.0%
Small General Service                 31.8         32.2         33.2
Large General Service                  4.0          4.0          3.8
Other                                  0.2          0.3          1.0
                                     -----        -----        -----

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

                                      -6-
<PAGE>



                                             Retail Gas Sales
                                                 By State

                                      2000         1999          1998
                                     -----        -----         -----
Iowa                                  78.0%        78.8%        79.0%
Illinois                              10.2         10.3         10.2
South Dakota                          11.0         10.1         10.1
Nebraska                               0.8          0.8          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 2000, 38% of MidAmerican Energy's electric revenues
were  reported in the months of June,  July,  August and  September,  and 56% of
MidAmerican  Energy's  gas  revenues  were  reported  in the months of  January,
February, March and December.

     At December 31, 2000,  MidAmerican Energy had 3,720 full-time  employees of
which  1,740  were  covered  by union  contracts.  MidAmerican  Energy  has five
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. One contract with IBEW locals 109 and
499 expires February 29, 2004, and covers 1,664 employee members.

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 September 2000,  MidAmerican Energy recorded an hourly peak demand of
3,648 MW, which was 185 MW less than MidAmerican  Energy's record hourly peak of
3,833 MW set in July 1999.

     MidAmerican Energy's accredited net generating  capability in the summer of
2000 was 4,507 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 2000.

     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 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 and is  responsible  for the
safety and reliability of the bulk electric system.


                                      -7-

<PAGE>


     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 at peak demand for 2000 was  approximately
25%.

     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.  MidAmerican Energy
believes   its   interconnections   and  central   location   provide   numerous
opportunities to serve other markets. Refer to Item 2, Properties, for detail of
transmission lines.

     The Federal  Energy  Regulatory  Commission  in its Order No. 2000 requires
transmission   owners,   like  MidAmerican   Energy,   to  transfer  control  of
transmission operations to a regional transmission organization.  On October 16,
2000, MidAmerican Energy filed with FERC a plan for MidAmerican Energy to comply
with  Order  No.  2000  by  participating  in  the  formation  of  a  for-profit
independent transmission company.  MidAmerican Energy continues in its effort to
form such a company.

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,
                                      2000         1999          1998
                                     -----        -----         -----

         Coal                         75.9%        70.9%        79.2%
         Nuclear*                     23.6         28.2         19.5
         Gas                           0.3          0.7          1.1
         Oil/Hydro                     0.2          0.2          0.2
                                     -----        -----        -----
             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  relating to retail  sales from 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 current acid rain  provisions of the Clean Air Act Amendments of
1990 without having to install  additional costly emissions control equipment at
its generating  stations or purchase  additional  emission credits.  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

                                      -8-
<PAGE>


satisfactory.  Additional information 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  can use 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 either Union Pacific and Burlington  Northern.  Coal for
MidAmerican  Energy's  Louisa and  Riverside  Energy  Centers is delivered to an
interchange   point  by  either   Burlington   Northern  or  Union  Pacific  for
transportation  to its  destination  by the I&M Rail  Link.  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 Generating  Station,
a nuclear power plant. Exelon Generation Company, LLC, the other joint owner and
the  operator  of Quad Cities  Station is a  subsidiary  of Exelon  Corporation.
Exelon is the result of a merger in October 2000 of Unicom  Corporation and PECO
Energy  Company.  Commonwealth  Edison,  a subsidiary of Unicom,  was the former
operator and joint owner.

     Approximately  one-third  of the  nuclear  fuel in the core at Quad  Cities
Station Units 1 and 2 is replaced  every 24 months.  Units 1 and 2 had refueling
outages in October and January 2000, respectively.

     MidAmerican  Energy has been advised by Exelon Generation 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.  Exelon
Generation  foresees no problem in obtaining the remaining  requirements  now or
obtaining  future  requirements.  Exelon  Generation  further  advises  that all
enrichment  requirements have been contracted through 2004. Commitments for fuel
fabrication have been obtained at least through 2006. Exelon Generation 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  25% of the fuel in the core at  Cooper  must be
replaced every 18 months.  A refueling  outage occurred 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.
Exelon Generation 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-

                                      -9-
<PAGE>


term power purchase contract.  Exelon Generation 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, Exelon Generation has informed 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  2000,
approximately 44% of total gas delivered through 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 and
South Dakota Public Utility Commission  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 gave initial
approval of MidAmerican Energy's Incentive Gas Supply Procurement Program, which
currently  has been  extended  through  2002.  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. A similar program
is in  effect  in  South  Dakota.  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.

                                      -10-
<PAGE>

     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% transportation  service of customer-owned gas.
MidAmerican  Energy's  2000/2001  winter  heating  season  peak-day  delivery of
1,037,287  MMBtus was reached on  December  21,  2000.  This  peak-day  delivery
included  approximately  76%  traditional  sales service and 24%  transportation
service.

     The supply  sources  utilized by  MidAmerican  Energy to meet its 2000/2001
peak-day deliveries to its traditional sales service customers were:

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

     Leased Storage and Peak Shaving Plants         217.6         27.6%
     Firm Supply                                    569.5         72.4
                                                    -----        -----
     Total                                          787.1        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 to serve 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  commercial
end-users and sells these customers gas to meet their supply requirements. Sales
volumes for these nonregulated gas marketing services totaled 90 million MMBtus,
58 million MMBtus, and 39 million MMBtus for 2000, 1999 and 1998, respectively.

     MidAmerican Energy's nonregulated revenues reflect revenues from its market
access  service  project,  which began in the third  quarter of 1999.  The pilot
project allows larger Iowa customers  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.

                                      -11-
<PAGE>


     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 were
allowed supplier choice starting  December 31, 2000.  Residential  customers all
receive  the  opportunity  to select  their  electric  supplier  on May 1, 2002.
MidAmerican  Energy's  nonregulated  revenues  include  agency  fees  and  other
revenues related to these supply services.

     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.

     Historical nonregulated revenues for MidAmerican Energy are shown below (in
millions):

                                       2000            1999           1998
                                       ----            ----           ----

     Nonregulated wholesale gas        $337            $135           $ 89
     Nonregulated retail gas             71               1              1
     Nonregulated retail electric        21              11              -
     Other                               20              11             18
                                       ----            ----           ----
                                       $449            $158           $108
                                       ====            ====           ====

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,  electricity  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,  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,  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.

                                      -12-
<PAGE>


     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 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 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
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. Exelon  Generation 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

                                      -13-
<PAGE>


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.  Exelon
Generation 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.  Exelon
Generation  and Nebraska  Public Power  District  have also advised  MidAmerican
Energy  that state and local plans  relating to Quad Cities  Station and Cooper,
respectively, have been approved by the Federal Emergency Management Agency.

     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, and
every two years thereafter,  providing "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 to 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 to which  MidAmerican
Energy has made  contributions.  Electric  tariffs  currently in effect  include
provisions for annualized collection of estimated  decommissioning costs at Quad
Cities Station and Cooper. In Illinois, Cooper nuclear decommissioning costs are
included  in  customer   billings   through  a  mechanism  that  permits  annual
adjustments.  In Iowa, Quad Cities Station and Cooper  decommissioning costs are
reflected in base rates.  MidAmerican  Energy's cost related to  decommissioning
funding in 2000 was $19.8  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

                                      -14-
<PAGE>


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
approximately  65%  of  MidAmerican  Energy's  electric  generating  capability.
MidAmerican  Energy's  generating units meet all requirements  under Title IV of
the Clean Air Act Amendments of 1990.  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 Note (4)(c) in Notes to Consolidated  Financial Statements 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.

     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,  2000,  was $24  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

                                      -15-

<PAGE>

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  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 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.

     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 Clean 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 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. In December  2000,  the EPA concluded that it is appropriate
and necessary to regulate mercury emissions from coal-fired generating units. It
is anticipated  that rules will be developed to regulate these emissions in 2003
to 2004. The cost to MidAmerican  Energy of reducing its mercury emissions would
depend on available technology at the time, but could be material.

                                      -16-

<PAGE>


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

     MidAmerican  Capital is a wholly owned nonregulated  subsidiary of MHC. The
nonregulated  activities  emphasize  credit  quality,  liquidity  and energy and
complementary  service-related  businesses.  MidAmerican  Capital  manages these
activities through its nonregulated  investment and operating companies.  Assets
of MidAmerican Capital totaled $221 million as of December 31, 2000.

INVESTMENTS

     MidAmerican  Capital's investments totaled $211 million and $234 million at
December  31,  2000  and  1999,  respectively,  including  a  $73  million  note
receivable  from  MidAmerican  Energy  Holdings.  A  majority  of the  remaining
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 $49 million
and  $85  million  at  December  31,  2000  and  1999,  respectively,   consists
substantially of a managed preferred stock portfolio.  The preferred stocks have
been issued by companies having  investment grade senior debt ratings by Moody's
or  Standard & Poor's.  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 $48 million and $49 million at December 31, 2000 and 1999, respectively.

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

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

     Midwest Capital is a wholly owned nonregulated subsidiary of MHC with total
assets of $11  million  as of  December  31,  2000.  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.

                                      -17-

<PAGE>


     The net accredited  generating capacity of MidAmerican  Energy,  along with
participation purchases and sales, net, are shown for summer 2000 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         261
  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
                                                                     -----
                                                                     2,855
                                                                     -----
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      379
  Quad Cities Station
    Unit No. 1                                   25.0     Nuclear      190
    Unit No. 2                                   25.0     Nuclear      193
                                                                     -----
                                                                       762
                                                                     -----
Hydro:
  Moline - 4 units                              100.0     Water          3

Portable Power Modules - 28 units               100.0     Oil           56
                                                                     -----

Net Accredited Generating Capacity                                   4,465

Participation Purchases and Sales, Net                                  42
                                                                     -----
Total Net Accredited Generating Capability                           4,507
                                                                     =====


(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.

                                      -18-
<PAGE>


     The  electric  transmission  system of  MidAmerican  Energy at December 31,
2000, included 897 miles of 345-kV lines and 1,110 miles of 161-kV lines.

     The gas distribution facilities of MidAmerican Energy at December 31, 2000,
included 20,259 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 Funding 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.

     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;

                                      -19-
<PAGE>

     (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  appealed  the  court's  summary  judgment  ruling.  On
December 12,  2000,  the United  States Court of Appeals for the Eighth  Circuit
reversed the ruling of the district court and granted summary  judgment in favor
of  MidAmerican  Energy  issues  one and  five in the  second  paragraph  above.
Additionally,   it  remanded  the  case  for  trial  on  all  other  claims  and
counterclaims.  It is not likely that a trial will occur prior to late spring or
early summer of 2001.

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

None.

                                      -20-

<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.

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
     ------------------------

     None.

                                      -21-

<PAGE>


                                    PART III

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

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

(A)  IDENTIFICATION
                                                         Served in     Served as
                         Present                          Present      Director
Name               Age   Position                      Position Since    Since
----               ---   --------                      --------------  ---------


David L. Sokol      44   Chairman, Chief Executive
                           Officer and Manager              1999         1999

Gregory E. Abel     38   President and Chief Operating
                           Officer                          1999         1999

Patrick J. Goodman  34   Vice President and Treasurer       1999         1999

Delbert D. Weber    68   Independent Manager                1999         1999

Steven A. McArthur  43   Vice President, General Counsel
                           Secretary and Manager            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 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.

                                      -22-

<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 in various  accounting  positions  including  Senior Vice
President and Chief  Accounting  Officer.  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 and General  Counsel since December  2000. 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.

     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.


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.

                                      -23-

<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...........................    25
       Management's Discussion and Analysis of Financial Condition
         And Results of Operations....................................    26
       Consolidated Statements of Income
         For the Years Ended December 31, 2000, 1999, and 1998........    46
       Consolidated Statements of Comprehensive Income
         For the Years Ended December 31, 2000, 1999 and 1998.........    47
       Consolidated Balance Sheets
         As of December 31, 2000 and 1999 ............................    48
       Consolidated Statements of Cash Flows
         For the Years Ended December 31, 2000, 1999 and 1998.........    49
       Consolidated Statements of Capitalization
         As of December 31, 2000 and 1999 ............................    51
       Consolidated Statements of Retained Earnings
         For the Years Ended December 31, 2000, 1999 and 1998.........    52
       Notes to Consolidated Financial Statements.....................    53
       Independent Auditors' Report...................................    83


(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) ....    84

     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 86.

(B)  REPORTS ON FORM 8-K

     None.

                                      -24-
<PAGE>

                             MIDAMERICAN FUNDING LLC
                      SELECTED CONSOLIDATED FINANCIAL DATA
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                               MIDAMERICAN
                                                 FUNDING                        MHC (PREDECESSOR)
                                      ---------------------------   -----------------------------------------------------
                                                    MAR. 12, 1999   JAN. 1, 1999
                                                       THROUGH        THROUGH
                                      DECEMBER 31,   DECEMBER 31,     MARCH 11,          YEARS ENDED DECEMBER 31,
                                                                                   --------------------------------------
                                          2000          1999            1999         1998         1997           1996
                                      ------------  -------------   ------------   ----------    ----------    ----------

<S>                                     <C>           <C>           <C>            <C>           <C>           <C>
INCOME STATEMENT DATA:
Revenues ............................   $2,330,666    $1,433,046    $  383,066     $1,775,924    $1,969,537    $1,911,204
Operating income ....................      327,560       227,133        58,898        271,412       276,726       349,399
Income from continuing
  operations (a) ....................      126,784       124,077        16,789        127,154       139,332       143,761
Net income ..........................      126,784       135,335        17,210        131,318       135,104       131,046
</TABLE>

<TABLE>
<CAPTION>

                                           AS OF DECEMBER 31,                                AS OF DECEMBER 31,
                                        ------------------------                   --------------------------------------
                                          2000           1999                         1998         1997           1996
                                        ----------    ----------                   -----------   ----------    ----------
<S>                                     <C>           <C>                          <C>           <C>           <C>
BALANCE SHEET DATA:
Total assets........................    $5,492,721    $5,212,387                   $4,244,336    $4,278,091    $4,521,848
Long-term debt (b)..................     1,670,636     1,642,476                    1,045,548     1,178,769     1,474,701
Power purchase obligation (b).......        52,282        68,049                       83,127        97,504       111,222
Short-term borrowings...............        81,600       204,000                      339,826       138,054       161,990
Preferred securities not subject
  to mandatory redemption...........        31,759        31,759                       31,759        31,763        31,769
Preferred securities subject to
  mandatory redemption (c)..........       150,000       151,598                      150,000       150,000       150,000
Member's equity (d).................     1,874,787     1,800,416                    1,200,950     1,301,286     1,239,946

</TABLE>


     (a)  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 an after-tax loss
          of $9.4 million for the write-down of nonregulated assets during 1996.
          In 1996,  MHC incurred  $8.7 million of costs in  connection  with its
          merger proposal to IES Industries, Inc.

