UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 2003

                          Commission File No. 33-95538

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

                                         Delaware                47-0790493
                                         --------                ----------
                                        (State of              (IRS Employer
                                       Incorporation)        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                 95-2636765
  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                 95-3992087
  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

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

               Salton Sea Funding Corporation's telephone number,
                       including area code: (402) 341-4500
                                            --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [x] No [ ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x]

All common stock of Salton Sea Funding  Corporation is indirectly  held by Magma
Power Company. As of July 31, 2003, 100 shares of common stock were outstanding.

<PAGE>


                                TABLE OF CONTENTS
                                -----------------

                         PART I - FINANCIAL INFORMATION

Item 1.    Financial Statements................................................3
Item 2.    Management's Discussion and Analysis of Financial Condition and
             Results of Operations............................................28
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.........35
Item 4.    Controls and Procedures............................................35

                           PART II - OTHER INFORMATION

Item 1.    Legal Proceedings..................................................36
Item 2.    Changes in Securities and Use of Proceeds..........................36
Item 3.    Defaults Upon Senior Securities....................................36
Item 4.    Submission of Matters to a Vote of Security Holders................36
Item 5.    Other Information..................................................36
Item 6.    Exhibits and Reports on Form 8-K...................................36

SIGNATURES....................................................................37
EXHIBIT INDEX.................................................................38

                                      -2-

<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.


                         INDEPENDENT ACCOUNTANTS' REPORT


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

We  have  reviewed  the  accompanying   balance  sheet  of  Salton  Sea  Funding
Corporation  (the "Company") as of June 30, 2003, and the related  statements of
operations  for the  three-month  and six-month  periods ended June 30, 2003 and
2002, and of cash flows for the six-month  periods ended June 30, 2003 and 2002.
These  interim  financial  statements  are the  responsibility  of the Company's
management.

We  conducted  our  reviews 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 and
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 reviews, we are not aware of any material modifications that should
be made to such interim  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,  2002,  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 24, 2003 (January 29, 2003 as
to Note 6), 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, 2002 is fairly stated, in all material respects,  in relation to
the balance sheet from which it has been derived.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 30, 2003

                                      -3-

<PAGE>


                         SALTON SEA FUNDING CORPORATION
                                 BALANCE SHEETS
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                             AS OF
                                                                     ------------------------
                                                                      JUNE 30,   DECEMBER 31,
                                                                        2003         2002
                                                                     ----------  ------------
                                                                     (UNAUDITED)
                                     ASSETS
<S>                                                                    <C>        <C>
Current assets:
  Cash .............................................................   $  4,706   $ 19,583
  Restricted cash ..................................................          -     46,293
  Accrued interest receivable and other current assets .............      3,010      3,228
  Current portion secured project notes from Guarantors ............     29,337     28,086
                                                                       --------   --------
    Total current assets ...........................................     37,053     97,190
                                                                       --------   --------
Secured project notes from Guarantors ..............................    448,302    463,592
Investment in 1% of net assets of Guarantors .......................      9,777      9,721
                                                                       --------   --------
TOTAL ASSETS .......................................................   $495,132   $570,503
                                                                       ========   ========

                      LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accrued interest .................................................   $  3,010   $  3,156
  Current portion of long-term debt ................................     29,337     28,086
                                                                       --------   --------
    Total current liabilities ......................................     32,347     31,242
                                                                       --------   --------
Due to affiliates ..................................................        820     62,251
Senior secured notes and bonds .....................................    448,302    463,592
                                                                       --------   --------
  Total liabilities ................................................    481,469    557,085
                                                                       --------   --------

Commitments and contingencies (Note 2)

Stockholder's equity
  Common stock authorized - 1,000 shares,
    par value $.01 per share; issued and outstanding 100 shares ....          -          -
  Additional paid-in capital .......................................      6,076      5,811
  Retained earnings ................................................      7,587      7,607
                                                                       --------   --------
    Total stockholder's equity .....................................     13,663     13,418
                                                                       --------   --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY .........................   $495,132   $570,503
                                                                       ========   ========
</TABLE>

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

                                      -4-
<PAGE>

                         SALTON SEA FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                 THREE MONTHS               SIX MONTHS
                                                ENDED JUNE 30,            ENDED JUNE 30,
                                             -------------------    --------------------
                                               2003       2002        2003        2002
                                             -------    --------    --------    --------
                                                            (UNAUDITED)
<S>                                          <C>        <C>         <C>         <C>
REVENUE:
  Interest income ........................   $ 9,459    $ 10,026    $ 18,928    $ 20,073
  Equity in loss of Guarantors ...........       (76)       (115)       (209)       (122)
                                             -------    --------    --------    --------
    Total revenue ........................     9,383       9,911      18,719      19,951
                                             -------    --------    --------    --------
COSTS AND EXPENSES:
  General and administrative expenses ....        75         219         190         446
  Interest expense .......................     9,265       9,797      18,562      19,622
                                             -------    --------    --------    --------
    Total costs and expenses .............     9,340      10,016      18,752      20,068
                                             -------    --------    --------    --------
INCOME (LOSS) BEFORE INCOME TAXES ........        43        (105)        (33)       (117)
  Income tax expense (benefit) ...........        18         (43)        (13)        (48)
                                             -------    --------    --------    --------
NET INCOME (LOSS) ........................   $    25    $    (62)   $    (20)   $    (69)
                                             =======    ========    ========    ========
</TABLE>

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

                                      -5-
<PAGE>

                         SALTON SEA FUNDING CORPORATION
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                             SIX MONTHS
                                                                                           ENDED JUNE 30,
                                                                                        --------------------
                                                                                          2003        2002
                                                                                        --------    --------
                                                                                             (UNAUDITED)
<S>                                                                                     <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................   $    (20)   $    (69)
  Adjustments to reconcile net loss to net cash flows from operating activities:
    Equity in loss of Guarantors ....................................................        209         122
    Changes in assets and liabilities:
      Accrued interest receivable and other current assets ..........................        218          26
      Accrued interest ..............................................................       (146)       (145)
                                                                                        --------    --------
        Net cash flows from operating activities ....................................        261         (66)
                                                                                        --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES -
  Principal repayments of secured project notes from Guarantors .....................     14,039      14,286
                                                                                        --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Decrease (increase) in restricted cash ............................................     46,293     (33,015)
  Due to affiliates .................................................................    (61,431)     36,503
  Repayment of senior secured notes and bonds .......................................    (14,039)    (14,286)
                                                                                        --------    --------
    Net cash flows from financing activities ........................................    (29,177)    (10,798)
                                                                                        --------    --------

NET CHANGE IN CASH ..................................................................    (14,877)      3,422
Cash at the beginning of period .....................................................     19,583       4,361
                                                                                        --------    --------
CASH AT THE END OF PERIOD ...........................................................   $  4,706    $  7,783
                                                                                        ========    ========
</TABLE>

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

                                      -6-
<PAGE>

                         SALTON SEA FUNDING CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

In the opinion of  management  of 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 June 30, 2003 and the results of operations
for the three-month  and six-month  periods ended June 30, 2003 and 2002, and of
cash flows for the six-month  periods ended June 30, 2003 and 2002.  The results
of operations for the three-month and six-month  periods ended June 30, 2003 are
not necessarily indicative of the results to be expected for the full year.

The  unaudited  financial  statements  and  notes  thereto  should  be  read  in
conjunction with the audited financial  statements and notes thereto included in
the Funding Corporation's annual report on Form 10-K for the year ended December
31, 2002.

Certain amounts in the prior year financial statements have been reclassified in
order to conform to current year presentation.  Such  reclassifications  did not
impact previously reported net income (loss) or retained earnings.

2.   COMMITMENTS AND CONTINGENCIES

Due to reduced  liquidity,  Southern  California Edison ("Edison") had failed to
pay  approximately  $119 million owed under the Power Purchase  Agreements  with
certain Guarantors (the Imperial Valley Projects, excluding the Salton Sea V and
CE Turbo  Projects) for power delivered in the fourth quarter 2000 and the first
quarter  2001.  Due to  Edison's  failure to pay  contractual  obligations,  the
Guarantors had established an allowance for doubtful  accounts of  approximately
$21.0 million as of December 31, 2001.

Pursuant  to a  settlement  agreement  the final  payment  by Edison of past due
balances was received  March 1, 2002.  Following  the receipt of Edison's  final
payment of past due balances,  the Guarantors  released the remaining  allowance
for doubtful accounts.

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $3.9  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 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  capacity bonus payments under
the Power Purchase  Agreements.  Due to Edison's  failure to pay the contractual
obligations,  certain Guarantors  established an allowance for doubtful accounts
of approximately  $3.1 million and $2.7 million as of June 30, 2003 and December
31, 2002, respectively.

On March 25,  2002,  Salton  Sea II's 10  megawatt  ("MW")  turbine  went out of
service due to an uncontrollable  force event. Such  uncontrollable  force event
ended, and Salton Sea II returned to service on December 17, 2002. Edison failed
to recognize the  uncontrollable  force event and, as such,  did not pay amounts
otherwise due and owing, and improperly derated Salton Sea II from 15 MW to 12.5
MW under the Salton Sea II power purchase agreement. On January 29, 2003, Salton
Sea Power  Generation L.P., owner of Salton Sea II, served a complaint on Edison
for such unpaid amount and to rescind such deration.

