**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





**[X]
      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act
      of 1934**





For
      the
      quarterly period ended June 30, 2007





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 500****Des
                Moines, Iowa 50309-2580****333-15387**
            
            **MIDAMERICAN
                ENERGY COMPANY**
            
            **42-1425214****(An
                Iowa Corporation)****666
                Grand Avenue, Suite 500****Des
                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, or non-accelerated filers. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act.





(Check
                one):
            Large
                accelerated filer £
            Accelerated
                filer £
            Non-accelerated
                filer T





Indicate
      by check mark whether either registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  £                      No  T





As
      of
      July 31, 2007, all of the member’s equity of MidAmerican Funding, LLC was
      held by its parent company, MidAmerican Energy Holdings Company.





As
      of
      July 31, 2007, all 70,980,203 outstanding shares of MidAmerican Energy
      Company’s voting stock were held by its parent company, MHC Inc., a direct,
      wholly owned subsidiary of MidAmerican Funding, LLC.








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 INFORMATION**





Item
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis of Financial
                Condition and Results of Operations
            24Item
                3.
            Quantitative
                and Qualitative Disclosures About
                Market Risk
            38Item
                4.
            Controls
                and Procedures
            38**PART
                II – OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            39Item
                1A.
            Risk
                Factors
            39Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            39Item
                3.
            Defaults
                Upon Senior Securities
            39Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            39Item
                5.
            Other
                Information
            40Item
                6.
            Exhibits
            40Signatures
            
            41Exhibit
                Index
            
            42








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 Comprehensive
                Income
            7Consolidated
                Statements of Cash Flows
            8Notes
                to Consolidated Financial
                Statements
            9MidAmerican
                Funding, LLC and SubsidiariesReport
                of Independent Registered Public Accounting
                Firm
            16Consolidated
                Balance Sheets
            17Consolidated
                Statements of
                Operations
            18Consolidated
                Statements of Comprehensive
                Income
            19Consolidated
                Statements of Cash
                Flows
            20Notes
                to Consolidated Financial
                Statements
            21








3




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Board of Directors and Shareholder


MidAmerican
      Energy Company


Des
      Moines, Iowa





We
      have
      reviewed the accompanying consolidated balance sheet of MidAmerican Energy
      Company and subsidiary (the “Company”) as of June 30, 2007, and the related
      consolidated statements of operations and comprehensive income for the
      three-month and six-month periods ended June 30, 2007 and 2006, and of cash
      flows for the six-month periods ended June 30, 2007 and 2006. 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, 2006, and the related
      consolidated statements of operations, comprehensive income, retained earnings,
      and cash flows for the year then ended (not presented herein); and in our report
      dated February 27, 2007, we expressed an unqualified opinion on those
      consolidated financial statements, which included an explanatory paragraph
      related to the adoption of SFAS No. 158, *Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans*. In our opinion, the
      information set forth in the accompanying consolidated balance sheet as of
      December 31, 2006, 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


July
      31,
      2007





4




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEETS(Unaudited)**


(In
      millions)





**As
                  of****June 30,**
            
            
            **December 31,****2007**
            
            
            **2006****ASSETS****Utility
                Plant, Net**Electric
            
            $
            6,965
            
            
            $
            6,366Gas
            
            
            1,055
            
            
            
            1,0318,020
            
            
            
            7,397Accumulated
                depreciation and amortization
            
            
            (3,357
            )
            
            
            (3,261
            )4,663
            
            
            
            4,136Construction
                work in progress
            
            
            465
            
            
            
            8675,128
            
            
            
            5,003**Current
                Assets**Cash
                and cash equivalents
            
            
            394
            
            
            
            9Short-term
                investments
            
            
            29
            
            
            
            15Receivables,
                net
            
            
            414
            
            
            
            394Inventories
            
            
            68
            
            
            
            113Other
            
            
            47
            
            
            
            163952
            
            
            
            694**Investments
                and Nonregulated Property, Net**
            
            
            428
            
            
            
            410**Regulatory
                Assets**
            
            
            244
            
            
            
            273**Other
                Assets**
            
            
            118
            
            
            
            130**Total
                Assets**
            
            $
            6,870
            
            
            $
            6,510**CAPITALIZATION
                AND LIABILITIES****Capitalization**Common
                shareholder’s equity
            
            $
            2,126
            
            
            $
            1,951MidAmerican
                Energy preferred securities
            
            
            30
            
            
            
            30Long-term
                debt, excluding current portion
            
            
            2,469
            
            
            
            1,8204,625
            
            
            
            3,801**Current
                Liabilities**Current
                portion of long-term debt
            
            
            -
            
            
            
            2Accounts
                payable
            
            
            282
            
            
            
            498Taxes
                accrued
            
            
            142
            
            
            
            99Interest
                accrued
            
            
            22
            
            
            
            32Other
            
            
            97
            
            
            
            171543
            
            
            
            802**Other
                Liabilities**Deferred
                income taxes
            
            
            468
            
            
            
            471Investment
                tax credits
            
            
            39
            
            
            
            41Asset
                retirement obligations
            
            
            176
            
            
            
            173Regulatory
                liabilities
            
            
            768
            
            
            
            989Other
            
            
            251
            
            
            
            2331,702
            
            
            
            1,907**Total
                Capitalization and Liabilities**
            
            $
            6,870
            
            
            $
            6,510





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




5




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS(Unaudited)**


(In
      millions)





**Three
                Months**
            
            
            **Six
                Months****Ended June 30,**
            
            
            **Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Operating
                Revenues**Regulated
                electric
            
            $
            467
            
            
            $
            461
            
            
            $
            947
            
            
            $
            876Regulated
                gas
            
            
            209
            
            
            
            169
            
            
            
            708
            
            
            
            625Nonregulated
            
            
            293
            
            
            
            130
            
            
            
            550
            
            
            
            300969
            
            
            
            760
            
            
            
            2,205
            
            
            
            1,801**Operating
                Expenses**Regulated:Cost
                of fuel, energy and capacity
            
            
            176
            
            
            
            176
            
            
            
            373
            
            
            
            318Cost
                of gas sold
            
            
            161
            
            
            
            126
            
            
            
            574
            
            
            
            506Other
                operating expenses
            
            
            102
            
            
            
            96
            
            
            
            200
            
            
            
            187Maintenance
            
            
            42
            
            
            
            40
            
            
            
            85
            
            
            
            71Depreciation
                and amortization
            
            
            76
            
            
            
            87
            
            
            
            145
            
            
            
            161Property
                and other taxes
            
            
            25
            
            
            
            25
            
            
            
            50
            
            
            
            49582
            
            
            
            550
            
            
            
            1,427
            
            
            
            1,292Nonregulated:Cost
                of sales
            
            
            269
            
            
            
            127
            
            
            
            511
            
            
            
            288Other
            
            
            5
            
            
            
            4
            
            
            
            9
            
            
            
            7274
            
            
            
            131
            
            
            
            520
            
            
            
            295Total
                operating expenses
            
            
            856
            
            
            
            681
            
            
            
            1,947
            
            
            
            1,587**Operating
                Income**
            
            
            113
            
            
            
            79
            
            
            
            258
            
            
            
            214**Non-Operating
                Income**Interest
                and dividend income
            
            
            1
            
            
            
            2
            
            
            
            2
            
            
            
            5Allowance
                for equity funds
            
            
            11
            
            
            
            8
            
            
            
            22
            
            
            
            15Other
                income
            
            
            2
            
            
            
            1
            
            
            
            4
            
            
            
            3Other
                expense
            
            
            (1
            )
            
            
            (1
            )
            
            
            (2
            )
            
            
            (2
            )13
            
            
            
            10
            
            
            
            26
            
            
            
            21**Fixed
                Charges**Interest
                on long-term debt
            
            
            26
            
            
            
            23
            
            
            
            52
            
            
            
            47Other
                interest expense
            
            
            3
            
            
            
            3
            
            
            
            7
            
            
            
            5Allowance
                for borrowed funds
            
            
            (5
            )
            
            
            (4
            )
            
            
            (11
            )
            
            
            (7
            )24
            
            
            
            22
            
            
            
            48
            
            
            
            45**Income
                Before Income Taxes**
            
            
            102
            
            
            
            67
            
            
            
            236
            
            
            
            190**Income
                Taxes**
            
            
            28
            
            
            
            21
            
            
            
            70
            
            
            
            57**Net
                Income**
            
            
            74
            
            
            
            46
            
            
            
            166
            
            
            
            133**Preferred
                Dividends**
            
            
            1
            
            
            
            1
            
            
            
            1
            
            
            
            1**Earnings
                on Common Stock**
            
            $
            73
            
            
            $
            45
            
            
            $
            165
            
            
            $
            132





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




6




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME(Unaudited)**


(In
      millions)





**Three
                Months**
            
            
            **Six
                Months****Ended June 30,**
            
            
            **Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Earnings
                on Common Stock**
            
            $
            73
            
            
            $
            45
            
            
            $
            165
            
            
            $
            132**Other
                Comprehensive Income (Loss)**Unrealized
                gains (losses) on cash flow hedges:Unrealized
                gains (losses) during period-Before
                income taxes
            
            
            (11
            )
            
            
            -
            
            
            
            17
            
            
            
            -Income
                tax (expense) benefit
            
            
            4
            
            
            
            -
            
            
            
            (7
            )
            
            
            -(7
            )
            
            
            -
            
            
            
            10
            
            
            
            -Less
                realized gains reflected in earnings on
              common
                stock during period-Before
                income taxes
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            -Income
                tax expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -1
            
            
            
            -
            
            
            
            -
            
            
            
            -Other
                comprehensive income (loss)
            
            
            (8
            )
            
            
            -
            
            
            
            10
            
            
            
            -**Comprehensive
                Income**
            
            $
            65
            
            
            $
            45
            
            
            $
            175
            
            
            $
            132








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




7





**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS (Unaudited)**


(In
      millions)





**Six
                Months****Ended June 30,****2007**
            
            
            **2006****Net
                Cash Flows From Operating Activities**Net
                income
            
            $
            166
            
            
            $
            133Adjustments
                to reconcile net income to net cash provided:Depreciation
                and amortization
            
            
            146
            
            
            
            162Deferred
                income taxes and investment tax credit, net
            
            
            (2
            )
            
            
            (1
            )Amortization
                of other assets and liabilities
            
            
            13
            
            
            
            13Impact
                of changes in working capital-Receivables,
                net
            
            
            (22
            )
            
            
            178Inventories
            
            
            45
            
            
            
            20Accounts
                payable
            
            
            23
            
            
            
            (161
            )Taxes
                accrued
            
            
            62
            
            
            
            29Other
                current assets and liabilities
            
            
            (7
            )
            
            
            17Other,
                net
            
            
            (13
            )
            
            
            (2
            )Net
                cash provided by operating activities
            
            
            411
            
            
            
            388**Net
                Cash Flows From Investing Activities**Utility
                construction expenditures
            
            
            (656
            )
            
            
            (323
            )Purchases
                of available-for-sale securities
            
            
            (102
            )
            
            
            (468
            )Proceeds
                from sales of available-for-sale securities
            
            
            82
            
            
            
            488Other,
                net
            
            
            5
            
            
            
            4Net
                cash used in investing activities
            
            
            (671
            )
            
            
            (299
            )**Net
                Cash Flows From Financing Activities**Dividends
                paid
            
            
            (1
            )
            
            
            (1
            )Issuance
                of long-term debt, net of issuance cost
            
            
            647
            
            
            
            -Retirement
                of long-term debt, including reacquisition cost
            
            
            (1
            )
            
            
            (160
            )Net
                increase in notes payable
            
            
            -
            
            
            
            10Other
            
            
            -
            
            
            
            (5
            )Net
                cash provided by (used in) financing activities
            
            
            645
            
            
            
            (156
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            385
            
            
            
            (67
            )**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            9
            
            
            
            71**Cash
                and Cash Equivalents at End of Period**
            
            $
            394
            
            
            $
            4








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




8




**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, and it has 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 (“MidAmerican Energy
      Holdings”) as its sole member. MidAmerican Energy Holdings is a consolidated
      subsidiary of Berkshire Hathaway Inc.





