UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-Q

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

                For the quarterly period ended September 30, 2001
                          Commission File No. 33-95538

                         SALTON SEA FUNDING CORPORATION
             (Exact name of registrant as specified in its charter)

                                   47-0790493
                        (IRS Employer Identification No.)

 Salton Sea Brine Processing L.P.      California             33-0601721
 Salton Sea Power Generation L.P.      California             33-0567411
 Fish Lake Power LLC                   Delaware               33-0453364
 Vulcan Power Company                  Nevada                 95-3992087
 CalEnergy Operating Corporation       Delaware               33-0268085
 Salton Sea Royalty LLC                Delaware               47-0790492
 VPC Geothermal LLC                    Delaware               91-1244270
 San Felipe Energy Company             California             33-0315787
 Conejo Energy Company                 California             33-0268500
 Niguel Energy Company                 California             33-0268502
 Vulcan/BN Geothermal Power Company    Nevada                 33-3992087
 Leathers, L.P.                        California             33-0305342
 Del Ranch, L.P.                       California             33-0278290
 Elmore, L.P.                          California             33-0278294
 Salton Sea Power L.L.C.               Delaware               47-0810713
 CalEnergy Minerals LLC                Delaware               47-0810718
 CE Turbo LLC                          Delaware               47-0812159
 CE Salton Sea Inc.                    Delaware               47-0810711
 Salton Sea Minerals Corp.             Delaware               47-0811261
 (Exact name of Registrants        (State or other        (I.R.S. Employer
as specified in their charters)    jurisdiction of        Identification No.)
                                                  incorporation or organization)

                302 S. 36th Street, Suite 400-A, Omaha, NE 68131
                     (Address of principal executive offices
                and Zip Code of Salton Sea Funding Corporation)

               Salton Sea Funding Corporation's telephone number,
                      including area code: (402) 231-1641

     Indicate  by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days:

                               Yes X          No

All common stock of Salton Sea Funding  Corporation is indirectly  held by Magma
Power Company. 100 shares of Common Stock were outstanding on November 14, 2001.

<PAGE>

                         SALTON SEA FUNDING CORPORATION

                                    Form 10-Q

                               September 30, 2001
                                  _____________

                                 C O N T E N T S


                          PART I: FINANCIAL INFORMATION


Item 1.          Financial Statements                                      Page

SALTON SEA FUNDING CORPORATION

Independent Accountants' Report                                               4

Balance Sheets, September 30, 2001 and December 31, 2000                      5

Statements of Operations for the Three and Nine Months Ended
    September 30, 2001 and 2000                                               6

Statements of Cash Flows for the Nine Months Ended
    September 30, 2001 and 2000                                               7

Notes to Financial Statements                                                 8

SALTON SEA GUARANTORS

Independent Accountants' Report                                              11

Combined Balance Sheets, September 30, 2001 and December 31, 2000            12

Combined Statements of Operations for the Three and Nine Months Ended
    September 30, 2001 and 2000                                              13

Combined Statements of Cash Flows for the Nine Months Ended
    September 30, 2001 and 2000                                              14

Notes to Combined Financial Statements                                       15

<PAGE>

PARTNERSHIP GUARANTORS

Independent Accountants' Report                                              18

Combined Balance Sheets, September 30, 2001 and December 31, 2000            19

Combined Statements of Operations for the Three and Nine Months Ended
    September 30, 2001 and 2000                                              20

Combined Statements of Cash Flows for the Nine Months Ended
    September 30, 2001 and 2000                                              21

Notes to Combined Financial Statements                                       22

SALTON SEA ROYALTY LLC

Independent Accountants' Report                                              26

Balance Sheets, September 30, 2001 and December 31, 2000                     27

Statements of Operations for the Three and Nine Months Ended
    September 30, 2001 and 2000                                              28

Statements of Cash Flows for the Nine Months Ended
    September 30, 2001 and 2000                                              29

Notes to Financial Statements                                                30

Item 2.          Management's Discussion and Analysis of
                 Financial Condition and Results of Operations               33


                           PART II: OTHER INFORMATION

Item 1.          Legal Proceedings                                           44
Item 2.          Changes in Securities                                       44
Item 3.          Defaults on Senior Securities                               44
Item 4.          Submission of Matters to a Vote of
                 Security Holders                                            44
Item 5.          Other Information                                           44
Item 6.          Exhibits and Reports on Form 8-K                            44

Signatures                                                                   45

<PAGE>


INDEPENDENT ACCOUNTANTS' REPORT



Board of Directors and Stockholder
Salton Sea Funding Corporation
Omaha, Nebraska

We have  reviewed  the  accompanying  balance  sheet of the Salton  Sea  Funding
Corporation as of September 30, 2001,  and the related  statements of operations
for the  three-month  and nine-month  periods ended September 30, 2001 and 2000,
and the  related  statements  of cash  flows for the  nine-month  periods  ended
September 30, 2001 and 2000. These financial  statements are the  responsibility
of the Company's management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America,  the
objective  of which is the  expression  of an opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be  made  to  such  financial  statements  for  them  to be in  conformity  with
accounting principles generally accepted in the United States of America.

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United  States of America,  the balance  sheet of the Salton Sea
Funding  Corporation  as of December 31,  2000,  and the related  statements  of
operations,  stockholder's  equity,  and cash flows for the year then ended (not
presented  herein);  and in our report dated January 18, 2001 (March 27, 2001 as
to Note 4), we expressed an unqualified  opinion on those financial  statements.
In our opinion,  the information set forth in the accompanying  balance sheet as
of December 31, 2000 is fairly stated, in all material respects,  in relation to
the balance sheet from which it has been derived.



DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 26, 2001

<PAGE>

                         SALTON SEA FUNDING CORPORATION
                                 BALANCE SHEETS
                (Dollars in Thousands, Except per Share Amounts)



                                         September 30,              December 31,
                                                2001                     2000
                                          (unaudited)
ASSETS
Cash                                       $   46,404                $    8,467
Prepaid expenses and other assets              13,963                     3,563
Current portion of secured project notes
  from Guarantors                              26,116                    23,658
                                           __________                __________
Total current assets                           86,483                    35,688

Secured project notes from Guarantors         505,962                   520,250
Investment in 1% of net assets of
    Guarantors                                  9,476                     9,437
                                           __________                __________
                                           $  601,921                $  565,375
                                           ==========                ==========

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities                        $   13,513                $    3,479
Due to affiliates                              43,033                     4,753
Current portion of long term debt              26,116                    23,658
                                           __________                __________
Total current liabilities                      82,662                    31,890

Senior secured notes and bonds                505,962                   520,250
                                           __________                __________
    Total liabilities                         588,624                   552,140

Commitments and contingencies (Note 3)

Stockholder's equity:
Common stock--authorized 1,000
    shares, par value $.01 per share;
    issued and outstanding 100 shares             ---                       ---
Additional paid-in capital                      5,366                     5,366
Retained earnings                               7,931                     7,869
                                           __________                __________
    Total stockholder's equity                 13,297                    13,235
                                           __________                __________
                                           $  601,921                $  565,375
                                           ==========                ==========

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

<PAGE>

                         SALTON SEA FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended                    Nine Months Ended
                                                         September 30,                       September 30,
                                                      2001              2000             2001             2000
Revenues:

<S>                                             <C>                <C>                <C>              <C>
Interest income                                 $     10,753       $   10,702         $  31,489        $  32,421
Equity in earnings of Guarantors                          22              279                39              335
                                                    ________        _________         _________        _________
Total revenues                                        10,775           10,981            31,528           32,756
                                                    ________        _________         _________        _________
Expenses:

General and administrative expenses                      283              234               746              711
Interest expense                                      10,183           10,434            30,676           31,831
                                                   _________        _________         _________        _________
Total expenses                                        10,466           10,668            31,422           32,542
                                                   _________        _________         _________        _________
Income before income taxes                               309              313               106              214
Provision for income taxes                               128              129                44               88
                                                   _________        _________         _________        _________
Net income                                      $        181       $      184         $      62        $     126
                                                   =========        =========         =========        =========
</TABLE>

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

<PAGE>

                         SALTON SEA FUNDING CORPORATION
                            STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)


                                                         Nine Months Ended
                                                            September 30,
                                                         2001              2000

Cash flows from operating activities:
    Net income                                   $         62      $        126
    Adjustments to reconcile net income to net
       cash flow from operating activities:
    Equity in earnings of Guarantors                      (39)             (335)
    Changes in assets and liabilities:
       Prepaid expenses and other assets              (10,400)          (10,474)
       Accrued liabilities                             10,034            10,266
                                                  ___________       ____________
    Net cash flows from operating activities             (343)             (417)

Cash flows from investing activities:
    Principal repayments of secured project
        notes from Guarantors                          11,830            22,552
                                                  ___________       ____________
     Net cash flows from investing activities          11,830            22,552

Cash flows from financing activities:
    Increase in due to affiliates                      38,280            22,266
    Repayment of senior secured notes and bonds       (11,830)          (22,552)
                                                  ___________       ____________
    Net cash flows from financing activities           26,450              (286)
                                                  ___________       ____________
Net change in cash                                     37,937            21,849

Cash at beginning of period                             8,467             2,086
                                                  ___________       ____________
Cash at end of period                            $     46,404      $     23,935
                                                 ============      ============


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

<PAGE>

                         SALTON SEA FUNDING CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

1.  General:

In the opinion of management of the Salton Sea Funding Corporation (the "Funding
Corporation"),  the  accompanying  unaudited  financial  statements  contain all
adjustments  (consisting only of normal recurring accruals) necessary to present
fairly the  financial  position  as of  September  30,  2001 and the  results of
operations  for the three and nine months ended  September 30, 2001 and 2000 and
cash flows for the nine months ended September 30, 2001 and 2000. The results of
operations  for the  nine  months  ended  September  30,  2001  and 2000 are not
necessarily indicative of the results to be expected for the full year.

The  unaudited  financial  statements  should  be read in  conjunction  with the
financial statements included in the Funding Corporation's annual report on Form
10-K for the year ended December 31, 2000.

2.  Accounting Pronouncements:

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial   Accounting  Standard  (SFAS)  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 "Accounting
for Derivative  Instruments and Hedging  Activities - Deferral of Effective Date
of FASB No. 133" and  amended by SFAS 138  "Accounting  for  Certain  Derivative
Instruments  and Certain  Hedging  Activities".  SFAS 133  requires an entity to
recognize  all of  its  derivatives  as  either  assets  or  liabilities  in its
statement of financial position and measure those instruments at fair value. The
Funding  Corporation  implemented  the new  standards  on January  1, 2001.  The
initial  adoption  of SFAS 133 did not have a  material  impact  on the  Funding
Corporation's  financial  position,  results of  operations or any impact on its
cash flows.

