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 March 31, 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 April 30, 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 April 30, 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
            22Item 3.
            Quantitative and Qualitative Disclosures About
      Market Risk
            29Item 4.
            Controls and Procedures
            29PART
      II - OTHER INFORMATIONItem 1.
            Legal Proceedings
            30Item 1A.
            Risk Factors
            30Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            30Item 3.
            Defaults Upon Senior Securities
            30Item 4.
            Submission of Matters to a Vote of Security
      Holders
            30Item 5.
            Other Information
            30Item 6.
            Exhibits
            30Signatures
            
            31Exhibit Index
            
            32





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
            15Consolidated Balance Sheets
            16Consolidated Statements of
      Operations
            17Consolidated Statements of Cash
    Flows
            18Notes to Consolidated Financial
      Statements
            19





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 March 31, 2008, and the
related consolidated statements of operations, comprehensive income, and cash
flows for the three-month periods ended March 31, 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


May 2,
2008





4


MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY


CONSOLIDATED BALANCE SHEETS (Unaudited)


(In
millions)





As
      ofMarch 31,
            
            
            December 31,2008
            
            
            2007ASSETSUtility
      Plant, NetElectric
            
            $
            7,656
            
            
            $
            7,473Gas
            
            
            1,097
            
            
            
            1,0868,753
            
            
            
            8,559Accumulated
      depreciation and amortization
            
            
            (3,280
            )
            
            
            (3,237
            )5,473
            
            
            
            5,322Construction
      work in progress
            
            
            310
            
            
            
            3865,783
            
            
            
            5,708Current
      AssetsCash
      and cash equivalents
            
            
            261
            
            
            
            11Receivables,
      net
            
            
            628
            
            
            
            485Inventories
            
            
            51
            
            
            
            133Other
            
            
            59
            
            
            
            39999
            
            
            
            668Other
      AssetsInvestments
      and nonregulated property, net
            
            
            462
            
            
            
            478Regulatory
      assets
            
            
            294
            
            
            
            268Other
            
            
            123
            
            
            
            129879
            
            
            
            875Total
      Assets
            
            $
            7,661
            
            
            $
            7,251CAPITALIZATION
      AND LIABILITIESCapitalizationCommon
      shareholder’s equity
            
            $
            2,404
            
            
            $
            2,288MidAmerican
      Energy preferred securities
            
            
            30
            
            
            
            30Long-term
      debt, excluding current portion
            
            
            2,819
            
            
            
            2,4705,253
            
            
            
            4,788Current
      LiabilitiesNotes
      payable
            
            
            -
            
            
            
            86Current
      portion of long-term debt
            
            
            -
            
            
            
            1Accounts
      payable
            
            
            402
            
            
            
            408Taxes
      accrued
            
            
            69
            
            
            
            85Interest
      accrued
            
            
            37
            
            
            
            41Other
            
            
            107
            
            
            
            76615
            
            
            
            697Other
      LiabilitiesDeferred
      income taxes
            
            
            567
            
            
            
            517Investment
      tax credits
            
            
            37
            
            
            
            38Asset
      retirement obligations
            
            
            186
            
            
            
            182Regulatory
      liabilities
            
            
            771
            
            
            
            793Other
            
            
            232
            
            
            
            2361,793
            
            
            
            1,766Total
      Capitalization and Liabilities
            
            $
            7,661
            
            
            $
            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
      MonthsEnded
      March 31,2008
            
            
            2007Operating
      RevenuesRegulated
      electric
            
            $
            483
            
            
            $
            480Regulated
      gas
            
            
            571
            
            
            
            499Nonregulated
            
            
            318
            
            
            
            2571,372
            
            
            
            1,236Operating
      ExpensesRegulated:Cost
      of fuel, energy and capacity
            
            
            176
            
            
            
            196Cost
      of gas sold
            
            
            480
            
            
            
            413Other
      operating expenses
            
            
            104
            
            
            
            98Maintenance
            
            
            37
            
            
            
            43Depreciation
      and amortization
            
            
            72
            
            
            
            70Property
      and other taxes
            
            
            25
            
            
            
            25894
            
            
            
            845Nonregulated:Cost
      of sales
            
            
            299
            
            
            
            242Other
            
            
            4
            
            
            
            4303
            
            
            
            246Total
      operating expenses
            
            
            1,197
            
            
            
            1,091Operating
      Income
            
            
            175
            
            
            
            145Non-Operating
      IncomeInterest
      and dividend income
            
            
            1
            
            
            
            1Allowance
      for equity funds
            
            
            4
            
            
            
