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

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

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

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

                                   47-0790493
                                   ----------
                        (IRS Employer Identification No.)

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

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

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

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

                                    Yes X         No

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

<PAGE>


                         SALTON SEA FUNDING CORPORATION

                                    Form 10-Q

                                  June 30, 2001
                                  -------------

                                 C O N T E N T S


                          PART I: FINANCIAL INFORMATION


Item 1.          Financial Statements                                       Page
-------

SALTON SEA FUNDING CORPORATION

Independent Accountants' Report                                                4

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

Statements of Operations for the Three and Six Months Ended
    June 30, 2001 and 2000                                                     6

Statements of Cash Flows for the Six Months Ended
    June 30, 2001 and 2000                                                     7

Notes to Financial Statements                                                  8

SALTON SEA GUARANTORS

Independent Accountants' Report                                               10

Combined Balance Sheets, June 30, 2001 and December 31, 2000                  11

Combined Statements of Operations for the Three and Six Months Ended
    June 30, 2001 and 2000                                                    12

Combined Statements of Cash Flows for the Six Months Ended
    June 30, 2001 and 2000                                                    13

Notes to Combined Financial Statements                                        14


<PAGE>


PARTNERSHIP GUARANTORS

Independent Accountants' Report                                               16

Combined Balance Sheets, June 30, 2001 and December 31, 2000                  17

Combined Statements of Operations for the Three and Six Months Ended
    June 30, 2001 and 2000                                                    18

Combined Statements of Cash Flows for the Six Months Ended
    June 30, 2001 and 2000                                                    19

Notes to Combined Financial Statements                                        20

SALTON SEA ROYALTY LLC

Independent Accountants' Report                                               23

Balance Sheets, June 30, 2001 and December 31, 2000                           24

Statements of Operations for the Three and Six Months Ended
    June 30, 2001 and 2000                                                    25

Statements of Cash Flows for the Six Months Ended
    June 30, 2001 and 2000                                                    26

Notes to Financial Statements                                                 27

Item 2.          Management's Discussion and Analysis of
                 Financial Condition and Results of Operations                29


                           PART II: OTHER INFORMATION

Item 1.          Legal Proceedings                                            39
-------
Item 2.          Changes in Securities                                        39
-------
Item 3.          Defaults on Senior Securities                                39
-------
Item 4.          Submission of Matters to a Vote of
-------
                 Security Holders                                             39
Item 5.          Other Information                                            39
-------
Item 6.          Exhibits and Reports on Form 8-K                             39
-------

Signatures                                                                    40

<PAGE>


INDEPENDENT ACCOUNTANTS' REPORT



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

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

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

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

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


DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 27, 2001


<PAGE>


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

                                             June 30,               December 31,
                                                2001                     2000
                                          ---------------        ---------------
                                            (unaudited)
ASSETS
Cash                                       $   29,376                 $   8,467
Prepaid expenses and other assets               3,516                     3,563
Current portion of secured project notes
  from Guarantors                              26,116                    23,658
                                          -----------                 ---------
Total current assets                           59,008                    35,688

Secured project notes from Guarantors         505,962                   520,250
Investment in 1% of net assets of
    Guarantors                                  9,454                     9,437
                                          -----------                 ---------
                                           $  574,424                 $ 565,375
                                          ===========                 =========

LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accrued liabilities                        $    3,350                 $   3,479
Due to affiliates                              25,880                     4,753
Current portion of long term debt              26,116                    23,658
                                           ----------                 ---------
Total current liabilities                      55,346                    31,890

Senior secured notes and bonds                505,962                   520,250
                                           ----------                 ---------
    Total liabilities                         561,308                   552,140

Commitments and contingencies (Note 3)

Stockholder's equity:
Common stock--authorized 1,000
    shares, par value $.01 per share;
    issued and outstanding 100 shares             ---                       ---
Additional paid-in capital                      5,366                     5,366
Retained earnings                               7,750                     7,869
                                           ----------                 ---------
    Total stockholder's equity                 13,116                    13,235
                                           ----------                 ---------
                                           $  574,424                 $ 565,375
                                           ==========                 =========

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


<PAGE>


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

<TABLE>
<CAPTION>
                                                   Three Months Ended June 30,         Six Months Ended June 30,
                                                      2001            2000              2001              2000
                                                   ---------        --------         ----------       ----------
Revenues:

<S>                                                <C>             <C>                <C>              <C>
Interest income                                    $  10,407       $   10,756         $  20,736        $  21,719
Equity in earnings (loss) of Guarantors                   (3)              98                17               56
                                                   ----------      ----------         ---------        ---------

Total revenues                                        10,404           10,854            20,753           21,775
                                                   ---------       ----------         ---------        ---------

Expenses:

General and administrative expenses                      174              218               463              477
Interest expense                                      10,230           10,634            20,493           21,397
                                                   ---------       ----------         ---------        ---------
Total expenses                                        10,404           10,852            20,956           21,874
                                                   ---------       ----------         ---------        ---------
Income (loss) before income taxes                        ---                2              (203)             (99)
Provision (benefit) for income taxes                     ---                1               (84)             (41)
                                                   ---------       ----------         ---------        ---------
Net income (loss)                                  $     ---       $        1         $    (119)       $     (58)
                                                   =========       ==========         =========        =========

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


<PAGE>


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


                                                           Six Months Ended
                                                                June 30,
                                                       2001               2000
                                                --------------     -------------
Cash flows from operating activities:
    Net loss                                    $        (119)     $        (58)
    Adjustments to reconcile net loss to net
       cash flow from operating activities:
    Equity in earnings of Guarantors                      (17)              (56)
    Changes in assets and liabilities:
       Prepaid expenses and other assets                   47               111
       Accrued liabilities                               (129)             (168)
                                                -------------       -----------
    Net cash flows from operating activities             (218)             (171)

