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

                                    FORM 10-K

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

                   For the fiscal year ended December 31, 2002
                          Commission File No. 33-95538

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

             Delaware                                          47-0790493
             --------                                          ----------
      (State of Incorporation)                                (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

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

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

         Securities registered pursuant to Section 12(b) of the Act: N/A
         Securities registered pursuant to Section 12(g) of the Act: N/A

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
     405 of Regulation S-K is not contained herein and will not be contained, to
     the best of each of the  registrants'  knowledge,  in  definitive  proxy or
     information  statements  incorporated by reference in Part III of this Form
     10-K or any amendment to this Form 10-K. [ ]

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

     All common stock of Salton Sea Funding  Corporation  is held by Magma Power
     Company. 100 shares of Common Stock were outstanding on March 28, 2003.


<PAGE>

                                TABLE OF CONTENTS

                                     PART I

Item 1.  Business ............................................................ 3
Item 2.  Properties ..........................................................18
Item 3.  Legal Proceedings....................................................18
Item 4.  Submission of Matters to a Vote of Security Holders..................19

                                PART II

Item 5.  Market for Registrant's Common Equity and Related
           Stockholder's Matters ............................................20
Item 6.  Selected Financial Data ............................................20
Item 7.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations .....................21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........30
Item 8.  Financial Statements and Supplementary Data ........................32
Item 9.  Changes in and Disagreements with Accountants on Accounting
           and Financial Disclosure Data.....................................82

                               PART III

Item 10. Directors and Executive Officers of the Registrant...................83
Item 11. Executive Compensation ..............................................84
Item 12. Security Ownership of Certain Beneficial Owners and Management
           and Related Stockholder Matters....................................84
Item 13. Certain Relationships and Related Transactions ......................84
Item 14. Controls and Procedures..............................................85

                                PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....86

SIGNATURES    ................................................................87
CERTIFICATIONS...............................................................107
Exhibit Index ...............................................................110

                                      -2-

<PAGE>

                                     PART I

                 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report contains  statements  that do not directly or exclusively  relate to
historical facts. These statements are  "forward-looking  statements" within the
meaning  of the  Private  Securities  Litigation  Reform  Act of  1995.  You can
typically  identify  forward-looking  statements  by the use of  forward-looking
words,  such as "may",  "will",  "could",  "project",  "believe",  "anticipate",
"expect", "estimate",  "continue",  "potential",  "plan", "forecast" and similar
terms. These statements represent Salton Sea Funding  Corporation's  intentions,
plans,  expectations  and beliefs and are  subject to risks,  uncertainties  and
other   factors.   Many  of  these  factors  are  outside   Salton  Sea  Funding
Corporation's  control and could cause actual results to differ  materially from
such forward-looking statements. These factors include, among others:

o    general  economic and business  conditions  in the  jurisdictions  in which
     Salton Sea Funding Corporations facilities are located;

o    governmental, statutory, regulatory or administrative initiatives affecting
     Salton Sea Funding Corporation or the power generation industries;

o    weather effects on sales and revenue;

o    general industry trends;

o    increased competition in the power generation industry;

o    availability of qualified personnel;

o    financial or regulatory  accounting  principles or policies  imposed by the
     Public  Company  Accounting   Oversight  Board,  the  Financial  Accounting
     Standards Board ("FASB"),  the Securities and Exchange  Commission  ("SEC")
     and similar entities with regulatory oversight; and

o    other  business  considerations  that may be disclosed from time to time in
     SEC filings or in other publicly disseminated written documents.

Salton Sea Funding  Corporation  undertakes no obligation to publicly  update or
revise any forward-looking  statements,  whether as a result of new information,
future  events or  otherwise.  The  foregoing  review of  factors  should not be
construed as exclusive.

ITEM 1. BUSINESS.

GENERAL

Salton Sea Funding Corporation ("Funding Corporation"), an indirect wholly-owned
subsidiary of CE Generation,  LLC ("CE Generation"),  is a Delaware  corporation
formed for the sole purpose of issuing securities in its individual  capacity as
principal and as agent acting on behalf of the  Guarantors  (as defined  below).
The  principal  executive  office of the Funding  Corporation  is located at 302
South 36th Street, Suite 400, Omaha,  Nebraska 68131 and its telephone number is
(402) 341-4500.

CE Generation  owns all of the capital  stock of Magma Power Company  ("Magma"),
which owns all of the outstanding capital stock of Funding Corporation.  Through
its  subsidiaries,  CE  Generation  is  primarily  engaged  in the  development,
ownership  and  operation  of  environmentally   responsible  independent  power
production  facilities in the United States utilizing geothermal and natural gas
resources.  CE Generation  has an aggregate net ownership  interest of 757 MW of
electrical  generating  capacity  in power  plants in  operation  in the  United
States,  which have an aggregate net capacity of 817 MW (including its interests
in the Salton Sea Projects and the Partnership Projects as defined below).

All of the  outstanding  stock of Magma was  contributed by  MidAmerican  Energy
Holdings Company ("MEHC") to CE Generation in February 1999. In March 1999, MEHC
sold a 50% interest in CE Generation to El Paso CE Generation  Holding  Company,
which was merged into El Paso Merchant Energy North American Company ("EPME") on

                                      -3-
<PAGE>

December 31, 2000, an affiliate of El Paso Corporation  ("El Paso").  On January
29, 2003,  EPME sold all its  interest in CE  Generation  to TransAlta  USA Inc.
("TransAlta"), an affiliate of TransAlta Corporation.

Magma  directly or indirectly  owns all of the capital  stock of or  partnership
interests in the Funding  Corporation and the  Guarantors,  except for CalEnergy
Minerals  LLC  ("Minerals")  and Salton Sea Minerals  Corp.,  which are owned by
MEHC. The Guarantors are comprised of the Salton Sea Guarantors, the Partnership
Guarantors  (collectively,  the  "Imperial  Valley  Projects"),  and the Royalty
Guarantor (collectively, the "Guarantors").

The Salton Sea Guarantors  include Salton Sea Brine  Processing  L.P.  ("SSBP"),
Salton Sea Power Generation L.P. ("SSPG"),  Salton Sea Power L.L.C.  (Salton Sea
Power),  and Fish Lake Power LLC ("Fish  Lake")  (collectively,  the "Salton Sea
Guarantors"),  which own five  operating  geothermal  power  plants  located  in
Imperial  Valley,  California  known as Salton Sea I, Salton Sea II,  Salton Sea
III, Salton Sea IV and Salton Sea V (the "Salton Sea Projects").

The  Partnership  Guarantors  include the  Vulcan/BN  Geothermal  Power  Company
("Vulcan"),  Elmore, L.P. ("Elmore"),  Leathers,  L.P. ("Leathers"),  Del Ranch,
L.P.  ("Del  Ranch"),  and CE Turbo  LLC  ("CE  Turbo"),  each of which  owns an
operating geothermal power plant located in Imperial Valley, California known as
the Vulcan Project,  the Elmore  Project,  the Leathers  Project,  the Del Ranch
Project and CE Turbo Project,  respectively  (the "Partnership  Projects").  The
Partnership  Guarantors  also include  Minerals,  which has  constructed  a zinc
recovery project in the Imperial Valley,  California.  Finally,  the Partnership
Guarantors  include  CalEnergy  Operating  Corporation  ("CEOC"),  Vulcan  Power
Company ("VPC"), San Felipe Energy Company ("San Felipe"), Conejo Energy Company
("Conejo"),  Niguel Energy  Company  ("Niguel"),  VPC  Geothermal  LLC ("VPCG"),
Salton Sea Minerals Corp. and CE Salton Sea Inc. VPC and VPCG,  collectively own
100% of the  partnership  interests in Vulcan.  CEOC and Niguel,  San Felipe and
Conejo,  collectively own 90% partnership interests in Elmore,  Leathers and Del
Ranch,  respectively.  Salton Sea Minerals Corporation owns Minerals.  CE Salton
Sea Inc. owns Salton Sea Power and CE Turbo.

Magma owns the remaining 10% interest in each of Elmore, Leathers and Del Ranch.
CEOC is entitled to receive from Magma, as payment for certain data and services
provided by CEOC,  all of the  partnership  distributions  Magma  receives  with
respect to its 10% ownership  interests in each of the Elmore,  Leathers and Del
Ranch Projects and Magma's special  distributions  equal to 4.5% of total energy
revenue from the Leathers Project.

Salton Sea  Royalty  LLC  ("SSRC" or the  "Royalty  Guarantor")  is the  Royalty
Guarantor.   SSRC   received  an   assignment  of  certain  fees  and  royalties
("Royalties")  paid by three Partnership  Projects:  Elmore,  Leathers,  and Del
Ranch.

CEOC  currently  operates  the Imperial  Valley  Projects.  Affiliates  of Magma
control, through a variety of fee, leasehold,  and royalty interests,  rights to
geothermal  resources for power  production  in the Salton Sea Known  Geothermal
Resource Area ("SSKGRA").  The Funding Corporation  believes that such resources
will be sufficient to operate the Imperial Valley Projects at contract  capacity
under their respective power purchase agreements through the final maturity date
of the securities described beginning on page 8.

The principal  executive offices of the Salton Sea Guarantors are located at 302
South 36th Street,  Suites 400-B, 400-D, 400-E, 400-K and 400-N, Omaha, Nebraska
68131.  The principal  executive  offices of the  Partnership  Guarantors is 302
South 36th Street, Suite 400-F, 400-G, 400-I, 400-J, 400-L, 400-M, 400-N, 400-O,
400-P,  400-Q,  400-R,  400-S,  400-T,  and 400-U,  Omaha,  Nebraska 68131.  The
principal  executive  office of the Royalty  Guarantor is 302 South 36th Street,
Suite 400-H, Omaha, Nebraska 68131.

In this Annual Report references to kW means kilowatt,  kWh means kilowatt-hour,
MW means  megawatts,  MWh means  megawatt  hours,  MMBtus means million  British
thermal units, and NMW means net megawatts.

                                      -4-
<PAGE>
THE PROJECTS

Set forth below is a table describing  certain  characteristics  of the Imperial
Valley  Projects,  and the Guarantors'  collective  interests  therein.  All the
projects are located in the Imperial Valley, California.

<TABLE>
<CAPTION>
                                                                                          POWER
                                FACILITY NET    NET MW                      DATE OF      PURCHASE         POWER
                                CAPACITY MMW    OWNED                      COMMERCIAL    AGREEMENT      PURCHASER
POWER PROJECT                         (1)        (1)          FUEL         OPERATION     EXPIRATION         (2)
------------------------------  ------------    ------      ----------     ----------    ----------     ---------
<S>                                  <C>         <C>        <C>              <C>         <C>            <C>
Salton Sea Projects
  Salton Sea I................        10          10        Geothermal       7/1987          2017          Edison
  Salton Sea II...............        20          20        Geothermal       4/1990          2020          Edison
  Salton Sea III..............        50          50        Geothermal       2/1989          2019          Edison
  Salton Sea IV...............        40          40        Geothermal       6/1996          2026          Edison
  Salton Sea V................        49          49        Geothermal       6/2000      Year-to-year   El Paso/Minerals(3)
                                     ---         ---
    Total Salton Sea Projects.       169         169
                                     ---         ---
Partnership Projects
  Vulcan......................        34          34        Geothermal       2/1986          2016          Edison
  Elmore......................        38          34        Geothermal       1/1989          2018          Edison
  Leathers....................        38          34        Geothermal       1/1990          2019          Edison
  Del Ranch...................        38          34        Geothermal       1/1989          2019          Edison
  CE Turbo....................        10          10        Geothermal       8/2000      Year-to-year   El Paso/Minerals(3)
                                     ---         ---
    Total Partnership Projects       158         147
                                     ---         ---
  Total power projects........       327         316
                                     ===         ===
</TABLE>
<TABLE>
<CAPTION>
                                    ESTIMATED         DATE OF
                                   METRIC TONS        COMMERIAL
Operating Project -                 PER YEAR          OPERATION
                                   -----------        ---------
<S>                                <C>                <C>

Zinc Recovery Project.........        30,000           12/2002
                                   ===========        =========
</TABLE>

(1)  Actual MW may vary  depending on operating  and  reservoir  conditions  and
     plant  design.  Facility  Net Capacity (in MW)  represents  facility  gross
     capacity (in MW) less parasitic load.  Parasitic load is electrical  output
     used by the facility and not made  available for sale to utilities or other
     outside purchasers. Net MW owned indicates current legal ownership, but, in
     some  cases,  does  not  reflect  the  current  allocation  of  partnership
     distributions.

(2)  Southern  California  Edison Company  ("Edison");  El Paso Corporation ("El
     Paso"); and Minerals.

(3)  Each contract  governing power purchases by the Zinc Recovery  Project will
     expire 33 years  from the date of the  initial  power  delivery  under such
     contract. See "Management's  Discussion and Analysis of Financial Condition
     and Results of  Operations."  Pursuant  to a  Transaction  Agreement  dated
     January 29,  2003,  Salton Sea Power and CE Turbo began  selling  available
     power to  TransAlta on February  12, 2003 based on  percentages  of the Dow
     Jones SP-15 Index. Such agreement will expire on October 31, 2003.

Each of the  Imperial  Valley  Projects,  excluding  the Salton Sea V and the CE
Turbo  Projects,  sells  electricity to Southern  California  Edison  ("Edison")
pursuant to a separate  Standard  Offer No. 4 Agreement  ("SO4  Agreement") or a
negotiated  power  purchase   agreement.   Each  power  purchase   agreement  is
independent of the others, and the performance requirements specified within one
such agreement  apply only to the Project,  subject to the agreement.  The power
purchase agreements provide for energy payments,  capacity payments and capacity
bonus payments.  Edison makes fixed annual capacity  payments and capacity bonus
payments to the applicable  projects to the extent that capacity  factors exceed
certain benchmarks. Except as described, the price for capacity is fixed for the
life of the SO4  Agreements  and is  significantly  higher in the months of June
through September.

Energy  payments for the SO4 Agreements  were at increasing  fixed rates for the
first ten years after firm  operation and thereafter at a rate based on the cost
that Edison  avoids by purchasing  energy from the project  instead of obtaining
the energy from other sources  ("Avoided Cost of Energy").  In June and November
2001,  the Imperial  Valley  Projects,  which receive  Edison's  Avoided Cost of
Energy entered into  agreements  that provide for amended energy  payments under
the SO4 Agreements.  The amendments provide for fixed energy payments per kWh in
lieu of Edison's Avoided Cost of Energy. The fixed energy payment was 3.25 cents
per kWh from  December 1, 2001 through  April 30, 2002 and is 5.37 cents per kWh
commencing May 1, 2002 for a five-year  period.  Following

                                      -5-
<PAGE>

the five-year  period,  the energy payments revert back to Edison's Avoided Cost
of Energy.

For the years ended  December 31, 2002,  2001 and 2000,  respectively,  Edison's
Average  Avoided Cost of Energy was 3.5 cents per kWh, 7.4 cents per kWh and 5.8
cents per kWh, respectively. Estimates of Edison's future Avoided Cost of Energy
vary substantially from year to year.

The Imperial  Valley  Projects,  other than Salton Sea I,  receive  transmission
service from the Imperial Irrigation District ("IID"), to deliver electricity to
Edison near  Mirage,  California.  These  projects pay a rate based on the IID's
cost of service,  which was $1.70 per month per kW of service  provided for 2002
and  recalculated   annually.   The  transmission  service  and  interconnection
agreements expire in 2015 for the Partnership Projects, 2019 for Salton Sea III,
2020 for Salton Sea II and 2026 for Salton Sea IV. Salton Sea V and the CE Turbo
Projects have entered into 30-year  agreements  with similar terms with the IID.
Salton  Sea I  delivers  energy  to  Edison  at  the  project  site  and  has no
transmission service agreement with the IID.

SALTON SEA PROJECTS

The Salton Sea I Project  contracts to sell  electricity to Edison pursuant to a
30-year  negotiated  power purchase  agreement,  which commenced on July 1, 1987
(the "Salton Sea I PPA"). The contract capacity and contract  nameplate are each
10 MW. The capacity  payment is based on the firm capacity price,  which adjusts
quarterly  based on a basket of energy  indices for the term of the Salton Sea I
PPA and is currently $154.45 per kW-year.  The capacity payment is approximately
$1.1  million per annum.  The energy  payment is  calculated  using a Base Price
(defined as the initial  value of the energy  payment (4.7 cents per kWh for the
second quarter of 1992)),  which is subject to quarterly  adjustments based on a
basket of indices.  The time period  weighted  average energy payment for Salton
Sea I was 5.8 cents per kWh during  2002.  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 Project  contracts to sell electricity to Edison pursuant to a
30-year  modified SO4 Agreement  that  commenced on April 5, 1990.  The contract
capacity and contract  nameplate are 15 MW (16.5 MW during on-peak  periods) and
20 MW, respectively. The price for contract capacity and contract capacity bonus
payments  is fixed  for the  life of the  modified  SO4  Agreement.  The  annual
capacity and bonus payments are approximately $3.3 million.  The energy payments
for the first  ten-year  period,  which  period  expired on April 4, 2000,  were
levelized at a time period weighted  average of 10.6 cents per kWh.  Thereafter,
the monthly energy payment was based on Edison's Avoided Cost of Energy.  Edison
is entitled to receive,  at no cost, 5% of all energy delivered in excess of 80%
of contract capacity through September 30, 2004.

The Salton Sea III Project contracts to sell electricity to Edison pursuant to a
30-year modified SO4 Agreement that commenced on February 13, 1989. The contract
capacity and contract nameplate are 47.5 MW and 49.8 MW, respectively. The price
for contract  capacity payments and capacity bonus payments is fixed at $175 per
kW per year.  The annual  capacity  and bonus  payments are  approximately  $9.7
million. The energy payments for the first ten-year period, which period expired
on February 12, 1999,  were levelized at a time period  weighted  average of 9.8
cents per kWh. Thereafter, the energy payment has been based on Edison's Avoided
Cost of Energy.

The Salton Sea IV Project  contracts to sell 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 I PPA option (20 MW) and to the
original  Salton Sea IV SO4  Agreement  ("Fish Lake PPA") (14 MW).  The capacity
payment  price for the 20 MW portion  adjusts  quarterly  based  upon  specified
indices  and  the  capacity  payment  price  for  the 14 MW  portion  is a fixed
levelized  rate.  The  capacity and bonus  payments in 2002,  2001 and 2000 were
approximately  $5.5 million,  $5.7 million and $5.4 million,  respectively.  The
energy  payment  (for  deliveries  up to a rate of 39.6 MW) is at a base  price,
adjusted  quarterly  based on specified  indices,  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.

The Salton Sea V Project,  which  commenced  operations  in the third quarter of
2000,  expects to sell up to 22 MW of its net output to Minerals,  pursuant to a
33 year power sales agreement.  The agreement provides for energy payments based
on the market rates available to the Salton Sea V Project, adjusted for wheeling
costs.  The Salton Sea V Project sells its remaining output through other market
transactions.

                                      -6-
<PAGE>
PARTNERSHIP PROJECTS

The Vulcan Project  contracts to sell  electricity to Edison under a 30-year SO4
Agreement that commenced on February 10, 1986. The Vulcan Project has a contract
capacity and contract nameplate of 29.5 MW and 34 MW,  respectively.  The annual
capacity and bonus payments are approximately $5.5 million.

The Elmore Project  contracts to sell  electricity to Edison under a 30-year SO4
Agreement that commenced on January 1, 1989. The contract  capacity and contract
nameplate  are 34 MW and 38 MW,  respectively.  The  annual  capacity  and bonus
payments are approximately $7.9 million.

The Leathers  Project  contracts  to sell  electricity  to Edison  pursuant to a
30-year SO4 Agreement that  commenced on January 1, 1990. The contract  capacity
and contract  nameplate are 34 MW and 38 MW,  respectively.  The annual capacity
and bonus payments are approximately  $7.5 million.  The energy payment is based
on Edison's Avoided Cost of Energy.

The Del Ranch Project  contracts to sell  electricity  to Edison under a 30-year
SO4  Agreement  that  commenced on January 2, 1989.  The  contract  capacity and
contract  nameplate are 34 MW and 38 MW,  respectively.  The annual capacity and
bonus payments are approximately $7.9 million.

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 Minerals, pursuant to a 33 year power purchase agreement. The
agreement  provides for energy  payments based on the market rates  available to
the CE Turbo Project, adjusted for wheeling costs.

Commencing January 17, 2001, Salton Sea Power and CE Turbo entered into a series
of transaction  agreements to sell available  power from the Salton Sea V and CE
Turbo Projects to EPME based on day ahead price quotes  received from EPME under
the original  agreement  and based on  percentages  of the Dow Jones SP-15 Index
thereafter.  Pursuant to a Transaction  Agreement dated January 29, 2003, Salton
Sea Power and CE Turbo began  selling  available  power to TransAlta on February
12, 2003 based on percentages of the Dow Jones SP-15 Index.  Such agreement will
expire on October 31, 2003.

ZINC RECOVERY PROJECT

Minerals  developed  and  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  Projects.  A plant has  successfully
produced commercial quality zinc at the projects. The affiliates of Minerals may
develop facilities for the extraction of manganese, silica and other products as
it further develops the extraction technology.

Minerals  constructed the Zinc Recovery  Project,  which is recovering zinc from
the  geothermal  brine  (the  "Zinc  Recovery  Project").  Facilities  have been
installed  near the Imperial  Valley  Projects  sites to extract a zinc chloride
solution  from the  geothermal  brine  through  an ion  exchange  process.  This
solution is being  transported to a central  processing  plant where zinc ingots
are being  produced  through  solvent  extraction,  electrowinning  and  casting
processes.  The  Zinc  Recovery  Project  is  designed  to  have a  capacity  of
approximately  30,000  metric tons per year.  Limited  production  began  during
December 2002 and full  production is expected by late-2003.  In September 1999,
Minerals 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.

ROYALTY PROJECTS

The Royalty Guarantor has received an assignment from Magma of certain Royalties
received  from the Elmore  Leathers  and Del Ranch  Projects in exchange for the
provision to those projects of the rights to use certain  geothermal  resources.
Substantially all of the assigned  Royalties are based on a percentage of energy
and capacity revenue of the respective projects. Pursuant to the assignment, the
Royalty  Guarantor  is  entitled to receive the  aggregate  percentages  of such
project's  energy and capacity  revenue as illustrated  in the chart below.  The
Partnership   Guarantors  are  also  entitled  to  receive  Royalties  from  the
Partnership Projects as illustrated in the chart below. Royalties are subject to
netting and reduction from time to time to reflect various  operating  costs, as
reflected in the financial statements herein. All such Royalties (other than the
various  operating costs, as reflected in the financial  statements) are payable
from revenue which will constitute Partnership Guarantor's collateral.

                                      -7-
<PAGE>
                  ROYALTIES TO BE PAID TO ROYALTY     ROYALTIES TO BE PAID TO
                             GUARANTOR                 PARTNERSHIP GUARANTORS
                   -------------------------------   ---------------------------
                   % of Energy       % of Capacity   % of Energy   % of Capacity
                     Revenues          Revenues        Revenues      Revenues
                   -----------       -------------   -----------   ------------

Del Ranch.......      23.33%             1.00%           5.67%         3.00%
Elmore..........      23.33              1.00            5.67          3.00
Leathers........      21.50              0.00            7.50          3.00
Vulcan..........       0.00              0.00            4.17          0.00

DESCRIPTION OF THE SECURITIES

The Funding Corporation is a Delaware corporation formed for the sole purpose of
issuing  securities in its individual  capacity as principal and as agent acting
on behalf of its affiliates, which guarantee the securities described below.

The Funding  Corporation has completed the following  issuances and exchanges of
securities (together, the "Securities"):

o    On July 21,  1995,  the Funding  Corporation  issued (1) $232.8  million of
     6.69% Senior Secured  Series A Notes Due 2000 (the "Series A  Securities"),
     (2) $133.0  million of 7.37%  Senior  Secured  Series B Bonds Due 2005 (the
     "Series B  Securities")  and (3)  $109.3  million of 7.84%  Senior  Secured
     Series  C Bonds  Due  2010  (the  "Series  C  Securities").  The  Series  A
     Securities were repaid in full on May 30, 2000.

o    On June 20, 1996, the Funding Corporation issued (1) $70.0 million of 7.02%
     Senior Secured Series D Bonds Due 2000 (the "Series D Securities")  and (2)
     $65.0 million of 8.30% Senior  Secured Series E Bonds Due 2011 (the "Series
     E  Securities").  The Series D  Securities  were  repaid in full on May 30,
     2000.

o    On October 13,  1998,  the Funding  Corporation  issued  $285.0  million of
     7.475% Senior Secured Series F Bonds Due 2018 (the "Series F Securities").

The Securities have received ratings of "Ba3" by Moody's Investors Service, Inc.
("Moody's") and "BB" by Standard & Poor's Ratings Group ("S&P").  The Securities
will be  equivalent  in  right  of  payment  and in the  right  to  share in the
collateral.  On  December  31,  2002,  the  aggregate  principal  amount  of all
Securities outstanding was $491.7 million.

STRUCTURE OF AND COLLATERAL FOR THE SECURITIES

The Funding  Corporation will make payments on the Securities with the principal
of and interest paid on promissory notes issued by the Guarantors to the Funding
Corporation (the "Project Notes"). The Securities are secured by a pledge of the
Funding  Corporation's common stock and are guaranteed by the Guarantors.  These
guarantees are secured by:

o    in the case of the guarantee issued by the Salton Sea Guarantors, by a lien
     on  substantially  all of the  assets of the Salton  Sea  Guarantors  and a
     pledge of the equity interests in the Salton Sea Guarantors;

o    in the case of the guarantee  issued by the  Partnership  Guarantors,  by a
     lien  on  substantially  all  of the  assets  of  the  Partnership  Project
     Companies,  a lien on the equity  cash flows and  royalties  of the Initial
     Partnership Guarantors and a pledge of the common stock of and other equity
     interests in the Partnership Guarantors; and

o    in the case of the guarantee issued by the Royalty Guarantor,  by a lien on
     all  royalties  paid to the  Royalty  Guarantor  and a pledge of the common
     stock of the Royalty Guarantor.

The guarantees issued by the Salton Sea Guarantors are unlimited.  However,  the
guarantees  issued by the Partnership  Guarantors and the Royalty  Guarantor are
limited to the following amounts:

o    for any Initial Partnership  Guarantor or the Royalty Guarantor,  the total
     equity cash flows and royalties received by the Guarantor,  minus,  without
     duplication,  (1) any royalties  paid,  (2) all  operating and  maintenance
     costs, (3) all capital expenditures and (4) debt service;

                                      -8-
<PAGE>

o    for any Additional Partnership Guarantor, the total revenue received by the
     Guarantor,  minus,  without  duplication  (1) any royalties  paid,  (2) all
     operating and maintenance costs, (3) all capital  expenditures and (4) debt
     service.

The  structure  has been  designed to  cross-collateralize  cash flows from each
Guarantor  without   cross-collateralizing   all  of  the  Guarantors'   assets.
Therefore,  if a Guarantor  defaults under its guarantee or its promissory  note
issued to the  Funding  Corporation,  without  causing a payment  default on the
Securities,  then the  trustee  may  direct  the  collateral  agent to  exercise
remedies  only  with  respect  to  the  collateral   securing  that  Guarantor's
obligations.   If,  however,  the  default  causes  a  payment  default  on  the
Securities,  then the  trustee  may  accelerate  the  Securities  and direct the
collateral  agent to exercise  remedies  against all of the  collateral  and, if
different, the collateral pledged by the Salton Sea Guarantors.

The Funding  Corporation is a special purpose finance  subsidiary of Magma.  Its
ability to make  payments on the  Securities  will be entirely  dependent on the
Guarantors'  performance  of their  obligations  under the Project Notes and the
Guarantees. As is common in non-recourse, project finance structures, the assets
and cash flows of the Guarantors are the sole source of repayment of the Project
Notes and the  Guarantees.  The Salton Sea Guarantors  conduct no other business
and own no other  significant  assets  except those  related to the ownership or
operation of the Salton Sea  Projects.  The  Partnership  Guarantors  conduct no
business  other  than  owning  their  respective   ownership  interests  in  the
Partnership  Projects and providing operation,  maintenance,  administrative and
technical  services for Magma,  and the Imperial  Valley  Projects.  The Royalty
Guarantor  has been  organized  solely to receive  royalty  payments owed by the
Partnership Projects and conducts no other business and owns no other assets. In
the event of a default by any Guarantor under a Project Note,  Credit  Agreement
or  Guarantee,  there is no assurance  that the exercise of remedies  under such
Project Note, Credit Agreement or Guarantee, including foreclosure on the assets
of such  Guarantor,  would  provide  sufficient  funds to pay  such  Guarantor's
obligation  under the Project Notes and the  Guarantees.  Moreover,  unless such
default causes a payment default under the Indenture (in which case remedies may
be exercised  against the defaulting  Guarantor's and the Salton Sea Guarantors'
assets),  remedies  may be exercised  only against the assets of the  defaulting
Guarantors. No shareholders,  partners, or affiliates of the Funding Corporation
(other than the  Guarantors)  and no  directors,  officers or  employees  of the
Funding Corporation or the Guarantors will guarantee or be in any way liable for
the payment of the  Securities,  the Project Notes or the Guarantees  except the
guarantee  by MEHC for the  direct  and  indirect  owners  of the Zinc  Recovery
Project of a specified  portion of the  scheduled  debt  service on the Series F
Securities  including  the  current  principal  amount of  approximately  $137.8
million and associated interest. In addition, the obligations of the Partnership
Guarantors  and the Royalty  Guarantor  under the  Guarantees are limited to the
available cash flows of such  Guarantors.  As a result,  payment of amounts owed
pursuant to the Project Notes,  the Guarantees,  and the Securities is dependent
upon the  availability  of  sufficient  revenue  and royalty  payments  from the
Guarantors' businesses or holdings,  after the payment of operating expenses and
the satisfaction of certain other obligations.

                                      -9-

<PAGE>

PAYMENT OF INTEREST AND PRINCIPAL

The interest payment dates for the Securities are May 30 and November 30.

The remaining  balance of the $133.0  million  initial  principal  amount of the
7.37% Series B Securities due May 30, 2005 is payable in semiannual installments
as follows:

                                                  PERCENTAGE OF
                              PAYMENT           INITIAL PRINCIPAL
                                DATE            AMOUNT PAYABLE
                         --------------------   -----------------

                         May 30, 2003 .......       5.64%
                         November 30, 2003 ..       5.64%
                         May 30, 2004 .......       7.58%
                         November 30, 2004 ..       7.58%
                         May 30, 2005 .......      16.17%

The $109.3 million initial principal amount of the 7.84% Series C Securities due
May 30, 2010 is payable in semiannual installments,  commencing May 30, 2003, as
follows:

                                                  PERCENTAGE OF
                              PAYMENT           INITIAL PRINCIPAL
                                DATE            AMOUNT PAYABLE
                         --------------------   -----------------
                         May 30, 2003 .......       3.31%
                         November 30, 2003 ..       3.31%
                         May 30, 2004 .......       1.66%
                         November 30, 2004 ..       1.66%
                         May 30, 2005 .......       0.83%
                         November 30, 2005 ..       0.83%
                         May 30, 2006 .......       9.86%
                         November 30, 2006 ..       9.86%
                         May 30, 2007 .......       9.84%
                         November 30, 2007 ..       9.84%
                         May 30, 2008 .......      10.09%
                         November 30, 2008 ..      10.09%
                         May 30, 2009 .......      10.01%
                         November 30, 2009 ..      10.01%
                         May 30, 2010 .......       8.81%

                                      -10-

<PAGE>
The remaining balance of the $65.0 million initial principal amount of the 8.30%
Series E Securities  due May 30, 2011 is payable in semiannual  installments  as
follows:

                                                  PERCENTAGE OF
                              PAYMENT           INITIAL PRINCIPAL
                                DATE            AMOUNT PAYABLE
                         --------------------   -----------------
                         May 30, 2003 .......       2.31%
                         November 30, 2003 ..       2.31%
                         May 30, 2004 .......       2.50%
                         November 30, 2004 ..       2.50%
                         May 30, 2005 .......       2.69%
                         November 30, 2005 ..       2.69%
                         May 30, 2006 .......       1.92%
                         November 30, 2006 ..       1.92%
                         May 30, 2007 .......       1.92%
                         November 30, 2007 ..       1.92%
                         May 30, 2008 .......       2.69%
                         November 30, 2008 ..       2.69%
                         May 30, 2009 .......       2.50%
                         November 30, 2009 ..       2.50%
                         May 30, 2010 .......      10.38%
                         November 30, 2010 ..      10.38%
                         May 30, 2011 .......      17.42%

                                      -11-
<PAGE>

The remaining  balance of the $285.0  million  initial  principal  amount of the
7.475%  Series F  Securities  due  November  30,  2018 is payable in  semiannual
installments as follows:


                                                  PERCENTAGE OF
                              PAYMENT           INITIAL PRINCIPAL
                                DATE            AMOUNT PAYABLE
                         --------------------   -----------------
                         May 30, 2003 .......       0.50%
                         November 30, 2003 ..       0.50%
                         May 30, 2004 .......       0.63%
                         November 30, 2004 ..       0.63%
                         May 30, 2005 .......       0.63%
                         November 30, 2005 ..       0.63%
                         May 30, 2006 .......       0.65%
                         November 30, 2006 ..       0.65%
                         May 30, 2007 .......       0.38%
                         November 30, 2007 ..       0.38%
                         May 30, 2008 .......       0.88%
                         November 30, 2008 ..       0.88%
                         May 30, 2009 .......       0.38%
                         November 30, 2009 ..       0.38%
                         May 30, 2010 .......       1.25%
                         November 30, 2010 ..       1.25%
                         May 30, 2011 .......       3.00%
                         November 30, 2011 ..       3.00%
                         May 30, 2012 .......       5.75%
                         November 30, 2012 ..       5.75%
                         May 30, 2013 .......       5.08%
                         November 30, 2013 ..       5.08%
                         May 30, 2014 .......       6.00%
                         November 30, 2014 ..       6.00%
                         May 30, 2015 .......       6.55%
                         November 30, 2015 ..       6.55%
                         May 30, 2016 .......       7.05%
                         November 30, 2016 ..       7.05%
                         May 30, 2017 .......       6.88%
                         November 30, 2017 ..       6.88%
                         May 30, 2018 .......       3.45%
                         November 30, 2018 ..       3.45%

PRIORITY OF PAYMENTS

All revenue  received by the Salton Sea Guarantors from the Salton Sea Projects,
all revenue received by the Partnership Guarantors and all Royalties received by
the  Royalty  Guarantor  shall be paid into a  Revenue  Fund  maintained  by the
depository agent. Amounts paid into the Revenue Fund shall be distributed in the
following order of priority:  (a) to pay operating and maintenance  costs of the
Guarantors;  (b) to pay  certain  administrative  costs  of the  agents  for the
secured parties under the Financing Documents;  (c) to pay principal of, premium
(if any) and interest on the Securities and the debt service  reserve bonds,  if
any, and interest and certain fees payable to the debt service reserve letter of
credit  provider;  (d) to pay principal of debt service reserve letter of credit
loans and certain  related fees and charges;  (e) to replenish  any shortfall in
the Debt Service  Reserve Fund; (f) to pay certain  breakage costs in respect of
debt service  reserve  letter of credit  loans,  and  indemnification  and other
expenses  to  the  secured  parties,   and  (g)  to  the  Distribution  Fund  or
Distribution Suspense Fund, as applicable.