     (b)  Includes amounts due within one year.

     (c)  Includes MidAmerican Energy-obligated mandatorily redeemable preferred
          securities  of  subsidiary  trust holding  solely  MidAmerican  Energy
          junior subordinated debentures.

     (d)  For MHC the amounts represent common shareholders' equity.


                                      -25-
<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.  The sole  member of  MidAmerican  Funding is  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  Company Inc., 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, MHC and MidAmerican  Funding  distributed their investments 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.

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.


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

                                      -26-
<PAGE>


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
                              ---------------------

     The  following is a discussion  of the  historical  results of  MidAmerican
Funding and its predecessor,  MHC, for the periods presented on the Consolidated
Statements of Income in this Form 10-K. Results for MidAmerican  Funding include
the results of MHC beginning March 12, 1999, in conjunction with the acquisition
of MHC by  MidAmerican  Funding.  The impact of the  acquisition is reflected in
MidAmerican Funding's results of operations,  including  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 periods
presented are not comparable to a similar prior-year period, the emphasis of the
discussions 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 YEAR ENDED
---------------------------------------------------------------
DECEMBER 31, 2000
-----------------

REGULATED GROSS MARGIN

     Regulated Electric Gross Margin -

     MidAmerican  Energy's electric gross margin for the year ended December 31,
2000,  totaled $966 million.  Temperatures  during the period were more moderate
than normal temperature conditions, reducing electric margin by approximately $9
million.  MidAmerican  Energy's  electric  revenues  from the recovery of energy
efficiency  program costs  totaled  $34.8 million for the period.  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.  MidAmerican
Energy also recorded an accrual for a revenue sharing arrangement under its 1997
Iowa pricing plan  settlement.  The accrual reduced revenues and electric margin
by $21.6 million in 2000.

     Regulated Gas Gross Margin -

     MidAmerican  Energy's  regulated gas gross margin  totaled $208 million for
2000.  Temperatures  during the  period  were  milder  than  normal  temperature
conditions,  resulting  in a decrease in gas gross  margin of  approximately  $9
million.  Revenues from recovery of gas energy efficiency  program costs totaled
$11.6 million for the period.  Revenues from energy efficiency cost recovery are
substantially  offset  by  corresponding  costs  in  other  operating  expenses.
MidAmerican  Energy's  regulated gas revenues  include  purchase gas  adjustment
clauses through which  MidAmerican  Energy is allowed to recover the cost of gas
sold from most of its gas utility customers. Consequently,  revenues and cost of
gas sold each  reflect  the  significantly  higher gas  prices in 2000,  with no
effect on gas margin or net income.

                                      -27-

<PAGE>


REGULATED OPERATING EXPENSES

     Other operating  expenses  totaled $414.6 million for 2000. As mentioned in
the gross margin discussions, other operating expenses include energy efficiency
program costs. These costs totaled $39.8 million for the year.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     For the year ended  December 31, 2000,  nonregulated  natural gas marketing
activities  accounted  for $409.7  million  and $405.5  million of  nonregulated
revenues and nonregulated cost of sales, respectively.

     Nonregulated  revenues  include  $17.9  million from  MidAmerican  Energy's
market access service.  Related cost of sales totaled $17.3 million.  The market
access service project,  which began in the third quarter of 1999, allows larger
Iowa  customers 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,  are reflected in
regulated electric revenues.

     Beginning October 1, 1999, some  non-residential  customers in Illinois are
allowed  to  select  their  electric  power   supplier.   MidAmerican   Energy's
nonregulated  revenues  for 2000  include  $3.6 million in agency fees and other
revenues  related to these supply  services.  Related cost of sales totaled $4.3
million.

     MidAmerican  Energy's 2000 nonregulated  revenues also include $3.9 million
of pre-tax income from awards for successful performance under its incentive gas
procurement  program.  Under the program,  which is currently  approved  through
2002, if MidAmerican  Energy's cost of gas varies from an established  reference
price  range,  then  the  savings  or  cost  is  shared  between  customers  and
MidAmerican Energy.

     Nonregulated  revenues  and cost of sales  include  $4.4  million  and $2.6
million, respectively,  from security system operations which were sold in April
2000.  Related other  operating  expenses  totaled $1.7 million,  including $0.1
million of goodwill amortization.

     Nonregulated  other  operating  expenses  include $35.3 million of goodwill
amortization related to the acquisition of MHC.

NON-OPERATING INCOME AND INTEREST EXPENSE

     Interest Income

     Interest  income  includes  $2.9  million of  interest  from a joint  plant
operator for funds held by them and $6.1 million  related to income tax refunds.
Interest income from MidAmerican Energy's note receivable related to the sale of
its accounts  receivable  totaled $4.4 million,  and interest  income from notes
with MidAmerican Energy Holdings totaled $8.9 million. Additionally, MidAmerican
Energy was in a favorable cash position from August to December of 2000.

     Realized Gains and Losses on Securities, Net -

     Net realized  gains and losses on  securities  for the year reflects a $2.0
million  pre-tax gain on the sale of the  remaining  shares of McLeodUSA  common
stock held by MidAmerican  Funding,  which  partially  offset losses on sales of
MidAmerican Funding's preferred stock portfolio.

                                      -28-
<PAGE>

     Other, Net -

     Other,  Net, which includes a number of non-operating  income and deduction
items,  totaled  $10.9  million of income for the year ended  December 31, 2000.
Included  in Other,  Net is a 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  service  for  regulatory
purposes.  Net expense related to MidAmerican Energy's accounts receivables sold
totaled $8.3 million.

     The sale of MidAmerican  Funding's security system operations in April 2000
resulted in a $4.3  million  pre-tax  gain,  and the sale of an office  building
resulted in a $1.0 million pre-tax gain. Additionally,  the sale of railcars and
other  assets  resulted in $1.0  million of pre-tax  gains in 2000.  Income from
corporate-owned  life insurance  policies  totaled $9.4 million,  including $7.5
million related to benefits paid on several policies.

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.

     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.  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.

                                      -29-
<PAGE>

     Temperatures  during the heating months were milder 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.

     Revenues,  cost of  sales  and  other  operating  expenses  related  to the
security  system  operations  sold in April 2000  totaled  $13.8  million,  $9.4
million and $5.4 million,  respectively,  for the period March 12, 1999, through
December 31, 1999.

     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  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 and
$7.0 million of interest on a cash escrow balance for the purchase of MHC.

     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.

                                      -30-
<PAGE>

     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 11, 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.  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 approximately $3 million for the period.

     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.
Depreciation  and  amortization  includes  approximately  $3 million  related to
amortization of regulatory assets for MidAmerican Energy's Illinois operations.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     For the period January 1, 1999 through 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.

                                      -31-

<PAGE>

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.
In addition,  it includes $2 million of expense related to accounts  receivables
sold.

RESULTS OF OPERATIONS OF MHC FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------

UTILITY GROSS MARGIN

     Regulated Electric Gross Margin -

     Electric  gross margin was $944 million for 1998.  Temperatures  during the
year were more moderate than normal  temperature  conditions,  reducing electric
margin by approximately $2 million.  MidAmerican Energy's electric revenues from
the recovery of energy  efficiency  program  costs totaled $44.4 million in 1998
and revenues related to the Cooper Tracker,  which is discussed  below,  totaled
$6.4 million.  Revenues from these factors are substantially  offset by costs in
other operating expenses.

     Electric revenues for 1998 reflect a partial year effect of rate reductions
implemented  during  the year.  In June  1998,  revenues  from Iowa  residential
customers were reduced $5 million annually.  Since July 1997, MidAmerican Energy
has reduced  revenues from its Iowa commercial and industrial  customers a total
of  approximately  $10  million  annually  through  negotiated  contracts  and a
tariffed rate reduction. These reductions were only partially in effect in 1998.
Revenues  from  Illinois  customers  were  reduced  $0.9  million in August 1998
related to Illinois utility industry restructuring.

     Regarding  the  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 that, 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.  Collection of deferred energy
efficiency  costs began  decreasing  in 1999 as various  recovery  periods  were
completed.

     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.

     Regulated Gas Gross Margin -

     Unusually mild  temperatures  during the 1998 heating seasons resulted in a
reduction  in gas margin for 1998.  Temperatures  in 1998 were 15.6% warmer than
normal  temperature  conditions,  reducing gas gross margin by an estimated  $18
million compared to normal.  Approximately $17.5

                                      -32-
<PAGE>

million of  MidAmerican  Energy's  1998 gas  revenues  were from the recovery of
energy  efficiency  program costs.  As stated above,  increases in revenues from
energy  efficiency  cost  recovery  are  substantially  offset by  corresponding
increases in other operating expenses.

REGULATED OPERATING EXPENSES

     Regulated  other  operating  expenses  totaled  $470.3  million  for  1998,
including  $53.0  million  in  energy  efficiency  program  costs.  Refer to the
"Regulated  Electric  Gross  Margin"  section  for  further  comments  on energy
efficiency costs. MidAmerican Energy continued its focus on customer service and
reliability  during 1998.  Further emphasis on customer  service  operations and
marketing-related efforts resulted in additional expense in customer service, IT
consulting,  advertising and other related  expenses.  Maintenance  expenses for
1998 include repair costs totaling $3.8 million for storms in June 1998.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     Revenues  from  nonregulated  natural  gas  marketing  operations  in  1998
accounted  for $139.4  million of  nonregulated  revenues and $134.2  million of
nonregulated cost of sales.

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

     Revenues,  cost of  sales  and  other  operating  expenses  related  to the
security  system  operations  sold in April 2000 totaled  $17.1  million,  $10.6
million and $8.1 million, respectively, in 1998.

     Nonregulated  other  operating  expenses for 1998 include  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.

NON-OPERATING INCOME AND INTEREST EXPENSE

     Dividend Income -

     Dividend  income for 1998 reflects  income from holdings of preferred stock
that MidAmerican Capital has since sold.

     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.

     Other, Net -

     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

                                      -33-
<PAGE>

commercial property.  Additionally,  Other, net for 1998 includes a $2.7 million
gain  on the  sale of  railcars  and  $2.1  million  of  income  from an  equity
investment in a venture capital fund.

     The discount,  net of the subservicer fee, related to MidAmerican  Energy's
accounts receivable sold was a net expense of $7.0 million in 1998. Merger costs
related to MidAmerican Funding's acquisition of MHC totaled $4.2 million.

     Fixed Charges -

     During  1998,   MidAmerican  Energy  reduced  its  long-term  debt  through
maturities  and  refinancing,  which  resulted  in interest  on  long-term  debt
reflecting a partial year's interest on the retired debt.

                                      -34-

<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  operations was $304 million for the
year 2000, and $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 for the year 1998.

     INVESTING ACTIVITIES AND PLANS

     Utility Construction Expenditures -

     MidAmerican  Energy's  primary  need for  capital is  utility  construction
expenditures.  For the  year  ended  December  31,  2000,  utility  construction
expenditures  totaled $216  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  are $223  million for 2001 and $871  million for 2002
through 2005. 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  $41 million during the
period 2001 through 2005 to external  trusts  established  for the investment of
funds for decommissioning Quad Cities Station.  Approximately 60% of the trusts'
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,  during the year 2000, MidAmerican Energy made payments to the
Nebraska Public Power District related to  decommissioning  Cooper,  based on an
assumed  shutdown of Cooper in September  2004.  These payments are reflected in
other  operating  expenses in the  Consolidated  Statements of Income.  Based on
Nebraska  Public  Power  District  decommissioning  cost  estimates  assuming  a
September  2004  shutdown  of  Cooper,  MidAmerican  Energy  expects  to  accrue
approximately  $55  million  for Cooper  decommissioning  during the period 2001
through  2004.  The funds  that have been  provided  to  Nebraska  Public  Power
District,  with the  understanding  that Cooper  will be shut down in  September
2004,  are  invested  predominately  in  U.S.  Treasury  Bonds  and  other  U.S.
Government  securities.  Approximately 30% of the funds are invested in domestic
corporate   debt.   MidAmerican   Energy's   obligation,   if  any,  for  Cooper
decommissioning  will be affected by the actual  plant  shutdown  date.  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

                                      -35-
<PAGE>


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.

     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 $8.3  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.

     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.  MidAmerican  Energy currently has in
place a $370.4 million revolving credit facility which supports its $250 million
commercial  paper  program  and its  variable  rate  pollution  control  revenue
obligations. In addition, MidAmerican Energy has a $5 million line of credit.