The
      accompanying unaudited Consolidated Financial Statements have been prepared
      by
      MidAmerican Energy in accordance with accounting principles generally accepted
      in the United States of America (“GAAP”) and the rules and regulations of the
      Securities and Exchange Commission for interim financial statements.
      Accordingly, they do not include all of the information and footnotes required
      for annual financial statements. In the opinion of MidAmerican Energy, all
      adjustments, consisting of normal recurring adjustments, have been made to
      present fairly its financial position, results of operations and changes in
      cash
      flows for the periods presented. Certain amounts in the unaudited Consolidated
      Statement of Operations for the three months and six months ended June 30,
      2006, have been reclassified to conform to the 2007 presentation. Such
      reclassifications did not impact previously reported operating income, net
      income or retained earnings. Although MidAmerican Energy believes that the
      disclosures contained herein are adequate to make the information presented
      not
      misleading, it is suggested that these financial statements be read in
      conjunction with the Consolidated Financial Statements and the notes thereto
      included in MidAmerican Energy’s latest Annual Report on
      Form 10-K.





The
      accompanying unaudited Consolidated Financial Statements include the accounts
      of
      MidAmerican Energy and the subsidiary in which it holds a controlling financial
      interest. All significant 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, 2006, describes the most significant
      accounting estimates and policies used in the preparation of the Consolidated
      Financial Statements. There have been no significant changes in MidAmerican
      Energy’s assumptions regarding significant accounting policies during the first
      six months of 2007, except as described in Note 2.





**(2)**
            **New
                Accounting Pronouncements**





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement No. 109”**(“FIN
      48”)*.* MidAmerican Energy adopted the provisions of FIN 48
      effective January 1, 2007. Under FIN 48, tax benefits are recognized
      only for tax positions that are more likely than not to be sustained upon
      examination by tax authorities. The amount recognized is measured as the largest
      amount of benefit that is greater than 50% likely to be realized upon ultimate
      settlement. Unrecognized tax benefits are tax benefits claimed in MidAmerican
      Energy’s tax returns that do not meet these recognition and measurement
      standards.





As
      of
      January 1, 2007, MidAmerican Energy had $25 million of unrecognized
      tax benefits. Of this amount, MidAmerican Energy recognized a net increase
      in
      the liability for unrecognized tax benefits of $11 million as a cumulative
      effect of adopting FIN 48, which was offset by reductions in beginning
      retained earnings of $1 million and deferred income tax liabilities of
      $9 million and an increase in regulatory assets of $1 million in the
      Consolidated Balance Sheet. The remaining $14 million had been previously
      accrued under Statement of Financial Accounting Standards
      (“SFAS”) No. 5, “Accounting for Contingencies,” or SFAS No. 109,
“Accounting for Income Taxes.” The entire $25 million of unrecognized tax
      benefits as of January 1, 2007 is included in other liabilities – other in the
      Consolidated Balance Sheet.




9




Included
      in the $25 million is $14 million of net unrecognized tax benefits
      that, if recognized, would have an impact on the effective tax rate. The
      remaining unrecognized tax benefits relate to tax positions for which ultimate
      deductibility is highly certain but for which there is uncertainty as to the
      timing of such deductibility. Recognition of these tax benefits, other than
      applicable interest and penalties, would not affect MidAmerican Energy’s
      effective tax rate. MidAmerican Energy recognizes interest and penalties accrued
      related to unrecognized tax benefits in income tax expense. As of
      January 1, 2007, MidAmerican Energy had $4 million accrued for the
      payment of interest, which is included in unrecognized tax
      benefits.





MidAmerican
      Energy’s ultimate parent company files income tax returns in the U.S. federal
      jurisdiction and various state jurisdictions. The U.S. Internal Revenue Service
      has closed its examination of the parent company’s income tax returns through
      2003, including components related to MidAmerican Energy. In addition, open
      tax
      years related to a number of state jurisdictions remain subject to examination.
      During the six-month period ended June 30, 2007, there were no material
      changes to the liability for uncertain tax positions.





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial**Liabilities - 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. SFAS No. 159 is
      effective for fiscal years beginning after November 15, 2007. MidAmerican
      Energy and MidAmerican Funding are currently evaluating the impact of adopting
      SFAS No. 159 on their respective consolidated financial position and
      results of operations.





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. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. MidAmerican Energy and MidAmerican Funding are currently evaluating
      the
      impact of adopting SFAS No. 157 on their respective consolidated financial
      position and results of operations.








**(3)**
            **Risk
                Management**





MidAmerican
      Energy is exposed to loss of net income, cash flows and asset values due to
      market risk, including: 1) changes in the market price of gas, electricity
      and fuel used in its regulated and nonregulated businesses, 2) variations
      in the severity of weather conditions from normal, and 3) changes in
      interest rates. To manage these exposures, MidAmerican Energy enters into
      various financial derivative instruments, including futures, swaps, options
      and
      forward physical contracts. Through the functioning of a risk oversight
      committee, senior management provides the overall direction, structure, conduct
      and control of MidAmerican Energy’s risk management activities, including
      authorization and communication of risk management policies and procedures,
      the
      use of financial derivative instruments, strategic hedging program guidelines,
      appropriate market and credit risk limits, and appropriate systems for
      recording, monitoring and reporting the results of transactional and risk
      management activities.




10




The
      following table summarizes the various derivative mark-to-market positions
      included in the Consolidated Balance Sheet as of June 30, 2007 (in
      millions):





AccumulatedRegulatory
            
            
            OtherDerivative
                  Net Assets (Liabilities)
            
            
            Net
                Assets
            
            
            ComprehensiveAssets
            
            
            Liabilities
            
            
            Net
            
            
            (Liabilities)
            
            
            (Income)
                  Loss (1)Regulated
                electric
            
            $
            17
            
            
            $
            (8
            )
            
            $
            9
            
            
            $
            (9
            )
            
            $
            -Regulated
                gas
            
            
            1
            
            
            
            (8
            )
            
            
            (7
            )
            
            
            7
            
            
            
            -Nonregulated
            
            
            17
            
            
            
            (18
            )
            
            
            (1
            )
            
            
            -
            
            
            
            3Total
            
            $
            35
            
            
            $
            (34
            )
            
            $
            1
            
            
            $
            (2
            )
            
            $
            3Current
            
            $
            28
            
            
            $
            (31
            )
            
            $
            (3
            )Non-current
            
            
            7
            
            
            
            (3
            )
            
            
            4Total
            
            $
            35
            
            
            $
            (34
            )
            
            $
            1




(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, 2006 (in
      millions):





AccumulatedRegulatory
            
            
            OtherDerivative
                  Net Assets (Liabilities)
            
            
            Net
                Assets
            
            
            ComprehensiveAssets
            
            
            Liabilities
            
            
            Net
            
            
            (Liabilities)
            
            
            (Income)
                  Loss (1)Regulated
                electric
            
            $
            36
            
            
            $
            (14
            )
            
            $
            22
            
            
            $
            (22
            )
            
            $
            -Regulated
                gas
            
            
            2
            
            
            
            (45
            )
            
            
            (43
            )
            
            
            36
            
            
            
            -Nonregulated
            
            
            35
            
            
            
            (56
            )
            
            
            (21
            )
            
            
            -
            
            
            
            20Total
            
            $
            73
            
            
            $
            (115
            )
            
            $
            (42
            )
            
            $
            14
            
            
            $
            20Current
            
            $
            67
            
            
            $
            (109
            )
            
            $
            (42
            )Non-current
            
            
            6
            
            
            
            (6
            )
            
            
            -Total
            
            $
            73
            
            
            $
            (115
            )
            
            $
            (42
            )




(1) Before
        income
        taxes.




**(4)**
            **Rate
                Matters**





Under
      a
      series of settlement agreements between MidAmerican Energy, the Iowa Office
      of
      Consumer Advocate (“OCA”) and other intervenors approved by the Iowa Utilities
      Board (“IUB”), MidAmerican Energy has agreed not to seek a general increase in
      electric base rates to become effective prior to January 1, 2014, unless
      its Iowa jurisdictional electric return on equity for any year covered by the
      applicable agreement falls below 10%, computed as prescribed in each respective
      agreement. Prior to filing for a general increase in electric rates, MidAmerican
      Energy is required to conduct 30 days of good faith negotiations with the
      signatories to the settlement agreements to attempt to avoid a general increase
      in such rates. As a party to the settlement agreements, the OCA has agreed
      not
      to request or support any decrease in MidAmerican Energy’s Iowa electric base
      rates to become effective prior to January 1, 2014. The settlement
      agreements specifically allow the IUB to approve or order electric rate design
      or cost of service rate changes that could result in changes to rates for
      specific customers as long as such changes do not result in an overall increase
      in revenues for MidAmerican Energy.




11


The
      settlement agreements also each provide that revenues associated with Iowa
      retail electric returns on equity within specified ranges will be shared with
      customers and that the portion assigned to customers will be recorded as a
      regulatory liability. The following table summarizes the ranges of Iowa electric
      returns on equity subject to revenue sharing under each settlement agreement,
      the percent of revenues within those ranges to be assigned to customers, and
      the
      method by which the liability to customers will be settled.





Date
                  Approved
                by
                  the IUB
            
            Years
                Covered
            
            Range
                  of
                Iowa
                  Electric Return on
                Equity
                  Subject
                to
                  Sharing
            
            Customers’
                  Share of Revenues Within Range
            
            Method
                  to be Used to
                Settle
                  Liability to CustomersDecember
                21, 2001
            
            2001
                - 2005
            
            12%
                - 14%
            
            50%
            
            Credits
                against the cost of newgeneration plant in IowaAbove
                14%
            
            83.33%October
                17, 2003
            
            2006
                - 2010
            
            11.75%
                - 13%
            
            40%
            
            Credits
                against the cost of newgeneration plant in Iowa13%
                - 14%
            
            50%Above
                14%
            
            83.3%January
                31, 2005
            
            2011
            
            Same
                as 2006 -2010
            
            Credits
                to customer bills in 2012April
                18, 2006
            
            2012
            
            Same
                as 2006 -2010
            
            Credits
                to customer bills in 2013July
                27, 2007
            
            2013
            
            Same
                as 2006 -2010 (1)
            
            Credits
                against the cost of wind-powered generation projects covered by this
                agreement





(1)
            If
                a
                rate case is filed pursuant to the 10% threshold, as discussed above,
                the
                revenue sharing arrangement for 2013 is changed such that 83.3% of
                revenues associated with Iowa operating income in excess of electric
                returns on equity allowed by the IUB as a result of the rate case
                will be
                shared with customers.