                                      -12-
<PAGE>

DEBT SERVICE RESERVE FUND

The Funding  Corporation  is  obligated  at all times to maintain a Debt Service
Reserve Fund and/or an  acceptable  letter of credit.  The Debt Service  Reserve
Fund is funded from available  funds in accordance with the priority of payments
until the aggregate amount of the fund and letter of credit are equal to:

o    through  December 31, 1999, the maximum  semiannual  principal and interest
     payments on the Securities for the remaining term of the Securities;

o    after December 31, 1999 through  payment in full of the Initial  Securities
     and the Supplemental Securities,  the maximum annual principal and interest
     payments on the Securities for the remaining term of the Securities; and

o    after  payment  in  full of the  Initial  Securities  and the  Supplemental
     Securities,  (a) the maximum annual principal and interest  payments on the
     Series  F  Securities  for  the  remaining  term  or  (b)  if  the  Funding
     Corporation   obtains  a  confirmation   of  the  current  ratings  of  the
     Securities,  the maximum semiannual  principal and interest payments on the
     Series F Securities.

The Debt Service  Reserve  Letter of Credit,  which was being provided by Credit
Suisse First Boston,  must be issued by a financial  institution  rated at least
"A" by S&P and "A2" by  Moody's.  As a result of the  uncertainties  related  to
Edison,  the letter of credit that  supports  the debt  service  reserve fund at
Salton Sea Funding  Corporation  has not been  extended  beyond its current 2004
expiration  date,  and as  such  cash  distributions  are  not  available  to CE
Generation until the Salton Sea Funding Corporation debt service reserve fund of
approximately  $67.6  million,  has been  funded or the letter of credit and has
been extended beyond its current 2004 expiration date or replaced.  The fund has
a cash balance of $46.3 million as of December 31, 2002.

OPTIONAL REDEMPTION

The Series B Securities,  Series C Securities,  Series E Securities and Series F
Securities are subject to optional redemption,  in whole or in part, pro rata at
par plus accrued  interest to the redemption  date plus a premium  calculated to
"make whole" to comparable U.S. Treasury securities plus 50 basis points.

MANDATORY REDEMPTION

The  Securities  are  subject to  mandatory  redemption,  pro rata  within  each
maturity,  at par  plus  accrued  interest  to  the  redemption  date,  (a) if a
permitted power contract  buy-out occurs unless the rating agencies  confirm the
then current rating of the  Securities;  (b) upon the  acceleration of a Project
Note in an amount  equal to the  principal  amount  of such  note  plus  accrued
interest; (c) upon the occurrence of certain events of loss, condemnation, title
defects or similar events related to the Salton Sea Projects or the  Partnership
Projects;  or (d) in certain  circumstances  if any New Project fails to achieve
substantial  completion by the applicable guaranteed substantial completion date
or receives  certain net performance  liquidated  damages under the construction
contract for such Project or (e) upon the foreclosure by the Collateral Agent of
collateral securing the Guarantor's  obligations under the Salton Sea Guarantee,
the Partnership Guarantee or Royalty Guarantee.

DISTRIBUTIONS

Distributions  may be made only from and to the  extent of monies on  deposit in
the Distribution  Fund. Such distributions are subject to the prior satisfaction
of the following conditions:

(1)  the amounts  contained in the Principal Fund and the Interest Fund shall be
     equal to or greater than the  aggregate  scheduled  principal  and interest
     payments next due on the Securities;

(2)  no default or event of default under the Indenture  shall have occurred and
     be continuing;

(3)  the debt service  coverage  ratio for the preceding  four fiscal  quarters,
     measured  as one annual  period,  is equal to or greater  than 1.4 to 1, if
     such  distribution  date  occurs  prior to the  year  2000,  and,  if in or
     subsequent  to the year  2000,  is equal  to or  greater  than 1.5 to 1, as
     certified by an officer of the Funding Corporation;

                                      -13-
<PAGE>

(4)  the  projected  debt  service  coverage  ratio  of the  Securities  for the
     succeeding four fiscal  quarters  measured as one annual period is equal to
     or greater  than 1.4 to 1, if such  distribution  date occurs  prior to the
     year 2000,  and, if such  distribution  date occurs in or subsequent to the
     year 2000, is equal to or greater than 1.5 to 1, as certified by an officer
     of the Funding Corporation;

(5)  the debt service reserve fund shall have a balance equal to or greater than
     the debt service reserve fund required  balance or one or more Debt Service
     Reserve Letter (or Letters) of Credit at least equal to (collectively  with
     the  balance,  if any, in the Debt Service  Reserve  Fund) the debt service
     reserve fund required balance;

(6)  an officer of the  Funding  Corporation  provides a  certificate  (based on
     customary  assumptions) that there are sufficient  geothermal  resources to
     operate the Salton Sea  Projects and the  Partnership  Projects at contract
     capacity through the final maturity date of the Securities; and

(7)  substantial  completion of each New Project shall have occurred on or prior
     to such New Project's  guaranteed  substantial  completion  date unless the
     required  amount of Securities  shall have been redeemed as described above
     under  "Mandatory  Redemption"  or (ii)  the  rating  agencies  shall  have
     confirmed that no rating  downgrade would result from such delay;  provided
     that such  condition  will apply to a New  Project  only (x) after such New
     Project's guaranteed substantial completion date or (y) if such New Project
     has been abandoned.

INCURRENCE OF ADDITIONAL DEBT

The Funding  Corporation  shall not incur any debt other than "Permitted  Debt".
"Permitted Debt" means:

(1)    The Securities;

(2)    Debt  incurred  to  acquire  the East Mesa  Project  in whole or in part;
       provided  that no such  Debt may be  incurred  unless at the time of such
       incurrence  (i) no  default  or  event of  default  has  occurred  and is
       continuing  and (ii) the rating  agencies  confirm that the incurrence of
       such debt will not result in a rating downgrade;

(3)    Debt incurred to develop,  construct,  own, operate or acquire additional
       permitted  facilities  in the Imperial  Valley  ("Additional  Projects");
       provided  that no such  debt may be  incurred  unless at the time of such
       incurrence  (i) no  default  or  event of  default  has  occurred  and is
       continuing and (ii) the rating agencies  confirm that the Securities will
       maintain an investment grade rating after giving effect to such debt;

(4)    Debt incurred to finance the making of capital improvements to the Salton
       Sea Projects, the Partnership Projects or Additional Projects required to
       maintain  compliance with applicable law or anticipated  changes therein;
       provided  that no such  debt may be  incurred  unless at the time of such
       incurrence  the  independent   engineer  confirms  as  reasonable  (i)  a
       certification   by  the   Funding   Corporation   (containing   customary
       qualifications)  that the proposed  capital  improvements  are reasonably
       expected to enable such Project to comply with  applicable or anticipated
       legal  requirements and (ii) the calculations of the Funding  Corporation
       that demonstrate, after giving effect to the incurrence of such debt, the
       minimum  projected  debt  service  coverage  ratio  (x) for the next four
       consecutive  fiscal  quarters,  commencing with the quarter in which such
       debt is incurred, taken as one annual period, and (y) for each subsequent
       fiscal year through the final maturity date, will not be less than 1.2 to
       1;

(5)    Debt incurred to finance the making of capital improvements to the Salton
       Sea  Projects,  the  Partnership  Projects  or  Additional  Projects  not
       required  by  applicable  law so  long  as  after  giving  effect  to the
       incurrence  of such debt (i) no default or event of default has  occurred
       and is  continuing,  and (ii) (A) the  independent  engineer  confirms as
       reasonable  (x)  the   calculations  of  the  Funding   Corporation  that
       demonstrate  that the minimum  projected debt service  coverage ratio for
       the next four consecutive quarters,  taken as one annual period, and each
       subsequent  fiscal  year,  will  not be less  than  1.4 to 1, and (y) the
       calculations  of the Funding  Corporation  that  demonstrate  the average
       projected debt service  coverage  ratio for all  succeeding  fiscal years
       until the final  maturity  date will not be less than 1.7 to 1 or (B) the
       Rating Agencies  confirm that the incurrence of such debt will not result
       in a rating downgrade;

(6)      Working capital debt in an aggregate amount not to exceed $15,000,000;

                                      -14-
<PAGE>

(7)    Debt incurred under the Debt Service Reserve LOC Reimbursement Agreement;

(8)    Debt incurred in  connection  with certain  permitted  interest rate swap
       arrangements;

(9)    Debt incurred by the Funding  Corporation  in an aggregate  amount not to
       exceed  $30,000,000,  in connection with the  development,  construction,
       ownership, operation, maintenance or acquisition of Permitted Facilities;
       and

(10)   Subordinated  debt from  affiliates in an aggregate  amount not to exceed
       $200,000,000  which shall be used to finance capital,  operating or other
       costs with respect to the Projects or Additional Projects.

All Permitted  Debt incurred by the Funding  Corporation  shall be loaned to the
Guarantors and guaranteed by the Guarantors.

PRINCIPAL INDENTURE COVENANTS

Principal  covenants  under the  Indenture  require the Funding  Corporation  to
agree, except as permitted under the Indenture, (a) not to exercise any remedies
or waive any defaults under the Credit Agreements and the Project Notes,  except
as otherwise permitted under the Indenture; (b) not to incur (i) any Debt except
Permitted  Debt or (ii) any Lien  upon any of its  properties  except  Permitted
Liens and (c) not to enter into any  transaction of merger or  consolidation  or
change its form of organization or its business.

PRINCIPAL CREDIT AGREEMENT COVENANTS

Principal covenants under the Credit Agreements require each Guarantor to agree,
subject  to certain  exceptions  and  qualifications,  (a) not to enter into any
transaction  of  merger  or  consolidation,  change  its  form of  organization,
liquidate,  wind-up or dissolve  itself;  (b) not to enter into non-arm's length
transactions or agreements with Affiliates; (c) not to incur (i) any debt except
Permitted  Guarantor Debt and (ii) any liens except for permitted liens; (d) not
to engage in any business other than as  contemplated  by the respective  Credit
Agreement;  and (e) not to amend,  terminate  or  otherwise  modify the  Project
Documents  to which they are a party except as  permitted  under the  respective
Credit Agreements.  In addition to these principal covenants,  in the Salton Sea
Credit Agreement and the Partnership Credit Agreement, the Salton Sea Guarantors
and the Partnership  Guarantors  have agreed (a) not to sell,  lease or transfer
any property or assets  material to the Salton Sea  Projects or the  Partnership
Projects, as applicable,  except in the ordinary course of business;  and (b) to
maintain  insurance  as is  generally  carried by  companies  engaged in similar
businesses and owning similar properties.

CONSIDERATIONS REGARDING LIMITATION ON REMEDIES

A significant  portion of the proceeds of the Initial  Offering were distributed
to  MEHC  to  repay  certain  non-recourse  indebtedness  incurred  by  MEHC  in
connection with the acquisition of Magma (including the Guarantors). The Royalty
Guarantor has purchased an  assignment of the royalties  from Magma  pursuant to
the Magma Assignment  Agreement.  Magma has also agreed to make certain payments
to CEOC  pursuant to the Magma  Services  Agreement  and to secure such  payment
obligation  with a collateral  assignment of certain cash flows.  The Guarantors
have executed Guarantees with respect to the entire amount of Securities.  Under
certain  circumstances  (including  a  proceeding  under  Title 11 of the United
States Code or any  similar  proceeding),  it is  possible  that a creditor of a
Guarantor  or  Magma  could  make a claim,  under  federal  or state  fraudulent
conveyance  laws,  that  the  Funding  Corporation's  claims  under  the  Credit
Agreements,  the  Security  Holders'  claims under the  Guarantees,  the Royalty
Guarantor's interest pursuant to the Magma Assignment Agreement or CEOC's rights
under the Magma Services  Agreement  should be  subordinated  or not enforced in
accordance with such instruments' terms or that payments  thereunder  (including
payments  to the Holders of the  Securities)  should be  recovered.  In order to
prevail  on such a  claim,  a  claimant  would  have  to  demonstrate  that  the
obligations  incurred under any Guarantor's Credit Agreement or Guarantee or the
transfers  made  under  the Magma  Assignment  Agreement  or the Magma  Services
Agreement were not incurred in good faith or that any Guarantor or Magma did not
receive fair  consideration  in connection with such  obligations and transfers,
and that any  Guarantor  or Magma is and was  insolvent  at the time of entering
into the Credit Agreement,  Guarantee, the Magma Assignment Agreement and/or the
Magma  Services  Agreement or that it did not have and will not have  sufficient
capital for  carrying on its business or was not and will not be able to pay its
debts as they mature.

                                      -15-
<PAGE>
POWER PRICE AND SALES UNCERTAINTY

The Power Purchase  Agreements  pursuant to which each of the Vulcan, Del Ranch,
Elmore, Leathers,  Salton Sea II and Salton Sea III Projects sell electricity to
Edison are SO4 Agreements.  These agreements  provide for both capacity payments
and energy  payments  for a term of 30 years.  While the basis for the  capacity
payment is fixed for the entire  30-year term,  the price of energy  payments is
fixed only for the first ten years of the term. Thereafter,  the required energy
payment  converted  to  Edison's  Avoided  Cost of Energy,  as  determined  by a
methodology approved by, and subject to change by, the California Public Utility
Commission.  In June and November  2001,  the Imperial  Valley  Projects,  which
receive Edison's Avoided Cost of Energy entered into agreements that provide for
amended energy  payments under the SO4  Agreements.  The amendments  provide for
fixed energy rate in lieu of Edison's  Avoided Cost of Energy.  The fixed energy
payment was 3.25 cents per kW-hour from  December 1, 2001 through April 30, 2002
and 5.37  cents  per  kW-hour  commencing  May 1, 2002 for a  five-year  period.
Following  the five-year  period,  the energy  payments  revert back to Edison's
Avoided Cost of Energy.

For the year ended December 2002, 2001 and 2000,  Edison's  average avoided cost
of  energy  was 3.5  cents,  7.4  cents  and 5.8  cents  per kWh,  respectively.
Estimates of Edison's future avoided cost of energy vary substantially from year
to year. The Funding  Corporation  and the Guarantors  cannot predict the likely
level of avoided cost of energy prices under these agreements.

Although up to 22 MW of the net electrical output of Salton Sea V is expected to
be sold  for use by the  Zinc  Recovery  Project  pursuant  to a power  purchase
agreement  and  power  from  the CE Turbo  Project  may also be used by the Zinc
Recovery Project pursuant to a separate power purchase agreement, neither Salton
Sea V nor the CE Turbo Project  currently has any power sales agreements for any
portion of the capacity of such Projects.  The strategy for Salton Sea V and the
CE Turbo  Project is to sell output not needed by the Zinc  Recovery  Project in
short term  transactions  through  established  energy  markets or in such other
transactions  from  time to time as may be  found to be more  advantageous  than
those conducted through  established energy markets.  Energy prices are expected
to have the characteristics of short-term spot prices and to fluctuate from time
to time in a manner that cannot be predicted with accuracy and is not within the
control of the Funding Corporation, the Guarantors or any other person.

RELIANCE ON SINGLE UTILITY CUSTOMER

Each of the Vulcan,  Del Ranch,  Elmore,  Leathers and Salton Sea I-IV  Projects
relies on an agreement  with Edison to generate 100% of its  operating  revenue.
The  payments  (excluding  those for power sales from March 22 through  June 22,
2001) under these agreements have  constituted 100% of the operating  revenue of
each Project since its inception,  and may do so for the life of the Securities.
Any material failure of Edison to fulfill its contractual  obligations under the
Power Purchase Agreements could have a material adverse effect on the ability of
the Funding Corporation to pay principal of and interest on the Securities.

ZINC PRICE AND SALES UNCERTAINTY

In  September  1999,  Minerals  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.

Because most of the Zinc Recovery Project's revenue are and will be derived from
the sale of zinc, earnings are and will be directly related to the price of zinc
in the  domestic  and world  markets.  However,  zinc prices  fluctuate  and are
affected by numerous factors,  including expectations of inflation,  speculative
activities,  currency exchange rates, interest rates, global and regional demand
and production,  political and economic  conditions,  discovery of new deposits,
and production costs in major producing  regions.  The aggregate effect of these
factors,  all of which are beyond the control of the Funding  Corporation or the
Guarantors, is impossible for the Funding Corporation to predict.

OPERATIONAL UNCERTAINTY

Although several of the power projects have been operating for a number of years
and the Zinc Recovery Project is producing limited  quantities,  full production
at the Zinc Recovery Project is not expected until late-2003,  and is subject to
customary  risks  associated  with the  operation  of metals  processing  plants
including operational risks, cost overruns and failures to perform in accordance
with contract terms. In addition,  while each of the individual process steps to
be  utilized in the Zinc  Recovery  Project  (including  ion  exchange,  solvent
extraction and  electrowinning) has been in operation for more than twenty years
and the  demonstration  plant at the  SSKGRA  has  successfully  recovered  zinc
through this integrated  process,  the integrated  process for the production of
zinc from  geothermal  brine has not been

                                      -16-
<PAGE>

attempted in a large scale  commercial  facility for an extended period of time.
Any material unremedied,

UNCERTAINTIES  RELATING TO  EXPLORATION  AND  DEVELOPMENT  OF GEOTHERMAL  ENERGY
RESOURCES

Geothermal exploration, development and operations are subject to uncertainties,
which  vary  among  different  geothermal  reservoirs  and are  similar to those
typically associated with oil and gas exploration and development, including dry
holes and  uncontrolled  releases.  Because of the  geological  complexities  of
geothermal reservoirs,  the geographic area and sustainable output of geothermal
reservoirs can only be estimated and cannot be definitively  established.  There
is,  accordingly,  a risk of an unexpected decline in the capacity of geothermal
wells and a risk of geothermal  reservoirs  not being  sufficient  for sustained
generation of the electrical power capacity desired.

In  addition,  both the cost of  operations  and the  operating  performance  of
geothermal  power  plants may be  adversely  affected by a variety of  operating
factors.  Production  and injection  wells can require  frequent  maintenance or
replacement.  Corrosion caused by high-temperature and high-salinity  geothermal
fluids may require the  replacement or repair of certain  equipment,  vessels or
pipelines.   New  production  and  injection  wells  may  be  required  for  the
maintenance of current operating levels,  thereby requiring  substantial capital
expenditures.

INSURANCE

The Salton Sea Projects and the Partnership Projects currently possess property,
business interruption, catastrophic and general liability insurance. Proceeds of
insurance received in connection with the Salton Sea Projects will be payable to
the  Depositary for the account of the Salton Sea Guarantors and will be applied
as required under the financing  documents.  There can be no assurance that such
comprehensive insurance coverage will be available in the future at commercially
reasonable  costs  or terms  or that  the  amounts  for  which  the  Salton  Sea
Guarantors and the Partnership  Guarantors are or will be insured will cover all
potential losses.

Because  geothermally  active  areas such as the area in which the  Projects are
located are  subject to frequent  low-level  seismic  disturbances,  and serious
seismic  disturbances  are  possible,  the  power  generating  plants  and other
facilities  at the  Projects  are  designed  and built to  withstand  relatively
significant levels of seismic disturbance.  However,  there is no assurance that
seismic disturbances of a nature and magnitude so as to cause material damage to
the  Projects  or  gathering  systems or a material  change in the nature of the
geothermal  resource  will not occur,  that  insurance  with  respect to seismic
disturbances  will be maintained  by or on behalf of all of the  Projects,  that
insurance proceeds will be adequate to cover all potential losses sustained,  or
that insurance  will continue to be available in the future in amounts  adequate
to insure against such seismic disturbances.

REGULATORY AND ENVIRONMENTAL MATTERS

The Guarantors  are subject to a number of  environmental  laws and  regulations
affecting  many aspects of their  present and future  operations,  including the
disposal of various  forms of  materials  resulting  from  geothermal  reservoir
production  and  the  drilling  and  operation  of  new  wells.  Such  laws  and
regulations  generally  require the  Guarantors to obtain and comply with a wide
variety of  licenses,  permits  and other  approvals.  In  addition,  regulatory
compliance for the construction of new facilities is a costly and time-consuming
process,  and  intricate  and rapidly  changing  environmental  regulations  may
require  major  expenditures  for  permitting  and create the risk of  expensive
delays or material  impairment of project value if projects  cannot  function as
planned  due to  changing  regulatory  requirements  or  local  opposition.  The
Guarantors  and the Projects also remain subject to a varied and complex body of
environmental  and energy  regulations  that both public  officials  and private
individuals  may  seek to  enforce.  There  can be no  assurance  that  existing
regulations  will not be revised or that new regulations  will not be adopted or
become applicable to the Guarantors and the Projects which could have an adverse
impact on their operations.  In particular,  the independent power market in the
United  States  is  dependent  on  the  existing  energy  regulatory  structure,
including the Public Utility  Regulatory  Policies Act and its implementation by
utility  commissions  in the various  states.  The structure of such federal and
state energy  regulations has in the past, and may in the future, be the subject
of  various  challenges  and  restructuring  proposals  by  utilities  and other
industry  participants.  The implementation of regulatory changes in response to
such  challenges  or  restructuring   proposals,   or  otherwise  imposing  more
comprehensive  or stringent  requirements on the Guarantors and Projects,  which
would result in increased  compliance costs could have a material adverse effect
on the Guarantors' and the Projects' results of operations.

                                      -17-
<PAGE>
EMPLOYEES

Employees  necessary  for the  operation  of the  Imperial  Valley  Projects are
provided by CEOC.  As of December  31,  2002,  CEOC  employed  276 people at the
projects,  collectively.  CEOC maintains a qualified  technical staff covering a
broad  range  of  disciplines  including  geology,   geophysics,   geochemistry,
hydrology,   volcanology,  drilling  technology,  reservoir  engineering,  plant
engineering,   construction   management,   maintenance   services,   production
management,  and electric power operation. CEOC employees are not covered by any
collective  bargaining  agreement.  The Funding Corporation believes that CEOC's
employee relations are good.

ITEM 2.   PROPERTIES.

See page 5 for a schedule of the Guarantors' facilities.

ITEM 3.   LEGAL PROCEEDINGS.

In  addition  to the  proceedings  described  below,  some of the  projects  are
currently  parties to various  minor items of litigation in the normal course of
business none of which, if determined  adversely,  would have a material adverse
effect on those  projects  financial  position,  results of  operations  or cash
flows.

Edison/California Power Exchange - Past Due Amounts
---------------------------------------------------

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

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation has not been
extended  beyond  its  current  July  2004  expiration  date,  and as such  cash
distributions  are not available to CE Generation until the Funding  Corporation
debt service reserve fund of approximately  $67.6 million has been funded or the
letter of credit  has been  extended  beyond  its July 2004  expiration  date or
replaced. The fund has a cash balance of $46.3 million as of December 31, 2002.

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

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $3.9  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 2001 certain  Guarantors  filed a
lawsuit against Edison in California's  Imperial County Superior Court seeking a
court order requiring Edison to make the required  capacity bonus payments under
the Power Purchase  Agreements.  Due to Edison's  failure to pay the contractual
obligations,  certain  Guarantors  have  established  an allowance  for doubtful
accounts of  approximately  $2.7 million as of December  31,  2002.  The Project
entities are vigorously pursuing collection of the capacity bonus payments.

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

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V and CE Turbo  Projects  have not received  payment for
power sold under the  Transaction  Agreements  during  December 2000 and January
2001 of approximately $3.8 million. The Guarantors have established an allowance
for doubtful accounts for the full amount of this receivable.

                                      -18-
<PAGE>
Kvaerner Arbitration
--------------------

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 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  contract,   the
Guarantors  drew $29.6 million  under the EPC contract  letter of credit on July
20, 2001. The  liquidated  damages have been accounted for as a reduction of the
capitalized  costs of the project.  The Guarantors  have entered into a time and
materials  reimbursable engineer,  procure and construction  management contract
with AMEC E&C Services, Inc. to complete the Zinc Recovery Project.

On July 11,  2001,  Kvaerner  filed an Amended  Demand for  Arbitration  against
Minerals  characterizing  the nature of the dispute as concerns regarding change
orders  and  performance  penalties.  Kvaerner  did not state the  amount of its
claim. On August 7, 2001, Minerals filed an Answering Statement and Counterclaim
against Kvaerner. Minerals denied all material allegations in Kvaerner's Amended
Demand for Arbitration,  and asserted a counterclaim against Kvaerner for breach
of contract and specific performance.  Minerals alleged that its total estimated
damage for  Kvaerner's  breach of contract  are in excess of  approximately  $60
million;  however,  Minerals  has offset  approximately  $42.5  million of these
damages by  exercising  its rights under the EPC Contract to claim the retainage
and by drawing on a letter of credit.

On May 23,  2002,  Minerals and  Kvaerner  entered into a Settlement  Agreement.
Under the terms of the agreement,  Minerals retained the amounts drawn under the
letter of credit,  the EPC  retainage  amounts and the EPC contract  balance and
will pay to  Kvaerner  three  equal  installments  of $2.25  million  payable in
January of 2003, 2004 and 2005.

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

The Salton Sea V and CE Turbo Projects were constructed by Stone & Webster, Inc.
(formerly Stone & Webster Engineering Corporation), a wholly-owned subsidiary of
the Shaw Group  ("Stone &  Webster"),  pursuant  to date  certain,  fixed-price,
turnkey engineering,  procure, construct and manage contracts (collectively, the
"Salton Sea V and CE Turbo  Projects EPC  Contracts").  On March 7, 2002,  Power
L.L.C., Vulcan, Del Ranch, and CE Turbo, (collectively, the "Salton Sea V and CE
Turbo  Project  Owners",  the owners of the Salton Sea V and CE Turbo  Projects,
filed a Demand for  Arbitration  against  Stone & Webster for breach of contract
and breach of warranty  arising from  deficiencies in Stone & Webster's  design,
engineering,  construction and procurement of equipment for the Salton Sea V and
CE  Turbo  Projects  pursuant  to the  Salton  Sea V and CE Turbo  Projects  EPC
Contracts.  On November  25, 2002,  the CE Turbo  Project  Owner  entered into a
Settlement  Agreement with Stone & Webster. The breach of contract and breach of
warranty claims made by the owners of the Salton Sea V Project are still pending
and the hearing is scheduled to commence in April 2003.


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

Not applicable.

                                      -19-
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Not applicable.

ITEM 6.  SELECTED FINANCIAL DATA.

Salton Sea Funding Corporation
------------------------------

The following tables set forth selected historical  financial and operating data
of the  Funding  Corporation.  The data should be read in  conjunction  with the
financial statements and related notes and other financial information appearing
elsewhere in this Form 10-K (in thousands).
<TABLE>
<CAPTION>

                                                              YEAR ENDED DECEMBER 31,
                                            --------------------------------------------------------
                                              2002         2001         2000       1999       1998(1)
                                            ---------    ---------    --------   --------   --------
<S>                                         <C>          <C>          <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Total revenue ...........................   $  39,755    $  41,791    $ 43,718   $ 48,538   $ 39,329
Income (loss) before cumulative effect of
  change in accounting principle ........          85          (37)        174      1,123      1,783
Net income (loss) .......................        (125)        (137)        174      1,123      1,783

BALANCE SHEET DATA:
Total assets ............................   $ 570,503    $ 540,580    $565,375   $585,648   $659,337
Senior secured notes and bonds ..........     491,678      520,250     543,908    568,980    626,816
Total liabilities .......................     557,085      527,482     552,140    572,587    647,399
Total stockholder's equity ..............      13,418       13,098      13,235     13,061     11,938
</TABLE>

(1)  On October 13, 1998 Funding  Corporation  issued  additional  securities of
     $285.0 million of Salton Sea Notes and Bonds Series F.

Salton Sea Guarantors
---------------------

The  following  tables set forth  selected  historical  combined  financial  and
operating  data  of the  Salton  Sea  Guarantors.  The  data  should  be read in
conjunction with the financial  statements and related notes and other financial
information appearing elsewhere in this Form 10-K (in thousands).
<TABLE>
<CAPTION>

                                                             YEAR ENDED DECEMBER 31,
                                            --------------------------------------------------------
                                             2002(1)       2001        2000(2)    1999(3)     1998
                                            ---------    ---------    --------   --------   --------
<S>                                         <C>          <C>          <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue .......................   $  84,176    $ 110,941    $ 98,057   $ 81,850   $106,274
Total revenue ...........................      87,893      113,228      98,410     83,718    107,091
Income (loss) before cumulative effect of
  change in accounting principle ........     (12,957)        (807)     28,323     23,045     45,939
Net income (loss) .......................     (33,975)      (9,550)     28,323     23,045     45,939

BALANCE SHEET DATA:
Total assets ............................   $ 584,279    $ 629,950    $626,543   $633,014   $628,515
Senior secured project note .............     246,419      266,899     284,217    293,954    310,030
Total liabilities .......................     296,309      308,005     295,048    329,842    348,388
</TABLE>


(1)  2002 net loss includes a $21.0 million impairment of goodwill recognized as
     a cumulative effect of change in accounting principle.
(2)  Salton Sea V commenced operations in the third quarter of 2000.
(3)  In 1999 the fixed price period for the Salton Sea III project expired.

                                      -20-
<PAGE>
Partnership Guarantors
----------------------

The  following  tables set forth  selected  historical  combined  financial  and
operating  data  of the  Partnership  Guarantors.  The  data  should  be read in
conjunction with the financial statements and related notes, and other financial
information  appearing  elsewhere  in this  Form  10-K (in  thousands).
<TABLE>
<CAPTION>

                                                             YEAR ENDED DECEMBER 31,
                                            ------------------------------------------------------
                                             2002(1)       2001      2000(2)    1999(3)     1998
                                            ---------    --------   --------   --------   --------
<S>                                         <C>          <C>        <C>        <C>        <C>
STATEMENT OF OPERATIONS DATA:
Operating revenue .......................   $  94,697    $119,738   $103,250   $105,921   $165,779
Total revenue ...........................      96,440     126,318    108,184    114,988    172,565
Income (loss) before cumulative effect of
  change in accounting principles .......     (10,828)     22,975     27,180     25,481     37,134
Net income (loss) .......................     (10,828)     16,085     27,180     25,481     37,134

BALANCE SHEET DATA:
Total assets ............................   $ 970,197    $938,342   $921,701   $901,892   $907,819
Senior secured project note .............     244,116     248,742    250,650    261,212    293,576
Total liabilities .......................     368,909     370,763    370,207    377,578    408,986
</TABLE>

(1)  During   December  2002,  the  Zinc  Recovery   Project  became   partially
     operational.

(2)  CE Turbo commenced operations in the third quarter of 2000.

(3)  The  decrease  in revenue and net income in 1999 was  primarily  due to the
     expiration  of the  fixed  price  periods  for the  Elmore  and  Del  Ranch
     Projects.

Royalty Guarantor
-----------------

The following tables set forth selected historical  financial and operating data
of the  Royalty  Guarantor.  The data  should  be read in  conjunction  with the
financial statements and related notes and other financial information appearing
elsewhere in this Form 10-K (in thousands).

                                             YEAR ENDED DECEMBER 31,
                                -----------------------------------------------
                                  2002      2001      2000      1999    1998(1)
                                -------   -------   -------   -------   -------
STATEMENT OF OPERATIONS DATA:
Total revenue ...............   $12,577   $16,882   $14,130   $26,274   $51,703
Net income ..................     8,171    10,092     7,352    19,222    19,497

BALANCE SHEET DATA:
Total assets ................   $83,989   $79,300   $73,670   $71,116   $77,432
Senior secured project note .     1,147     4,607     9,041    13,814    23,210
Total liabilities ...........     1,154     4,636     9,098    13,896    39,434

(1)  In 1998,  the Royalty  Guarantor  received  $25.0  million in a  settlement
     related to the Geo East Mesa payments.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

The following is  management's  discussion  and analysis of certain  significant
factors which have affected the Funding  Corporation  and  Guarantors  financial
condition  and  results  of  operations  during  the  periods  included  in  the
accompanying  statements  of  operations.  This  discussion  should  be  read in
conjunction  with "Selected  Consolidated  Financial and Operating Data" and the
Funding Corporation and Guarantors historical financial statements and the notes
to those statements included elsewhere in this report.

                                      -21-
<PAGE>

CRITICAL ACCOUNTING POLICIES

The  preparation of financial  statements and related  disclosures in conformity
with  accounting  principles  generally  accepted in the United States  requires
management to make judgments,  assumptions and estimates that affect the amounts
reported in the  Financial  Statements  and  accompanying  notes.  Note 2 to the
Financial   Statements  in  this  Annual  Report  on  Form  10-K  describes  the
significant  accounting  policies  and methods  used in the  preparation  of the
Financial Statements. Estimates are used for, but not limited to, the accounting
for the allowance  for doubtful  accounts,  impairment of long-lived  assets and
contingent  liabilities.  Actual results could differ from these estimates.  The
following critical accounting policies are impacted  significantly by judgments,
assumptions and estimates used by management in the preparation of the Financial
Statements.

Allowance for Doubtful Accounts
-------------------------------

The allowance for doubtful  accounts is based on the  Guarantors'  assessment of
the  collectibility  of specific customer accounts and the aging of the accounts
receivable.  If there is a deterioration of a major customer's credit worthiness
or actual  defaults  are  higher  than the  Guarantors'  historical  experience,
estimates of the recoverability of amounts due could be adversely affected.

Impairment of Long-Lived Assets
-------------------------------

The  Guarantors'  long-lived  assets  consist  primarily of property,  plant and
equipment and intangible assets with useful lives that range from 3 to 40 years,
and  acquired  goodwill.  The  Guarantors'  believe  the  useful  lives  of  its
long-lived  assets are  reasonable.  The  Guarantors'  also evaluate  long-lived
assets for impairment  whenever events or changes in circumstances  indicate the
carrying amount of an asset may not be recoverable.  Triggering events include a
significant  change in the extent or manner in which long-lived assets are being
used or in its physical condition,  in legal factors, or in the business climate
that  could  affect the value of the  long-lived  assets,  including  changes in
regulation.  The interpretation of such events requires judgment from management
as to whether such an event has  occurred  and is  required.  If an event occurs
that  could  effect  the  carrying  value of the asset and  management  does not
identify  it as a  triggering  event,  future  results  of  operations  could be
significantly affected.

