UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 [X]
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 
 For the
quarterly period ended June 30, 2008
 
 or
 
 [  ]
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
 
 For the
transition period from _________to _________
 
 Commission
              
              Exact
      name of registrant as specified in its charter;
              
              IRS
      EmployerFile
      Number
              
              State
      or other jurisdiction of incorporation or
    organization
              
              Identification No.333-90553
              
              MIDAMERICAN
      FUNDING, LLC
              
              47-0819200(An
      Iowa Limited Liability Company)666
      Grand Avenue, Suite 500Des
      Moines, Iowa 50309-2580333-15387
              
              MIDAMERICAN
      ENERGY COMPANY
              
              42-1425214(An
      Iowa Corporation)666
      Grand Avenue, Suite 500Des
      Moines, Iowa 50309-2580(515)
      242-4300(Registrant’s
      telephone number, including area code)N/A(Former
      name, former address and former fiscal year, if changed since last
      report)
 
 Indicate
by check mark whether the registrants (1) have 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 registrants were
required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days.
 
 MidAmerican
      Funding, LLC
              Yes
      £  No
      T
              MidAmerican
      Energy Company
              Yes
      T  No
      £
 
 Indicate
by check mark whether the registrants are large accelerated filers, accelerated
filers, non-accelerated filers or smaller reporting companies. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer £
              Accelerated
      filer £
              Non-accelerated
      filer T
              Smaller
      reporting company £
 
 Indicate
by check mark whether either registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes  £                      No  T
 
 All of
the member’s equity of MidAmerican Funding, LLC was held by its parent company,
MidAmerican Energy Holdings Company as of July 31, 2008.
 
 All
common stock of MidAmerican Energy Company is held by its parent company, MHC
Inc., which is a direct, wholly owned subsidiary of MidAmerican Funding, LLC. As
of July 31, 2008, 70,980,203 shares of MidAmerican Energy Company common
stock, without par value, were outstanding.
  
  
 MidAmerican
Funding, LLC (“MidAmerican Funding”) and MidAmerican Energy Company
(“MidAmerican Energy”) separately file this combined Form 10-Q. Information
relating to each individual registrant is filed by such registrant on its own
behalf. Except for its subsidiary, MidAmerican Energy makes no representation as
to information relating to any other subsidiary of MidAmerican
Funding.
 
 TABLE OF
CONTENTS
 
 
 PART
      I - FINANCIAL INFORMATIONItem 1.
              Financial Statements
              3Item 2.
              Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
              23Item 3.
              Quantitative and Qualitative Disclosures About Market
      Risk
              34Item 4.
              Controls and Procedures
              34PART
      II - OTHER INFORMATIONItem 1.
              Legal Proceedings
              35Item 1A
              Risk Factors
              35Item 2.
              Unregistered Sales of Equity Securities and Use of
      Proceeds
              35Item 3.
              Defaults Upon Senior Securities
              35Item 4.
              Submission of Matters to a Vote of Security
      Holders
              35Item 5.
              Other Information
              35Item 6.
              Exhibits
              35Signatures
              
              36Exhibit Index
              
              37
 
  2
  
 PART
I - FINANCIAL INFORMATION
 
 Item 1.
              Financial
Statements
 
 MidAmerican Energy Company
and Subsidiary
 
 Report of Independent Registered Public Accounting
      Firm
              4Consolidated Balance Sheets
              5Consolidated Statements of
    Operations
              6Consolidated Statements of Cash Flows
              7Notes to Consolidated Financial
      Statements
              8MidAmerican Funding,
      LLC and SubsidiariesReport of Independent Registered Public Accounting
      Firm
              16Consolidated Balance Sheets
              17Consolidated Statements of
    Operations
              18Consolidated Statements of Cash
    Flows
              19Notes to Consolidated Financial
      Statements
              20
 
  3
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
 
 
 
 To the
Board of Directors and Shareholder
 MidAmerican
Energy Company
 Des
Moines, Iowa
 
 We have
reviewed the accompanying consolidated balance sheet of MidAmerican Energy
Company and subsidiary (the “Company”) as of June 30, 2008, and the related
consolidated statements of operations for the three-month and six-month periods
ended June 30, 2008 and 2007, and of cash flows for the six-month periods
ended June 30, 2008 and 2007. These interim financial statements are the
responsibility of the Company’s management.
 
 We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
 
 Based on
our reviews, we are not aware of any material modifications that should be made
to such consolidated interim financial statements for them to be in conformity
with accounting principles generally accepted in the United States of
America.
 
 We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet and
consolidated statement of capitalization (not presented herein) of MidAmerican
Energy Company and subsidiary as of December 31, 2007, and the related
consolidated statements of operations, comprehensive income, cash flows, and
retained earnings for the year then ended (not presented herein); and in our
report dated February 27, 2008, we expressed an unqualified opinion on
those consolidated financial statements, which included an explanatory paragraph
related to the adoption of Statement of Financial Accounting Standards
No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106, and 132(R), as of
December 31, 2006. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 2007, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
 
 
 /s/
Deloitte & Touche LLP
 
 Des
Moines, Iowa
 August 8,
2008
 
  4
  MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEETS(Unaudited)
 (In
millions)
 
 As
      ofJune 30,
              
              
              December 31,2008
              
              
              2007ASSETSUtility
      Plant, NetElectric
              
              $
              7,748
              
              
              $
              7,473Gas
              
              
              1,112
              
              
              
              1,0868,860
              
              
              
              8,559Accumulated
      depreciation and amortization
              
              
              (3,336
              )
              
              
              (3,237
              )5,524
              
              
              
              5,322Construction
      work in progress
              
              
              551
              
              
              
              3866,075
              
              
              
              5,708Current
      AssetsCash
      and cash equivalents
              
              
              75
              
              
              
              11Receivables,
      net
              
              
              578
              
              
              
              485Inventories
              
              
              106
              
              
              
              133Other
              
              
              108
              
              
              
              39867
              
              
              
              668Other
      AssetsInvestments
      and nonregulated property, net
              
              
              457
              
              
              
              478Regulatory
      assets
              
              
              330
              
              
              
              268Other
              
              
              126
              
              
              
              129913
              
              
              
              875Total
      Assets
              
              $
              7,855
              
              
              $
              7,251CAPITALIZATION
      AND LIABILITIESCapitalizationCommon
      shareholder’s equity
              
              $
              2,465
              
              
              $
              2,288Preferred
      securities
              
              
              30
              
              
              
              30Long-term
      debt, excluding current portion
              
              
              2,819
              
              
              
              2,4705,314
              
              
              
              4,788Current
      LiabilitiesNotes
      payable
              
              
              -
              
              
              
              86Current
      portion of long-term debt
              
              
              -
              
              
              
              1Accounts
      payable
              
              
              349
              
              
              
              408Taxes
      accrued
              
              
              107
              
              
              
              85Interest
      accrued
              
              
              44
              
              
              
              41Other
              
              
              138
              
              
              
              76638
              
              
              
              697Other
      LiabilitiesDeferred
      income taxes
              
              
              623
              
              
              
              517Investment
      tax credits
              
              
              37
              
              
              
              38Asset
      retirement obligations
              
              
              199
              
              
              
              182Regulatory
      liabilities
              
              
              800
              
              
              
              793Other
              
              
              244
              
              
              
              2361,903
              
              
              
              1,766Total
      Capitalization and Liabilities
              
              $
              7,855
              
              
              $
              7,251
 
 The
accompanying notes are an integral part of these financial
statements.
  5
  MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 (In
millions)
 
 Three
      Months
              
              
              Six
      MonthsEnded June 30,
              
              
              Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Operating
      RevenuesRegulated
      electric
              
              $
              492
              
              
              $
              467
              
              
              $
              975
              
              
              $
              947Regulated
      gas
              
              
              280
              
              
              
              209
              
              
              
              851
              
              
              
              708Nonregulated
              
              
              307
              
              
              
              293
              
              
              
              625
              
              
              
              5501,079
              
              
              
              969
              
              
              
              2,451
              
              
              
              2,205Operating
      ExpensesRegulated:Cost
      of fuel, energy and capacity
              
              
              189
              
              
              
              176
              
              
              
              365
              
              
              
              373Cost
      of gas sold
              
              
              232
              
              
              
              161
              
              
              
              712
              
              
              
              574Other
      operating expenses
              
              
              97
              
              
              
              102
              
              
              
              201
              
              
              
              200Maintenance
              
              
              61
              
              
              
              42
              
              
              
              98
              
              
              
              85Depreciation
      and amortization
              
              
              77
              
              
              
              76
              
              
              
              149
              
              
              
              145Property
      and other taxes
              
              
              26
              
              
              
              25
              
              
              
              51
              
              
              
              50682
              
              
              
              582
              
              
              
              1,576
              
              
              
              1,427Nonregulated:Cost
      of sales
              
              
              289
              
              
              
              269
              
              
              
              588
              
              
              
              511Other
              
              
              5
              
              
              
              5
              
              
              
              9
              
              
              
              9294
              
              
              
              274
              
              
              
              597
              
              
              
              520Total
      operating expenses
              
              
              976
              
              
              
              856
              
              
              
              2,173
              
              
              
              1,947Operating
      Income
              
              
              103
              
              
              
              113
              
              
              
              278
              
              
              
              258Non-Operating
      IncomeInterest
      and dividend income
              
              
              2
              
              
              
              1
              
              
              
              3
              
              
              
              2Allowance
      for equity funds
              
              
              7
              
              
              
              11
              
              
              
              11
              
              
              
              22Other
      income
              
              
              4
              
              
              
              2
              
              
              
              4
              
              
              
              4Other
      expense
              
              
              (1
              )
              
              
              (1
              )
              
              
              (2
              )
              
              
              (2
              )12
              
              
              
              13
              
              
              
              16
              
              
              
              26Fixed
      ChargesInterest
      on long-term debt
              
              
              40
              
              
              
              26
              
              
              
              75
              
              
              
              52Other
      interest expense
              
              
              1
              
              
              
              3
              
              
              
              2
              
              
              
              7Allowance
      for borrowed funds
              
              
              (3
              )
              
              
              (5
              )
              
              
              (6
              )
              
              
              (11
              )38
              
              
              
              24
              
              
              
              71
              
              
              
              48Income
      Before Income Taxes
              
              
              77
              
              
              
              102
              
              
              
              223
              
              
              
              236Income
      Taxes
              
              
              17
              
              
              
              28
              
              
              
              56
              
              
              
              70Net
      Income
              
              
              60
              
              
              
              74
              
              
              
              167
              
              
              
              166Preferred
      Dividends
              
              
              1
              
              
              
              1
              
              
              
              1
              
              
              
              1Earnings
      on Common Stock
              
              $
              59
              
              
              $
              73
              
              
              $
              166
              
              
              $
              165
 
 The
accompanying notes are an integral part of these financial
statements.
  6
  MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 (In
millions)
 
 Six
      MonthsEnded
      June 30,2008
              
              
              2007Net
      Cash Flows From Operating ActivitiesNet
      income
              
              $
              167
              
              
              $
              166Adjustments
      to reconcile net income to net cash flows
                from
      operating activities:Depreciation
      and amortization
              
              
              149
              
              
              
              146Deferred
      income taxes and investment tax credit, net
              
              
              92
              
              
              
              (2
              )Amortization
      of other assets and liabilities
              
              
              14
              
              
              
              13Impact
      of changes in working capital-Receivables,
      net
              
              
              (98
              )
              
              
              (22
              )Inventories
              
              
              27
              
              
              
              45Accounts
      payable
              
              
              8
              
              
              
              23Taxes
      accrued
              
              
              5
              
              
              
              62Other
      current assets and liabilities
              
              
              11
              
              
              
              (7
              )Other,
      net
              
              
              (14
              )
              
              
              (13
              )Net
      cash flows from operating activities
              
              
              361
              
              
              
              411Net
      Cash Flows From Investing ActivitiesUtility
      construction expenditures
              
              
              (560
              )
              
              
              (656
              )Purchases
      of available-for-sale securities
              
              
              (72
              )
              
              
              (102
              )Proceeds
      from sales of available-for-sale securities
              
              
              69
              
              
              
              82Other,
      net
              
              
              2
              
              
              
              5Net
      cash flows from investing activities
              
              
              (561
              )
              
              
              (671
              )Net
      Cash Flows From Financing ActivitiesDividends
      paid
              
              
              (1
              )
              
              
              (1
              )Proceeds
      from long-term debt
              
              
              349
              
              
              
              649Retirement
      of long-term debt
              
              
              -
              
              
              
              (1
              )Net
      change in notes payable
              
              
              (86
              )
              
              
              -Other,
      net
              
              
              2
              
              
              
              (2
              )Net
      cash flows from financing activities
              
              
              264
              
              
              
              645Net
      Change in Cash and Cash Equivalents
              
              
              64
              
              
              
              385Cash
      and Cash Equivalents at Beginning of Period
              
              
              11
              
              
              
              9Cash
      and Cash Equivalents at End of Period
              
              $
              75
              
              
              $
              394
 
 The
accompanying notes are an integral part of these financial
statements.
  7
  MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 (1)
              General
 
 MidAmerican
Energy Company (“MidAmerican Energy”) is a public utility with electric and
natural gas operations and is the principal subsidiary of MHC Inc. MHC Inc. is
the direct wholly owned subsidiary of MidAmerican Funding, LLC (“MidAmerican
Funding”), which is an Iowa limited liability company with MidAmerican Energy
Holdings Company (“MEHC”) as its sole member. MEHC is a consolidated subsidiary
of Berkshire Hathaway Inc.
 