            11Other
      income
            
            
            -
            
            
            
            2Other
      expense
            
            
            (1
            )
            
            
            (1
            )4
            
            
            
            13Fixed
      ChargesInterest
      on long-term debt
            
            
            35
            
            
            
            26Other
      interest expense
            
            
            1
            
            
            
            4Allowance
      for borrowed funds
            
            
            (3
            )
            
            
            (6
            )33
            
            
            
            24Income
      Before Income Taxes
            
            
            146
            
            
            
            134Income
      Taxes
            
            
            39
            
            
            
            42Net
      Income
            
            
            107
            
            
            
            92Preferred
      Dividends
            
            
            -
            
            
            
            -Earnings
      on Common Stock
            
            $
            107
            
            
            $
            92





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)





Three
      MonthsEnded
      March 31,2008
            
            
            2007Net
      Cash Flows From Operating ActivitiesNet
      income
            
            $
            107
            
            
            $
            92Adjustments
      to reconcile net income to net cash flows
              from
      operating activities:Depreciation
      and amortization
            
            
            72
            
            
            
            70Deferred
      income taxes and investment tax credit, net
            
            
            48
            
            
            
            5Amortization
      of other assets and liabilities
            
            
            7
            
            
            
            6Impact
      of changes in working capital-Receivables,
      net
            
            
            (140
            )
            
            
            (79
            )Inventories
            
            
            82
            
            
            
            76Accounts
      payable
            
            
            41
            
            
            
            42Taxes
      accrued
            
            
            (17
            )
            
            
            12Other
      current assets and liabilities
            
            
            (2
            )
            
            
            (11
            )Other,
      net
            
            
            (8
            )
            
            
            2Net
      cash flows from operating activities
            
            
            190
            
            
            
            215Net
      Cash Flows From Investing ActivitiesUtility
      construction expenditures
            
            
            (204
            )
            
            
            (332
            )Purchases
      of available-for-sale securities
            
            
            (29
            )
            
            
            (29
            )Proceeds
      from sales of available-for-sale securities
            
            
            26
            
            
            
            40Other,
      net
            
            
            2
            
            
            
            3Net
      cash flows from investing activities
            
            
            (205
            )
            
            
            (318
            )Net
      Cash Flows From Financing ActivitiesProceeds
      from long-term debt, net of issuance cost
            
            
            347
            
            
            
            -Retirement
      of long-term debt
            
            
            -
            
            
            
            (1
            )Net
      increase (decrease) in notes payable
            
            
            (86
            )
            
            
            100Other
            
            
            4
            
            
            
            -Net
      cash flows from financing activities
            
            
            265
            
            
            
            99Net
      Change in Cash and Cash Equivalents
            
            
            250
            
            
            
            (4
            )Cash
      and Cash Equivalents at Beginning of Period
            
            
            11
            
            
            
            9Cash
      and Cash Equivalents at End of Period
            
            $
            261
            
            
            $
            5





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”). MHC
is a holding company that conducts no business other than the ownership of its
subsidiaries, which include the following nonregulated subsidiaries: InterCoast
Capital Company, MidAmerican Services Company, Midwest Capital Group, Inc. and
MEC Construction Services Co. MHC 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
March 31, 2008, and for the three months ended March 31, 2008 and
2007. The results of operations for the three months ended March 31, 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
three 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 March 31, 2008 (in
millions):





AccumulatedRegulatory
            
            
            OtherDerivative
      Net Assets (Liabilities)
            
            
            Net
      Assets
            
            
            ComprehensiveAssets
            
            
            Liabilities
            
            
            Net
            
            
            (Liabilities)
            
            
            (Income)
      Loss (1)Regulated
      electric
            $
            3
            
            
            $
            (49
            )
            
            $
            (46
            )
            
            $
            46
            
            
            $
            -Regulated
      gas
            
            8
            
            
            
            (1
            )
            
            
            7
            
            
            
            (2
            )
            
            
            -Nonregulated
            
            37
            
            
            
            (17
            )
            
            
            20
            
            
            
            -
            
            
            
            (20
            )Total
            $
            48
            
            
            $
            (67
            )
            
            $
            (19
            )
            
            $
            44
            
            
            $
            (20
            )Current
            $
            42
            
            
            $
            (64
            )
            
            $
            (22
            )Non-current
            
            6
            
            
            
            (3
            )
            
            
            3Total
            $
            48
            
            
            $
            (67
            )
            
            $
            (19
            )





(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





(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 for the
three months ended March 31 (in millions):