On June 11, 2003, certain Guarantors (the Imperial Valley Projects excluding the
Salton Sea I,  Salton Sea V and CE Turbo  Projects)  entered  into a  settlement
agreement  with Edison.  The  settlement,  which  relates to the capacity  bonus
payment and Salton Sea II uncontrollable  force event disputes,  provides for an
$800,000 settlement payment from Edison,  payment of amounts previously withheld
for the Salton Sea II deration and the recission of such  deration.  The amounts
previously  withheld for the Salton Sea II deration  were received in the

                                      -7-
<PAGE>

second  quarter of 2003.  The $800,000  settlement  payment is  contingent  upon
approval by the California Public Utilities Commission.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation had not been
extended  beyond its then existing July 2004  expiration  date, and as such cash
distributions  were not available to CE Generation,  LLC ("CE Generation") until
the Funding Corporation debt service reserve fund of approximately $65.4 million
had been funded or the letter of credit had been  extended  beyond its July 2004
expiration  date or  replaced.  As of  December  31,  2002,  the fund had a cash
balance of $46.3 million.

In May 2003, the previous $65.4 million Funding Corporation debt service reserve
letter  of  credit  was  replaced  by  a  $32.7   million   TransAlta  USA  Inc.
("TransAlta"),  a wholly owned  subsidiary of TransAlta  Corporation,  letter of
credit which  expires on May 30, 2004,  and a $32.7 million  MidAmerican  Energy
Holdings Company letter of credit which expires June 6, 2006.

The new Funding Corporation debt service reserve letters of credit permitted the
cash, which was previously restricted, to be included in funds distributed to CE
Generation on May 29, 2003.

Stone & Webster
---------------

The Salton Sea V Project  was  constructed  by Stone & Webster,  Inc.  (formerly
Stone & Webster Engineering Corporation),  a wholly-owned subsidiary of the Shaw
Group  ("Stone & Webster"),  pursuant to a date  certain,  fixed-price,  turnkey
engineering,  procure,  construct and manage contract (the "Salton Sea V Project
EPC Contract").  On March 7, 2002, Salton Sea Power L.L.C. ("Salton Sea Power"),
the owner of the Salton Sea V Project,  filed a Demand for  Arbitration  against
Stone & Webster  for breach of  contract  and breach of  warranty  arising  from
deficiencies  in  Stone  &  Webster's  design,  engineering,   construction  and
procurement of equipment for the Salton Sea V Project pursuant to the Salton Sea
V Project  EPC  Contract.  The demand for  arbitration  did not include a stated
claim  amount.  On April 25,  2003,  Salton Sea Power  entered into a settlement
agreement  with Stone & Webster.  The Settlement  Agreement  resulted in a total
payment of $12.1 million from Stone & Webster in the second quarter 2003 and the
arbitration  was  dismissed.  The  settlement  was  recorded  as a $4.5  million
reduction of incremental  capital  expenditures and a $7.6 million  reduction of
incremental  operating  expenses related to legal,  other expenses and equipment
write-offs.

3.   RELATED PARTY TRANSACTIONS

On January  29,  2003,  TransAlta  purchased  El Paso's  Merchant  Energy  North
American Company's ("EPME") 50% interest in CE Generation.

Pursuant to a Transaction  Agreement dated January 29, 2003, CE Turbo and Salton
Sea Power began selling available power to a subsidiary of TransAlta on February
12, 2003 based on percentages of the Dow Jones SP-15 Index.  Such agreement will
expire on October 15, 2003. Sales, under these agreements,  from the Partnership
and  Salton  Sea  Guarantors  totaled  $2.9  million  and $5.1  million  for the
three-month and six-month periods ended June 30, 2003, respectively.

Sales to EPME totaled $0.9 million and $3.5 million during the  three-month  and
six-month periods ended June 30, 2002, respectively.

                                      -8-

<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  June  30,  2003,  and  the  related  combined  statements  of
operations  for the  three-month  and six-month  periods ended June 30, 2003 and
2002, and of cash flows for the six-month  periods ended June 30, 2003 and 2002.
These interim  financial  statements  are the  responsibility  of the Salton Sea
Guarantors' management.

We  conducted  our  reviews 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 and
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 reviews, we are not aware of any material modifications that should
be  made  to  such  combined  interim  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,  2002,  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 24, 2003 (January
29, 2003 as to Note 7), 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, 2002 is fairly stated, in
all material  respects,  in relation to the combined balance sheet from which it
has been derived.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 30, 2003

                                      -9-
<PAGE>

                              SALTON SEA GUARANTORS
                             COMBINED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                               AS OF
                                                                       ------------------------
                                                                        JUNE 30,   DECEMBER 31,
                                                                          2003         2002
                                                                       ----------  ------------
                                                                        (UNAUDITED)
                                     ASSETS
<S>                                                                      <C>        <C>
Current assets:
  Trade accounts receivable, net .....................................   $ 18,810   $ 19,420
  Trade accounts receivable from affiliates ..........................      1,894      1,104
  Prepaid expenses and other current assets ..........................      4,024      5,283
                                                                         --------   --------
    Total current assets .............................................     24,728     25,807
                                                                         --------   --------
Properties, plants, contracts and equipment, net .....................    524,870    535,220
Goodwill .............................................................     23,252     23,252
                                                                         --------   --------
TOTAL ASSETS .........................................................   $572,850   $584,279
                                                                         ========   ========

                       LIABILITIES AND GUARANTORS' EQUITY
Current liabilities:
  Accounts payable ...................................................   $  1,422   $    328
  Accrued interest ...................................................      1,477      1,593
  Other accrued liabilities ..........................................     11,106     12,304
  Current portion of long-term debt ..................................     23,586     22,765
                                                                         --------   --------
    Total current liabilities ........................................     37,591     36,990
                                                                         --------   --------
Due to affiliates ....................................................     45,977     35,665
Senior secured project note ..........................................    211,451    223,654
                                                                         --------   --------
  Total liabilities ..................................................    295,019    296,309
                                                                         --------   --------

Commitments and contingencies (Note 4)

Guarantors' equity ...................................................    277,831    287,970
                                                                         --------   --------
TOTAL LIABILITIES AND GUARANTORS' EQUITY .............................   $572,850   $584,279
                                                                         ========   ========

</TABLE>

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

                                      -10-
<PAGE>

                              SALTON SEA GUARANTORS
                        COMBINED STATEMENTS OF OPERATIONS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                     THREE MONTHS             SIX MONTHS
                                                                    ENDED JUNE 30,          ENDED JUNE 30,
                                                                 --------------------    --------------------
                                                                   2003        2002        2003        2002
                                                                 --------    --------    --------    --------
                                                                                 (UNAUDITED)
<S>                                                              <C>         <C>         <C>         <C>
REVENUE:
  Operating revenue ..........................................   $ 19,841    $ 16,093    $ 37,965    $ 39,498
  Interest and other income (loss) ...........................       (317)          -        (479)        430
                                                                 --------    --------    --------    --------
    Total revenue ............................................     19,524      16,093      37,486      39,928
                                                                 --------    --------    --------    --------
COSTS AND EXPENSES:
  Royalty, operating, general and administrative expense .....     13,549      16,445      28,273      28,335
  Depreciation and amortization ..............................      4,886       6,690       9,779      10,965
  Interest expense ...........................................      4,797       5,157       9,573      10,319
                                                                 --------    --------    --------    --------
    Total costs and expenses .................................     23,232      28,292      47,625    $ 49,619
                                                                 --------    --------    --------    --------
NET LOSS .....................................................   $ (3,708)   $(12,199)   $(10,139)   $ (9,691)
                                                                 ========    ========    ========    ========
</TABLE>

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

                                      -11-

<PAGE>

                              SALTON SEA GUARANTORS
                        COMBINED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                              SIX MONTHS
                                                                                            ENDED JUNE 30,
                                                                                        ---------------------
                                                                                          2003        2002
                                                                                        --------    ---------
                                                                                            (UNAUDITED)
<S>                                                                                     <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ..........................................................................   $(10,139)   $ (9,691)
  Adjustments to reconcile net loss to net cash flows from operating activities:
    Depreciation and amortization ...................................................      9,779      10,965
    Other ...........................................................................        172           -
    Changes in assets and liabilities:
      Trade receivable, net .........................................................       (180)     20,121
      Prepaid expenses and other current assets .....................................      1,259         907
      Accounts payable and accrued liabilities ......................................       (220)     (4,245)
                                                                                        --------    --------
        Net cash flows from operating activities ....................................        671      18,057
                                                                                        --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES -
  Capital expenditures, net of warranty settlement ..................................        399      (5,479)
                                                                                        --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of senior secured project note ..........................................    (11,382)    (10,240)
  Due to affiliates .................................................................     10,312      (2,338)
                                                                                        --------    --------
    Net cash flows from financing activities ........................................     (1,070)    (12,578)
                                                                                        --------    --------
NET CHANGE IN CASH ..................................................................          -           -
Cash at the beginning of period .....................................................          -           -
                                                                                        --------    --------
CASH AT THE END OF PERIOD ...........................................................   $      -    $     -
                                                                                        ========    ========

</TABLE>

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

                                      -12-
<PAGE>


                              SALTON SEA GUARANTORS
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

In the opinion of management of 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 June 30, 2003 and the results of operations  for the  three-month
and six-month  periods  ended June 30, 2003 and 2002,  and of cash flows for the
six-month  periods ended June 30, 2003 and 2002.  The results of operations  for
the  three-month  and six-month  periods ended June 30, 2003 are not necessarily
indicative of the results to be expected for the full year.