 The
unaudited Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and U.S. Securities and Exchange
Commission rules and regulations for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the disclosures required for annual
financial statements. Management believes the unaudited Consolidated Financial
Statements contain all adjustments, consisting of normal recurring adjustments,
considered necessary for the fair presentation of its financial statements as of
June 30, 2008, and for the three and six months ended June 30, 2008
and 2007. The results of operations for the three and six months ended
June 30, 2008, are not necessarily indicative of the results to be expected
for the full year.
 
 The
unaudited Consolidated Financial Statements include the accounts of MidAmerican
Energy and the subsidiary in which it holds a controlling financial interest.
Intercompany accounts and transactions have been eliminated, other than those
between rate-regulated operations.
 
 The
preparation of the unaudited Consolidated Financial Statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results may differ from the estimates used in preparing the unaudited
Consolidated Financial Statements. Note 2 of Notes to Consolidated
Financial Statements included in MidAmerican Energy’s Annual Report on Form 10-K
for the year ended December 31, 2007, describes the most significant
accounting estimates and policies used in the preparation of the Consolidated
Financial Statements. There have been no significant changes in MidAmerican
Energy’s assumptions regarding significant accounting policies during the first
six months of 2008.
 
 (2)
              New
      Accounting Pronouncements
 
 In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 161, “Disclosures about
Derivative Instruments and Hedging Activities - an amendment of FASB Statement
No. 133” (“SFAS No. 161”). SFAS No. 161 is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand how and
why an entity uses derivative instruments and their effects on an entity's
financial position, financial performance, and cash flows. SFAS No. 161 is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008, with early application encouraged.
MidAmerican Energy is currently evaluating the impact of adopting SFAS
No. 161 on its disclosures included within the notes to its Consolidated
Financial Statements.
 
 In
December 2007, the FASB issued SFAS No. 141(R), “Business
Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) applies to all
transactions or other events in which an entity obtains control of one or more
businesses. SFAS No. 141(R) establishes how the acquirer of a business
should recognize, measure and disclose in its financial statements the
identifiable assets and goodwill acquired, the liabilities assumed and any
noncontrolling interest in the acquired business. SFAS No. 141(R) is
applied prospectively for all business combinations with an acquisition date on
or after the beginning of the first annual reporting period beginning on or
after December 15, 2008, with early application prohibited. SFAS
No. 141(R) will not have an impact on MidAmerican Energy’s historical
Consolidated Financial Statements and will be applied to business combinations
completed, if any, on or after January 1, 2009.
  8
  In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51” (“SFAS
No. 160”). SFAS No. 160 establishes accounting and reporting standards
for the noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS No. 160 requires entities to report noncontrolling
interests as a separate component of shareholders’ equity in the consolidated
financial statements. The amount of earnings attributable to the parent and to
the noncontrolling interests should be clearly identified and presented on the
face of the consolidated statements of operations. Additionally, SFAS
No. 160 requires any changes in a parent’s ownership interest of its
subsidiary, while retaining its control, to be accounted for as equity
transactions. SFAS No. 160 is effective for fiscal years beginning on or
after December 15, 2008 and interim periods within those fiscal years.
MidAmerican Energy is currently evaluating the impact of adopting SFAS
No. 160 on its consolidated financial position and results of
operations.
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and FinancialLiabilities - including
an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS
No. 159 permits entities to elect to measure many financial instruments and
certain other items at fair value. Upon adoption of SFAS No. 159, an entity
may elect the fair value option for eligible items that exist at the adoption
date. Subsequent to the initial adoption, the election of the fair value option
may only be made at initial recognition of the asset or liability or upon a
re-measurement event that gives rise to new-basis accounting. The decision about
whether to elect the fair value option is applied on an instrument-by-instrument
basis, is irrevocable and is applied only to an entire instrument and not only
to specified risks, cash flows or portions of that instrument. SFAS No. 159
does not affect any existing accounting literature that requires certain assets
and liabilities to be carried at fair value nor does it eliminate disclosure
requirements included in other accounting standards. MidAmerican Funding and
MidAmerican Energy adopted SFAS No. 159 effective January 1, 2008, and
did not elect the fair value option for any existing eligible
items.
 
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. SFAS No. 157 does not impose fair value measurements on items
not already accounted for at fair value; rather it applies, with certain
exceptions, to other accounting pronouncements that either require or permit
fair value measurements. Under SFAS No. 157, fair value refers to the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants in the principal or most
advantageous market. The standard clarifies that fair value should be based on
the assumptions market participants would use when pricing the asset or
liability. In February 2008, the FASB issued Staff Position No. 157-2,
“Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), which delays
the effective date of SFAS No. 157 for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the
consolidated financial statements on a recurring basis until fiscal years
beginning after November 15, 2008. These non-financial items include assets
and liabilities such as asset retirement obligations initially measured at fair
value. MidAmerican Funding and MidAmerican Energy adopted the provisions of SFAS
No. 157 for assets and liabilities recognized at fair value on a recurring
basis effective January 1, 2008. The partial adoption of SFAS No. 157
did not have a material impact on MidAmerican Funding’s or MidAmerican Energy’s
Consolidated Financial Statements. Refer to Note 6 for additional
discussion.
 
 (3)
              Risk
      Management
 
 MidAmerican
Energy is exposed to the impact of market fluctuations in commodity prices,
principally natural gas and electricity. Interest rate risk exists on variable
rate debt, commercial paper and future debt issuances. MidAmerican Energy
employs established policies and procedures to manage its risks associated with
these market fluctuations using various commodity and financial derivative
instruments, including forward contracts, futures, options, swaps and other
over-the-counter agreements. The risk management process is designed to
identify, assess, monitor, report, manage, and mitigate each of the various
types of risk involved in its business. MidAmerican Energy does not engage in a
material amount of proprietary trading activities.
 
  9
  The
following table summarizes the various derivative mark-to-market positions
included in the Consolidated Balance Sheet as of June 30, 2008 (in
millions):
 
 AccumulatedRegulatory
              
              
              OtherDerivative
      Net Assets (Liabilities)
              
              
              Net
      Assets
              
              
              ComprehensiveAssets
              
              
              Liabilities
              
              
              Net
              
              
              (Liabilities)
              
              
              (Income)
      Loss(1)Regulated
      electric
              
              $
              2
              
              
              $
              (80
              )
              
              $
              (78
              )
              
              $
              78
              
              
              $
              -Regulated
      gas
              
              
              24
              
              
              
              (2
              )
              
              
              22
              
              
              
              (22
              )
              
              
              -Nonregulated
              
              
              52
              
              
              
              (27
              )
              
              
              25
              
              
              
              -
              
              
              
              (27
              )Total
              
              $
              78
              
              
              $
              (109
              )
              
              $
              (31
              )
              
              $
              56
              
              
              $
              (27
              )Current
              
              $
              67
              
              
              $
              (91
              )
              
              $
              (24
              )Non-current
              
              
              11
              
              
              
              (18
              )
              
              
              (7
              )Total
              
              $
              78
              
              
              $
              (109
              )
              
              $
              (31
              )
 
 (1)
              Before
      income taxes.
 
 The
following table summarizes the various derivative mark-to-market positions
included in the Consolidated Balance Sheet as of December 31, 2007 (in
millions):
 
 AccumulatedRegulatory
              
              
              OtherDerivative
      Net Assets (Liabilities)
              
              
              Net
      Assets
              
              
              ComprehensiveAssets
              
              
              Liabilities
              
              
              Net
              
              
              (Liabilities)
              
              
              (Income)
      Loss(1)Regulated
      electric
              
              $
              6
              
              
              $
              (9
              )
              
              $
              (3
              )
              
              $
              3
              
              
              $
              -Regulated
      gas
              
              
              5
              
              
              
              (19
              )
              
              
              (14
              )
              
              
              17
              
              
              
              -Nonregulated
              
              
              13
              
              
              
              (12
              )
              
              
              1
              
              
              
              -
              
              
              
              (1
              )Total
              
              $
              24
              
              
              $
              (40
              )
              
              $
              (16
              )
              
              $
              20
              
              
              $
              (1
              )Current
              
              $
              22
              
              
              $
              (38
              )
              
              $
              (16
              )Non-current
              
              
              2
              
              
              
              (2
              )
              
              
              -Total
              
              $
              24
              
              
              $
              (40
              )
              
              $
              (16
              )
 
 (1)
              Before
      income taxes.
 
 (4)
              Commitments
      and Contingencies
 
 Environmental
Matters
 
 MidAmerican
Energy is subject to numerous environmental laws, including the federal Clean
Air Act, related air quality standards promulgated by the United States
Environmental Protection Agency (“EPA”) and various state air quality laws; the
Endangered Species Act, particularly as it relates to certain endangered species
of fish; the Comprehensive Environmental Response, Compensation and Liability
Act and similar state laws relating to environmental cleanups; the Resource
Conservation and Recovery Act and similar state laws relating to the storage and
handling of hazardous materials; and the Clean Water Act and similar state laws
relating to water quality. These laws have the potential for impacting
MidAmerican Energy’s operations. Specifically, the Clean Air Act will likely
continue to impact the operation of MidAmerican Energy’s generating facilities
and will likely require MidAmerican Energy to reduce emissions from those
facilities through the installation of additional or improved emission controls,
the purchase of additional emission allowances, or some combination thereof.
MidAmerican Energy believes it is in material compliance with current
environmental requirements.
 
  10
  Other
Commitments and Contingencies
 
 MidAmerican
Energy is a party in a variety of legal actions or claims arising out of the
normal course of business. Plantiffs occasionally seek punitive or exemplary
damages. MidAmerican Energy does not believe that such normal and routine
matters will have a material effect on its financial results.
 
 (5)
              Employee
      Benefit Plans
 
 MidAmerican
Energy sponsors a noncontributory defined benefit pension plan covering
substantially all employees of MEHC and its domestic energy subsidiaries other
than PacifiCorp. MidAmerican Energy also sponsors certain postretirement health
care and life insurance benefits covering substantially all retired employees of
MEHC and its domestic energy subsidiaries other than PacifiCorp. Net periodic
benefit cost for the pension, including supplemental executive retirement plans,
and other postretirement benefit plans included the following components (in
millions):
 
 Three
      Months
              
              
              Six
      MonthsEnded
      June 30,
              
              
              Ended
      June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007PensionService
      cost
              
              $
              6
              
              
              $
              6
              
              
              $
              13
              
              
              $
              12Interest
      cost
              
              
              10
              
              
              
              9
              
              
              
              20
              
              
              
              19Expected
      return on plan assets
              
              
              (12
              )
              
              
              (10
              )
              
              
              (23
              )
              
              
              (20
              )Net
      amortization
              
              
              1
              
              
              
              1
              
              
              
              1
              
              
              
              2Net
      periodic benefit cost
              
              $
              5
              
              
              $
              6
              
              
              $
              11
              
              
              $
              13
 
 Three
      Months
              
              
              Six
      MonthsEnded
      June 30,
              
              
              Ended
      June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Other
      PostretirementService
      cost
              
              $
              1
              
              
              $
              3
              
              
              $
              3
              
              
              $
              4Interest
      cost
              
              
              3
              
              
              
              5
              
              
              
              7
              
              
              
              9Expected
      return on plan assets
              
              
              (4
              )
              
              
              (6
              )
              
              
              (8
              )
              
              
              (9
              )Net
      amortization
              
              
              1
              
              
              
              1
              
              
              
              1
              
              
              
              1Net
      periodic benefit cost
              
              $
              1
              
              
              $
              3
              
              
              $
              3
              
              
              $
              5
 
 Employer
contributions to the pension and other postretirement plans are expected to be
$7 million and $14 million, respectively, in 2008. As of June 30,
2008, $3 million and $8 million of contributions had been made to the
pension and other postretirement plans, respectively.
 