     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 Illinois  Commerce  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

                                      -36-
<PAGE>

MidAmerican  Energy.  MidAmerican  Energy  Funding  Corporation  in  turn  sells
receivable  interests  to  outside  investors.  In  consideration  for the sale,
MidAmerican  Energy received cash and a subordinated  note,  bearing interest at
8%, from MidAmerican  Energy Funding  Corporation.  As of December 31, 2000, the
revolving  cash  balance was $70 million  and the amount  outstanding  under the
subordinated  note was $114.9  million.  The  agreement is  structured as a true
sale, under which the creditors of MidAmerican  Energy Funding  Corporation will
be entitled to be  satisfied  out of the assets of  MidAmerican  Energy  Funding
Corporation  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, 2000,
$185.8  million of  accounts  receivable,  net of  reserves,  was sold under the
agreement.

     Other Financing Information -

     As of December 31, 2000, MHC had a $4 million line of credit to provide for
short-term financing needs, all of which was unused.

     As of December 31, 2000, MidAmerican Capital had unsecured revolving credit
facilities  in the amount of $6 million,  under  which no debt was  outstanding.
MidAmerican  Capital has $46.7 million of long-term debt outstanding at December
31, 2000, all of which matures annually through 2002.

     Midwest Capital currently has a $25 million line of credit with MidAmerican
Energy, of which $5 million was outstanding at December 31, 2000.

OPERATING ACTIVITIES AND OTHER MATTERS

     Industry Evolution -

     Legislation to initiate retail  electric  competition was introduced in the
Iowa legislature in the 2000 session,  but it did not pass.  Deregulation of the
gas supply function  related to small volume  customers is also being considered
by the Iowa Utilities Board. MidAmerican Energy has actively participated in the
legislative  and  regulatory  processes.  MidAmerican  Energy cannot predict the
timing or ultimate outcome of any potential electric  restructuring  legislation
or gas restructuring in Iowa.

     The  introduction of competition in the wholesale  market has resulted in a
proliferation of power marketers and a substantial  increase in market activity.
The wholesale  market has also increased in volatility.  As this market matures,
volatility may decline.

     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 requiring the purchase of replacement power at a time of high
market prices could subject MidAmerican Energy to losses on its energy sales.

                                      -37-

<PAGE>


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

     The law also  provides  for  Illinois  earnings  above a computed  level of
return on common equity to be shared equally  between  customers and MidAmerican
Energy.  MidAmerican Energy's computed level of return on common equity is based
on a rolling  two-year average of the 30-year Treasury Bond rates plus a premium
of 5.50%  for 1998 and 1999 and a premium  of 8.5% for 2000  through  2004.  The
two-year  average above which sharing must occur for 2000 was 12.83%.  Using the
same 30-year Treasury Bond average, the computed level of return would be 14.33%
for 2001 through 2004. The law allows MidAmerican Energy to mitigate the sharing
of earnings  above the  threshold  return on common equity  through  accelerated
recovery of regulatory assets.

     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 were 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. On October
16, 2000, MidAmerican Energy filed with the Federal Energy Regulatory Commission
a plan for MidAmerican  Energy to comply with Order No. 2000 by participating in
the  formation of a for profit  independent  transmission  company.  MidAmerican
Energy continues in its effort to form such a company.

     Accounting Effects of Industry Restructuring -

     A possible  consequence  of  deregulation  in the utility  industry is that
Statement  of  Financial  Accounting  Standards  No.  71 (SFAS 71) may no longer
apply.  SFAS 71  sets  forth  accounting  principles  for  operations  that  are
regulated and meet the stated  criteria.  For operations that meet the criteria,
SFAS 71 allows, among other things, the deferral of expense or income that would
otherwise be recognized  when  incurred.  With the  exception of the  generation
operations serving the Illinois jurisdiction,  MidAmerican Energy's electric and
gas utility operations  currently meet the criteria required by SFAS 71, but its
applicability is periodically reexamined.  If 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, 2000,  MidAmerican Energy had $231.1 million of
regulatory assets, net of regulatory  liabilities,  on its Consolidated  Balance
Sheet.

     Energy Efficiency -

     MidAmerican  Energy's  regulatory assets as of December 31, 2000,  included
$22.8 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.  These costs are being  collected from customers based
on  projected  annual  expenditures  of $16.4  million,  which  may be  adjusted
annually.  Amortization  of the

                                      -38-
<PAGE>

deferred energy efficiency costs and current  expenditures for energy efficiency
costs will be reflected in other operating  expenses over the related periods of
recovery.

     Rate Matters: Electric -

     Under a 1997  pricing  plan  settlement  agreement  resulting  from an Iowa
Utilities Board rate proceeding,  electric prices for MidAmerican  Energy's Iowa
industrial and commercial  customers were reduced  through a retail access pilot
project,  negotiated individual electric contracts and a tariffed rate reduction
for some non-contract commercial customers.

     The negotiated  electric  contracts have differing  terms and conditions as
well as prices. The vast majority of the contracts expire during the period 2003
through 2005,  although some large  customers have contracts  extending to 2008.
Some of the contracts have price renegotiation and early termination  provisions
exercisable  by either  party.  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.

     Under the 1997 pricing plan settlement  agreement,  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.  During 2000,  MidAmerican
Energy credited $14.8 million to its Iowa non-contract  customers related to the
return  calculation  for 1999,  which was approved by the Iowa Utilities  Board,
subject to additional refund. In 2000,  MidAmerican Energy accrued $21.6 million
for customer  credits  relating to 2000  operations.  This Iowa electric  retail
revenue  sharing  plan  remained  in effect  through  the year  2000.  The rates
established by the pricing plan settlement agreement will remain in effect until
either the plan is  renegotiated  or a change in rates is  approved  by the Iowa
Utilities Board pursuant to a rate proceeding.

     The pricing plan  settlement  agreement also precluded  MidAmerican  Energy
from filing for increased rates prior to January 1, 2001, unless the return fell
below 9%. Other parties  signing the agreement were  prohibited  from filing for
reduced  rates  prior to 2001  unless the return,  after  reflecting  credits to
customers,  exceeded 14%. 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.

     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, 2000, was $24 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

                                      -39-
<PAGE>


further discussion of MidAmerican Energy's  environmental  activities related to
manufactured gas plant sites and cost recovery.

     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. 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.  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 could incur increased costs and a decrease in revenues. Refer
to Note  (4)(c)  of Notes  to  Consolidated  Financial  Statements  for  further
discussion of this issue.

     Generating Capability -

     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 MAPP  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 2000 cooling season and was not adversely affected by the
seasonal high prices in the off-system market.

     MidAmerican  Energy  believes it has  adequate  electric  capacity  reserve
through at least 2004 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
MAPP.

     Sale of Security System Companies -

     In  April  2000,  MidAmerican  Capital  sold  all of its  interests  in its
security  systems  subsidiaries.  The sale  included  AAA  Security,  one of the
largest  residential and commercial  security systems  companies in the Midwest.
Revenues and net income in the quarter  ended March 31,  2000,  for the security
operations sold were $4.4 million and less than $0.1 million, respectively.

                                     -40-

<PAGE>

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 amended by SFAS 138. SFAS 133/138  requires an entity to
recognize  all of  its  derivatives  as  either  assets  or  liabilities  in its
statement of financial  position and measure  those  instruments  at fair value.
MidAmerican  Funding  implemented  the new  standards  on January  1, 2001.  The
initial  adoption of SFAS133/138  did not have a material  impact on MidAmerican
Funding's  financial  position,  results of operations or any impact on its cash
flows. Refer to Note (1)(i)(4) of Notes to Financial Consolidated Statements for
further discussion.

     The FASB's  Derivatives  Implementation  Group  continues  to identify  and
provide guidance on various  implementation  issues related to SFAS 133/138 that
are in varying stages of review and clearance by the  Derivative  Implementation
Group and FASB.  MidAmerican  Funding  believes that the ultimate  resolution of
those issues would not have a material impact on its financial statements.

                                      -41-

<PAGE>


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,  wholesale  electricity  activities,
financing  activities and preferred  stock investing  operations.  Refer to Note
(1)(i) in Notes to Consolidated  Financial  Statements for further discussion of
the accounting for derivative instruments.

     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
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 uses  natural gas  derivative  instruments  for trading
purposes under strict value at risk guidelines outlined by senior management. In
accordance  with the FASB's  Emerging Issues Task Force Abstract No. 98-10 (EITF
98-10),  derivative  instruments  held for trading purposes are recorded at fair
value and any  unrealized  gains or losses are reported in earnings.  EITF 98-10
has not had a  material  effect on  MidAmerican  Funding's  financial  position,
results of operations or cash flows.

     MidAmerican Energy uses electricity  forward contracts to hedge anticipated
sales of wholesale electric power.  Electric forward contracts are not reflected
in the financial statements until they are settled.

                                      -42-

<PAGE>


     MidAmerican Energy had the following financial  derivative  instruments for
its natural gas and electric operations as of December 31:

Derivative instruments used for other than trading purposes-
------------------------------------------------------------

                                                   2000              1999
                                             ----------------   ----------------

Natural Gas Futures Contracts - NYMEX:
     Net Contract Volumes- Long (Short)       1,460,000 MMBtu    (500,000) MMBtu
     Unrealized Gain (Loss), in thousands        $7,554             $(410)

Natural Gas Swap Contracts:
     Contract Volumes                        24,106,980 MMBtu   85,520,442 MMBtu
     Unrealized Gain (Loss), in thousands        $8,055            $(1,576)

Natural Gas Options:
     Contract Volumes - Long                  1,790,280 MMBtu            -
     Unrealized Gain, in thousands                 $953                  -

Electric Forward Contracts:
     Contract Volumes - (Short)                (139,200) MWh             -
     Unrealized (Loss), in thousands            $(4,731)                 -

     A $1.00 increase in underlying natural gas prices would increase unrealized
gains on the futures  contracts held at December 31, 2000 by approximately  $1.5
million  and would  increase  unrealized  gains on the above swap  contracts  by
approximately  $2.3 million.  A $5.00 increase in underlying  electricity prices
would increase  unrealized  losses on the forward contracts held at December 31,
2000 by approximately $0.7 million.

Derivative instruments used for trading purposes -
--------------------------------------------------

                                                 2000             1999
                                            --------------     ----------

Natural Gas Futures Contracts - NYMEX:
     Net Contract Volumes- (Short)          (20,000) MMBtu            -
     Unrealized (Loss), in thousands           $(79)                  -

Natural Gas Swap Contracts:
     Contract Volumes                       (10,000) MMBtu            -
     Unrealized (Loss), in thousands          $(261)                  -

     A change in  underlying  natural  gas prices  would not  materially  affect
unrealized losses on the above future and swap contracts.

                                      -43-

<PAGE>


     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
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.

     The  following  table  demonstrates  the  impact of varying  interest  rate
changes to the market value at December 31, 2000 (amounts in thousands):

<TABLE>
<CAPTION>

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

<S>                           <C>                  <C>                <C>               <C>
Interest Rate Change:
  200 basis pt decrease       $49.2                $  -               $49.2             $ 5.5
  100 basis pt decrease        46.5                   -                46.5               2.8
  Current interest rates       43.4                 0.3                43.7                 -
  100 basis pt increase        40.3                 3.3                43.6              (0.1)
  200 basis pt increase        37.2                 6.7                43.9               0.2
</TABLE>

     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, 2000 and 1999,  respectively,  are set forth
in the following table (dollars in thousands):

                         2000                       1999
              -------------------------    -------------------------
              Contracts   Notional Amt.    Contracts   Notional Amt.
              ---------   -------------    ---------   -------------

Put Options      296         $30,969          500         $45,469

     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.

     At December 31, 2000, MidAmerican Funding had fixed-rate long-term debt and
mandatorily   redeemable   preferred  securities  and  preferred  securities  of
subsidiary  trust totaling  $1,698 million with a fair value of $1,658  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 $48 million
if  interest  rates were to increase  by 10% from their  levels at December  31,
2000. 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,  2000,  MidAmerican  Funding had  long-term  floating  rate
obligations  totaling  $120 million and  short-term  floating  rate  obligations
totaling  $82 million  which  expose  MidAmerican  Funding to risk of  increased
interest  expense in the event of increases in short-term  interest rates.  This

                                      -44-

<PAGE>

market risk is not hedged.  The carrying  value of the long-term and  short-term
floating rate obligations at December 31, 2000  approximated  fair value. If the
floating  interest  rates were to increase by 10% from December 31, 2000 levels,
MidAmerican  Funding's  interest expense for the floating rate obligations would
increase by  approximately  $1.1  million  annually  based on December  31, 2000
principal balances.

     MidAmerican   Energy   has   entered   into  a   two-year,   $162   million
fixed-to-floating  interest  rate swap  agreement in  conjunction  with its $162
million,  7.375% series of  medium-term  notes due August 1, 2002.  The floating
rate of the swap is based on a three-month  LIBOR rate. As of December 31, 2000,
the market value of this swap was $6.5 million.

