-8-
                      EMPLOYMENT AGREEMENT
                                
                                
     This Employment Agreement is entered into as of August 6,
1996, by and between CalEnergy Company, Inc. a Delaware
corporation (the "Company"), and Steven A. McArthur (the
"Executive").

                            RECITALS
                                
     The Company desires to employ the Executive as its Senior
Vice President, General Counsel and Secretary on the terms set
forth in this Agreement, and the Executive desires to accept such
employment.

     Accordingly, the Company and the Executive agree as follows:



                            AGREEMENT

                                

     Section   Defined Terms.  Terms used but not defined in this
Agreement will have the meanings ascribed to them in Exhibit A to
this Agreement.

     Section   Employment.

               The Company will employ the Executive as, and the
Executive will act as, the Senior Vice President, General Counsel
and Secretary of the Company, subject to and upon the terms set
forth in this Agreement, for the Term of Employment.

               The Executive's primary place of employment will
be Omaha, Nebraska or such other place as is determined, prior to
a Change in Control, in good faith by the Chairman of the Board
and Chief Executive Officer of the Company (hereinafter referred
to as the "Chairman of the Board") to be in the best interests of
the Company.

     Section   Duties.

               The Executive (i) will perform and discharge the
duties incident to and consistent with his title of Senior Vice
President, General Counsel and Secretary, and (ii) will perform
and discharge such other duties, and will have such other
authority, as are delegated to him by the Chairman of the Board.
In performing such duties, the Executive will report directly to
, and be subject to the direction of, the Chairman of the Board.
Prior to a Change in Control, the Executive's title and duties
may in good faith be modified by the Chairman of the Board.

               The Executive will act, without any compensation
in addition to the compensation payable pursuant to this
Agreement, as an officer or member of the board of directors of
any subsidiary of the Company, if so appointed or elected.

               During the Term of Employment, the Executive (i)
will devote his entire time, attention and energies during normal
business hours to the business of the Company and its
subsidiaries and (ii) will not, without the written consent of
the Chairman of the Board, perform any services for any other
Person or engage in any other business or professional activity,
whether or not performed or engaged in for profit.

               Notwithstanding subsection 3 (c), the Executive,
without the consent of the Chairman of the Board, may (i)
purchase securities issued by, or otherwise passively invest his
personal or family assets in, any other company or business
within the constraints imposed by the Policy of Business Conduct
referred to below, and (ii) engage in governmental, political,
educational or charitable activities, but only to the extent that
those activities (A) are not inconsistent with any direction of
the Chairman of the Board or any duties under this Agreement, and
(B) do not interfere with the devotion by the Executive of his
entire time, attention and energies during normal business hours
to the business of the Company.

     Section   Compensation.

               During the Term of Employment, the Company will
pay the Executive a base salary at an annual rate of $164,000, in
substantially equal periodic payments in accordance with the
Company's practices for executive employees, as determined from
time to time by the Chairman of the Board.

               The Chairman of the Board will review the salary
payable to the Executive at least annually beginning in the
fourth fiscal quarter of 1996.  The Chairman of the Board, in his
discretion, may increase the salary of the Executive from time to
time, but may not reduce the salary of the Executive below the
amount set forth in subsection 4(a) above.

               During the Term of Employment, the Executive shall
be eligible for consideration for an annual incentive merit
bonus, for the Executive's performance during the preceding
fiscal year of the Company in an amount determined by the
Chairman of the Board in his discretion, by reference to the
accomplishment by the Executive of goals established by the
Chairman of the Board for the related fiscal year

               The Company will reimburse the Executive, subject
to compliance by the Executive with the Company's customary
reimbursement practices, for all reasonable and necessary out-of-
pocket expenses incurred by the Executive on behalf of the
Company in the course of its business.

               The Company may reduce any payments made to the
Executive under this Agreement by any required federal, state or
local government withholdings or deductions for taxes or similar
charges, or otherwise pursuant to law, regulation or order.

               Any base salary payable to the Executive for any
period of employment of less than one year during the Term of
Employment will be reduced to reflect the actual number of days
of employment during the period except as provided in Sections
8(b) and 8(c).

     Section   Other Benefits.