 (6)
              Fair
      Value Measurements
 
 MidAmerican
Energy has various financial instruments that are measured at fair value in the
Consolidated Financial Statements, including marketable debt and equity
securities and commodity derivatives. MidAmerican Energy’s financial assets and
liabilities are measured using inputs from the three levels of the fair value
hierarchy. A financial asset or liability classification within the hierarchy is
determined based on the lowest level input that is significant to the fair value
measurement. The three levels are as follows:
 
 ·
              Level
      1 – Inputs are unadjusted quoted prices in active markets for identical
      assets or liabilities that MidAmerican Energy has the ability to access at
      the measurement date.
  ·
              Level
      2 – Inputs include quoted prices for similar assets and liabilities in
      active markets, quoted prices for identical or similar assets or
      liabilities in markets that are not active, inputs other than quoted
      prices that are observable for the asset or liability and inputs that are
      derived principally from or corroborated by observable market data by
      correlation or other means (market corroborated
  inputs).
  ·
              Level
      3 – Unobservable inputs reflect MidAmerican Energy’s judgments about the
      assumptions market participants would use in pricing the asset or
      liability since limited market data exists. MidAmerican Energy develops
      these inputs based on the best information available, including
      MidAmerican Energy’s own data.
   11
  The
following table presents MidAmerican Energy’s assets and liabilities recognized
in the Consolidated Balance Sheet and measured at fair value on a recurring
basis as of June 30, 2008 (in millions):
 
 Input
      Levels for Fair Value MeasurementsDescription
              
              Level
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              Other(1)
              
              
              TotalAssets(2)Available-for-sale
      securities
              
              $
              184
              
              
              $
              74
              
              
              $
              31
              
              
              $
              -
              
              
              $
              289Commodity
      derivatives
              
              
              35
              
              
              
              61
              
              
              
              6
              
              
              
              (24
              )
              
              
              78$
              219
              
              
              $
              135
              
              
              $
              37
              
              
              $
              (24
              )
              
              $
              367LiabilitiesCommodity
      derivatives
              
              $
              (5
              )
              
              $
              (98
              )
              
              $
              (30
              )
              
              $
              24
              
              
              $
              (109
              )
 
 (1)
              Represents
      netting under master netting arrangements.(2)
              Does
      not include investments in either pension or other postretirement plan
      assets.
 
 MidAmerican
Energy’s investments in debt and equity securities are classified as
available-for-sale and stated at fair value. When available, the quoted market
price or net asset value of an identical security in the principal market is
used to record the fair value. In the absence of a quoted market price in a
readily observable market, the fair value is determined using pricing models
based on observable market inputs and quoted market prices of securities with
similar characteristics. The fair value of MidAmerican Energy’s investments in
auction rate securities, where there is no current liquid market, is determined
using broker quotes and pricing models based on unobservable
inputs.
 
 MidAmerican
Energy uses various commodity derivative instruments, including forward
contracts, futures, options, swaps and other over-the-counter agreements. The
fair value of commodity derivatives is determined using unadjusted quoted prices
for identical instruments on the applicable exchange in which MidAmerican Energy
transacts. When quoted prices for identical instruments are not available,
MidAmerican Energy uses forward price curves derived from market price
quotations, when available, or internally developed and commercial models, with
internal and external fundamental data inputs. Market price quotations are
obtained from independent energy brokers, exchanges, direct communication with
market participants and actual transactions executed by MidAmerican Energy.
Market price quotations for certain major electricity and natural gas trading
hubs are generally readily obtainable for the applicable term of MidAmerican
Energy’s outstanding commodity derivative instruments, and therefore,
MidAmerican Energy’s forward price curves for those locations and periods
reflect observable market quotes. Market price quotations for other electricity
and natural gas trading hubs are not as readily obtainable or the instrument is
not actively traded. Given that limited market data exists for these
instruments, MidAmerican Energy uses forward price curves derived from internal
models based on perceived pricing relationships to major trading hubs that are
based on significant unobservable inputs.
 
  12
  The
following table reconciles the beginning and ending balances of MidAmerican
Energy’s assets and liabilities measured at fair value on a recurring basis
using significant Level 3 inputs (in millions):
 
 Three Months Ended
                  June 30,
      2008
              
              
              Six Months Ended
                  June 30,
      2008Available-For-Sale
      Securities
              
              
              CommodityDerivatives
              
              
              Available-For-Sale
      Securities
              
              
              CommodityDerivativesBeginning
      balance
              
              $
              36
              
              
              $
              (13
              )
              
              $
              40
              
              
              $
              -Changes
      included in earnings(1)
              
              
              -
              
              
              
              (10
              )
              
              
              -
              
              
              
              (20
              )Unrealized
      gains (losses) included in
                regulatory
      assets and liabilities
              
              
              -
              
              
              
              (1
              )
              
              
              -
              
              
              
              (5
              )Unrealized
      gains (losses) included in othercomprehensive income
              
              
              (5
              )
              
              
              -
              
              
              
              (9
              )
              
              
              1Ending
      balance
              
              $
              31
              
              
              $
              (24
              )
              
              $
              31
              
              
              $
              (24
              )
 
 (1)
              Changes
      included in earnings are reported as nonregulated revenues in the
      Consolidated Statement of Operations. Net unrealized losses included in
      earnings for the three and six months ended related to commodity
      derivatives held at June 30, 2008, totaled $10 million and
      $16 million, respectively.
 
 (7)
              Comprehensive
      Income and Components of Accumulated Other Comprehensive Income,
      Net
 
 The
components of comprehensive income are as follows (in millions):
 
 Three
      Months
              
              
              Six
      MonthsEnded
      June 30,
              
              
              Ended
      June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Earnings
      on common stock
              
              $
              59
              
              
              $
              73
              
              
              $
              166
              
              
              $
              165Other
      comprehensive income (loss):Fair
      value adjustment on cash flow hedges, net of tax of $2, $(4), $10 and
      $7
              
              
              5
              
              
              
              (8
              )
              
              
              16
              
              
              
              10Unrealized
      losses on available-for-sale securities, net of tax of $(2), $-, $(4)
      and $-
              
              
              (3
              )
              
              
              -
              
              
              
              (5
              )
              
              
              -Total
      other comprehensive income (loss)
              
              
              2
              
              
              
              (8
              )
              
              
              11
              
              
              
              10Comprehensive
      income
              
              $
              61
              
              
              $
              65
              
              
              $
              177
              
              
              $
              175
 
 Accumulated
other comprehensive income, net is included in the Consolidated Balance Sheets
in common shareholder’s equity and consists of the following components (in
millions):
 
 As
      ofJune 30,
              
              
              December 31,2008
              
              
              2007Fair
      value adjustment on cash flow hedges, net of tax of $10 and
    $-
              
              $
              17
              
              
              $
              1Unrealized
      losses on available-for-sale securities, net of tax of $(4) and
      $-
              
              
              (5
              )
              
              
              -Total
      accumulated other comprehensive income, net
              
              $
              12
              
              
              $
              1
 
  13
  
 (8)
              Segment
      Information
 
 MidAmerican
Energy has identified three reportable operating segments: regulated electric,
regulated gas and nonregulated energy. The regulated electric segment derives
most of its revenue from regulated retail sales of electricity to residential,
commercial, and industrial customers and from wholesale sales. The regulated gas
segment derives most of its revenue from regulated retail sales of natural gas
to residential, commercial, and industrial customers and also obtains
significant revenues by transporting gas owned by others through its
distribution system. Pricing for regulated electric and gas sales are
established separately by regulatory agencies; therefore, management also
reviews each segment separately to make decisions regarding allocation of
resources and in evaluating performance. The nonregulated energy segment derives
most of its revenue from nonregulated retail electric and gas activities. Common
operating costs, interest income, interest expense and income tax expense are
allocated to each segment based on MidAmerican Energy allocators most related to
the nature of the cost.
 
 The
following tables provide information on a reportable operating segment basis (in
millions):
 
 Three
      Months
              
              
              Six
      MonthsEnded
      June 30,
              
              
              Ended
      June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Segment Profit
      InformationOperating
      revenues:Regulated
      electric
              
              $
              492
              
              
              $
              467
              
              
              $
              975
              
              
              $
              947Regulated
      gas
              
              
              280
              
              
              
              209
              
              
              
              851
              
              
              
              708Nonregulated
      energy
              
              
              307
              
              
              
              293
              
              
              
              625
              
              
              
              550Total
              
              $
              1,079
              
              
              $
              969
              
              
              $
              2,451
              
              
              $
              2,205Depreciation
      and amortization:Regulated
      electric
              
              $
              69
              
              
              $
              68
              
              
              $
              133
              
              
              $
              130Regulated
      gas
              
              
              8
              
              
              
              8
              
              
              
              16
              
              
              
              15$
              77
              
              
              $
              76
              
              
              $
              149
              
              
              $
              145Operating
      income:Regulated
      electric
              
              $
              89
              
              
              $
              94
              
              
              $
              205
              
              
              $
              189Regulated
      gas
              
              
              3
              
              
              
              1
              
              
              
              48
              
              
              
              42Nonregulated
      energy
              
              
              11
              
              
              
              18
              
              
              
              25
              
              
              
              27Total
              
              $
              103
              
              
              $
              113
              
              
              $
              278
              
              
              $
              258Earnings
      on common stock:Regulated
      electric
              
              $
              55
              
              
              $
              64
              
              
              $
              124
              
              
              $
              128Regulated
      gas
              
              
              -
              
              
              
              (1
              )
              
              
              24
              
              
              
              22Nonregulated
      energy
              
              
              4
              
              
              
              10
              
              
              
              18
              
              
              
              15Total
              
              $
              59
              
              
              $
              73
              
              
              $
              166
              
              
              $
              165
 
 As
      ofJune 30,
              
              
              December 31,2008
              
              
              2007Segment Asset
      InformationTotal
      assets:Regulated
      electric
              
              $
              6,749
              
              
              $
              6,110Regulated
      gas
              
              
              839
              
              
              
              938Nonregulated
      energy
              
              
              267
              
              
              
              203Total
              
              $
              7,855
              
              
              $
              7,251
 
  14
  
 (9)
              Recent
      Debt Transactions
 
 On
July 1, 2008, the Iowa Finance Authority issued $45 million of
variable-rate tax-exempt bonds due July 1, 2038, the proceeds of which were
loaned to MidAmerican Energy to pay environmental construction costs. Also on
July 1, 2008, the Iowa Finance Authority issued $57 million of
variable-rate tax-exempt bonds due May 1, 2023, to refinance $57 million of
pollution control revenue bonds issued on behalf of MidAmerican Energy in 1993,
which are reflected on the Consolidated Balance Sheet as of June 30, 2008.
MidAmerican Energy is contractually responsible for the timely payment of
principal and interest on these variable-rate tax-exempt bonds.
 
 On April
1, 2008, MidAmerican Energy increased its unsecured revolving credit facility,
expiring July 1, 2012, from $500 million to $650 million. As of June 30,
2008, the unsecured revolving credit facility supported MidAmerican Energy’s
$455 million commercial paper program and its variable-rate tax-exempt
bonds.
 
 On
March 25, 2008, MidAmerican Energy issued $350 million of 5.3% Senior
Notes due March 15, 2018. The proceeds are being used by MidAmerican Energy
to pay construction costs, including costs for its wind-powered generation
projects in Iowa, to repay short-term indebtedness and for general corporate
purposes.
 