Pension
            
            
            Other
      Postretirement2008
            
            
            2007
            
            
            2008
            
            
            2007Service
      cost
            
            $
            7
            
            
            $
            6
            
            
            $
            2
            
            
            $
            1Interest
      cost
            
            
            10
            
            
            
            10
            
            
            
            4
            
            
            
            4Expected
      return on plan assets
            
            
            (11
            )
            
            
            (10
            )
            
            
            (4
            )
            
            
            (3
            )Net
      amortization
            
            
            -
            
            
            
            1
            
            
            
            -
            
            
            
            -Net
      periodic benefit cost
            
            $
            6
            
            
            $
            7
            
            
            $
            2
            
            
            $
            2





Employer
contributions to the pension and other postretirement plans are expected to be
$7 million and $14 million, respectively, in 2008. As of
March 31, 2008, $2 million and $3 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 March 31, 2008 (in millions):





Input
      Levels for Fair Value MeasurementsDescription
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            Other(1)
            
            
            TotalAssets(2)Available-for-sale
      securities
            
            $
            187
            
            
            $
            75
            
            
            $
            36
            
            
            $
            -
            
            
            $
            298Commodity
      derivatives
            
            
            14
            
            
            
            42
            
            
            
            3
            
            
            
            (11
            )
            
            
            48$
            201
            
            
            $
            117
            
            
            $
            39
            
            
            $
            (11
            )
            
            $
            346LiabilitiesCommodity
      derivatives
            
            $
            (1
            )
            
            $
            (61
            )
            
            $
            (16
            )
            
            $
            11
            
            
            $
            (67
            )





(1)
            Represents
      netting under master netting arrangements in accordance with FASB
      Interpretation No. 39, “Offsetting of Amounts Related to Certain
      Contracts.”(2)
            Does
      not include investments in either pension or other postretirement plan
      assets. Available-for-sale securities include investments in the Quad
      Cities Station nuclear decommissioning trust (levels 1 and 2) and auction
      rate securities (level 3).





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 MidAmerican Energy’s 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 balance of MidAmerican
Energy’s assets and liabilities measured at fair value on a recurring basis
using significant unobservable inputs (Level 3) during the three months ended
March 31, 2008 (in millions):





Available-For-Sale
            
            
            CommoditySecurities
            
            
            DerivativesBalance,
      January 1, 2008
            
            $
            40
            
            
            $
            -Gains
      (losses) included in earnings (1):Realized
      gains/(losses)
            
            
            -
            
            
            
            4Unrealized
      gains/(losses)
            
            
            -
            
            
            
            (14
            )Unrealized
      gains/(losses) included in regulatory assets and
    liabilities
            
            
            -
            
            
            
            (4
            )Unrealized
      gains/(losses) included in other comprehensive income
            
            
            (4
            )
            
            
            1Balance,
      March 31, 2008
            
            $
            36
            
            
            $
            (13
            )





(1)
            Gains
      (losses) included in earnings for the three months ended March 31,
      2008, are reported as nonregulated revenues in the Consolidated Statement
      of Operations.





(7)
            Comprehensive
      Income and Components of Accumulated Other Comprehensive Income,
      Net





The
components of comprehensive income, net of tax, are as follows (in
millions):





Three
      MonthsEnded
      March 31,2008
            
            
            2007Earnings
      on common stock
            
            $
            107
            
            
            $
            92Other
      comprehensive income:Fair
      value adjustment on cash flow hedges, net of tax of $8 and
    $11
            
            
            11
            
            
            
            18Unrealized
      losses on available-for-sale securities, net of tax of $(2) and
      $-
            
            
            (2
            )
            
            
            -Total
      other comprehensive income
            
            
            9
            
            
            
            18Comprehensive
      income
            
            $
            116
            
            
            $
            110





Accumulated
other comprehensive income, net is included in the Consolidated Balance Sheets
in common shareholder’s equity and consists of the following components, net of
tax (in millions):





As
      ofMarch 31,
            
            
            December 31,2008
            
            
            2007Fair
      value adjustment on cash flow hedges, net of tax of $8 and
    $-
            
            $
            12
            
            
            $
            1Unrealized
      losses on available-for-sale securities, net of tax of $(2) and
      $-
            
            
            (2
            )
            
            
            -Total
      accumulated other comprehensive income, net
            
            $
            10
            
            
            $
            1





(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.