In  June  2001,   FASB  approved  the  issuance  of  SFAS  No.  141,   "Business
Combinations",  and SFAS No. 142, "Goodwill and Other Intangible Assets".  These
standards,  issued in July 2001, establish accounting and reporting for business
combinations.  SFAS No. 141  requires  all  business  combinations  entered into
subsequent  to June 30, 2001 to be accounted  for using the  purchase  method of
accounting. SFAS No. 142 provides that goodwill and other intangible assets with
indefinite lives will not be amortized,  but will be tested for impairment on an
annual  basis.  These  standards  are  effective  for  the  Funding  Corporation
beginning on January 1, 2002.  The Funding  Corporation  has not  quantified the
impact resulting from the adoption of these standards.

In July  2001,  FASB  issued  SFAS No.  143,  "Accounting  for Asset  Retirement
Obligations"  (SFAS 143).  This  standard  addresses  financial  accounting  and
reporting  for  obligations  related to the  retirement  of tangible  long-lived
assets and the related  asset  retirement  costs.  SFAS 143 is effective for the
Company's fiscal year beginning January 1, 2003. Management is in the process of
evaluating  the impact this  standard  will have on the  Company's  consolidated
financial statements.

In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal
of Long-Lived  Assets" (SFAS 144). The standard addresses  financial  accounting
and  reporting  for the  impairment  or  disposal  of  long-lived  assets and is
effective for the Company's fiscal year beginning January 1, 2002. Management is
in the  process  of  evaluating  the  impact  this  standard  will  have  on the
Guarantors' consolidated financial statements.

3.  Contingency:

Southern  California  Edison  ("Edison"),  a  wholly-owned  subsidiary of Edison
International,  is a  public  utility  primarily  engaged  in  the  business  of
supplying   electric  energy  to  retail   customers  in  Central  and  Southern
California,  excluding Los Angeles.  The Funding Corporation is aware that there
have  been  public   announcements   that  Edison's   financial   condition  has
deteriorated as a result of reduced  liquidity.  Edison's senior  unsecured debt
obligations are currently rated Caa2 by Moody's and D by S&P.

<PAGE>

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

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

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require that Edison make a series of payments to repay the
past  due  balances  under  the  Power  Purchase   Agreements  (the  "stipulated
amounts").  The first payment of approximately $11.6 million,  which represented
10% of the  stipulated  amounts,  was received  June 22, 2001. A second  partial
payment of 10% is payable  within 5 days  following the  occurrence of Events to
restore Edison to  creditworthiness  (the "Effective  Date"). The final payment,
representing the remaining stipulated amounts, shall be paid on the 5th business
day  after  Edison  receives  proceeds  from the  financing  resulting  from the
occurrence of Events to restore Edison to creditworthiness. In addition to these
payments,  Edison is required to make monthly interest payments  calculated at a
rate of 7% per  annum on the  outstanding  stipulated  amounts.  The  Settlement
Agreements  also provides a revised  energy  pricing  structure,  whereby Edison
elects  to pay the  Imperial  Valley  Projects  a  fixed  energy  price  of 5.37
cents/kilowatt  hour in lieu of the  Commission-approved  SRAC Methodology under
the  Power  Purchase  Agreements,  commencing  on the  first  day  of the  month
following the Effective  Date and expiring five years from such date.  All other
contract terms remain unchanged.

As a result of the aforementioned Settlement Agreements,  the Guarantors resumed
power sales to Edison on June 22, 2001. Energy payments are currently calculated
using the SRAC  formulas set forth in the Power  Purchase  Agreements  until the
fixed rate period begins.

On October 2, 2001 the California  Public Utilities  Commission (PUC) and Edison
reached a settlement in the Filed Rate Doctrine  lawsuit Edison filed in Federal
Court against the PUC. By its own terms,  the  settlement is intended to restore
Edison  to  creditworthiness  so  that  it  is  able  to  resume  procuring  the
electricity  needed by its customers;  limit ratepayers' costs of paying off the
debt;  and maintain the state's role in regulating the investor owned utility by
enabling Edison to pay down its back debts over a reasonable  period of time. As
a result  of such  settlement  the  Guarantors  believe  the  conditions  to the
Effective  Date under the  Settlement  Agreements  have been  satisfied.  Edison
disputes such  conditions  have been  satisfied.  The  Guarantors are vigorously
pursing enforcement of their rights under the Settlement Agreements.

<PAGE>

As a result  of  Edison's  failure  to make the  payments  due  under  the Power
Purchase  Agreements  and the recent  downgrades  of  Edison's  credit  ratings,
Moody's  downgraded  the ratings for the Salton Sea Funding  Securities  to Caa2
(negative  outlook)  and S&P  downgraded  the ratings for the Salton Sea Funding
Securities to BBB- and placed the Salton Sea Funding Securities on "credit watch
negative".  Following the execution of the Settlement Agreements, Moody's placed
the Salton Sea Funding Securities on "credit watch positive".

The Guarantors' are  contractually  entitled to receive payments under the Power
Purchase Agreements.  However, due to the uncertainties associated with Edison's
financial condition and failure to pay contractual  obligations,  the Guarantors
have established an allowance for doubtful accounts of approximately $90 million
on September 30, 2001.

<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT



Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska

We have  reviewed  the  accompanying  combined  balance  sheet of the Salton Sea
Guarantors  as of September  30, 2001,  and the related  combined  statements of
operations for the three-month  and nine-month  periods ended September 30, 2001
and 2000, and the related  combined  statements of cash flows for the nine-month
periods ended September 30, 2001 and 2000.  These  financial  statements are the
responsibility of the Salton Sea Guarantors' management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America,  the
objective  of which is the  expression  of an opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to such combined financial  statements for them to be in conformity with
accounting principles generally accepted in the United States of America.

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United  States of America,  the  combined  balance  sheet of the
Salton  Sea  Guarantors  as of  December  31,  2000,  and the  related  combined
statements of operations,  Guarantors'  equity, and cash flows for the year then
ended (not  presented  herein);  and in our report dated January 18, 2001 (March
27, 2001 as to Note 6), we expressed an  unqualified  opinion on those  combined
financial  statements.  In  our  opinion,  the  information  set  forth  in  the
accompanying combined balance sheet as of December 31, 2000 is fairly stated, in
all material  respects,  in relation to the combined balance sheet from which it
has been derived.


DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 26, 2001

<PAGE>

                              SALTON SEA GUARANTORS
                             COMBINED BALANCE SHEETS
                             (Dollars in Thousands)



                                                   September 30,    December 31,
                                                         2001            2000
                                                    (unaudited)
ASSETS
Accounts receivable, net of allowance of $29,189
    and $0, respectively (Note 4)                  $   28,829       $  24,396
Prepaid expenses and other assets                       5,733           8,699
                                                   __________       _________
Total current assets                                   34,562          33,095

Restricted cash                                           ---              17
Property, plant, contracts and equipment, net         561,228         566,577
Excess of cost over fair value of net assets
   acquired, net                                       44,596          45,574
                                                   __________       _________
                                                   $  640,386       $ 645,263
                                                   ==========       =========


LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable                                   $      408       $       5
Accrued liabilities                                    16,161          10,826
Current portion of long term debt                      18,902          17,319
                                                   __________       _________
Total current liabilities                              35,471          28,150

Due to affiliates                                      17,603          18,720
Senior secured project note                           256,656         266,898
                                                   __________       __________
    Total liabilities                                 309,730         313,768

Commitment and contingencies (Note 4)

Total Guarantors' equity                              330,656         331,495
                                                   __________       _________
                                                   $  640,386       $ 645,263
                                                   ==========       =========

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

<PAGE>

                              SALTON SEA GUARANTORS
                        COMBINED STATEMENTS OF OPERATIONS
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        Three Months Ended                Nine Months Ended
                                                            September 30,                    September 30,
                                                      2001            2000               2001            2000
                                                   _________        _________         _________        _________

Revenues:

<S>                                              <C>                <C>               <C>              <C>
Sales of electricity                             $    22,853        $  32,375         $  77,847        $  59,873
Interest and other income                                652              119             1,629              332
                                                   _________        _________         _________        _________
Total revenues                                        23,505           32,494            79,476           60,205
                                                   _________        _________         _________        _________
Expenses:

Operating, general and
   administration                                     15,438           11,288            43,004           23,852
Depreciation and amortization                          4,372            4,751            13,382           13,072
Interest expense                                       5,574            5,745            16,878           17,376
Less capitalized interest                                ---           (1,988)           (1,692)          (8,124)
                                                   _________        _________         _________        _________

Total expenses                                        25,384           19,796            71,572           46,176
                                                   _________        _________         _________        _________
Income (loss) before cumulative
  effect of accounting change                         (1,879)          12,698             7,904           14,029

Cumulative effect of accounting change                   ---              ---            (8,743)             ---
                                                   _________        _________         _________        _________

Net income (loss)                                $    (1,879)       $  12,698         $    (839)       $  14,029
                                                   =========        =========         =========        =========
</TABLE>

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



<PAGE>


                              SALTON SEA GUARANTORS
                        COMBINED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                           September 30,
                                                                                        2001              2000
Cash flows from operating activities:
<S>                                                                             <C>                <C>
Net income (loss)                                                               $          (839)   $      14,029
Adjustments to reconcile net income (loss) to net
    cash flows from operating activities:
       Depreciation and amortization                                                     13,382           13,072
       Cumulative effect of change in accounting principle                                8,743              ---
       Changes in assets and liabilities:
         Accounts receivable                                                             (4,433)         (10,694)
         Prepaid expenses and other assets                                               (5,777)           2,533
         Accounts payable and accrued
          liabilities                                                                     5,738            4,985
                                                                                _______________    _____________
Net cash flows from operating activities                                                 16,814           23,925
                                                                                _______________    _____________
Cash flows from investing activities:
Capital expenditures                                                                     (7,055)         (17,522)
Decrease in restricted cash                                                                  17            2,526
                                                                                _______________    _____________
Net cash flows from investing activities                                                 (7,038)         (14,996)
                                                                                _______________    _____________
Cash flows from financing activities:
Increase (decrease) in due to affiliates                                                 (1,117)             298
Contributions from _________                                                                 50              ---
Repayment of senior secured project note                                                 (8,659)          (9,227)
Net cash flows from financing activities                                                 (9,776)          (8,929)
                                                                                _______________    _____________
Net change in cash                                                                          ---              ---
Cash at beginning of period                                                                 ---              ---

Cash at end of period                                                           $           ---    $         ---
                                                                                ===============    =============
</TABLE>

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

<PAGE>

                              SALTON SEA GUARANTORS
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                   (Unaudited)
1.  General:

In the opinion of management of the Salton Sea  Guarantors  (the  "Guarantors"),
the  accompanying   unaudited  financial   statements  contain  all  adjustments
(consisting only of normal recurring  accruals)  necessary to present fairly the
financial  position as of September 30, 2001 and the results of  operations  for
the three and nine months ended  September  30, 2001 and 2000 and cash flows for
the nine months ended September 30, 2001 and 2000. The results of operations for
the nine months ended September 30, 2001 and 2000 are not necessarily indicative
of the results to be expected for the full year.