                                      -45-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                  MIDAMERICAN FUNDING            MHC (PREDECESSOR)
                                               ---------------------------   --------------------------
                                                  YEAR      MARCH 12, 1999   JAN. 1, 1999      YEAR
                                                  ENDED         THROUGH        THROUGH         ENDED
                                               DECEMBER 31,   DECEMBER 31,    MARCH 11,     DECEMBER 31,
                                                  2000           1999           1999           1998
                                               -----------    -----------    -----------    -----------
<S>                                            <C>            <C>            <C>            <C>
OPERATING REVENUES
Regulated electric .........................   $ 1,212,411    $   969,739    $   208,963    $ 1,169,810
Regulated gas ..............................       656,560        315,238        139,564        429,870
Nonregulated ...............................       461,695        148,069         34,539        176,244
                                               -----------    -----------    -----------    -----------
                                                 2,330,666      1,433,046        383,066      1,775,924
                                               -----------    -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity ........       245,926        179,915         40,232        225,736
  Cost of gas sold .........................       448,400        179,048         79,910        243,451
  Other operating expenses .................       414,643        348,440         93,940        470,328
  Maintenance ..............................       127,077         97,787         18,302        110,387
  Depreciation and amortization ............       193,092        151,130         39,417        182,211
  Property and other taxes .................        74,778         61,259         15,758         87,276
                                               -----------    -----------    -----------    -----------
                                                 1,503,916      1,017,579        287,559      1,319,389
                                               -----------    -----------    -----------    -----------
Nonregulated:
  Cost of sales ............................       431,934        131,093         30,188        144,417
  Other ....................................        67,256         57,241          6,421         40,706
                                               -----------    -----------    -----------    -----------
                                                   499,190        188,334         36,609        185,123
                                               -----------    -----------    -----------    -----------
  Total operating expenses .................     2,003,106      1,205,913        324,168      1,504,512
                                               -----------    -----------    -----------    -----------

OPERATING INCOME ...........................       327,560        227,133         58,898        271,412
                                               -----------    -----------    -----------    -----------
NON-OPERATING INCOME
Interest income ............................        25,767         18,034          1,411          9,262
Dividend income ............................         3,848          4,255          1,331         10,251
Realized gains and losses on securities, net        (3,958)        77,983         15,214         11,204
Other, net .................................        10,899          2,325        (18,133)         5,096
                                               -----------    -----------    -----------    -----------
                                                    36,556        102,597           (177)        35,813
                                               -----------    -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt .................       110,033         93,533         14,814         80,908
Other interest expense .....................        10,244          7,536          3,145         12,682
Preferred dividends of subsidiaries ........        12,935          9,561          2,831         12,932
Allowance for borrowed funds ...............        (1,273)        (1,022)          (235)        (3,377)
                                               -----------    -----------    -----------    -----------
                                                   131,939        109,608         20,555        103,145
                                               -----------    -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES ......................       232,177        220,122         38,166        204,080
INCOME TAXES ...............................       105,393         96,045         21,377         76,926
                                               -----------    -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS ..........       126,784        124,077         16,789        127,154
INCOME FROM DISCONTINUED OPERATIONS ........            --         11,258            421          4,164
                                               -----------    -----------    -----------    -----------
NET INCOME .................................   $   126,784    $   135,335    $    17,210    $   131,318
                                               ===========    ===========    ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -46-
<PAGE>
                            MIDAMERICAN FUNDING, LLC
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                   MIDAMERICAN FUNDING            MHC (PREDECESSOR)
                                                              ----------------------------   ---------------------------
                                                                 YEAR       MARCH 12, 1999   JAN. 1, 1999      YEAR
                                                                 ENDED         THROUGH         THROUGH         ENDED
                                                              DECEMBER 31,   DECEMBER 31,      MARCH 11,    DECEMBER 31,
                                                                  2000          1999             1999           1998
                                                              ------------   ------------     ---------      ---------

<S>                                                             <C>            <C>            <C>            <C>
NET INCOME ................................................     $ 126,784      $ 135,335      $  17,210      $ 131,318
                                                                ---------      ---------      ---------      ---------
OTHER COMPREHENSIVE INCOME, BEFORE TAX
Unrealized gains (losses) on available-for-sale securities:
  Unrealized holding gains (losses) during period .........         3,870         77,942         79,236        (14,743)
  Less reclassification adjustment for realized gains
    (losses) reflected in net income during period ........        (3,958)        77,983         15,214         11,204
                                                                ---------      ---------      ---------      ---------
                                                                    7,828            (41)        64,022        (25,947)
Minimum pension liability adjustment ......................        (4,087)            --             --             --
                                                                ---------      ---------      ---------      ---------
                                                                    3,741            (41)        64,022        (25,947)
INCOME TAX EXPENSE (BENEFIT) ..............................         1,041            (14)        22,408         (9,002)
                                                                ---------      ---------      ---------      ---------
OTHER COMPREHENSIVE INCOME (LOSS), NET ....................         2,700            (27)        41,614        (16,945)
                                                                ---------      ---------      ---------      ---------

COMPREHENSIVE INCOME ......................................     $ 129,484      $ 135,308      $  58,824      $ 114,373
                                                                =========      =========      =========      =========
</TABLE>










        The accompanying notes are an integral part of these statements.

                                      -47-

<PAGE>


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

                                                                                   AS OF DECEMBER 31,
                                                                                   2000          1999
                                                                                ----------    ----------
<S>                                                                             <C>           <C>
ASSETS
UTILITY PLANT
Electric ...................................................................    $4,471,839    $4,209,281
Gas ........................................................................       831,203       809,112
                                                                                ----------    ----------
                                                                                 5,303,042     5,018,393
Less accumulated depreciation and amortization .............................     2,680,420     2,546,516
                                                                                ----------    ----------
                                                                                 2,622,622     2,471,877
Construction work in progress ..............................................        38,584        33,739
                                                                                ----------    ----------
                                                                                 2,661,206     2,505,616
                                                                                ----------    ----------
POWER PURCHASE CONTRACT ....................................................        82,231            --
                                                                                ----------    ----------
CURRENT ASSETS
Cash and cash equivalents ..................................................        10,018         6,235
Receivables, less reserves of $300 and $469, respectively ..................       527,078       215,361
Inventories ................................................................        69,130        82,823
Prepaid taxes ..............................................................        22,889        22,889
Other ......................................................................        14,218        12,301
                                                                                ----------    ----------
                                                                                   643,333       339,609
                                                                                ----------    ----------
INVESTMENTS AND NONREGULATED PROPERTY, NET .................................       502,167       519,201
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, NET .....................     1,313,558     1,482,992
OTHER ASSETS ...............................................................       290,226       364,969
                                                                                ----------    ----------
TOTAL ASSETS ...............................................................    $5,492,721    $5,212,387
                                                                                ==========    ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Member's equity ............................................................    $1,874,787    $1,800,416
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 .......       100,000       101,598
Long-term debt (excluding current portion) .................................     1,345,703     1,508,394
                                                                                ----------    ----------
                                                                                 3,402,249     3,492,167
                                                                                ----------    ----------
CURRENT LIABILITIES
Notes payable ..............................................................        81,600       204,000
Current portion of long-term debt ..........................................       324,933       134,082
Current portion of power purchase contract .................................        16,554        15,767
Accounts payable ...........................................................       405,887       165,915
Taxes accrued ..............................................................       131,378       110,592
Interest accrued ...........................................................        27,955        29,555
Other ......................................................................        37,853        32,589
                                                                                ----------    ----------
                                                                                 1,026,160       692,500
                                                                                ----------    ----------
OTHER LIABILITIES
Power purchase contract ....................................................        35,728        52,282
Deferred income taxes ......................................................       591,667       520,088
Investment tax credit ......................................................        66,209        71,757
Other ......................................................................       370,708       383,593
                                                                                ----------    ----------
                                                                                 1,064,312     1,027,720
                                                                                ----------    ----------
TOTAL CAPITALIZATION AND LIABILITIES .......................................    $5,492,721    $5,212,387
                                                                                ==========    ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -48-
<PAGE>


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

                                                                    MIDAMERICAN FUNDING              MHC (PREDECESSOR)
                                                               ----------------------------    ----------------------------
                                                                  YEAR       MARCH 12, 1999    JAN. 1, 1999      YEAR
                                                                  ENDED          THROUGH         THROUGH         ENDED
                                                               DECEMBER 31,    DECEMBER 31,     MARCH 11,      DECEMBER 31,
                                                                  2000            1999            1999            1998
                                                               -----------     -----------     ------------    -----------

<S>                                                            <C>             <C>             <C>             <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................    $   126,784     $   135,335     $    17,210     $   131,318
Adjustments to reconcile net income to net cash provided:
  (Income)/loss from discontinued operations ..............             --         (11,258)           (421)         (4,164)
  Depreciation and amortization ...........................        230,140         181,763          39,865         200,920
  Deferred income taxes and investment tax credit, net ....        (18,547)       (114,775)         (2,327)        (24,800)
  Amortization of other assets and liabilities ............         19,595          29,272          12,035          40,264
  Gain on sale of securities, assets and other investments          (2,124)        (78,906)        (15,478)        (24,629)
  Cash inflows (outflows) of accounts receivable
    securitization ........................................         12,877         (12,877)         10,000         (10,000)
  Impact of changes in working capital, net of effects from
    discontinued operations ...............................        (58,199)        (25,637)         38,190          42,046
  Other ...................................................         (6,927)         18,078           4,878         (18,572)
                                                               -----------     -----------     -----------     -----------
    Net cash provided by continuing operations ............        303,599         120,995         103,952         332,383
    Net cash provided by (used in) discontinued operations              --          28,967            (429)          6,754
                                                               -----------     -----------     -----------     -----------
    Net cash provided by operating activities .............        303,599         149,962         103,523         339,137
                                                               -----------     -----------     -----------     -----------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures .........................       (215,727)       (186,651)        (16,924)       (193,354)
Quad Cities Nuclear Power Station decommissioning
  trust fund ..............................................         (8,302)         (8,181)         (2,189)        (11,409)
Nonregulated capital expenditures .........................         (3,229)        (16,295)         (6,058)        (34,219)
Purchase of assets and long-term investments ..............         (6,345)         (3,722)           (140)        (11,247)
Purchase of securities
  Available for sale ......................................        (52,937)        (92,516)        (30,575)       (197,538)
  Held to maturity ........................................             --              --              --            (361)
Proceeds from sale of securities
  Available for sale ......................................         81,840         498,484          91,110         268,138
  Held to maturity ........................................             --              --           2,984           3,896
Proceeds from sale of assets and other investments ........         24,041           1,964           1,097          38,162
Notes receivable from affiliate ...........................         24,477        (122,565)             --              --
Purchase of MHC, net of cash received .....................             --      (2,429,532)             --              --
Investments in discontinued operations ....................             --          (7,751)             --         (37,990)
Other investing activities, net ...........................          6,067           9,649          (8,128)         (3,618)
                                                               -----------     -----------     -----------     -----------
  Net cash provided by (used in) continuing operations ....       (150,115)     (2,357,116)         31,177        (179,540)
  Net cash used in discontinued operations ................             --         (35,079)         (1,056)        (29,757)
                                                               -----------     -----------     -----------     -----------
  Net cash provided by (used in) investing activities .....       (150,115)     (2,392,195)         30,121        (209,297)
                                                               -----------     -----------     -----------     -----------
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      -49-

<PAGE>


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

                                                                    MIDAMERICAN FUNDING              MHC (PREDECESSOR)
                                                               -----------------------------   ----------------------------
                                                                  YEAR        MARCH 12, 1999   JAN. 1, 1999       YEAR
                                                                  ENDED          THROUGH         THROUGH          ENDED
                                                               DECEMBER 31,    DECEMBER 31,      MARCH 11,     DECEMBER 31,
                                                                   2000            1999            1999            1998
                                                               ------------    ------------    -------------   ------------

<S>                                                            <C>             <C>             <C>             <C>
NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid .....................................    $   (54,000)    $        --     $   (30,359)    $  (113,144)
Issuance of long-term debt, net of issuance costs
  and rate swap............................................        160,992         706,525              --         158,414
Retirement of long-term debt, including reacquisition cost        (134,293)       (105,868)           (127)       (302,477)
Reacquisition of common and preferred shares ..............             --              --         (50,629)       (101,769)
Equity contribution from parent ...........................             --       1,727,651              --              --
Increase in MidAmerican Capital Company
   unsecured revolving credit facility ....................             --              --              --          51,000
Repayment of MidAmerican Capital Company unsecured
  revolving credit facility ...............................             --              --         (34,600)        (16,400)
Net increase (decrease) in notes payable ..................       (122,400)        (85,952)        (15,274)        167,172
                                                               -----------     -----------     -----------     -----------
  Net cash provided by (used in) continuing operations ....       (149,701)      2,242,356        (130,989)       (157,204)
  Net cash provided by discontinued operations ............             --          12,661           1,719          17,014
                                                               -----------     -----------     -----------     -----------
  Net cash provided by (used in) financing activities .....       (149,701)      2,255,017        (129,270)       (140,190)
                                                               -----------     -----------     -----------     -----------

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

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......          3,783           6,235           4,140          (4,361)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..........          6,235              --           6,107          10,468
                                                               -----------     -----------     -----------     -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................    $    10,018     $     6,235     $    10,247     $     6,107
                                                               ===========     ===========     ===========     ===========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .................    $   116,747     $    84,753     $    15,458     $    90,801
                                                               ===========     ===========     ===========     ===========
Income taxes paid .........................................    $   117,593     $   203,192     $     8,401     $   100,917
                                                               ===========     ===========     ===========     ===========

</TABLE>


        The accompanying notes are an integral part of these statements.