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

Cash flows from financing activities:
    Increase (decrease) in due to affiliates           21,127           (16,902)
Contributions from _________                               50               ---
    Proceeds from revolving loan                          ---            15,000
    Repayment of senior secured notes and bonds       (11,830)          (22,552)
                                                --------------      -----------
    Net cash flows from financing activities            9,297           (24,454)

Net change in cash                                     20,909            (2,073)

Cash at beginning of period                             8,467             2,086
                                                -------------      ------------

Cash at end of period                           $      29,376      $         13
                                                =============      ============


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


<PAGE>


                         SALTON SEA FUNDING CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

1.  General:
    -------

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

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

2.  Accounting Pronouncements:
    --------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standard  ("SFAS")  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 and amended
by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives
as either  assets or  liabilities  in its  statement of  financial  position and
measure those instruments at fair value. The Funding Corporation implemented the
new standards on January 1, 2001. The initial  adoption of  SFAS133/138  did not
have a material impact on the Funding Corporation's financial position,  results
of operations or any impact on its cash flows.

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

3.  Contingency:
    ------------

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

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

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

<PAGE>

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require Edison make a series of payments to repay the past
due balances under the Power Purchase Agreements (the "stipulated amounts"). The
first payment of  approximately  $11.6  million,  which  represented  10% of the
stipulated amounts,  was received June 22, 2001. A second partial payment of 10%
is payable  within 5 days  following the MOU Effective  Date. The "MOU Effective
Date" means the first day on which both of the following have occurred:  (a) all
legislation  implementing the Memorandum of Understanding between Edison and the
California  Department  of Water  Resources  dated April 9, 2001 ("MOU") or such
other  legislation  based  on the MOU or  otherwise,  that  restores  Edison  to
creditworthiness  has become  effective,  and (b) the  Commission has issued all
orders that are necessary to implement the MOU or other mechanisms  contained in
such  legislation  based on the MOU or  otherwise  which are designed to restore
Edison  to  creditworthiness.  The final  payment,  representing  the  remaining
stipulated amounts,  shall be paid on the 5th business day after Edison receives
proceeds from the financing resulting from the MOU or other mechanisms contained
in such  other  legislation  based on the MOU or  otherwise  restore  Edison  to
creditworthiness.  In  addition  to these  payments,  Edison is required to make
monthly  interest  payments  calculated  at a  rate  of  7%  per  annum  on  the
outstanding  stipulated  amounts.  The  Settlement  Agreements  also  provides a
revised  energy  pricing  structure,  whereby  Edison elects to pay the Imperial
Valley Projects a fixed energy price of 5.37  cents/kilowatt hour in lieu of the
Commission-approved  SRAC  Methodology  under  the  Power  Purchase  Agreements,
commencing on the first day of the month  following  the MOU Effective  Date and
expiring five years from such date. All other contract terms remain unchanged.

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

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

<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,  2001,  and  the  related  combined  statements  of
operations  for the  three-month  and six-month  periods ended June 30, 2001 and
2000,  and the  related  combined  statements  of cash  flows for the  six-month
periods  ended  June 30,  2001 and  2000.  These  financial  statements  are the
responsibility of the Salton Sea Guarantors' management.

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

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

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


DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 27, 2001


<PAGE>


                              SALTON SEA GUARANTORS
                             COMBINED BALANCE SHEETS
                             (Dollars in Thousands)

                                                        June 30,    December 31,
                                                         2001          2000
                                                     ----------     -----------
                                                      (unaudited)
ASSETS
Accounts receivable, net of allowance of $26,931 and
    $0, respectively (Note 4)                        $     27,221    $  24,396
Prepaid expenses and other assets                           5,026        8,699
                                                     ------------    ---------
Total current assets                                       32,247       33,095

Restricted cash                                               ---           17
Property, plant, contracts and equipment, net             561,534      566,577
Excess of cost over fair value of net assets
   acquired, net                                           44,922       45,574
                                                     ---------       ---------
                                                     $    638,703    $ 645,263
                                                     ============    =========


LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable                                     $        531    $       5
Accrued liabilities                                         8,509       10,826
Current portion of long term debt                          18,902       17,319
                                                     ------------    ---------
Total current liabilities                                  27,942       28,150

Due to affiliates                                          21,570       18,720
Senior secured project note                               256,656      266,898
                                                     ------------    ---------
    Total liabilities                                     306,168      313,768

Commitment and contingencies (Note 4)

Total Guarantors' equity                                  332,535      331,495
                                                     ------------    ---------
                                                     $    638,703    $ 645,263
                                                     ============    =========

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


<PAGE>


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


<TABLE>
<CAPTION>

                                                       Three Months Ended                Six Months Ended
                                                             June 30,                         June 30,
                                                     2001             2000               2001             2000
                                                   ---------        ---------         ---------        ---------
Revenues:

<S>                                              <C>                <C>               <C>              <C>
Sales of electricity                             $    22,864        $  18,605         $  54,994        $  27,498
Interest and other income                                977               86               977              213
                                                 -----------        ---------         ---------        ---------
Total revenues                                        23,841           18,691            55,971           27,711
                                                                    _________         _________        _________
                                                 -----------
Expenses:

Operating, general and
   administration                                     14,209            6,806            27,566           12,564
Depreciation and amortization                          4,640            4,227             9,010            8,321
Interest expense                                       5,814            5,791            11,304           11,631
Less capitalized interest                                ---           (2,813)           (1,692)          (6,136)
                                                 -----------        ---------         ---------        ---------