Under
      the
      2007 settlement agreement, effective January 1, 2007, through
      December 31, 2013 (or December 31, 2012, in the event there is a rate
      increase in 2013), MidAmerican Energy has reduced its funding into the Quad
      Cities Station’s decommissioning trusts from the 2006 level of $8 million
      annually to a new level of $2 million annually. The difference will be used
      to reduce electric base rates in 2008 and 2009 for MidAmerican Energy’s
      residential customers in eastern and southern Iowa service territories
      previously served by two of MidAmerican Energy’s predecessor companies. To the
      extent the reduction in funding exceeds the annual amount needed to implement
      these rate reductions, as approved by the IUB, the excess will be used during
      the period 2007 through 2013 (or 2007 through 2012 in the event there is a
      rate
      increase in 2013), to reduce MidAmerican Energy’s investment in Walter Scott,
      Jr. Energy Center Unit No. 4 (“WSEC Unit 4”), formerly Council Bluffs
      Energy Center Unit No. 4.





The
      regulatory liabilities created by the settlement agreements have been and are
      currently recorded as a regulatory charge in depreciation and amortization
      expense when the liability is accrued. As a result of the credits applied to
      generating plant balances when the related plant is placed in service,
      depreciation expense is reduced. On June 1, 2007, WSEC Unit 4 was
      placed in service. Accordingly, the January 1, 2007 balance of the revenue
      sharing liability, plus the related interest accrued in 2007, was applied
      against the cost of WSEC Unit 4 in utility plant in service.





The
      change in the balance of the regulatory liability is summarized as follows
      (in
      millions):





Balance,
                January 1, 2007
            
            $
            259Current
                year revenue sharing
            
            
            25Interest
                costs
            
            
            5Amounts
                applied to utility plant in service
            
            
            (264
            )Balance,
                June 30, 2007
            
            $
            25




12




**(5)**
            **Employee
                Benefit Plans**





MidAmerican
      Energy sponsors a noncontributory defined benefit pension plan covering
      substantially all employees of MidAmerican Energy Holdings 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 MidAmerican Energy Holdings and its
      domestic energy subsidiaries other than PacifiCorp. The components of net
      periodic benefit cost for these plans were as follows (in
      millions):





Three
                Months
            
            
            Six
                MonthsEnded June 30,
            
            
            Ended June 30,2007
            
            
            2006
            
            
            2007
            
            
            2006PensionService
                cost
            
            $
            6
            
            
            $
            6
            
            
            $
            12
            
            
            $
            12Interest
                cost
            
            
            9
            
            
            
            9
            
            
            
            19
            
            
            
            19Expected
                return on plan assets
            
            
            (10
            )
            
            
            (9
            )
            
            
            (20
            )
            
            
            (19
            )Net
                amortization
            
            
            1
            
            
            
            1
            
            
            
            2
            
            
            
            2Net
                periodic benefit cost
            
            $
            6
            
            
            $
            7
            
            
            $
            13
            
            
            $
            14Other
                PostretirementService
                cost
            
            $
            3
            
            
            $
            2
            
            
            $
            4
            
            
            $
            3Interest
                cost
            
            
            5
            
            
            
            3
            
            
            
            9
            
            
            
            7Expected
                return on plan assets
            
            
            (6
            )
            
            
            (2
            )
            
            
            (9
            )
            
            
            (5
            )Net
                amortization
            
            
            1
            
            
            
            1
            
            
            
            1
            
            
            
            2Net
                periodic benefit cost
            
            $
            3
            
            
            $
            4
            
            
            $
            5
            
            
            $
            7





MidAmerican
      Energy expects to contribute $6 million and $12 million in 2007 to its
      pension and other postretirement plans, respectively. As of June 30, 2007,
      $3 million and $7 million of contributions had been made to the
      pension and other postretirement plans, respectively.





**(6)**
            **Segment
                Information**





MidAmerican
      Energy has identified two reportable operating segments: regulated electric
      and
      regulated gas. 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 to other utilities. 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. 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. “Nonregulated and other” in
      the tables below consists principally of nonregulated gas and electric
      activities.




13




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





Three
                Months
            
            
            Six
                MonthsEnded June 30,
            
            
            Ended June 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Segment
                Profit InformationOperating
                revenues:Regulated
                electric
            
            $
            467
            
            
            $
            461
            
            
            $
            947
            
            
            $
            876Regulated
                gas
            
            
            209
            
            
            
            169
            
            
            
            708
            
            
            
            625Nonregulated
                and other
            
            
            293
            
            
            
            130
            
            
            
            550
            
            
            
            300Total
            
            $
            969
            
            
            $
            760
            
            
            $
            2,205
            
            
            $
            1,801Operating
                income:Regulated
                electric
            
            $
            94
            
            
            $
            83
            
            
            $
            189
            
            
            $
            182Regulated
                gas
            
            
            1
            
            
            
            (2
            )
            
            
            42
            
            
            
            30Nonregulated
                and other
            
            
            18
            
            
            
            (2
            )
            
            
            27
            
            
            
            2Total
            
            $
            113
            
            
            $
            79
            
            
            $
            258
            
            
            $
            214Earnings
                on common stock:Regulated
                electric
            
            $
            64
            
            
            $
            50
            
            
            $
            128
            
            
            $
            113Regulated
                gas
            
            
            (1
            )
            
            
            (3
            )
            
            
            22
            
            
            
            17Nonregulated
                and other
            
            
            10
            
            
            
            (2
            )
            
            
            15
            
            
            
            2Total
            
            $
            73
            
            
            $
            45
            
            
            $
            165
            
            
            $
            132





As
                  ofJune 30,
            
            
            December 31,2007
            
            
            2006Segment
                Asset InformationTotal
                assets:Regulated
                electric
            
            $
            5,827
            
            
            $
            5,485Regulated
                gas
            
            
            847
            
            
            
            923Nonregulated
                and other
            
            
            196
            
            
            
            102Total
            
            $
            6,870
            
            
            $
            6,510





14





**(7)**
            **Walter
                Scott, Jr. Energy Center**





WSEC
      Unit
      4, a 790-megawatt (“MW”) (accredited capacity) super-critical-temperature,
      coal-fired generating plant, began commercial operation on June 1, 2007.
      MidAmerican Energy operates the plant and holds an undivided ownership interest
      of 59.66%, or approximately 471 MW, as a tenant in common with the other owners
      of the plant. MidAmerican Energy accounts for, and provided financing for,
      its
      proportional share of the plant. Operating costs of WSEC Unit 4 are assigned
      to
      joint owners based on ownership percentage or energy produced, depending on
      the
      nature of the cost, and MidAmerican Energy’s share of those costs is included in
      operating expenses on the Consolidated Statements of Operations.





In
      conjunction with WSEC Unit 4 being placed in service, certain Consolidated
      Balance Sheet classifications were materially impacted, the most significant
      of
      which was the transfer of $710 million from construction work in progress to
      electric utility plant. During the construction of the WSEC Unit 4, MidAmerican
      Energy was allowed by contract to defer $200 million of billed construction
      costs through the end of the project. The Consolidated Balance Sheet as of
      December 31, 2006, reflects the liability for these deferred payments in
      accounts payable and a $79 million asset representing the other owners’ share of
      the deferred payments in current assets – other. The liability and asset were
      settled in June 2007 with MidAmerican Energy’s payment to the contractor and
      receipt of cash from the other owners for their share of the costs.
      Additionally, as discussed in Note 4, $264 million was transferred from the
      revenue sharing regulatory liability to electric utility plant in accordance
      with the related Iowa regulatory settlement agreements.





**(8)**
            **Long-Term
                Debt**





On
      June 29, 2007, MidAmerican Energy issued $400 million of 5.65% Senior
      Notes due July 15, 2012, and $250 million of 5.95% Senior Notes due
      July 15, 2017. The proceeds are being used by MidAmerican Energy to pay
      construction costs of its interest in WSEC Unit 4 and its wind projects in
      Iowa,
      to repay short-term indebtedness and for general corporate
      purposes.






15




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Board of Managers and Member


MidAmerican
      Funding, LLC


Des
      Moines, Iowa





We
      have
      reviewed the accompanying consolidated balance sheet of MidAmerican Funding,
      LLC
      and subsidiaries (the “Company”) as of June 30, 2007, and the related
      consolidated statements of operations and comprehensive income for the
      three-month and six-month periods ended June 30, 2007 and 2006, and of cash
      flows for the six-month periods ended June 30, 2007 and 2006. 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, 2006, and the related
      consolidated statements of operations, comprehensive income, retained earnings,
      and cash flows for the year then ended (not presented herein); and in our report
      dated February 27, 2007, we expressed an unqualified opinion on those
      consolidated financial statements, which included an explanatory paragraph
      related to the adoption of SFAS No. 158, *Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans*. In our opinion, the
      information set forth in the accompanying consolidated balance sheet as of
      December 31, 2006, 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


July
      31,
      2007




16




**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS (Unaudited)**


(In
      millions)





**As
                  of****June 30,**
            
            
            **December 31,****2007**
            
            
            **2006****ASSETS****Utility
                Plant, Net**Electric
            
            $
            6,965
            
            
            $
            6,366Gas
            
            
            1,055
            
            
            
            1,0318,020
            
            
            
            7,397Accumulated
                depreciation and amortization
            
            
            (3,357
            )
            
            
            (3,261
            )4,663
            
            
            
            4,136Construction
                work in progress
            
            
            465
            
            
            
            8675,128
            
            
            
            5,003**Current
                Assets**Cash
                and cash equivalents
            
            
            394
            
            
            
            9Short-term
                investments
            
            
            29
            
            
            
            15Receivables,
                net
            
            
            420
            
            
            
            391Inventories
            
            
            68
            
            
            
            113Other
            
            
            48
            
            
            
            163959
            
            
            
            691**Investments
                and Nonregulated Property, Net**
            
            
            444
            
            
            
            427**Goodwill**
            
            
            1,270
            
            
            
            1,270**Regulatory
                Assets**
            
            
            244
            
            
            
            273**Other
                Assets**
            
            
            117
            
            
            
            130**Total
                Assets**
            
            $
            8,162
            
            
            $
            7,794**CAPITALIZATION
                AND LIABILITIES****Capitalization**Member’s
                equity
            
            $
            2,674
            
            
            $
            2,513MidAmerican
                Energy preferred securities
            
            
            30
            
            
            
            30Long-term
                debt, excluding current portion
            
            
            3,169
            
            
            
            2,5205,873
            
            
            
            5,063**Current
                Liabilities**Note
                payable to affiliate
            
            
            19
            
            
            