The  unaudited  financial  statements  shall  be read in  conjunction  with  the
financial statements included in the Funding Corporation's annual report on Form
10-K for the year ended December 31, 2000.

Certain  prior year  amounts  have been  reclassified  in order to conform  with
current year classifications.

2.  Accounting Policy Change:

The Guarantors  have changed their policy of accounting  for major  maintenance,
overhaul and well workover  costs.  These costs,  which have  historically  been
accounted for using deferral  methods,  are now being expensed as incurred.  The
new policy went into effect January 1, 2001 and the  Guarantors  have recorded a
cumulative effect of this change of $8.7 million.

3.  Accounting Pronouncements:

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial   Accounting  Standard  (SFAS)  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 "Accounting
for Derivative  Instruments and Hedging  Activities - Deferral of Effective Date
of FASB No. 133" and  amended by SFAS 138  "Accounting  for  Certain  Derivative
Instruments  and Certain  Hedging  Activities".  SFAS 133  requires an entity to
recognize  all of  its  derivatives  as  either  assets  or  liabilities  in its
statement of financial position and measure those instruments at fair value. The
Guarantors  implemented  the new  standards  on  January 1,  2001.  The  initial
adoption of SFAS 133 did not have a material impact on the Guarantors' financial
position, results of operations or any impact on their cash flows.

In  June  2001,   FASB  approved  the  issuance  of  SFAS  No.  141,   "Business
Combinations",  and SFAS No. 142, "Goodwill and Other Intangible Assets".  These
standards,  issued in July 2001, establish accounting and reporting for business
combinations.  SFAS No. 141  requires  all  business  combinations  entered into
subsequent  to June 30, 2001 to be accounted  for using the  purchase  method of
accounting. SFAS No. 142 provides that goodwill and other intangible assets with
indefinite lives will not be amortized,  but will be tested for impairment on an
annual basis.  These  standards are  effective for the  Guarantors  beginning on
January 1, 2002.  The Guarantors  have not quantified the impact  resulting from
the adoption of these standards.

In July  2001,  FASB  issued  SFAS No.  143,  "Accounting  for Asset  Retirement
Obligations"  (SFAS 143).  This  standard  addresses  financial  accounting  and
reporting  for  obligations  related to the  retirement  of tangible  long-lived
assets and the related  asset  retirement  costs.  SFAS 143 is effective for the
Guarantor's fiscal year beginning January 1, 2003.  Management is in the process
of evaluating the impact this standard will have on the Guarantors' consolidated
financial statements.

In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal
of Long-Lived  Assets" (SFAS 144). The standard addresses  financial  accounting
and  reporting  for the  impairment  or  disposal  of  long-lived  assets and is
effective for the Guarantors' fiscal year beginning January 1, 2002.  Management
is in the  process of  evaluating  the  impact  this  standard  will have on the
Guarantors' consolidated financial statements.

<PAGE>

4.  Contingency:

Southern  California  Edison  ("Edison"),  a  wholly-owned  subsidiary of Edison
International,  is a  public  utility  primarily  engaged  in  the  business  of
supplying   electric  energy  to  retail   customers  in  Central  and  Southern
California, excluding Los Angeles. The Guarantors are aware that there have been
public  announcements  that Edison's  financial  condition has deteriorated as a
result of reduced  liquidity.  Edison's  senior  unsecured debt  obligations are
currently rated Caa2 by Moody's and D by S&P.

Edison failed to pay approximately $42.3 million to the Guarantors due under the
Power Purchase  Agreements for power delivered in November and December 2000 and
January, February and March 2001, although the Power Purchase Agreements provide
for billing and payment on a schedule  where  payments  would have normally been
received in early January, February, March, April and May 2001.

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

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

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

<PAGE>

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require that Edison make a series of payments to repay the
past  due  balances  under  the  Power  Purchase   Agreements  (the  "stipulated
amounts").  The first payment of approximately $11.6 million,  which represented
10% of the  stipulated  amounts,  was received  June 22, 2001. A second  partial
payment of 10% is payable  within 5 days  following the  occurrence of Events to
restore Edison to  creditworthiness  (the "Effective  Date"). The final payment,
representing the remaining stipulated amounts, shall be paid on the 5th business
day  after  Edison  receives  proceeds  from the  financing  resulting  from the
occurrence of Events to restore Edison to creditworthiness. In addition to these
payments,  Edison is required to make monthly interest payments  calculated at a
rate of 7% per  annum on the  outstanding  stipulated  amounts.  The  Settlement
Agreements  also provides a revised  energy  pricing  structure,  whereby Edison
elects  to pay the  Imperial  Valley  Projects  a  fixed  energy  price  of 5.37
cents/kilowatt  hour in lieu of the  Commission-approved  SRAC Methodology under
the  Power  Purchase  Agreements,  commencing  on the  first  day  of the  month
following the Effective  Date and expiring five years from such date.  All other
contract terms remain unchanged.

As a result of the aforementioned Settlement Agreements,  the Guarantors resumed
power sales to Edison on June 22, 2001. Energy payments are currently calculated
using the SRAC  formulas set forth in the Power  Purchase  Agreements  until the
fixed rate period begins.

On October 2, 2001 the California  Public Utilities  Commission (PUC) and Edison
reached a settlement in the Filed Rate Doctrine  lawsuit Edison filed in Federal
Court against the PUC. By its own terms,  the  settlement is intended to restore
Edison  to  creditworthiness  so  that  it  is  able  to  resume  procuring  the
electricity  needed by its customers;  limit ratepayers' costs of paying off the
debt;  and maintain the state's role in regulating the investor owned utility by
enabling Edison to pay down its back debts over a reasonable  period of time. As
a result  of such  settlement  the  Guarantors  believe  the  conditions  to the
Effective  Date under the  Settlement  Agreements  have been  satisfied.  Edison
disputes such  conditions  have been  satisfied.  The  Guarantors are vigorously
pursing enforcement of their rights under the Settlement Agreements.

As a result  of  Edison's  failure  to make the  payments  due  under  the Power
Purchase  Agreements  and the recent  downgrades  of  Edison's  credit  ratings,
Moody's has downgraded the ratings for the Salton Sea Funding Securities to Caa2
(negative outlook) and S&P has downgraded the ratings for the Salton Sea Funding
Securities  to BBB- and has placed the Salton Sea Funding  Securities on "credit
watch negative".  Following the execution of the Settlement Agreements,  Moody's
placed the Salton Sea Funding Securities on "credit watch positive".

The  Guarantors  are  contractually  entitled to receive  payments due under the
Power Purchase  Agreements.  However,  due to the uncertainties  associated with
Edison's financial condition and failure to pay, the Guarantors have established
an allowance for doubtful  accounts of approximately  $29.2 million at September
30, 2001.  The allowance for doubtful  accounts has been recorded as a reduction
of net sales in the statement of operations.

<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT



Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska

We have reviewed the  accompanying  combined  balance  sheet of the  Partnership
Guarantors  as of  September  30,  2001,  the  related  combined  statements  of
operations for the three-month  and nine-month  periods ended September 30, 2001
and 2000, and the related  combined  statements of cash flows for the nine-month
periods ended September 20, 2001 and 2000.  These  financial  statements are the
responsibility of the Partnership Guarantors' management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America,  the
objective  of which is the  expression  of an opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to such combined financial  statements for them to be in conformity with
accounting principles generally accepted in the United States of America.

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United  States of America,  the  combined  balance  sheet of the
Partnership  Guarantors  as of  December  31,  2000,  and the  related  combined
statements of  operations,  Guarantors'  equity and cash flows for the year then
ended (not  presented  herein);  and in our report dated January 18, 2001 (March
27, 2001 as to Note 8A), we expressed an  unqualified  opinion on those combined
financial  statements.  In  our  opinion,  the  information  set  forth  in  the
accompanying combined balance sheet as of December 31, 2000 is fairly stated, in
all material  respects,  in relation to the combined balance sheet from which it
has been derived.


DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 26, 2001


<PAGE>



                             PARTNERSHIP GUARANTORS
                             COMBINED BALANCE SHEETS
                             (Dollars in Thousands)


                                                    September 30,   December 31,
                                                          2001            2000
 (unaudited)
ASSETS
Accounts receivable, net of allowance of $60,802
    and $0, respectively (Note 4)                  $     42,326   $      28,319
Prepaid expenses and other assets                        19,538          26,661
                                                      _________       _________
Total current liabilities                                61,864          54,980

Restricted cash                                          29,657             106
Due from affiliates                                      25,224          35,066
Property, plant, contracts and equipment, net           468,365         470,804
Construction in progress                                150,134         165,460
Management fee                                           69,305          70,855
Excess of cost over fair value of net assets
  acquired, net                                         121,757         124,430
                                                      _________       _________
                                                   $    926,306   $     921,701
                                                    ===========       =========

LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable                                   $      2,738   $         101
Accrued liabilities                                      23,934          17,722
Current portion of long term debt                         3,267           1,907
                                                      _________       _________
Total current liabilities                                29,939          19,730

Senior secured project notes                            246,429         248,743
Deferred income taxes                                   100,599         101,734
                                                      _________       _________
Total liabilities                                       376,967         370,207

Commitments and contingencies (Note 4)

Guarantors' equity:
Common stock                                                  3               3
Additional paid-in capital                              387,663         387,663
Retained earnings                                       161,673         163,828
                                                      _________       _________
Total Guarantors' equity                                549,339         551,494
                                                      _________       _________
                                                   $    926,306    $    921,701
                                                      =========       =========

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

<PAGE>

                             PARTNERSHIP GUARANTORS
                        COMBINED STATEMENTS OF OPERATIONS
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      Three Months Ended                 Nine Months Ended
                                                           September 30,                   September 30,
                                                      2001            2000              2001             2000
                                                   _________        _________         _________        _________
Revenues:

<S>                                                <C>              <C>               <C>              <C>
Sales of electricity                               $  20,782        $  35,063         $  64,352        $  65,080
Interest and other income                              1,702            1,783             2,642            2,884
                                                   _________        _________         _________        _________
Total revenues                                        22,484           36,846            66,994           67,964
                                                   _________        _________         _________        _________
Expenses:

Operating, general and
   administration                                      8,974           12,119            35,646           29,427
Depreciation and amortization                          5,877            4,966            17,895           14,459
Interest expense                                       4,857            4,984            14,479           15,124
Less capitalized interest                             (2,855)          (4,855)          (10,338)         (14,684)
                                                   _________        _________         _________        _________

Total expenses                                        16,853           17,214            57,682           44,326
                                                   _________        _________         _________        _________
Income before income taxes                             5,631           19,632             9,312           23,638
Provision for income taxes                             1,944            6,477             3,213            7,799
                                                   _________        _________         _________        _________

Income before cumulative
  effect of accounting change                          3,687           13,155             6,099           15,839

Cumulative effect of accounting
  change, net of tax                                     ---              ---            (8,254)             ---

Net income (loss)                                 $    3,687         $ 13,155        $   (2,155)      $   15,839
                                                  ==========        =========        ==========       ==========
</TABLE>

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

<PAGE>


                             PARTNERSHIP GUARANTORS
                        COMBINED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                            September 30,
                                                                                          2001            2000
Cash flows from operating activities:
<S>                                                                             <C>                <C>
Net income (loss)                                                               $       (2,155)    $      15,839
Adjustments to reconcile net income (loss) to net
    cash flow from operating activities:
       Depreciation and amortization                                                    17,895            14,459
       Cumulative effect of change in accounting principle, net of tax                   8,254               ---
       Deferred income taxes                                                             3,213             7,799
       Changes in assets and liabilities:
          Accounts receivable                                                          (14,007)           (7,304)
          Prepaid expenses and other assets                                             (5,481)           (4,843)
          Accounts payable and accrued
           liabilities                                                                   8,849             5,098
                                                                                ______________     _____________
Net cash flows from operating activities                                                16,568            31,048
                                                                                ______________     _____________
Cash flows from investing activities:
Capital expenditures                                                                   (11,394)          (11,887)
Capital expenditures-construction                                                      (14,322)          (96,314)
Receipt of liquidated damages                                                           29,648               ---
Decrease (increase) in restricted cash                                                 (29,551)           55,468
Management fee                                                                             163            (1,537)
                                                                                ______________     _____________
Net cash flows from investing activities                                               (25,456)          (54,270)
                                                                                ______________     _____________
Cash flows from financing activities:
Repayments of senior secured project notes                                                (954)           (8,562)
Decrease in due from affiliates                                                          9,842            31,784
                                                                                ______________     _____________
Net cash flows from financing activities                                                 8,888            23,222
                                                                                ______________     _____________
Net change in cash                                                                         ---               ---

Cash at beginning of period                                                                ---               ---
                                                                                ______________     _____________
Cash at end of period                                                           $          ---     $         ---
                                                                                ==============     =============
</TABLE>

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

<PAGE>

                             PARTNERSHIP GUARANTORS
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                   (Unaudited)

1.  General:

In the opinion of management of the Partnership  Guarantors (the  "Guarantors"),
the accompanying unaudited combined financial statements contain all adjustments
(consisting only of normal recurring  accruals)  necessary to present fairly the
financial  position as of September 30, 2001 and the results of  operations  for
the three and nine months ended  September  30, 2001 and 2000 and cash flows for
the nine months ended September 30, 2001 and 2000. The results of operations for
the nine months ended September 30, 2001 and 2000 are not necessarily indicative
of the results to be expected for the full year.

The  unaudited  financial  statements  shall  be read in  conjunction  with  the
financial statements included in the Funding Corporation's annual report on Form
10-K for the year ended December 31, 2000.

Certain  prior year  amounts  have been  reclassified  in order to conform  with
current year classifications.

2.  Accounting Policy Change:

The Guarantors  have changed their policy of accounting  for major  maintenance,
overhaul and well workover  costs.  These costs,  which have  historically  been
accounted  for using  deferral  methods,  will be expensed as incurred.  The new
policy  went into  effect  January 1, 2001 and the  Guarantors  have  recorded a
cumulative effect of $8.3 million, net of tax.

3.  Accounting Pronouncements:

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial   Accounting  Standard  (SFAS)  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 "Accounting
for Derivative  Instruments and Hedging  Activities - Deferral of Effective Date
of FASB No. 133" and  amended by SFAS 138  "Accounting  for  Certain  Derivative
Instruments  and Certain  Hedging  Activities".  SFAS 133  requires an entity to
recognize  all of  its  derivatives  as  either  assets  or  liabilities  in its
statement of financial position and measure those instruments at fair value. The
Guarantors  implemented  the new  standards  on  January 1,  2001.  The  initial
adoption of SFAS 133 did not have a material impact on the Guarantors' financial
position, results of operations or any impact on their cash flows.

In  June  2001,   FASB  approved  the  issuance  of  SFAS  No.  141,   "Business
Combinations",  and SFAS No. 142, "Goodwill and Other Intangible Assets".  These
standards,  issued in July 2001, establish accounting and reporting for business
combinations.  SFAS No. 141  requires  all  business  combinations  entered into
subsequent  to June 30, 2001 to be accounted  for using the  purchase  method of
accounting. SFAS No. 142 provides that goodwill and other intangible assets with
indefinite lives will not be amortized,  but will be tested for impairment on an
annual basis.  These  standards are  effective for the  Guarantors  beginning on
January 1, 2002.  The Guarantors  have not quantified the impact  resulting from
the adoption of these standards.

In July  2001,  FASB  issued  SFAS No.  143,  "Accounting  for Asset  Retirement
Obligations"  (SFAS 143).  This  standard  addresses  financial  accounting  and
reporting  for  obligations  related to the  retirement  of tangible  long-lived
assets and the related  asset  retirement  costs.  SFAS 143 is effective for the
Guarantor's fiscal year beginning January 1, 2003.  Management is in the process
of evaluating the impact this standard will have on the Guarantors' consolidated
financial statements.

In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal
of Long-Lived  Assets" (SFAS 144). The standard addresses  financial  accounting
and  reporting  for the  impairment  or  disposal  of  long-lived  assets and is
effective for the Guarantors' fiscal year beginning January 1, 2002.  Management
is in the  process of  evaluating  the  impact  this  standard  will have on the
Guarantors' consolidated financial statements.

<PAGE>

4.  Contingency:

Southern  California  Edison  ("Edison"),  a  wholly-owned  subsidiary of Edison
International,  is a  public  utility  primarily  engaged  in  the  business  of
supplying   electric  energy  to  retail   customers  in  Central  and  Southern
California,  excluding Los Angeles.  The Funding Corporation is aware that there
have  been  public   announcements   that  Edison's   financial   condition  has
deteriorated as a result of reduced  liquidity.  Edison's senior  unsecured debt
obligations are currently rated Caa2 by Moody's and D by S&P.

Edison failed to pay  approximately  $76.9 million due under the Power  Purchase
Agreements  for power  delivered  in November  and  December  2000 and  January,
February and March 2001,  although  the Power  Purchase  Agreements  provide for
billing  and  payment on a schedule  where  payments  would have  normally  been
received in early January, February, March, April and May 2001.

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

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require that Edison make a series of payments to repay the
past  due  balances  under  the  Power  Purchase   Agreements  (the  "stipulated
amounts").  The first payment of approximately $11.6 million,  which represented
10% of the  stipulated  amounts,  was received  June 22, 2001. A second  partial
payment of 10% is payable  within 5 days  following the  occurrence of Events to
restore Edison to  creditworthiness  (the "Effective  Date"). The final payment,
representing the remaining stipulated amounts, shall be paid on the 5th business
day  after  Edison  receives  proceeds  from the  financing  resulting  from the
occurrence of Events to restore Edison to creditworthiness. In addition to these
payments,  Edison is required to make monthly interest payments  calculated at a
rate of 7% per  annum on the  outstanding  stipulated  amounts.  The  Settlement
Agreements  also provides a revised  energy  pricing  structure,  whereby Edison
elects  to pay the  Imperial  Valley  Projects  a  fixed  energy  price  of 5.37
cents/kilowatt  hour in lieu of the  Commission-approved  SRAC Methodology under
the  Power  Purchase  Agreements,  commencing  on the  first  day  of the  month
following the Effective  Date and expiring five years from such date.  All other
contract terms remain unchanged.

<PAGE>

As a result of the aforementioned Settlement Agreements,  the Guarantors resumed
power sales to Edison on June 22, 2001. Energy payments are currently calculated
using the SRAC  formulas set forth in the Power  Purchase  Agreements  until the
fixed rate period begins.

On October 2, 2001 the California  Public Utilities  Commission (PUC) and Edison
reached a settlement in the Filed Rate Doctrine  lawsuit Edison filed in Federal
Court against the PUC. By its own terms,  the  settlement is intended to restore
Edison  to  creditworthiness  so  that  it  is  able  to  resume  procuring  the
electricity  needed by its customers;  limit ratepayers' costs of paying off the
debt;  and maintain the state's role in regulating the investor owned utility by
enabling Edison to pay down its back debts over a reasonable  period of time. As
a result  of such  settlement  the  Guarantors  believe  the  conditions  to the
Effective  Date under the  Settlement  Agreements  have been  satisfied.  Edison
disputes such  conditions  have been  satisfied.  The  Guarantors are vigorously
pursing enforcement of their rights under the Settlement Agreements.

As a result  of  Edison's  failure  to make the  payments  due  under  the Power
Purchase  Agreements  and the recent  downgrades  of  Edison's  credit  ratings,
Moody's  downgraded  the ratings for the Salton Sea Funding  Securities  to Caa2
(negative outlook) and S&P has downgraded the ratings for the Salton Sea Funding
Securities to BBB- and placed the Salton Sea Funding Securities on "credit watch
negative".  Following the execution of the Settlement Agreements, Moody's placed
the Salton Sea Funding Securities on "credit watch positive".

The Guarantors  are  contractually  entitled to receive  payment under the Power
Purchase Agreements and Settlement Agreements. However, due to the uncertainties
associated  with Edison's  financial  condition  and failure to pay  contractual
obligations,  the Guarantors have established an allowance for doubtful accounts
of approximately $60.8 million on September 30, 2001. The allowance for doubtful
accounts  has been  recorded as a  reduction  of net sales in the  statement  of
operations.

CalEnergy Minerals LLC, a Partnership Guarantor ("Minerals LLC") owns the rights
to proprietary processes for the extraction of zinc from elements in solution in
the geothermal  brine and fluids  utilized at the  Guarantor's  Imperial  Valley
plants. A pilot plant has successfully  produced  commercial quality zinc at the
Guarantor's  Imperial  Valley  Project.  The  Guarantor's  affiliates  intend to
sequentially  develop facilities for the extraction of manganese,  silver, gold,
lead,  boron,  lithium and other products as they further develop the extraction
technology.