The  unaudited  financial  statements  and  notes  thereto  should  be  read  in
conjunction with the audited financial  statements and notes thereto included in
the Guarantors' annual report on Form 10-K for the year ended December 31, 2002.

Certain amounts in the prior year financial statements have been reclassified in
order to conform to current year presentation.  Such  reclassifications  did not
impact previously reported net loss or Guarantors' equity.

2.   NEW ACCOUNTING PRONOUNCEMENTS

Effective  January  1, 2003,  the  Guarantors  adopted  Statement  of  Financial
Accounting  Standards No. 143,  "Accounting for Asset  Retirement  Obligations".
This statement  provides  accounting and disclosure  requirements for retirement
obligations   associated  with  long-lived  assets.  The  cumulative  effect  of
initially  applying  this  statement  did  not  have a  material  effect  on the
Guarantors' financial position, results of operations or cash flows.

3.   INTANGIBLE ASSETS

The Guarantors'  acquired  intangible assets,  which are included in properties,
plants,  contracts and equipment,  net, consist of power purchase contracts (the
"Contracts")  with a cost of $33.4 million and accumulated  amortization of $9.4
million and $8.8 million at June 30, 2003 and  December 31, 2002,  respectively.
Amortization  expense on the Contracts was $0.3 million and $0.6 million for the
three-month  and six-month  periods ended June 30, 2003 and 2002,  respectively.
The Guarantors' expect amortization  expense on the Contracts to be $1.2 million
for 2003 and each of the five succeeding fiscal years.

4.   COMMITMENTS AND CONTINGENCIES

Edison and the California Power Exchange
----------------------------------------

Due to reduced  liquidity,  Southern  California Edison ("Edison") had failed to
pay  approximately  $42.3 million owed under the Power Purchase  Agreements with
certain  Guarantors  (the Imperial Valley  Projects,  excluding the Salton Sea V
Project) for power  delivered in the fourth  quarter 2000 and the first  quarter
2001. Due to Edison's failure to pay contractual obligations, the Guarantors had
established an allowance for doubtful accounts of approximately  $6.8 million as
of December 31, 2001.

Pursuant  to a  settlement  agreement  the final  payment  by Edison of past due
balances was received  March 1, 2002.  Following  the receipt of Edison's  final
payment of past due balances,  the Guarantors  released the remaining  allowance
for doubtful accounts.

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $1.1  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 2001, the  Guarantors  (excluding
the Salton Sea I and Salton Sea V Projects)  filed a lawsuit  against  Edison in
California's  Imperial  County  Superior  Court seeking a court order  requiring
Edison to make the required  capacity  bonus

                                      -13-
<PAGE>

payments under the Power Purchase Agreements. Due to Edison's failure to pay the
contractual  obligations,  the Guarantors  established an allowance for doubtful
accounts of approximately  $0.9 million and $0.8 million as of June 30, 2003 and
December 31, 2002, respectively.

On March 25,  2002,  Salton  Sea II's 10  megawatt  ("MW")  turbine  went out of
service due to an uncontrollable  force event. Such  uncontrollable  force event
ended, and Salton Sea II returned to service on December 17, 2002. Edison failed
to recognize the  uncontrollable  force event and, as such,  did not pay amounts
otherwise due and owing, and improperly derated Salton Sea II from 15 MW to 12.5
MW under the Salton Sea II power purchase agreement. On January 29, 2003, Salton
Sea Power  Generation L.P., owner of Salton Sea II, served a complaint on Edison
for such unpaid amount and to rescind such deration.

On June 11, 2003, certain Guarantors  (excluding the Salton Sea I and Salton Sea
V Projects)  entered into a settlement  agreement with Edison.  The  settlement,
which  relates to the capacity  bonus  payment and Salton Sea II  uncontrollable
force event disputes,  provides for an $800,000  settlement payment from Edison,
payment of amounts  previously  withheld  for the Salton Sea II deration and the
recission of such deration.  The amounts previously  withheld for the Salton Sea
II deration were received in the second quarter of 2003. The $800,000 settlement
payment  is  contingent  upon  approval  by  the  California   Public  Utilities
Commission.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation had not been
extended  beyond its then existing July 2004  expiration  date, and as such cash
distributions  were not available to CE Generation,  LLC ("CE Generation") until
the Funding Corporation debt service reserve fund of approximately $65.4 million
had been funded or the letter of credit had been  extended  beyond its July 2004
expiration  date or  replaced.  As of  December  31,  2002,  the fund had a cash
balance of $46.3 million.

In May 2003, the previous $65.4 million Funding Corporation debt service reserve
letter  of  credit  was  replaced  by  a  $32.7   million   TransAlta  USA  Inc.
("TransAlta"),  a wholly owned  subsidiary of TransAlta  Corporation,  letter of
credit which  expires on May 30, 2004,  and a $32.7 million  MidAmerican  Energy
Holdings Company letter of credit which expires June 6, 2006.

The new Funding Corporation debt service reserve letters of credit permitted the
cash, which was previously restricted, to be included in funds distributed to CE
Generation on May 29, 2003.

Stone & Webster
---------------

The Salton Sea V Project  was  constructed  by Stone & Webster,  Inc.  (formerly
Stone & Webster Engineering Corporation),  a wholly-owned subsidiary of the Shaw
Group  ("Stone & Webster"),  pursuant to a date  certain,  fixed-price,  turnkey
engineering,  procure,  construct and manage contract (the "Salton Sea V Project
EPC Contract").  On March 7, 2002, Salton Sea Power L.L.C. ("Salton Sea Power"),
the owner of the Salton Sea V Project,  filed a Demand for  Arbitration  against
Stone & Webster  for breach of  contract  and breach of  warranty  arising  from
deficiencies  in  Stone  &  Webster's  design,  engineering,   construction  and
procurement of equipment for the Salton Sea V Project pursuant to the Salton Sea
V Project  EPC  Contract.  The demand for  arbitration  did not include a stated
claim  amount.  On April 25,  2003,  Salton Sea Power  entered into a settlement
agreement  with Stone & Webster.  The Settlement  Agreement  resulted in a total
payment of $12.1 million from Stone & Webster in the second quarter 2003 and the
arbitration  was  dismissed.  The  settlement  was  recorded  as a $4.5  million
reduction of incremental  capital  expenditures and a $7.6 million  reduction of
incremental  operating  expenses related to legal,  other expenses and equipment
write-offs.

Other Commitments and Contracts
-------------------------------

On May 20, 2003,  Salton Sea Power entered into a Power Sales Agreement with the
City of Riverside,  California ("Riverside").  Under the terms of the agreement,
Salton Sea Power will sell up to 20 MW of energy generated from the Salton Sea V
Project to Riverside  at $61 per MW hour.  Sales under the  agreement  commenced
June 1, 2003 and will terminate May 31, 2013.

                                      -14-
<PAGE>

On July  10,  2003,  Salton  Sea IV's  turbine  went  out of  service  due to an
uncontrollable force event. The turbine is expected to be returned to service by
the end of September 2003.

5.   RELATED PARTY TRANSACTIONS

On January 29, 2003,  TransAlta purchased El Paso Merchant Energy North American
Company's ("EPME") 50% interest in CE Generation.

Pursuant to a Transaction  Agreement  dated  January 29, 2003,  Salton Sea Power
began selling  available power to a subsidiary of TransAlta on February 12, 2003
based on percentages of the Dow Jones SP-15 Index. Such agreement will expire on
October 15, 2003. Sales, under this agreement,  from the Guarantors totaled $2.4
million and $4.2 million for the  three-month  and six-month  periods ended June
30, 2003, respectively.

Sales to EPME totaled $0.7 million and $2.9 million during the  three-month  and
six-month periods ended June 30, 2002, respectively.

                                      -15-

<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  June  30,  2003,  and  the  related  combined  statements  of
operations  for the  three-month  and six-month  periods ended June 30, 2003 and
2002, and of cash flows for the six-month  periods ended June 30, 2003 and 2002.
These interim  financial  statements are the  responsibility  of the Partnership
Guarantors' management.