Upon the occurrence of a triggering  event,  the carrying amount of a long-lived
asset is reviewed to assess  whether the  recoverable  amount has declined below
its carrying  amount.  The  recoverable  amount is the estimated net future cash
flows that the  Guarantor's  expect to recover from the future use of the asset,
undiscounted and without interest,  plus the asset's residual value on disposal.
Where the recoverable  amount of the long-lived  asset is less than the carrying
value,  an  impairment  loss would be  recognized to write down the asset to its
fair value,  which is based on discounted  estimated  cash flows from the future
use of the asset.

The  estimated  cash flows arising from future use of the asset that are used in
the impairment  analysis requires judgment  regarding what the Guarantors' would
expect to recover from future use of the asset.  Any changes in the estimates of
cash flows  arising  from future use of the asset or the  residual  value of the
asset on disposal based on changes in the market conditions,  changes in the use
of the assets,  management's  plans, the determination of the useful life of the
assets and  technology  change in the industry  could  significantly  change the
calculation  of the fair  value  or  recoverable  amount  of the  asset  and the
resulting  impairment  loss,  which  could  significantly  affect the results of
operations.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 2002 AND 2001

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

                                      -22-
<PAGE>

The following  operating data represents the aggregate  capacity and electricity
production of Salton Sea I and II, Salton Sea III,  Salton Sea IV and Salton Sea
V:
                                             YEARS ENDED DECEMBER 31,
                                             ------------------------
                                               2002           2001
                                             ---------      ---------
     Overall capacity factor ...........          78.4%          80.1%
     Capacity NMW (weighted average) ...         168.4          168.4
     MWh produced ......................     1,156,800      1,180,900

Vulcan, Elmore, Leathers, Del Ranch and CE Turbo:

                                            YEARS ENDED DECEMBER 31,
                                             ------------------------
                                               2002           2001
                                             ---------      ---------
     Overall capacity factor ...........         101.5%         100.0%
     Capacity NMW (weighted average) ...         158.0          158.0
     MWh produced ......................     1,405,000      1,384,700

The Salton Sea Guarantors'  operating revenue decreased to $84.2 million for the
year ended  December  31, 2002 from $110.9  million for the same period in 2001.
The decrease was primarily due to lower energy rates and lower production due to
more overhauls in 2002. Due to uncertainties  associated with Edison's financial
condition,  Edison's  failure  to pay and the  bankruptcy  of PX, the Salton Sea
Guarantors  established an allowance for doubtful accounts of approximately $9.8
million in the year ended December 31, 2001 as a reduction in operating revenue.
As of December 31, 2002,  the balance of the allowance for doubtful  accounts is
$3.8 million.

The Salton Sea Guarantors'  interest and other income  increased to $3.7 million
for the year ended  December  31, 2002 from $2.3  million for the same period in
2001.  The increase was due to a business  interruption  insurance  recovery for
lost  revenue  at Unit 2 from an  equipment  failure  partially  offset by lower
interest  income due to fewer months of interest earned on the past due balances
from Edison compared to 2001.

The Partnership Guarantors' operating revenue decreased to $94.7 million for the
year ended  December  31, 2002 from $119.7  million for the same period in 2001.
The decrease was due to lower rates offset by higher  production in 2002. Due to
uncertainties associated with Edison's financial condition,  Edison's failure to
pay and  the  bankruptcy  of PX,  the  Partnership  Guarantors'  established  an
allowance for doubtful accounts of approximately $14.9 million in the year ended
December 31, 2001 as a reduction in operating revenue.  As of December 31, 2002,
the balance of the allowance for doubtful accounts is $2.7 million.

The  Partnership  Guarantors'  interest  and  other  income  for the year  ended
December  31, 2002  decreased  to $1.7  million  from $6.6  million for the same
period in 2001.  The  decrease  was due to lower  interest  income  due to fewer
months interest earned on the past due balances from Edison compared to 2001.

The Royalty  Guarantors'  revenue  decreased to $12.6 million for the year ended
December 31, 2002 from $16.9  million for the same period in 2001.  The decrease
was the result of lower energy revenue at the Partnership  Projects resulting in
lower royalty income.

The Salton Sea Guarantors' operating expenses, which include royalty, operating,
and general and administrative expenses, decreased to $59.2 million for the year
ended  December  31,  2002,  from  $61.6  million  for the same  period  in 2001
primarily due to lower royalty costs due to lower revenue.

The  Partnership   Guarantors'   operating  expenses,   which  include  royalty,
operating, and general and administrative  expenses,  increased to $88.0 million
for the year ended December 31, 2002,  from $62.7 million for the same period in
2001.  The increase in expenses  from 2001 to 2002 was primarily due to start up
expenses at the Zinc plant.

The Royalty  Guarantors'  operating  expenses  decreased to $3.3 million for the
year ended  December 31, 2002 from $4.4 million for the year ended  December 31,
2001.  The  decrease in expenses  from 2001 to 2002 was  primarily  due to lower
royalty revenue from the Partnership Projects.

The Salton Sea  Guarantors'  depreciation  and  amortization  increased to $21.2
million for the year ended  December  31,  2002 from $17.3  million for the year
ended December 31, 2001. The increase was due to additional  equipment

                                      -23-
<PAGE>

bought in 2002 partially offset by the decrease in goodwill amortization of $1.3
million due the discontinuation of goodwill amortization in 2002.

The Partnership  Guarantors'  depreciation and  amortization  increased to $23.2
million for the year ended  December  31,  2002 from $22.8  million for the year
ended December 31, 2001. The increase was due primarily to additional  equipment
bought in 2002 partially offset by the decrease in goodwill amortization of $3.6
million due the discontinuation of goodwill amortization in 2002.

The Royalty Guarantors'  depreciation and amortization decreased to $0.9 million
for the year  ended  December  31,  2002 from $1.8  million  for the year  ended
December  31,  2001.  The  decrease  was  due  to  discontinuation  of  goodwill
amortization in 2002.

The Salton Sea Guarantors'  interest expense  increased to $20.4 million for the
year ended  December 31, 2002 from $20.1 million for the year ended December 31,
2001.  The increase  was due  primarily to the  discontinuance  of  capitalizing
interest  on  the  minerals  extraction  process  partially  offset  by  reduced
indebtedness.

The  Partnership  Guarantors'  interest  expense,  net of  capitalized  amounts,
increased to $9.1 million for the year ended December 31, 2002 from $6.1 million
for the year ended December 31, 2001. 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 $0.3 million for the year
ended  December 31, 2002 from $0.6 million for the year ended December 31, 2001.
The decrease was due to lower indebtedness.

The asset impairment at the Salton Sea Guarantors in 2001 reflects the write off
of the book value of a steam turbine. The Salton Sea Guarantors  determined that
the turbine, which had been held in storage for use in new development projects,
no longer had any significant value.

The Salton Sea Guarantors are  substantially  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  provision,  decreased to a benefit of
$13.1  million  for the year ended  December  31,  2002 from an expense of $11.7
million for the year ended  December  31,  2001.  The  decrease was due to lower
pre-tax  income.  The  effective  tax rate was 54.8% and 33.8% in 2002 and 2001,
respectively.  The  changes  from  year to year in the  effective  rate  are due
primarily  to  the  generation  and  utilization  of  energy  tax  credits,  the
resolution of certain tax issues,  primarily related to depletion, and depletion
deductions.  Income  taxes  will be paid by the  parent of the  Guarantors  from
distributions to the parent company by the Guarantors, which occur after payment
of operating expenses and debt service.  During 2002, the Partnership Guarantors
made considerable progress on several significant income tax examination matters
for prior tax years,  including  percentage  of depletion,  which  resulted in a
decrease in income tax expense of $3.1 million in 2002.

During 2002, the Guarantors adopted Statement of Financial  Accounting Standards
("SFAS") No. 142,  "Goodwill and Other  Intangible  Assets" ("SFAS 142"),  which
establishes the accounting for acquired  goodwill and other  intangible  assets,
and provides that goodwill and  indefinite-lived  intangible  assets will not be
amortized,  but will be tested for impairment on an annual basis.  In accordance
with SFAS 142, the Guarantors'  completed their transitional and annual goodwill
impairment test during the second and fourth quarters of 2002, primarily using a
discounted  cash flow  methodology  as of January 1, 2002 and October 31,  2002,
respectively.  The transitional  impairment test indicated a potential  goodwill
impairment at the Salton Sea Guarantors and the Partnership  Guarantors.  During
the fourth  quarter,  the Salton Sea Guarantors and the  Partnership  Guarantors
completed their  assessment of the implied fair value of goodwill.  As a result,
an  impairment of goodwill was  recognized  as a cumulative  effect of change in
accounting principle of $21.0 million at the Salton Sea Guarantors as of January
1,  2002.  However,  as a  result  of this  test,  no  goodwill  impairment  was
recognized at the  Partnership  Guarantors as of January 1, 2002.  Additionally,
the Guarantors annual goodwill impairment tests indicated no goodwill impairment
existed at October 31, 2002.

During 2001, the Guarantors  changed their policy of accounting for overhaul and
well rework costs.  These costs, which had historically been accounted for using
deferral methods, are now expensed as incurred.  The new policy went into effect
January 1, 2001 and during 2001, the Salton Sea Guarantors recorded a cumulative
effect of this change of $8.7 million and the Partnership  Guarantors recorded a
cumulative effect of this change of $6.9 million, net of tax.

                                      -24-
<PAGE>

The Funding  Corporation's net loss was $0.1 million for the year ended December
31, 2002 compared to a net loss of $0.1 million for the year ended  December 31,
2001, which represented  interest income and expense, net of applicable tax, and
the Funding Corporation's 1% equity in earnings of the Guarantors.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 2001 AND 2000

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

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

                                             YEARS ENDED DECEMBER 31,
                                             ------------------------
                                               2002           2001
                                             ---------      ---------
     Overall capacity factor ...........          80.1%          76.1%
     Capacity NMW (weighted average) ...         168.4          146.1
     MWh produced ......................     1,180,900        976,500

Vulcan, Elmore, Leathers, Del Ranch and CE Turbo:

                                             YEARS ENDED DECEMBER 31,
                                             ------------------------
                                               2002           2001
                                             ---------      ---------
     Overall capacity factor ...........         100.0%          98.8%
     Capacity NMW (weighted average) ...         158.0          152.1
     MWh produced ......................     1,384,700      1,320,300

The Salton Sea Guarantors' operating revenue increased to $110.9 million for the
year ended December 31, 2001 from $98.1 million for the same period in 2000. The
increase  was  primarily  due to higher  energy  rates in 2001,  the start up of
Salton Sea 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 and the  bankruptcy of PX, the
Salton  Sea  Guarantors  established  an  allowance  for  doubtful  accounts  of
approximately $9.8 million in the year ended December 31, 2001.

The Salton Sea Guarantors'  interest and other income  increased to $2.3 million
in 2001 from $0.4  million in 2000.  The  increase  was due to  interest  income
earned on past due balances from Edison in 2001.

The Partnership  Guarantors'  operating  revenue increased to $119.7 million for
the year ended  December  31,  2001 from  $103.3  million for the same period in
2000.  The increase was due to higher energy 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  condition and
failure to pay and the bankruptcy of PX, the Partnership Guarantors' established
an allowance for doubtful  accounts of  approximately  $14.9 million in the year
ended December 31, 2001.

The Partnership Guarantors interest and other income for the year ended December
31, 2001  increased  to $6.6  million  from $4.9  million for the same period in
2000.  The increase was due to interest  income earned on past due balances from
Edison in 2001.

The Royalty  Guarantor  revenue  increased  to $16.9  million for the year ended
December 31, 2001 from $14.1  million for the same period in 2000.  The increase
was the result of higher energy revenue at the Partnership Projects resulting in
higher royalties.

                                      -25-
<PAGE>

The Salton Sea Guarantors' operating expenses, which include royalty, operating,
and general and administrative expenses, increased to $61.6 million for the year
ended  December 31, 2001,  from $40.8  million for the same period in 2000.  The
increase in expenses  from 2000 to 2001 was  primarily  due to higher  operating
costs  resulting  from  Salton  Sea V costs for an  entire  year,  higher  brine
disposal costs and higher royalty costs due to higher revenue.

The  Partnership   Guarantors'   operating  expenses,   which  include  royalty,
operating, and general and administrative  expenses,  increased to $62.7 million
for the year ended December 31, 2001,  from $53.0 million for the same period in
2000.  The  increase  in costs  from  2000 to 2001 was due  primarily  to higher
royalty expense due to higher  revenue,  start up of the CE Turbo Project in the
third quarter of 2000 and higher brine disposal costs.

The Royalty  Guarantors'  operating  expenses  increased to $4.4 million for the
year ended  December 31, 2001 from $3.9 million for the year ended  December 31,
2000.  The increase  from 2000 to 2001 was due to higher  royalties  from higher
energy revenue from the Partnership projects.

The Salton Sea  Guarantors'  depreciation  and  amortization  increased to $17.3
million for the year ended  December  31,  2001 from $16.0  million for the year
ended December 31, 2000. The increase was due to a full year of  depreciation at
Salton Sea V.

The Partnership  Guarantors'  depreciation and  amortization  increased to $22.8
million for the year ended  December  31,  2001 from $19.7  million for the same
period in 2000.  The increase was primarily due to the upgraded  brine  handling
system and the start up of the CE Turbo Project in the third quarter of 2000.

The Royalty  Guarantor's  amortization  decreased  to $1.8  million for the year
ended  December  31, 2001 from $2.0  million  for the same  period in 2000.  The
changes are consistent with the Company's scheduled  amortization of the royalty
stream and the excess of cost over fair value related to the Magma acquisition.

The  Salton  Sea  Guarantors'  interest  expense,  net of  capitalized  amounts,
increased  to $20.1  million  for the year ended  December  31,  2001 from $13.3
million for the same  period in 2000.  The  increase  was due  primarily  to the
discontinuance of capitalizing  interest on the minerals  extraction process and
Salton Sea V partially offset by reduced indebtedness.

The  Partnership  Guarantors'  interest  expense,  net of  capitalized  amounts,
increased to $6.1 million for the year ended December 31, 2001 from $0.6 million
for the same period in 2000. The increase is a result of the  discontinuance  of
capitalizing  interest on the minerals  extraction  process  partially offset by
reduced indebtedness.

The Royalty Guarantors'  interest expense decreased to $0.6 million for the year
ended  December  31, 2001 from $1.0  million  for the same  period in 2000.  The
decrease was due to the repayment of debt.

The asset impairment at the Salton Sea Guarantors in 2001 reflects the write off
of the book value of a steam turbine. The Salton Sea Guarantors  determined that
the turbine, which had been held in storage for use in new development projects,
no longer had any significant value.

The Salton Sea Guarantors are  substantially  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 provision increased to $11.7 million for
the year ended  December 31, 2001 from $7.7 million for the same period in 2000.
The effective tax rate was 33.8% and 22.1% in 2001 and 2000,  respectively.  The
changes  from  year to year  in the  effective  rate  are due  primarily  to the
generation  and  utilization  of energy tax  credits and  depletion  deductions.
Income taxes will be paid by the parent of the Guarantors from  distributions to
the parent  company by the  Guarantors,  which occur after  payment of operating
expenses and debt service.

During 2001, the Guarantors  changed their policy of accounting for overhaul and
well rework costs.  These costs, which had historically been accounted for using
deferral methods, are now expensed as incurred.  The new policy went into effect
January 1, 2001 and during 2001, the Salton Sea Guarantors recorded a cumulative
effect of this change of $8.7 million and the Partnership  Guarantors recorded a
cumulative  effect of this  change of $6.9  million,

                                      -26-
<PAGE>

net of tax. If Salton Sea Guarantors and Partnership  Guarantors had adopted the
policy as of January 1, 2000,  net income would have been $1.1 million lower and
$4.9 million higher, respectively, in 2000 on a proforma basis.

The Funding  Corporation's net loss was $0.1 million for the year ended December
31, 2001  compared to a net income of $0.2  million for the year ended  December
31, 2000, which represented  interest income and expense, net of applicable tax,
and the Funding Corporation's 1% equity in earnings of the Guarantors.

RELATED PARTY TRANSACTIONS

On September  29, 2000,  Salton Sea Power and CE Turbo entered into an agreement
to sell all  available  power from the Salton Sea V Project and CE Turbo Project
to EPME.  Under the terms of the  agreement,  EPME  purchased and sold available
power on behalf of Salton  Sea  Power  and CE  Turbo,  into the  California  ISO
markets.  The purchase price for the available power was equivalent to the value
actually  received  by EPME  for the  sale of such  power,  including  renewable
premiums.

On January 17, 2001,  Salton Sea Power and CE Turbo  entered into a  Transaction
Agreement  to sell  available  power from the Salton Sea V Project  and CE Turbo
Project to EPME.  Under the terms of the agreement,  at the option of Salton Sea
Power and CE Turbo,  EPME  purchased all  available  power from the Salton Sea V
Project and CE Turbo Project based on day ahead price quotes received from EPME.

On March 27, 2001 and May 1, 2001,  the Imperial  Valley  Projects  entered into
Transaction  Agreements to sell available  power to EPME based on percentages of
the Dow Jones SP-15  Index.  On June 22,  2001,  the  Imperial  Valley  Projects
(excluding  the  Salton  Sea V  Project  and CE Turbo  Project)  ceased  selling
available  power to EPME and  resumed  power  sales to  Edison  under  the Power
Purchase Agreements ("PPAs").  Effective September 16, 2002 Salton Sea Power and
CE Turbo entered into Transaction  Agreements to sell available power to EPME at
increased percentages of the Dow Jones SP-15 Index.

Pursuant to a Transaction Agreement dated January 29, 2003, Salton Sea Power and
CE Turbo and began  selling  available  power to  TransAlta on February 12, 2003
based on percentages of the Dow Jones SP-15 Index. Such agreement will expire on
October 15, 2003.

Pursuant to the November 1, 1998 Amended and  Restated  Power Sales  Agreements,
Salton Sea Power and CE Turbo are to provide  Minerals with its full  electrical
energy requirements at the market rates available to them, less wheeling costs.

Effective August 1, 2002, Salton Sea Power and CE Turbo amended their respective
power sale  agreements  with Minerals to provide for a fixed price of $31.00 per
megawatt  hour for all  hours of  August  1, 2002  through  December  31,  2002.
Pursuant to these  agreements,  sales to Minerals  from Salton Sea Power totaled
$0.4  million and $0.9  million for the years ended  December 31, 2002 and 2001,
respectively,  and there were no sales to  Minerals  from CE Turbo for the years
ended December 31, 2002 and 2001, respectively.  There were no material accounts
receivable balances at December 31, 2002 and 2001.

On October 13,  1998,  Funding  Corporation  completed  a sale to  institutional
investors of $285.0 million  aggregate  amount of 7.475% Senior Secured Series F
bonds due November  30,  2018.  A portion of the proceeds  were used to fund the
cost of construction of, and was advanced to, the Zinc Recovery  Project,  which
is  indirectly  100% owned by Salton Sea Minerals  Corp.,  a MEHC  affiliate not
owned by CE Generation. The direct and indirect owners of the Zinc Facility (the
"Zinc  Guarantors",  which include  Salton Sea Minerals  Corp. and Minerals) are
among the  guarantors of the Funding  Corporation  debt. In connection  with the
divestiture  of CE Generation in 1999,  MEHC  guaranteed the payment by the Zinc
Guarantors of a specified  portion of the scheduled debt service on the Imperial
Valley Project Loans  including the current  principal  amount of  approximately
$137.8 million.

LIQUIDITY AND CAPITAL RESOURCES

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 Project  revenue  and  interest  earned  on funds on  deposit.  The  operating
Partnership  Guarantors' primary source of revenue is payments received pursuant
to long term power sales agreements with Edison, other than CE Turbo Project and
Zinc  Recovery  Project  revenue and  interest  earned on funds on deposit.  The
Royalty  Guarantor's  only source of revenue is royalties  received  pursuant to
resource  lease  agreements  with  the  Partnership  Projects.  Because  of  the
Guarantor's  dependence on Edison, if Edison fails to fulfill

                                      -27-
<PAGE>

its obligations to the projects,  it could significantly  impair the ability, of
the Guarantors, to fund operating and maintenance expenses, payments of interest
and principal on the Securities, projected capital expenditures and debt service
reserve fund requirements.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The Funding Corporation has contractual  obligations and commercial  commitments
that may affect its financial condition.  Contractual obligations to make future
payments arise primarily from long-term debt. Contractual obligations that could
make future payments arise primarily from lines of credit and standby letters of
credit. The following tables identify material obligations and commitments as of
December 31, 2002 (in thousands):
<TABLE>
<CAPTION>

                                                        PAYMENTS DUE BY PERIOD
                                            -----------------------------------------------------
                                                       Less Than     2-3        4-5      After 5
                                             Total      1 Year      Years      Years      Years
                                            --------   ---------   -------    -------    --------
     <S>                                    <C>         <C>        <C>        <C>        <C>
     Contractual cash obligations-
         Long-term debt ................    $491,678    $28,086    $60,962    $53,890    $348,740
                                            ========    =======    =======    =======    ========

                                                      COMMITMENT EXPIRATION PER PERIOD
                                            -----------------------------------------------------
                                                       Less Than     2-3       4-5        After 5
                                             Total      1 Year      Years      Years      Years
                                            --------   ---------   -------    -------    --------
     Other commercial commitments:
       Lines of credit(1) ..............    $ 15,000    $15,000    $  --      $  --      $   --
       Standby letters of credit(2) ....      67,600       --       67,600       --          --
                                            --------    -------    -------    -------    --------
         Total commercial commitments ..    $ 82,600    $15,000    $67,600       --          --
                                            ========    =======    =======    =======    ========
</TABLE>

(1)  The line of credit represent the unused borrowing capacity available to the
     Funding Corporation, as of December 31, 2002.

(2)  The Standby Letter of Credit matures in July 2004.

Zinc Recovery Project
---------------------

Minerals  developed  and  owns  the  rights  to  proprietary  processes  for the
extraction of zinc from elements in solution in the geothermal  brine and fluids
utilized at the Imperial  Valley  Projects.  A plant has  successfully  produced
commercial quality zinc at the projects.  The affiliates of Minerals may develop
facilities  for the  extraction  of manganese,  silica and other  products as it
further develops the extraction technology.

Minerals  constructed the Zinc Recovery  Project,  which is recovering zinc from
the  geothermal  brine  (the  "Zinc  Recovery  Project").  Facilities  have been
installed  near the Imperial  Valley  Projects  sites to extract a zinc chloride
solution  from the  geothermal  brine  through  an ion  exchange  process.  This
solution is being  transported to a central  processing  plant where zinc ingots
are being  produced  through  solvent  extraction,  electrowinning  and  casting
processes.  The  Zinc  Recovery  Project  is  designed  to  have a  capacity  of
approximately  30,000  metric tons per year.  Limited  production  began  during
December 2002 and full  production is expected by late-2003.  In September 1999,
Minerals entered into a sales agreement  whereby all high-grade zinc produced by
the Zinc Recovery Project will be sold to Cominco,  Ltd. The initial term of the
agreement expires in December 2005.

Total  capital  costs,  excluding  interest  during  construction,  of the  Zinc
Recovery  Project  are  approximately   $151.6  million,  net  of  payments  for
liquidated damages,  through December 31, 2002. Minerals  anticipates  incurring
$16.3 million in capital expenditures during 2003 to optimize production.

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 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  contract,   the
Guarantors  drew $29.6 million  under the EPC contract  letter of credit on July
20, 2001. The  liquidated  damages have been accounted for as a reduction of the
capitalized  costs of the project.  The Guarantors  have entered into a time and
materials  reimbursable engineer,

                                      -28-
<PAGE>

procure and  construction  management  contract with AMEC E&C Services,  Inc. to
complete the Zinc Recovery Project.

On July 11,  2001,  Kvaerner  filed an Amended  Demand for  Arbitration  against
Minerals  characterizing  the nature of the dispute as concerns regarding change
orders  and  performance  penalties.  Kvaerner  did not state the  amount of its
claim. On August 7, 2001, Minerals filed an Answering Statement and Counterclaim
against Kvaerner. Minerals denied all material allegations in Kvaerner's Amended
Demand for Arbitration,  and asserted a counterclaim against Kvaerner for breach
of contract and specific performance.  Minerals alleged that its total estimated
damage for  Kvaerner's  breach of contract  are in excess of  approximately  $60
million;  however,  Minerals  has offset  approximately  $42.5  million of these
damages by  exercising  its rights under the EPC Contract to claim the retainage
and by drawing on a letter of credit.

On May 23,  2002,  Minerals and  Kvaerner  entered into a Settlement  Agreement.
Under the terms of the agreement,  Minerals retained the amounts drawn under the
letter of credit,  the EPC  retainage  amounts and the EPC contract  balance and
will pay to  Kvaerner  three  equal  installments  of $2.25  million  payable in
January of 2003, 2004 and 2005.

Edison/California Power Exchange - Past Due Amounts
---------------------------------------------------

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

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation has not been
extended  beyond  its  current  July  2004  expiration  date,  and as such  cash
distributions  are not available to CE Generation until the Funding  Corporation
debt service reserve fund of approximately  $67.6 million has been funded or the
letter of credit  has been  extended  beyond  its July 2004  expiration  date or
replaced. The fund has a cash balance of $46.3 million as of December 31, 2002.

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

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $3.9  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 2001 certain  Guarantors  filed a
lawsuit against Edison in California's  Imperial County Superior Court seeking a
court order requiring Edison to make the required  capacity bonus payments under
the Power Purchase  Agreements.  Due to Edison's  failure to pay the contractual
obligations,  certain  Guarantors  have  established  an allowance  for doubtful
accounts of  approximately  $2.7 million as of December  31,  2002.  The Project
entities are vigorously pursuing collection of the capacity bonus payments.

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

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V and CE Turbo  Projects  have not received  payment for
power sold under the  Transaction  Agreements  during  December 2000 and January
2001 of approximately $3.8 million. The Guarantors have established an allowance
for doubtful accounts for the full amount of this receivable.

                                      -29-
<PAGE>

ENVIRONMENTAL LIABILITIES

The Guarantors are subject to numerous legislative and regulatory  environmental
protection  requirements  involving air and water pollution,  waste  management,
hazardous chemical use, noise abatement, and land use aesthetics.

State and federal  environmental laws and regulations currently have, and future
modifications  may  have,  the  effect of (i)  increasing  the lead time for the
construction of new facilities,  (ii) significantly increasing the total cost of
new  facilities,  (iii)  requiring  modification  of  the  Guarantors'  existing
facilities,  (iv)  increasing the risk of delay on  construction  projects,  (v)
increasing  the  Guarantors'  cost of  waste  disposal  and  (vi)  reducing  the
reliability  of  service  provided  by the  Guarantors  and the amount of energy
available  from the  Guarantors'  facilities.  Any of such  items  could  have a
substantial  impact on amounts  required to be expended by the Guarantors in the
future.  Expenditures for ongoing compliance with environmental regulations that
relate to  current  operations  are  expensed  or  capitalized  as  appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities   are  recorded  when   environmental   assessments   indicate  that
remediation  efforts are  probable  and the costs can be  reasonably  estimated.
Estimates of the liability are based upon currently  available  facts,  existing
technology and presently enacted laws and regulations  taking into consideration
the likely  effects of  inflation  and other social and  economic  factors,  and
include  estimates of associated legal costs.  These amounts also consider prior
experience in remediating sites, other companies'  clean-up  experience and data
released by the Environmental  Protection Agency or other  organizations.  These
estimated  liabilities are subject to revision in future periods based on actual
costs or new circumstances,  and are included in the accompanying balance sheets
at their  undiscounted  amounts.  As of December 31, 2002 and December 31, 2001,
the Guarantors environmental  liabilities recorded on the balance sheet were not
material.

NEW ACCOUNTING PRONOUNCEMENTS

In August 2001, the FASB issued SFAS No. 143,  "Accounting for Asset  Retirement
Obligations"  ("SFAS 143").  This statement  provides  accounting and disclosure
requirements for retirement obligations associated with long-lived assets and is
effective  January 1, 2003.  This  statement  requires that the present value of
retirement  costs for which the Funding  Corporation and Guarantors have a legal
obligation be recorded as  liabilities  with an  equivalent  amount added to the
asset cost and  depreciated  over an appropriate  period.  The liability is then
accreted  over  time  by  applying  an  interest  method  of  allocation  to the
liability.  Cumulative accretion and accumulated depreciation will be recognized
for the time period from the date the liability  would have been  recognized had
the provisions of this statement been in effect, to the date of adoption of this
statement.  The Funding Corporation and Guarantors do not expect the adoption of
SFAS  143 to have a  material  effect  on its  financial  position,  results  of
operations or cash flows.


In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions  of FIN 45 are effective  for any  guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial  statements  of interim or annual  periods  ending after  December 15,
2002. The Funding  Corporation  and Guarantors do not expect the adoption of FIN
45 will have a material effect on its financial position, results of operations,
or cash flows.
                                      -30-
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The following  discussion of the  Guarantors'  exposure to various  market risks
contains  "forward-looking  statements"  that involve  risks and  uncertainties.
These  projected  results  have  been  prepared  utilizing  certain  assumptions
considered reasonable in the circumstances and in light of information currently
available to the Guarantors.  Actual results could differ  materially from those
projected in the forward-looking information.

INTEREST RATE RISK

At  December  31,  2002 and 2001,  respectively,  the  Funding  Corporation  had
fixed-rate  long-term  debt of $491.7  million and $520.3  million in  principal
amount and  having a fair value of $464.6  million  and  $478.8  million.  These
instruments  are fixed-rate and therefore do not expose the Funding  Corporation
to the risk of earnings loss due to changes in market interest  rates.  However,
the fair  value of these  instruments  would  decrease  by  approximately  $26.2
million and $28.1  million if interest  rates were to increase by 10% from their
levels at December 31, 2002 and 2001, respectively.  In general, such a decrease
in fair  value  would  impact  earnings  and  cash  flows  only  if the  Funding
Corporation  were to reacquire  all or a portion of these  instruments  prior to
their maturity.

                                      -31-

<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

SALTON SEA FUNDING CORPORATION

  Independent Auditors' Report............................................ 33

  Balance Sheets as of December 31, 2002 and 2001 ........................ 34

  Statements of Operations for the Three Years Ended December 31, 2002.... 35

  Statements of Stockholder's Equity for the Three Years Ended
    December 31, 2002..................................................... 36

  Statements of Cash Flows for the Three Years Ended December 31, 2002 ... 37

  Notes to Financial Statements........................................... 38

SALTON SEA GUARANTORS

  Independent Auditors' Report............................................ 42

  Combined Balance Sheets as of December 31, 2002 and 2001................ 43

  Combined Statements of Operations for the Three Years Ended
    December 31, 2002..................................................... 44

  Combined Statements of Guarantors' Equity for the Three Years Ended
    December 31, 2002..................................................... 45

  Combined Statements of Cash Flows for the Three Years Ended
    December 31, 2002..................................................... 46

  Notes to Combined Financial Statements.................................. 47

PARTNERSHIP GUARANTORS

  Independent Auditors' Report............................................ 55

  Combined Balance Sheets as of December 31, 2002 and 2001................ 56

  Combined Statements of Operations for the Three Years Ended
    December 31, 2002..................................................... 57

  Combined Statements of Guarantors' Equity for the Three Years
    Ended December 31, 2002............................................... 58

  Combined Statements of Cash Flows for the Three Years
    Ended December 31, 2002............................................... 59

  Notes to Combined Financial Statements.................................. 60

SALTON SEA ROYALTY LLC

  Independent Auditors' Report............................................ 73

  Balance Sheets as of December 31, 2002 and 2001......................... 74

  Statements of Operations for the Three Years Ended December 31, 2002.... 75

  Statements of Equity for the Three Years Ended December 31, 2002........ 76

  Statements of Cash Flows for the Three Years Ended December 31, 2002.... 77

  Notes to Financial Statements........................................... 78

                                      -33-

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


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

     We have  audited  the  accompanying  balance  sheets of Salton Sea  Funding
Corporation  as of December  31, 2002 and 2001,  and the related  statements  of
operations,  stockholder's  equity and cash flows for each of the three years in
the  period  ended  December  31,  2002.  These  financial  statements  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  such financial  statements present fairly, in all material
respects,  the  financial  position  of Salton  Sea  Funding  Corporation  as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the three years in the period ended  December 31, 2002 in conformity
with accounting principles generally accepted in the United States of America.

     As  discussed  in Note 2 to the  financial  statements,  in 2002 the equity
method  investees of Salton Sea Funding  Corporation  changed  their  accounting
policy for goodwill  and other  intangible  asset and in 2001 the equity  method
investees of Salton Sea Funding  Corporation changed their accounting policy for
overhaul and well rework costs.