  15
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
 
 
 
 To the
Board of Managers and Member
 MidAmerican
Funding, LLC
 Des
Moines, Iowa
 
 We have
reviewed the accompanying consolidated balance sheet of MidAmerican Funding, LLC
and subsidiaries (the “Company”) as of June 30, 2008, and the related
consolidated statements of operations for the three-month and six-month periods
ended June 30, 2008 and 2007, and of cash flows for the six-month periods
ended June 30, 2008 and 2007. These interim financial statements are the
responsibility of the Company’s management.
 
 We
conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an
opinion.
 
 Based on
our reviews, we are not aware of any material modifications that should be made
to such consolidated interim financial statements for them to be in conformity
with accounting principles generally accepted in the United States of
America.
 
 We have
previously audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheet and
consolidated statement of capitalization (not presented herein) of MidAmerican
Funding, LLC and subsidiaries as of December 31, 2007, and the related
consolidated statements of operations, comprehensive income, cash flows, and
retained earnings for the year then ended (not presented herein); and in our
report dated February 27, 2008, we expressed an unqualified opinion on
those consolidated financial statements, which included an explanatory paragraph
related to the adoption of Statement of Financial Accounting Standards
No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – an
amendment of FASB Statements No. 87, 88, 106, and 132(R), as of
December 31, 2006. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 2007, is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
 
 
 /s/
Deloitte & Touche LLP
 
 Des
Moines, Iowa
 August 8,
2008
 
  16
  MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 (In
millions)
 
 As
      ofJune 30,
              
              
              December 31,2008
              
              
              2007ASSETSUtility
      Plant, NetElectric
              
              $
              7,748
              
              
              $
              7,473Gas
              
              
              1,112
              
              
              
              1,0868,860
              
              
              
              8,559Accumulated
      depreciation and amortization
              
              
              (3,336
              )
              
              
              (3,237
              )5,524
              
              
              
              5,322Construction
      work in progress
              
              
              551
              
              
              
              3866,075
              
              
              
              5,708Current
      AssetsCash
      and cash equivalents
              
              
              76
              
              
              
              12Receivables,
      net
              
              
              583
              
              
              
              490Inventories
              
              
              106
              
              
              
              133Other
              
              
              108
              
              
              
              40873
              
              
              
              675Other
      AssetsInvestments
      and nonregulated property, net
              
              
              471
              
              
              
              494Goodwill
              
              
              1,270
              
              
              
              1,270Regulatory
      assets
              
              
              330
              
              
              
              268Other
              
              
              126
              
              
              
              1292,197
              
              
              
              2,161Total
      Assets
              
              $
              9,145
              
              
              $
              8,544CAPITALIZATION
      AND LIABILITIESCapitalizationMember’s
      equity
              
              $
              2,988
              
              
              $
              2,825MidAmerican
      Energy preferred securities
              
              
              30
              
              
              
              30Long-term
      debt, excluding current portion
              
              
              3,344
              
              
              
              3,1706,362
              
              
              
              6,025Current
      LiabilitiesNotes
      payable
              
              
              -
              
              
              
              86Note
      payable to affiliate
              
              
              45
              
              
              
              33Current
      portion of long-term debt
              
              
              175
              
              
              
              1Accounts
      payable
              
              
              349
              
              
              
              408Taxes
      accrued
              
              
              108
              
              
              
              86Interest
      accrued
              
              
              60
              
              
              
              57Other
              
              
              138
              
              
              
              76875
              
              
              
              747Other
      LiabilitiesDeferred
      income taxes
              
              
              614
              
              
              
              509Investment
      tax credits
              
              
              37
              
              
              
              38Asset
      retirement obligations
              
              
              199
              
              
              
              182Regulatory
      liabilities
              
              
              800
              
              
              
              793Other
              
              
              258
              
              
              
              2501,908
              
              
              
              1,772Total
      Capitalization and Liabilities
              
              $
              9,145
              
              
              $
              8,544
 
 The
accompanying notes are an integral part of these financial
statements
  17
  MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 (In
millions)
 
 Three
      Months
              
              
              Six
      MonthsEnded
      June 30,
              
              
              Ended
      June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Operating
      RevenuesRegulated
      electric
              
              $
              492
              
              
              $
              467
              
              
              $
              975
              
              
              $
              947Regulated
      gas
              
              
              280
              
              
              
              209
              
              
              
              851
              
              
              
              708Nonregulated
              
              
              309
              
              
              
              295
              
              
              
              628
              
              
              
              5531,081
              
              
              
              971
              
              
              
              2,454
              
              
              
              2,208Operating
      ExpensesRegulated:Cost
      of fuel, energy and capacity
              
              
              189
              
              
              
              176
              
              
              
              365
              
              
              
              373Cost
      of gas sold
              
              
              232
              
              
              
              161
              
              
              
              712
              
              
              
              574Other
      operating expenses
              
              
              97
              
              
              
              102
              
              
              
              201
              
              
              
              200Maintenance
              
              
              61
              
              
              
              42
              
              
              
              98
              
              
              
              85Depreciation
      and amortization
              
              
              77
              
              
              
              76
              
              
              
              149
              
              
              
              145Property
      and other taxes
              
              
              26
              
              
              
              25
              
              
              
              51
              
              
              
              50682
              
              
              
              582
              
              
              
              1,576
              
              
              
              1,427Nonregulated:Cost
      of sales
              
              
              290
              
              
              
              270
              
              
              
              589
              
              
              
              512Other
              
              
              5
              
              
              
              6
              
              
              
              10
              
              
              
              11295
              
              
              
              276
              
              
              
              599
              
              
              
              523Total
      operating expenses
              
              
              977
              
              
              
              858
              
              
              
              2,175
              
              
              
              1,950Operating
      Income
              
              
              104
              
              
              
              113
              
              
              
              279
              
              
              
              258Non-Operating
      IncomeInterest
      and dividend income
              
              
              2
              
              
              
              1
              
              
              
              3
              
              
              
              2Allowance
      for equity funds
              
              
              7
              
              
              
              11
              
              
              
              11
              
              
              
              22Other
      income
              
              
              4
              
              
              
              3
              
              
              
              5
              
              
              
              5Other
      expense
              
              
              (1
              )
              
              
              (1
              )
              
              
              (2
              )
              
              
              (2
              )12
              
              
              
              14
              
              
              
              17
              
              
              
              27Fixed
      ChargesInterest
      on long-term debt
              
              
              51
              
              
              
              37
              
              
              
              98
              
              
              
              75Other
      interest expense
              
              
              -
              
              
              
              4
              
              
              
              2
              
              
              
              8Preferred
      dividends of subsidiaries
              
              
              1
              
              
              
              1
              
              
              
              1
              
              
              
              1Allowance
      for borrowed funds
              
              
              (3
              )
              
              
              (5
              )
              
              
              (6
              )
              
              
              (11
              )49
              
              
              
              37
              
              
              
              95
              
              
              
              73Income
      Before Income Taxes
              
              
              67
              
              
              
              90
              
              
              
              201
              
              
              
              212Income
      Taxes
              
              
              14
              
              
              
              24
              
              
              
              48
              
              
              
              61Net
      Income
              
              $
              53
              
              
              $
              66
              
              
              $
              153
              
              
              $
              151
 
 The
accompanying notes are an integral part of these financial
statements.
  18
  MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 (In
millions)
 
 Six
      MonthsEnded
      June 30,2008
              
              
              2007Net
      Cash Flows From Operating ActivitiesNet
      income
              
              $
              153
              
              
              $
              151Adjustments
      to reconcile net income to net cash flows
                from
      operating activities:Depreciation
      and amortization
              
              
              149
              
              
              
              146Deferred
      income taxes and investment tax credit, net
              
              
              92
              
              
              
              (3
              )Amortization
      of other assets and liabilities
              
              
              14
              
              
              
              13Impact
      of changes in working capital -Receivables,
      net
              
              
              (98
              )
              
              
              (30
              )Inventories
              
              
              27
              
              
              
              45Accounts
      payable
              
              
              8
              
              
              
              28Taxes
      accrued
              
              
              5
              
              
              
              63Other
      current assets and liabilities
              
              
              12
              
              
              
              (7
              )Other,
      net
              
              
              (12
              )
              
              
              (11
              )Net
      cash flows from operating activities
              
              
              350
              
              
              
              395Net
      Cash Flows From Investing ActivitiesUtility
      construction expenditures
              
              
              (560
              )
              
              
              (656
              )Purchases
      of available-for-sale securities
              
              
              (72
              )
              
              
              (102
              )Proceeds
      from sales of available-for-sale securities
              
              
              69
              
              
              
              82Other,
      net
              
              
              1
              
              
              
              5Net
      cash flows from investing activities
              
              
              (562
              )
              
              
              (671
              )Net
      Cash Flows From Financing ActivitiesProceeds
      from long-term debt
              
              
              349
              
              
              
              649Retirement
      of long-term debt
              
              
              -
              
              
              
              (1
              )Net
      increase in note payable to affiliate
              
              
              12
              
              
              
              15Net
      change in notes payable
              
              
              (86
              )
              
              
              -Other,
      net
              
              
              1
              
              
              
              (2
              )Net
      cash flows from financing activities
              
              
              276
              
              
              
              661Net
      Change in Cash and Cash Equivalents
              
              
              64
              
              
              
              385Cash
      and Cash Equivalents at Beginning of Period
              
              
              12
              
              
              
              9Cash
      and Cash Equivalents at End of Period
              
              $
              76
              
              
              $
              394
 
 The
accompanying notes are an integral part of these financial
statements.
 
  19
  MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 
 (1)
              General
 
 MidAmerican
Funding, LLC (“MidAmerican Funding”) is an Iowa limited liability company with
MidAmerican Energy Holdings Company (“MEHC”) as its sole member. MEHC is a
consolidated subsidiary of Berkshire Hathaway Inc. MidAmerican Funding’s direct,
wholly owned subsidiary is MHC Inc. (“MHC”), which constitutes substantially all
of MidAmerican Funding’s assets, liabilities and business activities except
those related to MidAmerican Funding’s long-term debt securities. MHC,
MidAmerican Funding and MEHC are holding companies headquartered in Des Moines,
Iowa. MHC conducts no business other than the ownership of its subsidiaries.
MHC’s principal subsidiary is MidAmerican Energy Company (“MidAmerican Energy”),
a public utility with electric and natural gas operations. Direct, wholly owned
nonregulated subsidiaries of MHC are InterCoast Capital Company, Midwest Capital
Group, Inc., MidAmerican Services Company and MEC Construction Services
Co.
 
 The
unaudited Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and U.S. Securities and Exchange
Commission rules and regulations for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the disclosures required
for annual financial statements. Management believes the unaudited Consolidated
Financial Statements contain all adjustments, consisting of normal recurring
adjustments, considered necessary for the fair presentation of its financial
statements as of June 30, 2008, and for the three and six months ended
June 30, 2008 and 2007. The results of operations for the three and six
months ended June 30, 2008, are not necessarily indicative of the results
to be expected for the full year.
 
 The
unaudited Consolidated Financial Statements include the accounts of MidAmerican
Funding and its subsidiaries in which it holds a controlling financial interest.
Intercompany accounts and transactions have been eliminated, other than those
between rate-regulated operations.
 
 The
preparation of the unaudited Consolidated Financial Statements in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results may differ from the estimates used in preparing the unaudited
Consolidated Financial Statements. Note 2 of Notes to Consolidated
Financial Statements included in MidAmerican Funding’s Annual Report on Form
10-K for the year ended December 31, 2007, describes the most significant
accounting estimates and policies used in the preparation of the Consolidated
Financial Statements. There have been no significant changes in MidAmerican
Funding’s assumptions regarding significant accounting policies during the first
six months of 2008.
 
 (2)
              New
      Accounting Pronouncements
 
 Refer to
Note 2 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for information regarding new accounting pronouncements.
 
 (3)
              Risk
      Management
 
 Refer to
Note 3 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for information regarding MidAmerican Funding’s risk management.
 
 (4)
              Commitments
      and Contingencies
 
 Refer to
Note 4 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for information regarding MidAmerican Funding’s commitments and
contingencies.
 
  20
  Other
Commitments and Contingencies
 
 MidAmerican
Funding is a party in a variety of legal actions or claims arising out of the
normal course of business. Plantiffs occasionally seek punitive or exemplary
damages. MidAmerican Funding does not believe that such normal and routine
matters will have a material effect on its financial results.
 