We  conducted  our  reviews 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 and
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 reviews, we are not aware of any material modifications that should
be  made  to  such  combined  interim  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,  2002,  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 24, 2003 (January
29, 2003 as to Note 9), 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, 2002 is fairly stated, in
all material  respects,  in relation to the combined balance sheet from which it
has been derived.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 30, 2003

                                      -16-
<PAGE>

                             PARTNERSHIP GUARANTORS
                             COMBINED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                   AS OF
                                                           ------------------------
                                                           JUNE 30,    DECEMBER 31,
                                                             2003          2002
                                                           ---------   ------------
                                                          (UNAUDITED)
                                     ASSETS
<S>                                                         <C>            <C>
Current assets:
  Trade accounts receivable, net ........................   $ 15,928       $ 14,018
  Trade accounts receivable from affiliate ..............        123            312
  Prepaid expenses and other current assets .............     18,323         19,516
                                                            --------       --------
    Total current assets ................................     34,374         33,846
                                                            --------       --------
Restricted cash .........................................        266              1
Properties, plants, contracts and equipment, net ........    668,604        664,722
Management fee ..........................................     67,066         68,679
Due from affiliates .....................................     92,644         82,083
Goodwill ................................................    120,866        120,866
                                                            --------       --------
TOTAL ASSETS ............................................   $983,820       $970,197
                                                            ========       ========

                       LIABILITIES AND GUARANTORS' EQUITY
Current liabilities:
  Accounts payable ......................................   $  2,951       $  2,903
  Accrued interest ......................................      1,518          1,576
  Other accrued liabilities .............................     16,156         15,464
  Current portion of long-term debt .....................      5,395          5,017
                                                            --------       --------
    Total current liabilities ...........................     26,020         24,960
                                                            --------       --------
Senior secured project note .............................    236,212        239,099
Deferred income taxes ...................................    108,656        104,850
                                                            --------       --------
  Total liabilities .....................................    370,888        368,909
                                                            --------       --------

Commitments and contingencies (Note 4)

Guarantors' equity:
  Common stock ..........................................          3              3
  Additional paid-in capital ............................    458,714        432,200
  Retained earnings .....................................    154,215        169,085
                                                            --------       --------
    Total guarantors' equity ............................    612,932        601,288
                                                            --------       --------
TOTAL LIABILITIES AND GUARANTORS' EQUITY ................   $983,820       $970,197
                                                            ========       ========
</TABLE>

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

                                      -17-
<PAGE>

                             PARTNERSHIP GUARANTORS
                        COMBINED STATEMENTS OF OPERATIONS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                   THREE MONTHS             SIX MONTHS
                                                                  ENDED JUNE 30,          ENDED JUNE 30,
                                                               --------------------    --------------------
                                                                 2003         2002       2003         2002
                                                               --------    --------    --------    --------
                                                                                (UNAUDITED)
<S>                                                            <C>         <C>         <C>         <C>
REVENUE:
  Operating revenue ........................................   $ 22,528    $ 20,296    $ 42,251    $ 42,495
  Interest and other income ................................        202         129          71         665
                                                               --------    --------    --------    --------
    Total revenue ..........................................     22,730      20,425      42,322      43,160
                                                               --------    --------    --------    --------
COSTS AND EXPENSES:
  Royalty, operating, general and administrative costs .....     18,855      14,419      43,054      32,705
  Depreciation and amortization ............................      9,315       5,365      14,948      12,152
  Interest expense .........................................      4,689       4,782       9,353       9,536
  Capitalized interest .....................................          -      (2,910)          -      (5,748)
                                                               --------    --------    --------    --------
    Total costs and expenses ...............................     32,859      21,656      67,355      48,645
                                                               --------    --------    --------    --------
LOSS BEFORE INCOME TAXES ...................................    (10,129)     (1,231)    (25,033)     (5,485)
Income tax benefit .........................................     (4,112)       (387)    (10,163)     (1,727)
                                                               --------    --------    --------    --------
NET LOSS ...................................................   $ (6,017)   $   (844)   $(14,870)   $ (3,758)
                                                               ========    ========    ========    ========
</TABLE>

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

                                      -18-
<PAGE>

                             PARTNERSHIP GUARANTORS
                        COMBINED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                              SIX MONTHS
                                                                                            ENDED JUNE 30,
                                                                                         ---------------------
                                                                                           2003        2002
                                                                                         --------    --------
                                                                                              (UNAUDITED)
<S>                                                                                      <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss ...........................................................................   $(14,870)   $ (3,758)
  Adjustments to reconcile net loss to net cash flows from operating activities:
    Depreciation and amortization ....................................................     14,948      12,152
    Deferred income taxes ............................................................      3,806      (1,728)
    Other ............................................................................      1,179           -
    Changes in assets and liabilities:
      Trade accounts receivable, net .................................................     (1,721)     39,899
      Prepaid expenses and other current assets ......................................      1,193       1,096
      Accounts payable and accrued liabilities .......................................        682       1,701
                                                                                         --------    --------
        Net cash flows from operating activities .....................................      5,217      49,362
                                                                                         --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures related to operating projects .................................    (12,867)    (12,393)
  Construction and other development .................................................     (5,684)    (22,793)
  Decrease (increase) in restricted cash .............................................       (265)     15,951
  Management fee .....................................................................        196         333
                                                                                         --------    --------
    Net cash flows from investing activities .........................................    (18,620)    (18,902)
                                                                                         --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Due from affiliates ................................................................    (10,602)    (36,140)
  Repayment of senior secured project notes ..........................................     (2,509)     (2,313)
  Equity contribution ................................................................     26,514       8,262
                                                                                         --------    --------
    Net cash flows from financing activities .........................................     13,403     (30,191)
                                                                                         --------    --------
NET CHANGE IN CASH ...................................................................          -         269
Cash at beginning of period ..........................................................          -           -
                                                                                         --------    --------
CASH AT THE END OF PERIOD ............................................................   $      -    $    269
                                                                                         ========    ========
</TABLE>

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

                                      -19-
<PAGE>

                             PARTNERSHIP GUARANTORS
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

In the opinion of management of Partnership  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 June 30, 2003 the results of operations for the  three-month  and
six-month  periods  ended  June 30,  2003 and  2002,  and of cash  flows for the
six-month  periods ended June 30, 2003 and 2002.  The results of operations  for
the  three-month  and six-month  periods ended June 30, 2003 are not necessarily
indicative of the results to be expected for the full year.

The  unaudited  financial  statements  and  notes  thereto  should  be  read  in
conjunction with the audited financial  statements and notes thereto included in
the Guarantors' annual report on Form 10-K for the year ended December 31, 2002.

Certain amounts in the prior year financial statements have been reclassified in
order to conform to current year presentation.  Such  reclassifications  did not
impact previously reported net loss or retained earnings.

2.   NEW ACCOUNTING PRONOUNCEMENTS

Effective  January  1, 2003,  the  Guarantors  adopted  Statement  of  Financial
Accounting  Standards,  No. 143, "Accounting for Asset Retirement  Obligations".
This statement  provides  accounting and disclosure  requirements for retirement
obligations   associated  with  long-lived  assets.  The  cumulative  effect  of
initially  applying  this  statement  did  not  have a  material  effect  on the
Guarantors' financial position, results of operations or cash flows.

3.   INTANGIBLE ASSETS

The  following  table  summarizes  the  acquired  intangible  assets,  which are
included in properties,  plants,  contracts and  equipment,  net, as of June 30,
2003 and December 31, 2002 (in thousands):

<TABLE>
<CAPTION>
                                                      JUNE 30, 2003                    DECEMBER 31, 2002
                                          --------------------------------     --------------------------------
                                          GROSS CARRYING       ACCUMULATED     GROSS CARRYING       ACCUMULATED
                                              AMOUNT          AMORTIZATION         AMOUNT          AMORTIZATION
                                          --------------      ------------     --------------      ------------
     <S>                                    <C>                 <C>               <C>               <C>
     Amortized Intangible Assets:
     Power Purchase Contracts...........    $123,002            $ 97,678          $123,002          $ 96,894
     Patented Technology................      46,290              16,350            46,290            15,385
                                            --------            --------          --------          --------
       Total............................    $169,292            $114,028          $169,292          $112,279
                                            ========            ========          ========          ========
</TABLE>

Amortization  expense on acquired  intangible  assets was $0.9  million and $1.7
million for the three-month and six-month  periods ended June 30, 2003 and 2002,
respectively.  The Guarantors expect amortization expense on acquired intangible
assets to be $3.5 million for 2003 and each of the five succeeding fiscal years.

4.   COMMITMENTS AND CONTINGENCIES

Due to reduced  liquidity,  Southern  California Edison ("Edison") had failed to
pay  approximately  $76.9 million owed under the Power Purchase  Agreements with
certain  Guarantors  (excluding the CE Turbo Project) for power delivered in the
fourth quarter 2000 and the first quarter 2001.  Due to Edison's  failure to pay
contractual  obligations,  the  Guarantors  had  established  an  allowance  for
doubtful accounts of approximately $14.1 million as of December 31, 2001.

                                      -20-
<PAGE>

Pursuant  to a  settlement  agreement  the final  payment  by Edison of past due
balances was received  March 1, 2002.  Following  the receipt of Edison's  final
payment of past due balances,  the Guarantors  released the remaining  allowance
for doubtful accounts.

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $2.7  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 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  capacity bonus payments under
the Power Purchase  Agreements.  Due to Edison's  failure to pay the contractual
obligations,  the Guarantors have established an allowance for doubtful accounts
of approximately  $2.2 million and $1.9 million as of June 30, 2003 and December
31, 2002, respectively.