Minerals LLC is constructing  the Zinc Recovery  Project which will recover zinc
from the geothermal  brine (the "Zinc Recovery  Project").  Facilities are being
installed near the Guarantors sites to extract a zinc chloride solution from the
geothermal  brine  through  an ion  exchange  process.  This  solution  will  be
transported  to a central  processing  plant  where zinc ingots will be produced
through  solvent  extraction,  electrowinning  and casting  processes.  The Zinc
Recovery Project is designed to have a capacity of  approximately  30,000 metric
tones per year and is scheduled to commence  commercial  operations  in 2002. In
September  1999,  Minerals LLC entered into a sales  agreement  whereby all high
grade zinc produced by the Zinc Recovery  Project will be sold to Cominco,  Ltd.
The initial term of the agreement expires in December 2005.

The  Zinc  Recovery  Project  was  being   constructed  by  Kvaerner  U.S.  Inc.
("Kvaerner")  pursuant  to a date  certain,  fixed-price,  turnkey  engineering,
procure,   construct  and  manage  contract  (the  "Zinc  Recovery  Project  EPC
Contract").   On  June  14,  2001,  Minerals  LLC  issued  notices  of  default,
termination  and demand  for  payment  of  damages  to  Kvaerner  under the Zinc
Recovery Project EPC Contract due to failure to meet performance obligations. As
a result  of  Kvaerner's  failure  to pay  monetary  obligations  under the Zinc
Recovery EPC Contract,  the Guarantors drew $29.7 million under the EPC Contract
Letter of Credit on July 20, 2001. The  Guarantors  have entered into a time and
materials  reimbursable engineer,  procure and construction  management contract
with AMEC E&C Services, Inc. to complete the Zinc Recovery Project.

<PAGE>

On July 11,  2001,  Kvaerner  filed an Amended  Demand For  Arbitration  against
Minerals  LLC  characterizing  the nature of the dispute as  concerns  regarding
change orders and  performance  penalties.  Kvaerner did not state the amount of
its claim.

On August 7, 2001,  Minerals LLC filed an Answering  Statement and  Counterclaim
against  Kvaerner.  Minerals LLC denied all material  allegations  in Kvaerner's
Amended Demand for Arbitration, and asserted a counterclaim against Kvaerner for
breach of contract and specific performance. Minerals LLC alleged that its total
estimated   damage  for   Kvaerner's   breach  of  contract  are  in  excess  of
approximately  $60.0  million;  however,  Minerals LLC has offset  approximately
$42.5 million of these  damages by exercising  its rights under the EPC Contract
to claim the retainage and by drawing on a letter of credit. Therefore, Minerals
LLC  asked  for a  judgment  in  excess  of  approximately  $20.0  million.  The
arbitration is scheduled for June 2002.

<PAGE>



INDEPENDENT ACCOUNTANTS' REPORT



Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska

We have reviewed the accompanying balance sheet of the Salton Sea Royalty LLC as
of  September  30,  2001,  and the  related  statements  of  operations  for the
three-month  and nine-month  periods ended  September 30, 2001 and 2000, and the
related  statements of cash flows for the nine-month periods ended September 30,
2001 and 2000. These financial  statements are the  responsibility of the Salton
Sea Royalty LLC's management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America,  the
objective  of which is the  expression  of an opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be  made  to  such  financial  statements  for  them  to be in  conformity  with
accounting principles generally accepted in the United States of America.

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United  States of America,  the balance  sheet of the Salton Sea
Royalty LLC as of December 31, 2000,  and the related  statements of operations,
equity,  and cash flows for the year then ended (not presented  herein);  and in
our report dated January 18, 2001 (March 27, 2001 as to Note 5), we expressed an
unqualified  opinion  on  those  financial  statements.   In  our  opinion,  the
information set forth in the accompanying  balance sheet as of December 31, 2000
is fairly  stated,  in all material  respects,  in relation to the balance sheet
from which it has been derived.


DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 26, 2001

<PAGE>


                             SALTON SEA ROYALTY LLC
                                 BALANCE SHEETS
                (Dollars in Thousands, Except per Share Amounts)


                                                 September 30,      December 31,
                                                      2001             2000
                                                 (unaudited)
ASSETS
Prepaid expenses and other assets              $          44   $           82
                                                  __________       __________
Total current assets                                      44               82

Royalty stream, net                                   14,938           15,719
Excess of cost over fair value of net assets
  acquired, net                                       30,691           31,372
Due from affiliates                                   28,890           26,497
                                                  __________       __________
                                               $      74,563   $       73,670
                                                  ==========       ==========


LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities                            $         168   $           57
Current portion of long term debt                      3,947            4,434
                                                  __________       __________
Total current liabilities                              4,115            4,491

Senior secured project note                            2,877            4,607
                                                  __________       __________
    Total liabilities                                  6,992            9,098

Commitment and contingencies (Note 3)

Equity:
Common stock, par value $.01 per share; 100
  share authorized, issued and outstanding               ---              ---
Additional paid-in capital                             1,561            1,561
Retained earnings                                     66,010           63,011
                                                  __________       __________
Total equity                                          67,571           64,572
                                                  __________       __________
                                               $      74,563   $       73,670
                                                  ==========       ==========

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

<PAGE>

                             SALTON SEA ROYALTY LLC
                        COMBINED STATEMENTS OF OPERATIONS
                             (Dollars in Thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      Three Months Ended                 Nine Months Ended
                                                          September 30,                     September 30,
                                                      2001            2000              2001             2000
                                                   _________        _________         _________        _________

Revenues:
<S>                                                <C>              <C>               <C>              <C>
Royalty income                                     $     759        $   3,816         $   6,598        $   8,083

Expenses:
Operating, general and
   administrative expenses                               126            1,099             1,655            2,272
Amortization of royalty stream
   and goodwill                                          487              491             1,462            1,474
Interest expense                                         139              206               482              748
                                                   _________        _________         _________        _________
Total expenses                                           752            1,796             3,599            4,494
                                                   _________        _________         _________        _________
Net income                                         $       7        $   2,020         $   2,999        $   3,589
                                                   =========        =========         =========        =========
</TABLE>

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


<PAGE>



                             SALTON SEA ROYALTY LLC
                             STATEMENT OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)

                                                          Nine Months Ended
                                                             September 30,
                                                           2001          2000
Cash flows from operating activities:
Net income                                         $      2,999     $     3,589
Adjustments to reconcile net income to net
    cash flow from operating activities:
       Amortization of royalty stream and goodwill        1,462           1,474
       Changes in assets and liabilities:
       Prepaid expenses and other assets                     38             115
       Accrued liabilities                                  111             141
                                                   ____________     ___________
Net cash flows from operating activities                  4,610           5,319

Net cash flows from financing activities:
Increase in due from affiliates                          (2,393)           (558)
Repayment of senior secured project note                 (2,217)         (4,761)
                                                   ____________     ___________
Net cash flows from financing activities                 (4,610)         (5,319)

Net change in cash                                          ---             ---

Cash at beginning of period                                 ---             ---
                                                   ____________     ___________
Cash at end of period                              $        ---     $       ---
                                                   ============     ===========

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



<PAGE>

                             SALTON SEA ROYALTY LLC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)
1.  General:

In the opinion of management of the Salton Sea Royalty LLC (the "Company"),  the
accompanying unaudited financial statements contain all adjustments  (consisting
only of normal  recurring  accruals)  necessary to present  fairly the financial
position as of September  30, 2001 and the results of  operations  for the three
and nine months  ended  September  30, 2001 and 2000 and cash flows for the nine
months ended September 30, 2001 and 2000. The results of operations for the nine
months ended September 30, 2001 and 2000 are not  necessarily  indicative of the
results to be expected for the full year.

The  unaudited  financial  statements  shall  be read in  conjunction  with  the
financial statements included in the Funding Corporation's annual report on Form
10-K for the year ended December 31, 2000.

2.  Accounting Pronouncements:

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial   Accounting  Standard  (SFAS)  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 "Accounting
for Derivative  Instruments and Hedging  Activities - Deferral of Effective Date
of FASB No. 133" and  amended by SFAS 138  "Accounting  for  Certain  Derivative
Instruments  and Certain  Hedging  Activities".  SFAS 133  requires an entity to
recognize  all of  its  derivatives  as  either  assets  or  liabilities  in its
statement of financial position and measure those instruments at fair value. The
Guarantors  implemented  the new  standards  on  January 1,  2001.  The  initial
adoption of SFAS 133 did not have a material impact on the Guarantors' financial
position, results of operations or any impact on their cash flows.

In  June  2001,   FASB  approved  the  issuance  of  SFAS  No.  141,   "Business
Combinations",  and SFAS No. 142, "Goodwill and Other Intangible Assets".  These
standards,  issued in July 2001, establish accounting and reporting for business
combinations.  SFAS No. 141  requires  all  business  combinations  entered into
subsequent  to June 30, 2001 to be accounted  for using the  purchase  method of
accounting. SFAS No. 142 provides that goodwill and other intangible assets with
indefinite lives will not be amortized,  but will be tested for impairment on an
annual basis. These standards are effective for the Company beginning on January
1, 2002. The Company has not  quantified the impact  resulting from the adoption
of these standards.

In July  2001,  FASB  issued  SFAS No.  143,  "Accounting  for Asset  Retirement
Obligations"  (SFAS 143).  This  standard  addresses  financial  accounting  and
reporting  for  obligations  related to the  retirement  of tangible  long-lived
assets and the related  asset  retirement  costs.  SFAS 143 is effective for the
Company's fiscal year beginning January 1, 2003. Management is in the process of
evaluating  the impact this  standard  will have on the  Company's  consolidated
financial statements.

In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal
of Long-Lived  Assets" (SFAS 144). The standard addresses  financial  accounting
and  reporting  for the  impairment  or  disposal  of  long-lived  assets and is
effective for the Company's fiscal year beginning January 1, 2002. Management is
in the process of evaluating the impact this standard will have on the Company's
consolidated financial statements.

3.  Contingency:

Southern  California  Edison  ("Edison"),  a  wholly-owned  subsidiary of Edison
International,  is a  public  utility  primarily  engaged  in  the  business  of
supplying   electric  energy  to  retail   customers  in  Central  and  Southern
California,  excluding Los Angeles.  The Funding Corporation is aware that there
have  been  public   announcements   that  Edison's   financial   condition  has
deteriorated as a result of reduced  liquidity.  Edison's senior  unsecured debt
obligations are currently rated Caa2 by Moody's and D by S&P.