               During the Term of Employment, the Executive and
his dependents may participate in and receive benefits under any
employee benefit plan which the Company makes generally available
to its employees and their families, including any pension, life
insurance, medical benefits, dental benefits or disability plan,
but only to the extent that the Executive or his dependents
otherwise satisfies the standards established for participation
in the plan.  The terms of Executive's existing option
agreements, as amended, remain unaffected hereby, except as set
forth in Sections 8(b) and 8(c) hereof.

               The Executive may take up to three weeks of
vacation during each full calendar year during the Term of
Employment at a time mutually convenient to the Executive and the
Company, without loss of compensation or other benefits under
this Agreement.

     Section  Confidentiality and Post-Employment Restrictions.

               The Executive acknowledges that the Company and
its Affiliates have confidential information and trade secrets,
whether written or unwritten, with respect to carrying on their
business, including sensitive marketing, bidding, technological
and engineering information and data, names of past, present and
prospective customers or partners of and vendors or suppliers to
the Company and its Affiliates, working relationships with
governmental agencies and officials, methods of pricing contracts
and income and expenses associated therewith, the international
business strategy and relative ranking of opportunities in
various countries, negotiated prices and offers outstanding,
credit terms and status of accounts and the terms or
circumstances of any current or prospective business arrangements
between the Company and its Affiliates and any third parties
("Confidential Information and Trade Secrets").  As used in this
Agreement, the term Confidential Information and Trade Secrets
does not include (i) information which becomes generally
available to the public other than as a result of a disclosure by
the Executive, (ii) information which becomes available to the
Executive on a nonconfidential basis from a source other than the
Company or its Affiliates, or (iii) information known to the
Executive prior to any disclosure to him by the Company or its
Affiliates.  The Executive further acknowledges that the
Executive possesses a high degree of knowledge of the independent
energy industry and, in particular, has committed to a long-
standing relationship with the Company and its Affiliates as an
employee and officer, which has allowed, and will continue to
allow, him access to the Company's Confidential Information and
Trade Secrets.  Accordingly, any employment by the Executive with
another employer in the independent energy industry or
participation by him as a substantial investor in any such
industry may necessarily involve disclosure of the Company's
Confidential Information and Trade Secrets.  Consequently, the
Executive agrees that, if he voluntarily resigns his employment
with the Company for any reason other than (i) a breach of this
Agreement by the Company, or (ii) for Good Reason, he shall not
at any time during the two-year period after such resignation,
directly or indirectly accept employment by or invest in (except
as a passive investor in a public corporation or in a publicly
issued partnership interest which, in either event, would not
exceed an ownership interest of 2% of the outstanding equity or
partnership interest) in any person, firm, corporation,
partnership, joint venture or business which is primarily engaged
in the production or marketing of steam or electrical energy or
which otherwise directly competes with the business of the
Company or its controlled Affiliates and, further, the Executive
agrees that, to avoid the risk of disclosing or improperly using
Confidential Information or Trade Secrets, he shall not directly,
or indirectly, provide consulting or advisory services to any of
such independent energy businesses.

               Without the written consent of the Chairman of the
Board, the Executive will not, during and for three years after
the Term of Employment, (i) disclose any Confidential Information
and Trade Secrets of the Company or any Affiliate of the Company
to any Person (other than the Company, directors, officers or
employees of the Company, its Affiliates or duly authorized
agents, attorneys or other representatives thereof), or (ii)
otherwise make use of any Confidential Information and Trade
Secrets other than in connection with authorized dealings with or
by the Company and its Affiliates.

               For a period of three years after the Term of
Employment, the Executive shall neither directly nor indirectly
solicit, on behalf of another employer, the employment of, or
hire or cause another employer to hire, any person who is then
currently employed by the Company or an Affiliate thereof, or
otherwise induce, on behalf of another employer, such person to
leave the employment of the Company or an Affiliate thereof
without the prior written approval of the Chairman of the Board.

               The Executive will hold, on behalf of the Company
and its Affiliates and as the property of the Company and its
Affiliates, all memoranda, manuals, books, papers, letters,
documents, computer discs, data and software and other similar
property obtained during the course of his employment by the
Company or its Affiliates and relating to the Company's or its
Affiliates business, and will return such property to the Company
or its Affiliates at any time upon demand by the Chairman of the
Board and, in any event, within five calendar days after the end
of the Term of Employment.