 (5)
              Employee
      Benefit Plans
 
 Refer to
Note 5 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for information regarding MidAmerican Funding’s employee benefit
plans.
 
 (6)
              Fair
      Value Measurements
 
 Refer to
Note 6 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for information regarding MidAmerican Funding’s fair value
measurements.  In addition to MidAmerican Energy’s financial
instruments recorded at fair value, MidAmerican Funding had $3 million of
other trust securities as of June 30, 2008, which are categorized as
Level 2 assets.
 
 (7)
              Comprehensive
      Income and Components of Accumulated Other Comprehensive Income,
      Net
 
 The
components of comprehensive income are as follows (in millions):
 
 Three Months
              
              
              Six MonthsEnded June 30,
              
              
              Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Net
      income
              
              $
              53
              
              
              $
              66
              
              
              $
              153
              
              
              $
              151Other
      comprehensive income (loss):Fair
      value adjustment on cash flow hedges, net of tax of $2, $(4), $10 and
      $7
              
              
              5
              
              
              
              (8
              )
              
              
              16
              
              
              
              10Unrealized
      losses on available-for-sale securities, net of tax of $(2), $-, $(4)
      and $-
              
              
              (3
              )
              
              
              -
              
              
              
              (5
              )
              
              
              -Total
      other comprehensive income (loss)
              
              
              2
              
              
              
              (8
              )
              
              
              11
              
              
              
              10Comprehensive
      income
              
              $
              55
              
              
              $
              58
              
              
              $
              164
              
              
              $
              161
 
 Accumulated
other comprehensive income, net is included in the Consolidated Balance Sheets
in member’s equity and consists of the following components (in
millions):
 
 As
      ofJune 30,
              
              
              December 31,2008
              
              
              2007Fair
      value adjustment on cash flow hedges, net of tax of $10 and
    $-
              
              $
              17
              
              
              $
              1Unrealized
      losses on available-for-sale securities, net of tax of $(4) and
      $-
              
              
              (5
              )
              
              
              -Total
      accumulated other comprehensive income, net
              
              $
              12
              
              
              $
              1
 
 (8)
              Segment
      Information
 
 MidAmerican
Funding has identified three reportable operating segments: regulated electric,
regulated gas and nonregulated energy. The regulated electric segment derives
most of its revenue from regulated retail sales of electricity to residential,
commercial, and industrial customers and from wholesale sales. The regulated gas
segment derives most of its revenue from regulated retail sales of natural gas
to residential, commercial, and industrial customers and also obtains
significant revenues by transporting gas owned by others through its
distribution system. Pricing for regulated electric and gas sales are
established separately by regulatory agencies; therefore, management also
reviews each segment separately to make decisions regarding allocation of
resources and in evaluating performance. The nonregulated energy segment derives
most of its revenue from nonregulated retail electric and gas activities. Common
operating costs, interest income, interest expense and income tax expense are
allocated to each segment based on MidAmerican Funding allocators most related
to the nature of the cost. “Other” in the tables below consists of the
nonregulated subsidiaries of MidAmerican Funding not engaged in the energy
business and parent company interest expense. The following tables provide
information on a reportable operating segment basis (in millions):
  21
 
 Three
      Months
              
              
              Six
      MonthsEnded
      June 30,
              
              
              Ended
      June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Segment Profit
      InformationOperating
      revenues:Regulated
      electric
              
              $
              492
              
              
              $
              467
              
              
              $
              975
              
              
              $
              947Regulated
      gas
              
              
              280
              
              
              
              209
              
              
              
              851
              
              
              
              708Nonregulated
      energy
              
              
              307
              
              
              
              293
              
              
              
              625
              
              
              
              550Other
              
              
              2
              
              
              
              2
              
              
              
              3
              
              
              
              3Total
              
              $
              1,081
              
              
              $
              971
              
              
              $
              2,454
              
              
              $
              2,208Depreciation
      and amortization:Regulated
      electric
              
              $
              69
              
              
              $
              68
              
              
              $
              133
              
              
              $
              130Regulated
      gas
              
              
              8
              
              
              
              8
              
              
              
              16
              
              
              
              15$
              77
              
              
              $
              76
              
              
              $
              149
              
              
              $
              145Operating
      income:Regulated
      electric
              
              $
              89
              
              
              $
              94
              
              
              $
              205
              
              
              $
              189Regulated
      gas
              
              
              3
              
              
              
              1
              
              
              
              48
              
              
              
              42Nonregulated
      energy
              
              
              11
              
              
              
              18
              
              
              
              25
              
              
              
              27Other
              
              
              1
              
              
              
              -
              
              
              
              1
              
              
              
              -Total
              
              $
              104
              
              
              $
              113
              
              
              $
              279
              
              
              $
              258Net
      income:Regulated
      electric
              
              $
              55
              
              
              $
              64
              
              
              $
              124
              
              
              $
              128Regulated
      gas
              
              
              -
              
              
              
              (1
              )
              
              
              24
              
              
              
              22Nonregulated
      energy
              
              
              4
              
              
              
              10
              
              
              
              18
              
              
              
              15Other
              
              
              (6
              )
              
              
              (7
              )
              
              
              (13
              )
              
              
              (14
              )Total
              
              $
              53
              
              
              $
              66
              
              
              $
              153
              
              
              $
              151
 
 As
      ofJune 30,
              
              
              December 31,2008
              
              
              2007Segment Asset
      InformationTotal
      assets(1):Regulated
      electric
              
              $
              7,940
              
              
              $
              7,301Regulated
      gas
              
              
              917
              
              
              
              1,017Nonregulated
      energy
              
              
              267
              
              
              
              203Other
              
              
              21
              
              
              
              23Total
              
              $
              9,145
              
              
              $
              8,544
 
 (1)
              Total
      assets by operating segment reflect the assignment of goodwill to
      applicable reporting units.
 
 (9)
              Recent
      Debt Transactions
 
 Refer to
Note 9 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for information regarding MidAmerican Funding’s recent debt
transactions.
  22
  Item 2.
                Management’s Discussion and
      Analysis of Financial Condition and Results of
  Operations
 MidAmerican
Energy Company (“MidAmerican Energy”) is a public utility with electric and
natural gas operations and is the principal subsidiary within MidAmerican
Funding, LLC (“MidAmerican Funding”).
 
 Management’s
Discussion and Analysis (“MD&A”) addresses the financial statements of
MidAmerican Funding and its subsidiaries and MidAmerican Energy and its
subsidiary as presented in this joint filing. Information in MD&A related to
MidAmerican Energy, whether or not segregated, also relates to MidAmerican
Funding. Information related to other subsidiaries of MidAmerican Funding
pertains only to the discussion of the financial condition and results of
operations of MidAmerican Funding. Where necessary, discussions have been
segregated under the heading “MidAmerican Funding” to allow the reader to
identify information applicable only to MidAmerican Funding.
 
 MD&A
should be read in conjunction with the financial statements included in this
Form 10-Q and the notes to those statements, together with MD&A in
MidAmerican Energy’s and MidAmerican Funding’s most recently filed Annual Report
on Form 10-K.
 
 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. Forward-looking
statements can typically be identified by the use of forward-looking words, such
as ‘‘may,’’ ‘‘could,’’ ‘‘project,’’ ‘‘believe,’’ ‘‘anticipate,’’ ‘‘expect,’’
‘‘estimate,’’ ‘‘continue,’’ “intend,” ‘‘potential,’’ ‘‘plan,’’ ‘‘forecast,’’ and
similar terms. These statements are based upon MidAmerican Funding’s and/or
MidAmerican Energy’s current intentions, assumptions, expectations and beliefs
and are subject to risks, uncertainties and other important factors. Many of
these factors are outside the control of MidAmerican Funding or MidAmerican
Energy and could cause actual results to differ materially from those expressed
or implied by such forward-looking statements. These factors include, among
others:
 
 ·
              general
      economic, political and business conditions in the jurisdictions in which
      MidAmerican Energy’s facilities are
located;
  ·
              changes
      in governmental, legislative, or regulatory requirements affecting
      MidAmerican Energy or the electric or gas utility
    industries;
  ·
              changes
      in, and compliance with, environmental laws, regulations, decisions and
      policies that could increase operating and capital improvement costs,
      reduce plant output and/or delay plant
  construction;
  ·
              the
      outcome of general rate cases and other proceedings conducted by
      regulatory commissions or other governmental and legal
    bodies;
  ·
              changes
      in economic, industry or weather conditions, as well as demographic
      trends, that could affect customer growth and usage or supply of
      electricity and gas;
  ·
              changes
      in prices and availability for both purchases and sales of wholesale
      electricity, coal, natural gas, other fuel sources and fuel transportation
      that could have a significant impact on energy
  costs;
  ·
              the
      financial condition and creditworthiness of significant customers and
      suppliers;
  ·
              changes
      in business strategy or development
plans;
  ·
              availability,
      term and deployment of capital;
  ·
              performance
      of MidAmerican Energy’s generation facilities, including unscheduled
      generation outages or repairs;
  ·
              risks
      relating to nuclear generation;
  ·
              the
      impact of derivative instruments used to mitigate or manage volume and
      price risk and changes in the commodity prices, interest rates and other
      conditions that affect the value of the
  derivatives;
  23
  ·
              the
      impact of increases in healthcare costs, changes in interest rates,
      mortality, morbidity and investment performance on pension and other
      postretirement benefits expense, as well as the impact of changes in
      legislation on funding
requirements;
  ·
              changes
      in MidAmerican Funding’s or MidAmerican Energy’s credit
      ratings;
  ·
              unanticipated
      construction delays, changes in costs, receipt of required permits and
      authorizations, ability to fund capital projects and other factors that
      could affect future generation plants and infrastructure
      additions;
  ·
              the
      impact of new accounting pronouncements or changes in current accounting
      estimates and assumptions on financial
results;
  ·
              other
      risks or unforeseen events, including litigation and wars, the effects of
      terrorism, embargos and other catastrophic events;
  and
  ·
              other
      business or investment considerations that may be disclosed from time to
      time in MidAmerican Funding’s or MidAmerican Energy’s filings with the
      United States Securities and Exchange Commission (“SEC”) or in other
      publicly disseminated written
documents.
  Further
details of the potential risks and uncertainties affecting MidAmerican Funding
or MidAmerican Energy are described in their filings with the SEC, including
Item 1A and other discussions contained in this Form 10-Q. MidAmerican
Funding and MidAmerican Energy undertake 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.
 
 Results
of Operations for the Three Months Ended June 30, 2008 and 2007
 
 Overview
 
 MidAmerican
Energy’s earnings on common stock decreased $14 million to $59 million
for the second quarter of 2008 compared to $73 million for the second
quarter of 2007 due to increased interest costs resulting from the issuance of
long-term debt principally to fund MidAmerican Energy’s construction of
additional wind-powered generation capacity in Iowa and a decrease in allowances
for equity and borrowed funds used during construction as a result of Walter
Scott, Jr. Energy Center Unit No. 4 (“WSEC Unit 4”) commencing commercial
operation in June 2007. Additionally, MidAmerican Energy had lower nonregulated
margins and increased maintenance expense due to generation plant outages and
emergency response and restoration related to storms and floods in the second
quarter of 2008, partially offset by higher regulated electric margins.
MidAmerican Funding’s net income decreased $13 million to $53 million
for the second quarter of 2008 compared to $66 million for the second
quarter of 2007.
 