<PAGE>

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

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

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require that Edison make a series of payments to repay the
past  due  balances  under  the  Power  Purchase   Agreements  (the  "stipulated
amounts").  The first payment of approximately $11.6 million,  which represented
10% of the  stipulated  amounts,  was received  June 22, 2001. A second  partial
payment of 10% is payable  within 5 days  following the  occurrence of Events to
restore Edison to  creditworthiness  (the "Effective  Date"). The final payment,
representing the remaining stipulated amounts, shall be paid on the 5th business
day  after  Edison  receives  proceeds  from the  financing  resulting  from the
occurrence of Events to restore Edison to creditworthiness. In addition to these
payments,  Edison is required to make monthly interest payments  calculated at a
rate of 7% per  annum on the  outstanding  stipulated  amounts.  The  Settlement
Agreements  also provides a revised  energy  pricing  structure,  whereby Edison
elects  to pay the  Imperial  Valley  Projects  a  fixed  energy  price  of 5.37
cents/kilowatt  hour in lieu of the  Commission-approved  SRAC Methodology under
the  Power  Purchase  Agreements,  commencing  on the  first  day  of the  month
following the Effective  Date and expiring five years from such date.  All other
contract terms remain unchanged.

<PAGE>

As a result of the aforementioned Settlement Agreements,  the Guarantors resumed
power sales to Edison on June 22, 2001. Energy payments are currently calculated
using the SRAC  formulas set forth in the Power  Purchase  Agreements  until the
fixed rate period begins.

On October 2, 2001 the California  Public Utilities  Commission (PUC) and Edison
reached a settlement in the Filed Rate Doctrine  lawsuit Edison filed in Federal
Court against the PUC. By its own terms,  the  settlement is intended to restore
Edison  to  creditworthiness  so  that  it  is  able  to  resume  procuring  the
electricity  needed by its customers;  limit ratepayers' costs of paying off the
debt;  and maintain the state's role in regulating the investor owned utility by
enabling Edison to pay down its back debts over a reasonable  period of time. As
a result  of such  settlement  the  Guarantors  believe  the  conditions  to the
Effective  Date under the  Settlement  Agreements  have been  satisfied.  Edison
disputes such  conditions  have been  satisfied.  The  Guarantors are vigorously
pursing enforcement of their rights under the Settlement Agreements.

As a result  of  Edison's  failure  to make the  payments  due  under  the Power
Purchase  Agreements  and the recent  downgrades  of  Edison's  credit  ratings,
Moody's has downgraded the ratings for the Salton Sea Funding Securities to Caa2
(negative outlook) and S&P has downgraded the ratings for the Salton Sea Funding
Securities  to BBB- and has placed the Salton Sea Funding  Securities on "credit
watch negative".  Following the execution of the Settlement Agreements,  Moody's
placed the Salton Sea Funding Securities on "credit watch positive".

The Guarantors' are  contractually  entitled to receive payments under the Power
Purchase Agreements and Settlement Agreements. However, due to the uncertainties
associated  with Edison's  financial  condition and failures to pay  contractual
obligations,  the Guarantors have established an allowance for doubtful accounts
of approximately $90 million on September 30, 2001.


<PAGE>


                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

The following is  management's  discussion  and analysis of certain  significant
factors which have affected the Salton Sea Funding  Corporation's  (the "Funding
Corporation") and the Salton Sea Guarantors,  the Partnership Guarantors and the
Salton Sea Royalty LLC's  (collectively,  the "Guarantors")  financial condition
and  results of  operations  during the  periods  included  in the  accompanying
statements of operations.

Business

Funding  Corporation  was  organized for the sole purpose of acting as issuer of
senior  secured notes and bonds (the  "Securities").  The Securities are payable
from the  proceeds  of payments  made of  principal  and  interest on the senior
secured  project  notes  by the  Guarantors  to  the  Funding  Corporation.  The
Securities  are guaranteed on a joint and several basis by the  Guarantors.  The
guarantees of the Partnership  Guarantors and Salton Sea Royalty LLC are limited
to available cash flow. The Funding  Corporation does not conduct any operations
apart from the Securities.

Power Purchase Agreements

The  Vulcan,  Leathers,  Del Ranch and Elmore  partnerships  (collectively,  the
"Partnership  Projects") sell all electricity generated by the respective plants
pursuant to four  long-term  SO4  Agreements  between the  projects and Southern
California Edison Company ("Edison").  These SO4 Agreements provide for capacity
payments,  capacity bonus payments and energy payments.  Edison is contractually
obligated to make fixed  annual  capacity  payments to the projects  and, to the
extent that capacity  factors  exceed  certain  benchmarks,  is required to make
capacity bonus  payments.  The price for capacity and capacity bonus payments is
fixed  for  the  life of the  SO4  Agreements  and  the  capacity  payments  are
significantly  higher in the  months of June  through  September.  The price for
energy sold is based on the cost that Edison  avoids by  purchasing  energy from
the  Partnership  Projects  instead of obtaining  the energy from other  sources
(avoided cost of energy) for energy  delivered  pursuant to their respective SO4
Agreements.

The Salton  Sea I Project  sells  electricity  to Edison  pursuant  to a 30-year
negotiated power purchase agreement,  as amended (the "Salton Sea I PPA"), which
provides for  capacity and energy  payments.  The energy  payment is  calculated
using a base price, which is subject to quarterly  adjustments based on a basket
of indices. The time period weighted average energy payment for Salton Sea I was
5.9 cents per kWh during the nine months ended September 30, 2001. As the Salton
Sea I PPA is not an SO4 Agreement, the energy payments do not revert to Edison's
avoided cost of energy.

The  Salton  Sea II and  Salton Sea III  Projects  sells  electricity  to Edison
pursuant to 30-year modified SO4 Agreements that provide for capacity  payments,
capacity bonus payments and energy payments. The price for contract capacity and
contract  capacity  bonus  payments  is fixed for the life of the  modified  SO4
Agreements.  The energy payments for the first ten year period, which expired on
April 4, 2000 for Salton Sea II and expired on February  13, 1999 for Salton Sea
III, were levelized at a time period weighted  average of 10.6 cents per kWh and
9.8  cents  per  kWh  for  Salton  Sea  II and  Salton  Sea  III,  respectively.
Thereafter,  the price for energy is Edison's avoided cost of energy. For Salton
Sea II only,  Edison  is  entitled  to  receive,  at no cost,  5% of all  energy
delivered in excess of 80% of contract capacity through March 31, 2004.


<PAGE>


                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

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

Edison's  average  avoided  cost of energy was 8.9 cents per kWh and 4.6 per kWh
for the nine months ended September 30, 2001 and 2000,  respectively.  Estimates
of Edison's future avoided cost of energy vary  substantially from year to year.
The Company  cannot  predict the likely level of avoided  cost of energy  prices
under the SO4 Agreements and the modified SO4 Agreements.

The Salton Sea V project,  which  commenced  operations  in the third quarter of
2000,  will sell  approximately  one-third of its net output to a zinc facility,
which is owned by a  subsidiary  of  MidAmerican  and is  expected  to  commence
commercial  operations in 2002. The remainder of the Salton Sea V output is sold
through other market transactions.

The CE Turbo project,  which commenced commercial operation in the third quarter
of 2000, sells its output through market transactions.  The CE Turbo project may
sell  its  output  to a  zinc  facility,  which  is  owned  by a  subsidiary  of
MidAmerican  and is expected  to commence  commercial  operations  in 2002.  The
remainder  of  the  CE  Turbo  Project  output  is  sold  through  other  market
transactions.

As a result of legal  proceedings with Edison, on March 22, 2001 the Partnership
Projects  and  Salton  Sea I,  Salton  Sea II,  Salton Sea III and Salton Sea IV
suspended  power  sales to  Edison.  On March  27,  2001  and May 1,  2001,  the
Partnership  projects,  including the CE Turbo project,  and Salton Sea Projects
entered into a transaction  agreement to sell  available  power to EPME based on
percentages of the Dow Jones SP-15 Index.  On June 20, 2001 the  Partnership and
Salton Sea  Projects  (excluding  Salton Sea Unit V and CE Turbo)  entered  into
Agreements  Addressing  Payment and Pricing Issues with Edison and, as a result,
resumed power sales to Edison on June 22, 2001.  See discussion in Liquidity and
Capital Resources, page 38.

<PAGE>


                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Results of Operations

The following data includes the aggregate capacity and electricity production of
Salton Sea Units I, II, III, IV and V:
<TABLE>
<CAPTION>
                                                           Three Months Ended                   Nine Months Ended
                                                               September 30,                      September 30,
                                                          2001              2000             2001            2000
<S>                                                    <C>               <C>               <C>            <C>
Overall capacity factor                                  79.9%             77.6%             79.9%          67.5%
Capacity (NMW) (weighted average)                        168.4             168.4             168.4          138.5
kWh produced (in thousands)                            297,200           288,400           881,900        614,400
</TABLE>

The overall capacity factor for the Salton Sea Projects  increased for the three
and nine months ended  September  30, 2001  compared to the same periods in 2000
primarily  due to  timing  of  overhauls  and other  maintenance.  The  capacity
increased due to the start up of Salton Sea Unit V in the third quarter of 2000.

The following data includes the aggregate capacity and electricity production of
the Partnership Projects:

<TABLE>
<CAPTION>
                                                             Three Months Ended              Nine Months Ended
                                                                September 30,                  September 30,
                                                         2001              2000             2001             2000

<S>                                                    <C>               <C>             <C>               <C>
Overall capacity factor                                 105.9%            103.7%            102.2%           95.5%
Capacity (NMW) (weighted average)                          158             154.6               158           150.2
kWh produced (in thousands)                            369,600           353,900         1,058,200         943,100
</TABLE>

The overall capacity factor for the Partnership Projects increased for the three
months and nine months ended  September 30, 2001 compared to the same periods in
2000 due to timing of overhauls and other  maintenance.  The capacity  increased
due to the start up of CE Turbo in the third quarter of 2000.

Revenues:

The Salton Sea  Guarantors'  sales of  electricity  decreased to $22,853 for the
three months ended  September 30, 2001 from $32,375 for the same period in 2000,
a 29.4%  decrease.  For the nine  months  ended  September  30,  2001,  sales of
electricity increased to $77,847 from $59,873 in 2000, a 30.0% increase.  Due to
uncertainties  associated with Edison's financial  condition and failure to pay,
the Salton Sea Guarantors have established an allowance for doubtful accounts of
approximately  $29.2  million.  The decrease in the quarter was primarily due to
the increased  allowance for doubtful accounts and lower avoided cost rates. The
year to date increase was  primarily  due to higher  avoided cost rates in 2001,
the start up of Unit V in the third quarter of 2000 and  scheduled  overhauls in
2000,  which  were  more  extensive  compared  to 2001  partially  offset by the
allowance for doubtful accounts.