Total expenses                                        24,663           14,011            46,188           26,380
                                                 -----------        ---------         ---------        ---------
Income (loss) before cumulative
  effect of accounting change                           (822)           4,680             9,783            1,331

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

Net income (loss)                                $      (822)       $   4,680         $   1,040        $   1,331
                                                 ===========        =========         =========        =========
</TABLE>

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

<PAGE>




                              SALTON SEA GUARANTORS
                        COMBINED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                      Six Months Ended
                                                                           June 30,
                                                                     2001            2000
                                                               ---------------  -------------
Cash flows from operating activities:
<S>                                                            <C>                <C>
Net income                                                     $     1,040        $   1,331
Adjustments to reconcile net income to net
    cash flows from operating activities:
       Depreciation and amortization                                 9,010            8,321
       Cumulative effect of change in accounting principle           8,743              ---
       Changes in assets and liabilities:
         Accounts receivable                                        (2,825)          (4,226)
         Prepaid expenses and other assets                          (5,070)           1,372
         Accounts payable and accrued
          liabilities                                               (1,791)             (71)
                                                               ------------       ---------
Net cash flows from operating activities                             9,107            6,727
                                                               ____________       _________

Cash flows from investing activities:
Capital expenditures                                                (3,315)         (15,167)
Decrease in restricted cash                                             17            2,156
                                                               ------------       ----------
Net cash flows from investing activities                            (3,298)         (13,011)

                                                               ------------       ----------
Cash flows from financing activities:
Increase in due to affiliates                                        2,850           15,511
Contributions from _________                                            50              ---
Repayment of senior secured project note                            (8,659)          (9,227)
                                                               ------------       ----------
Net cash flows from financing activities                            (5,809)           6,284
                                                               ------------       ----------
Net change in cash                                                     ---              ---
Cash at beginning of period                                            ---              ---

Cash at end of period                                          $       ---        $     ---
                                                               ===========        ==========

</TABLE>

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


<PAGE>


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

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

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

2.  Accounting Policy Change:
    -------------------------

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

3.  Accounting Pronouncements:
    --------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standard  ("SFAS")  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 and amended
by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives
as either  assets or  liabilities  in its  statement of  financial  position and
measure those  instruments  at fair value.  The Guarantors  implemented  the new
standards on January 1, 2001. The initial adoption of SFAS133/138 did not have a
material impact on the Guarantors's financial position, results of operations or
any impact on their cash flows.

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

4.  Contingency:
    ------------

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

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

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

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require Edison make a series of payments to repay the past
due balances under the Power Purchase Agreements (the "stipulated amounts"). The
first  payment of  approximately  $4.2  million,  which  represented  10% of the
stipulated amounts,  was received June 22, 2001. A second partial payment of 10%
is payable  within 5 days  following the MOU Effective  Date. The "MOU Effective
Date" means the first day on which both of the following have occurred:  (a) all
legislation  implementing the Memorandum of Understanding between Edison and the
California  Department  of Water  Resources  dated April 9, 2001 ("MOU") or such
other  legislation  based  on the MOU or  otherwise,  that  restores  Edison  to
creditworthiness  has become  effective,  and (b) the  Commission has issued all
orders that are necessary to implement the MOU or other mechanisms  contained in
such  legislation  based on the MOU or  otherwise  which are designed to restore
Edison  to  creditworthiness.  The final  payment,  representing  the  remaining
stipulated amounts,  shall be paid on the 5th business day after Edison receives
proceeds from the financing resulting from the MOU or other mechanisms contained
in such  other  legislation  based on the MOU or  otherwise  restore  Edison  to
creditworthiness.  In  addition  to these  payments,  Edison is required to make
monthly  interest  payments  calculated  at a  rate  of  7%  per  annum  on  the
outstanding stipulated amounts. The Settlement Agreements also provide a revised
energy  pricing  structure,  whereby Edison elects to pay the Guarantors a fixed
energy  price of 5.37  cents/kilowatt  in lieu of the  Commission-approved  SRAC
Methodology under the Power Purchase Agreements,  commencing on the first day of
the month  following  the MOU  Effective  Date and expiring five years from such
date. All other contract terms remained unchanged.

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

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

The  Guarantors  are  contractually  entitled to receive  payments due under the
Power Purchase  Agreements.  However,  due to the uncertainties  associated with
Edison's financial condition and failure to pay, the Guarantors have established
an allowance for doubtful  accounts of  approximately  $26.9 million at June 30,
2001.  The allowance  for doubtful  accounts has been recorded as a reduction of
net sales in the statement of operations.


<PAGE>


INDEPENDENT ACCOUNTANTS' REPORT



Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska

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

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

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

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


DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 27, 2001

<PAGE>


                             PARTNERSHIP GUARANTORS
                             COMBINED BALANCE SHEETS
                             (Dollars in Thousands)


                                                        June  30,   December 31,
                                                           2001         2000
                                                       ----------- -------------
 (unaudited)
ASSETS
Accounts receivable, net of allowance of $55,098 and
    $0, respectively (Note 4)                        $     45,373  $      28,319
Prepaid expenses and other assets                          18,129         26,661
                                                     ------------  -------------
Total current liabilities                                  63,502         54,980

Restricted cash                                               ---            106
Due from affiliates                                        14,014         35,066
Property, plant, contracts and equipment, net             471,261        470,804
Construction in progress                                  174,703        165,460
Management fee                                             69,191         70,855
Excess of cost over fair value of net assets
  acquired, net                                           122,648        124,430
                                                     ------------  -------------
                                                     $    915,319  $     921,701
                                                      ============ =============