 Regulated Electric Gross
Margin
 
 Three
      MonthsEnded June
      30,2008
              
              
              2007Gross
      margin (in millions):Operating
      revenues
              
              $
              492
              
              
              $
              467Less
      cost of fuel, energy and capacity
              
              
              189
              
              
              
              176Electric
      gross margin
              
              $
              303
              
              
              $
              291Sales
      (Gigawatt hours (“GWh”)):Retail
              
              
              5,012
              
              
              
              5,082Wholesale
              
              
              3,536
              
              
              
              2,898Total
              
              
              8,548
              
              
              
              7,980
 
 Electric
gross margin for the second quarter of 2008 increased $12 million compared
to the second quarter of 2007. Gross margin on electric wholesale sales, which
include sales of energy to markets operated by regional transmission
organizations, other utilities, municipalities and marketers inside and outside
of MidAmerican Energy’s balancing authority area, increased $15 million,
while gross margin on electric retail sales decreased $3 million. Electric
wholesale and retail gross margins were positively affected by a decrease in the
average cost of electricity compared to the second quarter of 2007 due
principally to the addition of WSEC Unit 4 in June 2007 and 288 MW (nameplate
ratings) of wind-powered generation placed in service in the fourth quarter of
2007 and the first six months of 2008. The decrease in electric retail gross
margin was primarily attributable to unfavorable weather conditions compared to
the second quarter of 2007.
  24
  Regulated Gas Gross
Margin
 
 Three
      MonthsEnded
      June 30,2008
              
              
              2007Gross
      margin (in millions):Operating
      revenues
              
              $
              280
              
              
              $
              209Less
      cost of gas sold
              
              
              232
              
              
              
              161Gas
      gross margin
              
              $
              48
              
              
              $
              48Sales
      (000’s decatherms (“Dths”)):Retail
              
              
              11,565
              
              
              
              10,953Wholesale
              
              
              11,011
              
              
              
              10,759Total
              
              
              22,576
              
              
              
              21,712
 
 Regulated
gas revenues include purchased gas adjustment clauses through which MidAmerican
Energy is allowed to recover the cost of gas sold from its retail gas utility
customers. Consequently, fluctuations in the cost of gas sold do not directly
affect gross margin or net income because revenues reflect comparable
fluctuations through the purchased gas adjustment clauses. Compared to the
second quarter of 2007, MidAmerican Energy’s average per-unit cost of gas sold
increased 38%, resulting in a $65 million increase in gas revenues and cost
of gas sold for the second quarter of 2008. Regulated gas revenues and cost of
gas sold increased $6 million due to the increase in total sales volumes in
the second quarter of 2008.
 
 The
following table summarizes the variance in gas operating revenues based on the
change in gas cost recoveries and margin components (in millions):
 
 Three
      MonthsEnded
      June 30,2008
      vs. 2007Change
      in recoveries of cost of gas sold:Average
      cost per unit
              
              $
              65Sales
      volumes
              
              
              6Total
      change in cost of gas sold
              
              
              71Change
      in margin:Usage
      factors
              
              
              1Energy
      efficiency cost recovery
              
              
              (2
              )Other
              
              
              1Total
      revenue variance
              
              $
              71
 
 Usage
factors includes the effect of colder temperatures compared to the second
quarter of 2007 and influences on customer usage other than weather, such as
technology, energy efficiency and economics. Changes in revenues from the
recovery of energy efficiency program costs are substantially matched with
corresponding changes in other operating expenses.
 
 Regulated Operating
Expenses
 
 Other
operating expenses of $97 million for the second quarter of 2008 decreased
$5 million compared to the second quarter of 2007 due to a $3 million
decrease in pension and other postretirement costs resulting from lower annual
cost estimates, a $2 million decrease in property insurance expense as a result
of a refund in the second quarter of 2008 and a $2 million decrease in
energy efficiency program costs, which was substantially matched by decreases in
related electric and gas revenues. Fossil-fueled generation operation costs
increased $2 million due in part to WSEC Unit 4 beginning commercial
operation in June 2007.
 
 Maintenance
expense of $61 million for the second quarter of 2008 increased
$19 million compared to the second quarter of 2007 principally due to an
$11 million increase in fossil-fueled generation plant maintenance as a
result of outages. Additionally, emergency response and restoration costs
increased $7 million compared to the second quarter of 2007 due to intense
storms and extensive flooding in the second quarter of 2008.
  25
  Depreciation
and amortization expense of $77 million for the second quarter of 2008
increased $1 million compared to the second quarter of 2007 due to a
$9 million increase in utility plant depreciation expense as a result of
additional plant in service, including WSEC Unit 4 placed in service on
June 1, 2007, and wind-powered generating facilities placed in service in
the fourth quarter of 2007 and the first quarter of 2008. Regulatory expense
related to a revenue sharing arrangement in Iowa decreased $8 million as a
result of lower Iowa electric equity returns. Refer to the “Utility Regulatory
Matters” section of Item 7 in MidAmerican Energy’s Annual Report on Form 10-K
for the year ended December 31, 2007, for an explanation of the revenue sharing
arrangement.
 
 Nonregulated Gross
Margin
 
 Three
      MonthsEnded
      June 30,2008
              
              
              2007MidAmerican
      Energy (in millions) -Nonregulated
      operating revenues
              
              $
              307
              
              
              $
              293Less
      nonregulated cost of sales
              
              
              289
              
              
              
              269Nonregulated
      gross margin
              
              $
              18
              
              
              $
              24MidAmerican
      Funding Consolidated (in millions) -Nonregulated
      operating revenues
              
              $
              309
              
              
              $
              295Less
      nonregulated cost of sales
              
              
              290
              
              
              
              270Nonregulated
      gross margin
              
              $
              19
              
              
              $
              25Nonregulated
      electric retail sales (GWh)
              
              
              2,267
              
              
              
              2,661
 
 Nonregulated
revenues and cost of sales for the second quarter of 2008 increased compared to
the second quarter of 2007 principally due to higher average prices and costs
for nonregulated gas sales and a 16% increase in related sales
volumes.  Nonregulated electric retail revenues and cost of sales
decreased compared to the second quarter of 2007 due to a 15% reduction in
related sales volumes resulting primarily from a decrease in the number of
customers due to the competitive environment in Illinois. The impact of the
decrease in electric retail sales volumes was partially offset by higher prices
and costs. Nonregulated gross margin decreased $6 million for the second
quarter of 2008 due primarily to a lower gross margin on nonregulated electric
retail sales as a result of increased costs of electricity and the reduction in
electric retail sales volumes.
 
 Non-Operating
Income
 
 MidAmerican
Energy’s non-operating income for the second quarter of 2008 decreased
$1 million compared to the second quarter of 2007 primarily due to a
$4 million decrease in allowance for equity funds as a result of the
decrease in construction work in progress from WSEC Unit 4 being placed in
service in June 2007. As a regulated public utility, MidAmerican Energy is
allowed to capitalize, and record as income, a cost of construction for equity
funds used, based on guidelines set forth by the Federal Energy Regulatory
Commission (“FERC”).
 
 Fixed
Charges
 
 The
$14 million increase in MidAmerican Energy’s interest on long-term debt for
the second quarter of 2008 compared to the second quarter of 2007 was primarily
due to long-term debt issuances of $650 million in June 2007 and
$350 million in March 2008. MidAmerican Energy’s other interest
expense decreased $2 million due to a lower balance of the Iowa revenue
sharing liability. MidAmerican Energy is allowed to capitalize, and record as a
reduction to fixed charges, a cost of construction for debt funds used, based on
guidelines set forth by the FERC. The $2 million decrease in allowance for
borrowed funds for the second quarter of 2008 was due to the decrease in
construction work in progress compared to the second quarter of
2007.
 
  26
  Income
Taxes
 
 Income
tax expense decreased $11 million to $17 million for the second
quarter of 2008 with an effective tax rate of 22% compared to 27% for the second
quarter of 2007.
 
 Federal
law currently provides for federal production tax credits for energy produced by
renewable electricity generation facilities, including wind-powered generation,
for ten years after the in-service date. MidAmerican Energy’s income taxes for
the second quarter of 2008 include $3 million of additional production tax
credits compared to the second quarter of 2007 due to additional wind-powered
generation.
 
 State
utility rate regulation in Iowa requires that the tax effect of certain timing
differences be flowed through immediately to customers. Therefore, amounts that
would otherwise have been recognized in income tax expense have been included as
changes in regulatory assets. This flow-through treatment of such timing
differences impacts the effective tax rates from year to year.
 
 Results
of Operations for the Six Months Ended June 30, 2008 and 2007
 
 Overview
 
 MidAmerican
Energy’s earnings on common stock increased $1 million to $166 million
for the first six months of 2008 compared to $165 million for the first six
months of 2007 due to improved margins on regulated electric sales primarily as
a result of WSEC Unit 4 commencing commercial operation in June 2007 and to
the addition of wind-powered generation capacity in Iowa. The increase in
regulated electric margins was substantially offset by increased interest costs
resulting from the issuance of long-term debt principally to fund MidAmerican
Energy’s construction of additional wind-powered generation capacity in Iowa and
by a decrease in allowances for equity and borrowed funds used during
construction as a result of WSEC Unit 4 being placed in service. Additionally,
MidAmerican Energy incurred increased maintenance expense due to generation
plant outages. MidAmerican Funding’s net income increased $2 million to
$153 million for the first six months of 2008 compared to $151 million
for the first six months of 2007.
 
 Regulated Electric Gross
Margin
 
 Six
      MonthsEnded June 30,2008
              
              
              2007Gross
      margin (in millions):Operating
      revenues
              
              $
              975
              
              
              $
              947Less
      cost of fuel, energy and capacity
              
              
              365
              
              
              
              373Electric
      gross margin
              
              $
              610
              
              
              $
              574Sales
      (Gigawatt hours (“GWh”)):Retail
              
              
              10,248
              
              
              
              10,056Wholesale
              
              
              7,178
              
              
              
              6,392Total
              
              
              17,426
              
              
              
              16,448
 
 Electric
gross margin for the first six months of 2008 increased $36 million
compared to the first six months of 2007. Gross margin on electric wholesale
sales, which include sales of energy to markets operated by regional
transmission organizations, other utilities, municipalities and marketers inside
and outside of MidAmerican Energy’s balancing authority area, increased
$34 million, while gross margin on electric retail sales increased
$2 million. The improved gross margins were primarily attributable to a
decrease in the average cost of electricity compared to the first six months of
2007 due principally to the addition of WSEC Unit 4 in June 2007 and 288 MW
(nameplate ratings) of wind-powered generation placed in service in the fourth
quarter of 2007 and the first six months of 2008. Electric retail sales volumes
reflect customer growth offset primarily by the impact of unfavorable weather
conditions compared to the first six months of 2007. Additionally, sales of
renewable energy credits contributed $3 million to the improvement in
electric retail gross margin but were substantially offset by a decrease in
revenues from the recovery of energy efficiency program costs.
  27
  Regulated Gas Gross
Margin
 
 Six
      MonthsEnded
      June 30,2008
              
              
              2007Gross
      margin (in millions):Operating
      revenues
              
              $
              851
              
              
              $
              708Less
      cost of gas sold
              
              
              712
              
              
              
              574Gas
      gross margin
              
              $
              139
              
              
              $
              134Sales
      (000’s decatherms (“Dths”)):Retail
              
              
              53,065
              
              
              
              47,564Wholesale
              
              
              21,915
              
              
              
              23,670Total
              
              
              74,980
              
              
              
              71,234
 
 Regulated
gas revenues include purchased gas adjustment clauses through which MidAmerican
Energy is allowed to recover the cost of gas sold from its retail gas utility
customers. Consequently, fluctuations in the cost of gas sold do not directly
affect gross margin or net income because revenues reflect comparable
fluctuations through the purchased gas adjustment clauses. Compared to the first
six months of 2007, MidAmerican Energy’s average per-unit cost of gas sold
increased 18%, resulting in a $108 million increase in gas revenues and
cost of gas sold for the first six months of 2008. Regulated gas revenues and
cost of gas sold increased $30 million due to the increase in total sales
volumes in the first six months of 2008.
 
 The
following table summarizes the variance in gas operating revenues based on the
change in gas cost recoveries and margin components (in millions):
 
 Six
      MonthsEnded
      June 30,2008
      vs. 2007Change
      in recoveries of cost of gas sold:Average
      cost per unit
              
              $
              108Sales
      volumes
              
              
              30Total
      change in cost of gas sold
              
              
              138Change
      in margin:Usage
      factors
              
              
              7Energy
      efficiency cost recovery
              
              
              (4
              )Other
              
              
              2Total
      revenue variance
              
              $
              143
 
 Usage
factors includes the effect of colder temperatures compared to the first six
months of 2007, a 1% growth in the average number of gas retail customers, and
influences on customer usage other than weather, such as technology, energy
efficiency and economics. Changes in revenues from the recovery of energy
efficiency program costs are substantially matched with corresponding changes in
other operating expenses.
 