               During the Term of Employment, Executive agrees to
comply in all material respects with the Company's Policy of
Business Conduct attached hereto as Exhibit A and to deliver with
the execution of this Agreement an executed Certificate of
Compliance with respect thereto.

               If any of the provisions of, or covenants
contained in, this Section 6 are hereafter construed to be
invalid or unenforceable in any jurisdiction, the same shall not
affect the remainder of the provisions or the enforceability
thereof in any other jurisdiction, which shall be given full
effect, without regard to the invalidity or unenforceability in
such other jurisdiction.  If any of the provisions of, or
covenants contained in, this Section 6 are held to be
unenforceable in any jurisdiction because of the duration or
geographical scope thereof, the parties agree that the court
making such determination shall have the power to reduce the
duration or geographical scope of such provision or covenant and,
in its reduced form, such provision or covenant shall be
enforceable; provided, however, that the determination of such
court shall not affect the enforceability of this Section 6 in
any other jurisdiction.

     Section   Termination of Employment.

               The employment of the Executive under this
Agreement will terminate on the earliest of: (i) written notice
by the Executive of his resignation other than for Good Reason;
(ii) the day the Company gives to the Executive written notice of
termination without Cause; (iii) the day the Company gives to the
Executive written notice of termination for Cause; (iv) the
Permanent Disability of the Executive; (v) the death of the
Executive; or (vi) written notice by the Executive of his
resignation for Good Reason.

               If the employment of the Executive is terminated
under this Agreement for any reason whatsoever, the obligations
of the Executive under Section 6 will remain in full force and
effect to the extent provided therein, and the termination will
not abrogate any rights or remedies of the Company or the
Executive with respect to any breach of the Agreement, except as
expressly provided in Section 8.

     Section   Payment Upon Termination.

            If the employment of the Executive is terminated
pursuant to subsections (i) or (iii) of Section 7(a), the Company
will pay to the Executive, within 30 calendar days, any base
salary and reimbursable expenses pursuant to Section 4(a) and
Section 4(d) which are accrued but unpaid through the Termination
Date.

     If the employment of the Executive is terminated pursuant to
subsections (ii), (iv) or (v) of Section 7(a) prior to a Change
in Control, the Company will pay the Executive, subject to the
Executive's compliance in all material respects with his post-
termination obligations under Section 6, (i) within 30 calendar
days, any base salary and reimbursable expenses which are accrued
and unpaid through such date, (ii) commencing one month after the
month of his Termination Date, 24 monthly payments each equal to
1/24 of a sum equal to twice his annual base salary then in
effect pursuant to Section 4 and (iii) commencing one month after
the month of his Termination Date, 24 monthly payments each equal
to 1/24 of a sum equal to twice the average of his prior three
years incentive bonuses (with any such year in which no bonus was
paid included in such three year average as a zero).  In
addition, in the event of any such termination, subject to the
Executive's compliance in all material respects with his post-
termination obligations under Section 6, the Company agrees that
(x) the Company stock options previously granted to Executive
will continue to vest according to their terms within such next
24 months (beginning with the month following the month in which
the Termination Date occurs, after which time the unvested
remainder will lapse) and such vested options may be exercised
within the remaining term of such options as provided in the
respective option agreements, and (y) the Company shall continue
in effect for Executive, for a period of twelve months after the
date of any such termination, the life insurance, medical
benefits, dental benefits and disability plan available to the
Executive and his dependents on the date of such termination,
subject to such employee contributions and other terms and
conditions as are applicable to active employees generally and
subject to subsequent modification or termination of such plans
to the extent such subsequent actions are also applicable to
active employees generally; provided that such plan benefits
shall terminate earlier on the date, if any, that comparable
benefits are made available to the Executive by any new employer.

               If the employment of the Executive is terminated
on or after a Change in Control pursuant to subsections (ii),
(iv), (v) or (vi) of Section 7(a), the Executive shall receive
the same payments, additional option vesting and benefits
continuation described in Section 8(b) hereof, except that the
monthly payments described in clauses (ii) and (iii) of the first
sentence of Section 8(b) shall be aggregated and paid to
Executive in a single lump sum without any discount to reflect
present value.