LIABILITIES AND GUARANTORS' EQUITY
Liabilities:
Accounts payable                                     $      2,090  $         101
Accrued liabilities                                        19,226         17,722
Current portion of long term debt                           3,267          1,907
                                                     ------------  -------------
Total current liabilities                                  24,583         19,730

Senior secured project notes                              246,429        248,743
Deferred income taxes                                      98,655        101,734
                                                     ------------  -------------
Total liabilities                                         369,667        370,207

Commitments and contingencies (Note 4)

Guarantors' equity:
Common stock                                                    3              3
Additional paid-in capital                                387,663        387,663
Retained earnings                                         157,986        163,828
                                                     ------------  -------------
Total Guarantors' equity                                  545,652        551,494
                                                     ------------  -------------
                                                     $    915,319   $    921,701
                                                     ============  =============

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


<PAGE>


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

<TABLE>
<CAPTION>

                                                       Three Months Ended                    Six Months Ended
                                                             June 30,                             June 30,
                                                     2001             2000              2001              2000
                                                   ---------        ---------         ---------        ---------
Revenues:

<S>                                                <C>              <C>               <C>              <C>
Sales of electricity                               $  20,076        $  19,628         $  43,570        $  30,017
Interest and other income                                905              625               940            1,101
                                                   ---------        ---------         ---------        ---------
Total revenues                                        20,981           20,253            44,510           31,118
                                                   _________        _________         _________        _________

Expenses:

Operating, general and
   administration                                     12,278            9,518            26,672           17,308
Depreciation and amortization                          6,937            4,848            12,018            9,493
Interest expense                                       4,829            5,045             9,622           10,140
Less capitalized interest                             (2,750)          (4,918)           (7,483)          (9,829)
                                                   ---------        ---------         ---------        ---------

Total expenses                                        21,294           14,493            40,829           27,112
                                                   ---------        ---------         ---------        ---------
Income (loss) before income taxes                       (313)           5,760             3,681            4,006
Provision (benefit) for income taxes                    (109)           1,901             1,269            1,322
                                                   ---------        ---------         ---------        ---------

Income (loss) before cumulative
  effect of accounting change                           (204)           3,859             2,412            2,684

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

Net income (loss)                                  $    (204)       $   3,859         $  (5,842)       $   2,684
                                                   ==========       =========         ==========       =========

</TABLE>

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

<PAGE>


                             PARTNERSHIP GUARANTORS
                        COMBINED STATEMENTS OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                         Six Months Ended
                                                                                              June 30,
                                                                                          2001            2000
                                                                                --------------     -------------
Cash flows from operating activities:
<S>                                                                             <C>                <C>
Net income (loss)                                                               $       (5,842)    $       2,684
Adjustments to reconcile net income (loss) to net
    cash flow from operating activities:
       Depreciation and amortization                                                    12,018             9,493
       Cumulative effect of change in accounting principle, net of tax                   8,254               ---
       Deferred income taxes                                                             1,269             1,322
       Changes in assets and liabilities:
          Accounts receivable                                                          (17,054)               82
          Prepaid expenses and other assets                                             (4,073)           (4,915)
          Accounts payable and accrued
           liabilities                                                                   3,493            (2,569)
                                                                                --------------     -------------
Net cash flows from operating activities                                                (1,935)            6,097
                                                                                --------------     -------------
Cash flows from investing activities:
Capital expenditures                                                                    (7,751)          (12,874)
Capital expenditures-construction                                                      (11,259)          (72,154)
Decrease in restricted cash                                                                106            54,343
Management fee                                                                             741              (143)
                                                                                --------------     -------------
Net cash flows from investing activities                                               (18,163)          (30,828)
                                                                                --------------     -------------
Cash flows from financing activities:
Repayments of senior secured project notes                                                (954)           (8,562)
Decrease in due from affiliates                                                         21,052            33,293
                                                                                --------------     -------------
Net cash flows from financing activities                                                20,098            24,731
                                                                                --------------     -------------
Net change in cash                                                                         ---               ---

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

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


<PAGE>


                             PARTNERSHIP GUARANTORS
                     NOTES TO COMBINED FINANCIAL STATEMENTS
                                   (Unaudited)

1.  General:
    -------

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

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

2.  Accounting Policy Change:
    -------------------------

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

3.  Accounting Pronouncements:
    --------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standard  ("SFAS")  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 and amended
by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives
as either  assets or  liabilities  in its  statement of  financial  position and
measure those  instruments  at fair value.  The Guarantors  implemented  the new
standards on January 1, 2001. The initial adoption of SFAS133/138 did not have a
material impact on the Guarantors's financial position, results of operations or
any impact on their cash flows.

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

4.  Contingency:
    ------------

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

Edison failed to pay approximately $76.9 million to the Guarantors due under the
Power Purchase  Agreements for power delivered in November and December 2000 and
January, February and March 2001, although the Power Purchase Agreements provide
for billing and payment on a schedule  where  payments  would have normally been
received in early January,  February, March, April and May 2001. On February 21,