                                      -50-

<PAGE>


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

                                                                                    AS OF DECEMBER 31,
                                                                      -----------------------------------------------
                                                                                2000                          1999
                                                                      ---------------------     ---------------------
<S>                                                                   <C>             <C>       <C>             <C>
MEMBER'S EQUITY
Paid in capital ..................................................    $ 1,669,753               $ 1,670,866
Retained earnings ................................................        202,361                   129,577
Accumulated other comprehensive income (loss), net ...............          2,673                       (27)
                                                                      -----------               -----------
                                                                        1,874,787     55.1%       1,800,416     51.6%
                                                                      -----------     ----      -----------     ----
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      0.9%
                                                                      -----------     ----         --------     ----
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      1.5%          50,000      1.4%
                                                                      -----------     ----          -------     ----
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 ...............................        100,000      2.9%         101,598      2.9%
                                                                      -----------     ----         --------     ----

LONG-TERM DEBT
MidAmerican Energy mortgage bonds:
  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 ....................          5,760                     7,200
  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
  Variable rate series -
    Due 2016 and 2017, 4.56% and 3.95%, respectively .............         37,600                    37,600
    Due 2023 (secured by general mortgage bonds,
      4.56% and 3.95%, respectively) .............................         28,295                    28,295
    Due 2023, 4.56% and 3.95%, respectively ......................          6,850                     6,850
    Due 2024, 4.56% and 3.95%, respectively ......................         34,900                    34,900
    Due 2025, 4.56% and 3.95%, respectively ......................         12,750                    12,750

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -51-
<PAGE>


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

                                                                                    AS OF DECEMBER 31,
                                                                      ----------------------------------------------
                                                                              2000                       1999
                                                                      ---------------------      -------------------

<S>                                                                   <C>            <C>         <C>           <C>
LONG-TERM DEBT (CONTINUED)
MidAmerican Energy notes:
  8.75% Series, due 2002 .........................................    $       240                $       240
  7.375% Series, due 2002 ........................................        162,000                         --
  6.5% Series, due 2001 ..........................................             --                    100,000
  6.375% Series, due 2006 ........................................        160,000                    160,000
Obligation under capital lease ...................................          1,538                      1,698
Unamortized debt premium and discount, net .......................         (1,451)                    (1,495)
                                                                      -----------                -----------
  Total utility ..................................................        820,082     24.1%          759,638    21.8%
                                                                      -----------    -----       -----------   -----

Nonregulated subsidiaries notes:
  8.52% Series, due 2000 through 2002 ............................         23,334      0.7%           46,667     1.3%
                                                                      -----------    -----       -----------    ----

MidAmerican Funding parent debt:
  5.85% Senior Secured Notes due 2001 ............................             --                    200,000
  6.339% Senior Secured Notes Due 2009 ...........................        175,000                    175,000
  6.927% Senior Secured Notes Due 2029 ...........................        325,000                    325,000
  Other ..........................................................          2,287                      2,089
                                                                      -----------                 ----------
    Total MidAmerican Funding Parent .............................        502,287     14.8%          702,089    20.1%
                                                                      -----------    -----       -----------   -----
                                                                        1,345,703     39.6%        1,508,394    43.2%
                                                                      -----------    -----       -----------   -----

TOTAL CAPITALIZATION .............................................    $ 3,402,249    100.0%      $ 3,492,167   100.0%
                                                                      ===========    =====       ===========   =====

</TABLE>

                            MIDAMERICAN FUNDING, LLC
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>

                                               MIDAMERICAN FUNDING             MHC (PREDECESSOR)
                                          -----------------------------  ----------------------------
                                             YEAR        MARCH 12, 1999  JAN. 1, 1999       YEAR
                                             ENDED          THROUGH        THROUGH          ENDED
                                          DECEMBER 31,    DECEMBER 31,    MARCH 11,      DECEMBER 31,
                                             2000            1999            1999            1998
                                          -----------     -----------     -----------    -------------

<S>                                         <C>             <C>             <C>             <C>
BEGINNING OF PERIOD ................        $129,577        $     --        $355,000        $409,296
                                            --------        --------        --------        --------

NET INCOME .........................         126,784         135,335          17,210         131,318
                                            --------        --------        --------        --------

DEDUCT:
Repurchase of common shares ........              --              --          33,134          72,470
Dividends declared on common shares           54,000              --          30,359         113,144
Distribution of subsidiary to parent              --           5,758              --              --
                                            --------        --------        --------        --------
                                              54,000           5,758          63,493         185,614
                                            --------        --------        --------        --------

END OF PERIOD ......................        $202,361        $129,577        $308,717        $355,000
                                            ========        ========        ========        ========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -52-
<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  with
MidAmerican  Energy Holdings Company as its sole member.  MidAmerican  Funding's
direct  wholly  owned  subsidiary  is MHC  Inc.  MHC,  MidAmerican  Funding  and
MidAmerican   Energy  Holdings  are  exempt  public  utility  holding  companies
headquartered  in Des Moines,  Iowa.  MHC's principal  subsidiary is MidAmerican
Energy Company, a public utility with electric and natural gas operations. Other
direct wholly owned subsidiaries of MHC are 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,  was reincorporated as an Iowa
corporation and changed its name to MidAmerican Energy Holdings Company.

     (B) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

     The accompanying  Consolidated  Financial  Statements  include  MidAmerican
Funding and its direct wholly owned  subsidiary.  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 2000 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 8).
All significant intercompany transactions have been eliminated.

     (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.

     A possible  consequence  of  deregulation  in the utility  industry is that
Statement  of  Financial  Accounting  Standards  No.  71 (SFAS 71) may no longer
apply.  SFAS 71  sets  forth  accounting  principles  for  operations  that  are
regulated and meet the stated  criteria.  For operations that meet the criteria,
SFAS 71 allows, among other things, the deferral of expense or income that would
otherwise be recognized  when  incurred.  With the  exception of the  generation
operations serving the Illinois jurisdiction,  MidAmerican Energy's electric and
gas  utility  operations  currently  meet  the  criteria  of  SFAS  71,  but its
applicability is periodically reexamined.  If 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,  and the regulatory  liability represents future income to
offset specified expenses to be incurred.

                                      -53-
<PAGE>

<TABLE>
<CAPTION>

                                              Weighted Average
                                               Future Recovery     As of December 31,
                                                   Period          2000        1999
                                              ----------------   --------   ----------
                                                                     (In thousands)
     Regulatory Assets
     -----------------
     <S>                                         <C>             <C>         <C>
     Deferred income taxes, net............      13 years        $143,287    $140,658
     Energy efficiency costs...............       1 year           22,846      46,514
     Debt refinancing costs................       5 years          29,416      34,650
     Nuclear generation assets.............       5 years          14,675      19,581
     Environmental costs...................      10 years          24,001      27,837
     Enrichment facilities decommissioning.       5 years           1,930       6,953
     Unamortized costs of retired plant....             -               -       1,303
     Other.................................       Various           4,779       1,261
                                                                 --------    --------
          Total............................                      $240,934    $278,757
                                                                 ========    ========

     Regulatory Liability
     --------------------
     Environmental insurance recovery......       3 years        $  9,787    $      -
                                                                 ========    ========
</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
$191.8  million and $93.4  million at December 31, 2000 and 1999,  respectively,
and are included in Receivables on the Consolidated Balance Sheets.

     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.

                                      -54-

<PAGE>


     (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:

                          2000           1999                1998
                          ----           ----                ----

     Electric........     4.0%           4.0%                3.9%
     Gas    .........     3.5%           3.5%                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):

                                                 2000        1999
                                               --------    --------

     Nuclear decommissioning trust fund.       $153,100    $141,646
     Notes with parent..................         98,088     122,565
     Corporate-owned life insurance.....         80,736      64,836
     Marketable securities..............         49,127      84,652
     Equipment leases...................         48,189      48,834
     Special-purpose funds..............         23,904      10,589
     Coal transportation property.......         10,956      11,792
     Energy projects....................          8,747       7,760
     Communications.....................          7,431       7,431
     Real estate........................          6,477       7,438
     Security...........................              -         722
     Other..............................         15,412      10,936
                                               --------    --------
          Total.........................       $502,167    $519,201
                                               ========    ========

     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.

                                      -55-
<PAGE>


     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,  2000,  are  comprised  of the  unsecured
outstanding  balances  of a note  between a  subsidiary  of MHC and  MidAmerican
Energy Holdings carrying interest of 5.75% annually and a $100 million revolving
credit arrangement between MHC and MidAmerican Energy Holdings 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, 2000, 30.9% 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  and  other  related
investments.

     (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.

                                      -56-

<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)
                                  -----------------------------   ---------------------------
                                     Year        March 12, 1999   Jan. 1, 1999      Year
                                     Ended         through          through        Ended
                                  December 31,     December 31,    March 11,     December 31,
                                     2000            1999            1999            1998
                                  ------------   --------------   ------------   ------------

     <S>                            <C>             <C>             <C>             <C>
     Receivables...............     $(324,594)      $(35,976)       $  5,310        $ 35,654
     Inventories...............        13,693        (11,753)         23,701          (8,680)
     Prepaid taxes.............             -              -               -         (22,889)
     Other current assets......        (1,917)          (158)          5,398             911
     Accounts payable..........       239,972         24,560         (25,994)         21,493
     Taxes accrued.............        20,786          7,956          10,410          14,703
     Interest accrued..........        (1,600)        13,098             923          (6,821)
     Other current liabilities.        (4,539)       (23,364)         18,442           7,675
                                    ---------       --------        --------        --------
          Total................     $ (58,199)      $(25,637)       $ 38,190        $ 42,046
                                    =========       ========        ========        ========
</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.  A  like amount representing MidAmerican Energy's right to purchase
power is shown as an asset.

     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.  For  jurisdictions  other than  Iowa,  MidAmerican  Energy  began
charging  Cooper  capital  improvement  costs to expense 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  to reduce  interest  rate risk on preferred  stocks.
MidAmerican  Funding's  intent is to  substantially  offset any change in market
value of the fixed rate 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.

                                      -57-
<PAGE>

Aggregate  premiums paid for options  outstanding  at December 31, 2000 and 1999
were $1.1 million and $1.8 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, 2000 and 1999, was $0.3 million and
$2.6  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, 2000 and 1999,  put options  were  outstanding
with a notional value of $31.0 million and $45.5 million, respectively.

          2) Gas Futures Contracts and Swaps and Electric Forward Contracts:

     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
regulated  customers,  to hedge the impact of changing  prices on margins earned
from nonregulated gas sales and to take trading positions at levels permitted by
its risk management policy.  Investments in natural gas futures contracts, which
total  $4.8  million  and  $0.6  million  as of  December  31,  2000  and  1999,
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
gains/(losses)  related to MidAmerican  Energy's gas futures  contracts are $7.6
million and $(0.4) million as of December 31, 2000 and 1999, respectively.

     MidAmerican  Energy uses  natural gas  derivative  instruments  for trading
purposes under strict value at risk guidelines outlined by senior management. In
accordance  with the FASB's  Emerging  Issues  Task  Force  Abstract  No.  98-10
(EITF 98-10), derivative  instruments  held for trading purposes are recorded at
fair value and any  unrealized  gains or losses are reported in  earnings.  EITF
98-10 has not had a material effect on MidAmerican Funding's financial position,
results of operations or cash flows.

     MidAmerican   Energy  also  uses  electric   forward   contracts  to  hedge
anticipated  future sales of  electricity.  Realized gains or losses on electric
derivative  products  are  included in Cost of Fuel,  Energy and Capacity on the
Consolidated   Statements  of  Income.   Unrecognized   net  losses  related  to
MidAmerican  Energy's  electric  derivatives  total $4.7  million and zero as of
December 31, 2000 and 1999, respectively.

     MidAmerican Energy periodically  evaluates the effectiveness of its natural
gas and electricity  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. MidAmerican Energy also uses derivative
instruments for trading  purposes.  The following  derivative  instruments  were
outstanding at December 31:

                                      -58-
<PAGE>

<TABLE>
<CAPTION>
                                                         2000                              1999
                                               -------------------------------  ---------------------------
                                                               Weighted                         Weighted
                                                                Average                         Average
                                     Unit of    Notional         Market          Notional        Market
                                     Measure     Volume      Value Per Unit       Volume      Value Per Unit
                                     -------   -----------   --------------     ----------   --------------

    <S>                                        <C>             <C>              <C>            <C>
  Hedging instruments:
    Natural Gas Futures - Long.......  MMBtu    1,630,000      $   9.46          2,700,000     $  2.34
    Natural Gas Futures - (Short) ...  MMBtu     (170,000)     $  (9.78)        (3,250,000)    $ (2.34)
    Natural Gas Swaps................  MMBtu   24,106,980      $   0.33         85,520,442     $ (0.02)
    Natural Gas Options - Long ......  MMBtu    1,790,280      $   0.53                  -         -
    Electric Forwards - (Short) .....  MWh       (139,200)     $ (33.99)                 -         -
  Trading instruments:
    Natural Gas Futures-NYMEX (Short)  MMBtu      (20,000)     $ (15.92)                 -         -
    Natural Gas Swaps................  MMBtu      (10,000)     $ (26.14)                 -         -
</TABLE>

          3) Interest Rate Swap:

     MidAmerican   Energy   has   entered   into  a   two-year,   $162   million
fixed-to-floating  interest  rate swap  agreement in  conjunction  with its $162
million,  7.375% series of  medium-term  notes due August 1, 2002.  The floating
rate of the swap is based on a three-month  LIBOR rate. As of December 31, 2000,
the market value of this swap was $6.5 million.

          4) New Accounting Pronouncement:

     On January 1, 2001,  MidAmerican Funding  adopted  Statement  of  Financial
Accounting  Standards  Nos.  133  and  138  (SFAS  133/138)  pertaining  to  the
accounting  for  derivative  instruments  and hedging  activities.  SFAS 133/138
requires  an entity to  recognize  all of its  derivatives  as either  assets or
liabilities in its statement of financial position and measure those instruments
at fair value.  If the  conditions  specified  in SFAS  133/138  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. At January 1, 2001,  MidAmerican  Energy
recognized  $21.8  million  and  $4.9  million  of  energy-related   assets  and
liabilities, respectively, as being subject to fair value accounting pursuant to
SFAS 133/138, all of which are accounted for as hedges. Additionally, on January
1, 2001,  MidAmerican  Funding's  portfolio of preferred  stock  investments was
re-characterized  as "trading"  securities,  as  permitted by SFAS 133.  Initial
adoption  of SFAS  133/138  did not have a  material  impact on the  results  of
operations for MidAmerican Funding.