            3Current
                portion of long-term debt
            
            
            -
            
            
            
            2Accounts
                payable
            
            
            282
            
            
            
            493Taxes
                accrued
            
            
            142
            
            
            
            98Interest
                accrued
            
            
            38
            
            
            
            48Other
            
            
            97
            
            
            
            172578
            
            
            
            816**Other
                Liabilities**Deferred
                income taxes
            
            
            460
            
            
            
            468Investment
                tax credits
            
            
            39
            
            
            
            41Asset
                retirement obligations
            
            
            176
            
            
            
            173Regulatory
                liabilities
            
            
            768
            
            
            
            989Other
            
            
            268
            
            
            
            2441,711
            
            
            
            1,915**Total
                Capitalization and Liabilities**
            
            $
            8,162
            
            
            $
            7,794





The
      accompanying notes are an integral part of these financial
      statements




17




**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS
      (Unaudited)**


(In
      millions)








**Three
                Months**
            
            
            **Six
                Months****Ended June 30,**
            
            
            **Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Operating
                Revenues**Regulated
                electric
            
            $
            467
            
            
            $
            461
            
            
            $
            947
            
            
            $
            876Regulated
                gas
            
            
            209
            
            
            
            169
            
            
            
            708
            
            
            
            625Nonregulated
            
            
            295
            
            
            
            131
            
            
            
            553
            
            
            
            302971
            
            
            
            761
            
            
            
            2,208
            
            
            
            1,803**Operating
                Expenses**Regulated:Cost
                of fuel, energy and capacity
            
            
            176
            
            
            
            176
            
            
            
            373
            
            
            
            318Cost
                of gas sold
            
            
            161
            
            
            
            126
            
            
            
            574
            
            
            
            506Other
                operating expenses
            
            
            102
            
            
            
            96
            
            
            
            200
            
            
            
            187Maintenance
            
            
            42
            
            
            
            40
            
            
            
            85
            
            
            
            71Depreciation
                and amortization
            
            
            76
            
            
            
            87
            
            
            
            145
            
            
            
            161Property
                and other taxes
            
            
            25
            
            
            
            25
            
            
            
            50
            
            
            
            49582
            
            
            
            550
            
            
            
            1,427
            
            
            
            1,292Nonregulated:Cost
                of sales
            
            
            270
            
            
            
            128
            
            
            
            512
            
            
            
            289Other
            
            
            6
            
            
            
            4
            
            
            
            11
            
            
            
            9276
            
            
            
            132
            
            
            
            523
            
            
            
            298Total
                operating expenses
            
            
            858
            
            
            
            682
            
            
            
            1,950
            
            
            
            1,590**Operating
                Income**
            
            
            113
            
            
            
            79
            
            
            
            258
            
            
            
            213**Non-Operating
                Income**Interest
                and dividend income
            
            
            1
            
            
            
            2
            
            
            
            2
            
            
            
            5Allowance
                for equity funds
            
            
            11
            
            
            
            8
            
            
            
            22
            
            
            
            15Other
                income
            
            
            3
            
            
            
            34
            
            
            
            5
            
            
            
            49Other
                expense
            
            
            (1
            )
            
            
            (6
            )
            
            
            (2
            )
            
            
            (6
            )14
            
            
            
            38
            
            
            
            27
            
            
            
            63**Fixed
                Charges**Interest
                on long-term debt
            
            
            37
            
            
            
            35
            
            
            
            75
            
            
            
            71Other
                interest expense
            
            
            4
            
            
            
            3
            
            
            
            8
            
            
            
            6Preferred
                dividends of subsidiaries
            
            
            1
            
            
            
            1
            
            
            
            1
            
            
            
            1Allowance
                for borrowed funds
            
            
            (5
            )
            
            
            (4
            )
            
            
            (11
            )
            
            
            (7
            )37
            
            
            
            35
            
            
            
            73
            
            
            
            71**Income
                Before Income Taxes**
            
            
            90
            
            
            
            82
            
            
            
            212
            
            
            
            205**Income
                Taxes**
            
            
            24
            
            
            
            25
            
            
            
            61
            
            
            
            61**Net
                Income**
            
            $
            66
            
            
            $
            57
            
            
            $
            151
            
            
            $
            144




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




18




**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE INCOME(Unaudited)**


(In
      millions)





**Three
                Months**
            
            
            **Six
                Months****Ended June 30,**
            
            
            **Ended June 30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****Net
                Income**
            
            $
            66
            
            
            $
            57
            
            
            $
            151
            
            
            $
            144**Other
                Comprehensive Income (Loss)**Unrealized
                gains on available-for-sale securities:Unrealized
                gains during period-Before
                income taxes
            
            
            -
            
            
            
            32
            
            
            
            -
            
            
            
            32Income
                tax expense
            
            
            -
            
            
            
            (11
            )
            
            
            -
            
            
            
            (11
            )-
            
            
            
            21
            
            
            
            -
            
            
            
            21Less realized gains reflected in net incomeduring period
                -Before
                income taxes
            
            
            -
            
            
            
            32
            
            
            
            -
            
            
            
            32Income
                tax expense
            
            
            -
            
            
            
            (11
            )
            
            
            -
            
            
            
            (11
            )-
            
            
            
            21
            
            
            
            -
            
            
            
            21Net
                unrealized gains
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Unrealized
                gains (losses) on cash flow hedges:Unrealized
                gains (losses) during period-Before
                income taxes
            
            
            (11
            )
            
            
            -
            
            
            
            17
            
            
            
            -Income
                tax (expense) benefit
            
            
            4
            
            
            
            -
            
            
            
            (7
            )
            
            
            -(7
            )
            
            
            -
            
            
            
            10
            
            
            
            -Less
                realized gains reflected in net
                income        during
                period-Before
                income taxes
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            -Income
                tax expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -1
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
                unrealized gains (losses)
            
            
            (8
            )
            
            
            -
            
            
            
            10
            
            
            
            -Other
                comprehensive income (loss)
            
            
            (8
            )
            
            
            -
            
            
            
            10
            
            
            
            -**Comprehensive
                Income**
            
            $
            58
            
            
            $
            57
            
            
            $
            161
            
            
            $
            144








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





19




**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS
      (Unaudited)**


(In
      millions)





**Six
                Months****Ended
                  June 30,****2007**
            
            
            **2006****Net
                Cash Flows From Operating Activities**Net
                income
            
            $
            151
            
            
            $
            144Adjustments
                to reconcile net income to net cash provided:Depreciation
                and amortization
            
            
            146
            
            
            
            162Deferred
                income taxes and investment tax credit, net
            
            
            (3
            )
            
            
            1Amortization
                of other assets and liabilities
            
            
            13
            
            
            
            9Gain
                on sale of securities, assets and other investments
            
            
            -
            
            
            
            (35
            )Impact
                of changes in working capital -Receivables,
                net
            
            
            (30
            )
            
            
            190Inventories
            
            
            45
            
            
            
            20Accounts
                payable
            
            
            28
            
            
            
            (168
            )Taxes
                accrued
            
            
            63
            
            
            
            28Other
                current assets and liabilities
            
            
            (7
            )
            
            
            17Other,
                net
            
            
            (11
            )
            
            
            (1
            )Net
                cash provided by operating activities
            
            
            395
            
            
            
            367**Net
                Cash Flows From Investing Activities**Utility
                construction expenditures
            
            
            (656
            )
            
            
            (323
            )Purchases
                of available-for-sale securities
            
            
            (102
            )
            
            
            (468
            )Proceeds
                from sales of available-for-sale securities
            
            
            82
            
            
            
            515Proceeds
                from sales of assets and other investments
            
            
            -
            
            
            
            9Other,
                net
            
            
            5
            
            
            
            4Net
                cash used in investing activities
            
            
            (671
            )
            
            
            (263
            )**Net
                Cash Flows From Financing Activities**Issuance
                of long-term debt, net of issuance cost
            
            
            647
            
            
            
            -Retirement
                of long-term debt, including reacquisition cost
            
            
            (1
            )
            
            
            (160
            )Net
                increase (decrease) in note payable to affiliate
            
            
            15
            
            
            
            (15
            )Net
                increase in notes payable
            
            
            -
            
            
            
            10Other
            
            
            -
            
            
            
            (6
            )Net
                cash provided by (used in) financing activities
            
            
            661
            
            
            
            (171
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            385
            
            
            
            (67
            )**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            9
            
            
            
            71**Cash
                and Cash Equivalents at End of Period**
            
            $
            394
            
            
            $
            4








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





20




**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 as its sole member. MidAmerican Energy
      Holdings Company 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 MidAmerican Energy Holdings Company
      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, a public utility with electric and natural gas
      operations. MHC’s nonregulated, direct, wholly owned subsidiaries include
      InterCoast Capital Company, Midwest Capital Group, Inc., MidAmerican Services
      Company and MEC Construction Services Co.





The
      accompanying unaudited Consolidated Financial Statements have been prepared by
      MidAmerican Funding in accordance with accounting principles generally accepted
      in the United States of America (“GAAP”) and the rules and regulations of the
      Securities and Exchange Commission for interim financial statements.
      Accordingly, they do not include all of the information and footnotes required
      for annual financial statements. In the opinion of MidAmerican Funding, all
      adjustments, consisting of normal recurring adjustments, have been made to
      present fairly its financial position, results of operations and changes in
      cash
      flows for the periods presented. Certain amounts in the unaudited Consolidated
      Statement of Operations for the three months and six months ended June 30,
      2006, have been reclassified to conform to the 2007 presentation. Such
      reclassifications did not impact previously reported operating income, net
      income or retained earnings. Although MidAmerican Funding believes that the
      disclosures contained herein are adequate to make the information presented
      not
      misleading, it is suggested that these financial statements be read in
      conjunction with the Consolidated Financial Statements and the notes thereto
      included in MidAmerican Funding’s latest Annual Report on
      Form 10-K.





The
      accompanying unaudited Consolidated Financial Statements include the accounts
      of
      MidAmerican Funding and its subsidiaries in which it holds a controlling
      financial interest. All significant 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, 2006, describes the most significant
      accounting estimates and policies used in the preparation of the Consolidated
      Financial Statements. There have been no significant changes in MidAmerican
      Funding’s assumptions regarding significant accounting policies during the first
      six months of 2007, except as described in Note 2.





**(2)**
            **New
                Accounting Pronouncements**





In
      July
      2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
      interpretation of FASB Statement
      No. 109”**(“FIN 48”)*.* MidAmerican Funding
      adopted the provisions of FIN 48 effective January 1, 2007. Under
      FIN 48, tax benefits are recognized only for tax positions that are more
      likely than not to be sustained upon examination by tax authorities. The amount
      recognized is measured as the largest amount of benefit that is greater than
      50%
      likely to be realized upon ultimate settlement. Unrecognized tax benefits are
      tax benefits claimed in MidAmerican Funding’s tax returns that do not meet these
      recognition and measurement standards.