<PAGE>

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

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require Edison make a series of payments to repay the past
due balances under the Power Purchase Agreements (the "stipulated amounts"). The
first  payment of  approximately  $7.5  million,  which  represented  10% of the
stipulated amounts,  was received June 22, 2001. A second partial payment of 10%
is payable  within 5 days  following the MOU Effective  Date. The "MOU Effective
Date" means the first day on which both of the following have occurred:  (a) all
legislation  implementing the Memorandum of Understanding between Edison and the
California  Department  of Water  Resources  dated April 9, 2001 ("MOU") or such
other  legislation  based  on the MOU or  otherwise,  that  restores  Edison  to
creditworthiness  has become  effective,  and (b) the  Commission has issued all
orders that are necessary to implement the MOU or other mechanisms  contained in
such  legislation  based on the MOU or  otherwise  which are designed to restore
Edison  to  creditworthiness.  The final  payment,  representing  the  remaining
stipulated amounts,  shall be paid on the 5th business day after Edison receives
proceeds from the financing resulting from the MOU or other mechanisms contained
in such  other  legislation  based on the MOU or  otherwise  restore  Edison  to
creditworthiness.  In  addition  to these  payments,  Edison is required to make
monthly  interest  payments  calculated  at a  rate  of  7%  per  annum  on  the
outstanding  stipulated  amounts.  The  Settlement  Agreements  also  provides a
revised  energy  pricing  structure,  whereby  Edison elects to pay the Imperial
Valley Projects a fixed energy price of 5.37  cents/kilowatt hour in lieu of the
Commission-approved  SRAC  Methodology  under  the  Power  Purchase  Agreements,
commencing on the first day of the month  following  the MOU Effective  Date and
expiring five years from such date. All other contract terms remained unchanged.

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

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


The Guarantors  are  contractually  entitled to receive  payment under the Power
Purchase Agreements and Settlement Agreements. However, due to the uncertainties
associated  with Edison's  financial  condition  and failure to pay  contractual
obligations,  the Guarantors have established an allowance for doubtful accounts
of  approximately  $55.1  million on June 30, 2001.  The  allowance for doubtful
accounts  has been  recorded as a  reduction  of net sales in the  statement  of
operations.

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

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

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

<PAGE>


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, 2001, and the related  statements of operations for the  three-month
and six-month  periods ended June 30, 2001 and 2000, and the related  statements
of cash flows for the  six-month  periods  ended June 30,  2001 and 2000.  These
financial  statements  are the  responsibility  of the Salton Sea Royalty  LLC's
management.

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

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

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


DELOITTE & TOUCHE LLP
Omaha, Nebraska
July 27, 2001


<PAGE>



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


                                                June 30,          December 31,
                                                  2001                2000
                                             --------------     --------------
                                                (unaudited)
ASSETS
Prepaid expenses and other assets            $           56     $           82
                                             --------------     --------------
Total current assets                                     56                 82

Royalty stream, net                                  15,198             15,719
Excess of cost over fair value of net assets
  acquired, net                                      30,918             31,372
Due from affiliates                                  28,257             26,497
                                             --------------     --------------

                                             $       74,429     $       73,670
                                             ==============     ==============


LIABILITIES AND EQUITY
Liabilities:
Accrued liabilities                          $           41     $           57
Current portion of long term debt                     3,947              4,434
                                             --------------     --------------
Total current liabilities                             3,988              4,491

Senior secured project note                           2,877              4,607
                                             --------------     --------------
    Total liabilities                                 6,865              9,098

Commitment and contingencies (Note 3)

Equity:
Common stock, par value $.01 per share; 100
  share authorized, issued and outstanding              ---                ---
Additional paid-in capital                            1,561              1,561
Retained earnings                                    66,003             63,011
                                             --------------     --------------
Total equity                                         67,564             64,572
                                             --------------     --------------
                                             $       74,429     $       73,670
                                             ==============     ==============

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


<PAGE>


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

<TABLE>
<CAPTION>

                                                        Three Months Ended                 Six Months Ended
                                                              June 30,                         June 30,
                                                      2001            2000               2001             2000
                                                   ---------        ---------         ---------        ---------

Revenues:
<S>                                                <C>              <C>              <C>               <C>
Royalty income                                     $   2,376        $   2,707        $    5,839        $   4,267

Expenses:
Operating, general and
   administrative expenses                               650              758             1,529            1,173
Amortization of royalty stream
   and goodwill                                          488              492               975              983
Interest expense                                         166              258               343              542
                                                ------------     ------------      ------------     ------------

Total expenses                                         1,304            1,508             2,847            2,698
                                                ------------     ------------      ------------     ------------

Net income                                         $   1,072         $  1,199        $    2,992        $   1,569
                                                ============     ============      ============     ============

</TABLE>

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

<PAGE>

                             SALTON SEA ROYALTY LLC
                             STATEMENT OF CASH FLOWS
                             (Dollars in Thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                             Six Months Ended
                                                                  June 30,
                                                             2001            2000
                                                   --------------     -------------
Cash flows from operating activities:
<S>                                                <C>                <C>
Net income                                         $        2,992     $       1,569
Adjustments to reconcile net income to net
    cash flow from operating activities:
       Amortization of royalty stream and goodwill            975               983
       Changes in assets and liabilities:
       Prepaid expenses and other assets                       26                77
       Accrued liabilities                                    (16)              (27)
                                                   ---------------    -------------
Net cash flows from operating activities                    3,977             2,602
                                                   ---------------    -------------

Net cash flows from financing activities:
(Increase) decrease in due from affiliates                 (1,760)            2,159
Repayment of senior secured project note                   (2,217)           (4,761)
                                                   ---------------    --------------
Net cash flows from financing activities                   (3,977)           (2,602)
                                                   ---------------    --------------

Net change in cash                                            ---               ---

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

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

<PAGE>
                             SALTON SEA ROYALTY LLC
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

1.  General:
    -------

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

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

2.  Accounting Pronouncements:
    --------------------------

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standard  ("SFAS")  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 and amended
by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives
as either  assets or  liabilities  in its  statement of  financial  position and
measure  those  instruments  at fair  value.  The  Company  implemented  the new
standards on January 1, 2001. The initial adoption of SFAS133/138 did not have a
material impact on the Company's  financial  position,  results of operations or
any impact on its cash flows.