 Regulated Operating
Expenses
 
 Other
operating expenses of $201 million for the first six months of 2008
increased $1 million compared to the first six months of 2007 due to a
$4 million increase in fossil-fueled generation operation costs due in part
to WSEC Unit 4 beginning commercial operation in June 2007. Additionally,
electric and gas distribution and electric transmission costs increased
$5 million compared to the first six months of 2007. These increases were
offset by a $4 million decrease in pension and other postretirement costs
resulting from lower annual cost estimates and a $6 million decrease in
energy efficiency program costs, which was substantially matched by decreases in
related electric and gas revenues.
 
  28
  Maintenance
expense of $98 million for the first six months of 2008 increased
$13 million compared to the first six months of 2007 primarily due to a
$12 million increase in fossil-fueled generation plant maintenance as a
result of outages. Additionally, other power generation maintenance expense
increased $3 million due to the increase in the number of wind-powered
generation facilities in service. Maintenance costs for emergency response and
restoration related to storms and flooding decreased in 2008 due to greater
costs for ice storms in the first quarter of 2007.
 
 Depreciation
and amortization expense of $149 million for the first six months of 2008
increased $4 million compared to the first six months of 2007 due to a
$17 million increase in utility plant depreciation expense as a result of
additional plant in service, including WSEC Unit 4 placed in service on
June 1, 2007, and wind-powered generating facilities placed in service in
the fourth quarter of 2007 and the first quarter of 2008. Regulatory expense
related to a revenue sharing arrangement in Iowa decreased $14 million as a
result of lower Iowa electric equity returns. Refer to the “Utility Regulatory
Matters” section of Item 7 in MidAmerican Energy’s Annual Report on Form 10-K
for the year ended December 31, 2007, for an explanation of the revenue sharing
arrangement.
 
 Nonregulated Gross
Margin
 
 Six
      MonthsEnded
      June 30,2008
              
              
              2007MidAmerican
      Energy (in millions) -Nonregulated
      operating revenues
              
              $
              625
              
              
              $
              550Less
      nonregulated cost of sales
              
              
              588
              
              
              
              511Nonregulated
      gross margin
              
              $
              37
              
              
              $
              39MidAmerican
      Funding Consolidated (in millions) -Nonregulated
      operating revenues
              
              $
              628
              
              
              $
              553Less
      nonregulated cost of sales
              
              
              589
              
              
              
              512Nonregulated
      gross margin
              
              $
              39
              
              
              $
              41Nonregulated
      electric retail sales (GWh)
              
              
              4,652
              
              
              
              4,687
 
 Nonregulated
revenues and cost of sales for the first six months of 2008 increased compared
to the first six months of 2007 principally due to higher average prices and
costs related to both nonregulated electric retail sales and nonregulated gas
sales. Additionally, nonregulated gas sales volumes increased 11%, while
nonregulated electric retail sales volumes were relatively unchanged.
Nonregulated gross margin decreased $2 million for the first six months of
2008 due primarily to increases in costs of electricity and natural
gas.
 
 Non-Operating
Income
 
 MidAmerican
Energy’s non-operating income for the first six months of 2008 decreased
$10 million compared to the first six months of 2007 primarily due to an
$11 million decrease in allowance for equity funds as a result of the
decrease in construction work in progress from WSEC Unit 4 being placed in
service in June 2007. As a regulated public utility, MidAmerican Energy is
allowed to capitalize, and record as income, a cost of construction for equity
funds used, based on guidelines set forth by the FERC.
 
 Fixed
Charges
 
 The
$23 million increase in MidAmerican Energy’s interest on long-term debt for
the first six months of 2008 compared to the first six months of 2007 was
primarily due to long-term debt issuances of $650 million in June 2007 and
$350 million in March 2008. MidAmerican Energy’s other interest
expense decreased $5 million due to a lower balance of the Iowa revenue
sharing liability. MidAmerican Energy is allowed to capitalize, and record as a
reduction to fixed charges, a cost of construction for debt funds used, based on
guidelines set forth by the FERC. The $5 million decrease in allowance for
borrowed funds for the first six months of 2008 was due to the decrease in
construction work in progress compared to the first six months of
2007.
  29
  Income
Taxes
 
 Income
tax expense decreased $14 million to $56 million for the first six
months of 2008 with an effective tax rate of 25% compared to 30% for the first
six months of 2007.
 
 Federal
law currently provides for federal production tax credits for energy produced by
renewable electricity generation facilities, including wind-powered generation,
for ten years after the in-service date. MidAmerican Energy’s income taxes for
the first six months of 2008 include $8 million of additional production
tax credits compared to the first six months of 2007 due to additional
wind-powered generation.
 
 State
utility rate regulation in Iowa requires that the tax effect of certain timing
differences be flowed through immediately to customers. Therefore, amounts that
would otherwise have been recognized in income tax expense have been included as
changes in regulatory assets. This flow-through treatment of such timing
differences impacts the effective tax rates from year to year.
 
 Liquidity
and Capital Resources
 
 MidAmerican
Energy and MidAmerican Funding have available a variety of sources of liquidity
and capital resources, both internal and external. These resources provide funds
required for current operations, construction expenditures, dividends and
distributions, debt retirement and other capital requirements.
 
 As
reflected on the Consolidated Statements of Cash Flows, MidAmerican Energy’s net
cash provided by operating activities was $361 million and
$411 million for the first six months of 2008 and 2007, respectively.
MidAmerican Funding’s net cash provided by operating activities was
$350 million and $395 million for the first six months of 2008 and
2007, respectively. The decrease in operating cash flows was due principally to
growth in regulated gas and nonregulated revenue and the timing of receipts and
disbursements related to these revenues. The decrease resulting from these
factors was partially offset by a reduction in income taxes paid due to benefits
from bonus depreciation and greater production tax credits in 2008.
 
 Utility Construction
Expenditures
 
 MidAmerican
Energy’s primary need for capital is utility construction expenditures, which
totaled $560 million and $656 million for the first six months of 2008
and 2007, respectively. Utility construction expenditures for 2007 include
amounts for the construction of WSEC Unit 4, which was placed into service
June 1, 2007. MidAmerican Energy’s utility construction expenditures for
2008, excluding the non-cash allowance for equity funds used during
construction, are estimated to be approximately $1.5 billion, which
includes $1.0 billion for the wind-powered generation projects discussed
below, $95 million for emissions control equipment to address current and
anticipated air quality regulations, and $435 million for ongoing
operational projects, including connections for new customers and facilities to
accommodate load growth. Capital expenditure needs are reviewed regularly by
management and may change significantly as a result of such reviews. Estimates
may change significantly at any time as a result of, among other factors,
changes in rules and regulations, including environmental and nuclear, changes
in income tax laws, general business conditions, load projections, the cost and
efficiency of construction labor, equipment, and materials, and the cost of
capital. In addition, there can be no assurance that costs related to capital
expenditures will be fully recovered. MidAmerican Energy expects to meet these
capital expenditure requirements with short-term borrowings, cash flows from
operations and the issuance of long-term debt.
 
 On
July 27, 2007, the Iowa Utilities Board (“IUB”) approved a settlement
agreement between MidAmerican Energy and the Iowa Office of Consumer Advocate
(“OCA”) in conjunction with MidAmerican Energy’s ratemaking principles
application for up to 540 MW (nameplate ratings) of additional wind-powered
generation capacity in Iowa to be placed in service on or before
December 31, 2013. All new wind-powered generation capacity up to the
540 MW will be subject to the 2007 settlement agreement, including
78 MW (nameplate ratings) placed in service in the fourth quarter of 2007
and 87 MW (nameplate ratings) placed in service in the first six months of
2008. As of June 30, 2008, MidAmerican Energy had 748 MW (nameplate
ratings) of operating wind-powered generation capacity and 536 MW
(nameplate ratings) of wind-powered generation capacity in Iowa under
development or construction that it expects will be placed in service by
December 31, 2008, including 108 MW (nameplate ratings) subject to a
settlement agreement between MidAmerican Energy and the OCA, which was approved
by the IUB on June 16, 2008, and 53 MW (nameplate ratings) covered by
a settlement agreement with the OCA that is subject to approval by the IUB.
Generally speaking, accredited capacity ratings for wind-powered generation
facilities
are considerably less than the nameplate ratings due to the varying nature of
wind. MidAmerican Energy continues to pursue additional cost effective
wind-powered generation capacity. Refer to Note 14 of Notes to Consolidated
Financial Statements included in Item 8 of MidAmerican Energy’s Annual
Report on Form 10-K for the year ended December 31, 2007, for a discussion
of the 2007 settlement agreement.
  30
 
 Refer to
the “Environmental Matters” section later in MD&A for additional information
regarding capital expenditures for emission control equipment.
 
 Contractual Obligations and
Commercial Commitments
 
 Subsequent
to December 31, 2007, there were no material changes outside the normal
course of business in MidAmerican Energy’s and MidAmerican Funding’s contractual
obligations and commercial commitments from the information provided in
Item 7 of their Annual Report on Form 10-K for the year ended
December 31, 2007, other than the following debt issuances.
 
 Debt
Issuance
 
 On
March 25, 2008, MidAmerican Energy issued $350 million of 5.3% Senior
Notes due March 15, 2018. The proceeds are being used by MidAmerican Energy
to pay construction costs, including costs for its wind-powered generation
projects in Iowa, to repay short-term indebtedness and for general corporate
purposes.
 
 On
July 1, 2008, the Iowa Finance Authority issued $45 million of
variable-rate tax-exempt bonds due July 1, 2038, the proceeds of which were
loaned to MidAmerican Energy to pay environmental construction costs. Also on
July 1, 2008, the Iowa Finance Authority issued $57 million of
variable-rate tax-exempt bonds due May 1, 2023, to refinance $57 million of
pollution control revenue bonds issued on behalf of MidAmerican Energy in 1993.
MidAmerican Energy is contractually responsible for the timely payment of
principal and interest on these variable-rate tax-exempt bonds.
 
 Debt Authorizations and
Related Matters
 
 MidAmerican
Energy has authority from the FERC to issue through April 14, 2009,
short-term debt in the form of commercial paper and bank notes aggregating
$800 million. MidAmerican Energy currently has in place a revolving credit
facility, expiring July 6, 2012, for $650 million that supports its
$455 million commercial paper program and its variable-rate tax-exempt
obligations.
 
 MidAmerican
Energy currently has an effective registration statement with the SEC to issue
up to $330 million of long-term securities. It also has authorization from
the FERC to issue long-term securities totaling up to $248 million through
May 14, 2009. Additionally, regarding annual and multiple year capital
projects, MidAmerican Energy has authorizations, expiring May 2, 2009, and
May 2, 2011, respectively, from the Illinois Commerce Commission (“ICC”) to
issue up to an aggregate of $236 million of long-term debt
securities.
 
 In
conjunction with the March 1999 merger, MidAmerican Energy committed to the IUB
to use commercially reasonable efforts to maintain an investment grade rating on
its long-term debt and to maintain its common equity level above 42% of total
capitalization unless circumstances beyond its control result in the common
equity level decreasing to below 39% of total capitalization. MidAmerican Energy
must seek the approval of the IUB of a reasonable utility capital structure if
MidAmerican Energy’s common equity level decreases below 42% of total
capitalization, unless the decrease is beyond the control of MidAmerican Energy.
MidAmerican Energy is also required to seek the approval of the IUB if
MidAmerican Energy’s equity level decreases to below 39%, even if the decrease
is due to circumstances beyond the control of MidAmerican Energy. If MidAmerican
Energy’s common equity level were to drop below the required thresholds,
MidAmerican Energy’s ability to issue debt could be restricted. As of
June 30, 2008, MidAmerican Energy’s common equity ratio was 47% computed on
a basis consistent with its commitment.
 
 MidAmerican
Funding or one of its subsidiaries, including MidAmerican Energy, may from time
to time seek to retire its outstanding debt through cash purchases or exchanges
for other securities, in open market purchases, privately negotiated
transactions or otherwise. Such repurchases, if any, may be temporary, and will
depend on prevailing market conditions, the issuing company’s liquidity
requirements, contractual restrictions and other factors. The amounts involved
may be material.
  31
  Credit
Ratings Risks
 
 As of
June 30, 2008, MidAmerican Energy’s senior unsecured debt credit ratings
were as follows: Fitch Ratings, “A/stable;” Moody’s Investor Service,
“A2/stable;” and Standard and Poor’s, “A-/stable.”
 