21




As
      of
      January 1, 2007, MidAmerican Funding had $33 million of unrecognized
      tax benefits. Of this amount, MidAmerican Funding recognized a net increase
      in
      the liability for unrecognized tax benefits of $16 million as a cumulative
      effect of adopting FIN 48, which was offset by reductions in beginning
      retained earnings of $2 million and deferred income tax liabilities of
      $13 million and an increase in regulatory assets of $1 million in the
      Consolidated Balance Sheet. The remaining $17 million had been previously
      accrued under Statement of Financial Accounting Standards (“SFAS”) No. 5,
“Accounting for Contingencies,” or SFAS No. 109, “Accounting for Income
      Taxes.” The entire $33 million of unrecognized tax benefits as of January
      1, 2007, is included in other liabilities – other in the Consolidated Balance
      Sheet.





Included
      in the $33 million is $19 million of net unrecognized tax benefits
      that, if recognized, would have an impact on the effective tax rate. The
      remaining unrecognized tax benefits relate to tax positions for which ultimate
      deductibility is highly certain but for which there is uncertainty as to the
      timing of such deductibility. Recognition of these tax benefits, other than
      applicable interest and penalties, would not affect MidAmerican Funding’s
      effective tax rate. MidAmerican Funding recognizes interest and penalties
      accrued related to unrecognized tax benefits in income tax expense. As of
      January 1, 2007, MidAmerican Funding had $5 million accrued for the
      payment of interest, which is included in unrecognized tax
      benefits.





MidAmerican
      Funding’s ultimate parent company files income tax returns in the U.S. federal
      jurisdiction and various state jurisdictions. The U.S. Internal Revenue Service
      has closed its examination of the parent company’s income tax returns through
      2003, including components related to MidAmerican Funding. In addition, open
      tax
      years related to a number of state jurisdictions remain subject to examination.
      During the six-month period ended June 30, 2007, there were no material
      changes to the liability for uncertain tax positions.





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)**
            **Rate
                Matters**





Refer
      to
      Note 4 of MidAmerican Energy’s Notes to Consolidated Financial Statements
      for information regarding MidAmerican Funding’s rate matters.





**(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)**
            **Segment
                Information**





MidAmerican
      Funding has identified two reportable operating segments: regulated electric
      and
      regulated gas. 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 to other utilities. 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. 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. “Nonregulated and other” in
      the tables below consists principally of nonregulated gas and electric
      activities and parent company interest expense.




22




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





Three
                Months
            
            
            Six
                MonthsEnded June 30,
            
            
            Ended June 30,2007
            
            
            2006
            
            
            2007
            
            
            2006Segment
                Profit InformationOperating
                revenues:Regulated
                electric
            
            $
            467
            
            
            $
            461
            
            
            $
            947
            
            
            $
            876Regulated
                gas
            
            
            209
            
            
            
            169
            
            
            
            708
            
            
            
            625Nonregulated
                and other
            
            
            295
            
            
            
            131
            
            
            
            553
            
            
            
            302Total
            
            $
            971
            
            
            $
            761
            
            
            $
            2,208
            
            
            $
            1,803Operating
                income:Regulated
                electric
            
            $
            94
            
            
            $
            83
            
            
            $
            189
            
            
            $
            182Regulated
                gas
            
            
            1
            
            
            
            (2
            )
            
            
            42
            
            
            
            30Nonregulated
                and other
            
            
            18
            
            
            
            (2
            )
            
            
            27
            
            
            
            1Total
            
            $
            113
            
            
            $
            79
            
            
            $
            258
            
            
            $
            213Net
                income:Regulated
                electric
            
            $
            64
            
            
            $
            50
            
            
            $
            128
            
            
            $
            113Regulated
                gas
            
            
            (1
            )
            
            
            (3
            )
            
            
            22
            
            
            
            17Nonregulated
                and other
            
            
            3
            
            
            
            10
            
            
            
            1
            
            
            
            14Total
            
            $
            66
            
            
            $
            57
            
            
            $
            151
            
            
            $
            144





As
                  ofJune 30,
            
            
            December 31,2007
            
            
            2006Segment
                Asset InformationTotal
                assets (a):Regulated
                electric
            
            $
            7,017
            
            
            $
            6,676Regulated
                gas
            
            
            926
            
            
            
            1,002Nonregulated
                and other
            
            
            219
            
            
            
            116Total
            
            $
            8,162
            
            
            $
            7,794




(a)    Total
      assets by operating segment reflect the assignment of goodwill to applicable
      reporting units in accordance with GAAP.




**(7)**
            **Walter
                Scott, Jr. Energy Center**





Refer
      to
      Note 7 of MidAmerican Energy’s Notes to Consolidated Financial Statements
      for information regarding the Walter Scott, Jr. Energy Center.








**(8)**
            **Long-Term
                Debt**





Refer
      to
      Note 8 of MidAmerican Energy’s Notes to Consolidated Financial Statements
      for information regarding MidAmerican Funding’s long-term debt.




23




**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 and business conditions in the United States as a whole
                and in
                the midwestern United States and MidAmerican Energy’s service territory in
                particular;





·
            the
                financial condition and creditworthiness of their significant customers
                and suppliers;





·
            governmental,
                statutory, legislative, regulatory or administrative initiatives,
                proceedings or decisions, including those relating to the Energy
                Policy
                Act of 2005;





·
            changes
                in, and compliance with, environmental laws, regulations, decisions
                and
                policies that could increase operating and capital improvement costs
                or
                affect plant output and/or delay plant
                construction;





·
            weather
                effects on costs, sales and
                revenues;





·
            changes
                in expected customer growth or usage of electricity or
                gas;





·
            economic
                or industry trends that could impact electricity or gas
                usage;





·
            increased
                competition in the power generation, electric or gas
                industries;





·
            fuel,
                fuel transportation and power costs and
                availability;





·
            changes
                in business strategy, development plans or customer or vendor
                relationships;





·
            availability,
                term and deployment of capital;






24




·
            availability
                of qualified personnel;





·
            unscheduled
                generation outages or repairs;





·
            risks
                relating to nuclear generation;





·
            financial
                or regulatory accounting principles or policies imposed by the Public
                Company Accounting Oversight Board, the Financial Accounting Standards
                Board (“FASB”), the Securities and Exchange Commission (“SEC”), the
                Federal Energy Regulatory Commission (“FERC”) and similar entities with
                regulatory oversight;





·
            other
                risks or unforeseen events, including 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 SEC filings or in
                other publicly disseminated written
                documents.





Further
      details of the potential risks and uncertainties affecting MidAmerican Energy
      or
      MidAmerican Funding 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.





**Executive
      Summary**





MidAmerican
      Energy’s earnings on common stock improved $28 million to $73 million
      for the second quarter of 2007 compared to $45 million for the second
      quarter of 2006. MidAmerican Funding’s net income increased $9 million to
      $66 million for the second quarter of 2007 compared to $57 million for
      the second quarter of 2006.





MidAmerican
      Energy’s earnings on common stock improved $33 million to $165 million
      for the first six months of 2007 compared to $132 million for the first six
      months of 2006. MidAmerican Funding’s net income increased $7 million to
      $151 million for the first six months of 2007 compared to $144 million
      for the first six months of 2006.





The
      following significant events and changes, as discussed in more detail herein,
      highlight some of the factors that had an effect on MidAmerican Energy’s and
      MidAmerican Funding’s financial results:





·
            MidAmerican
                Energy’s second quarter 2007 regulated electric gross margin increased
                $6 million compared to 2006 due principally to increases in electric
                retail sales volumes. MidAmerican Energy’s nonregulated gross margin
                increased $21 million compared to the second quarter of 2006 due to a
                substantial increase in nonregulated electric sales volumes and improved
                margins per unit.




·
            In
                February 2007, MidAmerican Energy’s electric distribution and transmission
                systems sustained extensive damage from several winter storms. Capital
                expenditures for restoration of facilities damaged by the storms
                totaled
                approximately $28 million. Additionally, MidAmerican Energy incurred
                $11 million of maintenance expense in the first quarter for storm
                restoration.




·
            On
                June 1, 2007, Walter Scott, Jr. Energy Center Unit No. 4 (“WSEC
                Unit 4”), formerly Council Bluffs Energy Center Unit No. 4 began
                commercial operation. The unit is a 790-megawatt (“MW”) (accredited
                capacity) super-critical-temperature, coal-fired generation plant
                operated
                by MidAmerican Energy. MidAmerican Energy owns 59.66% of the plant
                as a
                tenant in common with other owners of the plant and has invested
                $830 million in the plant.




·
            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 in Iowa. In general, the agreement
                (1)
                extends the conditional freeze on MidAmerican Energy’s Iowa electric base
                rates through December 31, 2013, except under specified
                circumstances; (2) continues the current revenue sharing arrangement
                in
                2013, with any revenue sharing liability incurred being applied against
                the cost of future wind-powered generation plant; and (3) provides
                for a
                reduction in decommissioning funding to be used to reduce designated
                Iowa
                residential electric base rates and the cost of specified future
                generating plant.




25




Following
      is a discussion of various factors that affected earnings for the periods
      presented on the Consolidated Statements of Operations. Explanations include
      management’s best estimate of the impact of weather, customer growth and other
      factors. MidAmerican Energy’s and MidAmerican Funding’s future results could
      differ significantly from historical results.





**Results
      of Operations for the Three Months Ended June 30, 2007 and
      2006**





Regulated
      Electric Gross Margin





Three
                MonthsEnded June 30,2007
            
            
            2006Gross
                margin (in millions):Operating
                revenues
            
            $
            467
            
            
            $
            461Less
                cost of fuel, energy and capacity
            
            
            176
            
            
            
            176Electric
                gross margin
            
            $
            291
            
            
            $
            285Sales
                (GWh):Retail
            
            
            5,082
            
            
            
            4,803Wholesale
            
            
            2,898
            
            
            
            3,236Total
            
            
            7,980
            
            
            
            8,039





Electric
      gross margin for the second quarter of 2007 increased $6 million compared
      to the second quarter of 2006 primarily due to a $4 million increase in
      gross margin on retail sales resulting from a 5.8% increase in related sales
      volumes. Electricity usage factors not dependent on weather, such as home size,
      technology changes and multiple appliances, the effect of more extreme
      temperature conditions, and an increase in the average number of retail
      customers contributed to the improvement in electric retail gross margin. An
      increase in fuel costs related to retail electric sales partially offset the
      effect of higher retail sales volumes due in part to an increase in the portion
      of energy requirements met with higher cost generation resources as a result
      of
      plant availability.





Sales
      of
      energy to other utilities, municipalities and marketers inside and outside
      of
      MidAmerican Energy’s balancing authority area are classified as wholesale. Gross
      margin on wholesale sales improved by $2 million compared to the second quarter
      of 2006. An increase in average electric wholesale margins per megawatt hour
      sold due to regional wholesale market opportunities improved electric wholesale
      gross margin by $11 million. Wholesale sales volumes decreased 10.4%
      resulting in a $9 million decrease in wholesale gross margin compared to
      the second quarter of 2006 due to a greater portion of MidAmerican Energy-owned
      base load generation being required to meet retail demand and a higher market
      cost for wholesale purchased energy to supply wholesale sales.