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

3.  Contingency:
    ------------

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

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

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

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require Edison make a series of payments to repay the past
due balances under the Power Purchase Agreements (the "stipulated amounts"). The
first payment of  approximately  $11.6  million,  which  represented  10% of the
stipulated amounts,  was received June 22, 2001. A second partial payment of 10%
is payable  within 5 days  following the MOU Effective  Date. The "MOU Effective
Date" means the first day on which both of the following have occurred:  (a) all
legislation  implementing the Memorandum of Understanding between Edison and the
California  Department  of Water  Resources  dated April 9, 2001 ("MOU") or such
other  legislation  based  on the MOU or  otherwise,  that  restores  Edison  to
creditworthiness  has become  effective,  and (b) the  Commission has issued all
orders that are necessary to implement the MOU or other mechanisms  contained in
such  legislation  based on the MOU or  otherwise  which are designed to restore
Edison  to  creditworthiness.  The final  payment,  representing  the  remaining
stipulated amounts,  shall be paid on the 5th business day after Edison receives
proceeds from the financing resulting from the MOU or other mechanisms contained
in such  other  legislation  based on the MOU or  otherwise  restore  Edison  to
creditworthiness.  In  addition  to these  payments,  Edison is required to make
monthly  interest  payments  calculated  at a  rate  of  7%  per  annum  on  the
outstanding stipulated amounts. The Settlement Agreements also provide a revised
energy  pricing  structure,  whereby Edison elects to pay the Guarantors a fixed
energy price of 5.37 cents/kilowatt hour in lieu of the Commission-approved SRAC
Methodology under the Power Purchase Agreements,  commencing on the first day of
the month  following  the MOU  Effective  Date and expiring five years from such
date. All other contract terms have remained unchanged.

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

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

<PAGE>


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

Results of Operations:
---------------------

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

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

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

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

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

The Salton Sea IV Project sells electricity to Edison pursuant to a modified SO4
Agreement which provides for contract  capacity payments on 34 MW of capacity at
two  different  rates  based  on  the  respective   contract  capacities  deemed
attributable  to the original  Salton Sea PPA option (20 MW) and to the original
Fish Lake Power Purchase  Agreement  ("PPA") (14 MW). The capacity payment price
for the 20 MW portion adjusts

<PAGE>

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

Results of Operations:  (continued)
---------------------

quarterly based upon specified indices and the capacity payment price for the 14
MW portion is a fixed levelized rate. The energy payment (for deliveries up to a
rate of 39.6 MW) is at a fixed price for 55.6% of the total energy  delivered by
Salton Sea IV and is based on an energy payment  schedule for 44.4% of the total
energy delivered by Salton Sea IV. The contract has a 30-year term but Edison is
not  required  to  purchase  the  20  MW  of  capacity  and  energy   originally
attributable  to the Salton Sea I PPA  option  after  September  30,  2017,  the
original termination date of the Salton Sea I PPA.

Edison's  average  avoided cost of energy was 11.6 cents per kWh and 3.8 per kWh
for the six months  ended June 30,  2001 and 2000,  respectively.  Estimates  of
Edison's future avoided cost of energy vary substantially from year to year. The
Company  cannot  predict the likely level of avoided cost of energy prices under
the SO4 Agreements and the modified SO4 Agreements.

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

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

As a result of legal  proceedings with Edison, on March 22, 2001 the Partnership
Projects  and  Salton  Sea I,  Salton  Sea II,  Salton Sea III and Salton Sea IV
suspended  power  sales to  Edison.  On March  27,  2001  and May 1,  2001,  the
Partnership projects, including the CE Turbo project, and Salton Sea I, II, III,
IV and V, respectively,  entered into a transaction  agreement to sell available
power to EPME based on  percentages  of the Dow Jones SP-15  Index.  On June 20,
2001 the Partnership and Salton Sea Projects (excluding Salton Sea Unit V and CE
Turbo) entered into Agreements Addressing Payment and Pricing Issues with Edison
and, as a result, resumed power sales to Edison on June 22, 2001. See discussion
in Liquidity and Capital Resources, page 34.


<PAGE>


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

Results of Operations:  (continued)
---------------------

The following data includes the aggregate capacity and electricity production of
Salton Sea Units I, II, III, IV and V:
                                 Three Months Ended         Six Months Ended
                                      June 30,                  June 30,
                                  2001         2000        2001         2000
                             -----------  ------------ ---------      --------
Overall capacity factor          75.8%        74.8%       79.9%           60.0%
Capacity (NMW) (average)         168.4        119.4       168.4          119.4
kWh produced (in thousands)    278,900      195,000     584,700        312,900

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

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

                                 Three Months Ended       Six Months Ended
                                      June 30,                 June 30,
                                  2001          2000         2001          2000
                             -----------   ---------    -----------   ---------
Overall capacity factor          99.4%         102.4%         100.3%      91.1%
Capacity (NMW) (average)           158            148           158         148
kWh produced (in thousands)    342,900        324,600        688,602    589,200

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

Revenues:

The Salton Sea  Guarantors'  sales of  electricity  increased to $22,864 for the
three  months  ended June 30, 2001 from  $18,605 for the same period in 2000,  a
22.9%  increase.  For the six months ended June 30, 2001,  sales of  electricity
increased to $54,994 from $27,498 in 2000, a 100.0% increase.  This increase was
primarily  due to higher  avoided cost rates in 2001,  the start up of Unit V in
the third  quarter  of 2000 and  scheduled  overhauls  in 2000,  which were more
extensive  compared  to 2001.  Due to  uncertainties  associated  with  Edison's
financial  condition  and  failure  to  pay,  the  Salton  Sea  Guarantors  have
established an allowance for doubtful  accounts of approximately  $26.9 million,
which reduced revenues in 2001 compared to 2000.