    The FASB's  Derivatives  Implementation  Group  continues  to identify  and
provide guidance on various  implementation  issues related to SFAS 133/138 that
are in varying stages of review and clearance by the  Derivative  Implementation
Group and FASB.  MidAmerican  Funding  believes that the ultimate  resolution of
those issues would not have a material impact on its financial statements.

                                      -59-
<PAGE>

     (J) GOODWILL:

         The  Consolidated  Balance Sheets include  goodwill  related to the MHC
acquisition. Goodwill is amortized using the straight-line method over a 40-year
period.  Amortization  expense  is  included  in  Other  Nonregulated  Operating
Expenses in the  Consolidated  Statements of Income and totaled  $35.4  million,
$34.1 million and $0.7 million for 2000, 1999 and 1998, 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.  The following  table shows the income tax expense or
benefit related to each component of other comprehensive income (in thousands):

<TABLE>
<CAPTION>

                                                             MidAmerican Funding            MHC (Predecessor)
                                                    ---------------------------------   ---------------------------
                                                         Year         March 12, 1999    Jan. 1, 1999     Year
                                                        Ended             through          through       Ended
                                                     December 31,       December 31,      March 11,    December 31,
                                                        2000               1999            1999          1998
                                                    ---------------   ---------------   ------------   ------------

<S>                                                   <C>              <C>              <C>              <C>
Unrealized holding gains (losses) on available-
  for-sale  securities  during period:
  Before income taxes............................     $ 3,870          $77,942          $79,236          $(14,743)
  Income tax (expense)/benefit...................      (1,355)         (27,280)         (27,733)            5,081
                                                      -------          -------          -------          --------
                                                        2,515           50,662           51,503            (9,662)
                                                      -------          -------          -------          --------

Less reclassification adjustment for realized
  gains (losses) on available-for-sale securities
  reflected in net income during period:
  Before income taxes............................      (3,958)          77,983           15,214            11,204
  Income tax (expense)/benefit...................       1,385          (27,294)          (5,325)           (3,921)
                                                       ------          -------          -------          --------
                                                       (2,573)          50,689            9,889             7,283
                                                       ------          -------          -------          --------
Minimum pension liability adjustment:
  Before income taxes............................      (4,087)               -                -                 -
  Income tax benefits............................       1,699                -                -                 -
                                                       ------          -------          -------          --------
                                                       (2,388)               -                -                 -
                                                       ------          -------          -------          --------

Other comprehensive income (loss), net...........     $ 2,700          $   (27)         $41,614          $(16,945)
                                                      =======          =======          =======          ========
</TABLE>

(2)  LONG-TERM DEBT:

     MidAmerican Funding's sinking fund requirements and maturities of long-term
debt for 2001 through 2005 are $325  million,  $188 million,  $105 million,  $56
million and $91 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, 2000 and 1999.  MidAmerican  Energy  maintains
revolving  credit  facility  agreements or renewable  lines of credit to provide
liquidity for holders of these issues.

                                     -60-

<PAGE>

     MidAmerican Funding parent company long-term debt was issued in March 1999.
Offering costs and a net gain from the unwinding of related  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 gain on the rate swap arrangements and the offering costs is being
amortized using the effective interest method over the life of each of the three
traunches.

     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  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 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.
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  MidAmerican  Energy's gross utility
plant, is pledged to secure mortgage bonds.

                                     -61-
<PAGE>

(3)  JOINTLY OWNED UTILITY PLANT:

     Under joint plant ownership  agreements with other  utilities,  MidAmerican
Energy had undivided interests at December 31, 2000, in jointly owned generating
plants as shown in the table below.

     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..    $ 218       $ 143     $ 301    $ 174    $ 209    $ 540
     Accumulated depreciation..    $  93       $  89     $ 188    $ 105    $ 119    $ 287
     Unit capacity-MW (100%)...    1,529         515       675      644      708      700
     Percent ownership.........     25.0%       72.0%     79.1%    40.6%    52.0%    88.0%
</TABLE>

(4)  COMMITMENTS AND CONTINGENCIES:

     (A) CAPITAL EXPENDITURES:

     MidAmerican Energy's construction expenditures for 2001 are estimated to be
$223 million, including $13 million for Quad Cities Station nuclear fuel.

     (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, 2000 was $24 million. The estimate consists of $3 million for
investigation  costs, $7 million for remediation  costs,  $12 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

                                      -62-
<PAGE>


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 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.  Insurance
recoveries have been received for some of the sites under  investigation.  Those
recoveries are intended to be used principally for accelerated  remediation,  as
specified  by the  Iowa  Utilities  Board,  and  are  recorded  as a  regulatory
liability.

     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. In May
2000, the United States  Supreme Court granted  certiorari to review the appeals
court decision. Oral arguments were heard in November 2000.

     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

                                     -63-
<PAGE>


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 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  DOE
disposal  fees)  based  on  energy  delivered.   The  debt  service  portion  is
approximately  $1.5  million per month for 2001 and is not  contingent  upon the
plant being in service.  In addition,  MidAmerican Energy has contributed toward
payment of one-half of Cooper's projected  decommissioning costs based on an
assumed September 2004 shutdown of 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 $15.8  million,  $15.1 million and
$14.4  million  and the net  interest  component,  which  is  included  in Other
Operating  Expenses in the Consolidated  Statements of Income, was $1.6 million,
$2.5  million  and  $2.9  million  each  for the  years  2000,  1999  and  1998,
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 $16.6 million,  $17.4 million,
$18.3 million and zero for 2001 through 2004, respectively.

     (E) DECOMMISSIONING COSTS:

     Based   on    site-specific    decommissioning    studies    that   include
decontamination,  dismantling,  site  restoration,  dry  fuel  storage  cost and
assumed shutdown dates,  MidAmerican Energy's share of expected decommissioning
costs for Cooper and Quad Cities Station,  in 2000 dollars,  is $277 million and
$266 million,  respectively.  In Illinois,  Cooper nuclear decommissioning costs
are  recovered  through a rate rider on customer  billings  that permits  annual
adjustments.  Quad Cities Station and Cooper decommissioning 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, 2000,  MidAmerican  Energy's share of funds set aside in
internal  and external  accounts  for  decommissioning  was $128.6  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,  which is to begin with the assumed
plant  shutdown in  September  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

                                    -64-
<PAGE>

4.0% annually. MidAmerican Energy's expense for Cooper decommissioning was $11.5
million,  $11.3  million and $7.9  million  for the years  2000,  1999 and 1998,
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.

     External  trusts  have been  established  for the  investment  of funds for
decommissioning  the Quad  Cities  Station.  The  total  accrued  balance  as of
December 31, 2000, was $153.1 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  depreciation  expense included costs for Quad Cities
Station  nuclear  decommissioning  of $8.3  million,  $10.4  million,  and $11.4
million for 2000, 1999 and 1998, 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 4.5% 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, $1.9 million and $1.7 million for 2000, 1999 and 1998, respectively.

     (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 Exelon Generation  Company,  LLC (the operator
and  joint  owner 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 Exelon  Generation  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, Exelon Generation purchases
primary and excess property  insurance  protection for the combined interests in
Quad Cities Station,  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 Exelon  Generation,  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 $8.5 million.

                                      -65-
<PAGE>

     The master nuclear  worker  liability  coverage,  which is purchased by the
Nebraska Public Power District and Exelon  Generation 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 in nuclear-related industries.

     (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 2001 to 2007,  require minimum  payments of $64.0
million,  $37.1 million,  $31.8 million, $22.0 million and $22.7 million for the
years 2001  through  2005,  respectively,  and $5.2 million for the total of the
years thereafter.  MidAmerican Energy expects to supplement these coal contracts
with additional contracts and spot market purchases to fulfill its future fossil
fuel needs.

     MidAmerican  Energy  has  entered  into  various  natural  gas  supply  and
transportation  contracts for its gas operations.  The minimum commitments under
these contracts are $61.3 million,  $42.2 million,  $33.0 million, $12.9 million
and $12.7  million  for the years 2001  through  2005,  respectively,  and $39.2
million for the total of the years thereafter.

     (H) 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  also  maintains
noncontributory, nonqualified supplemental executive retirement plans for active
and retired participants.

     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.

     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.

                                      -66-
<PAGE>

     During 2000, MidAmerican Funding adopted a market-related  valuation of its
pension assets for purposes of  calculating  net periodic  pension  costs.  This
change conforms MidAmerican  Funding's accounting practices for pension costs to
that  of  its  parent.  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 and 1998. In 2000,  MidAmerican Funding
allocated $5.0 million of pension and $0.7 million of postretirement cost to its
parent.

<TABLE>
<CAPTION>
                                                                       Pension Cost
                                                ----------------------------------------------------------
                                                     MidAmerican Funding             MHC (Predecessor)
                                                -----------------------------   ---------------------------
                                                   Year        March 12, 1999   Jan. 1, 1999      Year
                                                   Ended          through         through        Ended
                                                December 31,    December 31,      March 11,    December 31,
                                                    2000           1999             1999          1998
                                                ------------  ---------------   ------------   ------------

     <S>                                           <C>           <C>              <C>         <C>
     Service cost ............................     $ 16,256      $  9,854         $ 2,338      $ 11,284
     Interest cost ...........................       35,387        25,505           6,052        29,941
     Expected return on plan assets ..........      (48,132)      (37,392)         (8,873)      (42,578)
     Amortization of net transition obligation       (2,591)           --            (497)       (2,591)
     Amortization of prior service cost ......        2,885            --             274         1,871
     Amortization of prior year gain .........       (4,119)           --            (518)       (2,802)
     Curtailment loss ........................           --         4,270           1,013            --
                                                   --------      --------         -------      --------
     Net periodic (benefit) cost .............     $   (314)     $  2,237         $  (211)     $ (4,875)
                                                   ========      ========         =======      ========
</TABLE>
<TABLE>
<CAPTION>

                                                                     Postretirement Cost
                                                ----------------------------------------------------------
                                                      MidAmerican Funding            MHC (Predecessor)
                                                -----------------------------   ---------------------------
                                                   Year        March 12, 1999   Jan. 1, 1999      Year
                                                  Ended          through          through         Ended
                                                December 31,    December 31,      March 11,    December 31,
                                                   2000            1999             1999          1998
                                                ------------   --------------   ------------   ------------

     <S>                                           <C>           <C>              <C>          <C>
     Service cost ............................     $  2,609      $  2,478         $   588      $  3,558
     Interest cost ...........................        8,354         6,423           1,524         9,344
     Expected return on plan assets ..........       (4,931)       (3,540)           (840)       (3,651)
     Amortization of net transition obligation        4,110            --             788         5,291
     Amortization of prior service cost ......          425            --              42           650
     Amortization of prior year gain .........         (873)           --             (35)           --
                                                   --------      --------         -------      --------
     Net periodic cost .......................     $  9,694      $  5,361         $ 2,067      $ 15,192
                                                   ========      ========         =======      ========
</TABLE>

         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,  2000,   MidAmerican  Funding  has  Rabbi  trusts  which  hold
corporate-owned  life insurance and other investments to

                                      -67-
<PAGE>

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 Rabbi trust investments was $44.7 million and $37.9
million at December 31, 2000 and 1999, 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 $82.7 million and $77.5 million,
respectively,  as of December 31,  2000,  and $68.8  million and $65.5  million,
respectively, as of December 31, 1999.

                                      -68-
<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
                                                         -----------------------     -----------------------
                                                            2000          1999          2000          1999
                                                         ---------     ---------     ---------     ---------

     <S>                                                 <C>           <C>           <C>           <C>
     Reconciliation of benefit obligation:
     Benefit obligation at beginning of year ........    $ 447,170     $ 456,475     $ 107,744     $ 120,188
     Service cost ...................................       16,256        12,192         2,609         3,066
     Interest cost ..................................       35,387        31,556         8,354         7,947
     Participant contributions ......................           74           107         2,395         1,838
     Plan amendments ................................         (132)       14,823            --         2,775
     Actuarial (gain) loss ..........................        6,007       (41,567)       20,589       (18,248)
     Curtailment ....................................           --          (705)           --            --
     Termination benefits ...........................           --         3,471            --            --
     Benefits paid ..................................      (32,413)      (29,182)       (9,869)       (9,822)
                                                         ---------     ---------     ---------     ---------
     Benefit obligation at end of year ..............      472,349       447,170       131,822       107,744
                                                         ---------     ---------     ---------     ---------

     Reconciliation of the fair value of plan assets:
     Fair value of plan assets at beginning of year .      605,059       524,508        72,622        63,093
     Employer contributions .........................        4,355         4,201        10,543        12,405
     Participant contributions ......................           74           107         2,395         1,838
     Actual return on plan assets ...................      (21,867)      105,425          (601)        5,108
     Benefits paid ..................................      (32,413)      (29,182)       (9,869)       (9,822)
                                                         ---------     ---------     ---------     ---------
     Fair value of plan assets at end of year .......      555,208       605,059        75,090        72,622
                                                         ---------     ---------     ---------     ---------

     Funded status ..................................       82,859       157,889       (56,732)      (35,122)
     Unrecognized net (gain) loss ...................     (130,423)     (101,434)        1,326       (18,943)
     Unrecognized prior service cost ................       24,962         9,540         4,689         2,776
     Unrecognized net transition obligation (asset) .       (8,566)           --        49,322            --
                                                         ---------     ---------     ---------     ---------
     Net amount recognized in the
         Consolidated Balance Sheets ................    $ (31,168)    $  65,995        (1,395)    $ (51,289)
                                                         =========     =========     =========     =========

     Amounts recognized in the Consolidated
       Balance Sheets consist of:
     Prepaid benefit cost ...........................    $  16,773     $ 108,907     $   1,493     $   1,042
     Accrued benefit liability ......................      (77,538)      (65,533)       (2,888)      (52,331)
     Intangible assets ..............................       25,510        22,621            --            --
     Accumulated other comprehensive income .........        4,087            --            --            --
                                                         ---------     ---------     ---------     ---------
     Net amount recognized ..........................    $ (31,168)    $  65,995     $  (1,395)    $ (51,289)
                                                         =========     =========     =========     =========
</TABLE>


                                      -69-
<PAGE>

<TABLE>
<CAPTION>

                                                       Pension And Postretirement
                                                                 Assumptions
                                               -----------------------------------------
                                               MidAmerican   MidAmerican        MHC
                                                 Funding       Funding     (Predecessor)
                                                  2000           1999           1998
                                               -----------   -----------   -------------

     <S>                                          <C>           <C>            <C>
     Assumptions used were:
     Discount rate .........................      7.00%         7.75%          6.75%
     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 6.65% in 2001 and that the rate of increase  thereafter  will  decrease to an
ultimate  rate of 5.5% by the year  2004.  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 2000 would  increase by $1.6 million,  and the  postretirement
benefit obligation at December 31, 2000, would increase by $16.5 million. If the
assumed  health care trend rates were to decrease by 1.0%, the total service and
interest  cost for 2000 would  decrease by $1.4  million and the  postretirement
benefit obligation at December 31, 2000, would decrease by $15.1 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 $7.4 million,  $6.2 million and $5.6 million for 2000,  1999
and 1998, respectively.