/s/  Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 24, 2003 (January 29, 2003 as to Note 6)

                                      -33-
<PAGE>
                         SALTON SEA FUNDING CORPORATION
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 2002 AND 2001
                (Amounts in thousands, except per share amounts)

                                                               2002       2001
                                                             --------   --------

                                     ASSETS
Current assets:
  Cash ...................................................   $ 19,583   $  4,361
  Restricted cash ........................................     46,293      2,949
  Accrued interest receivable and other assets ...........      3,228      3,351
  Current portion secured project notes from Guarantors ..     28,086     28,572
                                                             --------   --------
    Total current assets .................................     97,190     39,233
                                                             --------   --------
Secured project notes from Guarantors ....................    463,592    491,678
Investment in 1% of net assets of Guarantors .............      9,721      9,669
                                                             --------   --------
TOTAL ASSETS .............................................   $570,503   $540,580
                                                             ========   ========

                      LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accrued liabilities ....................................   $  3,156   $  3,333
  Current portion of long-term debt ......................     28,086     28,572
                                                             --------   --------
    Total current liabilities ............................     31,242     31,905
                                                             --------   --------
Due to affiliates ........................................     62,251      3,899
Senior secured notes and bonds ...........................    463,592    491,678
                                                             --------   --------
  Total liabilities ......................................    557,085    527,482
                                                             --------   --------

Commitments and contingencies (Note 3, 4 and 5)

Stockholder's equity:
  Common stock authorized - 1,000
    shares, par value $.01 per share;
    issued and outstanding 100 shares ....................       --         --
  Additional paid-in capital .............................      5,811      5,366
  Retained earnings ......................................      7,607      7,732
                                                             --------   --------
    Total stockholder's equity ...........................     13,418     13,098
                                                             --------   --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ...............   $570,503   $540,580
                                                             ========   ========

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

                                      -34-

<PAGE>

                         SALTON SEA FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)

                                              2002        2001        2000
                                            --------    --------    -------
REVENUE:
  Interest income .......................   $ 39,938    $ 41,389    $43,128
  Equity in earnings (loss) of Guarantors       (183)        402        590
                                            --------    --------    -------
    Total revenue .......................     39,755      41,791     43,718
COSTS AND EXPENSES:
  General and administrative expenses ...        720       1,089        971
  Interest expense ......................     38,891      40,765     42,452
                                            --------    --------    -------
    Total costs and expenses ............     39,611      41,854     43,423
                                            --------    --------    -------
INCOME (LOSS) BEFORE INCOME TAXES .......        144         (63)       295
  Provision (benefit) for income taxes ..         59         (26)       121
                                            --------    --------    -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
  OF CHANGE IN ACCOUNTING PRINCIPLE .....         85         (37)       174
Cumulative effect of change in accounting
  principle, (Note 2) ...................       (210)       (100)      --
                                            --------    --------    -------
NET INCOME (LOSS) .......................   $   (125)   $   (137)   $   174
                                            ========    ========    =======

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

                                      -35-
<PAGE>

                         SALTON SEA FUNDING CORPORATION
                       STATEMENTS OF STOCKHOLDER'S EQUITY
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                  (Amounts in thousands, except share amounts)
<TABLE>
<CAPTION>

                                           COMMON STOCK     ADDITIONAL
                                        ------------------    PAID-IN    RETAINED     TOTAL
                                        SHARES     AMOUNT     CAPITAL    EARNINGS      EQUITY
                                        -------    -------  ----------   --------     --------

<S>                                     <C>        <C>        <C>        <C>         <C>
Balance, January 1, 2000 ...........        100    $  --      $ 5,366    $ 7,695     $ 13,061

  Net income .......................       --         --         --          174          174
                                        -------    -------    -------    -------     --------

BALANCE, DECEMBER 31, 2000 .........        100       --        5,366      7,869       13,235

  Net loss .........................       --         --         --         (137)        (137)
                                        -------    -------    -------    -------     --------

BALANCE, DECEMBER 31, 2001 .........        100       --        5,366      7,732       13,098

  Net loss .........................       --         --         --         (125)        (125)

  Adjustments resulting from capital
    transactions of Guarantors .....       --         --          445       --            445
                                        -------    -------    -------    -------     --------

BALANCE, DECEMBER 31, 2002 .........        100    $  --      $ 5,811    $ 7,607     $ 13,418
                                        =======    =======    =======    =======     ========
</TABLE>

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

                                      -36-
<PAGE>
                         SALTON SEA FUNDING CORPORATION
                            STATEMENTS OF CASH FLOWS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                         2002         2001         2000
                                                       --------     --------     --------

<S>                                                    <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................    $   (125)    $   (137)    $    174
  Adjustments to reconcile net income (loss) to net
    cash flows from operating activities -
    Equity in loss (earnings) of Guarantors .......         393         (232)        (590)
  Changes in assets and liabilities:
    Prepaid expenses and other assets .............         123          212           54
    Accrued liabilities ...........................        (177)        (146)        (128)
                                                       --------     --------     --------
      Net cash flows from operating activities ....         214         (303)        (490)
                                                       --------     --------     --------
CASH FLOWS FROM INVESTING ACTIVITIES -
  Principal repayments of secured project note
    from Guarantors ...............................      28,572       23,658       25,072
                                                       --------     --------     --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayment of senior secured
    notes and bonds ...............................     (28,572)     (23,658)     (25,072)
  Increase in restricted cash .....................     (43,344)      (2,949)        --
  Due to affiliates ...............................      58,352         (854)       6,871
                                                       --------     --------     --------
    Net cash flows from financing activities ......     (13,564)     (27,461)     (18,201)
                                                       --------     --------     --------
NET CHANGE IN CASH ................................      15,222       (4,106)       6,381
Cash at the beginning of year .....................       4,361        8,467        2,086
                                                       --------     --------     --------
CASH AT THE END OF YEAR ...........................    $ 19,583     $  4,361     $  8,467
                                                       ========     ========     ========
SUPPLEMENTAL DISCLOSURE:
  Interest paid ...................................    $ 39,058     $ 40,911     $ 42,580
                                                       ========     ========     ========
  Income taxes paid ...............................    $     36     $   --       $    121
                                                       ========     ========     ========
</TABLE>

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

                                      -37-

<PAGE>


                         SALTON SEA FUNDING CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

1.  ORGANIZATION AND OPERATIONS

Salton Sea Funding Corporation (the "Funding Corporation"),  which was formed on
June 20, 1995, is a special purpose  Delaware  corporation and was organized for
the sole purpose of acting as issuer of senior secured notes and bonds.  On July
21, 1995,  June 20, 1996 and October 31, 1998,  the Funding  Corporation  issued
$475 million,  $135 million and $285 million,  respectively,  of Senior  Secured
Notes and Bonds (collectively, the "Securities").

The Funding Corporation is a wholly-owned subsidiary of Magma Power Company (the
"Company"),  which in turn  was  wholly-owned  by  MidAmerican  Energy  Holdings
Company  ("MEHC").  On  February  8, 1999,  MEHC  created a new  subsidiary,  CE
Generation  and  subsequently  transferred  its  interest in the Company and its
power  generation  assets  in the  Imperial  Valley to CE  Generation,  LLC ("CE
Generation"), with certain assets being retained by MEHC. On March 3, 1999, MEHC
closed the sale of 50% of its ownership interests in CE Generation to El Paso CE
Generation  Holding Company,  which was ultimately  merged into El Paso Merchant
Energy  North  America  Company  ("EPME"),  an  indirect  subsidiary  of El Paso
Corporation.

The  Securities  are payable from the proceeds of payments made of principal and
interest  on the  Secured  Project  Notes  from the  Guarantors  to the  Funding
Corporation.  The Securities are also guaranteed on a joint and several basis by
the Salton Sea Guarantors,  the  Partnership  Guarantors and Salton Sea Royalty,
LLC  (collectively  the  "Guarantors").  The  Guarantors are affiliates of Magma
Power Company and the Salton Sea Funding  Corporation who  collectively  own ten
operating  geothermal  power plants and a related zinc recovery plant located in
Imperial Valley,  California.  The guarantees of the Partnership  Guarantors and
the  Royalty   Guarantor  are  limited  to  available  cash  flow.  The  Funding
Corporation does not conduct any operations apart from issuing the Securities.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Restricted Cash
---------------

The  restricted  cash balance is composed of a debt service fund that is legally
restricted  as to its use and requires  the  maintenance  of a specific  minimum
balance.

Overhaul and Well Rework Costs
------------------------------

During 2001 the Guarantors changed their accounting policy for overhaul and well
rework costs.  These costs,  which had historically been accounted for using the
deferral method,  are now expensed as incurred.  The new policy went into effect
January 1, 2001, and during 2001, the Funding Corporation  recorded its share of
the Guarantors'  cumulative effect of this change of approximately $0.1 million,
net of tax.

Investment in Guarantors
------------------------

Since the Funding  Corporation has the ability to assert  significant  influence
over  the  operations  of the  Guarantors,  it  accounts  for  its  one  percent
investment in the Guarantors using the equity method of accounting.

Excess of Cost over Fair Value of Net Assets Acquired
-----------------------------------------------------

On January 1, 2002,  the Funding  Corporation  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS") No. 142,  "Goodwill and Other Intangible Assets"
("SFAS 142"),  which  establishes the accounting for acquired goodwill and other
intangible assets and provides goodwill and  indefinite-lived  intangible assets
will not be amortized, but will be tested for impairment on an annual basis. The
Funding  Corporation's  related amortization consists solely of its share of the
goodwill amortization at the Guarantors, which has no income tax effect.

In accordance  with SFAS 142, the Guarantors  have  determined  their  reporting
units and completed their transitional  impairment and annual impairment testing
of goodwill in the second and fourth quarters,  respectively,  primarily using a
discounted  cash flow  methodology  as of January 1, 2002 and October 31,  2002,
respectively.  The  results  of  the  transitional  impairment  tests  indicated
goodwill  impairment at the Salton Sea and  Partnership  Guarantors.  During the
fourth  quarter,  the  Salton  Sea  Guarantors  and the  Partnership  Guarantors
completed their  assessment of the implied fair value of goodwill.  As a result,
an  impairment of goodwill was  recognized  as a cumulative  effect of change in

                                      -38-
<PAGE>

accounting principle of $21.0 million at the Salton Sea Guarantors as of January
1,  2002.  However,  as a  result  of this  test,  no  goodwill  impairment  was
recognized at the  Partnership  Guarantors as of January 1, 2002.  Additionally,
the Guarantors annual goodwill impairment tests indicated no goodwill impairment
existed at October 31, 2002. The Funding  Corporation  recorded its share of the
Guarantors' cumulative effect of this change of approximately $0.2 million as of
January 1,  2002.  Following  is a  reconciliation  of net income as  originally
reported for the years ended  December 31, 2002,  2001 and 2000, to adjusted net
income (in thousands):

                                              2002      2001     2000
                                             -----     -----     ----
           Reported net income (loss) ...    $(125)    $(137)    $174
           Goodwill amortization ........     --          57       57
           Cumulative effect of change in
           accounting principle .........      210      --        --
                                             -----     -----     ----

           Adjusted net income (loss) ...    $  85     $ (80)    $231
                                             =====     =====     ====

Fair Values of Financial Instruments
------------------------------------

Fair values have been  estimated  based on quoted  market prices for debt issues
listed on exchanges.  Fair values of financial instruments that are not actively
traded  are  based on market  prices of  similar  instruments  and/or  valuation
techniques using market assumptions.  Unless otherwise noted, the estimated fair
value amounts do not differ significantly from recorded values.

Income Taxes
------------

The Funding  Corporation is included in the consolidated income tax returns with
its parent and affiliates. Income taxes are provided on a separate return basis;
however,  tax  obligations  of the Funding  Corporation  will be remitted to the
parent only to the extent of cash flows available  after operating  expenses and
debt service.

Reclassifications
-----------------

Certain reclassifications were made to the 2001 and 2000 financial statements to
conform to the 2002 presentation.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements
-----------------------------

In August 2001,  the FASB issued  Statement of  Financial  Accounting  Standards
("SFAS") No. 143,  "Accounting for Asset Retirement  Obligations"  ("SFAS 143").
This statement  provides  accounting and disclosure  requirements for retirement
obligations  associated with long-lived assets and is effective January 1, 2003.
This statement requires that the present value of retirement costs for which the
Funding  Corporation has a legal  obligation be recorded as liabilities  with an
equivalent  amount added to the asset cost and  depreciated  over an appropriate
period.  The liability is then accreted over time by applying an interest method
of  allocation  to  the   liability.   Cumulative   accretion  and   accumulated
depreciation  will be recognized for the time period from the date the liability
would have been  recognized had the provisions of this statement been in effect,
to the date of adoption of this  statement.  The  Funding  Corporation  does not
expect  the  adoption  of SFAS 143 to have a  material  effect on its  financial
position, results of operations or cash flows.

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions  of FIN 45 are effective  for any  guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are

                                      -39-
<PAGE>

effective for financial  statements  of interim or annual  periods  ending after
December 15, 2002. The Funding  Corporation  does not expect the adoption of FIN
45 will have a material effect on its financial position, results of operations,
or cash flows.

3.  SENIOR SECURED NOTES AND BONDS

The Funding Corporation's debt securities (the "Notes and Bonds") are as follows
(in thousands):


                   SENIOR                                        DECEMBER 31,
                   SECURED                                   -------------------
  Date issued      SECURITIES  FINAL MATURITY DATE   RATE      2002       2001
----------------   ----------  -------------------  ------   --------   --------

July 21, 1995      B Bonds     May 30, 2005         7.370%   $ 56,662   $ 79,360
July 21, 1995      C Bonds     May 30, 2010         7.840%    109,250    109,250
June 20, 1996      E Bonds     May 30, 2011         8.300%     46,322     47,922
October 13, 1998   F Bonds     November 30, 2018    7.475%    279,444    283,718
                                                             --------   --------
                                                             $491,678   $520,250
                                                             ========   ========

Principal and interest payments are made in semi-annual installments.  Principal
maturities of the Senior Secured Notes and Bonds are as follows (in thousands):

                                           AMOUNT
                                          --------

                             2003......   $ 28,086
                             2004......     30,588
                             2005......     30,374
                             2006......     27,744
                             2007......     26,146
                             Thereafter    348,740
                                          --------
                             Total        $491,678
                                          ========

On October 13,  1998,  Funding  Corporation  completed  a sale to  institutional
investors of $285.0 million  aggregate  amount of 7.475% Senior Secured Series F
bonds due November  30,  2018.  A portion of the proceeds  were used to fund the
cost of construction of, and was advanced to, the Zinc Recovery  Project,  which
is  indirectly  100% owned by Salton Sea Minerals  Corp.,  a MEHC  affiliate not
owned by CE Generation. The direct and indirect owners of the Zinc Facility (the
"Zinc  Guarantors",  which include  Salton Sea Minerals  Corp. and Minerals) are
among the  guarantors of the Funding  Corporation  debt. In connection  with the
divestiture  of CE  Generation in 1999 MEHC  guaranteed  the payment by the Zinc
Guarantors of a specified  portion of the scheduled debt service on the Imperial
Valley Project Loans  including the current  principal  amount of  approximately
$137.8 million.

Pursuant to a  depository  agreement,  Funding  Corporation  established  a debt
service  reserve  fund in the form of a letter of credit in the  amount of $67.6
million from which  scheduled  interest and principal  payments  could have been
made.  The letter of credit has not been  renewed.  The Funding  Corporation  is
restricted  from making  distributions  until it has reserved $67.6 million as a
debt service reserve fund.

The estimated  fair values of the Senior Secured Notes and Bonds at December 31,
2002 and 2001 were $464.6 million and $478.8 million, respectively.

4. CONTINGENCY

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

                                      -40-
<PAGE>

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation has not been
extended  beyond  its  current  July  2004  expiration  date,  and as such  cash
distributions  are not available to CE Generation until the Funding  Corporation
debt service reserve fund of approximately  $67.6 million has been funded or the
letter of credit  has been  extended  beyond  its July 2004  expiration  date or
replaced. The fund has a cash balance of $46.3 million as of December 31, 2002.

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

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $3.9  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 2001 certain  Guarantors  filed a
lawsuit against Edison in California's  Imperial County Superior Court seeking a
court order requiring Edison to make the required  capacity bonus payments under
the Power Purchase  Agreements.  Due to Edison's  failure to pay the contractual
obligations,  certain  Guarantors  have  established  an allowance  for doubtful
accounts of  approximately  $2.7 million as of December  31,  2002.  The Project
entities are vigorously pursuing collection of the capacity bonus payments.

On March 25,  2002,  Salton Sea II's 10 MW turbine went out of service due to an
uncontrollable force event. Such uncontrollable force event ended and Salton Sea
II returned to service on December 17, 2002.  Edison has failed to recognize the
uncontrollable  force event and, as such, has not paid amounts otherwise due and
owing, and has improperly  derated Salton Sea II from 15 MW to 12.5 MW under the
Salton Sea II power purchase agreement.

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V and CE Turbo  Projects  have not received  payment for
power sold under the  Transaction  Agreements  during  December 2000 and January
2001 of approximately $3.8 million. The Guarantors have established an allowance
for doubtful accounts for the full amount of this receivable.

5. REVOLVING CREDIT AGREEMENT

In connection with the issuance of the Notes and Bonds, the Funding  Corporation
also obtained a $15 million seven-year revolving credit agreement between Credit
Suisse as bank and agent and other lenders. The interest rate is at the Adjusted
Base Rate plus .375% or at the LIBOR rate plus 100 basis  points.  There were no
borrowings outstanding as of December 31, 2002 or 2001.

6. SUBSEQUENT EVENTS

On January 29, 2003,  EPME sold all its interest in CE  Generation  to TransAlta
USA Inc. ("TransAlta"), an affiliate of TransAlta Corporation.

                                      -41-

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska

     We have audited the accompanying  combined balance sheets of the Salton Sea
Guarantors as of December 31, 2002 and 2001, and the related combined statements
of operations,  Guarantors' equity and cash flows for each of the three years in
the period ended December 31, 2002. The combined  financial  statements  include
the  accounts  of the  companies  discussed  in Note 1,  which are under  common
ownership  and  management.  Our audits also  included  the  combined  financial
statement  schedule listed in Item 15. These financial  statements and financial
statement  schedule  are  the  responsibility  of  the  Salton  Sea  Guarantors'
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and financial statement schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  such combined financial  statements present fairly, in all
material respects,  the combined financial position of the Salton Sea Guarantors
as of December  31, 2002 and 2001 and the combined  results of their  operations
and their  combined  cash flows for each of the three years in the period  ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United  States of America.  Also in our  opinion,  such  combined  financial
statement schedule,  when considered in relation to the basic combined financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

     As discussed in Note 2 to the combined  financial  statements,  in 2002 the
Salton Sea  Guarantors  changed their  accounting  policy for goodwill and other
intangible assets and in 2001 the Salton Sea Guarantors changed their accounting
policy for overhaul and well rework costs.


/s/ Deloitee & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 24, 2003 (January 29, 2003 as to Note 7)

                                      -42-
<PAGE>

                              SALTON SEA GUARANTORS
                             COMBINED BALANCE SHEETS
                        AS OF DECEMBER 31, 2002 AND 2001
                             (Amounts in thousands)

                                                               2002       2001
                                                             --------   --------

                                     ASSETS
Current assets:
  Accounts receivable, net of allowance of $3,800
    and $9,829, respectively .............................   $ 20,524   $ 36,647
  Prepaid expenses and other assets ......................      5,283      5,314
                                                             --------   --------
    Total current assets .................................     25,807     41,961
                                                             --------   --------
Properties, plants, contracts and equipment, net .........    535,220    543,719
Excess of cost over fair value of net assets acquired ....     23,252     44,270
                                                             --------   --------
TOTAL ASSETS .............................................   $584,279   $629,950
                                                             ========   ========

                       LIABILITIES AND GUARANTORS' EQUITY
Current liabilities:
  Accounts payable .......................................   $    328   $  2,862
  Accrued liabilities ....................................     13,897     11,135
  Current portion of long-term debt ......................     22,765     20,487
                                                             --------   --------
    Total current liabilities ............................     36,990     34,484
                                                             --------   --------
Due to affiliates ........................................     35,665     27,109
Senior secured project note ..............................    223,654    246,412
                                                             --------   --------
  Total liabilities ......................................    296,309    308,005
                                                             --------   --------

Commitments and contingencies (Notes 4, 5 and 6)

Guarantors' equity .......................................    287,970    321,945
                                                             --------   --------
TOTAL LIABILITIES AND GUARANTORS' EQUITY .................   $584,279   $629,950
                                                             ========   ========

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

                                      -43-
<PAGE>

                              SALTON SEA GUARANTORS
                        COMBINED STATEMENTS OF OPERATIONS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                                 2002         2001         2000
                                                               ---------    ---------    --------
<S>                                                            <C>          <C>          <C>
REVENUE:
  Operating revenue ........................................   $  84,176    $ 110,941    $ 98,057
  Interest and other income ................................       3,717        2,287         353
                                                               ---------    ---------    --------
    Total revenue ..........................................      87,893      113,228      98,410
                                                               ---------    ---------    --------
COSTS AND EXPENSES:
  Royalty, operating, general and administrative expense ...      59,234       61,568      40,804
  Depreciation and amortization ............................      21,195       17,332      16,016
  Interest expense .........................................      20,421       21,827      23,075
  Less capitalized interest ................................        --         (1,692)     (9,808)
  Asset impairment .........................................        --         15,000        --
                                                               ---------    ---------    --------
    Total costs and expenses ...............................     100,850      114,035      70,087
                                                               ---------    ---------    --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
  OF CHANGE IN ACCOUNTING PRINCIPLE ........................     (12,957)        (807)     28,323
Cumulative effect of change in accounting principle (Note 2)     (21,018)      (8,743)       --
                                                               ---------    ---------    --------
NET INCOME (LOSS) ..........................................   $ (33,975)   $  (9,550)   $ 28,323
                                                               =========    =========    ========
</TABLE>

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


<PAGE>

                              SALTON SEA GUARANTORS
                    COMBINED STATEMENTS OF GUARANTORS' EQUITY
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)

                                                    Amount
                                                   ---------

                  BALANCE, JANUARY 1, 2000 .....   $ 303,172

                    Net income .................      28,323
                                                   ---------

                  BALANCE, DECEMBER 31, 2000 ...     331,495

                    Net  loss ..................      (9,550)
                                                   ---------

                  BALANCE, DECEMBER 31, 2001 ...     321,945

                    Net  loss ..................     (33,975)

                                                   ---------
                  BALANCE, DECEMBER 31, 2002 ...   $ 287,970
                                                   =========

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

                                      -45-

<PAGE>

                              SALTON SEA GUARANTORS
                        COMBINED STATEMENTS OF CASH FLOWS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                          2002        2001        2000
                                                        --------    --------    --------

<S>                                                     <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss) .................................   $(33,975)   $ (9,550)   $ 28,323
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation and amortization ...................     21,195      17,332      16,016
    Asset Impairment ................................       --        15,000        --
    Cumulative effect of change in
      accounting principle ..........................     21,018       8,743        --
    Changes in assets and liabilities:
      Accounts receivable, net ......................     16,123     (12,251)    (12,859)
      Prepaid expenses and other assets .............         31      (5,358)      2,996
      Accounts payable and accrued liabilities ......        228          63       2,936
                                                        --------    --------    --------
        Net cash flows from operating activities ....     24,620      13,979      37,412
                                                        --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures ..............................    (12,696)    (10,468)    (10,148)
  Construction in progress ..........................       --          --       (18,238)
  Decrease in restricted cash .......................       --            17       9,984
                                                        --------    --------    --------
    Net cash flows from investing activities ........    (12,696)    (10,451)    (18,402)
                                                        --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments of senior secured project note .........    (20,480)    (17,318)     (9,737)
  Due to affiliates .................................      8,556      13,790      (9,273)
                                                        --------    --------    --------
    Net cash flows from financing activities ........    (11,924)     (3,528)    (19,010)
                                                        --------    --------    --------
NET CHANGE IN CASH ..................................       --          --          --
Cash at beginning of year ...........................       --          --          --
                                                        --------    --------    --------
CASH AT END OF YEAR .................................   $   --      $   --      $   --
                                                        ========    ========    ========
SUPPLEMENTAL DISCLOSURE -
  Cash paid for interest, net of capitalized interest   $ 19,893    $ 19,536    $ 12,063
                                                        ========    ========    ========
</TABLE>

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

                                      -46-
<PAGE>

                              SALTON SEA GUARANTORS
                     NOTES TO COMBINED FINANCIAL STATEMENTS

1.  ORGANIZATION AND OPERATIONS

Salton Sea Guarantors (the "Guarantors") (not a legal entity) own 100% interests
in five operating geothermal electric power generating plants (Salton Sea I, II,
III, IV and V)  (collectively,  the "Salton Sea Projects").  All five plants are
located  in the  Imperial  Valley  of  California.  The  Salton  Sea  Guarantors
guarantee loans from Salton Sea Funding Corporation ("Funding Corporation"),  an
indirect wholly-owned subsidiary of Magma Power Company ("Magma"), which in turn
was wholly-owned by MidAmerican Energy Holdings Company ("MEHC").

On February 8, 1999,  MEHC created a new  subsidiary,  CE  Generation,  LLC ("CE
Generation")  and  subsequently  transferred its interest in Magma and its power
generation  assets in the Imperial Valley to CE Generation,  with certain assets
being  retained  by MEHC.  On March 3, 1999,  MEHC closed the sale of 50% of its
ownership  interests in CE Generation to El Paso CE Generation  Holding Company,
which was ultimately  merged into El Paso Merchant  Energy North America Company
("EPME"), an indirect subsidiary of El Paso Corporation ("El Paso").

The  financial  statements  consist of the  combination  of (1) Salton Sea Brine
Processing,  L.P.,  a  California  limited  partnership  between  Magma as a 99%
limited partner and Salton Sea Power Company ("SSPC"), a wholly-owned subsidiary
of Magma,  as a 1% general  partner,  (2) Salton Sea Power  Generation,  L.P., a
California limited partnership  between Salton Sea Brine Processing,  L.P., as a
99% limited partner,  and Salton Sea Power Company, as a 1% general partner, (3)
assets  and  liabilities  attributable  to  Salton  Sea IV which are held 99% by
Salton Sea Power  Generation,  L.P. and 1% by Fish Lake Power LLC and (4) Salton
Sea Power L.L.C., a Delaware limited liability company. Funding Corporation owns
1%  interests  in Salton Sea Power  Company and Fish Lake Power LLC.  All of the
entities in the combination are affiliates of Magma and indirect subsidiaries of
CE Generation.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Restricted Cash
---------------

The restricted cash balance primarily  includes  commercial paper,  money market
securities and mortgage backed  securities and is composed of amounts  deposited
in  restricted  accounts,   which  the  Guarantors  will  use  to  fund  capital
expenditures and debt service obligations.

Allowance for Doubtful Accounts
-------------------------------

The allowance for doubtful  accounts is based on the  Guarantors'  assessment of
the  collectibility  of specific customer accounts and the aging of the accounts
receivable.  If there is a deterioration of a major customer's credit worthiness
or actual  defaults  are  higher  than the  Guarantors'  historical  experience,
estimates of the recoverability of amounts due could be adversely affected.

Properties, Plants, Contracts and Equipment
-------------------------------------------

Properties, plants, contracts and equipment are carried at cost less accumulated
depreciation.   The  Guarantors   provide   depreciation   and  amortization  of
properties,  plants,  contracts and equipment upon the  commencement  of revenue
production over the estimated useful life of the assets.

Depreciation  of the  operating  power plant  costs,  net of salvage  value,  is
computed on the straight-line method over the estimated useful lives, between 10
and 30 years.  Depreciation of furniture,  fixtures and equipment is computed on
the straight-line  method over the estimated useful lives of the related assets,
which range from 3 to 10 years.

Power sale agreements  have been assigned values  separately for each of (1) the
remaining  portion of the fixed price periods of the power sales  agreements and
(2) the 20-year avoided cost periods of the power sales agreements and are being
amortized separately over such periods using the straight-line method.

The Salton Sea reservoir contains commercial quantities of extractable minerals.
The carrying value of the mineral  reserves are being  amortized  based upon the
units of production method.

                                      -47-
<PAGE>

Capitalization of Interest and Deferred Financing Costs
-------------------------------------------------------

Prior to the commencement of operations, interest is capitalized on the costs of
the  plants  and  geothermal  resource   development  to  the  extent  incurred.
Capitalized  interest and other deferred charges are amortized over the lives of
the related assets.

Deferred  financing  costs are amortized over the term of the related  financing
using the effective interest method.

 Overhaul and Well Rework Costs
 ------------------------------

 During 2001, the Guarantors  changed their  accounting  policy for the overhaul
 and well rework costs.  These costs,  which had historically been accounted for
 using the deferral  method,  are now expensed as incurred.  The new policy went
 into  effect  January  1, 2001 and  during  2001,  the  Guarantors  recorded  a
 cumulative  effect  of  this  change  of  approximately  $8.7  million.  If the
 Guarantors  had adopted the policy as of January 1, 2000, net income would have
 been $1.1 million lower in 2000 on a proforma basis.

Impairment of Long-Lived Assets
-------------------------------

The Guarantors  evaluate  long-lived  assets for impairment  whenever  events or
changes in  circumstances  indicate the  carrying  amount of an asset may not be
recoverable.  Triggering  events  include a significant  change in the extent or
manner in which long-lived  assets are being used or in its physical  condition,
in legal factors,  or in the business climate that could affect the value of the
long-lived assets,  including changes in regulation.  The interpretation of such
events  requires  judgment  from  management  as to  whether  such an event  has
occurred  and is  required.  If an event  occurs that could  effect the carrying
value of the asset and  management  does not identify it as a triggering  event,
future results of operations could be significantly affected.

Upon the occurrence of a triggering  event,  the carrying amount of a long-lived
asset is reviewed to assess  whether the  recoverable  amount has declined below
its carrying  amount.  The  recoverable  amount is the estimated net future cash
flows that the  Guarantors  expect to recover  from the future use of the asset,
undiscounted and without interest,  plus the asset's residual value on disposal.
Where the recoverable  amount of the long-lived  asset is less than the carrying
value,  an  impairment  loss would be  recognized to write down the asset to its
fair value,  which is based on discounted  estimated  cash flows from the future
use of the asset.

The  estimated  cash flows arising from future use of the asset that are used in
the impairment  analysis requires  judgment  regarding what the Guarantors would
expect to recover from future use of the asset.  Any changes in the estimates of
cash flows  arising  from future use of the asset or the  residual  value of the
asset on disposal based on changes in the market conditions,  changes in the use
of the assets,  management's  plans, the determination of the useful life of the
assets and  technology  change in the industry  could  significantly  change the
calculation  of the fair  value  or  recoverable  amount  of the  asset  and the
resulting  impairment  loss,  which  could  significantly  affect the results of
operations.

Fair Values of Financial Instruments
------------------------------------

Fair values have been  estimated  based on quoted  market prices for debt issues
listed on exchanges.  Fair values of financial instruments that are not actively
traded  are  based on market  prices of  similar  instruments  and/or  valuation
techniques using market assumptions.  Unless otherwise noted, the estimated fair
value amounts do not differ significantly from recorded values.

Excess of Cost over Fair Value of Net Assets Acquired
-----------------------------------------------------

On January 1, 2002, the  Guarantors  adopted  Statement of Financial  Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
which  establishes  the  accounting for acquired  goodwill and other  intangible
assets, and provides that goodwill and  indefinite-lived  intangible assets will
not be amortized,  but will be tested for  impairment  on an annual  basis.  The
Guarantors' related amortization consists solely of goodwill amortization, which
has no income tax effect.

The Guarantors'  acquired  intangible assets consist of power purchase contracts
(the "contracts") with a cost of $33.4 million and $33.4 million and accumulated
amortization  of $8.8  million and $7.6  million at December  31, 2002 and 2001,
respectively.  Amortization  expense on the  contracts  was $1.2 million for the
year ended December 31, 2002. the Guarantors' expect amortization expense on the
contracts to be $1.2 million for each of the five succeeding fiscal years.

                                      -48-
<PAGE>

In accordance with the SFAS No. 142, the Guarantors completed their transitional
impairment and annual goodwill impairment test of goodwill during the second and
fourth  quarters of 2002,  respectively,  primarily using a discounted cash flow
methodology  as of January  1, 2002 and  October  31,  2002,  respectively.  The
transitional  impairment test indicated a potential  goodwill  impairment at the
Guarantors. During the fourth quarter, the Guarantors completed their assessment
of the implied fair value of goodwill.  As a result,  an  impairment of goodwill
was recognized as a cumulative effect of change in accounting principle of $21.0
million as of January 1, 2002.  Additionally,  the  Guarantors  annual  goodwill
impairment tests indicated no goodwill  impairment  existed at October 31, 2002.
Following is a reconciliation of net income as originally reported for the years
ended December 31, 2002, 2001 and 2000, to adjusted net income (in thousands):

                                           2002        2001       2000
                                         --------    -------    --------
        Reported net income (loss) ...   $(33,975)   $(9,550)   $28,323
        Goodwill amortization ........       --        1,304      1,304
        Cumulative effect of change in
        accounting principle .........     21,018       --         --
                                         --------    -------    -------
        Adjusted net income (loss) ...   $(12,957)   $(8,246)   $29,627
                                         ========    =======    =======

Contingent Liabilities
----------------------

The  Guarantors  are subject to the  possibility  of various loss  contingencies
arising  in the  ordinary  course  of  business.  The  Guarantors  consider  the
likelihood  of the  loss  or  impairment  of an  asset  or the  incurrence  of a
liability  as well as the ability to  reasonably  estimate the amount of loss in
determining loss contingencies. An estimated loss contingency is accrued when it
is probable that a liability has been incurred or an asset has been impaired and
the  amount  of loss  can be  reasonably  estimated.  The  Guarantors  regularly
evaluate current information available to determine whether such accruals should
be adjusted.

Revenue Recognition
-------------------

The Guarantors  recognize revenue and related accounts  receivable from sales of
electricity on an accrual basis.  All of the  Guarantors'  sales of electricity,
except for Salton Sea V, are to Southern  California  Edison Company  ("Edison")
under long-term power purchase contracts.

Each of the Salton Sea Projects,  except for Salton Sea V, sells  electricity to
Edison pursuant to a separate Standard Offer No. 4 Agreement ("SO4  Agreements")
or a negotiated  power  purchase  agreement.  Each power  purchase  agreement is
independent of the others, and the performance requirements specified within one
such  agreement  apply only to the Project,  which is subject to the  agreement.
These power purchase  agreements provide for capacity  payments,  capacity bonus
payments and energy payments. Edison makes 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.  Energy payments for
the SO4  Agreements  were at  increasing  fixed rates for the first ten years of
each  contract and  thereafter at a rate based on the cost that Edison avoids by
purchasing  energy from the project  instead of obtaining  the energy from other
sources  ("Avoided  Cost of Energy").  In June and November 2001, the Salton Sea
Projects which receive  Edison's  Avoided Cost of Energy entered into agreements
that provide for a fixed energy payment per kW-hour in lieu of Edison's  Avoided
Cost of Energy.  The fixed energy payments were 3.25 cents per kWh from December
1, 2001 through April 30, 2002 and 5.37 cents per kWh commencing May 1, 2002 for
a five-year period.  Following the five-year period,  the energy payment reverts
back to Edison's Avoided Cost of Energy.

For the years ended  December 31, 2002,  2001 and 2000,  respectively,  Edison's
Average  Avoided Cost of Energy was 3.5 cents per kWh, 7.4 cents per kWh and 5.8
cents per kWh, respectively. Estimates of Edison's future Avoided Cost of Energy
vary substantially from year to year.

The Salton Sea I Project  contracts to sell  electricity to Edison pursuant to a
30-year  negotiated  power purchase  agreement,  which commenced on July 1, 1987
(the "Salton Sea I PPA"). The contract capacity and contract  nameplate are each
10 megawatt  ("MW").  The capacity  payment is based on the firm capacity price,
which adjusts  quarterly based on a basket of energy indices for the term of the
Salton Sea I PPA and is  currently  $148 per kW-year.  The  capacity  payment is
approximately  $1.1 million per annum.  The energy payment is calculated using a
Base Price  (defined as the initial  value of the energy  payment (4.7 cents per
kWh for the second quarter of

                                      -49-
<PAGE>

1992)), which is subject to quarterly  adjustments based on a basket of indices.
The time period  weighted  average energy payment for Salton Sea I was 5.8 cents
per kWh during 2002. 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 Project  contracts to sell electricity to Edison pursuant to a
30-year  modified SO4 Agreement  that  commenced on April 5, 1990.  The contract
capacity and contract  nameplate are 15 MW (16.5 MW during on-peak  periods) and
20 MW, respectively. The price for contract capacity and contract capacity bonus
payments  is fixed for the life of the  modified  SO4  Agreement.  The  combined
annual capacity and bonus payments are  approximately  $3.3 million.  The energy
payments for the first ten-year  period,  which period expired on April 4, 2000,
were  levelized  at a time  period  weighted  average  of 10.6  cents  per  kWh.
Thereafter,  the monthly  energy  payment was based on Edison's  Avoided Cost of
Energy. Edison is entitled to receive, at no cost, 5% of all energy delivered in
excess of 80% of contract capacity through September 30, 2004.