On June 11, 2003, certain Guarantors  (excluding the Salton Sea I and Salton Sea
V Projects)  entered into a settlement  agreement with Edison.  The  settlement,
which  relates to the capacity  bonus  payment and Salton Sea II  uncontrollable
force event disputes,  provides for an $800,000  settlement payment from Edison,
payment of amounts  previously  withheld  for the Salton Sea II deration and the
recission of such deration.  The amounts previously  withheld for the Salton Sea
II deration were received in the second quarter of 2003. The $800,000 settlement
payment  is  contingent  upon  approval  by  the  California   Public  Utilities
Commission.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation had not been
extended  beyond its then existing July 2004  expiration  date, and as such cash
distributions  were not available to CE Generation,  LLC ("CE Generation") until
the Funding Corporation debt service reserve fund of approximately $65.4 million
had been funded or the letter of credit had been  extended  beyond its July 2004
expiration  date or  replaced.  As of  December  31,  2002,  the fund had a cash
balance of $46.3 million.

In May 2003, the previous $65.4 million Funding Corporation debt service reserve
letter  of  credit  was  replaced  by  a  $32.7   million   TransAlta  USA  Inc.
("TransAlta"),  a wholly owned  subsidiary of TransAlta  Corporation,  letter of
credit which  expires on May 30, 2004,  and a $32.7 million  MidAmerican  Energy
Holdings Company letter of credit which expires June 6, 2006.

The new Funding Corporation debt service reserve letters of credit permitted the
cash, which was previously  restricted,  to be included in the funds distributed
to CE Generation on May 29, 2003.

5.   RELATED PARTY TRANSACTIONS

On January 29, 2003,  TransAlta purchased El Paso Merchant Energy North American
Company's ("EPME") 50% interest in CE Generation.

Pursuant to a Transaction  Agreement  dated January 29, 2003, CE Turbo LLC began
selling  available power to a subsidiary of TransAlta on February 12, 2003 based
on  percentages  of the Dow Jones SP-15  Index.  Such  agreement  will expire on
October 15, 2003.  Sales to TransAlta from the  Guarantors  totaled $0.5 million
and $0.9 million for the three-month and six-month periods ended June 30, 2003.

Sales to EPME totaled $0.2 million and $0.6 million during the  three-month  and
six-month periods ended June 30, 2002, respectively.

During  the  six-month  period  ended June 30,  2003,  the  Guarantors  received
approximately  $26.5 million in contributions  from MidAmerican  Energy Holdings
Company, one of its partners, to be used for capital expenditures.

                                      -21-

<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 June 30, 2003, and the related  statements of operations for the  three-month
and six-month  periods  ended June 30, 2003 and 2002,  and of cash flows for the
six-month  periods  ended  June  30,  2003 and  2002.  These  interim  financial
statements are the responsibility of the Salton Sea Royalty LLC's management.

We  conducted  our  reviews 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 and
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 reviews, we are not aware of any material modifications that should
be made to such interim  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, 2002,  and the related  statements of operations,
members' equity,  and cash flows for the year then ended (not presented herein);
and in our report  dated  January 24, 2003  (January  29, 2003 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,
2002 is fairly  stated,  in all  material  respects,  in relation to the balance
sheet from which it has been derived.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 30, 2003

                                      -22-
<PAGE>


                             SALTON SEA ROYALTY LLC
                                 BALANCE SHEETS
                        (In thousands, except share data)
<TABLE>
<CAPTION>
                                                                     AS OF
                                                             -----------------------
                                                              JUNE 30,  DECEMBER 31,
                                                               2003        2002
                                                             ---------  ------------
                                                            (UNAUDITED)
                                     ASSETS
<S>                                                            <C>       <C>
Prepaid expenses and other current assets ..................   $     9   $    13
Royalty stream, net ........................................    13,584    14,011
Goodwill ...................................................    30,464    30,464
Due from affiliates ........................................    43,841    39,501
                                                               -------   -------
TOTAL ASSETS ...............................................   $87,898   $83,989
                                                               =======   =======

                         LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
  Accrued interest .........................................   $     6   $     7
  Current portion of long-term debt ........................       356       304
                                                               -------   -------
    Total current liabilities ..............................       362       311
Senior secured project note ................................       639       843
                                                               -------   -------
  Total liabilities ........................................     1,001     1,154
                                                               -------   -------

Commitments and contingencies

Members' equity:
  Common stock, par value $.01 per share;
    100 shares authorized, issued and outstanding ..........         -         -
  Additional paid-in capital ...............................     1,561     1,561
  Retained earnings ........................................    85,336    81,274
                                                               -------   -------
    Total members' equity ..................................    86,897    82,835
                                                               -------   -------
TOTAL LIABILITIES AND MEMBERS' EQUITY ......................   $87,898   $83,989
                                                               =======   =======
</TABLE>

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

                                      -23-
<PAGE>

                             SALTON SEA ROYALTY LLC
                            STATEMENTS OF OPERATIONS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                   THREE MONTHS       SIX MONTHS
                                                                  ENDED JUNE 30,    ENDED JUNE 30,
                                                                  --------------    --------------
                                                                  2003     2002     2003     2002
                                                                 ------   ------   ------   ------
                                                                            (UNAUDITED)

<S>                                                              <C>      <C>      <C>      <C>
REVENUE - ROYALTY INCOME .....................................   $3,104   $2,532   $6,143   $6,214
COSTS AND EXPENSES:
  Royalty, operating, general and administrative expenses ....      811      533    1,609    1,625
  Amortization of royalty stream .............................      214      213      427      427
  Interest expense ...........................................       22       60       45      149
                                                                 ------   ------   ------   ------
    Total costs and expenses .................................    1,047      806    2,081    2,201
                                                                 ------   ------   ------   ------
NET INCOME ...................................................   $2,057   $1,726   $4,062   $4,013
                                                                 ======   ======   ======   ======
</TABLE>


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

                                      -24-

<PAGE>

                             SALTON SEA ROYALTY LLC
                            STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                              SIX MONTHS
                                                                                            ENDED JUNE 30,
                                                                                         ------------------
                                                                                           2003       2002
                                                                                         -------    -------
                                                                                             (UNAUDITED)

<S>                                                                                      <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income .........................................................................   $ 4,062    $ 4,013
  Adjustments to reconcile net income to net cash flows from operating activities:
    Amortization of royalty stream ...................................................       427        427
    Changes in assets and liabilities:
      Prepaid expenses and other current assets ......................................         4          9
      Accrued interest ...............................................................        (1)       (12)
                                                                                         -------    -------
        Net cash flows form operating activities .....................................     4,492      4,437
                                                                                         -------    -------
NET CASH FLOWS FROM FINANCING ACTIVITIES:
  Due from affiliates ................................................................    (4,340)    (2,707)
  Repayment of senior secured project note ...........................................      (152)    (1,730)
                                                                                         -------    -------
    Net cash flows from financing activities .........................................    (4,492)    (4,437)
                                                                                         -------    -------
NET CHANGE IN CASH ...................................................................         -          -
Cash at beginning of period ..........................................................         -          -
                                                                                         -------    -------
CASH AT THE END OF PERIOD ............................................................   $     -    $     -
                                                                                         =======    =======
</TABLE>

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

                                      -25-
<PAGE>

                               SALTON SEA ROYALTY
                          NOTES TO FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

In the opinion of  management  of 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 June 30, 2003 and the results of operations  for the  three-month
and  six-month  periods  ended June 30,  2003 and 2002 and of cash flows for the
six-month  periods ended June 30, 2003 and 2002.  The results of operations  for
the  three-month  and six-month  periods ended June 30, 2003 are not necessarily
indicative of the results to be expected for the full year.

The  unaudited  financial  statements  and  notes  thereto  should  be  read  in
conjunction with the audited financial  statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 2002.

Certain amounts in the prior year financial statements have been reclassified in
order to conform to current year presentation.  Such  reclassifications  did not
impact previously reported net income or retained earnings.

2.   ROYALTY STREAM

The  royalty  stream has a cost of $60.5  million and  accumulated  amortization
$46.9  million and $46.5  million as of June 30,  2003 and  December  31,  2002,
respectively.  Royalty  stream  amortization  expense was $0.2  million and $0.4
million for the three-month and six-month  periods ended June 30, 2003 and 2002,
respectively,  and is expected to be $0.8  million for 2003 and each of the five
succeeding fiscal years.

                                      -26-
<PAGE>



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 financial condition and results of operations of
Salton Sea Funding  Corporation (the "Funding  Corporation")  and the Salton Sea
Guarantors, the Partnership Guarantors, and Salton Sea Royalty LLC (the "Royalty
Guarantors",  or collectively the "Guarantors"),  during the periods included in
the  accompanying  statements of operations.  This discussion  should be read in
conjunction  with  the  Funding  Corporation's  and the  Guarantors'  historical
financial  statements and the notes to those  statements.  Actual results in the
future could differ significantly from the historical results.