The Salton Sea Guarantors'  interest and other income  increased to $977 for the
three months  ended June 30, 2001 from $86 for the same period in 2000.  For the
six months ended June 30, 2001, interest and other income increased to $977 from
$213 in 2000. The increase was due to a payment of interest  income by Edison as
part of a settlement agreement.


<PAGE>


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

Revenues:  (continued)

The Partnership  Guarantors'  sales of electricity  increased to $20,076 for the
three  months  ended June 30, 2001 from  $19,628 for the same period in 2000,  a
2.3%  increase.  For the six months  ended June 30, 2001,  sales of  electricity
increased to $43,570 from $30,017 in 2000, a 45.2%  increase.  This increase was
primarily  due to higher  avoided  cost  rates,  the start up of CE Turbo in the
third quarter of 2000 and more production due to fewer outages compared to 2000.
Due to uncertainties  associated with Edison's financial  conditions and failure
to pay, the Partnership  Guarantors  have  established an allowance for doubtful
accounts of approximately $55.1 million,  which reduced revenue in 2001 compared
to 2000.

The Royalty  Guarantor  revenue  decreased  to $2,376 for the three months ended
June 30, 2001 from $2,707 for the same period last year.  This was due primarily
to a decrease in royalty revenue  resulting from lower energy  revenue.  For the
six months ended June 30, 2001 royalty  revenue  increased to $5,839 from $4,267
in 2000.  The  increase  was due  primarily  to an increase  in royalty  revenue
resulting from higher energy revenue.

Operating Expenses:

The Salton Sea Guarantors' operating expenses, which include royalty, operating,
and general and  administrative  expenses,  increased to $14,209,  for the three
months ended June 30, 2001 from $6,806 for the same period in 2000.  For the six
months ended June 30, 2001,  operating expense increased to $27,566 from $12,564
in 2000. The increases were due to higher royalty expenses resulting from higher
revenues,  higher brine  disposal  costs and the start up of Unit V in the third
quarter of 2000.

The  Partnership   Guarantors'   operating  expenses,   which  include  royalty,
operating, and general and administrative expenses, increased to $12,278 for the
three  months  ended June 30, 2001 from $9,518 for the same period in 2000.  For
the six month  period  ended June 30,  2001,  operating  expenses  increased  to
$26,672 from $17,308 in 2000.  These  increases for the six months was due to an
increase in royalty expenses resulting from higher revenues,  the start up of CE
Turbo in the third quarter of 2000 and higher brine disposal costs.

For the three  months  ended June 30,  2001 the  Royalty  Guarantors'  operating
expenses  decreased to $650 from $758 for the same period in 2000.  The decrease
was due to lower royalty costs resulting from lower energy revenue.  For the six
months ended June 30, 2001,  operating  expenses increased to $1,529 from $1,173
in 2000.  This increase was due to higher  royalty costs  resulting  from higher
revenue.

Depreciation and Amortization:

The Salton Sea Guarantors' depreciation and amortization increased to $4,640 for
the three months ended,  June 30 2001 from $4,227 for the same period of 2000, a
9.8%  increase.  For the six  months  ended  June  30,  2001,  depreciation  and
amortization  increased to $9,010 from $8,321 in 2000, an 8.3%  increase.  These
increases  were due  primarily to the start up of Unit V in the third quarter of
2000.

<PAGE>

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

Depreciation and Amortization: (continued)

The Partnership  Guarantors'  depreciation and amortization  increased to $6,937
for the three  months  ended June 30,  2001 from  $4,848 for the same  period in
2000.  For the six  months  ended June 30,  2001  depreciated  and  amortization
increased to $12,018 from $9,493 in 2000.  The  increases  were due primarily to
upgraded brine handling system and the start up of CE Turbo in the third quarter
of 2000.

The Royalty  Guarantors'  amortization  was $488 for the three months ended June
30, 2001 compared to $492 for the same period of 2000.  For the six months ended
June 30, 2001, amortization was $975 compared to $983 in 2000.

Interest Expense:

The  Salton Sea  Guarantors'  interest  expense,  net of  capitalized  interest,
increased to $5,814 for the three months ended June 30, 2001 from $2,978 for the
same period in 2000. For the six months ended June 30, 2001,  interest  expense,
net of  capitalized  interest,  increased  to $9,612  from  $5,495 in 2000.  The
increase was due to the discontinuance of capitalizing  interest on the minerals
extraction process partially offset by reduced indebtedness.

The  Partnership  Guarantors'  interest  expense,  net of capitalized  interest,
increased  to $2,079 for the three  months ended June 30, 2001 from $127 for the
same period in 2000. For the six months ended June 30, 2001,  interest  expense,
net of capitalized interest, increased to $2,139 from $311 in 2000. The increase
was  due  to  the  discontinuance  of  capitalizing  interest  on  the  minerals
extraction process partially offset by reduced indebtedness.

The Royalty Guarantors'  interest expense decreased to $166 for the three months
ended June 30, 2001 from $258 from the same  period in 2000.  For the six months
ended June 30, 2001,  interest expense  decreased to $343 from $542 in 2000. The
decrease was due to reduced indebtedness.

Income Tax Provision:

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

The  Partnership  Guarantors  income tax benefit  was $109 for the three  months
ended June 30, 2001  compared  to a  provision  of $1,901 for the same period in
2000. For the six months ended June 30, 2001, the income tax provision decreased
to $1,269 from $1,322 in 2000.  These  decreases  were  primarily due to a lower
pre-tax  income.  Income  taxes  will be paid by the  parent of the  Partnership
Guarantors  from  distributions  to  the  parent  company  by  the,  Partnership
Guarantors which occur after operating expenses and debt service.