               Sections 8(b) and 8(c) hereof notwithstanding, in
the event that the payments due to the Executive under this
Agreement, whether alone or together with payments due under any
plan, program, or arrangement maintained by the Company
(collectively, "Payments"), constitute an "excess parachute
payment" (within the meaning of Section 280G(b)(1) of the Code),
the Payments shall be reduced by the minimum possible amount so
that their aggregate present value equals $1.00 less than three
times the Executive's "base amount" (within the meaning of
Section 280G(b)(3)(A) of the Code).  The Company's independent
auditors shall determine whether a reduction in Payments shall be
required pursuant to this Section 8(d), and shall determine the
optimal method and order for reduction of Payments so as to
maximize the economic benefits accruing to the Executive in
respect of the Payments.

     Section   Remedies.

               The Company will be entitled, if it elects, to
enjoin any breach or threatened breach of, or enforce the
specific performance of, the obligations of the Executive under
Sections 3 or 6, without showing any actual damage or that
monetary damages would be inadequate.  Any such equitable remedy
will not be the sole and exclusive remedy for any such breach,
and the Company may pursue other remedies for such a breach.

               Any court proceeding to enforce this Agreement may
be commenced in federal courts, or in the absence of federal
jurisdiction the state courts, located in Omaha, Nebraska.  The
parties submit to the jurisdiction of such courts and waive any
objection which they may have to pursuit of any such proceeding
in any such court.

               Except to the extent that the Company elects to
seek injunctive relief in accordance with subsection 9 (a), any
controversy or claim arising out of or relating to this Agreement
or the validity, interpretation, enforceability or breach of this
Agreement will be submitted to arbitration in Omaha, Nebraska, in
accordance with the then existing rules of the American
Arbitration Association, and judgment upon the award rendered in
any such arbitration may be entered in any court having
jurisdiction..

     Section   Assignment.  Neither the Company nor the Executive
may sell, transfer or otherwise assign their rights, or delegate
their obligations, under this Agreement, provided that the
Company shall require any successor to all or substantially all
of the business, stock or assets of the Company to expressly
assume the Company's rights and obligations hereunder.

     Section   Unfunded Benefits.  All compensation and other
benefits payable to the Executive under this Agreement will be
unfunded, and neither the Company nor any Affiliate of the
Company will segregate any assets to satisfy any obligation of
the Company under this Agreement.  The obligations of the Company
to the Executive are not the subject of any guarantee or other
assurance of any Person other than the Company.

     Section   Severability.  Should any provision, paragraph,
clause or portion thereof of this Agreement be declared or be
determined by any court or arbitrator of competent jurisdiction
to be illegal, unenforceable or invalid, the validity or
enforceability of the remaining parts, terms or provisions shall
not be affected thereby and said illegal or invalid part, term or
provision shall be deemed not to be a part of this Agreement.
Alternatively, the court or arbitrator having jurisdiction shall
have the power to modify such illegal, unenforceable or invalid
provision so that it will be valid and enforceable, and, in any
case, the remaining provisions of this Agreement shall remain in
full force and effect.

     Section   Miscellaneous.

               This Agreement may be amended or modified only by
a writing executed by the Executive and the Company.

               This Agreement will be governed by and construed
in accordance with the internal laws of the State of Nebraska.

               This Agreement constitutes the entire agreement of
the Company and the Executive with respect to the matters set
forth in this Agreement and supersedes any and all other
agreements between the Company and the Executive relating to
those matters.

               Any notice required to be given pursuant to this
Agreement will be deemed given (i) when delivered in person or by
courier or (ii) on the third calendar day after it is sent by
facsimile, with written confirmation of receipt, if to the
Company, to: Chairman of the Board, CalEnergy Company, Inc. at
302 South 36th Street, Suite 400, Omaha, Nebraska 68131, fax
number (402) 231-1658, and, if to the Executive, at 302 South
36th Street, Suite 400, Omaha, Nebraska 68131, fax number (402)
231-1658 or to such other address as may be subsequently
designated by the Company or the Executive in writing to the
other party.

               A waiver by a party of a breach of this Agreement
will not constitute a waiver of any other breach, prior or
subsequent, of this Agreement.

     IN WITNESS WHEREOF, the Company and the Executive have
entered into this Agreement as of August 6, 1996.



                            CALENERGY COMPANY, INC.
                             