                                      -70-

<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>

                                                                                       MHC
                                                            MidAmerican Funding    (Predecessor)
                                                             2000        1999          1998
                                                           ---------   ---------   ------------


     <S>                                                    <C>        <C>           <C>
     Balance at year-end................................    $ 81,600   $204,000      $339,826
     Weighted average interest rate on year-end balance.        6.6%        6.3%          6.0%
     Average daily amount outstanding during the year...    $125,626   $133,792      $187,466
     Weighted average interest rate on average daily
       amount outstanding during the year...............        6.3%        5.2%          5.6%
</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.  MidAmerican  Energy  currently has in place a
$370.4  million  revolving  credit  facility  which  supports  its $250  million
commercial  paper  program  and its  variable  rate  pollution  control  revenue
obligations. In addition, MidAmerican Energy has a $5 million line of credit. As
of December 31, 2000,  commercial paper and bank notes totaled $81.6 million for
MidAmerican  Energy.  MHC has a $4.0  million  line of credit that was unused at
December 31, 2000.

     All subsidiary long-term  borrowings  outstanding at December 31, 2000, are
without recourse to MidAmerican Funding.

(7)  RATE MATTERS:

     Under a 1997  pricing  plan  settlement  agreement  resulting  from an Iowa
Utilities Board rate proceeding,  electric prices for MidAmerican  Energy's Iowa
industrial and commercial  customers were reduced  through a retail access pilot
project,  negotiated individual electric contracts and a tariffed rate reduction
for some non-contract commercial customers.

     The negotiated  electric  contracts have differing  terms and conditions as
well as prices. The vast majority of the contracts expire during the period 2003
through 2005,  although some large  customers have contracts  extending to 2008.
Some of the contracts have price renegotiation and early termination  provisions
exercisable  by either  party.  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.

     Under the 1997 pricing plan settlement  agreement,  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.  During 2000,  MidAmerican
Energy credited $14.8 million to its Iowa non-contract  customers related to the
return  calculation  for 1999,  which was approved by the Iowa Utilities  Board,
subject to additional refund. In 2000,  MidAmerican Energy accrued $21.6 million
for customer  credits  relating to 2000  operations.  This Iowa electric  retail
revenue  sharing  plan  remained  in effect  through  the year  2000.  The rates
established by the pricing


                                      -71-
<PAGE>


plan  settlement  agreement  will  remain in  effect  until  either  the plan is
renegotiated  or a change  in  rates is  approved  by the Iowa  Utilities  Board
pursuant to a rate proceeding.

     The pricing plan  settlement  agreement also precluded  MidAmerican  Energy
from filing for increased  rates prior to January 1, 2001 unless the return fell
below 9%. Other parties  signing the agreement were  prohibited  from filing for
reduced  rates  prior to 2001  unless the return,  after  reflecting  credits to
customers,  exceeded 14%. 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.

     Under an  Illinois  restructuring  law enacted in 1997,  a similar  sharing
mechanism is in place for MidAmerican Energy's Illinois electric  operations.  A
two-year  average  return on  common  equity  greater  than a  two-year  average
benchmark  will trigger an equal sharing of earnings on the excess.  MidAmerican
Energy's  computed  level of  return  on  common  equity  is based on a  rolling
two-year  average of the 30-year Treasury Bond rates plus a premium of 5.50% for
1998 and 1999 and a premium of 8.5% for 2000 through 2004. The two-year  average
above  which  sharing  must occur for 2000 was  12.83%.  Using the same  30-year
Treasury  Bond  average,  the computed  level of return would be 14.33% for 2001
through  2004.  The law allows  MidAmerican  Energy to  mitigate  the sharing of
earnings  above  the  threshold  return  on common  equity  through  accelerated
recovery of regulatory assets.

(8)  DISCONTINUED OPERATIONS:

     On October 6, 1999,  MHC  distributed  its holding in the capital  stock of
MidAmerican  Realty to  MidAmerican  Energy  Holdings.  The  MidAmerican  Realty
operations are the result of several  acquisitions of realty companies beginning
in May 1998. Refer to Note (20), "Acquisitions and Dispositions."

     Revenues and the results of operations from discontinued activities for the
periods  presented are shown below (in thousands).  There was no gain or loss on
disposal of discontinued operations in any period shown.

<TABLE>
<CAPTION>
                                                  MidAmerican Funding             MHC (Predecessor)
                                             -----------------------------   --------------------------
                                                Year        March 12, 1999   Jan. 1, 1999      Year
                                                Ended          through         through         Ended
                                             December 31,    December 31,     March 11,     December 31,
                                                 2000             1999          1999           1998
                                             ------------   --------------   ------------   ------------

     <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
        Income tax benefit (expense) ....                        (7,767)           (227)        (3,087)
                                               --------       ---------        --------      ---------
        Income (loss) from operations ...      $     --       $  11,258        $    421      $   4,164
                                               ========       =========        ========      =========
</TABLE>

(9)  CONCENTRATION OF CREDIT RISK:

     MidAmerican  Energy's  regulated  electric utility operations serve 582,000
customers in Iowa,  83,000  customers in western Illinois and 4,000 customers in
southeastern South Dakota. MidAmerican Energy's regulated gas utility operations
serve 508,000 customers in Iowa,  65,000 customers in western  Illinois,  69,000
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,  2000,  billed
receivables from  MidAmerican  Energy's  utility  customers,  net of receivables
sold,  totaled  $5.3

                                      -72-
<PAGE>


million.  As  described  in Note  (16),  billed  receivables  related to utility
services have been sold to a wholly owned unconsolidated subsidiary.

     MidAmerican  Energy  also  extends  unsecured  credit  to  utility  service
customer,  other  utilities  and  marketers  for  nonregulated  electric and gas
transactions.   Strict  guidelines  are  established  regarding  the  amount  of
unsecured credit extended to individual  customers.  MidAmerican Energy's credit
exposure to any  individual  customer did not exceed 7% of the $83.6  million of
related receivables outstanding at December 31, 2000.

     MidAmerican Capital has investments in preferred stocks of companies in the
utility  industry.  As of December 31, 2000,  the total  carrying value of these
investments  was $17.4 million.  MidAmerican  Capital has entered into leveraged
lease  agreements  with  companies in the airline  industry.  As of December 31,
2000, the receivables under these agreements totaled $26.3 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  Preferred  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.

     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, 2000, are entitled to upon involuntary bankruptcy is $181.8 million
plus  accrued  dividends.   Annual  dividend   requirements  for  all  preferred
securities outstanding at December 31, 2000, total $12.9 million.

(11)  SEGMENT INFORMATION:

     MidAmerican  Funding  has  two  reportable  operating  segments:  regulated
electric and regulated  gas,  referred to as the electric and gas segments.  The
electric  segment  derives  most of its revenue  from retail  sales of regulated
electricity  to  residential,  commercial  and  industrial  customers,  and from
wholesale 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 income or
loss of investees are allocated to each segment.

                                      -73-

<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)
                                                 -------------------------------    -------------------------------
                                                     Year         March 12, 1999    Jan. 1, 1999       Year
                                                     Ended            through          through         Ended
                                                 December 31,      December 31,       March 11,      December 31,
                                                     2000             1999             1999              1998
                                                 ------------     -------------      -----------     ------------
     <S>                                         <C>               <C>                <C>             <C>
     SEGMENT PROFIT INFORMATION
     --------------------------
     Revenues:
       Electric ...........................      $ 1,212,411       $   969,739        $ 208,963       $ 1,169,810
       Gas ................................          656,560           315,238          139,564           429,870
       Nonregulated and Other .............          461,695           148,069           34,539           176,244
                                                 -----------       -----------        ---------       -----------
         Total ............................        2,330,666         1,433,046          383,066         1,775,924
                                                 -----------       -----------        ---------       -----------

     Depreciation and amortization expense:
       Electric ...........................          165,111           128,993           34,277           156,546
       Gas ................................           27,981            22,137            5,140            25,665
       Nonregulated and Other (a) .........           37,048            31,016              454             3,086
                                                 -----------       -----------        ---------       -----------
         Total ............................          230,140           182,146           39,871           185,297
                                                 -----------       -----------        ---------       -----------

     Interest income:
       Electric ...........................           13,510             2,069              847             4,945
       Gas ................................            2,383               466              138             1,169
       Nonregulated and Other .............           10,287            15,879              526             3,148
       Intersegment Eliminations ..........             (413)             (380)            (100)               --
                                                 -----------       -----------        ---------       -----------
         Total ............................           25,767            18,034            1,411             9,262
                                                 -----------       -----------        ---------       -----------

     Interest expense:
       Electric ...........................           56,132            48,476           13,918            66,784
       Gas ................................           12,759            10,247            3,000            14,011
       Nonregulated and Other .............           50,526            41,704              906             9,418
       Intersegment Eliminations ..........             (413)             (380)            (100)               --
                                                 -----------       -----------        ---------       -----------
         Total ............................          119,004           100,047           17,724            90,213
                                                 -----------       -----------        ---------       -----------

     Income tax expense (benefit):
       Electric ...........................           98,410            76,933            9,382            75,831
       Gas ................................           13,972            (3,230)           8,435              (800)
       Nonregulated and Other .............           (6,989)           22,342            3,560             1,895
                                                 -----------       -----------        ---------       -----------
         Total ............................          105,393            96,045           21,377            76,926
                                                 -----------       -----------        ---------       -----------

     Net income (loss):
       Electric ...........................          142,972           108,206           11,878           109,539
       Gas ................................           19,227            (6,488)          13,010              (435)
       Nonregulated and Other .............          (35,415)           33,617           (7,678)           22,760
       Intersegment Eliminations ..........               --                --               --              (546)
                                                 -----------       -----------        ---------       -----------
         Total ............................          126,784           135,335           17,210           131,318
                                                 -----------       -----------        ---------       -----------
</TABLE>

                                      -74-
<PAGE>

<TABLE>
<CAPTION>
                                                                    MHC
                                      MidAmerican Funding      (Predecessor)
                                   -------------------------   -------------
                                      2000            1999         1998
                                   -----------     ---------   -------------
     <S>                           <C>            <C>           <C>
     SEGMENT ASSET INFORMATION
     -------------------------
     Total Assets:
         Electric .............    $3,144,923     $2,647,009    $2,897,657
         Gas ..................       631,873        683,249       672,072
         Nonregulated and Other     1,715,925      1,882,129        15,801
                                   ----------     ----------    ----------
             Total ............     5,492,721      5,212,387     3,585,530
                                   ----------     ----------    ----------

     Capital expenditures:
         Electric .............       179,033        169,261       158,596
         Gas ..................        36,694         34,314        34,758
         Nonregulated and Other         3,229         22,353        21,065
                                   ----------     ----------    ----------
             Total ............       218,956        225,928       214,419
                                   ----------     ----------    ----------
</TABLE>

     (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,
     MidAmerican  Services,  CBEC Railway and other nonregulated  operations and
     MHC and corporate assets, including unallocated goodwill.

     Dividend income related to MHC common stock held by MidAmerican  Capital of
$0.5 for 1998 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 Funding'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.