FORWARD-LOOKING STATEMENTS

From  time to  time,  the  Funding  Corporation  and  the  Guarantors  may  make
forward-looking  statements  within the meaning of the federal  securities  laws
that  involve  judgments,  assumptions  and  other  uncertainties  beyond  their
control. These forward-looking  statements may include, among others, statements
concerning revenue and cost trends, cost recovery, cost reduction strategies and
anticipated  outcomes,  pricing  strategies,  changes in the  utility  industry,
planned capital  expenditures,  financing needs and availability,  statements of
the Funding Corporation's or the Guarantors' expectations, beliefs, future plans
and strategies,  anticipated  events or trends and similar  comments  concerning
matters that are not historical facts. These types of forward-looking statements
are based on  current  expectations  and  involve a number of known and  unknown
risks and  uncertainties  that could cause the actual results and performance to
differ materially from any expected future results or performance,  expressed or
implied, by the forward-looking  statements.  In connection with the safe harbor
provisions of the Private Securities  Litigation Reform Act of 1995, the Funding
Corporation  and the Guarantors  have  identified  important  factors that could
cause actual results to differ  materially  from those  expectations,  including
weather  effects on revenues and other  operating  uncertainties,  uncertainties
relating to economic and political  conditions and  uncertainties  regarding the
impact of regulations, changes in government policy and competition. Neither the
Funding  Corporation  nor the  Guarantors  assume any  responsibility  to update
forward-looking information contained herein.

CRITICAL ACCOUNTING POLICIES

The  preparation of financial  statements and related  disclosures in conformity
with  accounting  principles  generally  accepted in the United States  requires
management to make judgments,  assumptions and estimates that affect the amounts
reported in the Combined Financial  Statements and accompanying notes. Note 2 to
the Funding  Corporation's and the Guarantors'  financial statements included in
their annual report on Form 10-K for the year ended  December 31, 2002 describes
the significant  accounting  policies and methods used in the preparation of the
financial statements. Estimates are used for, but not limited to, the accounting
for the allowance  for doubtful  accounts and  impairment of long-lived  assets.
Actual results could differ from these estimates.

For additional  discussion of the Funding Corporation's and Guarantors' critical
accounting  policies,  see  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations  included in the Funding  Corporation's  and
the Guarantors' Annual Report on Form 10-K for the year ended December 31, 2002.

NEW ACCOUNTING PRONOUNCEMENTS

Effective  January 1, 2003, the Funding  Corporation and the Guarantors  adopted
Statement of  Financial  Accounting  Standards  No. 143,  "Accounting  for Asset
Retirement  Obligations".  This  statement  provides  accounting  and disclosure
requirements for retirement  obligations  associated with long-lived assets. The
cumulative  effect of initially  applying this statement did not have a material
effect on the  Funding  Corporation's  or the  Guarantors'  financial  position,
results of operations or cash flows.

                                      -27-
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002

For purposes of consistency in financial  presentation,  plant capacity  factors
for the Salton Sea I,  Salton Sea II,  Salton Sea III,  Salton Sea IV and Salton
Sea V plants are based on nominal  capacity amounts of 10, 20, 50, 40 and 49 net
megawatts ("NMW"), respectively and for the Vulcan, Elmore, Leathers, Del Ranch,
and CE Turbo plants are based on capacity  amounts of 34, 38, 38, 38 and 10 NMW,
respectively.  Each  plant  possesses  an  operating  margin,  which  allows for
production in excess of the amounts listed above.  Utilization of this operating
margin is based upon a variety of factors and can be expected to vary throughout
the year under normal operating conditions.

The following  operating data represents the aggregate  capacity and electricity
production  of Salton Sea I,  Salton Sea II,  Salton Sea III,  Salton Sea IV and
Salton Sea V:

                                                       THREE MONTHS
                                                      ENDED JUNE 30,
                                                  --------------------
                                                    2003         2002
                                                  -------      -------
         Overall capacity factor ............        64.4%        63.2%
         Capacity NMW (weighted average) ....       168.4        168.4
         MW hours ("MWh") produced ..........     237,000      232,400

The overall  capacity  factor for the Salton Sea  Guarantors  increased  for the
three-month  period  ended June 30,  2003  compared  to the same  period in 2002
primarily  due to an  uncontrollable  force  event in 2002 at the  Salton Sea II
project, partially offset by increased maintenance outages in the second quarter
2003.

The following  operating data represents the aggregate  capacity and electricity
production of Vulcan, Elmore, Leathers, Del Ranch and CE Turbo:

                                                      THREE MONTHS
                                                     ENDED JUNE 30,
                                                  ------------------
                                                    2003       2002
                                                  -------    -------
           Overall capacity factor ............      93.6%     106.8%
           Capacity NMW (weighted average) ....       158        158
           MWh produced .......................   323,100    368,600

The overall  capacity  factor for the  Partnership  Guarantor  decreased for the
three-month  period  ended June 30,  2003  compared  to the same  period in 2002
primarily due to the timing of maintenance outages.

Southern  California  Edison's ("Edison") Average Avoided Cost of Energy was 5.4
cents per kilowatthour ("kWh") and 3.5 cents per kWh for the three-month periods
ended June 30, 2003 and 2002, respectively. Estimates of Edison's future Average
Avoided Cost of Energy vary  substantially  from year to year. During 2002, as a
result of certain  settlement  agreements,  Edison elected to pay the Guarantors
(except  Salton Sea  Projects IV and V and the CE Turbo  Project) a fixed energy
price in lieu of Edison's Average Avoided Cost of Energy. The fixed energy price
was 3.25 cents per kWh in the first quarter 2002 and increased to 5.37 cents per
kWh effective May 1, 2002 through April 30, 2007.

The Salton Sea Guarantors'  operating revenue increased $3.7 million,  or 23.0%,
to $19.8  million  for the  three-month  period  ended June 30,  2003 from $16.1
million for the same period in 2002.  The increase was  primarily  due to higher
average  rates in 2003 and lower  production  in 2002 due to the  Salton  Sea II
uncontrollable force event.

The Partnership  Guarantors' operating revenue increased $2.2 million, or 10.8%,
to $22.5  million  for the  three-month  period  ended June 30,  2003 from $20.3
million for the same period in 2002.  The increase was  primarily  due to higher
average rates in 2003, partially offset by lower production in 2003.

                                      -28-
<PAGE>

The Royalty  Guarantors'  revenue  increased  $0.6  million,  or 24.0%,  to $3.1
million for the three-month period ended June 30, 2003 from $2.5 million for the
same period in 2002. The increase was the result of higher energy revenue at the
Partnership Projects resulting in higher royalty income.

The Salton Sea Guarantors' operating expenses, which include royalty, operating,
general and administrative expenses,  decreased $2.9 million, or 17.7%, to $13.5
million for the  three-month  period ended June 30, 2003, from $16.4 million for
the same period in 2002.  The decrease was primarily due to the  settlement of a
warranty claim with Stone & Webster,  Inc.  ("Stone & Webster").  The settlement
included a $7.6 million  reimbursement of incremental operating expenses related
to legal, other expenses and equipment  write-offs.  This decrease was partially
offset by the timing of maintenance activities.

The  Partnership   Guarantors'   operating  expenses,   which  include  royalty,
operating,  general and  administrative  expenses,  increased  $4.5 million,  or
31.3%,  to $18.9 million for the  three-month  period ended June 30, 2003,  from
$14.4  million  for the same  period  in 2002.  The  increase  in  expenses  was
primarily due to operating  expenses at a project which is recovering  zinc from
geothermal brine of certain power projects (the "Zinc Recovery Project"),  which
began limited production in December 2002.

The Royalty Guarantors'  operating expenses,  which include royalty,  operating,
general and administrative expenses,  increased $0.3 million to $0.8 million for
the three-month period ended June 30, 2003 from $0.5 million for the same period
in 2002. The increase was due to higher royalty expense.

The Salton Sea Guarantors'  depreciation and amortization decreased $1.8 million
to $4.9 million for the three-month period ended June 30, 2003 from $6.7 million
for the same  period  in  2002.  The  decrease  was due to the  write-off  of an
abandoned project in 2002, partially offset by increases in 2003 due to a change
in salvage value assumptions and higher depreciable asset balances.

The Partnership Guarantors' depreciation and amortization increased $3.9 million
to $9.3  million  for the three-  month  period  ended  June 30,  2003 from $5.4
million for the same period in 2002. The increase was due to depreciation on the
Zinc Recovery  Project,  which began limited  production in December 2002, and a
change in salvage value assumptions.

The Salton Sea  Guarantors'  interest  expense  decreased  $0.4  million to $4.8
million for the three-month period ended June 30, 2003 from $5.2 million for the
same period in 2002. The decrease was due to reduced indebtedness.

The  Partnership  Guarantors'  interest  expense,  net of  capitalized  amounts,
increased $2.8 million to $4.7 million for the three-month period ended June 30,
2003 from $1.9 million for the same period in 2002.  The increase was due to the
discontinuance of capitalizing  interest on the minerals  extraction process, as
the Zinc Recovery Project began limited  production in December 2002,  partially
offset by reduced indebtedness.

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' benefit for income taxes, increased to $4.1 million
for the  three-month  period  ended June 30, 2003 from $0.4 million for the same
period in 2002.  The increase was due to higher  losses at entities  with higher
tax  rates.  The  effective  tax  rate was  40.6%  and  31.4% in 2003 and  2002,
respectively.  The  change  in the  effective  rate  was  due  primarily  to the
generation  of energy tax  credits  and the  resolution  of certain  tax issues,
primarily related to depletion  deductions in 2002. Income taxes will be paid by
the parent of the  Guarantors  from  distributions  to the parent company by the
Guarantors, which occur after payment of operating expenses and debt service.