The Salton Sea III Project contracts to sell electricity to Edison pursuant to a
30-year modified SO4 Agreement that commenced on February 13, 1989. The contract
capacity and contract nameplate are 47.5 MW and 49.8 MW, respectively. The price
for contract  capacity payments and capacity bonus payments is fixed at $175 per
kW-year.  The combined annual capacity and bonus payments are approximately $9.7
million. The energy payments for the first ten-year period, which period expired
on February 12, 1999,  were levelized at a time period  weighted  average of 9.8
cents per kWh. Thereafter, the energy payment was based on Edison's Avoided Cost
of Energy.

The Salton Sea IV Project  contracts to sell 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 I PPA option (20 MW) and to the
original  Salton Sea IV SO4  Agreement  ("Fish Lake PPA") (14 MW).  The capacity
payment  price for the 20 MW portion  adjusts  quarterly  based  upon  specified
indices  and  the  capacity  payment  price  for  the 14 MW  portion  is a fixed
levelized  rate.  The  capacity  included  bonus  payments  in  2002  that  were
approximately  $5.5 million.  The energy payment (for deliveries up to a rate of
39.6 MW) is at a base price adjusted  quarterly based upon specified indices 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.

The Salton Sea V Project,  which  commenced  operations  in the third quarter of
2000, expects to sell up to 22 MW of its net output to Minerals, a zinc facility
owned by a subsidiary of MEHC, pursuant to a 33-year Power Sales Agreement.  The
agreement  provides for energy payments based on prices  available to the Salton
Sea V project  for  short-term  sales of  electricity,  less  transmission  line
losses. The Salton Sea V Project sells its remaining output through other market
transactions.

Commencing  January  17,  2001,  Salton  Sea  Power  entered  into a  series  of
transaction  agreements to sell available power from Salton Sea V to EPME, under
which the purchase price was originally based on day ahead price quotes received
from EPME, and subsequently based on percentages of the Dow Jones SP-15 Index.

The Imperial  Valley  Projects,  other than Salton Sea I,  receive  transmission
service from the Imperial  Irrigation District ("IID") to deliver electricity to
Edison near  Mirage,  California.  These  projects pay a rate based on the IID's
cost of service,  which was $1.70 per month per kilowatt of service provided for
2002 and recalculated  annually.  The transmission  service and  interconnection
agreements expire in 2015 for the Partnership Projects, 2019 for Salton Sea III,
2020 for  Salton  Sea II and 2026 for  Salton  Sea IV. The Salton Sea V projects
entered into a 30-year  agreement  with similar  terms with the IID.  Salton Sea
Unit I delivers  energy to Edison at the  project  site and has no  transmission
service agreement with the IID.

Income Taxes
------------

The Guarantors are comprised substantially of partnership interests.  The income
or loss of each  partnership for income tax purposes,  along with any associated
tax credits, is the responsibility of the individual partners.  Accordingly,  no
recognition has been given to federal or state income taxes in the  accompanying
combined financial statements.

                                      -50-
<PAGE>
Statements of Cash Flows
------------------------

For purposes of the  statements  of cash flows,  the  Guarantors  consider  only
demand deposits at banks to be cash.

Reclassifications
-----------------

Certain reclassifications were made to the 2001 and 2000 financial statements to
conform to the 2002 presentation.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements
-----------------------------

In August 2001,  the FASB issued  Statement of  Financial  Accounting  Standards
("SFAS") No. 143,  "Accounting for Asset Retirement  Obligations"  ("SFAS 143").
This statement  provides  accounting and disclosure  requirements for retirement
obligations  associated with long-lived assets and is effective January 1, 2003.
This statement requires that the present value of retirement costs for which the
Guarantors have a legal obligation be recorded as liabilities with an equivalent
amount added to the asset cost and depreciated over an appropriate  period.  The
liability  is then  accreted  over  time  by  applying  an  interest  method  of
allocation to the liability.  Cumulative accretion and accumulated  depreciation
will be recognized  for the time period from the date the  liability  would have
been recognized had the provisions of this statement been in effect, to the date
of adoption of this statement. The Guarantors do not expect the adoption of SFAS
143 to have a material effect on its financial  position,  results of operations
or cash flows.

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions  of FIN 45 are effective  for any  guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial  statements  of interim or annual  periods  ending after  December 15,
2002.  The  Guarantors do not expect the adoption of FIN 45 will have a material
effect on its financial position, results of operations, or cash flows.

3.  PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT

Properties, plants, contracts and equipment as of December 31 are as follows (in
thousands):

                                                     2002         2001
                                                   ---------    ---------
     Cost:
       Plant and equipment .....................   $ 458,709    $ 446,107
       Power sale agreements ...................      33,446       33,446
       Mineral reserves ........................      91,811       91,811
       Wells and resource development ..........      63,975       63,881
                                                   ---------    ---------
                                                     647,941      635,245
     Accumulated depreciation and amortization .    (112,721)     (91,526)
                                                   ---------    ---------
                                                   $ 535,220    $ 543,719
                                                   =========    =========

The asset impairment in 2001 reflects the write off of the book value of a steam
turbine.  In 2001, the  Guarantors  made the decision to dispose of the turbine.
The  Guarantors  have  determined  that the the turbine,  which had been held in
storage for use in new  construction  at the Salton Sea Projects,  no longer had
any significant value.

                                      -51-

<PAGE>


4. SENIOR SECURED PROJECT NOTE

The  Guarantors'  project note payable to Funding  Corporation as of December 31
are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                   DECEMBER 31,
                     SENIOR                                      -------------------
                    SECURED
  Date issued      SECURITIES   FINAL MATURITY DATE     RATE       2002       2001
----------------   ----------   -------------------     ------   --------   --------

<S>                <C>          <C>                     <C>      <C>        <C>
July 21, 1995      B Bonds      May 30, 2005            7.370%   $ 55,520   $ 74,752
July 21, 1995      C Bonds      May 30, 2010            7.840%    109,250    109,250
October 13, 1998   F Bonds      November 30, 2018       7.475%     81,649     82,897
                                                                 --------   --------
                                                                 $246,419   $266,899
                                                                 ========   ========

</TABLE>

The Guarantors have also guaranteed,  along with other guarantors,  the debt of
Funding Corporation,  which amounted to $491.7 million at December 31, 2002. The
guarantee issued is  collateralized by a lien on substantially all the assets of
and a pledge of the equity  interests in the Guarantors.  The structure has been
designed to cross  collateralize  cash flows from each  guarantor  without cross
collateralizing all of the guarantors' assets.

Principal  maturities  of the senior  secured  project  note are as follows  (in
thousands):

                                               AMOUNT
                                             --------

                          2003............   $ 22,765
                          2004............     24,409
                          2005............     23,917
                          2006............     22,620
                          2007............     22,132
                          Thereafter .....    130,576
                                             --------
                          Total ..........   $246,419
                                             ========

The estimated fair values of the senior  secured  projects notes at December 31,
2002 and 2001 were $236.1 million and $253.0 million, respectively.

5.   RELATED PARTY TRANSACTIONS

The Guarantors have entered into the following agreements:

o    Amended and Restated Easement Grant Deed and Agreement Regarding Rights for
     Geothermal  Development  dated  February 23, 1994, as amended,  whereby the
     Guarantors acquired from Magma Land I, a wholly-owned  subsidiary of Magma,
     rights  to  extract  geothermal  brine  from the  geothermal  lease  rights
     property  which is  necessary  to operate the Salton Sea Power  Generation,
     L.P. facilities in return for 5% of all electricity revenue received by the
     Guarantors. The amount expensed for the years ended December 31, 2002, 2001
     and 2000 was $3.6 million, $4.4 million and $4.1 million, respectively.

o    Administrative  Services Agreement dated April 1, 1993 with Magma,  whereby
     Magma  will  provide   administrative   and  management   services  to  the
     Guarantors,  excluding Salton Sea IV and V. Fees payable to Magma amount to
     3% of total  electricity  revenue.  The amount expensed for the years ended
     December 31, 2002,  2001 and 2000 was $1.2  million,  $1.6 million and $1.4
     million, respectively.

o    Operating  and  Maintenance  Agreement  dated April 1, 1993 with  CalEnergy
     Operating  Corporation  ("CEOC"),  whereby  the  Guarantors  retain CEOC to
     operate the Salton Sea facilities for a period of 32 years. Payment is made
     to CEOC in the form of  reimbursements of expenses  incurred.  During 2002,
     2001  and  2000,  the  Guarantors  reimbursed  CEOC for  expenses  of $13.8
     million, $16.2 million and $7.4 million, respectively.

                                      -52-
<PAGE>

Commencing  January  17,  2001,  Salton  Sea  Power  entered  into a  series  of
transaction  agreements to sell available power from Salton Sea V to EPME, under
which the purchase price was originally based on day ahead price quotes received
from EPME, and subsequently based on percentages of the Dow Jones SP-15 Index.

Pursuant to these  agreements,  sales to EPME from the  Guarantors  totaled $7.3
million,  $53.4 million and $16.1 million in 2002, 2001 and 2000,  respectively.
As of  December  31,  2002 and  2001,  accounts  receivable  from EPME were $1.1
million and $11.8 million, respectively.

6.  CONTINGENCY

Edison is a public  utility  primarily  engaged  in the  business  of  supplying
electric  energy  to  retail  customers  in  Central  and  Southern  California,
excluding  Los  Angeles.  Due  to  reduced  liquidity,   Edison  failed  to  pay
approximately  $42.3  million  owed  under the power  purchase  agreements  with
certain  Guarantors  (Imperial  Valley  Projects,  excluding  the  Salton  Sea V
Project) for power  delivered in the fourth  quarter 2000 and the first  quarter
2001. Due to Edison's failure to pay contractual obligations, the Guarantors had
established an allowance for doubtful accounts of approximately  $6.8 million as
of December 31, 2001.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation has not been
extended  beyond  its  current  July  2004  expiration  date,  and as such  cash
distributions  are not available to CE Generation until the Funding  Corporation
debt service reserve fund of approximately  $67.6 million has been funded or the
letter of credit  has been  extended  beyond  its July 2004  expiration  date or
replaced. The fund has a cash balance of $46.3 million as of December 31, 2002.

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

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $1.1  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 2001 certain  Guarantors  (except
the  Salton  Sea V  Project)  filed a lawsuit  against  Edison  in  California's
Imperial County  Superior Court seeking a court order  requiring  Edison to make
the required capacity bonus payments under the Power Purchase Agreements. Due to
Edison's  failure to pay the contractual  obligations,  certain  Guarantors have
established an allowance for doubtful accounts of approximately  $0.8 million as
of December 31, 2002. The Project entities are vigorously pursuing collection of
the capacity bonus payments.

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

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the Salton Sea V Project has not received payment for power sold under
the   Transaction   Agreements   during   December  2000  and  January  2001  of
approximately  $3.0 million.  The Guarantors  have  established an allowance for
doubtful accounts for the full amount of this receivable.

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

The Salton Sea V Project  was  constructed  by Stone & Webster,  Inc.  (formerly
Stone & Webster Engineering Corporation),  a wholly-owned subsidiary of the Shaw
Group  ("Stone &  Webster"),  pursuant  to date  certain,  fixed-price,  turnkey
engineering,  procure,  construct and manage contract (the "Salton Sea V Project
EPC  Contract").  On March 7, 2002,  Salton Sea Power  L.L.C.,  the owner of the
Salton Sea V Project, filed a Demand for Arbitration against Stone & Webster for
breach of contract and breach of warranty  arising from  deficiencies in Stone &
Webster's design, engineering, construction and procurement of equipment for the
Salton Sea V Project  pursuant  to the Salton Sea V Project  EPC  Contract.  The
demand for arbitration did not include a stated claim amount.

The breach of contract  and breach of warranty  claims made by the owners of the
Salton Sea V Project are still  pending and the hearing is scheduled to commence
in April 2003.

                                      -53-
<PAGE>

Environmental Liabilities
-------------------------

The Guarantors are subject to numerous legislative and regulatory  environmental
protection  requirements  involving air and water pollution,  waste  management,
hazardous chemical use, noise abatement, and land use aesthetics.

State and federal  environmental laws and regulations currently have, and future
modifications  may  have,  the  effect of (i)  increasing  the lead time for the
construction of new facilities,  (ii) significantly increasing the total cost of
new  facilities,  (iii)  requiring  modification  of  the  Guarantors'  existing
facilities,  (iv)  increasing the risk of delay on  construction  projects,  (v)
increasing  the  Guarantors'  cost of  waste  disposal  and  (vi)  reducing  the
reliability  of  service  provided  by the  Guarantors  and the amount of energy
available  from the  Guarantors'  facilities.  Any of such  items  could  have a
substantial  impact on amounts  required to be expended by the Guarantors in the
future.  Expenditures for ongoing compliance with environmental regulations that
relate to  current  operations  are  expensed  or  capitalized  as  appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities   are  recorded  when   environmental   assessments   indicate  that
remediation  efforts are  probable  and the costs can be  reasonably  estimated.
Estimates of the liability are based upon currently  available  facts,  existing
technology and presently enacted laws and regulations  taking into consideration
the likely  effects of  inflation  and other social and  economic  factors,  and
include  estimates of associated legal costs.  These amounts also consider prior
experience in remediating sites, other companies'  clean-up  experience and data
released by the Environmental  Protection Agency or other  organizations.  These
estimated  liabilities are subject to revision in future periods based on actual
costs or new circumstances,  and are included in the accompanying balance sheets
at their  undiscounted  amounts.  As of December 31, 2002 and December 31, 2001,
the environmental liabilities recorded on the balance sheet were not material.

7.  SUBSEQUENT EVENTS

On January 29, 2003,  EPME sold all its interest in CE  Generation  to TransAlta
USA Inc.  ("TransAlta"),  an affiliate of TransAlta  Corporation.  Pursuant to a
Transaction  Agreement  dated  January 29, 2003,  Salton Sea Power began selling
power to TransAlta on February  12, 2003 based on  percentages  of the Dow Jones
SP-15 Index. Such agreement will expire on October 31, 2003.

                                      -54-

<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska

     We have audited the accompanying combined balance sheets of the Partnership
Guarantors as of December 31, 2002 and 2001, and the related combined statements
of operations,  Guarantors' equity and cash flows for each of the three years in
the period ended December 31, 2002. The combined  financial  statements  include
the  accounts  of the  companies  discussed  in Note 1,  which are under  common
ownership  and  management.  Our audits also  included  the  combined  financial
statement  schedule listed in Item 15. These financial  statements and financial
statement  schedule  are  the  responsibility  of  the  Partnership  Guarantors'
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and financial statement schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  such combined financial  statements present fairly, in all
material respects, the combined financial position of the Partnership Guarantors
as of December  31, 2002 and 2001 and the combined  results of their  operations
and their  combined  cash flows for each of the three years in the period  ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United  States of America.  Also in our  opinion,  such  combined  financial
statement schedule,  when considered in relation to the basic combined financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.

     As discussed in Note 2 to the combined  financial  statements,  in 2002 the
Partnership  Guarantors  changed their accounting  policy for goodwill and other
intangible  assets  and  in  2001  the  Partnership   Guarantors  changed  their
accounting policy for overhaul and well rework costs.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 24, 2003 (January 29, 2003 as to Note 9)

                                      -55-
<PAGE>

                             PARTNERSHIP GUARANTORS
                             COMBINED BALANCE SHEETS
                        AS OF DECEMBER 31, 2002 AND 2001
                (Amounts in thousands, except per share amounts)

                                                              2002       2001
                                                            --------   --------

                                     ASSETS
Current assets:
  Accounts receivable, net of allowance of $2,696
    and $14,925, respectively ...........................   $ 14,330   $ 59,384
  Prepaid expenses and other assets .....................     19,516     19,358
                                                            --------   --------
    Total current assets ................................     33,846     78,742
                                                            --------   --------
Restricted cash .........................................          1     21,282
Properties, plants, contracts and equipment, net ........    664,722    633,574
Management fee ..........................................     68,679     70,806
Due from affiliates .....................................     82,083     13,072
Excess of fair value over net assets acquired ...........    120,866    120,866
                                                            --------   --------
TOTAL ASSETS ............................................   $970,197   $938,342
                                                            ========   ========

                       LIABILITIES AND GUARANTORS' EQUITY
Current liabilities:
  Accounts payable ......................................   $  2,903   $  5,480
  Accrued liabilities ...................................     17,040     14,458
  Current portion of long-term debt .....................      5,017      4,625
                                                            --------   --------
    Total current liabilities ...........................     24,960     24,563
                                                            --------   --------
Senior secured project note .............................    239,099    244,117
Deferred income taxes ...................................    104,850    102,083
                                                            --------   --------
  Total liabilities .....................................    368,909    370,763
                                                            --------   --------

Commitments and contingencies (Notes 4, 5 and 8)

Guarantors' equity:
  Common stock ..........................................          3          3
  Additional paid-in capital ............................    432,200    387,663
  Retained earnings .....................................    169,085    179,913
                                                            --------   --------
    Total guarantors' equity ............................    601,288    567,579
                                                            --------   --------
TOTAL LIABILITIES AND GUARANTORS' EQUITY ................   $970,197   $938,342
                                                            ========   ========

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

                                      -56-

<PAGE>

                             PARTNERSHIP GUARANTORS
                        COMBINED STATEMENTS OF OPERATIONS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)
<TABLE>
<CAPTION>
                                                                2002         2001         2000
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
REVENUE:
  Operating revenue .......................................   $  94,697    $ 119,738    $ 103,250
  Interest and other income ...............................       1,743        6,580        4,934
                                                              ---------    ---------    ---------
    Total revenue .........................................      96,440      126,318      108,184
                                                              ---------    ---------    ---------
COSTS AND EXPENSES:
  Royalty, operating, general and administrative costs ....      88,048       62,749       52,996
  Depreciation and amortization ...........................      23,209       22,773       19,743
  Interest expense ........................................      19,975       19,330       20,092
  Less capitalized interest ...............................     (10,831)     (13,237)     (19,521)
                                                              ---------    ---------    ---------
    ToTotalocostsnandxexpenses ............................     120,401       91,615       73,310
                                                              ---------    ---------    ---------
INCOME (LOSS) BEFORE INCOME TAXES .........................     (23,961)      34,703       34,874
Provision (benefit) for income taxes ......................     (13,133)      11,728        7,694
                                                              ---------    ---------    ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
  OF ACCOUNTING CHANGE ....................................     (10,828)      22,975       27,180
Cumulative effect of accounting change, net of tax (Note 2)        --         (6,890)        --
                                                              ---------    ---------    ---------
NET INCOME (LOSS) .........................................   $ (10,828)   $  16,085    $  27,180
                                                              =========    =========    =========
</TABLE>

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

                                      -57-
<PAGE>

                             PARTNERSHIP GUARANTORS
                    COMBINED STATEMENTS OF GUARANTORS' EQUITY
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                  (Amounts in thousands, except share amounts)

<TABLE>
<CAPTION>
                                  COMMON STOCK    ADDITIONAL
                                ----------------   PAID-IN    RETAINED       TOTAL
                                SHARES    AMOUNT   CAPITAL    EARNINGS      EQUITY
                                -------   ------   --------   ---------    ---------

<S>                              <C>      <C>      <C>        <C>          <C>
Balance, January 1, 2000 .....        3   $    3   $387,663   $ 136,648    $ 524,314

    Net income ...............     --       --         --        27,180       27,180
                                 ------   ------   --------   ---------    ---------

BALANCE, DECEMBER 31, 2000 ...        3        3    387,663     163,828      551,494

    Net income ...............     --       --         --        16,085       16,085
                                 ------   ------   --------   ---------    ---------

BALANCE, DECEMBER 31, 2001 ...        3        3    387,663     179,913      567,579

    Net loss .................     --       --         --       (10,828)     (10,828)

    Equity contribution ......     --       --       44,537        --         44,537
                                 ------   ------   --------   ---------    ---------

BALANCE, DECEMBER 31, 2002 ...        3   $    3   $432,200   $ 169,085    $ 601,288
                                 ======   ======   ========   =========    =========
</TABLE>

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

                                      -58-
<PAGE>

                             PARTNERSHIP GUARANTORS
                        COMBINED STATEMENTS OF CASH FLOWS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                            2002        2001        2000
                                                          --------    --------    --------

<S>                                                       <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss) ...................................   $(10,828)   $ 16,085    $ 27,180
  Adjustments to reconcile net income (loss) to net
    cash provided by operating activities:
    Depreciation and amortization .....................     23,209      22,773      19,743
    Deferred income taxes .............................      2,767         725       2,827
    Cumulative effect of change in accounting
      principle, net of tax ...........................       --         6,890        --
    Changes in assets and liabilities:
      Accounts receivable .............................     45,054     (31,065)    (12,024)
      Prepaid expenses and other assets ...............       (962)     (4,326)     (4,461)
      Accounts payable and accrued liabilities ........          5       2,115         364
                                                          --------    --------    --------
        Net cash flows from operating activities ......     59,245      13,197      33,629
                                                          --------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures pertaining to operating projects     (7,425)    (17,871)    (42,349)
  Construction ........................................    (42,360)    (22,507)    (75,856)
  Liquidated damages ..................................       --        29,648        --
  Decrease (increase) in restricted cash ..............     21,281     (21,176)     60,348
  Management fee ......................................       (706)     (1,800)     (2,177)
                                                          --------    --------    --------
    Net cash flows from investing activities ..........    (29,210)    (33,706)    (60,034)
                                                          --------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments of senior secured project notes ..........     (4,626)     (1,908)    (10,562)
  Due from affiliates .................................    (69,946)     22,417      36,967
  Equity contribution .................................     44,537        --          --
                                                          --------    --------    --------
    Net cash flows from financing activities ..........    (30,035)     20,509      26,405
                                                          --------    --------    --------
NET CHANGE IN CASH ....................................       --          --          --
Cash at beginning of year .............................       --          --          --
                                                          --------    --------    --------
CASH AT THE END OF YEAR ...............................   $   --      $   --      $   --
                                                          ========    ========    ========
SUPPLEMENTAL DISCLOSURE:
  Cash paid for interest, net of capitalized interest .   $  8,066    $  5,863    $     89
                                                          ========    ========    ========
  Income taxes paid ...................................   $   --      $  9,460    $  4,867
                                                          ========    ========    ========
</TABLE>

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

                                      -59-
<PAGE>




                             PARTNERSHIP GUARANTORS
                     NOTES TO COMBINED FINANCIAL STATEMENTS

1.  ORGANIZATION AND OPERATIONS

The Partnership  Guarantors (the  "Guarantors") (not a legal entity) include the
Vulcan/BN   Geothermal  Power  Company  ("Vulcan"),   Elmore,  L.P.  ("Elmore"),
Leathers, L.P. ("Leathers"), Del Ranch, L.P. ("Del Ranch") and CE Turbo LLC ("CE
Turbo"),  each of which owns an  operating  geothermal  power  plant  located in
Imperial Valley, California known as the Vulcan Project, the Elmore Project, the
Leathers Project, the Del Ranch Project and CE Turbo Project,  respectively (the
"Partnership  Projects").  The  Partnership  Guarantors  also include  CalEnergy
Minerals LLC ("Minerals"),  which is constructing a zinc recovery project in the
Imperial  Valley,  California.   Finally,  the  Partnership  Guarantors  include
CalEnergy Operating Corporation ("CEOC"), Vulcan Power Company ("VPC"), both 99%
owned by Magma  Power  Company  ("Magma")  and 1% owned by  Salton  Sea  Funding
Corporation  (the  "Funding   Corporation")  San  Felipe  Energy  Company  ("San
Felipe"),  Conejo Energy Company  ("Conejo"),  Niguel Energy Company ("Niguel"),
VPC  Geothermal  LLC ("VPCG"),  Salton Sea Minerals Corp. and CE Salton Sea Inc.
VPC and VPCG, collectively own 100% of the partnership interests in Vulcan. CEOC
and Niguel, San Felipe and Conejo, collectively own 90% partnership interests in
each of Elmore,  Leathers  and Del  Ranch,  respectively.  Salton  Sea  Minerals
Corporation owns Minerals.  Minerals is an indirect  wholly-owned  subsidiary of
MidAmerican  Energy Holdings Company ("MEHC").  CE Salton Sea Inc. owns CE Turbo
LLC.

Magma owns all of the remaining  10%  interests in each of Elmore,  Leathers and
Del Ranch.  CEOC is entitled to receive from Magma,  as payment for certain data
and  services  provided  by CEOC,  all of the  partnership  distributions  Magma
receives  with  respect to its 10%  ownership  interests  in each of the Elmore,
Leathers and Del Ranch Projects and Magma's special  distributions equal to 4.5%
of total energy revenue from the Leathers Project.

Magma is a  wholly-owned  subsidiary of CE  Generation,  LLC ("CE  Generation"),
which is owned equally by MEHC and El Paso CE Generation Holding Company,  which
was merged  into El Paso  Merchant  Energy  North  America  Company  ("EPME") on
December 31, 2000, an indirect subsidiary of El Paso Corporation ("El Paso").

Minerals  developed  and  owns  the  rights  to  proprietary  processes  for the
extraction of zinc from elements in solution in the geothermal  brine and fluids
utilized at the Imperial  Valley  Projects.  A plant has  successfully  produced
commercial quality zinc at the projects.  The affiliates of Minerals may develop
facilities  for the  extraction  of manganese,  silica and other  products as it
further develops the extraction technology.

Minerals  constructed the Zinc Recovery  Project,  which is recovering zinc from
the  geothermal  brine  (the  "Zinc  Recovery  Project").  Facilities  have been
installed  near the Imperial  Valley  Projects  sites to extract a zinc chloride
solution  from the  geothermal  brine  through  an ion  exchange  process.  This
solution is being  transported to a central  processing  plant where zinc ingots
are being  produced  through  solvent  extraction,  electrowinning  and  casting
processes.  The  Zinc  Recovery  Project  is  designed  to  have a  capacity  of
approximately  30,000  metric tons per year.  Limited  production  began  during
December 2002 and full  production is expected by late-2003.  In September 1999,
Minerals 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.

2.  SUMMARY OF SIGNIFICANT POLICIES

Basis of Presentation
---------------------

The accompanying  financial statements of the Guarantors present the accounts of
CEOC,  VPC,  CE Turbo  LLC and  Minerals  and their  proportionate  share of the
Partnerships  in which  they have an  undivided  interest  in the assets and are
proportionately  liable for their  share of the  liabilities.  All  intercompany
balances and transactions have been eliminated.

The financial statements reflect the acquisition of Magma and the resulting push
down to the Guarantors of the accounting as a purchase business combination.

                                      -60-
<PAGE>

Restricted Cash
---------------

The restricted cash balance primarily  includes  commercial paper,  money market
securities and mortgage backed  securities and is composed of amounts  deposited
in  restricted  accounts,   which  the  Guarantors  will  use  to  fund  capital
expenditures and debt obligations.

Allowance for Doubtful Accounts
-------------------------------

The allowance for doubtful  accounts is based on the  Guarantors'  assessment of
the  collectibility  of specific customer accounts and the aging of the accounts
receivable.  If there is a deterioration of a major customer's credit worthiness
or actual  defaults  are  higher  than the  Guarantors'  historical  experience,
estimates of the recoverability of amounts due could be adversely affected.

Properties, Plants, Contracts and Equipment
-------------------------------------------

Properties, plants, contracts and equipment are carried at cost less accumulated
depreciation.   The  Guarantors   provide   depreciation   and  amortization  of
properties,  plants,  contracts and equipment upon the  commencement  of revenue
production over the estimated useful life of the assets.

Depreciation  of the  operating  power plant  costs,  net of salvage  value,  is
computed on the straight-line method over the estimated useful lives, between 10
and 30 years.  Depreciation of furniture,  fixtures and equipment is computed on
the straight-line  method over the estimated useful lives of the related assets,
which range from 3 to 10 years.

Power sale agreements  have been assigned values  separately for each of (1) the
remaining  portion of the fixed price periods of the power sales  agreements and
(2) the  20-year  avoided  cost  periods of the power sales  agreements  and are
amortized separately over such periods using the straight-line method.

The Salton Sea reservoir contains commercial quantities of extractable minerals.
The carrying value of the mineral  reserves are being  amortized  based upon the
units of production method.

The process  license  represents the economic  benefits  expected to be realized
from the  installation  of the license and related  technology  at the  Imperial
Valley.  The  carrying  value of the  process  license  is  amortized  using the
straight-line  method over 24 years, the remaining  estimated useful life of the
license.

Capitalization of Interest and Deferred Financing Costs
-------------------------------------------------------

Prior to the commencement of operations, interest is capitalized on the costs of
the  plants  and  geothermal  resource   development  to  the  extent  incurred.
Capitalized  interest and other deferred charges are amortized over the lives of
the related assets.

Deferred  financing  costs are amortized over the term of the related  financing
using the effective interest method.

Overhaul and Well Rework Costs
------------------------------

During 2001 the Guarantors changed their accounting policy for overhaul and well
rework costs.  These costs,  which had historically been accounted for using the
deferral method,  are now expensed as incurred.  The new policy went into effect
January 1, 2001 and during 2001, the Guarantors  recorded a cumulative effect of
this change of approximately  $6.9 million,  net of tax of $4.7 million.  If the
Guarantors  had adopted the policy as of January 1, 2000,  net income would have
been $4.9 million higher in 2000 on a proforma basis.

Impairment of Long-Lived Assets
-------------------------------

The Guarantors  evaluate  long-lived  assets for impairment  whenever  events or
changes in  circumstances  indicate the  carrying  amount of an asset may not be
recoverable.  Triggering  events  include a significant  change in the extent or
manner in which long-lived  assets are being used or in its physical  condition,
in legal factors,  or in the business climate that could affect the value of the
long-lived assets,  including changes in regulation.  The interpretation of such
events  requires  judgment  from  management  as to  whether  such an event  has
occurred  and is  required.  If an event  occurs that could  effect the carrying

                                      -61-
<PAGE>

value of the asset and  management  does not identify it as a triggering  event,
future results of operations could be significantly affected.

Upon the occurrence of a triggering  event,  the carrying amount of a long-lived
asset is reviewed to assess  whether the  recoverable  amount has declined below
its carrying  amount.  The  recoverable  amount is the estimated net future cash
flows that the  Guarantors  expect to recover  from the future use of the asset,
undiscounted and without interest,  plus the asset's residual value on disposal.
Where the recoverable  amount of the long-lived  asset is less than the carrying
value,  an  impairment  loss would be  recognized to write down the asset to its
fair value,  which is based on discounted  estimated  cash flows from the future
use of the asset.

The  estimated  cash flows arising from future use of the asset that are used in
the impairment  analysis requires  judgment  regarding what the Guarantors would
expect to recover from future use of the asset.  Any changes in the estimates of
cash flows  arising  from future use of the asset or the  residual  value of the
asset on disposal based on changes in the market conditions,  changes in the use
of the assets,  management's  plans, the determination of the useful life of the
assets and  technology  change in the industry  could  significantly  change the
calculation  of the fair  value  or  recoverable  amount  of the  asset  and the
resulting  impairment  loss,  which  could  significantly  affect the results of
operations.

Excess of Cost over Fair Value of Net Assets Acquired
-----------------------------------------------------

On January 1, 2002, the Guarantors adopted SFAS No. 142 ("SFAS 142"),  "Goodwill
and Other  Intangible  Assets",  which  establishes  the accounting for acquired
goodwill  and  other   intangible   assets,   and  provides  that  goodwill  and
indefinite-lived intangible assets will not be amortized, but will be tested for
impairment on an annual basis.  The Guarantors'  related  amortization  consists
solely of goodwill amortization,  which has no income tax effect. Following is a
reconciliation of net income as originally reported for the years ended December
31, 2002, 2001 and 2000, to adjusted net income (in thousands):

                                            2002        2001      2000
                                          --------    -------   --------
         Reported net income (loss) ...   $(10,828)   $16,085   $27,180
         Goodwill amortization ........       --        3,564     3,564
                                          --------    -------   -------
         Adjusted net income ..........   $(10,828)   $19,649   $30,774
                                          ========    =======   =======

In  accordance  with  SFAS No.  142,  the  Guarantors  completed  their  initial
transitional  and annual  goodwill  impairment  tests  during the second and the
fourth  quarters of 2002,  respectively,  primarily using a discounted cash flow
methodology  as of January  1, 2002 and  October  31,  2002,  respectively.  The
transitional  impairment test indicated a potential  goodwill  impairment at the
Guarantors. During the fourth quarter, the Guarantors completed their assessment
of the implied  fair value of  goodwill.  As a result of this test,  no goodwill
impairment was recognized at the Guarantors as of January 1, 2002. Additionally,
the Guarantors annual goodwill impairment tests indicated no goodwill impairment
existed at October 31, 2002.

                                      -62-

<PAGE>

Intangible Assets
-----------------

The following table summarizes the acquired  intangible assets as of December 31
(in thousands):

                                                              2002
                                                -------------------------------
                                                Gross Carrying     Accumulated
                                                    Amount         Amortization
                                                --------------     ------------

              Amortized Intangible Assets:
              Power Purchase Contracts .....        $123,002         $ 96,894
              Patented Technology ..........          46,290           15,385
                                                    --------         --------
                Total ......................        $169,292         $112,279
                                                    ========         ========

                                                              2001
                                                -------------------------------
                                                Gross Carrying     Accumulated
                                                    Amount         Amortization
                                                --------------     ------------

              Amortized Intangible Assets:
              Power Purchase Contracts .....        $123,002         $ 95,194
              Patented Technology ..........          46,290           13,456
                                                    --------         --------
                Total ......................        $169,292         $108,650
                                                    ========         ========

Amortization  expense on  acquired  intangible  assets was $3.6  million for the
years ended  December  31, 2002 and 2001.  The  Guarantors  expect  amortization
expense on acquired  intangible  assets to be $3.5  million for each of the five
succeeding fiscal years.

Fair Values of Financial Instruments
------------------------------------

Fair values have been  estimated  based on quoted  market prices for debt issues
listed on exchanges.  Fair values of financial instruments that are not actively
traded  are  based on market  prices of  similar  instruments  and/or  valuation
techniques using market assumptions.  Unless otherwise noted, the estimated fair
value amounts do not differ significantly from recorded values.

Contingent Liabilities
----------------------

The  Guarantors'  are subject to the  possibility of various loss  contingencies
arising  in the  ordinary  course of  business.  The  Guarantors'  consider  the
likelihood  of the  loss  or  impairment  of an  asset  or the  incurrence  of a
liability  as well as the ability to  reasonably  estimate the amount of loss in
determining loss contingencies. An estimated loss contingency is accrued when it
is probable that a liability has been incurred or an asset has been impaired and
the  amount  of loss can be  reasonably  estimated.  The  Guarantors'  regularly
evaluate current information available to determine whether such accruals should
be adjusted.