13




The
following tables provide information on a reportable operating segment basis (in
millions):





Three
      Months
              Ended
      March 31,2008
            
            
            2007Segment Profit
      InformationOperating
      revenues:Regulated
      electric
            
            $
            483
            
            
            $
            480Regulated
      gas
            
            
            571
            
            
            
            499Nonregulated
      energy
            
            
            318
            
            
            
            257Total
            
            $
            1,372
            
            
            $
            1,236Depreciation
      and amortization:Regulated
      electric
            
            $
            64
            
            
            $
            62Regulated
      gas
            
            
            8
            
            
            
            8$
            72
            
            
            $
            70Operating
      income:Regulated
      electric
            
            $
            116
            
            
            $
            95Regulated
      gas
            
            
            45
            
            
            
            41Nonregulated
      energy
            
            
            14
            
            
            
            9Total
            
            $
            175
            
            
            $
            145Earnings
      on common stock:Regulated
      electric
            
            $
            69
            
            
            $
            64Regulated
      gas
            
            
            24
            
            
            
            23Nonregulated
      energy
            
            
            14
            
            
            
            5Total
            
            $
            107
            
            
            $
            92





As
      ofMarch 31,
            
            
            December 31,2008
            
            
            2007Segment Asset
      InformationTotal
      assets:Regulated
      electric
            
            $
            6,515
            
            
            $
            6,110Regulated
      gas
            
            
            900
            
            
            
            938Nonregulated
      energy
            
            
            246
            
            
            
            203Total
            
            $
            7,661
            
            
            $
            7,251





(9)
            Long-Term
      Debt





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.


14


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 March 31, 2008, and the related
consolidated statements of operations, comprehensive income, and cash flows for
the three-month periods ended March 31, 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


May 2,
2008





15


MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS (Unaudited)


(In
millions)





As
      ofMarch 31,
            
            
            December 31,2008
            
            
            2007ASSETSUtility
      Plant, NetElectric
            
            $
            7,656
            
            
            $
            7,473Gas
            
            
            1,097
            
            
            
            1,0868,753
            
            
            
            8,559Accumulated
      depreciation and amortization
            
            
            (3,280
            )
            
            
            (3,237
            )5,473
            
            
            
            5,322Construction
      work in progress
            
            
            310
            
            
            
            3865,783
            
            
            
            5,708Current
      AssetsCash
      and cash equivalents
            
            
            262
            
            
            
            12Receivables,
      net
            
            
            628
            
            
            
            490Inventories
            
            
            51
            
            
            
            133Other
            
            
            60
            
            
            
            401,001
            
            
            
            675Other
      AssetsInvestments
      and nonregulated property, net
            
            
            475
            
            
            
            494Goodwill
            
            
            1,270
            
            
            
            1,270Regulatory
      assets
            
            
            294
            
            
            
            268Other
            
            
            123
            
            
            
            1292,162
            
            
            
            2,161Total
      Assets
            
            $
            8,946
            
            
            $
            8,544CAPITALIZATION
      AND LIABILITIESCapitalizationMember’s
      equity
            
            $
            2,934
            
            
            $
            2,825MidAmerican
      Energy preferred securities
            
            
            30
            
            
            
            30Long-term
      debt, excluding current portion
            
            
            3,344
            
            
            
            3,1706,308
            
            
            
            6,025Current
      LiabilitiesNotes
      payable
            
            
            -
            
            
            
            86Note
      payable to affiliate
            
            
            50
            
            
            
            33Current
      portion of long-term debt
            
            
            175
            
            
            
            1Accounts
      payable
            
            
            402
            
            
            
            408Taxes
      accrued
            
            
            64
            
            
            
            86Interest
      accrued
            
            
            41
            
            
            
            57Other
            
            
            107
            
            
            
            76839
            
            
            
            747Other
      LiabilitiesDeferred
      income taxes
            
            
            559
            
            
            
            509Investment
      tax credits
            
            
            37
            
            
            
            38Asset
      retirement obligations
            
            
            186
            
            
            
            182Regulatory
      liabilities
            
            
            771
            
            
            
            793Other
            
            
            246
            
            
            
            2501,799
            
            
            
            1,772Total
      Capitalization and Liabilities
            
            $
            8,946
            
            
            $
            8,544





The
accompanying notes are an integral part of these financial
statements


16


MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


(In
millions)





Three
      MonthsEnded
      March 31,2008
            
            
            2007Operating
      RevenuesRegulated
      electric
            
            $
            483
            
            
            $
            480Regulated
      gas
            
            
            571
            
            
            
            499Nonregulated
            
            
            319
            
            
            
            2581,373
            
            
            
            1,237Operating
      ExpensesRegulated:Cost
      of fuel, energy and capacity
            
            
            176
            
            
            
