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 September 30, 2009





or





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





For the
transition period from _________to _________





Commission
            
            Exact
      name of registrant as specified in its charter;
            
            IRS
      EmployerFile
      Number
            
            State
      or other jurisdiction of incorporation or
    organization
            
            Identification No.333-90553
            
            MIDAMERICAN
      FUNDING, LLC
            
            47-0819200(An
      Iowa Limited Liability Company)666
      Grand Avenue, Suite 500Des
      Moines, Iowa 50309-2580333-15387
            
            MIDAMERICAN
      ENERGY COMPANY
            
            42-1425214(An
      Iowa Corporation)666
      Grand Avenue, Suite 500Des
      Moines, Iowa 50309-2580(515)
      242-4300(Registrant’s
      telephone number, including area code)N/A(Former
      name, former address and former fiscal year, if changed since last
      report)





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





MidAmerican Funding, LLC
            Yes
      £ No
      T
            
            MidAmerican Energy Company
            Yes
      T  No
      £





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).





MidAmerican Funding, LLC
            Yes
      £ No
      £
            
            MidAmerican Energy Company
            Yes
      £  No
      £





Indicate
by check mark whether the registrants are large accelerated filers, accelerated
filers, non-accelerated filers or smaller reporting companies. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





Large
      accelerated filer £
            Accelerated
      filer £
            Non-accelerated
      filer T
            Smaller
      reporting company £





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


Yes  £     No  T








All of
the member’s equity of MidAmerican Funding, LLC was held by its parent company,
MidAmerican Energy Holdings Company as of October 31, 2009.





All
common stock of MidAmerican Energy Company is held by its parent company, MHC
Inc., which is a direct, wholly owned subsidiary of MidAmerican Funding, LLC. As
of October 31, 2009, 70,980,203 shares of MidAmerican Energy Company common
stock, without par value, were outstanding.





MidAmerican
Funding, LLC (“MidAmerican Funding”) and MidAmerican Energy Company
(“MidAmerican Energy”) separately file this combined Form 10-Q. Information
relating to each individual registrant is filed by such registrant on its own
behalf. Except for its subsidiary, MidAmerican Energy makes no representation as
to information relating to any other subsidiary of MidAmerican
Funding.





TABLE OF
CONTENTS








PART
      IItem 1.
            Financial Statements
            3Item 2.
            Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            30Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            40Item 4(T).
            Controls and Procedures
            40PART
      IIItem 1.
            Legal Proceedings
            41Item 1A.
            Risk Factors
            41Item 2.
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            41Item 3.
            Defaults Upon Senior Securities
            41Item 4.
            Submission of Matters to a Vote of Security
      Holders
            41Item 5.
            Other Information
            41Item 6.
            Exhibits
            41Signatures
            
            42Exhibit Index
            
            43





2





PART
I








Item 1.
            Financial
Statements







MidAmerican Energy Company
and Subsidiary
 
 Report of Independent Registered Public Accounting
      Firm
              4Consolidated Balance Sheets
              5Consolidated Statements of
    Operations
              6Consolidated Statements of Cash Flows
              7Consolidated Statements of Changes in
      Equity
              8Notes to Consolidated Financial
      Statements
              9
 MidAmerican Funding, LLC and
Subsidiaries
 
 Report of Independent Registered Public Accounting
      Firm
              21Consolidated Balance Sheets
              22Consolidated Statements of
    Operations
              23Consolidated Statements of Cash Flows
              24Consolidated Statements of Changes in
      Equity
              25Notes to Consolidated Financial
      Statements
              26





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 September 30, 2009, and the
related consolidated statements of operations for the three-month and nine-month
periods ended September 30, 2009 and 2008, and of cash flows and changes in
equity for the nine-month periods ended September 30, 2009 and 2008. 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, 2008, and the related
consolidated statements of operations, comprehensive income, cash flows, and
retained earnings for the year then ended prior to retrospective adjustment for
the adoption of new accounting guidance related to noncontrolling interest in a
subsidiary, included in Accounting Standards Codification Topic 810 (not
presented herein); and in our report dated February 27, 2009, we expressed
an unqualified opinion on those consolidated financial statements. We also
audited the adjustments described in Note 2 that were applied to
retrospectively adjust the December 31, 2008 consolidated balance sheet of
MidAmerican Energy Company and subsidiary (not presented herein). In our
opinion, such adjustments are appropriate and have been properly applied to the
previously issued consolidated balance sheet in deriving the accompanying
retrospectively adjusted consolidated balance sheet as of December 31,
2008.