26




Regulated
      Gas Gross Margin





Three
                MonthsEnded
                  June 30,2007
            
            
            2006Gross
                margin (in millions):Operating
                revenues
            
            $
            209
            
            
            $
            169Less
                cost of gas sold
            
            
            161
            
            
            
            126Gas
                gross margin
            
            $
            48
            
            
            $
            43Sales
                (000’s Dths):Retail
            
            
            10,953
            
            
            
            8,547Wholesale
            
            
            10,759
            
            
            
            10,305Total
            
            
            21,712
            
            
            
            18,852





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. Regulated gas
      revenues and cost of gas sold increased $22 million due to improved sales
      volumes for the second quarter of 2007. Compared to the second quarter of 2006,
      MidAmerican Energy’s average per-unit cost of gas sold increased 11.4%,
      resulting in a $13 million increase in gas revenues and cost of gas sold
      for the second quarter of 2007.





The
      following table summarizes the variance in gas operating revenues based on
      the
      change in gas cost recoveries and margin components (in millions):





Three
                MonthsEnded
                June 30,2007
                  vs. 2006Change
                in cost of gas sold:Average
                cost per unit
            
            $
            13Sales
                volumes
            
            
            22Total
                change in cost of gas sold
            
            
            35Change
                in margin:Other
                usage factors
            
            
            2Weather
            
            
            1Energy
                efficiency cost recovery
            
            
            1Other
            
            
            1Total
                revenue
                variance
            
            $
            40





Other
      usage factors includes influences on customer usage other than weather, such
      as
      technology, energy efficiency and economics. The increase in gas gross margin
      due to weather was the result of colder temperature conditions in the second
      quarter of 2007 compared to the same quarter in 2006. MidAmerican Energy’s
      average number of gas retail customers increased 1.1% compared to the second
      quarter of 2006. 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 increased $6 million for the second quarter of 2007
      compared to the second quarter of 2006 due primarily to increases of
      $2 million in energy efficiency program costs and $2 million in gas
      distribution costs. Changes in energy efficiency program costs are substantially
      matched by changes in related electric and gas revenues.




27




Maintenance
      expenses for the second quarter of 2007 increased $2 million compared to
      the second quarter of 2006 due to an increase in electric distribution
      maintenance costs.





Depreciation
      and amortization expense for the second quarter of 2007 decreased
      $11 million compared to the second quarter of 2006 due to a
      $15 million decrease in regulatory expense related to a revenue sharing
      arrangement in Iowa as a result of lower Iowa electric equity returns. Refer
      to
      the “Utility Regulatory Matters” section for an explanation of the revenue
      sharing arrangement. Partially offsetting this decrease was higher utility
      plant
      depreciation expense due to additional plant in service, including wind-powered
      generation plant placed in service in the fourth quarter of 2006 and WSEC Unit
      4
      on June 1, 2007.





Nonregulated
      Gross Margin





Three
                MonthsEnded
                  June 30,2007
            
            
            2006(In
                millions)MidAmerican
                Energy -Nonregulated
                operating revenues
            
            $
            293
            
            
            $
            130Less
                nonregulated cost of sales
            
            
            269
            
            
            
            127Nonregulated
                gross margin
            
            $
            24
            
            
            $
            3MidAmerican
                Funding Consolidated -Nonregulated
                operating revenues
            
            $
            295
            
            
            $
            131Less
                nonregulated cost of sales
            
            
            270
            
            
            
            128Nonregulated
                gross margin
            
            $
            25
            
            
            $
            3





Nonregulated
      revenues, cost of sales and gross margin for the second quarter of 2007
      increased due primarily to an increase in nonregulated electric sales volumes
      driven by a greater number of commercial and industrial customers being served
      by MidAmerican Energy in the Illinois market. Higher average prices, costs
      and
      margin related to nonregulated electric sales also contributed to the increases.
      These increases were partially offset by the impact of a decrease in
      nonregulated gas sales volumes and per-unit averages.





Non-Operating
      Income





MidAmerican
      Energy -





MidAmerican
      Energy’s non-operating income for the second quarter of 2007 increased
      $3 million compared to the second quarter of 2006 due to a $3 million
      increase in allowance for equity funds as a result of the increase in
      construction work in progress. As a regulated public utility, MidAmerican Energy
      is allowed to capitalize, and record as income, a cost of construction for
      equity funds used, based on guidelines set forth by the FERC. Interest
      income decreased primarily due to a reduction in temporary cash investments
      during the second quarter of 2007 compared to the second quarter of
      2006.




28




MidAmerican
      Funding -





MidAmerican
      Funding’s non-operating income decreased $24 million for the second quarter
      of 2007 compared to the second quarter of 2006. In addition to the MidAmerican
      Energy items discussed above, MidAmerican Funding’s other
      income for the second quarter of 2006 includes $28 million of pre-tax gains
      from sales of MidAmerican Funding’s shares of common stock of an electronic
      energy and metals trading exchange and a $4 million pre-tax gain on
      MidAmerican Funding’s remaining shares of that common stock, which it donated to
      a charitable foundation. Other expense for the second quarter of 2006 reflects
      $4 million of expense for the donation of the shares.





Fixed
      Charges





The
      $3 million increase in MidAmerican Energy’s interest on long-term debt was
      primarily due to the issuance of $350 million of long-term debt in October
      2006, offset partially by maturities of higher interest rate debt in
      2006.





Income
      Taxes





MidAmerican
      Energy -





Federal
      law currently provides for federal production tax credits for energy produced
      by
      renewable electricity generation facilities, including wind-powered generation,
      for ten years after the in-service date. MidAmerican Energy’s income taxes for
      the second quarter of 2007 include $2 million of additional production tax
      credits compared to the second quarter of 2006 due to additional wind-powered
      generation.





State
      utility rate regulation in Iowa requires that the tax effect of certain timing
      differences be flowed through immediately to customers. Therefore, amounts
      that
      would otherwise have been recognized in income tax expense have been included
      as
      changes in regulatory assets. This flow-through treatment of such timing
      differences impacts the effective tax rates from year to year.





**Results
      of Operations for the Six Months Ended June 30, 2007 and
      2006**





Regulated
      Electric Gross Margin





Six
                MonthsEnded June 30,2007
            
            
            2006Gross
                margin (in millions):Operating
                revenues
            
            $
            947
            
            
            $
            876Less
                cost of fuel, energy and capacity
            
            
            373
            
            
            
            318Electric
                gross margin
            
            $
            574
            
            
            $
            558Sales
                (GWh):Retail
            
            
            10,056
            
            
            
            9,596Wholesale
            
            
            6,392
            
            
            
            5,739Total
            
            
            16,448
            
            
            
            15,335





Electric
      gross margin for the first six months of 2007 increased $16 million
      compared to the first six months of 2006. Gross margin on retail sales increased
      $7 million as a result of an increase in related sales volumes partially
      offset by higher related fuel costs. Additionally, gross margin on wholesale
      sales increased $9 million as a result of an increase in related sales
      volumes partially offset by a lower margin per megawatt hour sold.





Gross
      margin on electric retail sales increased $7 million, with electric retail
      sales volumes increasing 4.8% compared to the first six months of 2006. The
      effect of more extreme temperature conditions during the first six months of
      2007 compared to the first six months of 2006, an increase in the average number
      of retail customers, and other retail usage factors, such as home size,
      technology changes and multiple appliances, contributed $16 million to the
      improvement in electric retail gross margin. An increase in fuel costs related
      to Iowa retail electric sales reduced electric retail gross margin by
      $14 million compared to the first six months of 2006 due in part to an
      increase in the portion of energy requirements met with higher cost generation
      resources. Recoveries of energy efficiency program costs increased electric
      retail gross margin by $4 million compared to the first six months of 2006.
      Changes in revenues from the recovery of energy efficiency program costs are
      substantially matched with corresponding changes in other operating
      expenses.




29




Sales
      of
      energy to other utilities, municipalities and marketers inside and outside
      of
      MidAmerican Energy’s balancing authority area are classified as wholesale. An
      increased availability of MidAmerican Energy-owned base load generation, in
      part
      due to the effect of newly added wind-powered generation to supply retail
      customers, and greater regional wholesale market opportunities contributed
      to an
      11.4% increase in wholesale sales volumes during the first six months of 2007
      compared to the first six months of 2006, resulting in an $11 million
      increase in wholesale gross margin. A decrease in the average electric wholesale
      margins per megawatt hour sold due to an increase in the cost of internal
      generation and purchases of external energy reduced electric wholesale gross
      margin by $2 million compared to the first six months of 2006.





Regulated
      Gas Gross Margin





Six
                MonthsEnded
                  June 30,2007
            
            
            2006Gross
                margin (in millions):Operating
                revenues
            
            $
            708
            
            
            $
            625Less
                cost of gas sold
            
            
            574
            
            
            
            506Gas
                gross margin
            
            $
            134
            
            
            $
            119Sales
                (000’s Dths):Retail
            
            
            47,564
            
            
            
            39,943Wholesale
            
            
            23,670
            
            
            
            23,317Total
            
            
            71,234
            
            
            
            63,260





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. Regulated gas
      revenues and cost of gas sold increased $68 million due to improved sales
      volumes for the first six months of 2007. Compared to the first six months
      of
      2006, MidAmerican Energy’s average per-unit cost of gas sold was
      unchanged.




30




The
      following table summarizes the variance in gas operating revenues based on
      the
      change in gas cost recoveries and margin components (in millions):





Six
                MonthsEnded
                June 30,2007
                  vs. 2006Change
                in cost of gas sold:Average
                cost per unit
            
            $
            -Sales
                volumes
            
            
            68Total
                change in cost of gas sold
            
            
            68Change
                in margin:Weather
            
            
            8Energy
                efficiency cost recovery
            
            
            3Other
                usage factors
            
            
            2Customer
                growth
            
            
            1Other
            
            
            1Total
                revenue
                variance
            
            $
            83





The
      increase in gas gross margin due to weather was primarily the result of colder
      temperature conditions in the first quarter of 2007 compared to the same period
      in 2006. MidAmerican Energy’s average number of gas retail customers increased
      1.1% compared to the first six months of 2006. 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 increased $13 million for the first six months of 2007
      compared to the first six months of 2006 due primarily to a $7 million
      increase in energy efficiency program costs. Changes in energy efficiency
      program costs are substantially matched by changes in related electric and
      gas
      revenues. Additionally, nuclear generation operation costs increased
      $2 million compared to the first six months of 2006, while health care
      benefits, gas distribution, transmission, steam-powered generation and electric
      distribution costs each increased $1 million. These increases were partially
      offset by a $2 million decrease in pensions and postretirement costs compared
      to
      the second quarter of 2006.





Maintenance
      expenses for the first six months of 2007 increased $14 million compared to
      the first six months of 2006 due primarily to $11 million of costs incurred
      for restoration of facilities damaged by winter storms in February 2007.
      Additionally, other power generation costs, including wind-powered generation,
      increased $2 million.