            196Cost
      of gas sold
            
            
            480
            
            
            
            413Other
      operating expenses
            
            
            104
            
            
            
            98Maintenance
            
            
            37
            
            
            
            43Depreciation
      and amortization
            
            
            72
            
            
            
            70Property
      and other taxes
            
            
            25
            
            
            
            25894
            
            
            
            845Nonregulated:Cost
      of sales
            
            
            299
            
            
            
            242Other
            
            
            5
            
            
            
            5304
            
            
            
            247Total
      operating expenses
            
            
            1,198
            
            
            
            1,092Operating
      Income
            
            
            175
            
            
            
            145Non-Operating
      IncomeInterest
      and dividend income
            
            
            1
            
            
            
            1Allowance
      for equity funds
            
            
            4
            
            
            
            11Other
      income
            
            
            1
            
            
            
            2Other
      expense
            
            
            (1
            )
            
            
            (1
            )5
            
            
            
            13Fixed
      ChargesInterest
      on long-term debt
            
            
            47
            
            
            
            38Other
      interest expense
            
            
            2
            
            
            
            4Allowance
      for borrowed funds
            
            
            (3
            )
            
            
            (6
            )46
            
            
            
            36Income
      Before Income Taxes
            
            
            134
            
            
            
            122Income
      Taxes
            
            
            34
            
            
            
            37Net
      Income
            
            $
            100
            
            
            $
            85





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


17


MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)


(In
millions)





Three
      MonthsEnded
      March 31,2008
            
            
            2007Net
      Cash Flows From Operating ActivitiesNet
      income
            
            $
            100
            
            
            $
            85Adjustments
      to reconcile net income to net cash flows
              from
      operating activities:Depreciation
      and amortization
            
            
            72
            
            
            
            70Deferred
      income taxes and investment tax credit, net
            
            
            47
            
            
            
            4Amortization
      of other assets and liabilities
            
            
            7
            
            
            
            6Impact
      of changes in working capital -Receivables,
      net
            
            
            (135
            )
            
            
            (84
            )Inventories
            
            
            82
            
            
            
            76Accounts
      payable
            
            
            42
            
            
            
            47Taxes
      accrued
            
            
            (21
            )
            
            
            8Other
      current assets and liabilities
            
            
            (14
            )
            
            
            (23
            )Other,
      net
            
            
            (7
            )
            
            
            4Net
      cash flows from operating activities
            
            
            173
            
            
            
            193Net
      Cash Flows From Investing ActivitiesUtility
      construction expenditures
            
            
            (204
            )
            
            
            (332
            )Purchases
      of available-for-sale securities
            
            
            (29
            )
            
            
            (29
            )Proceeds
      from sales of available-for-sale securities
            
            
            26
            
            
            
            40Other,
      net
            
            
            2
            
            
            
            3Net
      cash flows from investing activities
            
            
            (205
            )
            
            
            (318
            )Net
      Cash Flows From Financing ActivitiesProceeds
      from long-term debt, net of issuance cost
            
            
            347
            
            
            
            -Retirement
      of long-term debt
            
            
            -
            
            
            
            (1
            )Net
      increase in note payable to affiliate
            
            
            17
            
            
            
            22Net
      increase (decrease) in notes payable
            
            
            (86
            )
            
            
            100Other
            
            
            4
            
            
            
            1Net
      cash flows from financing activities
            
            
            282
            
            
            
            122Net
      Change in Cash and Cash Equivalents
            
            
            250
            
            
            
            (3
            )Cash
      and Cash Equivalents at Beginning of Period
            
            
            12
            
            
            
            9Cash
      and Cash Equivalents at End of Period
            
            $
            262
            
            
            $
            6





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


18




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 March 31, 2008, and for the three months ended
March 31, 2008 and 2007. The results of operations for the three months
ended March 31, 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
three months of 2008.





(2)
            New
      Accounting Pronouncements





Refer to
Note 2 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for additional disclosure of 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.


19





(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
March 31, 2008, which are categorized as Level 2 assets.