                            By:/S/____________________________
                                      David L. Sokol
                                      Chairman of the Board


                             EXECUTIVE:
                             
                             
                             
                             
                             By:/S/____________________________
                                  Steven A. McArthur


                            EXHIBIT A
                                
                          Defined Terms
                                
                                
                                
     "Affiliate" means, with respect to a Person, (a) any Person
directly or indirectly owning, controlling, or holding power to
vote 10% or more of the outstanding voting securities of the
Person; (b) any Person 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held
with power to vote by the Person; (c) any Person directly or
indirectly controlling, controlled by or under common control
with, the Person; and (d) any officer or director of the Person,
or of any Person directly or indirectly controlling the Person,
controlled by the Person or under common control with the Person.
As used in this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person.

     "Agreement" means this Employment Agreement dated as of
August 6, 1996, by and between the Company and the Executive, as
it may be amended from time to time in accordance with its terms.

     "Board" means the Board of Directors of the Company.

     "Cause" means any or all of the following:
     
(a)  the willful and continued failure by the Executive to
     perform substantially the services and duties contemplated by
     this Agreement (other than any such failure resulting from the
     Executive's incapacity due to disability);
     
(b)  the willful engaging by the Executive in gross misconduct
     which is injurious to the business or reputation of the Company
     in any material respect;
     
(c)  the gross negligence of the Executive in performing the
     services contemplated by this Agreement which is injurious to the
     business or reputation of the Company in any material respect; or
     
(d)  Executive's conviction of, or pleading guilty or no contest
     to, a felony involving moral turpitude.
     
     "Change in Control" means (i) approval by the Company's
stockholders of (A) the dissolution of the Company, (B) a merger
or consolidation of the Company where the Company is not the
surviving corporation, except for a transaction the principal
purpose of which is to change the state in which the Company is
incorporated, (C) a reverse merger in which the Company survives
as an entity but in which securities possessing more than 50
percent of the total combined voting power of the Company's
securities are transferred to a person or persons different from
those who hold such securities immediately prior to the merger or
(D) the sale or other disposition of all or substantially all of
the Company's assets; (ii) the direct or indirect acquisition by
any Person or related group of Persons (other than an acquisition
from or by the Company or by a Company-sponsored employee benefit
plan or by a Person that directly or indirectly controls, is
controlled by, or is under common control with, the Company) of
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) of securities
possessing more than 50 percent of the total combined voting
power of the Company's outstanding voting securities; or (iii) a
change in the composition of the Board over a period of thirty-
six (36) months or less such that a majority of the Board members
cease, by reason of one or more contested elections for Board
membership or by one or more actions by written consent of
stockholders, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such
period or (B) have been elected or nominated for election as
Board members during such period by at least a majority of the
Board members described in clause (A) who were still in office at
the time such election or nomination was approved by the Board.

     "Code" means the Internal Revenue Code of 1986, as amended.

     "Company" means CalEnergy Company, Inc., a Delaware
corporation, and any successor or assign permitted under the
Agreement.

     "Disability" means, with respect to the Executive, that the
Executive has become physically or mentally incapacitated or
disabled so that, in the reasonable judgment of majority of the
Chairman of the Board, he is unable to perform his duties under
this Agreement and such other services as he performed on behalf
of the Company before incurring such incapacity or disability.

     "Good Reason" means any of the following events, but only if
such event(s) occur on, after or in connection with a Change in
Control:  (i) the failure by the Company to pay to the Executive,
for a material period of time and in a material amount,
compensation due and payable by the Company under Section 4(a) of
this Agreement; (ii) any reduction by the Company of the title,
office, duties or authority of the Executive in any material
respect; or (iii) any relocation of the Executive's primary place
of employment to a location more than 25 miles from Omaha,
Nebraska.

     "Permanent Disability" means a Disability which has
continued for at least six consecutive calendar months.

     "Person" means any natural person, general partnership,
limited partnership, corporation, joint venture, trust, business
trust, or other entity.

     "Term of Employment" means the period of time beginning on
August 6, 1996, and ending on the fifth anniversary of such date,
unless earlier terminated pursuant to Section 7(a) or
automatically extended pursuant to the following sentence.  The
Term of Employment will be automatically extended for one year on
each anniversary of the date of this Agreement beginning on the
fifth anniversary unless the Executive has given the Company, or
the Company has given the Executive, a notice declining automatic
extension at least 365 calendar days before the anniversary.

     "Termination Date" means the date of termination of
employment of the Executive pursuant to Section 7 of this
Agreement.