Depreciation
      and amortization expense for the first six months of 2007 decreased
      $16 million compared to the first six months of 2006 due to a
      $21 million decrease in regulatory expense related to a revenue sharing
      arrangement in Iowa as a result of lower Iowa electric equity returns. Refer
      to
      the “Utility Regulatory Matters” section for an explanation of the revenue
      sharing arrangement. Partially offsetting this decrease was higher utility
      plant
      depreciation expense due to additional plant in service, including wind-powered
      generation plant placed in service in the fourth quarter of 2006 and WSEC Unit
      4
      on June 1, 2007.




31




Nonregulated
      Gross Margin





Six
                MonthsEnded
                  June 30,2007
            
            
            2006(In
                millions)MidAmerican
                Energy -Nonregulated
                operating revenues
            
            $
            550
            
            
            $
            300Less
                nonregulated cost of sales
            
            
            511
            
            
            
            288Nonregulated
                gross margin
            
            $
            39
            
            
            $
            12MidAmerican
                Funding Consolidated -Nonregulated
                operating revenues
            
            $
            553
            
            
            $
            302Less
                nonregulated cost of sales
            
            
            512
            
            
            
            289Nonregulated
                gross margin
            
            $
            41
            
            
            $
            13





Nonregulated
      revenues, cost of sales and gross margin for the first six months of 2007
      increased due primarily to an increase in nonregulated electric sales volumes
      driven by a greater number of commercial and industrial customers being served
      by MidAmerican Energy in the Illinois market. Higher average prices, costs
      and
      margin related to nonregulated electric sales also contributed to the increases.
      These increases were partially offset by the impact of a decrease in
      nonregulated gas sales volumes and per-unit averages.





Nonregulated
      Other Operating Expenses





MidAmerican
      Energy’s nonregulated other operating expenses for the first six months of 2007
      increased $2 million compared to the first six months of 2006 due principally
      to
      commissions on nonregulated electric sales.





Non-Operating
      Income





MidAmerican
      Energy -





MidAmerican
      Energy’s non-operating income for the first six months of 2007 increased
      $5 million compared to the first six months of 2006 due to a
      $7 million increase in allowance for equity funds as a result of the
      increase in construction work in progress. As a regulated public utility,
      MidAmerican Energy is allowed to capitalize, and record as income, a cost of
      construction for equity funds used, based on guidelines set forth by the FERC.
      Interest income decreased $3 million primarily due to a decrease in temporary
      cash investments during the first six months of 2007 compared to the first
      six
      months of 2006.





MidAmerican
      Funding -





MidAmerican
      Funding’s non-operating income decreased $36 million for first six months
      of 2007 compared to the first six months of 2006. In addition to the MidAmerican
      Energy items discussed above, MidAmerican Funding’s other income for the first
      six months of 2006 includes $28 million of pre-tax gains from sales of
      MidAmerican Funding’s shares of common stock of an electronic energy and metals
      trading exchange and a $4 million pre-tax gain on MidAmerican Funding’s
      remaining shares of that common stock, which it donated to a charitable
      foundation. Other expense for the first six months of 2006 reflects
      $4 million of expense for the donation of the shares. Other income for the
      first six months of 2006 also includes a $7 million pre-tax gain on the
      sale of MidAmerican Funding’s non-controlling interest in a non-utility
      gas-fired cogeneration plant and $5 million of pre-tax income resulting
      from changes in a financing arrangement related to a non-strategic investment
      in
      a hydroelectric generating plant.




32




Fixed
      Charges





The
      $5 million increase in MidAmerican Energy’s interest on long-term debt was
      due to the issuance of $350 million of long-term debt in October 2006,
      offset partially by maturities of higher interest rate debt in 2006. MidAmerican
      Energy’s other interest expense increased $2 million due principally to a
      higher average balance of commercial paper outstanding compared to the first
      six
      months of 2006. 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 $4 million increase in allowance for
      borrowed funds for the first six months of 2007 was due to the increase in
      construction work in progress compared to the first six months of
      2006.





Income
      Taxes





MidAmerican
      Energy -





Federal
      law currently provides for federal production tax credits for energy produced
      by
      renewable electricity generation facilities, including wind-powered generation,
      for ten years after the in-service date. MidAmerican Energy’s income taxes for
      the first six months of 2007 include $3 million of additional production
      tax credits compared to the first six months of 2006 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, 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 $411 million and
      $388 million for the first six months of 2007 and 2006, respectively.
      MidAmerican Funding’s net cash provided by operating activities was
      $395 million and $367 million for the first six months of 2007 and
      2006, respectively.





Utility
      Construction Expenditures





MidAmerican
      Energy’s primary need for capital is utility construction expenditures. For the
      first six months of 2007, utility construction expenditures totaled
      $656 million, including Quad Cities Station nuclear fuel purchases.
      MidAmerican Energy’s utility construction expenditures for 2007, excluding the
      non-cash allowance for equity funds used during construction, are estimated
      to
      be approximately $1,334 million, which includes $752 million for the
      coal-fired and wind-powered generation projects discussed below, including
      payment of previously deferred construction payments; $129 million for
      emissions control equipment to address current and anticipated air quality
      regulations; and $453 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. MidAmerican Energy expects to fund
      these capital expenditures with short-term borrowings, cash flows from
      operations and the issuance of long-term debt.





MidAmerican
      Energy anticipates a continuing increase in demand for electricity from its
      regulated customers. To meet anticipated demand and ensure adequate electric
      generation in its service territory, MidAmerican Energy constructed WSEC Unit
      4,
      a 790-MW (accredited capacity) super-critical-temperature, coal-fired generating
      plant, which began commercial operation on June 1, 2007. MidAmerican Energy
      operates the plant and holds an undivided ownership interest as a tenant in
      common with the other owners of the plant. In conjunction with the completion
      of
      the project, MidAmerican Energy transferred a 1.01% ownership interest in WSEC
      Unit 4 to another public utility as partial payment for electric distribution
      property MidAmerican Energy received from the utility in 2005. Accordingly,
      MidAmerican Energy’s ownership interest is 59.66%, or approximately 471 MW
      of output. Prior to construction, MidAmerican Energy obtained approval from
      the
      IUB to include the Iowa portion of the actual cost of WSEC Unit 4 in its
      Iowa rate base as long as the actual cost did not exceed the agreed cap that
      MidAmerican Energy deemed reasonable. As of June 30, 2007, MidAmerican
      Energy has invested $830 million in the plant, including $63 million
      of non-cash allowance for equity funds used during construction. Based on all
      presently anticipated costs, the actual final cost of WSEC Unit 4 will be within
      the agreed cap. If the cap is ultimately exceeded, MidAmerican Energy has the
      right to demonstrate the prudence of the expenditures above the cap, subject
      to
      regulatory review. Refer to Note 7 of MidAmerican Energy’s Notes to Consolidated
      Financial Statements in Item 1 for a discussion of the material financial
      statement impacts of WSEC Unit 4 being placed in service.




33




On
      April 18, 2006, the IUB approved a settlement agreement regarding
      ratemaking principles for additional wind-powered generation capacity to be
      installed in Iowa in 2006 and 2007. On July 27, 2007, the IUB approved a
      settlement agreement in conjunction with MidAmerican Energy’s ratemaking
      principles application for up to 540 MW (nameplate ratings) of additional
      wind-powered generation capacity in Iowa. With the exception of 123 MW
      (nameplate ratings) MidAmerican Energy currently has under construction that
      is
      expected to be in operation by the end of 2007, all new wind-powered generation
      capacity up to the 540 MW that is currently not in service but is placed in
      service on or before December 31, 2013, will be subject to this settlement
      agreement. 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. Refer to Note 4 of Notes to
      Consolidated Financial Statements in Item 1 for a more in-depth discussion
      of the settlement agreement.





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





During
      the six-month period ended June 30, 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, 2006, other than the issuance of $650 million
      of long-term debt on June 29, 2007 and the payment of $200 million of
      previously deferred construction payments.





Debt
      Issuance





On
      June 29, 2007, MidAmerican Energy issued $400 million of 5.65% Senior
      Notes due July 15, 2012, and $250 million of 5.95% Senior Notes due
      July 15, 2017. The proceeds are being used by MidAmerican Energy to pay
      construction costs of its interest in WSEC Unit 4 and its wind projects in
      Iowa, to repay short-term indebtedness and for general corporate
      purposes.





Debt
      Authorizations and Credit Facilities





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 $500 million
      revolving credit facility, expiring July 6, 2012, that supports its
      $380 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 $680 million of additional long-term securities. It also has
      authorization from the FERC to issue additional long-term securities totaling
      up
      to $700 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 $631 million of long-term
      debt securities. On July 11, 2007, MidAmerican Energy received
      authorization from the ICC to refinance approximately $57 million of pollution
      control revenue bonds issued in 1993.




34




In
      conjunction with the March 1999 merger, MidAmerican Energy committed to the
      IUB
      to use commercially reasonable efforts to maintain an investment grade rating
      on
      its long-term debt and to maintain its common equity level above 42% of total
      capitalization unless circumstances beyond its control result in the common
      equity level decreasing to below 39% of total capitalization. MidAmerican Energy
      must seek the approval of the IUB of a reasonable utility capital structure
      if
      MidAmerican Energy’s common equity level decreases below 42% of total
      capitalization, unless the decrease is beyond the control of MidAmerican Energy.
      MidAmerican Energy is also required to seek the approval of the IUB if
      MidAmerican Energy’s equity level decreases to below 39%, even if the decrease
      is due to circumstances beyond the control of MidAmerican Energy. If MidAmerican
      Energy’s common equity level were to drop below the required thresholds,
      MidAmerican Energy’s ability to issue debt could be restricted. As of
      June 30, 2007, MidAmerican Energy’s common equity ratio was 53.1% computed
      on a basis consistent with its commitment.





Other
      Financing Information





MidAmerican
      Funding or one of its subsidiaries, including MidAmerican Energy, may from
      time
      to time seek to retire its outstanding debt through cash purchases and/or
      exchanges for other securities, in open market purchases, privately negotiated
      transactions or otherwise. The repurchases or exchanges, if any, 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
      June 30, 2007, 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 Funding and MidAmerican Energy may be rated
      by nationally recognized credit rating agencies. Assigned credit ratings are
      based on each rating agency’s assessment of MidAmerican Funding’s or 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, neither MidAmerican Funding nor
      MidAmerican Energy has 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 the respective company’s
      securities.





In
      conjunction with its risk management activities, MidAmerican Energy must meet
      credit quality standards as required by counterparties. In accordance with
      industry practice, master agreements that govern MidAmerican Energy’s energy
      supply and marketing activities either specifically require it to maintain
      investment grade credit ratings or provide the right for counterparties to
      demand “adequate assurances” in the event of a material adverse change in
      MidAmerican Energy’s creditworthiness. If one or more of MidAmerican Energy’s
      credit ratings decline below investment grade, MidAmerican Energy may be
      required to post cash collateral, letters of credit or other similar credit
      support to facilitate ongoing wholesale energy supply and marketing activities.
      As of June 30, 2007, MidAmerican Energy’s estimated potential collateral
      requirements totaled approximately $189 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.