The Salton Sea Guarantors'  interest and other income  increased to $652 for the
three months ended September 30, 2001 from $119 for the same period in 2000. For
the nine months ended September 30, 2001, interest and other income increased to
$1,629 from $332 in 2000.  The increase was due to a payment of interest  income
by Edison as part of a settlement agreement.

<PAGE>

                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Revenues:  (continued)

The Partnership  Guarantors'  sales of electricity  decreased to $20,782 for the
three months ended  September 30, 2001 from $35,063 for the same period in 2000,
a 40.7%  decrease.  For the nine  months  ended  September  30,  2001,  sales of
electricity  decreased to $64,352 from $65,080 in 2000, a 1.1% decrease.  Due to
uncertainties  associated with Edison's financial conditions and failure to pay,
the Partnership  Guarantors have established an allowance for doubtful  accounts
of approximately $60.8 million. The decrease in the quarter was primarily due to
the increased  allowance for doubtful accounts and lower avoided cost rates. The
year to date decrease was primarily due to the allowance for doubtful  accounts,
partially offset by higher production and higher avoided cost rates in 2001.

The Royalty  Guarantor  revenue  decreased  to $759 for the three  months  ended
September  30,  2001 from  $3,816 for the same  period  last year.  For the nine
months ended September 30, 2001 royalty revenue  decreased to $6,598 from $8,083
in 2000.  These  decreases  were due primarily to lower energy  revenue from the
Partnership Projects.

Operating Expenses:

The Salton Sea Guarantors' operating expenses, which include royalty, operating,
and general and  administrative  expenses,  increased to $15,438,  for the three
months ended  September  30, 2001 from $11,288 for the same period in 2000.  For
the nine months ended September 30, 2001, operating expense increased to $43,004
from $23,852 in 2000.  The increases were due to higher brine disposal costs and
the start up of Unit V in the third  quarter of 2000.  The year to date increase
was also due to higher royalty expenses resulting from higher revenues.

The  Partnership   Guarantors'   operating  expenses,   which  include  royalty,
operating, and general and administrative expenses,  decreased to $8,974 for the
three months ended  September 30, 2001 from $12,119 for the same period in 2000.
The  decrease  in costs in the third  quarter  was due to a decrease  in royalty
expense resulting from lower revenues. For the nine month period ended September
30, 2001,  operating  expenses  increased  to $35,646 from $29,427 in 2000.  The
increase  for the nine  months  was due to the start up of CE Turbo in the third
quarter of 2000 and higher brine disposal costs.

For the three months ended September 30, 2001 the Royalty Guarantors'  operating
expenses decreased to $126 from $1,099 for the same period in 2000. The decrease
was due to lower royalty costs resulting from lower energy revenue. For the nine
months ended  September 30, 2001,  operating  expenses  decreased to $1,655 from
$2,272 in 2000.  This  decrease was due to lower royalty  costs  resulting  from
lower energy revenue.

Depreciation and Amortization:

The Salton Sea Guarantors' depreciation and amortization decreased to $4,372 for
the three  months  ended,  September  30 2001 from $4,751 for the same period of
2000,  a  8.0%  decrease.   For  the  nine  months  ended  September  30,  2001,
depreciation and amortization  increased to $13,382 from $13,072 in 2000, a 2.4%
increase.  The increase was due primarily to the start up of Unit V in the third
quarter of 2000.

<PAGE>


                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Depreciation and Amortization: (continued)

The Partnership  Guarantors'  depreciation and amortization  increased to $5,877
for the three months ended September 30, 2001 from $4,966 for the same period in
2000. For the nine months ended September 30, 2001 depreciation and amortization
increased to $17,895 from $14,459 in 2000.  The increases  were due primarily to
the  upgraded  brine  handling  system and the start up of CE Turbo in the third
quarter of 2000.

The  Royalty  Guarantors'  amortization  was $487  for the  three  months  ended
September  30, 2001  compared to $491 for the same period of 2000.  For the nine
months ended September 30, 2001,  amortization  was $1,462 compared to $1,474 in
2000.

Interest Expense:

The  Salton Sea  Guarantors'  interest  expense,  net of  capitalized  interest,
increased to $5,574 for the three months  ended  September  30, 2001 from $3,757
for the same  period in 2000.  For the nine months  ended  September  30,  2001,
interest expense, net of capitalized interest,  increased to $15,186 from $9,252
in 2000. The increases were due to the  discontinuance of capitalizing  interest
on the minerals extraction process partially offset by reduced indebtedness.

The  Partnership  Guarantors'  interest  expense,  net of capitalized  interest,
increased to $2,002 for the three months ended  September 30, 2001 from $129 for
the same period in 2000. For the nine months ended September 30, 2001,  interest
expense, net of capitalized interest, increased to $4,141 from $440 in 2000. The
increases  were  due to  the  discontinuance  of  capitalizing  interest  on the
minerals extraction process partially offset by reduced indebtedness.

The Royalty Guarantors'  interest expense decreased to $139 for the three months
ended  September  30, 2001 from $206 from the same period in 2000.  For the nine
months ended September 30, 2001, interest expense decreased to $482 from $748 in
2000. The decreases were due to reduced indebtedness.

Income Tax Provision:

The Salton Sea  Guarantors are comprised of  partnerships.  Income taxes are the
responsibility  of the partners and Salton Sea Guarantors  have no obligation to
provide funds to the partners for payment of any tax  liabilities.  Accordingly,
the Salton Sea Guarantors have no tax obligations.

The  Partnership  Guarantors  income tax benefit was $1,944 for the three months
ended  September  30, 2001 compared to a provision of $6,477 for the same period
in 2000. For the nine months ended  September 30, 2001, the income tax provision
decreased to $3,213 from $7,799 in 2000. These decreases were primarily due to a
lower pre-tax income. Income taxes will be paid by the parent of the Partnership
Guarantors  from   distributions  to  the  parent  company  by  the  Partnership
Guarantors which occur after operating expenses and debt service.

The Royalty Guarantor is a partnership.  Income taxes are the  responsibility of
the partners and Royalty  Guarantor  has no  obligation  to provide funds to the
partners for payment of any tax liabilities.  Accordingly, the Royalty Guarantor
has no tax obligations.
<PAGE>


                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Cumulative Effect of Accounting Policy Change:

The Guarantors  have changed their policy of accounting  for major  maintenance,
overhaul and well workover  costs.  These costs,  which have  historically  been
accounted  for using  deferral  methods,  will be expensed as incurred.  The new
policy  went into  effect  January 1, 2001 and the Salton  Sea  Guarantors  have
recorded a cumulative  effect of this change of $8.7  million.  The  Partnership
Guarantors have recorded a cumulative effect of this change of $8.3 million, net
of tax.

Net Income (Loss):

The Salton Sea  Funding  Corporation's  net  income for the three  months  ended
September 30, 2001 was $181 compared to a net income of $184 for the same period
in 2000.  For the nine months  ended  September  30, 2001 the net income was $62
compared to $126 in 2000. The net income  primarily  represents  interest income
and expense, net of applicable tax, and the Salton Sea Funding  Corporation's 1%
equity in earnings of the Guarantors.

The Salton Sea  Guarantors  had a net loss of $1,879 for the three  months ended
September  30,  2001  compared  to net income of $12,698  for the same period of
2000.  For the nine  months  ended  September  30,  2001,  the net loss was $839
compared to net income of $14,029 in 2000.

The Partnership Guarantors had a net income of $3,687 for the three months ended
September  30,  2001  compared  to net income of $13,155  for the same period of
2000. For the nine months ended September 30, 2001, the Partnership  Guarantors'
had a net loss of $2,155 compared to net income of $15,839 in 2000.

The Royalty  Guarantor's  net income  decreased to $7 for the three months ended
September 30, 2001 compared to $2,020 for the same period of 2000.  For the nine
months ended  September 30, 2001, net income  decreased to $2,999 from $3,589 in
2000.

Liquidity and Capital Resources:

Prior to March 22,  2001 and after  June 22,  2001,  the  operating  Salton  Sea
Guarantors'  only source of revenue is payments  received  pursuant to long term
power sales agreements with Edison, other than Salton Sea V revenue and interest
earned on funds on deposit. Prior to March 22, 2001 and after June 22, 2001, the
operating Partnership Guarantors' primary source of revenue is payments received
pursuant to long term power sales  agreements  with Edison,  other than CE Turbo
and interest earned on funds on deposit.  The Royalty Guarantor's only source of
revenue is Royalties  received pursuant to resource lease and service agreements
with the Partnership Projects. If Edison pays the projects,  these payments, for
each of the  Guarantors,  are expected to be  sufficient  to fund  operating and
maintenance  expenses,  payments of  interest  and  principal  on the Salton Sea
Funding Securities, projected capital expenditures and debt service reserve fund
requirements.

Edison, a wholly-owned  subsidiary of Edison International,  is a public utility
primarily  engaged  in the  business  of  supplying  electric  energy  to retail
customers in Central and Southern California, excluding Los Angeles. The Funding
Corporation  is aware that there have been public  announcements  that  Edison's
financial condition has deteriorated as a result of reduced liquidity.  Edison's
senior  unsecured debt  obligations are currently rated Caa2 by Moody's and D by
S&P.

<PAGE>

                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Liquidity and Capital Resources: (continued)

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

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

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require that Edison make a series of payments to repay the
past  due  balances  under  the  Power  Purchase   Agreements  (the  "stipulated
amounts").  The first payment of approximately $11.6 million,  which represented
10% of the  stipulated  amounts,  was received  June 22, 2001. A second  partial
payment of 10% is payable  within 5 days  following the  occurrence of Events to
restore Edison to  creditworthiness  (the "Effective  Date"). The final payment,
representing the remaining stipulated amounts, shall be paid on the 5th business
day  after  Edison  receives  proceeds  from the  financing  resulting  from the
occurrence of Events to restore Edison to creditworthiness. In addition to these
payments,  Edison is required to make monthly interest payments  calculated at a
rate of 7% per  annum on the  outstanding  stipulated  amounts.  The  Settlement
Agreements  also provides a revised  energy  pricing  structure,  whereby Edison
elects  to pay the  Imperial  Valley  Projects  a  fixed  energy  price  of 5.37
cents/kilowatt  hour in lieu of the  Commission-approved  SRAC Methodology under
the  Power  Purchase  Agreements,  commencing  on the  first  day  of the  month
following the Effective  Date and expiring five years from such date.  All other
contract terms remain unchanged.