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

                                      -29-
<PAGE>

The  Funding  Corporation's  net  income  (loss)  was  not  significant  for the
three-month  periods  ended  June  30,  2003 and  2002.  The net  income  (loss)
primarily represents interest income and expense, net of applicable tax, and the
Funding Corporation's 1% equity in earnings of the Guarantors.

RESULTS OF OPERATIONS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2002

For purposes of consistency in financial  presentation,  plant capacity  factors
for the Salton Sea I,  Salton Sea II,  Salton Sea III,  Salton Sea IV and Salton
Sea V plants are based on nominal capacity amounts of 10, 20, 50, 40 and 49 NMW,
respectively  and for the  Vulcan,  Elmore,  Leathers,  Del Ranch,  and CE Turbo
plants are based on capacity amounts of 34, 38, 38, 38 and 10 NMW, respectively.
Each plant possesses an operating margin,  which allows for production in excess
of the amounts listed above.  Utilization of this operating margin is based upon
a variety of  factors  and can be  expected  to vary  throughout  the year under
normal operating conditions.

The following  operating data represents the aggregate  capacity and electricity
production  of Salton Sea I,  Salton Sea II,  Salton Sea III,  Salton Sea IV and
Salton Sea V:

                                                      SIX MONTHS
                                                    ENDED JUNE 30,
                                                  --------------------
                                                    2003         2002
                                                  -------      -------
         Overall capacity factor ............        68.0%        76.2%
         Capacity NMW (weighted average) ....       168.4        168.4
         MWh produced .......................     497,600      557,200

The overall  capacity  factor for the Salton Sea  Guarantors  decreased  for the
six-month  period  ended  June 30,  2003  compared  to the same  period  in 2002
primarily due to more extensive  maintenance outages in 2003 partially offset by
the uncontrollable force event at Salton Sea II in 2002.

The following  operating data represents the aggregate  capacity and electricity
production of Vulcan, Elmore, Leathers, Del Ranch and CE Turbo:

                                                      SIX MONTHS
                                                     ENDED JUNE 30,
                                                  ------------------
                                                    2003       2002
                                                  -------    -------
           Overall capacity factor ............      97.8%      98.3%
           Capacity NMW (weighted average) ....       158        158
           MWh produced .......................   671,000    674,602

The overall capacity factor for the Partnership  Guarantor decreased  marginally
for the  six-month  period  ended June 30,  2003  compared to the same period in
2002.

Edison's  Average Avoided Cost of Energy was 5.8 cents per kWh and 3.2 cents per
kWh for the  six-month  periods  ended  June 30,  2003 and  2002,  respectively.
Estimates of Edison's future Average  Avoided Cost of Energy vary  substantially
from year to year.  During 2002, as a result of certain  settlement  agreements,
Edison  elected to pay the  Guarantors  (except Salton Sea Projects IV and V and
the Turbo Project) a fixed energy price in lieu of Edison's Average Avoided Cost
of Energy.  The fixed energy  price was 3.25 cents per kWh in the first  quarter
2002 and increased to 5.37 cents per kWh effective May 1, 2002 through April 30,
2007.

The Salton Sea Guarantors' operating revenue decreased $1.5 million, or 3.8%, to
$38.0  million for the  six-month  period ended June 30, 2003 from $39.5 million
for the same period in 2002.  The decrease was  primarily due to the impact of a
$6.8 million adjustment to the Edison provision in 2002 and lower production due
to extended overhauls in 2003, partially offset by higher average rates in 2003.

                                      -30-
<PAGE>

The Partnership  Guarantors'  operating  revenue decreased $0.2 million to $42.3
million for the six-month  period ended June 30, 2003 from $42.5 million for the
same  period in 2002.  The impact of a $14.1  million  adjustment  to the Edison
provision in 2002 was offset by higher average rates in 2003.

The Royalty  Guarantors'  revenue decreased $0.1 million to $6.1 million for the
six-month  period  ended June 30, 2003 from $6.2  million for the same period in
2002.  The decrease was the result of lower  energy  revenue at the  Partnership
Projects resulting in lower royalty income.

The Salton Sea Guarantors' operating expenses, which include royalty, operating,
general and administrative expenses were $28.3 million for the six-month periods
ended June 30, 2003 and 2002.  During the second quarter of 2003, the settlement
of a warranty claim with Stone & Webster  included a $7.6 million  reimbursement
of incremental operating expenses related to legal, other expenses and equipment
write-offs which reduced  operating costs. This decrease was partially offset by
the timing of overhauls and higher pipe repair costs.

The  Partnership   Guarantors'   operating  expenses,   which  include  royalty,
operating,  general and  administrative  expenses,  increased $10.4 million,  or
31.8%, to $43.1 million for the six-month period ended June 30, 2003, from $32.7
million for the same period in 2002.  The increase in expenses was primarily due
to  operating  expenses  at the  Zinc  Recovery  Project,  which  began  limited
production in December 2002.

The Royalty Guarantors'  operating expenses,  which include royalty,  operating,
general and administrative expenses, were $1.6 million for the six-month periods
ended June 30, 2003 and 2002.

The Salton Sea Guarantors'  depreciation and amortization decreased $1.2 million
to $9.8 million for the six-month  period ended June 30, 2003 from $11.0 million
for the same  period  in  2002.  The  decrease  was due to the  write-off  of an
abandoned  project  in 2002,  partially  offset  by a change  in  salvage  value
assumptions and higher depreciable asset balances in 2003.

The Partnership Guarantors' depreciation and amortization increased $2.7 million
to $14.9 million for the six-month period ended June 30, 2003 from $12.2 million
for the same period in 2002.  The  increase is due to  depreciation  on the Zinc
Recovery Project,  which began limited production in December 2002, and a change
in salvage value assumptions.

The Salton Sea  Guarantors'  interest  expense  decreased  $0.7  million to $9.6
million for the six-month  period ended June 30, 2003 from $10.3 million for the
same period in 2002. The decrease was due to reduced indebtedness.

The  Partnership  Guarantors'  interest  expense,  net of  capitalized  amounts,
increased  $5.6 million to $9.4 million for the six-month  period ended June 30,
2003 from $3.8 million for the same period in 2002.  The increase was due to the
discontinuance of capitalizing interest on the Zinc Recovery Project which began
limited production in December 2002, partially offset by reduced indebtedness.

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' benefit for income taxes, increased to $10.2 million
for the  six-month  period  ended June 30,  2003 from $1.7  million for the same
period in 2002.  The increase was due to higher  losses.  The effective tax rate
was 40.6% and 31.5% in 2003 and 2002, respectively.  The change in the effective
rate  was  due  primarily  to the  generation  of  energy  tax  credits  and the
resolution of certain tax issues,  primarily related to depletion  deductions in
2002.  Income  taxes  will  be  paid  by  the  parent  of  the  Guarantors  from
distributions to the parent company by the Guarantors, which occur after payment
of operating expenses and debt service.

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

                                      -31-
<PAGE>

The Funding  Corporation's  net losses were not  significant  for the  six-month
period ended June 30, 2003 and 2002. The net loss primarily  represents interest
income and expense,  net of  applicable  tax, and the Funding  Corporation's  1%
equity in earnings of the Guarantors.

LIQUIDITY AND CAPITAL RESOURCES

The Salton Sea  Guarantors'  cash flows from operating  activities  decreased to
$0.7 million for the six-month period ended June 30, 2003 from $18.1 million for
the same period in 2002.  The Salton Sea  Guarantors'  only source of revenue is
payments  received  pursuant to long-term  power sales  agreements  with Edison,
other than Salton Sea V Project revenue and interest earned on funds on deposit.
The decrease was  primarily  due to the receipt of past due balances from Edison
in 2002.

The Partnership  Guarantors' cash flows from operating  activities  decreased to
$5.2 million for the six-month period ended June 30, 2003 from $49.4 million for
the same period in 2002. The Partnership  Guarantors'  primary source of revenue
is payments  received  pursuant to long-term power sales agreements with Edison,
other than the CE Turbo Project and Zinc Recovery  Project  revenue and interest
earned on funds on deposit.  The  decrease was  primarily  due to the receipt of
past due  balances  from  Edison in 2002 and  higher  net losses due to the Zinc
Recovery Project being in production.

The Royalty  Guarantors' cash flow from operating  activities  increased to $4.5
million for the  six-month  period ended June 30, 2003 from $4.4 million for the
same period in 2002. The Royalty Guarantors' only source of revenue is royalties
received pursuant to resource lease agreements with the Partnership Projects.

Due to reduced  liquidity,  Edison had failed to pay approximately  $119 million
owed under the Power Purchase  Agreements with certain  Guarantors (the Imperial
Valley  Projects,  excluding  the Salton Sea V and CE Turbo  Projects) for power
delivered in the fourth quarter 2000 and the first quarter 2001. Due to Edison's
failure to pay  contractual  obligations,  the  Guarantors  had  established  an
allowance for doubtful  accounts of  approximately  $21.0 million as of December
31, 2001.

Pursuant to a settlement  agreement  the final payment by Edison of the past due
balances was received  March 1, 2002.  Following  the receipt of Edison's  final
payment of past due balances,  the Guarantors  released the remaining  allowance
for doubtful accounts.