(7)
            Comprehensive
      Income and Components of Accumulated Other Comprehensive Income,
      Net





The
components of comprehensive income, net of tax, are as follows (in
millions):





Three
      MonthsEnded
      March 31,2008
            
            
            2007Net
      income
            
            $
            100
            
            
            $
            85Other
      comprehensive income:Fair
      value adjustment on cash flow hedges, net of tax of $8 and
    $11
            
            
            11
            
            
            
            18Unrealized
      losses on available-for-sale securities, net of tax of $(2) and
      $-
            
            
            (2
            )
            
            
            -Total
      other comprehensive income
            
            
            9
            
            
            
            18Comprehensive
      income
            
            $
            109
            
            
            $
            103





Accumulated
other comprehensive income, net is included in the Consolidated Balance Sheets
in member’s equity and consists of the following components, net of tax (in
millions):





As
      ofMarch 31,
            
            
            December 31,2008
            
            
            2007Fair
      value adjustment on cash flow hedges, net of tax of $8 and
    $-
            
            $
            12
            
            
            $
            1Unrealized
      losses on available-for-sale securities, net of tax of $(2) and
      $-
            
            
            (2
            )
            
            
            -Total
      accumulated other comprehensive income, net
            
            $
            10
            
            
            $
            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.


20


The
following tables provide information on a reportable operating segment basis (in
millions):





Three
      Months
              Ended March 31,2008
            
            
            2007Segment Profit
      InformationOperating
      revenues:Regulated
      electric
            
            $
            483
            
            
            $
            480Regulated
      gas
            
            
            571
            
            
            
            499Nonregulated
      energy
            
            
            318
            
            
            
            257Other
            
            
            1
            
            
            
            1Total
            
            $
            1,373
            
            
            $
            1,237Depreciation
      and amortization:Regulated
      electric
            
            $
            64
            
            
            $
            62Regulated
      gas
            
            
            8
            
            
            
            8$
            72
            
            
            $
            70Operating
      income:Regulated
      electric
            
            $
            116
            
            
            $
            95Regulated
      gas
            
            
            45
            
            
            
            41Nonregulated
      energy
            
            
            14
            
            
            
            9Total
            
            $
            175
            
            
            $
            145Net
      income:Regulated
      electric
            
            $
            69
            
            
            $
            64Regulated
      gas
            
            
            24
            
            
            
            23Nonregulated
      energy
            
            
            14
            
            
            
            5Other
            
            
            (7
            )
            
            
            (7
            )Total
            
            $
            100
            
            
            $
            85




As
      ofMarch 31,
            
            
            December 31,2008
            
            
            2007Segment Asset
      InformationTotal
      assets (1):Regulated
      electric
            
            $
            7,706
            
            
            $
            7,301Regulated
      gas
            
            
            978
            
            
            
            1,017Nonregulated
      energy
            
            
            246
            
            
            
            203Other
            
            
            16
            
            
            
            23Total
            
            $
            8,946
            
            
            $
            8,544





(1)
            Total
      assets by operating segment reflect the assignment of goodwill to
      applicable reporting units.








(9)
            Long-Term
      Debt





Refer to
Note 9 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for information regarding MidAmerican Funding’s long-term debt.


21




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;
  ·
              changes
      in 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;
  ·
                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;
  22


·
              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, embargoes 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 Securities and
      Exchange Commission (“SEC”) filings 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 March 31, 2008 and
2007





Overview





MidAmerican
Energy’s earnings on common stock increased $15 million to
$107 million for the first three months of 2008 compared to
$92 million for the first three months of 2007 due to improved margins on
regulated electric sales primarily as a result of Walter Scott, Jr. Energy
Center Unit No. 4 (“WSEC Unit 4”) commencing commercial operation in June 2007
and to the addition of wind-powered generation capacity in Iowa. MidAmerican
Funding’s net income increased $15 million to $100 million for the
first three months of 2008 compared to $85 million for the first three
months of 2007.





Regulated Electric Gross
Margin





QuarterEnded March 31,2008
            
            
            2007Gross
      margin (in millions):Operating
      revenues
            
            $
            483
            
            
            $
            480Less
      cost of fuel, energy and capacity
            
            
            176
            
            
            
            196Electric
      gross margin
            
            $
            307
            
            
            $
            284Sales
      (Gigawatt hours (“GWh”)):Retail
            
            
            5,236
            
            
            
            4,974Wholesale
            
            
            3,642
            
            
            
            3,494Total
            
            
            8,878
            
            
            
            8,468





Electric
gross margin for the first quarter of 2008 increased $23 million compared
to the first 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 $19 million,
while gross margin on electric retail sales increased $4 million. The
improved margins were primarily attributable to a decrease in the average cost
of electricity compared to the first quarter of 2007 due principally to the
addition of WSEC Unit 4 in June 2007 and the addition of 213 MW (nameplate
ratings) of wind-powered generation in Iowa during 2007. Additionally, the sale
of renewable energy credits contributed to the improvement in electric retail
gross margin.