                                      -75-
<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>
                                                               2000                        1999
                                                     ------------------------    ------------------------
                                                      Carrying       Fair          Carrying      Fair
                                                       Amount        Value          Amount       Value
                                                     ----------   -----------    ----------    ----------
     <S>                                             <C>          <C>            <C>           <C>
     Financial Instruments Owned:
     Equity securities carried at cost.............  $   15,738    $   28,163    $   13,207    $   14,234

     Financial Instruments Issued:
     MidAmerican Energy preferred securities;
       subject to mandatory redemption.............      50,000        50,700        50,000        52,025
     MidAmerican Energy-obligated preferred
       securities; subject to mandatory redemption.     100,000        98,752       101,598        87,240

     Long-term debt, including current portion.....   1,670,636     1,631,401     1,642,476     1,564,554
</TABLE>

                                      -76-
<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):

<TABLE>
<CAPTION>
                                                             2000
                                        ----------------------------------------------
                                        Amortized  Unrealized   Unrealized     Fair
                                          Cost       Gains       Losses        Value
                                        ---------  ----------   ----------    --------

     <S>                                <C>         <C>          <C>          <C>
     Available for sale:
       Equity securities ...........    $ 83,509    $ 34,110     $ (7,115)    $110,504
       Municipal bonds .............      27,758       1,071         (175)      28,654
       U.S. Government securities...      26,284       1,163           --       27,447
       Corporate securities ........      25,449          48       (1,025)      24,472
       Cash equivalents ............      11,150          --           --       11,150
                                        --------    --------     --------     --------
                                        $174,150    $ 36,392     $ (8,315)    $202,227
                                        ========    ========     ========     ========
     Held-to-maturity:
       Debt securities .............    $  2,077    $     --     $     --     $  2,077
                                        ========    ========     ========     ========
</TABLE>

<TABLE>
<CAPTION>
                                                            1999
                                       ----------------------------------------------
                                       Amortized   Unrealized   Unrealized     Fair
                                         Cost         Gains       Losses       Value
                                       ---------   ----------   ----------    --------
     <S>                                <C>         <C>          <C>          <C>
     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
                                        ========    ========     =========    ========
</TABLE>

     At December 31, 2000, 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........    $ 1,722     $ 1,742    $    3     $    3
     1 through 5 years....     34,281      35,028     1,004      1,004
     5 through 10 years...      8,843       9,343     1,070      1,070
     Over 10 years........     34,645      34,460         -          -

                                      -77-

<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)
                             -----------------------------   ---------------------------
                                Year        March 12, 1999   Jan. 1, 1999      Year
                                Ended          through         through        Ended
                             December 31,    December 31,     March 11,     December 31,
                                2000            1999            1999           1998
                             ------------   --------------   ------------   ------------

     <S>                       <C>             <C>              <C>           <C>
     Proceeds from sales....   $116,119        $521,351         $95,911       $301,414
     Gross realized gains...      8,024          80,635          16,910         27,973
     Gross realized losses..    (13,141)         (4,251)         (2,186)       (14,199)
</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)
                                  ----------------------------   ---------------------------
                                      Year      March 12, 1999   Jan. 1, 1999      Year
                                     Ended          through         through        Ended
                                  December 31,   December 31,      March 11,     December 31,
                                      2000          1999             1999           1998
                                  ------------   -------------   ------------   -------------

     <S>                           <C>             <C>             <C>           <C>
     Current
       Federal..................   $ 97,023        $193,570        $20,630       $ 80,837
       State....................     26,735          23,877          3,016         20,736
                                   --------        --------        -------       --------
                                    123,758         217,447         23,646        101,573
                                   --------        --------        -------       --------
     Deferred
       Federal..................    (12,176)       (116,190)        (1,918)       (11,861)
       State....................       (641)             (2)           103         (5,633)
                                   --------        --------        -------       --------
                                    (12,817)       (116,192)        (1,815)       (17,494)
                                   --------        --------        -------       --------

     Investment tax credit, net.     (5,548)         (5,210)          (454)        (7,153)
                                   --------        --------        -------       --------
       Total ...................   $105,393        $ 96,045        $21,377       $ 76,926
                                   ========        ========        =======       ========
</TABLE>

                                      -78-
<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):

                                                         2000         1999
                                                       --------     --------
     Deferred tax assets related to:
       Investment tax credits........................  $ 44,846     $ 48,427
       Cooper contract...............................         -       51,838
       Unrealized losses, net........................       682        4,684
       Pensions......................................    17,802       14,576
       Nuclear reserves and decommissioning..........    20,690       20,280
       Other.........................................     4,681        4,711
                                                       --------     ---------
                                                         88,701      144,516
                                                       --------     ---------

     Deferred tax liabilities related to:
       Depreciable property..........................   479,226      431,874
       Income taxes recoverable through future rates.   186,427      187,379
       Energy efficiency.............................     4,391       14,806
       Reacquired debt...............................    10,256       12,476
       Other.........................................        68       18,069
                                                       --------     --------
                                                        680,368      664,604
                                                       --------     ---------

     Net deferred income tax liability...............  $591,667     $520,088
                                                       ========     ========

     The following table is a  reconciliation  between the effective  income tax
rate  indicated  by the  Consolidated  Statements  of Income  and the  statutory
federal income tax rate for the following periods:

<TABLE>
<CAPTION>
                                                           MidAmerican Funding             MHC (Predecessor)
                                                      -----------------------------   ---------------------------
                                                         Year        March 12, 1999   Jan. 1, 1999      Year
                                                         Ended         through          through        Ended
                                                      December 31,    December 31,     March 11,     December 31,
                                                         2000            1999             1999          1998
                                                      ------------   --------------   ------------   ------------

<S>                                                         <C>           <C>              <C>           <C>
Effective federal and state income tax rate........         43%           42%              52%           36%
Amortization of investment tax credit..............          2             2                1             3
State income tax, net of federal income tax benefit         (7)           (7)              (5)           (5)
Dividends received deduction.......................          1             1                1             2
Merger costs.......................................          -             -              (13)            -
Goodwill amortization..............................         (5)           (5)               -             -
Other..............................................          1             2               (1)           (1)
                                                            --            --               --            ---
Statutory federal income tax rate..................         35%           35%              35%           35%
                                                            ==            ==               ==            ==
</TABLE>

                                      -79-

<PAGE>

(14)  INVENTORIES:

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

                                                 2000      1999
                                               -------   -------

     Materials and supplies, at average cost.  $26,038   $30,195
     Coal stocks, at average cost............   21,076    26,712
     Gas in storage, at LIFO cost............   18,413    21,449
     Fuel oil, at average cost...............    2,506     1,156
     Other...................................    1,097     3,311
                                               -------   -------
       Total.................................  $69,130   $82,823
                                               =======   =======

     At December 31, 2000 prices,  the current cost of gas in storage was $107.0
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)  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  Corporation,  a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican  Energy.  MidAmerican  Energy  Funding  Corporation  in  turn  sells
receivable  interests  to  outside  investors.  In  consideration  of the  sale,
MidAmerican  Energy received cash and a subordinated  note,  bearing interest at
8%, from MidAmerican  Energy Funding  Corporation.  As of December 31, 2000, the
revolving  cash balance was $70 million,  and the amount  outstanding  under the
subordinated note was $114.9 million. The agreement is structured as a true sale
under which the creditors of  MidAmerican  Energy  Funding  Corporation  will be
entitled  to be  satisfied  out of the  assets  of  MidAmerican  Energy  Funding
Corporation  prior to any value  being  returned  to  MidAmerican  Energy or its
creditors.  Therefore,  the accounts  receivable  sold are not  reflected on the

                                      -80-

<PAGE>

Consolidated  Balance Sheets.  At December 31, 2000,  $185.8 million of accounts
receivable, net of reserves, was sold under the agreement.

(17)  UNAUDITED QUARTERLY OPERATING RESULTS:

<TABLE>
<CAPTION>
2000                                                  MidAmerican Funding
----                                 -----------------------------------------------------
                                     1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
                                     -----------   -----------   -----------   -----------
                                                        (In Thousands)

<S>                                   <C>           <C>           <C>           <C>
Operating revenues...............     $522,554      $470,133      $553,550      $784,429
Operating income.................       95,663        57,662       116,772        57,463
Income from continuing operations       36,589        16,251        52,286        21,658
Net income.......................       36,589        16,251        52,286        21,658
</TABLE>

<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>

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

(18)  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)
                                           -----------------------------    ---------------------------
                                               Year       March 12, 1999    Jan. 1, 1999      Year
                                              Ended           through          through        Ended
                                           December 31,   December 31,        March 11,    December 31,
                                              2000            1999              1999           1998
                                           ------------   --------------    ------------   ------------

    <S>                                     <C>             <C>              <C>             <C>
    Gain on sale of assets, net..........   $  6,355        $ 4,687          $      -        $ 7,409
    Discount on sold receivables.........    (10,212)        (6,828)           (2,629)        (8,716)
    Subservicer fee for sold receivables.      1,905          1,167               348          1,714
    Merger costs.........................          -           (535)          (18,585)        (4,243)
    Income from equity method investments      2,123          1,882             1,505          3,765
    Special purpose fund income..........      1,253            437               128          2,088
    Corporate-owned life insurance income      9,351            731              (480)         1,537
    Litigation recoveries................          -              -             1,500              -
    Other................................        124            784                80          1,542
                                            --------        -------          --------        -------
             Total.......................   $ 10,899        $ 2,325          $(18,133)       $ 5,096
                                            ========        =======          ========        =======
</TABLE>
                                      -81-

<PAGE>

(19)  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 Funding
reimbursed  MidAmerican  Energy  Holdings in the amount of $9.5 million and $5.0
million in 2000 and 1999,  respectively,  for its  allocated  share of corporate
expenses. In 1999, MidAmerican Energy purchased a corporate jet from MidAmerican
Energy Holdings for $14.5 million.

     MidAmerican  Funding was 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 and
accounting  functions.  The amount of such  expenses was $21.1  million and $7.3
million for 2000 and 1999, respectively.

     As of December 31, 2000 and 1999,  MidAmerican Funding had notes receivable
from   MidAmerican   Energy  Holdings  of  $98.1  million  and  $122.6  million,
respectively,  included in Investments  and  Nonregulated  Property,  Net on the
Consolidated  Balance  Sheet.  Additionally,  MidAmerican  Funding had  accounts
receivable from affiliates of $29.1 million and $19.5 million as of December 31,
2000 and 1999, respectively, included in Receivables on the Consolidated Balance
Sheets.  MidAmerican  Funding also had accounts  payable to  affiliates  of $7.2
million and $7.4 million as of December 31, 2000 and 1999,  respectively,  which
is included in Accounts Payable on the Consolidated Balance Sheets.

     MidAmerican  Energy has  entered  into an  agreement  with  Cordova  Energy
Company LLC, a subsidiary of MidAmerican  Energy Holdings,  to purchase electric
capacity  and  energy  from  a  gas-fired   generation   plant  currently  under
construction.  The plant is expected to be  commercially  operational by June 1,
2001.  The agreement,  which  terminates in May 2004,  provides for  MidAmerican
Energy to  purchase up to 50% of the net  capacity  of the plant and to supply
the fuel stock required to generate the energy purchased.  MidAmerican Energy is
required to pay monthly  capacity  charges once the plant  becomes  commercially
operational. The charges are expected to be approximately $24 million annually.

(20)  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.  The aggregate
cost of these acquisitions was $108 million.  Each acquisition was accounted for
as a  purchase  business  combination.  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 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.

                                      -82-
<PAGE>


INDEPENDENT AUDITORS' REPORT


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

     We  have  audited  the   accompanying   consolidated   balance  sheets  and
consolidated  statements  of  capitalization  of  MidAmerican  Funding,  LLC and
subsidiaries  (Company)  as of  December  31,  2000 and  1999,  and the  related
consolidated statements of income,  comprehensive income, retained earnings, and
cash flows for the year ended December 31, 2000 for the Company,  for the period
January 1, 1999 to March 11, 1999 for MHC,  Inc.  (prior to its  acquisition  by
MidAmerican  Funding,  LLC),  and for the period  March 12, 1999 to December 31,
1999 for the  Company.  Our audits  also  included  the 2000 and 1999  financial
statement  schedules listed in the Index at Item 14. These financial  statements
and  financial  statement  schedules  are the  responsibility  of the  Company's
management.  Our  responsibility  is to  express  an  opinion  on the  financial
statements and financial  statement schedules based on our audits. The financial
statements  and  financial  statement  schedule of MHC,  Inc. for the year ended
December 31, 1998 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 audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such 2000 and 1999 consolidated  financial  statements  present
fairly, in all material respects, the financial position of MidAmerican Funding,
LLC and  subsidiaries as of December 31, 2000 and 1999, and the results of their
operations and their cash flows for the above-stated  periods in conformity with
accounting principles generally accepted in the United States of America.  Also,
in  our  opinion,  such  2000  and  1999  financial  statement  schedules,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly  in all  material  respects  the  information  set forth
therein.



Des Moines, Iowa                                    DELOITTE & TOUCHE LLP
January 18, 2001

                                      -83-

<PAGE>



                                                                     SCHEDULE II


                            MIDAMERICAN FUNDING, LLC
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2000
                                 (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
-----------                                          ----------   ---------   --------   ----------   ----------

Reserves Deducted From Assets
  To Which They Apply:

  <S>                                                 <C>         <C>         <C>        <C>          <C>
  Reserve for uncollectible accounts receivable:

    Year ended 2000..............................     $   469     $ 8,514     $     -    $(8,683)     $  300
                                                      =======     =======     =======    =======      ======

    Year ended 1999 (1)..........................     $   503     $ 6,785     $     -    $(6,819)     $  469
                                                      =======     =======     =======    =======      ======

    MHC (Predecessor) -

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



  Reserves Not Deducted From Assets (2):

    Year ended 2000..............................     $8,982      $4,079      $     -    $(3,194)     $9,867
                                                      ======      ======      =======    =======      ======

    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
                                                      ======      ======      =======    =======      ======
</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.

                                      -84-

<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: February 28, 2001                 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                       February 28, 2001



     /s/  Patrick J. Goodman     Vice President and
     -------------------------    Treasurer                    February 28, 2001
         (Patrick J. Goodman)



     /s/  Gregory E. Abel        Director                      February 28, 2001
     -------------------------
         (Gregory E. Abel)



     /s/  Steven A. McArthur     Director                      February 28, 2001
     -------------------------
         (Steven A. McArthur)




*By:  /s/  Steven A. McArthur    Attorney-in-Fact              February 28, 2001
   ---------------------------
          (Steven A. McArthur)

                                      -85-

<PAGE>


                                  EXHIBIT INDEX

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

12       Computation of Ratio of Earnings to Fixed Charges

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)

                                      -86-

<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.


                                      -87-