Revenue Recognition
-------------------

The Guarantors  recognize revenue and related accounts  receivable from sales of
electricity on an accrual basis.  All of the  Guarantors'  sales of electricity,
except for CE Turbo, are to Southern  California Edison Company ("Edison") under
long-term power purchase contracts.

Each  of the  Partnership  Projects,  except  for CE  Turbo,  sells  electricity
generated by the respective  plants  pursuant to four  long-term  power purchase
agreements  ("SO4  Agreements")  between  the  projects  and  Edison.  These SO4
Agreements  provide for capacity  payments,  capacity  bonus payments and energy
payments.  Edison makes 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.  Energy is sold at  increasing  fixed
rates for the first ten years of each contract and thereafter at a rate based on
the cost that Edison  avoids by  purchasing  energy from the project  instead of
obtaining the energy from other sources  ("Avoided  Cost of Energy").  The fixed
energy price periods of the  Partnership  Project SO4 Agreements  extended until
February 1996 for Vulcan,  December 1998 for Del Ranch and Elmore,  and December

                                      -63-
<PAGE>

1999 for the Leathers  Partnership.  In June and November 2001, the  Partnership
Projects which receive  Edison's  Avoided Cost of Energy entered into agreements
that provide for a fixed energy payment per kW-hour in lieu of Edison's  Avoided
Cost of Energy.  The fixed energy payments were 3.25 cents per kWh from December
1, 2001 through April 30, 2002 and 5.37 cents per kWh commencing May 1, 2002 for
a five-year period.  Following the five-year period,  the energy payment reverts
back to Edison's Avoided Cost of Energy.

For the years ended December 31, 2002, 2001 and 2000,  Edison's  average Avoided
Cost of Energy  was 3.5  cents,  7.4  cents,  5.8  cents per kWh,  respectively.
Estimates of Edison's future Avoided Cost of Energy vary substantially from year
to year.  The  Guarantors  cannot  predict the likely  level of Avoided  Cost of
Energy prices.

The CE Turbo Project,  which commenced commercial operation in the third quarter
of 2000,  sells its  output  through  other  market  transactions.  The CE Turbo
Project may sell its output to the Zinc  Recovery  Project,  which is owned by a
subsidiary of MEHC and commenced partial commercial operations in 2002.

Management Fee
--------------

Pursuant  to the Magma  Services  Agreement,  Magma  has  agreed to pay CEOC all
equity cash flows and certain  royalties  payable by the  Guarantors in exchange
for providing  data and services to Magma.  As security for the  obligations  of
Magma under the Magma Services  Agreement,  Magma has  collaterally  assigned to
CEOC its rights to such equity cash flows and certain royalties.

Income Taxes
------------

The entities  comprising the Guarantors are included in consolidated  income tax
returns with their parent and affiliates;  however, income taxes are provided on
a separate  return basis.  Tax obligations of the Guarantors will be remitted to
the parent only to the extent of cash flows available  after operating  expenses
and debt service.

Statements of Cash Flows
------------------------

For purposes of the statement of cash flows, the Guarantors consider only demand
deposits at banks to be cash.

Reclassifications
-----------------

Certain reclassifications were made to the 2001 and 2000 financial statements to
conform to the 2002 presentation.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements
-----------------------------

In August 2001,  the FASB issued  Statement of  Financial  Accounting  Standards
("SFAS") No. 143,  "Accounting for Asset Retirement  Obligations"  ("SFAS 143").
This statement  provides  accounting and disclosure  requirements for retirement
obligations  associated with long-lived assets and is effective January 1, 2003.
This statement requires that the present value of retirement costs for which the
Guarantors have a legal obligation be recorded as liabilities with an equivalent
amount added to the asset cost and depreciated over an appropriate  period.  The
liability  is then  accreted  over  time  by  applying  an  interest  method  of
allocation to the liability.  Cumulative accretion and accumulated  depreciation
will be recognized  for the time period from the date the  liability  would have
been recognized had the provisions of this statement been in effect, to the date
of adoption of this  statement.  The Guarantors  does not expect the adoption of
SFAS  143 to have a  material  effect  on its  financial  position,  results  of
operations or cash flows.

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation

                                      -64-
<PAGE>

assumed under a guarantee.  FIN 45 also  requires  additional  disclosures  by a
guarantor in its interim and annual  financial  statements about the obligations
associated with  guarantees  issued.  The  recognition  provisions of FIN 45 are
effective for any  guarantees  issued or modified  after  December 31, 2002. The
disclosure  requirements  are effective  for financial  statements of interim or
annual  periods ending after December 15, 2002. The Guarantors do not expect the
adoption  of FIN 45 will  have a  material  effect  on its  financial  position,
results of operations, or cash flows.

3.  PROPERTIES, PLANTS, CONTRACTS AND EQUIPMENT

Properties, plants, contracts and equipment as of December 31 are as follows (in
thousands):

                                                  2002         2001
                                                ---------    ---------
Cost:
  Power plant and equipment .................   $ 222,522    $ 221,065
  Zinc recovery project .....................     202,269      159,909
  Power sale agreements .....................     123,588      123,588
  Process license ...........................      46,290       46,290
  Mineral reserves ..........................     162,487      162,487
  Wells and resource development ............      98,894       91,187
                                                ---------    ---------
                                                  856,050      804,526
Accumulated depreciation and amortization ...    (191,328)    (170,952)
                                                ---------    ---------
                                                  664,722      633,574
                                                =========    =========

4.   SENIOR SECURED PROJECT NOTE

The  Guarantors'  project note payable to Salton Sea Funding  Corporation  as of
December 31 is as follows (in thousands):
<TABLE>
<CAPTION>


                       SENIOR                                        DECEMBER 31,
                      SECURED                                     -------------------
  Date issued         SECURITIES   FINAL MATURITY DATE    RATE      2002       2001
----------------      -----------  -------------------   ------   --------   --------
<S>                     <C>          <C>                 <C>      <C>        <C>
June 20, 1996           E Bonds      May 30, 2011        8.300%   $ 46,322   $ 47,922
October 13, 1998        F Bonds      November 30, 2018   7.475%    197,794    200,820
                                                                  --------   --------
                                                                  $244,116   $248,742
                                                                  ========   ========
</TABLE>

Principal  maturities  of the senior  secured  project  note are as follows  (in
thousands):

                                             AMOUNT
                                             --------
                          2003...........    $  5,017
                          2004...........       5,771
                          2005...........       6,022
                          2006...........       5,124
                          2007...........       4,014
                          Thereafter ....     218,168
                                             --------
                          Total .........    $244,116
                                             ========

On October 13,  1998,  Funding  Corporation  completed  a sale to  institutional
investors of $285.0 million  aggregate  amount of 7.475% Senior Secured Series F
bonds due November  30,  2018.  A portion of the proceeds  were used to fund the
cost of construction of, and was advanced to, the Zinc Recovery  Project,  which
is  indirectly  100% owned by Salton Sea Minerals  Corp.,  a MEHC  affiliate not
owned by CE Generation. The direct and indirect owners of the Zinc Facility (the
"Zinc  Guarantors",  which include  Salton Sea Minerals  Corp. and Minerals) are
among the  guarantors of the Funding  Corporation  debt. In connection  with the
divestiture  of CE  Generation in 1999 MEHC  guaranteed  the payment by the Zinc
Guarantors of a specified  portion of the scheduled debt service on the Imperial
Valley Project Loans  including the current  principal  amount of  approximately
$137.8 million.

                                      -65-

<PAGE>

The Guarantors have also guaranteed,  along with other  guarantors,  the debt of
Salton Sea Funding Corporation, which amounted to $491.7 million at December 31,
2002.  The guarantee is  collateralized  by a lien on the available cash flow of
and a pledge of stock in the  Guarantors.  The  structure  has been  designed to
cross collateralize cash flows from each guarantor without cross collateralizing
all of the guarantors' assets.

The  estimated  fair values of the senior  secured  project note at December 31,
2002 and 2001 were $227.4 million and $221.2 million, respectively.

5.  RELATED PARTY TRANSACTIONS

The Guarantors are party to a 30-year brine supply agreement  through the Vulcan
partnership  and a  technology  license  agreement  for  the  rights  to use the
technology  necessary  for the  construction  and operation of the Vulcan Plant.
Under the brine  supply  agreement,  the  Guarantors  will pay VPC 4.167% of the
contract  energy  component of the price of  electricity  provided by the Vulcan
Plant. In addition,  VPC has been designated as operator of the Vulcan Plant and
receives agreed-upon compensation for such services.

Charges to the Guarantors  related to the brine supply  agreement and operator's
fees on a pro rata  basis  amounted  to $0.7  million  each  for the year  ended
December 31, 2002,  $0.9 million and $0.8  million,  respectively,  for the year
ended December 31, 2001, $0.7 million each for the year ended December 31, 2000.

In addition, the Guarantors entered into the following agreements:

o    Easement  Grant  Deed  and  Agreement   Regarding   Rights  for  Geothermal
     Development,  whereby the Guarantors  acquired from Magma rights to extract
     geothermal  brine  from  the  geothermal  lease  rights  property  which is
     necessary to operate the  Leathers,  Del Ranch and Elmore  Plants in return
     for 17.333%,  on a pro rata basis,  of all energy revenue  received by each
     plant.  The Guarantors'  share of amounts expensed under this agreement for
     2002,  2001 and 2000 were $8.5  million,  $11.5  million and $9.6  million,
     respectively.

o    Ground  Leases  dated March 15 and August 15,  1988 with Magma  whereby the
     Guarantors  lease  from  Magma  for 32  years  the  surface  of the land as
     described in the  Imperial  County  Assessor's  official  records.  Amounts
     expensed  under the ground leases for 2002,  2001 and 2000 were $70,000 per
     year.

o    Administrative  Services  Agreements  whereby  CEOC  will  provide  to  the
     Partnerships  administrative  and  management  services  for a period of 32
     years  through  2020.  Fees  payable to CEOC amount to the greater of 3% of
     total  electricity  revenue  or  $60,000  per month.  The  minimum  monthly
     payments for years  subsequent to 1989 are increased  based on the consumer
     price index of the Bureau of Labor and Statistics. Amounts expensed related
     to these agreements for 2002, 2001 and 2000 amounted to $2.1 million,  $2.6
     million and $2.3 million, respectively.

o    Operating and Maintenance  Agreements whereby the Guarantors retain CEOC to
     operate the plants for a period of 32 years through  2020.  Payment is made
     to CEOC in the form of reimbursements of expenses incurred and a guaranteed
     capacity  payment  ranging  from 10% to 25% of energy  revenue  over stated
     amounts. The Guarantors in 2002, 2001 and 2000 reimbursed CEOC for expenses
     of $15.8  million,  $14.6  million  and $10.6  million,  respectively,  and
     accrued a guaranteed  capacity  payment of $1.6  million,  $3.0 million and
     $1.9 million at December 31, 2002, 2000 and 1999, respectively.

From  September 2000 through  September  2002, CE Turbo entered into a series of
agreements  to sell all available  power from the CE Turbo Project to EPME.  The
purchase  price for the available  power under various  agreements  has been the
value  actually  received  by EPME for the sale of such  power,  day ahead price
quotes received from EPME, and percentages of the Dow Jones SP-15 Index.

Pursuant to these  agreements,  sales to EPME from the  Guarantors  totaled $1.6
million, $49.4 million and $3.4 million in 2002, 2001 and 2000, respectively. As
of December 31, 2002 and 2001,  accounts  receivable from EPME were $0.3 million
and $2.4 million, respectively.

                                      -66-
<PAGE>

6.  CONDENSED FINANCIAL INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>

                                              VULCAN
                                               POWER        CEOC       ELMORE    DEL RANCH    LEATHERS
                                              --------    --------    --------   ---------    --------

<S>                                          <C>          <C>         <C>        <C>          <C>
December 31, 2002:
Assets:
  Restricted cash .........................   $   --      $   --      $   --     $    --      $   --
  Accounts receivable and
    other assets ..........................          3      16,910       3,633       3,767       3,789
  Due from affiliates .....................     (7,334)     40,232      54,076      49,828      47,652
    Properties, plants, contracts and
      equipment, net ......................     11,151      13,246      54,499      57,114      63,302
  Management fee and
    goodwill ..............................       --          --          --          --          --
  Investments in
    partnerships ..........................    115,261     334,937        --          --          --
                                                                                 ---------    --------
                                              --------    --------    --------   ---------    --------
Total assets ..............................   $119,081    $405,325    $112,208   $ 110,709    $114,743
                                              ========    ========    ========   =========    ========

Liabilities and Guarantors' Equity:
  Accounts payable, accrued
    liabilities and deferred taxes ........   $    223    $  2,512    $  1,062   $   1,129    $    533
  Senior secured project note .............       --          --          --          --          --
                                              --------    --------    --------   ---------    --------
    Total liabilities .....................   $    223    $  2,512    $  1,062   $   1,129    $    533
                                              --------    --------    --------   ---------    --------
  Guarantors' equity ......................    118,858     402,813     111,146     109,580     114,210
                                              --------    --------    --------   ---------    --------
Total liabilities and guarantors' equity ..   $119,081    $405,325    $112,208   $ 110,709    $114,743
                                              ========    ========    ========   =========    ========
</TABLE>

<TABLE>
<CAPTION>

                                                                               ADJUSTMENTS   COMBINED
                                            VULCAN BNG    MINERALS      TURBO   ELIMINATIONS   TOTAL
                                            ----------    --------    --------  ------------  -------

<S>                                           <C>         <C>         <C>        <C>          <C>
December 31, 2002:
Assets:
  Restricted cash .........................   $   --      $      1    $   --     $    --      $      1
  Accounts receivable and
    other assets ..........................      3,715       1,150         621         258      33,846
  Due from affiliates .....................     55,283     (17,026)     (3,805)   (136,823)     82,083
  Properties, plants, contracts and
    equipment, net ........................     57,554     166,771       9,314     231,771     664,722
  Management fee and
    goodwill ..............................       --          --          --       189,545     189,545
  Investments in
    partnerships ..........................       --          --          --      (450,198)       --
                                              --------    --------    --------    --------    --------
Total assets ..............................   $116,552    $150,896    $  6,130   $(165,447)   $970,197
                                              ========    ========    ========   =========    ========

Liabilities and Guarantors' Equity:
  Accounts payable, accrued
    liabilities and deferred taxes ........   $  1,291    $ (2,390)   $  1,670   $ 118,763    $124,793
  Senior secured project note .............       --       137,790        --       106,326     244,116
                                              --------    --------    --------   ---------    --------
    Total liabilities .....................   $  1,291    $135,400    $  1,670   $ 225,089    $368,909
                                              --------    --------    --------   ---------    --------
  Guarantors' equity ......................    115,261      15,496       4,460    (390,536)    601,288
                                              --------    --------    --------   ---------    --------
Total liabilities and guarantors' equity ..   $116,552    $150,896    $  6,130   $(165,447)   $970,197
                                              ========    ========    ========   =========    ========
</TABLE>
                                      -67-
<PAGE>
<TABLE>
<CAPTION>
                                               VULCAN
                                               POWER        CEOC      ELMORE     DEL RANCH    LEATHERS
                                              --------    --------    --------   ---------    --------

<S>                                           <C>         <C>         <C>        <C>          <C>
December 31, 2001:
Assets:
  Restricted cash .........................   $   --      $   --      $   --     $    --      $   --
  Accounts receivable and
    other assets ..........................          3      17,364      15,348      14,487      15,136
  Due from affiliates .....................     (3,847)     41,358      35,510      27,950      34,301
  Properties, plants, contracts and
    equipment, net ........................      7,098      13,868      59,913      64,782      67,108
  Management fee and
    goodwill ..............................       --          --          --          --          --
  Investments in
    partnerships ..........................    108,861     328,580        --          --          --
                                              --------    --------    --------   ---------    --------
Total assets ..............................   $112,115    $401,170    $110,771   $ 107,219    $116,545
                                              ========    ========    ========   =========    ========

Liabilities and Guarantors' Equity:
  Accounts payable, accrued
    liabilities and deferred taxes ........   $    320    $  8,928    $  2,233   $   1,528    $  2,194
  Senior secured project note .............       --          --          --          --          --
                                              --------    --------    --------   ---------    --------
    Total liabilities .....................   $    320    $  8,928    $  2,233   $   1,528    $  2,194
                                              --------    --------    --------   ---------    --------
  Guarantors' equity ......................    111,795     392,242     108,538     105,691     114,351
                                              --------    --------    --------   ---------    --------
Total liabilities and guarantors' equity ..   $112,115    $401,170    $110,771   $ 107,219    $116,545
                                              ========    ========    ========   =========    ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                ADJUSTMENTS/  COMBINED
                                            VULCAN BNG    MINERALS     TURBO    ELIMINATIONS   TOTAL
                                            ----------    --------    --------  ------------  --------

<S>                                           <C>         <C>         <C>        <C>          <C>
December 31, 2001:
Assets:
  Restricted cash .........................   $   --      $ 21,282    $   --     $    --      $ 21,282
  Accounts receivable and
      other assets ........................     14,246         640         217       1,301      78,742
    Due from affiliates ...................     28,326     (25,197)     (3,498)   (121,831)     13,072
    Properties, plants, contracts and
      equipment, net ......................     67,306     135,242       9,417     208,840     633,574
    Management fee and
      goodwill ............................       --          --          --       191,672     191,672
    Investments in
      partnerships ........................       --          --          --      (437,441)       --
                                              --------    --------    --------    --------    --------
Total assets ..............................   $109,878    $131,967    $  6,136   $(157,459)   $938,342
                                              ========    ========    ========   =========    ========

Liabilities and Guarantors' Equity:
    Accounts payable, accrued
      liabilities and deferred taxes ......   $  1,017    $ (1,610)   $  1,818   $ 105,593    $122,021
    Senior secured project note ...........       --       139,896        --       108,846     248,742
                                              --------    --------    --------   ---------    --------
      Total liabilities ...................   $  1,017    $138,286    $  1,818   $ 214,439    $370,763
                                              --------    --------    --------   ---------    --------
    Guarantors' equity ....................    108,861      (6,319)      4,318    (371,898)    567,579
                                              --------   --------    --------    --------     --------
Total liabilities and guarantors' equity ..   $109,878    $131,967    $  6,136   $(157,459)   $938,342
                                              ========    ========    ========   =========    ========
</TABLE>
                                      -68-
<PAGE>


Condensed  combining  statements  of  operations  including  information  of the
Guarantors'  pro rata  interest in the  respective  entities for the years ended
December 31, 2002, 2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>

                     VULCAN                           DEL                   VULCAN                         ADJUSTMENTS/  COMBINED
                     POWER      CEOC      ELMORE     RANCH     LEATHERS       BNG       MINERALS    TURBO  ELIMINATIONS   TOTAL
                     -------   -------   --------   --------   ---------    --------   ----------   ------ ------------  ---------
<S>                  <C>       <C>       <C>        <C>        <C>          <C>        <C>          <C>      <C>         <C>
December 31, 2002:
Revenue ..........   $ 1,352   $ 4,214   $ 23,712   $ 23,702   $  23,564    $ 22,222   $     288    $2,246   $ (4,860)   $  96,440
Costs and expenses       689      --       21,104     19,812      23,705      15,822      33,413     2,062     (9,339)     107,268
                     -------   -------   --------   --------   ---------    --------   ---------    ------   --------    ---------
Net income (loss)    $   663   $ 4,214   $  2,608   $  3,890   $    (141)   $  6,400   $ (33,125)   $  184   $  4,479    $ (10,828)
                     =======   =======   ========   ========   =========    ========   =========    ======   ========    =========

December 31, 2001:
Revenue ..........   $ 1,757   $ 5,417   $ 31,165   $ 28,446   $  30,591    $ 28,375   $     847    $5,082   $ (5,362)   $ 126,318
Costs and expenses       884     1,302     23,787     24,918      25,299      18,170       5,271     2,797      7,805      110,233
                     -------   -------   --------   --------   ---------    --------   ---------    ------   --------    ---------
Net income (loss)    $   873   $ 4,115   $  7,378   $  3,528   $   5,292    $ 10,205   $  (4,424)   $2,285   $(13,167)   $  16,085
                     =======   =======   ========   ========   =========    ========   =========    ======   ========    =========

December 31, 2000:
Revenue ..........   $ 1,386   $ 4,657   $ 25,762   $ 25,610   $  25,662    $ 22,749   $     576    $4,652   $ (2,870)   $ 108,184
Costs and expenses       709      --       18,887     18,866      19,684      12,214       4,962     1,031      4,651       81,004
                     -------   -------   --------   --------   ---------    --------   ---------    ------   --------    ---------
Net income (loss)    $   677   $ 4,657   $  6,875   $  6,744   $   5,978    $ 10,535   $  (4,386)   $3,621   $ (7,521)   $  27,180
                     =======   =======   ========   ========   =========    ========   =========    ======   ========    =========
</TABLE>

                                      -69-
<PAGE>

7.  INCOME TAXES

The provision  (benefit)  for income tax for the years ended  December 31, 2002,
2001 and 2000 was as follows (in thousands):

                                    2002       2001     2000
                                  --------   --------   ------
                 Current:
                   Federal .....  $(12,450)  $  8,190   $3,956
                   State .......    (3,450)     2,813      911
                                  --------   --------   ------
                                   (15,900)    11,003    4,867
                                  --------   --------   ------

                 Deferred:
                   Federal .....     2,074        880      946
                   State .......       693       (155)   1,881
                                  --------   --------   ------
                                     2,767        725    2,827
                                  --------   --------   ------
                 Total provision  $(13,133)  $ 11,728   $7,694
                                  ========   ========   ======

The net deferred tax  liability at December 31, 2002 and 2001 was as follows (in
thousands):

                                                          2002        2001
                                                        ---------   ---------
  Deferred tax liabilities-
    Properties, plant, contracts and equipment .......  $ 116,430   $ 115,843
                                                        ---------   ---------
  Deferred tax assets:
    Accruals not currently deductible for tax purposes     (3,966)     (6,577)
    Energy credits ...................................     (5,557)     (5,126)
    AMT credit .......................................     (2,057)     (2,057)
                                                        ---------   ---------
      Total deferred tax assets ......................    (11,580)    (13,760)
                                                        ---------   ---------
                                                        ---------   ---------
  Net deferred tax liabilities .......................  $ 104,850   $ 102,083
                                                        =========   =========


The  reconciliation  of the federal statutory tax rate to the effective tax rate
applicable to income before provision for income taxes is as follows:

                                                 2002     2001     2000
                                                ------   ------   ------
       Federal statutory rate ................  35.0 %   35.0 %   35.0 %
       Adjustments to taxes resulting from:
         Percentage depletion ..............    14.5     (8.6)    (9.5)
         Investment and energy tax credits .     1.5     (1.2)   (12.2)
         Goodwill amortization .............     --       3.6      3.3
         State taxes, net of federal benefit     5.6      5.0      5.2
         Other .............................    (1.8)     --       --
                                                ----     ----     ----
       Effective tax rate ....................  54.8 %   33.8 %   21.8 %
                                                ====     ====     ====

During 2002, the Partnership  Guarantors made  considerable  progress on several
significant  income  tax  examination  matters  for prior tax  years,  including
percentage of depletion,  which  resulted in a decrease in income tax expense of
$3.1 million in 2002.

                                      -70

<PAGE>


8.  COMMITMENTS AND CONTINGENCIES

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

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service  reserve fund at the Funding  Corporation has not been
extended  beyond  its  current  July  2004  expiration  date,  and as such  cash
distributions  are not available to CE Generation until the Funding  Corporation
debt service reserve fund of approximately  $67.6 million has been funded or the
letter of credit  has been  extended  beyond  its July 2004  expiration  date or
replaced. The fund has a cash balance of $48.5 million as of December 31, 2002.

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

Edison has disputed a portion of the settlement  agreement and has failed to pay
approximately  $2.7  million of  capacity  bonus  payments  for the months  from
October 2001 through May 2002. On December 10, 2001 certain  Guarantors  filed a
lawsuit against Edison in California's  Imperial County Superior Court seeking a
court order requiring Edison to make the required  capacity bonus payments under
the Power Purchase  Agreements.  Due to Edison's  failure to pay the contractual
obligations,  certain  Guarantors  have  established  an allowance  for doubtful
accounts of  approximately  $1.9 million as of December  31,  2002.  The Project
entities are vigorously pursuing collection of the capacity bonus payments.

In January 2001, the California Power Exchange ("PX") declared bankruptcy.  As a
result,  the CE Turbo Project has not received  payment for power sold under the
Transaction  Agreements  during December 2000 and January 2001 of  approximately
$0.8 million. The Guarantors have established an allowance for doubtful accounts
for the full amount of this receivable.

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

The CE Turbo Project was constructed by Stone & Webster,  Inc. (formerly Stone &
Webster Engineering  Corporation),  a wholly-owned  subsidiary of the Shaw Group
("Stone & Webster"), pursuant to date certain, fixed-price, turnkey engineering,
procure,  construct and manage  contract ( the "CE Turbo Project EPC Contract").
On March 7, 2002, Vulcan,  Del Ranch, and CE Turbo  (collectively the ("CE Turbo
Owners"),  filed a Demand for Arbitration  against Stone & Webster for breach of
contract and breach of warranty  arising from  deficiencies in Stone & Webster's
design, engineering,  construction and procurement of equipment for the CE Turbo
Project pursuant to the CE Turbo Project EPC Contract.  On November 25, 2002 and
the CE Turbo Owners  entered into a Settlement  Agreement  with Stone & Webster.
The  Settlement  Agreement  resulted  in a $3.5  million  payment  from  Stone &
Webster.

Minerals
--------

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 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  contract,   the
Guarantors  drew $29.6 million  under the EPC contract  letter of credit on July
20, 2001. The  liquidated  damages have been accounted for as a reduction of the
capitalized  costs of the project.  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.

                                      -71-
<PAGE>

On July 11,  2001,  Kvaerner  filed an Amended  Demand for  Arbitration  against
Minerals  characterizing  the nature of the dispute as concerns regarding change
orders  and  performance  penalties.  Kvaerner  did not state the  amount of its
claim. On August 7, 2001, Minerals filed an Answering Statement and Counterclaim
against Kvaerner. Minerals denied all material allegations in Kvaerner's Amended
Demand for Arbitration,  and asserted a counterclaim against Kvaerner for breach
of contract and specific performance.  Minerals alleged that its total estimated
damage for  Kvaerner's  breach of contract  are in excess of  approximately  $60
million;  however,  Minerals  has offset  approximately  $42.5  million of these
damages by  exercising  its rights under the EPC Contract to claim the retainage
and by drawing on a letter of credit.

On May 23,  2002,  Minerals and  Kvaerner  entered into a Settlement  Agreement.
Under the terms of the agreement,  Minerals retained the amounts drawn under the
letter of credit,  the EPC  retainage  amounts and the EPC contract  balance and
will pay to  Kvaerner  three  equal  installments  of $2.25  million  payable in
January of 2003, 2004 and 2005.

Environmental Liabilities
-------------------------

The Guarantors are subject to numerous legislative and regulatory  environmental
protection  requirements  involving air and water pollution,  waste  management,
hazardous chemical use, noise abatement, and land use aesthetics.

State and federal  environmental laws and regulations currently have, and future
modifications  may  have,  the  effect of (i)  increasing  the lead time for the
construction of new facilities,  (ii) significantly increasing the total cost of
new  facilities,  (iii)  requiring  modification  of  the  Guarantors'  existing
facilities,  (iv)  increasing the risk of delay on  construction  projects,  (v)
increasing  the  Guarantors'  cost of  waste  disposal  and  (vi)  reducing  the
reliability  of  service  provided  by the  Guarantors  and the amount of energy
available  from the  Guarantors'  facilities.  Any of such  items  could  have a
substantial  impact on amounts  required to be expended by the Guarantors in the
future.  Expenditures for ongoing compliance with environmental regulations that
relate to  current  operations  are  expensed  or  capitalized  as  appropriate.
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue  generation,  are expensed.
Liabilities   are  recorded  when   environmental   assessments   indicate  that
remediation  efforts are  probable  and the costs can be  reasonably  estimated.
Estimates of the liability are based upon currently  available  facts,  existing
technology and presently enacted laws and regulations  taking into consideration
the likely  effects of  inflation  and other social and  economic  factors,  and
include  estimates of associated legal costs.  These amounts also consider prior
experience in remediating sites, other companies'  clean-up  experience and data
released by the Environmental  Protection Agency or other  organizations.  These
estimated  liabilities are subject to revision in future periods based on actual
costs or new circumstances,  and are included in the accompanying balance sheets
at  their  undiscounted   amounts.  As  of  December  31,  2002  and  2001,  the
environmental liabilities recorded on the balance sheet were not material.

9.  SUBSEQUENT EVENTS

On January 29, 2003,  EPME sold all its interest in CE  Generation  to TransAlta
USA Inc.  ("TransAlta"),  an affiliate of TransAlta  Corporation.  Pursuant to a
Transaction  Agreement  dated  January 29, 2003, CE Turbo began selling power to
TransAlta  on  February  12,  2003 based on  percentages  of the Dow Jones SP-15
Index. Such agreement will expire on October 31, 2003.


<PAGE>


                          INDEPENDENT AUDITORS' REPORT


Board of Directors and Stockholder
Magma Power Company
Omaha, Nebraska

     We have audited the  accompanying  balance sheets of the Salton Sea Royalty
LLC as of December 31, 2002 and 2001, and the related  statements of operations,
equity and cash flows for each of the three years in the period  ended  December
31, 2002.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  such financial  statements present fairly, in all material
respects,  the  financial  position of the Salton Sea Royalty LLC as of December
31, 2002 and 2001 and the results of its  operations and its cash flows for each
of the three years in the period  ended  December  31, 2002 in  conformity  with
accounting principles generally accepted in the United States of America.

     As discussed in Note 2 to the financial statements,  in 2002 the Salton Sea
Royalty LLC changed its accounting for goodwill and other intangible assets.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 24, 2003 (January 29, 2003 as to Note 5)


                                      -73-

<PAGE>

                             SALTON SEA ROYALTY LLC
                                 BALANCE SHEETS
                        AS OF DECEMBER 31, 2002 AND 2001
                (Amounts in thousands, except per share amounts)

                                                              2002      2001
                                                             -------   -------

                                     ASSETS
  Current assets - Prepaid expenses and
    other assets .........................................   $    13   $    31
  Royalty stream, net ....................................    14,011    14,865
  Excess of cost over fair value of net assets acquired ..    30,464    30,464
  Due from affiliates ....................................    39,501    33,940
                                                             -------   -------
  TOTAL ASSETS ...........................................   $83,989   $79,300
                                                             =======   =======

                         LIABILITIES AND MEMBERS' EQUITY
  Current liabilities:
    Accrued liabilities ..................................   $     7   $    29
    Current portion of long-term debt ....................       304     3,460
                                                             -------   -------
      Total current liabilities ..........................       311     3,489
  Senior secured project note ............................       843     1,147
                                                             -------   -------
     Total liabilities ...................................     1,154     4,636
                                                             -------   -------

  Commitments and contingencies (Note 3 and 4)

  Members' equity:
    Common stock, par value $.01 per share; 100 shares
      authorized, issued and outstanding .................      --        --
    Additional paid-in capital ...........................     1,561     1,561
    Retained earnings ....................................    81,274    73,103
                                                             -------   -------
      Total members' equity ..............................    82,835    74,664
                                                             -------   -------
  TOTAL LIABILITIES AND MEMBERS' EQUITY ..................   $83,989   $79,300
                                                             =======   =======

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

                                      -74-

<PAGE>

                            SALTON SEA ROYALTY LLC
                            STATEMENTS OF OPERATIONS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)

                                                      2002      2001      2000
                                                    -------   -------   -------

 REVENUE - ROYALTY INCOME .......................   $12,577   $16,882   $14,130
 COSTS AND EXPENSES:
   Operating, general and administrative expenses     3,280     4,420     3,859
   Amortization of royalty stream and goodwill ..       854     1,762     1,965
   Interest expense .............................       272       608       954
                                                    -------   -------   -------
     Total costs and expenses ...................     4,406     6,790     6,778
                                                    -------   -------   -------
 NET INCOME .....................................   $ 8,171   $10,092   $ 7,352
                                                    =======   =======   =======

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

                                      -75-
<PAGE>
                             SALTON SEA ROYALTY LLC
                          STATEMENTS OF MEMBERS' EQUITY
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                      (Amounts in thousands, share amounts)


                                  COMMON STOCK    ADDITIONAL
                                ----------------   PAID-IN    RETAINED   TOTAL
                                 SHARES  AMOUNT    CAPITAL    EARNINGS   EQUITY
                                -------  ------   ----------  --------   -------

Balance, January 1, 2000 ...       100    $ --      $1,561    $55,659    $57,220

  Net income ...............      --        --        --        7,352      7,352
                                ------    ------    ------    -------    -------

BALANCE, DECEMBER 31, 2000 ..      100      --       1,561     63,011     64,572

  Net income ...............      --        --        --       10,092     10,092
                                ------    ------    ------    -------    -------

BALANCE, DECEMBER 31, 2001 ..      100      --       1,561     73,103     74,664

  Net income ...............      --        --        --        8,171      8,171
                                ------    ------    ------    -------    -------

BALANCE, DECEMBER 31, 2002 ..      100    $ --      $1,561    $81,274    $82,835
                                ======    ======    ======    =======    =======

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

                                      -76-
<PAGE>

                             SALTON SEA ROYALTY LLC
                            STATEMENTS OF CASH FLOWS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                             (Amounts in thousands)
<TABLE>
<CAPTION>

                                                                  2002        2001         2000
                                                                 -------     --------     -------

<S>                                                              <C>         <C>          <C>
CASH FLOW FROM OPERATING ACTIVITIES:
  Net income ................................................    $ 8,171     $ 10,092     $ 7,352
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Amortization of royalty stream and goodwill .............        854        1,762       1,965
  Changes in assets and liabilities:
    Prepaid expenses and other assets .......................         18           51         153
    Accrued liabilities .....................................        (22)         (28)        (25)
                                                                 -------     --------     -------
       Net cash flows from operating activities .............      9,021       11,877       9,445
                                                                 -------     --------     -------

NET CASH FLOWS FROM FINANCING ACTIVITIES:
  Due from affiliates .......................................     (5,561)      (7,443)     (4,672)
  Repayment of senior secured project note ..................     (3,460)      (4,434)     (4,773)
                                                                 -------     --------     -------
    Net cash flows from financing activities ................     (9,021)     (11,877)     (9,445)
                                                                 -------     --------     -------
NET CHANGE IN CASH ..........................................       --           --          --
Cash at beginning of year ...................................       --           --          --
                                                                 -------     --------     -------
CASH AT END OF YEAR .........................................    $  --       $   --       $  --
                                                                 =======     ========     =======
SUPPLEMENTAL DISCLOSURE -
  Interest paid .............................................    $   579     $    585     $   978
                                                                 =======     ========     =======
</TABLE>

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

                                      -77-
<PAGE>


                             SALTON SEA ROYALTY LLC
                          NOTES TO FINANCIAL STATEMENTS

1.  ORGANIZATION AND OPERATIONS

Salton Sea Royalty LLC (the "Royalty Company") is a special-purpose  entity, 99%
owned by Magma  Power  Company  ("Magma")  and 1% owned by  Salton  Sea  Funding
Corporation (the "Funding  Corporation").  Magma is a wholly-owned subsidiary of
CE  Generation,  LLC ("CE  Generation")  which is owned  equally by  MidAmerican
Energy  Holdings  Company  ("MEHC") and El Paso  Merchant  Energy North  America
Company ("EPME") an indirect subsidiary of El Paso Corporation ("El Paso").