23


Regulated Gas Gross
Margin





QuarterEnded
      March 31,2008
            
            
            2007Gross
      margin (in millions):Operating
      revenues
            
            $
            571
            
            
            $
            499Less
      cost of gas sold
            
            
            480
            
            
            
            413Gas
      gross margin
            
            $
            91
            
            
            $
            86Sales
      (000’s decatherms (“Dths”)):Retail
            
            
            41,500
            
            
            
            36,611Wholesale
            
            
            10,904
            
            
            
            12,911Total
            
            
            52,404
            
            
            
            49,522





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
quarter of 2007, MidAmerican Energy’s average per-unit cost of gas sold
increased 10%, resulting in a $43 million increase in gas revenues and cost
of gas sold for the first quarter of 2008. Regulated gas revenues and cost of
gas sold increased $24 million due to the increase in total sales volumes
in the first 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):





QuarterEnded
      March 31,2008
      vs. 2007Change
      in recoveries of cost of gas sold:Average
      cost per unit
            
            $
            43Sales
      volumes
            
            
            24Total
      change in cost of gas sold
            
            
            67Change
      in margin:Usage
      factors
            
            
            6Energy
      efficiency cost recovery
            
            
            (2
            )Other
            
            
            1Total revenue
      variance
            
            $
            72





Usage
factors includes the effect of colder temperatures compared to the first quarter
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 $104 million for the first quarter of 2008 increased
$6 million compared to the first quarter of 2007 due to a $3 million
increase in property insurance expense as a result of a refund in the first
quarter of 2007 and a $2 million increase in fossil-fueled generation
operation costs due in part to WSEC Unit 4 beginning commercial operation
in June 2007. Additionally, electric distribution and gas distribution costs
each increased $2 million compared to the first quarter of 2007. These
increases were partially offset by a $4 million decrease in energy
efficiency program costs, which was substantially matched by decreases in
related electric and gas revenues.




24




Maintenance
expense of $37 million for the first quarter of 2008 decreased
$6 million compared to the first quarter of 2007 primarily due to an
$8 million decrease in electric distribution maintenance as a result of
$10 million incurred in the first quarter of 2007 for restoration of
facilities damaged by storms.





Depreciation
and amortization expense of $72 million for the first quarter of 2008
increased $2 million compared to the first quarter of 2007 due to an
$8 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. Regulatory expense related to a revenue sharing
arrangement in Iowa decreased $6 million as a result of lower Iowa electric
equity returns. Refer to the “Utility Regulatory Matters” section for an
explanation of the revenue sharing arrangement.





Nonregulated Gross
Margin





QuarterEnded
      March 31,2008
            
            
            2007MidAmerican
      Energy (in millions) -Nonregulated
      operating revenues
            
            $
            318
            
            
            $
            257Less
      nonregulated cost of sales
            
            
            299
            
            
            
            242Nonregulated
      gross margin
            
            $
            19
            
            
            $
            15MidAmerican
      Funding Consolidated (in millions) -Nonregulated
      operating revenues
            
            $
            319
            
            
            $
            258Less
      nonregulated cost of sales
            
            
            299
            
            
            
            242Nonregulated
      gross margin
            
            $
            20
            
            
            $
            16Nonregulated
      electric retail sales (GWh)
            
            
            2,385
            
            
            
            2,026





Nonregulated
revenues, cost of sales and gross margin for the first quarter of 2008 increased
compared to the first quarter of 2007 principally due to higher average prices,
costs and margins related to nonregulated electric retail sales. Additionally,
nonregulated electric retail sales volumes increased 18%. Nonregulated gas
revenues and cost of sales increased due to an 8% increase in related sales
volumes, as well as higher average prices and costs. Gross margin for
nonregulated gas sales decreased compared to the first quarter of
2007.





Non-Operating
Income





MidAmerican
Energy’s non-operating income for the first quarter of 2008 decreased
$9 million compared to the first quarter of 2007 primarily due to a
$7 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
$9 million increase in MidAmerican Energy’s interest on long-term debt for
the first quarter of 2008 compared to the first 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 $3 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 $3 million decrease in allowance for
borrowed funds for the first quarter of 2008 was due to the decrease in
construction work in progress compared to the first quarter of
2007.





25


Income
Taxes





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 quarter of 2008 include $5 million of additional production tax
credits compared to the first 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.





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 $190 million and
$215 million for the first three months of 2008 and 2007, respectively.
MidAmerican Funding’s net cash provided by operating activities was
$173 million and $193 million for the first three 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 in
related increased receivable balances.