<PAGE>

                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Liquidity and Capital Resources: (continued)

As a result of the aforementioned Settlement Agreements,  the Guarantors resumed
power sales to Edison on June 22, 2001. Energy payments are currently calculated
using the SRAC  formulas set forth in the Power  Purchase  Agreements  until the
fixed rate period begins.

On October 2, 2001 the California  Public Utilities  Commission (PUC) and Edison
reached a settlement in the Filed Rate Doctrine  lawsuit Edison filed in Federal
Court against the PUC. By its own terms,  the  settlement is intended to restore
Edison  to  creditworthiness  so  that  it  is  able  to  resume  procuring  the
electricity  needed by its customers;  limit ratepayers' costs of paying off the
debt;  and maintain the state's role in regulating the investor owned utility by
enabling Edison to pay down its back debts over a reasonable  period of time. As
a result  of such  settlement  the  Guarantors  believe  the  conditions  to the
Effective  Date under the  Settlement  Agreements  have been  satisfied.  Edison
disputes such  conditions  have been  satisfied.  The  Guarantors are vigorously
pursing enforcement of their rights under the Settlement Agreements.

As a result  of  Edison's  failure  to make the  payments  due  under  the Power
Purchase  Agreements  and the  downgrades of Edison's  credit  ratings,  Moody's
downgraded  the ratings for the Salton Sea Funding  Securities to Caa2 (negative
outlook) and S&P downgraded the ratings for the Salton Sea Funding Securities to
BBB- and placed the Salton Sea Funding  Securities on "credit  watch  negative".
Following the execution of the Settlement Agreements,  Moody's placed the Salton
Sea Funding Securities on "credit watch positive".

CalEnergy Minerals LLC, a Partnership Guarantor ("Minerals LLC") owns the rights
to proprietary processes for the extraction of zinc from elements in solution in
the  geothermal  brine and fluids  utilized  at the  company's  Imperial  Valley
plants. A pilot plant has successfully  produced  commercial quality zinc at the
Company's   Imperial  Valley  Project.   The  Company's   affiliates  intend  to
sequentially  develop facilities for the extraction of manganese,  silver, gold,
lead,  boron,  lithium and other products as they further develop the extraction
technology.

Minerals LLC is constructing  the Zinc Recovery  Project which will recover zinc
from the geothermal  brine (the "Zinc Recovery  Project").  Facilities are being
installed near the Guarantors sites to extract a zinc chloride solution from the
geothermal  brine  through  an ion  exchange  process.  This  solution  will  be
transported  to a central  processing  plant  where zinc ingots will be produced
through  solvent  extraction,  electrowinning  and casting  processes.  The Zinc
Recovery Project is designed to have a capacity of  approximately  30,000 metric
tonnes per year and is scheduled to commence  commercial  operations in 2002. In
September  1999,  Minerals LLC entered into a sales  agreement  whereby all high
grade zinc produced by the Zinc Recovery  Project will be sold to Cominco,  Ltd.
The initial term of the agreement expires in December 2005.

The  Zinc  Recovery  Project  was  being   constructed  by  Kvaerner  U.S.  Inc.
("Kvaerner")  pursuant  to a date  certain,  fixed-price,  turnkey  engineering,
procure,   construct  and  manage  contract  (the  "Zinc  Recovery  Project  EPC
Contract").   On  June  14,  2001,  Minerals  LLC  issued  notices  of  default,
termination  and demand  for  payment  of  damages  to  Kvaerner  under the Zinc
Recovery Project EPC Contract due to failure to meet performance obligations. As
a result  of  Kvaerner's  failure  to pay  monetary  obligations  under the Zinc
Recovery EPC Contract,  the Guarantors drew $29.7 million under the EPC Contract
Letter

<PAGE>


                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Liquidity and Capital Resources: (continued)

of  Credit  on July  20,  2001.  The  Guarantors  have  entered  into a time and
materials  reimbursable engineer,  procure and construction  management contract
with AMEC E&C Services, Inc. to complete the Zinc Recovery Project.

On July 11,  2001,  Kvaerner  filed an Amended  Demand For  Arbitration  against
Minerals  LLC  characterizing  the nature of the dispute as  concerns  regarding
change orders and  performance  penalties.  Kvaerner did not state the amount of
its claim.

On August 7, 2001,  Minerals LLC filed an Answering  Statement and  Counterclaim
against  Kvaerner.  Minerals LLC denied all material  allegations  in Kvaerner's
Amended Demand for Arbitration, and asserted a counterclaim against Kvaerner for
breach of contract and specific performance. Minerals LLC alleged that its total
estimated   damage  for   Kvaerner's   breach  of  contract  are  in  excess  of
approximately  $60.0  million;  however,  Minerals LLC has offset  approximately
$42.5 million of these  damages by exercising  its rights under the EPC Contract
to claim the retainage and by drawing on a letter of credit. Therefore, Minerals
LLC  asked  for a  judgment  in  excess  of  approximately  $20.0  million.  The
arbitration is scheduled for June 2002.

Certain information included in this report contains forward-looking  statements
made pursuant to the Private  Securities  Litigation Reform Act of 1995 ("Reform
Act"). Such 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 the Company 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 Reform Act, the Company has
identified   important  factors  that  could  cause  actual  results  to  differ
materially  from  such  expectations,  including  development  and  construction
uncertainty,  operating  uncertainty,  acquisition  uncertainty,   uncertainties
relating to doing business outside of the United States,  uncertainties relating
to geothermal  resources,  uncertainties  relating to domestic and international
economic and  political  conditions  and  uncertainties  regarding the impact of
regulations,   changes  in  government   policy,   industry   deregulation   and
competition. Reference is made to all of the Company's SEC filings, incorporated
herein by reference,  for a description of such factors.  The Company assumes no
responsibility to update forward-looking information contained herein.

Accounting Pronouncements:

In June 1998, the Financial  Accounting  Standards Board (FASB) issued Statement
of  Financial   Accounting  Standard  (SFAS)  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 "Accounting
for Derivative  Instruments and Hedging  Activities - Deferral of Effective Date
of FASB No. 133" and  amended by SFAS 138  "Accounting  for  Certain  Derivative
Instruments  and Certain  Hedging  Activities".  SFAS 133  requires an entity to
recognize  all of  its  derivatives  as  either  assets  or  liabilities  in its
statement of financial position and measure those instruments at fair value. The
Guarantors  implemented  the new  standards  on  January 1,  2001.  The  initial
adoption of SFAS 133 did not have a material impact on the Guarantors' financial
position, results of operations or any impact on their cash flows


<PAGE>

                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Accounting Pronouncements: (continued)

In  June  2001,   FASB  approved  the  issuance  of  SFAS  No.  141,   "Business
Combinations",  and SFAS No. 142, "Goodwill and Other Intangible Assets".  These
standards,  issued in July 2001, establish accounting and reporting for business
combinations.  SFAS No. 141  requires  all  business  combinations  entered into
subsequent  to June 30, 2001 to be accounted  for using the  purchase  method of
accounting. SFAS No. 142 provides that goodwill and other intangible assets with
indefinite lives will not be amortized,  but will be tested for impairment on an
annual  basis.  These  standards  are  effective  for  the  Funding  Corporation
beginning on January 1, 2002.  The Funding  Corporation  has not  quantified the
impact resulting from the adoption of these standards.

In July  2001,  FASB  issued  SFAS  No.143,  "Accounting  for  Asset  Retirement
Obligations"  (SFAS 143).  This  standard  addresses  financial  accounting  and
reporting  for  obligations  related to the  retirement  of tangible  long-lived
assets and the related  asset  retirement  costs.  SFAS 143 is effective for the
Company's fiscal year beginning January 1, 2003. Management is in the process of
evaluating  the impact this  standard  will have on the  Company's  consolidated
financial statements.

In August 2001, FASB issued SFAS No. 144, "Accounting for Impairment or Disposal
of Long-Lived  Assets" (SFAS 144). The standard addresses  financial  accounting
and  reporting  for the  impairment  or  disposal  of  long-lived  assets and is
effective for the Company's fiscal year beginning January 1, 2002. Management is
in the process of evaluating the impact this standard will have on the Company's
consolidated financial statements.

Environmental Liabilities:

The  Company may be exposed to  environmental  costs in the  ordinary  course of
business.  Expenditures for ongoing  compliance with  environmental  regulations
that relate to current  operations are expensed or  capitalized as  appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities   are  recorded  when   environmental   assessments   indicate  that
remediation  efforts are  probable  and the costs can be  reasonably  estimated.
Estimates of the liability are based upon currently  available  facts,  existing
technology and presently enacted laws and regulations  taking into consideration
the likely  effects of  inflation  and other social and  economic  factors,  and
include  estimates of associated legal costs.  These amounts also consider prior
experience in remediating sites, other companies'  clean-up  experience and data
released by the Environmental  Protection Agency or other  organizations.  These
estimated  liabilities are subject to revision in future periods based on actual
costs or new circumstances,  and are included in the accompanying balance sheets
at their undiscounted  amounts.  As of September 30, 2001 and December 31, 2000,
the environmental liabilities recorded on the balance sheet were not material.


<PAGE>

                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

Qualitative and Quantitative Disclosures About Market Risk

There have been no significant  changes in the Salton Sea Funding  Corporation's
market  risk for the nine  months  ended  September  30,  2001.  For  additional
information  see the  Company's  Annual  Report on Form 10-K for the year  ended
December 31, 2000.

Inflation

Inflation has not had a significant impact on the Guarantors'  operating revenue
and costs.

<PAGE>

                       THE SALTON SEA FUNDING CORPORATION
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS
                       (in thousands, except per kwh data)
                        _________________________________

                         SALTON SEA FUNDING CORPORATION

                           PART II - OTHER INFORMATION

Item 1 - Legal proceedings.

          Neither  the Salton Sea Funding  Corporation  nor the  Guarantors  are
          parties to any material legal matters except as noted in footnote 3 of
          the Salton Sea Funding Corporation financial statements.

Item 2 - Changes in Securities.

          Not applicable.

Item 3 - Default on Senior Securities.

          Not applicable.

Item 4 - Submission of Matters to a Vote of Security Holders.

          Not applicable.

Item 5 - Other Information.

          Not applicable.

Item 6 - Exhibits and Reports on Form 8-K.

          (a) Exhibits:

              None

          (b) Reports on Form 8-K:

              None


<PAGE>

                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934 the  registrant  has duly  caused  this  report  to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Omaha, State
of Nebraska, on this 14th day of November 2001.


                                      SALTON SEA FUNDING CORPORATION


Date:    November 14, 2001            /s/    Joseph M. Lillo
                                      By:    Joseph M. Lillo
                                             Vice President and Controller