The Royalty Company receives an assignment of royalties and certain fees paid by
three partnership projects,  Del Ranch, Elmore and Leathers  (collectively,  the
"Partnership  Projects").  All of the  Partnership  Projects  are engaged in the
operation  of  geothermal  power  plants  in the  Imperial  Valley  in  Southern
California.  Substantially  all  of  the  assigned  royalties  are  based  on  a
percentage of energy and capacity revenue of the Partnership Projects.

Each of the Partnership Projects,  sells electricity generated by the respective
plants pursuant to four long-term power purchase  agreements ("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 makes 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.  Energy is sold at  increasing  fixed
rates for the first ten years of each contract and thereafter at a rate based on
the cost that Edison  avoids by  purchasing  energy from the project  instead of
obtaining the energy from other sources  ("Avoided  Cost of Energy").  The fixed
energy price periods of the  Partnership  Project SO4 Agreements  extended until
February 1996, December 1998 for Del Ranch and Elmore, and December 1999 for the
Leathers  Partnership.  In June and  November  2001,  the  Partnership  Projects
entered  into   agreements   that  provide  for  a  fixed  energy   payment  per
kilowatt-hour  ("kWh") in lieu of  Edison's  Avoided  Cost of Energy.  The fixed
energy  payments were 3.25 cents per kWh from December 1, 2001 through April 30,
2002 and 5.37  cents  per kWh  commencing  May 1, 2002 for a  five-year  period.
Following  the five-year  period,  the energy  payment  reverts back to Edison's
Avoided Cost of Energy.

For the year ended December 31, 2002,  2001 and 2000,  Edison's  average Avoided
Cost of Energy  was 3.5  cents,  7.4 cents and 5.8 cents per kWh,  respectively.
Estimates of Edison's future Avoided Cost of Energy vary substantially from year
to year. The Royalty  Company cannot predict the likely level of Avoided Cost of
Energy prices.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Impairment of Long-Lived Assets
-------------------------------

The  Royalty  Company  reviews   long-lived  assets  and  certain   identifiable
intangibles for impairment whenever events or changes in circumstances  indicate
that the carrying amount of an asset may not be recoverable.  An impairment loss
would be recognized,  based on discounted cash flows or various models, whenever
evidence exists that the carrying value is not recoverable.

Excess of Cost over Fair Value of Net Assets Acquired
-----------------------------------------------------

On  January  1,  2002,  the  Royalty  Company  adopted  Statement  of  Financial
Accounting  Standards  ("SFAS") No. 142,  "Goodwill and Other Intangible Assets"
("SFAS 142"),  which  establishes the accounting for acquired goodwill and other
intangible  assets, and provides that goodwill and  indefinite-lived  intangible
assets will not be  amortized,  but will be tested for  impairment  on an annual
basis. The Royalty  Company's related  amortization  consists solely of goodwill
amortization,  which has no income tax effect.  In accordance with SFAS 142, the
Royalty Company completed its initial goodwill impairment test, as of January 1,
2002, and its annual goodwill  impairment  test, as of October 31, 2002,  during
the fourth quarter of 2002,  primarily using a discounted cash flow methodology.
No impairment was indicated as a result of the impairment tests.

                                      -78-

<PAGE>

Following is a reconciliation of net income as originally reported for the years
ended December 31, 2002, 2001 and 2000, to adjusted net income (in thousands):

                                          2002     2001      2000
                                         ------   -------   ------

             Reported net income .....   $8,171   $10,092   $7,352
                 Goodwill amortization     --         908      908
                                         ------   -------   ------
             Adjusted net income .....   $8,171   $11,000   $8,260
                                         ======   =======   ======

Fair Values of Financial Instruments
------------------------------------

Fair values have been  estimated  based on quoted  market prices for debt issues
listed on exchanges.  Fair values of financial instruments that are not actively
traded  are  based on market  prices of  similar  instruments  and/or  valuation
techniques using market assumptions.  Unless otherwise noted, the estimated fair
value amounts do not differ significantly from recorded values.

Royalty Stream
--------------

The Royalty Company's policy is to provide  amortization  expense beginning upon
the commencement of revenue production over the estimated  remaining useful life
of the identifiable assets.

The royalty  streams have been assigned  values  separately  for each of (1) the
remaining  portion of the fixed  price  periods  of the  Projects'  power  sales
agreements and (2) the 20-year avoided cost periods of the Projects' power sales
agreements  and are  amortized  separately  over such periods using the straight
line method. At December 31, 2002 and 2001,  accumulated  amortization was $46.5
million and $45.8 million, respectively.

Basis of Presentation
---------------------

The accompanying  statement of operations  presents revenue and expenses,  which
have been assigned to the Royalty Company under the arrangements described above
on the  accrual  method of  accounting.  This  presentation  is a "carve out" of
information  from Magma and  certain of its  affiliates.  Such  revenue,  net of
related expenses,  guarantee loans from the Funding Corporation,  a wholly-owned
subsidiary of Magma.

The financial statements reflect the acquisition of Magma and the resulting push
down  to  the  Royalty  Company  of  the  accounting  as  a  purchase   business
combination.

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

Reclassifications
-----------------

Certain reclassifications were made to the 2001 and 2000 financial statements to
conform to the 2002 presentation.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements
-----------------------------

In August 2001,  the  Financial  Accounting  Standards  Board  ("FASB"),  issued
Statement of Financial  Accounting  Standards ("SFAS") No. 143,  "Accounting for
Asset Retirement Obligations" ("SFAS 143"). SFAS 143

                                      -79-
<PAGE>

requires  recognition on the balance sheet of legal obligations  associated with
the  retirement  of  long-lived   assets  that  result  from  the   acquisition,
construction,  development and/or normal operation of such assets. Additionally,
at the time an asset retirement obligation ("ARO"), is recognized,  an ARO asset
of the same amount is recorded and depreciated.  This pronouncement is effective
for fiscal years  beginning  after June 15, 2002.  The Royalty  Company does not
expect  the  adoption  of SFAS 143 to have a  material  effect on its  financial
position, results of operations or cash flows.

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  and  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees  of  Indebtedness  of Others"  ("FIN 45").  FIN 45 requires that upon
issuance of a guarantee,  a guarantor  must  recognize a liability  for the fair
value  of an  obligation  assumed  under  a  guarantee.  FIN  45  also  requires
additional  disclosures  by a  guarantor  in its  interim  and annual  financial
statements  about  the  obligations   associated  with  guarantees  issued.  The
recognition  provisions  of FIN 45 are effective  for any  guarantees  issued or
modified after December 31, 2002. The disclosure  requirements are effective for
financial  statements  of interim or annual  periods  ending after  December 15,
2002.  The Royalty  Company  does not expect the  adoption of FIN 45 will have a
material effect on its financial position, results of operations, or cash flows.

3.  SENIOR PROJECT NOTE

The Royalty  Company has a project  note  payable to Funding  Corporation  at an
interest rate of 7.37%.  Principal maturities of the senior secured project note
are as follows (in thousands):

                                          AMOUNTS
                                           ------

                              2003.......  $  304
                              2004.......     408
                              2005.......     435
                                           ------
                              Total .....  $1,147
                                           ======

The  estimated  fair values of the senior  secured  project note at December 31,
2002 and 2001 were $1.1 million and $4.6 million, respectively.

The Royalty Company has also guaranteed,  along with other guarantors,  the debt
of Funding  Corporation,  which amounted to $491.7 million at December 31, 2002.
The guarantee issued is collateralized by a lien on substantially all the assets
of and a pledge of stock in the Royalty Company. The structure has been designed
to  cross   collateralize   cash  flows  from  each   guarantor   without  cross
collateralizing all of the guarantors' assets.

4.  CONTINGENCY

Edison is a public  utility  primarily  engaged  in the  business  of  supplying
electric  energy  to  retail  customers  in  Central  and  Southern  California,
excluding  Los  Angeles.  Due  to  reduced  liquidity,   Edison  failed  to  pay
approximately $119 million owed under the power purchase agreements with certain
Guarantors  Partnership  Projects for power delivered in the fourth quarter 2000
and  the  first  quarter  2001.  Due to  Edison's  failure  to  pay  contractual
obligations,  the Guarantors had established an allowance for doubtful  accounts
of approximately $21.0 million as of December 31, 2001.

The final  payment of past due  amounts by Edison  was  received  March 1, 2002.
Following  the  receipt of  Edison's  final  payment of past due  balances,  the
Guarantors released the remaining allowance for doubtful accounts.

As a result of  uncertainties  related  to  Edison,  the  letter of credit  that
supports the debt service reserve fund at Salton Sea Funding Corporation has not
been extended  beyond its current July 2004  expiration  date,  and as such cash
distributions  are not available to CE  Generation  until the Salton Sea Funding
Corporation  debt service reserve fund of  approximately  $67.6 million has been
funded or the letter of credit has been extended beyond its July 2004 expiration
date or replaced.  The fund has a cash  balance of $48.5  million as of December
31, 2002.

                                      -80-

<PAGE>


5.  SUBSEQUENT EVENTS

On January 29, 2003,  EPME sold all its interest in CE  Generation  to TransAlta
USA Inc. ("TransAlta"), an affiliate of TransAlta Corporation.

                                      -81-

<PAGE>


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

     Not applicable.

                                      -82-

<PAGE>

                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Set forth below are the current  executive  officers of the Funding  Corporation
and the Guarantors and their positions with the Funding  Corporation and each of
the Guarantors (or general partner thereof):

     EXECUTIVE OFFICER          POSITION

     Edward J. Heinrich         President
     Gregory E. Abel*           Director and President
     Wayne F. Irmiter           Vice President and Controller
     Douglas L. Anderson        Director and Senior Vice President
     Ian A. Bourne              Director
     J. Thomas Coyle            Director
     Patrick J. Goodman         Director

* Gregory E. Abel is  Director of  CalEnergy  Minerals  and Salton Sea  Minerals
Corp. only.

EDWARD  J.  HEINRICH,   49,  President  of  CE  Generation  and  each  Guarantor
subsidiary,   is  responsible  for  independent   power  plant   operations  and
construction  in the United States.  Mr. Heinrich joined the company in November
1993. From December 1987 to October 1993, he was site manager for Sithe Energies
U.S.A.,  Inc., a non-utility  developer of power facilities.  Prior to that, Mr.
Heinrich   worked  in  engineering   for  the  U.S.   Navy,   with  a  focus  on
turbine-powered  ships.  Mr.  Heinrich has also served as a project  manager for
Sundt Corporation, a construction and construction management company.

GREGORY E. ABEL,  40,  Director for  CalEnergy  Minerals and Salton Sea Minerals
Corp. only. Mr. Abel joined MEHC in 1992. Mr. Abel is a Chartered Accountant and
from 1984 to 1992 he was employed by Price  Waterhouse.  As a Manager in the San
Francisco  office of Price  Waterhouse,  he was  responsible  for clients in the
energy industry.

WAYNE F. IRMITER, 37, Vice President and Controller.  Mr. Irmiter joined MEHC as
Vice President and Chief  Accounting  Officer in November 2002. Mr. Irmiter is a
Certified  Public  Accountant  and  from  1988  to  1993  he  worked  in  public
accounting.  Most  recently,  Mr.  Irmiter  was with  Gateway,  Inc.  in various
management    positions    including    Director-Strategic    Initiatives    and
Director-Finance.

DOUGLAS L. ANDERSON, 45, Director,  Senior Vice President and General Counsel of
CalEnergy  Minerals  and Salton Sea  Minerals  Corp and  Director,  Senior  Vice
President and General Counsel of the other Guarantor subsidiaries.  Mr. Anderson
joined MEHC in February  1993.  From 1990 to 1993,  Mr.  Anderson was a business
attorney  with  Fraser,  Stryker  in  Omaha.  Prior to that Mr.  Anderson  was a
principal in the firm Anderson & Anderson.

IAN A. BOURNE,  55,  Executive  Vice  President and Chief  Financial  Officer of
TransAlta and a director of CE Generation  and each  Guarantor  subsidiary.  Mr.
Bourne  joined  TransAlta  in January  1998 as senior vice  president  and chief
financial  officer  and was  appointed  to his  current  position  June 1, 1998.
Immediately  prior to  joining  TransAlta,  Mr.  Bourne  had been  senior  vice-
president  and chief  financial  officer of Canada Post  Corporation  from 1992.
Prior to 1992 Mr.  Bourne gained  extensive  financial  experience  with General
Electric,  including  positions as European  treasurer,  based in London;  chief
financial  officer  for GE Canada,  and chief  financial  officer for GE Medical
Systems Europe, based in Paris.

                                      -83-

<PAGE>


J. THOMAS COYLE,  55,  President of TransAlta  Energy  Marketing U.S. Inc. and a
director of CE  Generation  and each  assigning  subsidiary.  Mr.  Coyle  joined
TransAlta in 1998 as Director,  Risk  Portfolio  Management,  Energy  Marketing.
Prior to joining TransAlta, Mr. Coyle held variouspositions at Petro-Canada from
1986 to 1997 including Portfolio Manager - Natural Gas Marketing, Manager Market
Development - Natural Gas Marketing and Risk Manager.

PATRICK J. GOODMAN,  36,  Director.  Mr.  Goodman  joined MEHC in June 1995, and
served in various accounting positions including Senior Vice President and Chief
Accounting Officer. Mr. Goodman was promoted to Chief Financial Officer in April
1999.  Prior to joining MEHC, Mr.  Goodman was a financial  manager for National
Indemnity Company and a senior associate at Coopers & Lybrand.

ITEM 11.  EXECUTIVE COMPENSATION.

The Funding  Corporation's and the Guarantors'  directors and executive officers
receive no remuneration for serving in such capacities.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS.

Description of Capital Stock
----------------------------

As of December 31, 2002, the authorized capital stock of the Funding Corporation
consisted  of 1,000  shares of common  stock,  par  value  $0.01 per share  (the
"Common  Stock"),  of which  100  shares  were  outstanding.  There is no public
trading  market for the Common  Stock.  As of December 31,  2002,  there was one
holder of record of the Common  Stock.  Holders of Common  Stock are entitled to
one vote per share on any matter coming before the stockholders for a vote.

The Funding  Corporation  does not expect in the  foreseeable  future to pay any
dividends on the Common Stock. The Indenture  contains  certain  restrictions on
the payment of dividends with respect to the Common Stock.

Principal Holders
-----------------

Since  the  formation  of the  Funding  Corporation  in  June  1995,  all of the
outstanding  shares of Common Stock have been owned by Magma.  Magma directly or
indirectly  owns all of the capital  stock of or  partnership  interests  in the
Funding Corporation and the Guarantors.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Other Relationships and Related Transactions
--------------------------------------------

The Salton Sea Projects' and the Partnership  Projects'  geothermal power plants
are  owned,  administered  and  operated  by Magma  or  subsidiaries  of  Magma.
Geothermal  fluid  supplying  these  facilities  is provided  from Magma's (or a
subsidiary's) geothermal resource holdings in the SSKGRA.

In  providing  rights  to  geothermal   resources  and/or   geothermal   fluids,
administering and operating the geothermal power plants, and disposing of solids
from these  facilities,  Magma  (directly  and  through  subsidiaries)  receives
certain royalties,  cost reimbursements and fees for its services and the rights
it provides. See the financial statements in Item 8.

The Funding  Corporation  believes that the  transactions  with related  parties
described  above,  taking into  consideration  all of the  respective  terms and
conditions  of each of the relevant  contracts and  agreements,  are at least as
favorable  to the  Guarantors  as those  which  could  have been  obtained  from
unrelated parties in arms' length negotiations.

Relationship of the Funding Corporation and the Guarantors to Magma and MEHC
----------------------------------------------------------------------------

The Funding  Corporation is a wholly owned direct  subsidiary of Magma organized
for the sole  purpose  of  acting  as  issuer  of the  Securities.  The  Funding
Corporation is restricted,  pursuant to the terms of the Indenture, to acting as

                                      -84-
<PAGE>

issuer  of  the  Securities  and  other  indebtedness  as  permitted  under  the
Indenture, making loans to the Guarantors pursuant to the Credit Agreements, and
transactions related thereto. The Funding Corporation and each of the Guarantors
(and, in the case of SSBP, SSPG,  Elmore,  Leathers,  Del Ranch and Vulcan,  the
general partners thereof) have been organized and are operated as legal entities
separate  and apart  from  MEHC,  El Paso,  CE  Generation,  Magma and any other
Affiliates  of MEHC, El Paso, CE  Generation  or Magma,  and,  accordingly,  the
assets of the Funding  Corporation and the Guarantors (and, in the case of SSBP,
SSPG, Elmore, Leathers, Del Ranch and Vulcan, the general partners thereof) will
not be  generally  available to satisfy the  obligations  of MEHC,  El Paso,  CE
Generation,  Magma or any other  Affiliates  of MEHC,  El Paso, CE Generation or
Magma; provided,  however, that unrestricted cash of the Funding Corporation and
the Guarantors or other assets which are available for distribution may, subject
to applicable law and the terms of financing  arrangements  of such parties,  be
advanced,  loaned, paid as dividends or otherwise  distributed or contributed to
MEHC, El Paso, CE Generation, Magma or Affiliates thereof.

ITEM 14.  CONTROLS AND PROCEDURES.

a)   Evaluation of disclosure  controls and  procedures:  Based on the Company's
     evaluation  as of a date  within 90 days of the filing  date of this Annual
     Report  on  Form  10-K,  the  principal  executive  officer  and  principal
     financial officer have concluded that the Company's disclosure controls and
     procedures  (as  defined  in  Rules   13a-14(c)  and  15d-14(c)  under  the
     Securities Exchange Act of 1934 (the Exchange Act)) are effective to ensure
     that information required to be disclosed by the Company in reports that it
     files or submit under the Exchange Act is recorded,  processed,  summarized
     and reported  within the time periods  specified in Securities and Exchange
     Commission  rules and  forms.  It should  be noted  that the  design of any
     system of  controls  is based in part upon  certain  assumptions  about the
     likelihood of future events,  and there can be no assurance that any design
     will  succeed in  achieving  its stated  goals under all  potential  future
     conditions, regardless of how remote.

b)   Changes in  internal  controls.  There were no  significant  changes in the
     Company's  internal  controls or in other factors that could  significantly
     affect these  controls  subsequent to the date of their  evaluation.  There
     were no  significant  deficiencies  or material  weaknesses,  and therefore
     there were no corrective actions taken.

                                      -85-

<PAGE>


                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

     a)   Financial Statements and Schedules

          (i)  Financial Statements

               Financial Statements are included in Part II of this Form 10-K

          (ii) Financial Statement Schedules

               See  schedule II on page 109.

     b)   Reports on Form 8-K

          The  Company filed a Current Report on Form 8-K on November 14, 2002.

     c)   Exhibits

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

          For the  purposes  of  complying  with  the  amendments  to the  rules
          governing Form S-4 effective July 13, 1990 under the Securities Act of
          1933, the undersigned hereby undertakes as follows,  which undertaking
          shall be  incorporated  by  reference  into the Funding  Corporation's
          currently effective Registration Statements on Form S-4.

          Insofar  as   indemnification   for  liabilities   arising  under  the
          Securities  Act of 1933 may be  permitted to  directors,  officers and
          controlling persons of the registrant, the registrant has been advised
          that in the  opinion  the  Securities  and  Exchange  Commission  such
          indemnification   is  against   public  policy  as  expressed  in  the
          Securities Act of 1933 and is, therefore,  unenforceable. In the event
          that a claim for indemnification  against such liabilities (other than
          the  payment  by the  registrant  of  expenses  incurred  or paid by a
          director,  officer  or  controlling  person of the  registrant  in the
          successful  defense of any action,  suit or proceeding) is asserted by
          such director,  officer or controlling  person in connection  with the
          securities  being  registered,  the  registrant  will,  unless  in the
          opinion of its  counsel  the matter  has been  settled by  controlling
          precedent,  submit to a court of appropriate jurisdiction the question
          of whether  such  indemnification  by it is against  public  policy as
          expressed in the Act and will be governed by the final adjudication of
          such issue.

     d)   Financial  statements  required by Regulations S-X, which are excluded
          from the Annual Report by Rule 14a-3(b).

          Not  Applicable

                                      -86-
<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 March 28, 2003.

                               SALTON SEA FUNDING CORPORATION

                               By:/s/  Edward J. Heinrich
                                  ------------------------
                                       Edward J. Heinrich
                                       President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                   March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                      -87-

<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 March 28, 2003.

                                       SALTON SEA BRINE PROCESSING, L.P.
                                       a California limited partnership

                                       By:     Salton Sea Power Company,
                                               a California corporation, its
                                               general partner

                                       By:/s/  Edward J. Heinrich
                                          ------------------------
                                               Edward J. Heinrich
                                               President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                   March 28, 2003
------------------------
Patrick J. Goodman
Director


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


                                      -88-


<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 March 28, 2003.

                               SALTON SEA POWER GENERATION, L.P.,
                               a California  limited partnership

                               By:  Salton Sea Power Company, a
                                    California corporation, its
                                    general partner

                               By:/s/  Edward J. Heinrich
                                  ------------------------
                                       Edward J. Heinrich
                                       President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                   March 28, 2003
------------------------
Patrick J. Goodman
Director


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


                                      -89-

<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 March 28, 2003.

                               FISH LAKE POWER LLC

                               By:/s/  Edward J. Heinrich
                                  ------------------------
                                       Edward J. Heinrich
                                       President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman                                      March 28, 2003
------------------------
Patrick J. Goodman
Director


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


                                      -90-

<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 March 28, 2003.

                              VULCAN POWER COMPANY

                              By:/s/  Edward J. Heinrich
                                 -----------------------
                                      Edward J. Heinrich
                                      President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman                                      March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                      -91-

<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 March 28, 2003.

                         CALENERGY OPERATING CORPORATION

                              By:/s/  Edward J. Heinrich
                              ----------------------------
                                      Edward J. Heinrich
                                      President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/ Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                    March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                          March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman                                      March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                      -92-


<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 March 28, 2003.

                             SALTON SEA ROYALTY LLC

                             By:/s/  Edward J. Heinrich
                                ------------------------
                                     Edward J. Heinrich
                                     President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                    March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                          March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                       March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                   March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                      -93-


<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 March 28, 2003.

                                LEATHERS, L.P., a
                                California limited partnership

                                By:  CalEnergy Operating Corporation, a
                                Delaware corporation, its
                                general partner

                                By:/s/ Edward J. Heinrich
                                   -----------------------
                                       Edward J. Heinrich
                                       President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                    March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                          March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                       March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                   March 28, 2003
------------------------
Patrick J. Goodman
Director


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


                                      -94-

<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 March 28, 2003.

                  ELMORE L.P., a California limited partnership

                  By:  CalEnergy Operating Corporation, a
                       Delaware corporation, its
                       general partner

                  By:/s/ Edward J. Heinrich
                     -----------------------
                         Edward J. Heinrich
                         President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                    March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                          March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                       March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                   March 28, 2003
------------------------
Patrick J. Goodman
Director


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


                                      -95-


<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 March 28, 2003.

                                DEL RANCH L.P., a
                                California limited partnership

                                By:  CalEnergy Operating Corporation, a
                                Delaware corporation, its
                                general partner

                                By:/s/ Edward J. Heinrich
                                   -----------------------
                                       Edward J. Heinrich
                                       President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------
/s/ Edward J. Heinrich                                     March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                      March 28, 2003
------------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                    March 28, 2003
------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                          March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                       March 28, 2003
------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                   March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                      -96-



<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 March 28, 2003.

                             VPC GEOTHERMAL LLC., a
                             Delaware corporation

                             By:/s/ Edward J. Heinrich
                                -----------------------
                                    Edward J. Heinrich
                                    President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------
/s/ Edward J. Heinrich                                      March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                    March 28, 2003
------------------------
Patrick J. Goodman
Director


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


                                      -97-

<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 March 28, 2003.

                            NIGUEL ENERGY COMPANY, a
                            California  corporation

                            By:/s/ Edward J. Heinrich
                               -----------------------
                                   Edward J. Heinrich
                                   President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                      March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                    March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                      -98-




<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 March 28, 2003.

                            CONEJO ENERGY COMPANY, a
                            California  corporation

                            By:/s/ Edward J. Heinrich
                               -----------------------
                                   Edward J. Heinrich
                                   President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------
/s/ Edward J. Heinrich                                      March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/   Patrick J. Goodman                                    March 28, 2003
------------------------
Patrick J. Goodman
Director


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


                                      -99-


<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 March 28, 2003.

                          SAN FELIPE ENERGY COMPANY, a
                          California corporation

                           By:/s/ Edward J. Heinrich
                              -----------------------
                                  Edward J. Heinrich
                                  President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------
/s/ Edward J. Heinrich                                      March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman                                      March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                     -100-


<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 March 28, 2003.

                      VULCAN/BN GEOTHERMAL POWER COMPANY, a
                      Nevada general partnership

                      By: VULCAN POWER COMPANY, a
                          Nevada corporation, Partner

                      By:/s/ Edward J. Heinrich
                         -----------------------
                             Edward J. Heinrich
                             President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------
/s/ Edward J. Heinrich                                      March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman                                      March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                     -101-


<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 March 28, 2003.

                           SALTON SEA POWER L.L.C., a
                           Delaware Limited Liability Company

                           By:/s/ Edward J. Heinrich
                              -----------------------
                                  Edward J. Heinrich
                                  President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                      March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman                                      March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                     -102-

<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 March 28, 2003.

                       CE TURBO LLC, a
                       Delaware Limited Liability Company

                       By:/s/ Edward J. Heinrich
                          -----------------------
                              Edward J. Heinrich
                              President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------

/s/ Edward J. Heinrich                                      March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman                                      March 28, 2003
------------------------
Patrick J. Goodman
Director


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

                                     -103-


<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 March 28, 2003.

                              CE SALTON SEA INC., a
                              Delaware Corporation

                              By:/s/ Edward J. Heinrich
                                 -----------------------
                                     Edward J. Heinrich
                                     President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------
/s/ Edward J. Heinrich                                      March 28, 2003
-----------------------
Edward J. Heinrich
President
(Principal Executive Officer)

/s/  Wayne F. Irmiter                                       March 28, 2003
----------------------
Wayne F. Irmiter
Vice President and Controller
(Principal Accounting Officer)

/s/ Douglas L. Anderson                                     March 28, 2003
-------------------------
Douglas L. Anderson
Director

/s/ Ian A Bourne*                                           March 28, 2003
-----------------
Ian A. Bourne
Director

/s/ J. Thomas Coyle*                                        March 28, 2003
---------------------------
J. Thomas Coyle
Director

/s/ Patrick J. Goodman                                      March 28, 2003
------------------------
Patrick J. Goodman
Director


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


                                     -104-

<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 March 28, 2003.

                            CALENERGY MINERALS LLC, a
                            Delaware Limited Liability Company

                            By: /s/ Gregory E. Abel
                                ----------------------
                                 Gregory E. Abel
                                Director and President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------


/s/ Gregory E. Abel                                         March 28, 2003
-------------------
Gregory E. Abel
Director and President
(Principal Executive Officer)

/s/ Patrick J. Goodman                                      March 28, 2003
-----------------------
Patrick J. Goodman
Director, Senior Vice President
  and Chief Financial Officer
(Principal Accounting Officer)

/s/   Douglas L. Anderson                                   March 28, 2003
-------------------------
Douglas L. Anderson
Director, Senior Vice President and General Counsel



                                     -105-

<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 March 28, 2003.

                          SALTON SEA MINERALS CORP., a
                          Delaware Corporation

                          By:  /s/ Gregory E. Abel
                             ----------------------
                             Gregory E. Abel
                             Director and President

     Pursuant to the  requirements of the Securities Act of 1933, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,  each
thereunto duly authorized in the City of Omaha, State of Nebraska,  on the dates
indicated.

Signature                                                        Date
--------------------------------------------------------------------------


/s/ Gregory E. Abel                                        March 28, 2003
-------------------
Gregory E. Abel
Director and President
(Principal Executive Officer)

/s/ Patrick J. Goodman                                     March 28, 2003
-----------------------
Patrick J. Goodman
Director, Senior Vice President
  and Chief Financial Officer
(Principal Accounting Officer)

/s/   Douglas L. Anderson                                   March 28, 2003
-------------------------
Douglas L. Anderson
Director, Senior Vice President
  and General Counsel




                                     -106-

<PAGE>




                     SECTION 302 CERTIFICATION FOR FORM 10-K


CERTIFICATIONS


I, Edward J. Heinrich, certify that:


1. I have  reviewed  this  annual  report  on Form 10-K of  Salton  Sea  Funding
Corporation;


2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;


4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;


b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and


c) presented in this quarterly report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):


a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and


b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and


6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003

                               /s/ Edward J. Heinrich
                            -----------------------------
                                   Edward J. Heinrich
                                   President
                            (principal executive officer)

                                     -107-

<PAGE>



                     SECTION 302 CERTIFICATION FOR FORM 10-K


CERTIFICATIONS


I, Wayne F. Irmiter, certify that:


1. I have  reviewed  this  annual  report  on Form 10-K of  Salton  Sea  Funding
Corporation;


2. Based on my  knowledge,  this  quarterly  report  does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;


3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;


4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:


a) designed  such  disclosure  controls and  procedures  to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others  within those  entities,  particularly  during the
period in which this quarterly report is being prepared;


b) evaluated  the  effectiveness  of the  registrant's  disclosure  controls and
procedures  as of a date  within  90  days  prior  to the  filing  date  of this
quarterly report (the "Evaluation Date"); and


c) presented in this quarterly report our conclusions about the effectiveness of
the  disclosure  controls  and  procedures  based  on our  evaluation  as of the
Evaluation Date;


5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):


a) all significant  deficiencies in the design or operation of internal controls
which  could  adversely  affect the  registrant's  ability  to record,  process,
summarize and report  financial data and have  identified  for the  registrant's
auditors any material weaknesses in internal controls; and


b) any  fraud,  whether  or not  material,  that  involves  management  or other
employees who have a significant role in the registrant's internal controls; and


6. The  registrant's  other  certifying  officers  and I have  indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:  March 28, 2003

                            /s/ Wayne F. Irmiter
                          -----------------------------
                                Wayne F. Irmiter
                          Vice President and Controller
                          (principal financial officer)


                                     -108-

<PAGE>

                                                                  SCHEDULE II

                         SALTON SEA FUNDING CORPORATION
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                                 (in thousands)

         COLUMN A                 COLUMN B     COLUMN C   COLUMN D    COLUMN E
--------------------------------  ----------  ---------   ---------   --------
                                  Balance at  Additions
                                  Beginning   Charged to             Balance at
                                     Year       Income    Deductions End of Year
                                  ----------  ----------  ----------  ----------
Allowance for doubtful accounts
  Salton Sea Guarantors:

    Year ended 2002 ............    $  9,829   $   --      $  6,029    $  3,800
                                    ========   ========    ========    ========

    Year ended 2001 ............    $   --     $  9,829    $   --      $  9,829
                                    ========   ========    ========    ========

    Year ended 2000 ............    $   --     $   --      $   --      $   --
                                    ========   ========    ========    ========


Partnership Guarantors:

  Year ended 2002 ..............    $ 14,925   $   --      $ 12,229    $  2,696
                                    ========   ========    ========    ========

  Year ended 2001 ..............    $   --     $ 14,925    $   --      $ 14,925
                                    ========   ========    ========    ========

  Year ended 2000 ..............    $   --     $   --      $   --      $   --
                                    ========   ========    ========    ========

                                     -109-

<PAGE>


                                INDEX TO EXHIBITS


Exhibit No.                   Description of Exhibit
-----------                   -----------------------

3.1       Articles of Incorporation of the Funding Corporation  (incorporated by
          reference  to  Exhibit  3.1 to the  Funding  Corporation  Registration
          Statement on Form S-4 dated August 9, 1995, 33-95538 ("Form S-4")).

3.2       By-laws of the  Funding  Corporation  (incorporated  by  reference  to
          Exhibit 3.2 to the Funding Corporation Form S-4).

3.3       Limited  Partnership  Agreement of SSBP  (incorporated by reference to
          Exhibit 3.3 to the Funding Corporation Form S-4).

3.4       Limited  Partnership  Agreement of SSPG  (incorporated by reference to
          Exhibit 3.4 to the Funding Corporation Form S-4).

3.5       Certificate of Formation of Fish Lake, LLC  (incorporated by reference
          to  Exhibit  3.5 to the  Amendment  No. 1 dated  June 29,  1999 of the
          Funding Corporation Form S-4 ("99 Form S 4)).

3.6       Limited  Liability  Company  Agreement of Fish Lake  (incorporated  by
          reference to Exhibit 3.6 to the Funding Corporation Form 99 Form S-4).

3.7       Articles of Incorporation of VPC (incorporated by reference to Exhibit
          3.7 to the Funding Corporation Form S-4).

3.8       By-laws  of VPC  (incorporated  by  reference  to  Exhibit  3.8 to the
          Funding Corporation Form S-4).

3.9       Articles  of  Incorporation  of CEOC  (incorporated  by  reference  to
          Exhibit 3.9 to the Funding Corporation Form S-4).

3.10      By-laws of CEOC  (incorporated  by  reference  to Exhibit  3.10 to the
          Funding Corporation Form S-4).

3.11      Certificate  of Formation of the Royalty  Guarantor  (incorporated  by
          reference to Exhibit 3.11 to the Funding Corporation 99 Form S-4).

3.12      Limited   Liability   Company   Agreement  of  the  Royalty  Guarantor
          (incorporated by reference to Exhibit 3.12 to the Funding  Corporation
          99 Form S-4).

3.13      Certificate of Formation of VPC Geothermal  (incorporated by reference
          to Exhibit 3.13 to the Funding Corporation 99 Form S 4).

3.14      Limited Liability Company Agreement of VPG Geothermal (incorporated by
          reference to Exhibit 3.14 to the Funding Corporation 99 Form S-4).

3.15      Articles of Incorporation of San Felipe  (incorporated by reference to
          Exhibit 3.15 to the Funding Corporation Registration Statement of Form
          S-4  dated  July 2,  1996,  333-07527  ("Funding  Corporation  II Form
          S-4")).