Utility Construction
Expenditures





MidAmerican
Energy’s primary need for capital is utility construction expenditures, which
totaled $204 million and $332 million for the first three 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, and greater wind project expenditures than the 2008 quarter.
MidAmerican Energy’s utility construction expenditures for 2008, excluding the
non-cash allowance for equity funds used during construction, are estimated to
be approximately $1.4 billion, which includes $898 million for the
wind-powered generation projects discussed below, $110 million for
emissions control equipment to address current and anticipated air quality
regulations, and $392 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 81 MW
(nameplate ratings) placed in service in the first quarter of 2008. As of
March 31, 2008, MidAmerican Energy had 489 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) not covered by the 2007 settlement agreement. The 108 MW
expansion is the subject of a tentative settlement agreement between MidAmerican
Energy and the OCA, which must be approved by the IUB prior to becoming
effective. 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 settlement agreement.




26




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 issuance.





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.





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 $650 million
revolving credit facility, expiring July 6, 2012, that supports its
$530 million commercial paper program and its variable rate pollution
control revenue 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 $350 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 $281 million of long-term debt securities. On
July 11, 2007, MidAmerican Energy received authorization from the ICC to
refinance prior to July 11, 2009, approximately $57 million of
pollution control revenue bonds issued in 1993.





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
March 31, 2008, MidAmerican Energy’s common equity ratio was 49% 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.





Credit
Ratings Risks





As of
March 31, 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.




27




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 March 31, 2008, MidAmerican Energy’s estimated potential collateral
requirements totaled approximately $194 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.





Expenditures
for compliance-related items such as pollution-control technologies, replacement
generation, nuclear decommissioning and associated operating costs are generally
incorporated into MidAmerican Energy’s routine cost structure. An inability to
recover these costs from MidAmerican Energy’s customers, either through
regulated rates, long-term arrangements or market prices, could adversely affect
its future financial results.





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 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.
MidAmerican Energy currently estimates that the cost of incremental capital
expenditures for emission control equipment included in its plan for compliance
with current air quality requirements will total approximately $360 million
for January 1, 2008, through December 31, 2015. Additionally,
MidAmerican Energy expects to incur significant incremental operating costs in
conjunction with the utilization of the emissions control equipment. 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.





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.




28




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.





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





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 March 31, 2008 and December 31, 2007. 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.






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 are effective in timely alerting
them to material information relating to MidAmerican Funding or MidAmerican
Energy, respectively, required to be included in their respective periodic SEC
filings. There has been no change in MidAmerican Funding’s or MidAmerican
Energy’s internal control over financial reporting during the quarter ended
March 31, 2008, that has materially affected, or is reasonably likely to
materially affect, their respective internal control over financial
reporting.


29





PART
II – OTHER INFORMATION





Item 1.
            Legal
      Proceedings





On
December 28, 2004, an apparent gas explosion and fire resulted in three
fatalities, one serious injury and property damage at a commercial building in
Ramsey, Minnesota. According to the Minnesota Office of Pipeline Safety, an
improper installation of a pipeline connection may have been a cause of the
explosion and fire. A predecessor company to MidAmerican Energy provided gas
service in Ramsey, Minnesota, at the time of the original installation in 1980.
In 1993, a predecessor of CenterPoint Energy, Inc. (“CenterPoint”) acquired all
of the Minnesota gas properties owned by the MidAmerican Energy predecessor
company. All of the wrongful death, personal injury and property damage claims
arising from this incident have been settled by CenterPoint.





Two
lawsuits naming MidAmerican Energy as a third party defendant filed by
CenterPoint in the U.S. District Court, District of Minnesota, related to this
incident have also been settled. CenterPoint sought reimbursement of all sums
associated with it’s replacement of all service lines in the MidAmerican Energy
predecessor company’s properties located in Minnesota at a cost of approximately
$39 million according to publicly available reports. MidAmerican Energy
made immaterial payments to CenterPoint and its insurer, and the court dismissed
the complaints in March 2008.





Other
than the litigation described above, MidAmerican Funding and its subsidiaries
currently have no material legal proceedings. 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.








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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:  May
      2, 2008
            /s/  Thomas
      B. SpecketerThomas
      B. SpecketerVice
      President and Controllerof
      MidAmerican Funding, LLCand
      MidAmerican Energy Company(principal
      financial and accounting officer)





31





EXHIBIT INDEX





Exhibit
      No.
            DescriptionMidAmerican
      Energy15
            Awareness
      Letter of Independent Registered Public Accounting Firm31.1
            Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
            Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
            Principal
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
            Principal
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002MidAmerican
      Funding31.3
            Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.4
            Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.3
            Principal
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.4
            Principal
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002








32