Income taxes are the responsibility of the partners and Royalty Guarantor has no
obligation to provide funds to the partners for payment of any tax  liabilities.
Accordingly, the Royalty Guarantor has no tax obligations.

<PAGE>


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

Cumulative Effect of Accounting Policy Change:

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

Net Income (Loss):

The Salton Sea Funding  Corporation's net income for the three months ended June
30, 2001 was $0 compared to a net income of $1 for the same period in 2000.  For
the six months  ended June 30,  2001 the net loss was ($119)  compared  to a net
loss of ($58) in 2000. The net loss  primarily  represents  interest  income and
expense,  net of  applicable  tax, and the Salton Sea Funding  Corporation's  1%
equity in earnings of the Guarantors.

The Salton Sea  Guarantors  had a net loss of ($822) for the three  months ended
June 30, 2001 compared to net income of $4,680 for the same period of 2000.  For
the six months ended June 30, 2001,  net income  decreased to $1,040 from $1,331
in 2000.

The  Partnership  Guarantors had a net loss of ($204) for the three months ended
June 30, 2001 compared to net income of $3,859 for the same period of 2000.  For
the six months ended June 30, 2001, the  Partnership  Guarantors' had a net loss
of ($5,842) compared to net income of $2,684 in 2000.

The Royalty  Guarantor's  net income  decreased  to $1,072 for the three  months
ended June 30, 2001 compared to $1,199 for the same period of 2000.  For the six
months ended June 30, 2001, net income increased to $2,992 from $1,569 in 2000.

Liquidity and Capital Resources:
-------------------------------

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

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

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

Liquidity and Capital Resources: (continued)
-------------------------------

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

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

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

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

On June 20, 2001, the Guarantors  entered into Agreements  Addressing  Renewable
Energy Pricing and Payment  Issues with Edison  ("Settlement  Agreements").  The
Settlement Agreements require Edison make a series of payments to repay the past
due balances under the Power Purchase Agreements (the "stipulated amounts"). The
first payment of  approximately  $11.6  million,  which  represented  10% of the
stipulated  amounts,  was received June 22, 2001. A second  partial  payment is
payable within 5 days following the MOU Effective Date. The "MOU Effective Date"
means  the first  day on which  both of the  following  have  occurred:  (a) all
legislation  implementing the Memorandum of Understanding between Edison and the
California  Department  of Water  Resources  dated April 9, 2001 ("MOU") or such
other  legislation  based  on the MOU or  otherwise,  that  restores  Edison  to
creditworthiness  has become  effective,  and (b) the  Commission has issued all
orders that are necessary to implement the MOU or other mechanisms  contained in
such  legislation  based on the MOU or  otherwise  which are designed to restore
Edison  to  creditworthiness.  The final  payment,  representing  the  remaining
stipulated amounts,  shall be paid on the 5th business day after Edison receives
proceeds from the financing resulting from the MOU or other mechanisms contained
in such  other  legislation  based on the MOU or  otherwise  restore  Edison  to
creditworthiness.  In  addition  to these  payments,  Edison is required to make
monthly  interest  payments  calculated  at a  rate  of  7%  per  annum  on  the
outstanding stipulated amounts. The Settlement Agreements also provide a revised
energy  pricing  structure,  whereby  Edison  elects to pay the Imperial  Valley
Projects  a  fixed  energy  price  of  5.37  cents/kilowatt  hour in lieu of the
Commission-approved  SRAC  Methodology  under  the  Power  Purchase  Agreements,
commencing on the first day of the month  following  the MOU Effective  Date and
expiring five years from such date. All other contract terms remained unchanged.
<PAGE>

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

Liquidity and Capital Resources: (continued)
-------------------------------

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

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

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

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

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

Inflation

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

<PAGE>


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

Liquidity and Capital Resources: (continued)
-------------------------------

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

Accounting Pronouncements:

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standard  ("SFAS")  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities",  which was delayed by SFAS 137 and amended
by SFAS 138. SFAS 133/138 requires an entity to recognize all of its derivatives
as either  assets or  liabilities  in its  statement of  financial  position and
measure those instruments at fair value. The Funding Corporation implemented the
new standards on January 1, 2001. The initial  adoption of  SFAS133/138  did not
have a material impact on the Funding Corporation's financial position,  results
of operations or any impact on its cash flows.

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

Environmental Liabilities:

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

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


Environmental Liabilities: (continued)
--------------------------

future periods based on actual costs or new  circumstances,  and are included in
the accompanying  balance sheets at their undiscounted  amounts.  As of June 30,
2001 and  December  31,  2000,  the  environmental  liabilities  recorded on the
balance sheet were not material.

Qualitative and Quantitative Disclosures About Market Risk

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


<PAGE>


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

                         SALTON SEA FUNDING CORPORATION

                           PART II - OTHER INFORMATION

Item 1 - Legal proceedings.

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

Item 2 - Changes in Securities.

          Not applicable.

Item 3 - Default on Senior Securities.
------

          Not applicable.

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

          Not applicable.

Item 5 - Other Information.
------

          Not applicable.

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

          (a) Exhibits:

              None

          (b) Reports on Form 8-K:

          Current Report filed June 20, 2001 reporting that the Guarantors  have
          executed Settlement Agreements with Edison.

<PAGE>


                                                     SIGNATURES


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


                         SALTON SEA FUNDING CORPORATION


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


*By:  /s/ Douglas L. Anderson
Douglas L. Anderson
Attorney-in-Fact