 Debt and
preferred securities of MidAmerican Energy are rated by nationally recognized
credit rating agencies. Assigned credit ratings are based on each rating
agency’s assessment of MidAmerican Energy’s ability to, in general, meet the
obligations of its issued debt or preferred securities. The credit ratings are
not a recommendation to buy, sell or hold securities, and there is no assurance
that a particular credit rating will continue for any given period of time.
Other than the energy supply and marketing agreements discussed below,
MidAmerican Energy does not have any credit agreements that require termination
or a material change in collateral requirements or payment schedule in the event
of a downgrade in the credit ratings of its securities.
 
 In
conjunction with its risk management activities, MidAmerican Energy must meet
credit quality standards as required by counterparties. In accordance with
industry practice, master agreements that govern MidAmerican Energy’s energy
supply and marketing activities either specifically require it to maintain
investment grade credit ratings or provide the right for counterparties to
demand “adequate assurances” in the event of a material adverse change in
MidAmerican Energy’s creditworthiness. If one or more of MidAmerican Energy’s
credit ratings decline below investment grade, MidAmerican Energy may be
required to post cash collateral, letters of credit or other similar credit
support to facilitate ongoing wholesale energy supply and marketing activities.
As of June 30, 2008, MidAmerican Energy’s estimated potential collateral
requirements totaled approximately $169 million. MidAmerican Energy’s
potential collateral requirements could fluctuate considerably due to
seasonality, market price volatility and a loss of key MidAmerican Energy
generating facilities or other related factors.
 
 Environmental
Matters
 
 MidAmerican
Energy is subject to federal, state and local laws and regulations with regard
to air and water quality, renewable portfolio standards, hazardous and solid
waste disposal and other environmental matters. The cost of complying with
applicable environmental laws, regulations and rules is expected to be material
to MidAmerican Energy. In particular, future mandates including those associated
with addressing the issue of global climate change, may impact the operation of
MidAmerican Energy generating facilities and may require MidAmerican Energy to
reduce emissions at its facilities through the installation of additional
emission control equipment or to purchase additional emission allowances or
offsets in the future. MidAmerican Energy is not aware of any proven,
commercially available technology that eliminates or captures and stores carbon
dioxide emissions from coal-fired and gas-fired generation facilities, and
MidAmerican Energy is uncertain when, or if, such technology will be
commercially available.
 
 MidAmerican
Energy has implemented a planning process that forecasts the site-specific
controls and actions that may be required to meet emissions reductions as
promulgated by the U.S. Environmental Protection Agency (“EPA”). The plan is
designed to effectively manage its expenditures required to comply with
emissions standards. On April 1, 2008, MidAmerican Energy submitted to the
IUB an updated plan, as required every two years by Iowa law, which increased
its estimate of required expenditures. That plan estimated that the cost of
incremental capital expenditures for emission control equipment included in its
plan for compliance with current air quality requirements would total
approximately $360 million for January 1, 2008, through
December 31, 2015. Additionally, MidAmerican Energy expected to incur
significant incremental operating costs in conjunction with the utilization of
the emissions control equipment. In light of the recent action on the Clean Air
Interstate Rule (“CAIR”), as discussed below, MidAmerican Energy will be
updating its estimates. Given the uncertainty in air emissions regulation, the
change in estimates, if any, cannot be quantified at this time. Estimates of the
environmental capital and operating requirements may change significantly at any
time as a result of, among other factors, changes in related regulations, prices
of products used to meet the requirements and management’s strategies for
achieving compliance with the regulations.
  32
  National Ambient Air Quality
Standards
 
 The EPA
implements national ambient air quality standards for ozone and fine particulate
matter, as well as for other criteria pollutants that set the minimum level of
air quality for the United States. Areas that achieve the standards, as
determined by ambient air quality monitoring, are characterized as being in
attainment, while those that fail to meet the standards are designated as being
nonattainment areas. Generally, sources of emissions in a nonattainment area are
required to make emissions reductions. A new, more stringent standard for fine
particulate matter became effective on December 18, 2006, but is under
legal challenge in the United States Court of Appeals for the District of
Columbia Circuit. The Iowa Department of Natural Resources recently notified
emissions sources, including MidAmerican Energy’s Riverside and Louisa
coal-fired generating facilities, in Scott and Muscatine counties in Iowa that
the two counties have not attained the fine particulate matter standard that was
adopted in December 2006. It has not yet been determined if MidAmerican Energy’s
facilities contribute to the nonattainment and, if they have, what impact the
nonattainment designation may have on the operation of MidAmerican Energy’s
facilities.
 
 Regulated Air Pollutants
 
 In
March 2005, the EPA released the final CAIR, calling for reductions of
sulfur dioxide (“SO2”) and
nitrogen oxide (“NOx”)
emissions in the Eastern United States through, at each state’s option, a
market-based cap and trade system, emission reductions, or both because of
contributions to downwind nonattainment of the fine particulate matter and ozone
standards. The SO2 and
NOx
emissions reductions were planned to be accomplished in two phases, in 2009-2010
and 2015. However, on July 11, 2008, the United States Court of Appeals for the
District of Columbia Circuit held that the CAIR was fatally flawed and vacated
the rule, remanding it to the EPA to consider which states are included in CAIR
based on their contribution to nonattainment and connect states’ emission
reductions to contributions to nonattainment in addition to distributing
allowances appropriately. Given the court’s ruling, it is unknown when
reductions in emissions of SO2 and
NOx
will be required or the level of any required reductions on MidAmerican Energy’s
generation facilities. Under the CAIR, a market for trading SO2 and
NOx
emission credits had developed. As a result of the rule being vacated, that
market has been adversely affected, and the value of credits has
declined. While MidAmerican Energy participated in the market for SO2 credits,
management does not expect any impact from these market declines to be material
to MidAmerican Energy.
 
 The
emissions reductions could be made more stringent by current or future
regulatory and legislative proposals at the federal or state levels that would
result in significant reductions of SO2, NOx and
mercury, as well as carbon dioxide and other gases that may affect global
climate change.
 
 Regional Haze
 
 The EPA
has initiated a regional haze program intended to improve visibility at specific
federally protected areas. Some of MidAmerican Energy’s plants meet the
threshold applicability criteria under the Clean Air Visibility Rules. In
accordance with the federal requirements, states were required to submit state
implementation plans by December 2007 to demonstrate reasonable progress toward
achieving natural visibility conditions in certain Class I areas by requiring
emission controls, known as best available retrofit technology (“BART”), on
sources with emissions that are anticipated to cause or contribute to impairment
of visibility. Iowa submitted its state implementation plan to the EPA by
December 2007 and suggested that the emission reductions already made by
MidAmerican Energy and additional reductions that will be made under the CAIR
place the state in the position that no further reductions should be required.
However, because the court has vacated the CAIR, emissions reductions could be
required under the regional haze provisions at MidAmerican Energy’s
BART-eligible sources. Until the outcome of the CAIR or its replacement is
better known, it is not known whether emissions reductions will be required
under this provision.
 
 Refer to
the Environmental Regulations section of Item 1 in MidAmerican Energy’s
Annual Report on Form 10-K for the year ended December 31, 2007, for a
detailed discussion of environmental standards affecting MidAmerican
Energy.
 
 New
Accounting Pronouncements
 
 For a
discussion of new accounting pronouncements affecting MidAmerican Energy and
MidAmerican Funding, refer to Note 2 of Notes to Consolidated Financial
Statements included in Item 1 of this Form 10-Q.
 
  33
  Critical
Accounting Policies and Estimates
 
 Certain
accounting policies require management to make estimates and judgments
concerning transactions that will be settled in the future. Amounts recognized
in the Consolidated Financial Statements from such estimates are necessarily
based on numerous assumptions involving varying and potentially significant
degrees of judgment and uncertainty. Accordingly, the amounts currently
reflected in the Consolidated Financial Statements will likely increase or
decrease in the future as additional information becomes available. Estimates
are used for, but not limited to, the accounting for the effects of certain
types of regulation, derivatives, impairment of long-lived assets and goodwill,
pension and other postretirement obligations, income taxes and revenue
recognition - unbilled revenue. For additional discussion of MidAmerican
Energy’s and MidAmerican Funding’s critical accounting policies, see Item 7
of their Annual Report on Form 10-K for the year ended December 31,
2007. MidAmerican Energy’s and MidAmerican Funding’s critical accounting
policies have not changed materially since December 31, 2007.
  Item 3.
              Quantitative and Qualitative
      Disclosures About Market Risk
 
 For
quantitative and qualitative disclosures about market risk affecting MidAmerican
Energy and MidAmerican Funding, see Item 7A of their Annual Report on
Form 10-K for the year ended December 31, 2007. MidAmerican Energy’s
and MidAmerican Funding’s exposure to market risk and their management of such
risk has not changed materially since December 31, 2007. Refer to
Note 3 of Notes to Consolidated Financial Statements included in
Item 1 of this Form 10-Q for disclosure of MidAmerican Energy’s derivative
positions as of June 30, 2008 and December 31, 2007.
  Item 4.
              Controls and
      Procedures
  At the
end of the period covered by this Quarterly Report on Form 10-Q, MidAmerican
Energy and MidAmerican Funding each carried out an evaluation, under the
supervision and with the participation of their respective management, including
the Chief Executive Officer (principal executive officer) and the Chief
Financial Officer (principal financial officer), of the effectiveness of the
design and operation of their respective disclosure controls and procedures (as
defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of
1934, as amended). Based upon that evaluation, each company’s management,
including the Chief Executive Officer (principal executive officer) and the
Chief Financial Officer (principal financial officer), concluded that their
respective disclosure controls and procedures were effective to ensure that
information required to be disclosed by each company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and is
accumulated and communicated to management, including their respective company’s
Chief Executive Officer (principal executive officer) and Chief Financial
Officer (principal financial officer), or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure. There
has been no change in MidAmerican Funding’s or MidAmerican Energy’s internal
control over financial reporting during the quarter ended June 30, 2008,
that has materially affected, or is reasonably likely to materially affect,
their respective internal control over financial reporting.
  34
  
 PART
II – OTHER INFORMATION
 
 Item 1.
              Legal
      Proceedings
 
 MidAmerican
Funding and its subsidiaries currently have no material legal proceedings. For a
discussion of the termination of a previously disclosed legal proceeding, refer
to Part II, Item 1 in MidAmerican Energy’s Quarterly Report on Form
10-Q for the quarter ended March 31, 2008. Information regarding
MidAmerican Energy’s regulatory and environmental matters is included in the
“Utility Regulatory Matters” and “Environmental Matters” sections, respectively,
of Item 7 in its Annual Report on Form 10-K for the year ended
December 31, 2007.
 
 Item 1A.
              Risk
      Factors
 
 There has
been no material change to MidAmerican Funding’s or MidAmerican Energy’s risk
factors from those disclosed in Item 1A of their Annual Report on
Form 10-K for the year ended December 31, 2007.
 
 Item 2.
              Unregistered
      Sales of Equity Securities and Use of
Proceeds
 
 Not
applicable.
 
 Item 3.
              Defaults
      Upon Senior Securities
 
 Not
applicable.
 
 Item 4.
              Submission
      of Matters to a Vote of Security
Holders
 
 Not
applicable.
  Item 5.
              Other
    Information
  Not
applicable.
 
 Item 6.
              Exhibits
 
 The
exhibits listed on the accompanying Exhibit Index are filed as a part of this
Quarterly Report.
 
 
  35
  SIGNATURES
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, each registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
 
 
 MIDAMERICAN
      FUNDING, LLCMIDAMERICAN ENERGY
      COMPANYRegistrantsDate:  August
      8, 2008
              /s/  Thomas
      B. SpecketerThomas
      B. SpecketerVice
      President and Controllerof
      MidAmerican Funding, LLCand
      MidAmerican Energy Company(principal
      financial and accounting officer)
 
  36
  
 EXHIBIT INDEX
 
 Exhibit
      No.
              DescriptionMidAmerican
      Energy15
              Awareness
      Letter of Independent Registered Public Accounting
Firm.31.1
              Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
              Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
              Principal
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
              Principal
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.MidAmerican
      Funding31.3
              Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.4
              Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.3
              Principal
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.4
              Principal
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.
 
 37