35




**Utility
      Regulatory Matters**





Rate
      Matters





Under
      a
      series of electric settlement agreements between MidAmerican Energy, the Iowa
      Office of Consumer Advocate (“OCA”) and other intervenors approved by the IUB,
      MidAmerican Energy has agreed not to seek a general increase in electric base
      rates to become effective prior to January 1, 2014, unless its Iowa
      jurisdictional electric return on equity in any year covered by the applicable
      agreement falls below 10%, computed as prescribed in each respective agreement.
      As a party to the settlement agreements, the OCA has agreed not to seek any
      decrease in MidAmerican Energy’s Iowa electric base rates to become effective
      prior to January 1, 2014. Refer to Note 4 of MidAmerican Energy’s
      Notes to Consolidated Financial Statements in Item 1 for further discussion
      of these rate matters.





In
      an
      order issued September 27, 2004, the IUB required MidAmerican Energy to
      file various plans to fully equalize and consolidate its class zonal electric
      rates by the end of each of the years 2007 through 2010. On October 18,
      2004, MidAmerican Energy filed a motion for reconsideration opposing full rate
      equalization and proposing a series of rate reductions. On March 21, 2005,
      the IUB required MidAmerican Energy to file additional information about
      potential rate changes concerning phased equalization or consolidation of
      existing zonal rate differences that could have the effect of bringing rates
      together on a basis designed to have no impact on the overall revenues
      MidAmerican Energy receives from its Iowa electric customers. MidAmerican Energy
      filed the requested information on April 11, 2005. In the same proceeding,
      MidAmerican Energy has a pending plan to reduce rates for some residential
      customers by a total of approximately $7 million in the 2008-2009 time
      frame in addition to the reductions to be offset by cost decreases related
      to
      existing contracts. The $7 million reduction in revenues may begin to be
      offset by a rate increase for other residential customers starting in 2011.
      On
      June 19, 2006, without ruling on revenue requirement issues, the IUB issued
      an order requiring MidAmerican Energy to hold informal workshops in 2007 and
      file a comprehensive class cost-of-service study and a revenue neutral rate
      equalization/rate consolidation plan by mid-2009. Refer to Note 4 of Notes
      to Consolidated Financial Statements in Item 1 for discussion of a recent
      settlement agreement and its impact on zonal rate equalization in
      Iowa.





Electric
      Market Developments





On
      July 13, 2004, the FERC issued an order requiring MidAmerican Energy to
      conduct a study to determine whether MidAmerican Energy or its affiliates
      possess generation market power. MidAmerican Energy is being required to show
      the absence of generation market power in order to be allowed to continue to
      sell wholesale electric power at market-based rates. The FERC order is intended
      to have MidAmerican Energy conform to what has become the FERC’s general
      practice for utilities given authorization to make wholesale market-based sales.
      Under this general practice, utilities authorized to make market-based electric
      sales must submit a new market power study to the FERC every three years.
      MidAmerican Energy filed the required study on October 29, 2004. On
      June 1, 2005, the FERC issued an order setting for investigation the
      reasonableness of MidAmerican Energy’s market-based rates within its control
      area. The order also terminated the previously established November 1,
      2004, refund date and instead required that market-based sales made by
      MidAmerican Energy within its control area beginning August 7, 2005, be
      subject to refund until the matter is resolved. The FERC also required
      MidAmerican Energy to file additional information by July 1, 2005, and
      August 1, 2005. In its August 1, 2005 filing, MidAmerican Energy filed
      a proposed cost-based sales tariff (“CBST”) applicable to sales made within its
      control area to replace its market-based sales tariff. On March 17, 2006,
      the FERC issued an order (“March 17 Order”) accepting MidAmerican Energy’s
      commitment not to make sales using market-based rates in its control area but
      rejected the proposed applicable tariff language. The FERC directed MidAmerican
      Energy to file revised tariff language by April 17, 2006. MidAmerican
      Energy made such filing together with a request for clarification, or in the
      alternative, rehearing (“Request for Clarification”) of the March 17 Order.
      On November 9, 2006, the FERC approved a settlement agreement among
      MidAmerican Energy and the other parties to the proceeding for rates to be
      charged under the CBST and ordered that refunds be paid to customers within
      30
      days for certain sales transactions in the control area on or after
      August 7, 2005. MidAmerican Energy timely made the refunds of an immaterial
      amount. Any actual remaining refund will depend upon the FERC’s ruling on the
      Request for Clarification and the applicability of the CBST to certain sales
      made within the control area for delivery outside the control area. MidAmerican
      Energy estimates that its maximum potential refund obligation is $5 million
      for the period August 7, 2005 through June 30, 2007, and has recorded
      a liability for that amount. On June 21, 2007, the FERC issued Order 697
      addressing electric wholesale market-based sales for the utility industry.
      MidAmerican Energy had previously made changes to its wholesale sales practices
      that it believes substantially comply with the requirements of Order
      697.




36


**Environmental
      Matters**





MidAmerican
      Energy’s generating facilities are subject to applicable provisions of the Clean
      Air Act and related air quality standards promulgated by the United States
      Environmental Protection Agency (“EPA”). The Clean Air Act provides the
      framework for regulation of certain air emissions and permitting and monitoring
      associated with those emissions. MidAmerican Energy believes it is in material
      compliance with current air quality requirements.





The
      EPA
      has in recent years implemented and proposed more stringent national ambient
      air
      quality standards. Additionally, legislation is pending, and could be proposed
      in the future, that may impact MidAmerican Energy if enacted. 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 allows MidAmerican Energy to more effectively manage its
      expenditures required to comply with emissions standards. On April 1, 2006,
      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 incremental capital expenditures
      for emission control equipment to comply with air quality requirements will
      total approximately $540 million for January 1, 2007, 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. Refer to Item 1. Business of MidAmerican Energy’s most
      recently filed Form 10-K for further discussion of air quality standards
      affecting MidAmerican Energy.





As
      a
      result of increased attention to climate change in the United States, numerous
      bills have been introduced in the current session of the United States Congress
      that would reduce greenhouse gas emissions in the United States. Congressional
      leadership has made climate change legislation a priority, and many
      congressional observers expect to see the passage of climate change legislation
      within the next several years. In addition, nongovernmental organizations have
      become more active in initiating citizen suits under existing environmental
      and
      other laws. In April 2007, a United States Supreme Court decision concluded
      that
      the EPA has the authority under the Clean Air Act to regulate emissions of
      greenhouse gases from motor vehicles. In addition, pending cases that address
      the potential public nuisance from greenhouse gas emissions from electricity
      generators and the EPA’s failure to regulate greenhouse gas emissions from new
      and existing coal-fired plants are expected to become active. Furthermore,
      while
      debate continues at the national level over the direction of domestic climate
      policy, several states have developed state-specific laws or regional
      legislative initiatives to reduce greenhouse gas emissions, including California
      and several Northeastern states, and individual state actions to regulate
      greenhouse gas emissions are likely to increase. The impact of any pending
      judicial proceedings and any pending or enacted federal and state climate change
      legislation and regulation cannot be determined at this time; however, adoption
      of stringent limits on greenhouse gas emissions could significantly impact
      MidAmerican Energy’s current and future fossil-fueled facilities, and,
      therefore, its financial results.





**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 in Item 1.





**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 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
      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, accrued pension
      and
      other postretirement expense, income taxes and revenue recognition - unbilled
      revenue.




37




For
      a
      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, 2006. MidAmerican Energy’s and MidAmerican Funding’s critical
      accounting policies have not changed materially since December 31, 2006,
      other than the adoption of FIN 48.





**Item
      3.            Quantitative
      and Qualitative Disclosures About Market Risk.**





Refer
      to
      Note 3 of Notes to Consolidated Financial Statements in Item 1 for
      disclosure of MidAmerican Energy’s derivative positions as of June 30, 2007
      and December 31, 2006. 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, 2006. MidAmerican Energy’s and MidAmerican Funding’s exposure
      to market risk and their management of such risk has not changed materially
      since December 31, 2006.





**Item
      4.               Controls
      and Procedures.**





Under
      the
      supervision and with the participation of MidAmerican Funding’s and MidAmerican
      Energy’s management, including the respective persons acting as chief executive
      officer and chief financial officer, each company performed evaluations
      regarding the effectiveness of the design and operation of its disclosure
      controls and procedures (as defined in Rule 13a-15(e) promulgated under the
      Securities and Exchange Act of 1934, as amended) as of June 30, 2007. Based
      on those evaluations, MidAmerican Funding’s and MidAmerican Energy’s management,
      including the respective persons acting as chief executive officer and chief
      financial officer, concluded that its disclosure controls and procedures were
      effective. There have been no changes during the quarter covered by this report
      in MidAmerican Funding’s or MidAmerican Energy’s internal control over financial
      reporting that has materially affected, or is reasonably likely to materially
      affect, its internal control over financial reporting.







38




**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. MidAmerican Energy’s exposure, if
      any, to these settlements is covered under its liability insurance to which
      a
      $2 million retention applies.





Two
      lawsuits naming MidAmerican Energy as a third party defendant have been filed
      by
      CenterPoint Energy Resources Corp. in the U.S. District Court, District of
      Minnesota, related to this incident. The complaints seek reimbursement of all
      sums associated with CenterPoint’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 filed a motion for summary judgment in both of these actions
      requesting that CenterPoint’s third party claims based upon misrepresentation
      and negligent installation and negligent operation and maintenance of the gas
      pipeline be barred. On March 5, 2007, the U.S. District Court issued an
      order granting MidAmerican Energy’s motion for summary judgment as to
      CenterPoint’s misrepresentation and negligent installation claims and denying
      MidAmerican Energy’s motion for summary judgment as to CenterPoint’s negligent
      operation and maintenance claims. MidAmerican Energy intends to vigorously
      defend its position in these claims and believes their ultimate outcome will
      not
      have a material impact on its financial results.





Other
      than the litigation described above, MidAmerican Funding and its subsidiaries
      currently have no material legal proceedings. Information on MidAmerican
      Energy’s environmental matters is included in the “Environmental Matters”
section of MD&A in Item 2. Information regarding MidAmerican Energy’s
      regulatory matters is included in the “Utility Regulatory Matters” section of
      MD&A in Item 2.





**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, 2006.





**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.




39





**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.







40





**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 COMPANY(Registrants)Date:
                August 3, 2007
            
            /s/  Thomas
                B. SpecketerThomas
                B. SpecketerVice
                President and Controllerof
                MidAmerican Funding, LLCand
                MidAmerican Energy Company(principal
                financial and accounting officer)







41





**EXHIBIT
      INDEX**





**Exhibit
      No.                      Description**





MidAmerican
      Energy





15
            Awareness
                Letter of Independent Registered Public Accounting Firm31.1
            Chief
                executive officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            Chief
                financial officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            Chief
                executive officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.2
            Chief
                financial officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002





MidAmerican
      Funding





31.3
            Chief
                executive officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.4
            Chief
                financial officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.3
            Chief
                executive officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.4
            Chief
                financial officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002




MidAmerican
      Energy and MidAmerican Funding






10.1
            Stipulation
              and Agreement Dated March 23, 2007, in Regard to MidAmerican Energy
              Ratemaking Principles for “Wind IV Iowa Projects,” approved by the
              Iowa Utilities Board on July 27, 2007.




42