3.16      By-laws of San Felipe  (incorporated  by  reference to Exhibit 3.16 to
          the Funding Corporation II Form S-4).

3.17      Articles of  Incorporation  of Conejo  (incorporated  by  reference to
          Exhibit 3.17 to the Funding Corporation II Form S-4).

3-18      By-laws of Conejo  (incorporated  by  reference to Exhibit 3.18 to the
          Funding Corporation II Form S-4).

                                     -110-
<PAGE>


3.19      Articles of  Incorporation  of Niguel  (incorporated  by  reference to
          Exhibit 3.19 to the Funding Corporation II Form S-4).

3.20      By-laws of Niguel  (incorporated  by  reference to Exhibit 3.20 to the
          Funding Corporation II Form S-4).

3.21      General Partnership  Agreement of Vulcan (incorporated by reference to
          Exhibit 3.21 to the Funding Corporation II Form S-4).

3.22      Limited Partnership  Agreement of Leathers  (incorporated by reference
          to Exhibit 3.22 to the Funding Corporation II Form S-4).

3.23      Amended  and  Restated  Limited  Partnership  Agreement  of Del  Ranch
          (incorporated by reference to Exhibit 3.23 to the Funding  Corporation
          II Form S-4).

3.24      Amended  and  Restated   Limited   Partnership   Agreement  of  Elmore
          (incorporated by reference to Exhibit 3.24 to the Funding  Corporation
          II Form S-4).

3.25      Certificate of Formation of CalEnergy  Minerals LLC  (incorporated  by
          reference to Exhibit 3.25 to the Funding Corporation 99 Form S-4)

3.26      Limited  Liability   Company  Agreement  of  CalEnergy   Minerals  LLC
          (incorporated by reference to Exhibit 3.26 to the Funding  Corporation
          99 Form S-4).

3.27      Certificate of Formation of CE Turbo LLC (incorporated by reference to
          Exhibit 3.27 to the Funding Corporation 99 Form S-4).

3.28      Limited  Liability  Company Agreement of CE Turbo LLC (incorporated by
          reference to Exhibit 3.28 to the Funding Corporation 99 Form S-4).

3.29      Articles  of  Incorporation  of CESS  (incorporated  by  reference  to
          Exhibit 3.29 to the Funding Corporation 99 Form S-4).

3.30      By-laws of CESS  (incorporated  by  reference  to Exhibit  3.30 to the
          Funding Corporation 99 Form S-4).

3.31      Articles  of  Incorporation  of SSMC  (incorporated  by  reference  to
          Exhibit 3.31 to the Funding Corporation 99 Form S-4).

3.32      By-laws of SSMC  (incorporated  by  reference  to Exhibit  3.32 to the
          Funding Corporation 99 Form S-4).

3.33      Certificate  of Formation of Power LLC  (incorporated  by reference to
          Exhibit 3.33 to the Funding Corporation 99 Form S-4).

3.34      Limited  Liability  Company  Agreement of Power LLC  (incorporated  by
          reference to Exhibit 3.34 to the Funding Corporation 99 Form S-4).

4.1(a)    Indenture, dated as of July 21, 1995, between Chemical Trust Company
          of California and the Funding  Corporation  (incorporated by reference
          to Exhibit 4.1(a) to the Funding Corporation Form S-4).

4.1(b)    First Supplemental Indenture,  dated as of October 18, 1995, between
          Chemical  Trust  Company of  California  and the  Funding  Corporation
          (incorporated   by  reference   to  Exhibit   4.1(b)  to  the  Funding
          Corporation Form S-4).

4.1(c)    Second  Supplemental  Indenture,  dated as of June 20, 1996, between
          Chemical  Trust  Company of  California  and the  Funding  Corporation
          (incorporated   by  reference   to  Exhibit   4.1(c)  to  the  Funding
          Corporation II Form S-4).

                                     -111-
<PAGE>

4.1(d)    Third  Supplemental  Indenture  between  Chemical  Trust  Company of
          California and the Funding  Corporation  (incorporated by reference to
          Exhibit 4.1(d) to the Funding Corporation II Form S-4).

4.1(e)    Fourth  Supplemental  Indenture  between  Chemical  Trust Company of
          California and the Funding  Corporation  (incorporated by reference to
          Exhibit  4.1(e) to the  Funding  Corporation  Form 10-K/A for the year
          ending December 31, 1998).

4.2       Amended and Restated  Salton Sea Secured  Guarantee,  dated as of July
          21,  1995,  by SSBP,  SSPG and Fish  Lake in favor of  Chemical  Trust
          Company of California (incorporated by reference to Exhibit 4.2 to the
          Funding Corporation Form S-4).

4.3       Second Amended and Restated  Partnership  Secured  Limited  Guarantee,
          dated as of October 13, 1998 by CEOC,  and VPC,  Conejo,  Niguel,  Sal
          Felipe,  BNG,  Del  Ranch,  Elmore,  Leathers  and  Vulcan in favor of
          Chemical  Trust  Company of California  (incorporated  by reference to
          Exhibit  4.3(c) to the  Funding  Corporation  Form 10-K/A for the year
          ending December 31, 1998).

4.4       Royalty  Guarantor  Secured  Limited  Guarantee,  dated as of July 21,
          1995, by the Royalty  Guarantor in favor of Chemical  Trust Company of
          California  (incorporated  by  reference to Exhibit 4.4 to the Funding
          Corporation Form S-4).

4.5(a)    Exchange and Registration Rights Agreement,  dated July 21, 1995, by
          and among CS First Boston  Corporation,  Lehman  Brothers Inc. and the
          Funding  Corporation  (incorporated by reference to Exhibit 4.5 to the
          Funding Corporation Form S-4).

4.5(b)    Exchange and Registration Rights Agreement,  dated June 20, 1996, by
          and between CS First Boston  Corporation  and the Funding  Corporation
          (incorporated  by reference to Exhibit 4.5 to the Funding  Corporation
          II Form S-4).

4.5(c)    Exchange and Registration  Rights Agreement,  dated October 13, 1998
          by and among CS First Boston Corporation, Goldman Sachs & Co., and the
          Funding  Corporation  (incorporated  by reference to Exhibit 4.5(c) of
          the 99 Form S-4).

4.6(a)    Collateral Agency and Intercreditor Agreement,  dated as of July 21,
          1995,  by  and  among  Credit   Suisse,   Chemical  Trust  Company  of
          California,  the Funding Corporation and the Guarantors  (incorporated
          by reference to Exhibit 4.6 to the Funding Corporation Form S-4).

4.6(b)    First  Amendment  to  the  Collateral   Agency  and   Intercreditor
          Agreement,  dated as of June 20,  1996,  by and among  Credit  Suisse,
          Chemical Trust Company of California,  the Funding Corporation and the
          Guarantors (incorporated by reference to Exhibit 4.6(b) to the Funding
          Corporation II Form S-4).

4.6(c)    Second  Amendment  to  the  Collateral   Agency  and  Intercreditor
          Agreement,  dated as of October 13, 1998, by and among Credit  Suisse,
          Chemical Trust Company of California,  the Funding Corporation and the
          Guarantors (incorporated by reference to Exhibit 4.6(c) to the Funding
          Corporation Form 10-K/A for the year ending December 31, 1998).

4.7       Stock  Pledge  Agreement,  dated as of July 21,  1995,  by Magma Power
          Company in favor of Chemical Trust Company of California (incorporated
          by reference to Exhibit 4.7 to the Funding Corporation Form S-4).

4.8(a)    Purchase  Agreement,  dated  July 18,  1995,  by and among CS First
          Boston  Corporation,  Lehman  Brothers  Inc.,  the  Guarantors and the
          Funding  Corporation  (incorporated by reference to Exhibit 4.8 to the
          Funding Corporation Form S-4).

4.8(b)    Purchase  Agreement,  dated  June 17,  1996,  by and among CS First
          Boston  Corporation,   the  Guarantors  and  the  Funding  Corporation
          (incorporated  by reference to Exhibit 4.8 to the Funding  Corporation
          II Form S-4).

                                     -112-
<PAGE>

4.8(c)    Purchase  Agreement,  dated  October  13, 1998 by and among CS First
          Boston  Corporation,   the  Guarantors  and  the  Funding  Corporation
          (incorporated   by  reference   to  Exhibit   4.8(c)  to  the  Funding
          Corporation Form 10-K/A for the year ending December 31, 1998).

4.9       Support  Letter,  dated as of July 21, 1995,  by and among Magma Power
          Company,  the Funding Corporation and the Guarantors  (incorporated by
          reference to Exhibit 4.9 to the Funding Corporation Form S-4).

4.10      Debt Service  Reserve  Letter of Credit and  Reimbursement  Agreement,
          dated as of July 21,  1995,  by and  among  the  Funding  Corporation,
          certain banks and Credit Suisse,  as agent  (incorporated by reference
          to Exhibit 4.10 to the Funding Corporation Form S-4).

4.10(a)   Amendment to Notes and to Amended  Debt Service  Reserve  Letter of
          Credit and  Reimbursement  Agreement,  dated  October 13, 1998, by and
          among the Funding  Corporation,  certain banks and Credit  Suisse,  as
          agent  (incorporated  by reference  to Exhibit  4.10(a) to the Funding
          Corporation Form 10-K/A for the year ending December 31, 1998).

4.11      Revolving  Credit  Agreement,  dated as of July 21, 1995, by and among
          Credit Suisse and the Funding  Corporation  (incorporated by reference
          to Exhibit 4.11 to the Funding Corporation Form S-4).

4.12      Amended and Restated  Salton Sea Credit  Agreement,  dated October 13,
          1998, by and among SSBP, SSPG,  Power LLC and Fish Lake  (incorporated
          by reference to Exhibit 4.12 to the Funding Corporation 99 Form S-4).

4.13      Salton Sea Project Note (SSI),  dated October 13, 1998, by SSBP, SSPG,
          Power  LLC  and  Fish  Lake  in  favor  of  the  Funding   Corporation
          (incorporated by reference to Exhibit 4.13 to the Funding  Corporation
          99 Form S-4).

4.13a     Salton Sea Project Note  (SSIII),  dated  October 13,  1998,  by SSBP,
          SSPG,  Power  LLC and Fish  Lake in favor of the  Funding  Corporation
          (incorporated   by  reference  to  Exhibit   4.13(a)  to  the  Funding
          Corporation 99 Form S-4).

4.14      Amended and Restated Deposit and Disbursement  Agreement,  dated as of
          October 13, 1998, by and among the Funding Corporation, Chemical Trust
          Company of California and the Guarantors.  (incorporated  by reference
          to Exhibit 4.14 to the Funding Corporation 99 Form S-4).

4.15      Partnership  Interest Pledge Agreement,  dated as of July 21, 1995, by
          Magma Power  Company and Salton Sea Power Company in favor of Chemical
          Trust Company of California (incorporated by reference to Exhibit 4.15
          to the Funding Corporation Form S-4).

4.16      Partnership  Interest Pledge Agreement,  dated as of July 21, 1995, by
          SSBP and Salton Sea Power  Company in favor of Chemical  Trust Company
          of  California  (incorporated  by  reference  to  Exhibit  4.16 to the
          Funding Corporation Form S-4).

4.17      Stock  Pledge  Agreement  (Pledge of Stock of Fish Lake by Magma Power
          Company and the Funding  Corporation),  dated as of July 21, 1995,  by
          Magma Power Company and the Funding  Corporation  in favor of Chemical
          Trust Company of California (incorporated by reference to Exhibit 4.17
          to the Funding Corporation Form S-4).

4.18      Cost  Overrun   Commitment,   dated  as  of  July  21,  1995,  between
          MidAmerican,  SSPG, SSBP and Fish Lake  (incorporated  by reference to
          Exhibit 4.18 to the Funding Corporation Form S-4).

4.19      Second Amended and Restated  Partnership  Guarantors Credit Agreement,
          dated October 13, 1998, by and among the  Partnership  Guarantors  and
          the Funding Corporation  (incorporated by reference to Exhibit 4.19(c)
          to the Funding Corporation Form 10-K/A).

                                     -113-
<PAGE>

4.20      Partnership  Guarantors  Security  Agreement and Assignment of Rights,
          dated as of July 21, 1995, by CEOC and VPC in favor of Chemical  Trust
          Company of  California  (incorporated  by reference to Exhibit 4.20 to
          the Funding Corporation Form S-4).

4.21      Stock Pledge Agreement (Pledge of Stock of CEOC by Magma Power Company
          and the  Funding  Corporation),  dated as of July 21,  1995,  by Magma
          Power  Company and  Funding  Corporation  in favor of  Chemical  Trust
          Company of  California  (incorporated  by reference to Exhibit 4.21 to
          the Funding Corporation Form S-4).

4.22      Stock Pledge Agreement  (Pledge of Stock of VPC by Magma Power Company
          and the  Funding  Corporation),  dated as of July 21,  1995,  by Magma
          Power Company and the Funding  Corporation  in favor of Chemical Trust
          Company of  California  (incorporated  by reference to Exhibit 4.22 to
          the Funding Corporation Form S-4).

4.23      Royalty  Guarantor Credit  Agreement,  among the Royalty Guarantor and
          the Funding  Corporation,  dated as of July 21, 1995  (incorporated by
          reference to Exhibit 4.23 to the Funding Corporation Form S-4).

4.24      Royalty  Project  Note,  dated as of July  21,  1995,  by the  Royalty
          Guarantor  in  favor  of  the  Funding  Corporation  (incorporated  by
          reference to Exhibit 4.24 to the Funding Corporation Form S-4).

4.25      Royalty  Security  Agreement and  Assignment of Revenues,  dated as of
          July 21, 1995,  by the Royalty  Guarantor  in favor of Chemical  Trust
          Company of  California  (incorporated  by reference to Exhibit 4.25 to
          the Funding Corporation Form S-4).

4.26      Royalty  Deed of  Trust,  dated as of July 21,  1995,  by the  Royalty
          Guarantor to Chicago Title Company for the use and benefit of Chemical
          Trust Company of California (incorporated by reference to Exhibit 4.26
          to the Funding Corporation Form S-4).

4.27      Stock Pledge Agreement  (Pledge of Stock of Royalty Guarantor by Magma
          Power Company and the Funding Corporation), dated as of July 21, 1995,
          by  Magma  Power  Company  and the  Funding  Corporation  in  favor of
          Chemical  Trust  Company of California  (incorporated  by reference to
          Exhibit 4.27 to the Funding Corporation Form S-4).

4.28      Collateral  Assignment of the Imperial Irrigation District Agreements,
          dated as of July 21,  1995,  by SSBP,  SSPG and Fish  Lake in favor of
          Chemical  Trust  Company of California  (incorporated  by reference to
          Exhibit 4.28 to the Funding Corporation Form S-4).

4.29      Collateral  Assignments of Certain Salton Sea Agreements,  dated as of
          July 21, 1995, by SSBP,  SSPG and Fish Lake in favor of Chemical Trust
          Company of  California  (incorporated  by reference to Exhibit 4.29 to
          the Funding Corporation Form S-4).

4.30      Debt  Service  Reserve  Letter of Credit by Credit  Suisse in favor of
          Chemical  Trust  Company of California  (incorporated  by reference to
          Exhibit 4.30 to the Funding Corporation Form S-4).

4.31      Partnership  Project Note (SSI),  dated  October 13, 1998,  by VPC and
          CEOC, Conejo, San Felipe,  Niguel, VPC Geothermal,  Del Ranch, Elmore,
          Leathers,  Vulcan, CE Turbo LLC and CalEnergy Minerals LLC in favor of
          the Funding Corporation  (incorporated by reference to Exhibit 4.31(a)
          to the Funding Corporation Form 10-K/A).

4.31(a)   Partnership Project Note (SSII), dated October 13, 1998, by VPC and
          CEOC, Conejo, San Felipe,  Niguel, VPC Geothermal,  Del Ranch, Elmore,
          Leathers,  Vulcan, CE Turbo LLC and CalEnergy Minerals LLC in favor of
          the Funding Corporation  (incorporated by reference to Exhibit 4.31(b)
          to the Funding Corporation Form 10-K/A).

4.31(b)   Partnership  Project Note (SSIII),  dated October 13, 1998, by VPC
          and CEOC,  Conejo,  San Felipe,  Niguel,  VPC  Geothermal,  Del Ranch,
          Elmore,  Leathers,  Vulcan, CE Turbo LLC and CalEnergy Minerals LLC in
          favor of the Funding Corporation (incorporated by reference to Exhibit
          4.31(c) to the Funding Corporation Form 10-K/A).

4.32      Collateral  Assignment of the Imperial Irrigation District Agreements,
          dated as of June 20, 1996, by Vulcan,  Elmore,  Leathers,  VPC and Del
          Ranch in favor of Chemical  Trust Company of California  (incorporated
          by reference to Exhibit 4.29 to the Funding Corporation II Form S-4).

4.33      Collateral Assignments of Certain Partnership Agreements,  dated as of
          June 20, 1996,  by Vulcan  Elmore,  Leathers and Del Ranch in favor of
          Chemical  Trust  Company of California  (incorporated  by reference to
          Exhibit 4.31 to the Funding Corporation II Form S-4).

4.34      Debt  Service  Reserve  Letter of Credit by Credit  Suisse in favor of
          Chemical  Trust  Company of California  (incorporated  by reference to
          Exhibit 4.32 to the Funding Corporation II Form S-4).

4.35      Intentionally Omitted

4.36      Intentionally Omitted

4.37      Deed of Trust,  dated as of June 20, 1996,  by Vulcan to Chicago Title
          Company  for  the  use  and  benefit  of  Chemical  Trust  Company  of
          California  (incorporated  by reference to Exhibit 4.35 to the Funding
          Corporation II Form S-4).

4.37(a)   First Amendment to Deed of Trust,  dated October 13, 1998 by Vulcan
          to Chicago  Title  Company for the use and  benefit of Chemical  Trust
          Company of California (incorporated by reference to Exhibit 4.37(a) to
          the Form 10-K/A).

4.38      Deed of Trust,  dated as of June 20, 1996,  by Elmore to Chicago Title
          Company  for  the  use  and  benefit  of  Chemical  Trust  Company  of
          California  (incorporated  by reference to Exhibit 4.36 to the Funding
          Corporation II Form S-4).

4.38(a)   First Amendment to Deed of Trust, dated October 13, 1998, by Elmore
          to Chicago  Title  Company for the use and  benefit of Chemical  Trust
          Company of California (incorporated by reference to Exhibit 4.38(a) to
          the Form 10-K/A).

4.39      Deed of Trust, dated as of June 20, 1996, by Leathers to Chicago Title
          Company  for  the  use  and  benefit  of  Chemical  Trust  Company  of
          California  (incorporated  by reference to Exhibit 4.37 to the Funding
          Corporation II Form S-4).

4.39(a)   First  Amendment  to Deed of Trust,  dated  October  13,  1998,  by
          Leathers to Chicago  Title Company for the use and benefit of Chemical
          Trust  Company of  California  (incorporated  by  reference to Exhibit
          4.39(a) to the Form 10-K/A).

4.40      Deed of Trust,  dated as of June 20,  1996,  by Del  Ranch to  Chicago
          Title  Company for the use and benefit of  Chemical  Trust  Company of
          California  (incorporated  by reference to Exhibit 4.38 to the Funding
          Corporation II Form S-4).

4.40(a)   First  Amendment to Deed of Trust,  dated  October 13, 1998, by Del
          Ranch to Chicago  Title  Company  for the use and  benefit of Chemical
          Trust  Company of  California  (incorporated  by  reference to Exhibit
          4.40(a) to the Form 10-K/A).

4.41      Stock Pledge Agreement,  Dated as of June 20, 1996, by CEOC,  pledging
          the stock of Conejo,  Niguel and San Felipe in favor of Chemical Trust
          Company of California  for the benefit of the Secured  Parties and the
          Funding Corporation  (incorporated by reference to Exhibit 4.39 to the
          Funding Corporation II Form S-4).

4.42      Stock Pledge  Agreement,  dated as of June 20, 1996, by VPC,  pledging
          the stock of BNG in favor of Chemical  Trust Company of California for
          the  benefit  of the  Secured  Parties  and  the  Funding  Corporation
          (incorporated by reference to Exhibit 4.40 to the Funding  Corporation
          II Form S-4).

                                     -115-
<PAGE>

4.43      Partnership  Interest Pledge Agreement,  dated as of June 20, 1996, by
          VPC and BNG, pledging the partnership  interests in Vulcan in favor of
          Chemical  Trust Company of  California  for the benefit of the Secured
          Parties and the Funding  Corporation  (incorporated  by  reference  to
          Exhibit 4.41 to the Funding Corporation II Form S-4).

4.44      Partnership  Interest Pledge Agreement,  dated as of June 20, 1996, by
          Magma,  CEOC and each of Conejo,  Niguel,  San  Felipe,  respectively,
          pledging the partnership  interests in Del Ranch, Elmore and Leathers,
          respectively, in favor of Chemical Trust Company of California for the
          benefit  of  the  Secured   Parties   and  the   Funding   Corporation
          (incorporated by reference to Exhibit 4.42 to the Funding  Corporation
          II Form S-4).

4.45      Agreement regarding Security Documents,  dated as of June 20, 1996, by
          and among the Initial Guarantors, Magma, SSPC, the Funding Corporation
          and Chemical Trust Company of California (incorporated by reference to
          Exhibit 4.45 to the Funding Corporation II Form S-4).

5.1       Opinion of Willkie  Farr & Gallagher  (incorporated  by  reference  to
          Exhibit 5.1 of the 99 Form S-4).

5.2       Opinion of Latham & Watkins  (incorporated by reference to Exhibit 5.2
          of the 99 Form S-4).

5.3       Opinion of Lionel  Sawyer & Collines  (incorporated  by  reference  to
          Exhibit 5.3 of the 99 Form S-4).

10.1(a)   Salton Sea Deed of Trust,  Assignment of Rents,  Security Agreement
          and Fixture Filing,  dated as of July 21, 1995, by SSBP, SSPG and Fish
          Lake to Chicago  Title  Company  for the use and  benefit of  Chemical
          Trust Company of California (incorporated by reference to Exhibit 10.1
          to the Funding Corporation Form S-4) .

10.1(b)   First  Amendment to Salton Sea Deed of Trust,  Assignment of Rents,
          Security  Agreement  and Fixed  Filing,  dated as of June 20, 1996, by
          SSBP,  SSPG and Fish Lake to  Chicago  Title  Company  for the use and
          benefit of  Chemical  Trust  Company of  California  (incorporated  by
          reference to Exhibit 10.2 to the Funding Corporation II Form S-4).

10.1(c)   Second Amendment to Salton Sea Deed of Trust,  Assignment of Rents,
          Security Agreement and Fixed Filing,  dated as of October 13, 1998, by
          SSBP,  SSPG and Fish Lake to  Chicago  Title  Company  for the use and
          benefit of  Chemical  Trust  Company of  California  (incorporated  by
          reference to Exhibit 10.1(c) to the Form 10-K/A).

10.2      Collateral   Assignment   of  Southern   California   Edison   Company
          Agreements,  dated as of July 21, 1995, by SSPG and Fish Lake in favor
          of Chemical Trust Company of California  (incorporated by reference to
          Exhibit 10.3 to the Funding Corporation Form S-4).

10.3      Contract for the  Purchase and Sale of Electric  Power from the Salton
          Sea Geothermal Facility, dated May 9, 1987 (the "Unit 1 Power Purchase
          Agreement"),  between  Southern  California  Edison  Company and Earth
          Energy, Inc. (incorporated by reference to Exhibit 10.4 to the Funding
          Corporation Form S-4).

10.4      Amendment No. 1 to the Unit 1 Power  Purchase  Agreement,  dated as of
          March 30, 1993,  between Southern  California Edison Company and Earth
          Energy, Inc. (incorporated by reference to Exhibit 10.5 to the Funding
          Corporation Form S-4).

10.5      Amendment No. 2 to Unit 1 Power Purchase Agreement, dated November 29,
          1994,   between   Southern   California   Edison   Company   and  SSPG
          (incorporated by reference to Exhibit 10.6 to the Funding  Corporation
          Form S-4).

10.6      Contract for the Purchase and Sale of Electric Power,  dated April 16,
          1985  (the  "Unit  2  Power  Purchase  Agreement"),  between  Southern
          California  Edison  Company  and  Westmoreland  Geothermal  Associates
          (incorporated by reference to Exhibit 10.7 to the Funding  Corporation
          Form S-4).

                                     -116-
<PAGE>

10.7      Amendment  No.  1 to  Unit 2 Power  Purchase  Agreement,  dated  as of
          December 18, 1987,  between  Southern  California  Edison  Company and
          Earth Energy,  Inc.  (incorporated by reference to Exhibit 10.8 to the
          Funding Corporation Form S-4).

10.8      Power  Purchase  Contract,  dated  April 16,  1985 (the  "Unit 3 Power
          Purchase  Agreement"),  between Southern California Edison Company and
          Union Oil Company of California  (incorporated by reference to Exhibit
          10.9 to the Funding Corporation Form S-4).

10.9      Power Purchase Contract (the "Unit 4 Power Purchase Agreement"), dated
          November 29, 1994,  between Southern  California Edison Company,  SSPG
          and Fish Lake  (incorporated  by  reference  to  Exhibit  10.10 to the
          Funding Corporation Form S-4).

10.10     Plant  Connection  Agreement (Unit 2), dated October 3, 1989,  between
          the Imperial Irrigation District and Earth Energy, Inc.  (incorporated
          by reference to Exhibit 10.11 to the Funding Corporation Form S-4).

10.11     Plant  Connection  Agreement,  dated August 2, 1988 (Unit 3),  between
          the   Imperial   Irrigation   District   and  Desert   Power   Company
          (incorporated by reference to Exhibit 10.12 to the Funding Corporation
          Form S-4).

10.12     Imperial  Irrigation  District Funding and Construction  Agreements as
          amended (Units 2 and 3), dated as of June 29, 1987, among the Imperial
          Irrigation District, Earth Energy, Inc., Chevron Geothermal Company of
          California,  Geo East Mesa No. 3, Inc.,  Magma Power  Company,  Desert
          Power Company,  Geo East Mesa No. 2, Inc., Heber  Geothermal  Company,
          Ormesa  Geothermal,  Ormesa Geothermal II, Vulcan/BN  Geothermal Power
          Company, Union Oil Company of California, Del Ranch L.P., Elmore L.P.,
          Leathers L.P., Geo East Mesa Limited Partnership and Imperial Resource
          Recovery Associates,  L.P. (incorporated by reference to Exhibit 10.13
          to the Funding Corporation Form S-4).

10.13     Transmission Service Agreement,  dated as of October 3, 1989 (Unit 2),
          between  the  Imperial  Irrigation  District  and Earth  Energy,  Inc.
          (incorporated by reference to Exhibit 10.14 to the Funding Corporation
          Form S-4).

10.14     Transmission  Service Agreement,  dated as of August 2, 1988 (Unit 3),
          between the Imperial  Irrigation  District  and Desert  Power  Company
          (incorporated by reference to Exhibit 10.15 to the Funding Corporation
          Form S-4).

10.15     Plant  Connection  Agreement  (Unit 4), dated as of July 14, 1995,  by
          and  between  the  Imperial  Irrigation  District,  SSPG and Fish Lake
          (incorporated by reference to Exhibit 10.16 to the Funding Corporation
          Form S-4).

10.16     Letter Agreement,  dated February 2, 1995, between Magma Power Company
          and the Imperial  Irrigation  District  (incorporated  by reference to
          Exhibit 10.17 to the Funding Corporation Form S-4).

10.17     Transmission  Service  Agreement  (Unit 4), dated as of July 14, 1995,
          by and between the Imperial  Irrigation  District,  SSPG and Fish Lake
          (incorporated by reference to Exhibit 10.18 to the Funding Corporation
          Form S-4).

10.18     Transmission  Line  Construction  Agreement  (Unit 4),  dated July 14,
          1995,  between the Imperial  Irrigation  District,  SSPG and Fish Lake
          (incorporated by reference to Exhibit 10.19 to the Funding Corporation
          Form S-4).

10.19     Funding  Agreement,  dated June 15,  1988 (Unit 2),  between  Southern
          California  Edison  Company and Earth Energy,  Inc.  (incorporated  by
          reference to Exhibit 10.20 to the Funding Corporation Form S-4).

10.20     Second Amended and Restated  Administrative Services Agreement, by and
          among  CEOC,  SSBP,  SSPG and  Fish  Lake,  dated as of July 15,  1995
          (incorporated by reference to Exhibit 10.21 to the Funding Corporation
          Form S-4).

                                     -117-
<PAGE>

10.21     Second  Amended and  Restated  Operating  and  Maintenance  Agreement,
          dated as of July 15,  1995,  by and among Magma Power  Company,  SSBP,
          SSPG and Fish Lake  (incorporated by reference to Exhibit 10.22 to the
          Funding Corporation Form S-4).

10.22     Intentionally Omitted.

10.23     Collateral   Assignment   of  Southern   California   Edison   Company
          Agreements, dated as of June 20, 1996, by Vulcan, Elmore, Leathers and
          Del  Ranch  in  favor  of  Chemical   Trust   Company  of   California
          (incorporated by reference to Exhibit 10.23 to the Funding Corporation
          II Form S-4).

10.24     Administrative Services Agreement,  dated as of June 17, 1996, between
          CEOC and Vulcan  (incorporated  by reference  to Exhibit  10.24 to the
          Funding Corporation II Form S-4).

10.25     Amended  and   Restated   Construction,   Operating   and   Accounting
          Agreement,  dated  as  of  June  17,  1996,  between  VPC  and  Vulcan
          (incorporated by reference to Exhibit 10.25 to the Funding Corporation
          II Form S-4).

10.26     Long Term Power  Purchase  Contract,  dated March 1, 1984, as amended,
          between  SCE and  Vulcan,  as  successor  to  Magma  Electric  Company
          (incorporated by reference to Exhibit 10.26 to the Funding Corporation
          II Form S-4).

10.27     Transmission  Service  Agreement,  dated December 1, 1988, between VPC
          and IID  (incorporated  by reference  to Exhibit  10.27 to the Funding
          Corporation II Form S-4).

10.28     Plant Connection Agreement,  dated as of December 1, 1988, between VPC
          and IID  (incorporated  by reference  to Exhibit  10.28 to the Funding
          Corporation II Form S-4).

10.29     Amended and Restated  Administrative  Services Agreement,  dated as of
          June 17, 1996  between CEOC and Elmore  (incorporated  by reference to
          Exhibit 10.29 to the Funding Corporation II Form S-4).

10.30     Amended and Restated Operating and Maintenance Agreement,  dated as of
          June 17, 1996,  between CEOC and Elmore  (incorporated by reference to
          Exhibit 10.30 to the Funding Corporation II Form S-4).

10.31     Long Term Power  Purchase  Contract,  dated June 15, 1984, as amended,
          between  SCE and  Elmore,  as  successor  to  Magma  Electric  Company
          (incorporated by reference to Exhibit 10.31 to the Funding Corporation
          II Form S-4).

10.32     Transmission  Service  Agreement,  dated  as of  August  2,  1988,  as
          amended,  between Elmore and IID (incorporated by reference to Exhibit
          10.32 to the Funding Corporation II Form S-4).

10.33     Plant  Connection  Agreement,  dated as of  August  2,  1988,  between
          Elmore and IID  (incorporated  by  reference  to Exhibit  10.33 to the
          Funding Corporation II Form S-4).

10.34     Amended and Restated  Administrative  Services Agreement,  dated as of
          June 17, 1996, between CEOC and Leathers (incorporated by reference to
          Exhibit 10.34 to the Funding Corporation II Form S-4).

10.35     Amended and Restated Operating and Maintenance Agreement,  dated as of
          June 17, 1996, between CEOC and Leathers (incorporated by reference to
          Exhibit 10.35 to the Funding Corporation II Form S-4).

10.36     Long Term Power Purchase Contract,  dated August 16, 1985, as amended,
          between SCE and Leathers,  as successor to Imperial Energy Corporation
          (incorporated by reference to Exhibit 10.36 to the Funding Corporation
          II Form S-4).

10.37     Transmission  Service  Agreement,  dated as of  October  3,  1989,  as
          amended,  between  Leathers  and IID  (incorporated  by  reference  to
          Exhibit 10.37 to the Funding Corporation II Form S-4).

                                     -118-
<PAGE>

10.38     Plant  Connection  Agreement,  dated as of October  3,  1989,  between
          Leathers and IID  (incorporated  by reference to Exhibit  10.38 to the
          Funding Corporation II Form S-4).

10.39     Amended and Restated  Administrative  Services Agreement,  dated as of
          June 17, 1996,  between CEOC and Del Ranch  (incorporated by reference
          to Exhibit 10.39 to the Funding Corporation II Form S-4).

10.40     Amended and Restated Operating and Maintenance Agreement,  dated as of
          June 17, 1996,  between CEOC and Del Ranch  (incorporated by reference
          to Exhibit 10.40 to the Funding Corporation II Form S-4).

10.41     Long Term  Power  Purchase  Contract,  dated  February  22,  1984,  as
          amended,   between  SCE  and  Del  Ranch,   as   successor   to  Magma
          (incorporated by reference to Exhibit 10.41 to the Funding Corporation
          II Form S-4).

10.42     Transmission  Service  Agreement,  dated  as of  August  2,  1988,  as
          amended,  between  Del Ranch and IID  (incorporated  by  reference  to
          Exhibit 10.42 to the Funding Corporation II Form S-4).

10.43     Plant Connection  Agreement,  dated as of August 2, 1988,  between Del
          Ranch and IID  (incorporated  by  reference  to  Exhibit  10.43 to the
          Funding Corporation II Form S-4).

10.44     Funding  Agreement,  dated  May 18,  1990,  between  SCE and Del Ranch
          (incorporated by reference to Exhibit 10.44 to the Funding Corporation
          II Form S-4).

10.45     Funding  Agreement,  dated  May  18,  1990,  between  SCE  and  Elmore
          (incorporated by reference to Exhibit 10.45 to the Funding Corporation
          II Form S-4).

10.46     Funding  Agreement,  dated June 15,  1990,  between  SCE and  Leathers
          (incorporated by reference to Exhibit 10.46 to the Funding Corporation
          II Form S-4).

10.47     Funding  Agreement,  dated  May 18,  1990,  between  SCE and  Leathers
          (incorporated by reference to Exhibit 10.47 to the Funding Corporation
          II Form S-4).

10.48     Funding  Agreement,  dated  May  18,  1990,  between  SCE  and  Vulcan
          (incorporated by reference to Exhibit 10.48 to the Funding Corporation
          II Form S-4).

24.1      Power of Attorney

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

99.2      Chief Financial Officer's Certificat Pursuant to Section 906 of the
          Sarbanes-Oxley Act of 2002.

                                     -119-
<PAGE>