Edison has failed to pay  approximately  $3.9 million of capacity bonus payments
for the months from October 2001 through May 2002.  On December 10, 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
capacity bonus payments  under the Power  Purchase  Agreements.  Due to Edison's
failure to pay the  contractual  obligations,  the Imperial Valley Projects have
established an allowance for doubtful accounts of approximately  $3.1 million as
of June 30, 2003.

On March 25,  2002,  Salton Sea II's 10 MW turbine went out of service due to an
uncontrollable  force event. Such  uncontrollable  force event ended, and Salton
Sea II returned to service, on December 17, 2002. Edison failed to recognize the
uncontrollable  force  event and as such did not pay amounts  otherwise  due and
owing and  improperly  derated  Salton  Sea II from 15 MW to 12.5 MW,  under the
Salton Sea II Power Purchase  Agreement.  On January 29, 2003,  Salton Sea Power
Generation,  L.P., owner of Salton Sea II, served a complaint on Edison for such
unpaid amounts and to rescind such deration.

On June 11, 2003, certain  Guarantors  entered into a settlement  agreement with
Edison.  The settlement,  which relates to the capacity bonus payment and Salton
Sea II uncontrollable force event disputes,  provides for an $800,000 settlement
payment from Edison,  payment of amounts previously  withheld for the Salton Sea
II deration and the recission of such deration.  The amounts previously withheld
for the Salton Sea II deration were received in the second  quarter of 2003. The
$800,000 settlement payment is contingent upon approval by the California Public
Utilities Commission.

                                      -32-
<PAGE>

On July  10,  2003,  Salton  Sea IV's  turbine  went  out of  service  due to an
uncontrollable force event. The turbine is expected to be returned to service by
the end of September 2003.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation had not been
extended beyond its then existing July 2004 expiration  date, and, as such, cash
distributions  were not available to CE Generation,  LLC ("CE Generation") until
the Funding Corporation debt service reserve fund of approximately $65.4 million
had been funded or the letter of credit had been  extended  beyond its July 2004
expiration  date or  replaced.  As of  December  31,  2002,  the fund had a cash
balance of $46.3 million.

In May 2003,  the previous  $65.4 million  Salton Sea Funding  Corporation  debt
service  reserve letter of credit was replaced by a $32.7 million  TransAlta USA
Inc. ("TransAlta"),  a wholly owned subsidiary of TransAlta Corporation,  letter
of credit which expires on May 30, 2004, and a $32.7 million  MidAmerican Energy
Holdings Company letter of credit which expires June 6, 2006.

The new Funding Corporation debt service reserve letters of credit permitted the
cash, which was previously  restricted,  to be included in the funds distributed
to CE Generation on May 29, 2003.

The Salton Sea V Project  was  constructed  by Stone & Webster,  Inc.  (formerly
Stone & Webster Engineering Corporation),  a wholly-owned subsidiary of the Shaw
Group  ("Stone & Webster"),  pursuant to a date  certain,  fixed-price,  turnkey
engineering,  procure,  construct and manage contract (the "Salton Sea V Project
EPC Contract").  On March 7, 2002, Salton Sea Power L.L.C. ("Salton Sea Power"),
the owner of the Salton Sea V Project,  filed a Demand for  Arbitration  against
Stone & Webster  for breach of  contract  and breach of  warranty  arising  from
deficiencies  in  Stone  &  Webster's  design,  engineering,   construction  and
procurement of equipment for the Salton Sea V Project pursuant to the Salton Sea
V Project  EPC  Contract.  The demand for  arbitration  did not include a stated
claim  amount.  On April 25,  2003,  Salton Sea Power  entered into a settlement
agreement  with Stone & Webster.  The Settlement  Agreement  resulted in a total
payment of $12.1 million from Stone & Webster in the second quarter 2003 and the
arbitration  was  dismissed.  The  settlement  was  recorded  as a $4.5  million
reduction of incremental  capital  expenditures and a $7.6 million  reduction of
incremental  operating  expenses related to legal,  other expenses and equipment
write-offs.

The Salton Sea Guarantors'  cash flow from investing  activities  increased to a
source of $0.4 million for the  six-month  period ended June 30, 2003 from a use
of $5.5 million for the same period in 2002.  During the second quarter of 2003,
$4.5  million of the Stone & Webster  settlement  was recorded as a reduction to
capital equipment.  Capital  expenditures are the primary component of investing
activities.

The  Partnership  Guarantors'  cash flow used in investing  activities was $18.6
million for the  six-month  period ended June 30, 2003 and $18.9 million for the
same period in 2002. Capital expenditures are the primary component of investing
activities.

Minerals LLC  constructed  the Zinc Recovery  Project,  which is recovering zinc
from the geothermal brine.  Facilities have been installed near the sites of the
Imperial Valley Projects to extract a zinc chloride solution from the geothermal
brine through an ion exchange  process.  This solution is being transported to a
central  processing  plant  where  zinc  ingots  are  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.
Limited production began during December 2002 and full production is expected by
late-2003.  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.

Total  capital  costs,  excluding  interest  during  construction,  of the  Zinc
Recovery  Project  are  approximately   $159.5  million,  net  of  payments  for
liquidated damages, through June 30, 2003. The Zinc Recovery Project anticipates
incurring $8.4 million in capital  expenditures  during the remainder of 2003 to
optimize production.

                                      -33-
<PAGE>

The Funding  Corporation's net cash flows used in financing activities was $29.2
million for the  six-month  period ended June 30, 2003 and $10.8 million for the
same period in 2002.  The  increased  use of cash was  primarily due to payments
made to affiliates partially offset by the release of the restricted cash.

Salton Sea  Guarantors'  net cash flows used in  financing  activities  was $1.1
million for the  six-month  period ended June 30, 2003 and $12.6 million for the
same  period in 2002.  The  decreased  use of cash was  primarily  due to higher
borrowings from affiliates during 2003.

Partnership Guarantors' net cash flows from financing activities was a source of
cash totaling $13.4 million for the six-month period ended June 30, 2003 and use
of cash  totaling  $30.2  million  for the same  period in 2002.  The change was
primarily due to higher equity contributions and lower payments to affiliates in
2003.

RELATED PARTY TRANSACTIONS

On January 29, 2003,  TransAlta purchased El Paso Merchant Energy North American
Company's ("EPME") 50% interest in CE Generation.

Pursuant to a Transaction  Agreement dated January 29, 2003, CE Turbo and Salton
Sea Power began selling available power to a subsidiary of TransAlta on February
12, 2003 based on percentages of the Dow Jones SP-15 Index.  Such agreement will
expire on October 15, 2003.  Sales to TransAlta from the  Partnership and Salton
Sea  Guarantors  totaled $2.9 million and $5.1 million for the  three-month  and
six-month periods ended June 30, 2003, respectively.

Sales to EPME totaled $0.9 million and $3.5 million during the  three-month  and
six-month periods ended June 30, 2002, respectively.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

There  have  been  no  material  changes  in  the  contractual  obligations  and
commercial  commitments from the information  provided in Item 7. of the Funding
Corporation's  Annual  Report on Form 10-K for the year ended  December 31, 2002
other than as discussed in the "Liquidity and Capital Resources" section.

                                      -34-

<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no  material  changes in the  market  risk from the  information
provided in Item 7A. Quantitative and Qualitative  Disclosures About Market Risk
of the  Funding  Corporation's  Annual  Report on Form  10-K for the year  ended
December 31, 2002.

ITEM 4.  CONTROLS AND PROCEDURES.

An evaluation was performed under the supervision and with the  participation of
Salton Sea  Funding  Corporation's  management,  including  its chief  executive
officer and chief financial  officer,  regarding the effectiveness of the design
and  operation  of Salton Sea  Funding  Corporation's  disclosure  controls  and
procedures  (as defined in Rule 13a-15(e)  promulgated  under the Securities and
Exchange Act of 1934, as amended) as of June 30, 2003. Based on that evaluation,
Salton Sea  Funding  Corporation's  management,  including  the chief  executive
officer  and  chief  financial  officer,   concluded  that  Salton  Sea  Funding
Corporation's disclosure controls and procedures were effective. There have been
no significant changes in Salton Sea Funding Corporation's  internal controls or
in other factors that could significantly affect internal controls.

                                      -35-

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

See Note 2 to the financial statements and discussion in Management's Discussion
and Analysis.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3.  DEFAULTS UPON 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:

         The exhibits listed on the accompanying Exhibit Index are filed as part
of this Quarterly Report.

(B)      REPORTS ON FORM 8-K:

         None.


                                      -36-

<PAGE>

                                   SIGNATURES


Pursuant  to the  requirements  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.



                                       SALTON SEA FUNDING CORPORATION
                                       ------------------------------
                                             (Registrant)





Date:  August 7, 2003                       /s/  Wayne F. Irmiter
                                       ------------------------------
                                              Wayne F. Irmiter
                                         Vice President & Controller

                                      -37-

<PAGE>



                                  EXHIBIT INDEX
Exhibit No.
-----------

     31.1   Chief Executive Officer's Certificate Pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

     31.2   Chief Accounting Officer's Certificate Pursuant to Section 302 of
            the Sarbanes-Oxley Act of 2002.

     32.1   Chief Executive Officer's Certificate Pursuant to Section 906 of the
            Sarbanes-Oxley Act of 2002.

     32.2   Chief Accounting Officer's Certificate Pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002.

                                     -38-