/s/
Deloitte & Touche LLP





Des
Moines, Iowa


November 6,
2009





4


MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY


CONSOLIDATED BALANCE SHEETS (Unaudited)


(Amounts
in millions)





As
      ofSeptember 30,
                2009
            
            
            December 31,
                2008ASSETSUtility
      plant, net:Electric
            
            $
            9,243
            
            
            $
            8,952Gas
            
            
            1,171
            
            
            
            1,15510,414
            
            
            
            10,107Accumulated
      depreciation and amortization
            
            
            (3,581
            )
            
            
            (3,426
            )6,833
            
            
            
            6,681Construction
      work in progress
            
            
            105
            
            
            
            233Total
      utility plant, net
            
            
            6,938
            
            
            
            6,914Current
      assets:Cash
      and cash equivalents
            
            
            7
            
            
            
            9Restricted
      cash and short-term investments
            
            
            5
            
            
            
            15Receivables,
      net
            
            
            288
            
            
            
            464Inventories
            
            
            170
            
            
            
            158Other
            
            
            95
            
            
            
            114Total
      current assets
            
            
            565
            
            
            
            760Other
      assets:Investments
      and nonregulated property, net
            
            
            429
            
            
            
            400Regulatory
      assets
            
            
            456
            
            
            
            368Other
            
            
            65
            
            
            
            78Total
      other assets
            
            
            950
            
            
            
            846Total
      assets
            
            $
            8,453
            
            
            $
            8,520CAPITALIZATION
      AND LIABILITIESCapitalization:MidAmerican
      Energy common shareholder’s equity
            
            $
            2,844
            
            
            $
            2,569Preferred
      securities
            
            
            30
            
            
            
            30Noncontrolling
      interests
            
            
            1
            
            
            
            1Long-term
      debt, excluding current portion
            
            
            2,865
            
            
            
            2,865Total
      capitalization
            
            
            5,740
            
            
            
            5,465Current
      liabilities:Short-term
      debt
            
            
            -
            
            
            
            457Accounts
      payable
            
            
            193
            
            
            
            353Taxes
      accrued
            
            
            73
            
            
            
            103Interest
      accrued
            
            
            37
            
            
            
            44Other
            
            
            89
            
            
            
            100Total
      current liabilities
            
            
            392
            
            
            
            1,057Other
      liabilities:Deferred
      income taxes
            
            
            1,000
            
            
            
            713Investment
      tax credits
            
            
            34
            
            
            
            36Asset
      retirement obligations
            
            
            210
            
            
            
            200Regulatory
      liabilities
            
            
            681
            
            
            
            659Other
            
            
            396
            
            
            
            390Total
      other liabilities
            
            
            2,321
            
            
            
            1,998Total
      capitalization and liabilities
            
            $
            8,453
            
            
            $
            8,520





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


5


MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


(Amounts
in millions)





Three-Month
      Periods
                Ended
      September 30,
            
            
            Nine-Month
      Periods
                Ended
      September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Operating
      revenue:Regulated
      electric
            
            $
            451
            
            
            $
            552
            
            
            $
            1,286
            
            
            $
            1,527Regulated
      gas
            
            
            85
            
            
            
            192
            
            
            
            591
            
            
            
            1,043Nonregulated
            
            
            275
            
            
            
            360
            
            
            
            831
            
            
            
            985Total
      operating revenue
            
            
            811
            
            
            
            1,104
            
            
            
            2,708
            
            
            
            3,555Operating
      costs and expenses:Regulated:Cost
      of fuel, energy and capacity
            
            
            125
            
            
            
            206
            
            
            
            375
            
            
            
            571Cost
      of gas sold
            
            
            45
            
            
            
            154
            
            
            
            417
            
            
            
            866Other
      operating expenses
            
            
            104
            
            
            
            104
            
            
            
            309
            
            
            
            305Maintenance
            
            
            43
            
            
            
            54
            
            
            
            133
            
            
            
            152Depreciation
      and amortization
            
            
            85
            
            
            
            60
            
            
            
            250
            
            
            
            209Property
      and other taxes
            
            
            24
            
            
            
            26
            
            
            
            78
            
            
            
            77426
            
            
            
            604
            
            
            
            1,562
            
            
            
            2,180Nonregulated:Cost
      of sales
            
            
            254
            
            
            
            337
            
            
            
            761
            
            
            
            925Other
            
            
            9
            
            
            
            5
            
            
            
            22
            
            
            
            14263
            
            
            
            342
            
            
            
            783
            
            
            
            939Total
      operating costs and expenses
            
            
            689
            
            
            
            946
            
            
            
            2,345
            
            
            
            3,119Operating
      income
            
            
            122
            
            
            
            158
            
            
            
            363
            
            
            
            436Non-operating
      income:Interest
      and dividend income
            
            
            1
            
            
            
            1
            
            
            
            2
            
            
            
            4Allowance
      for equity funds
            
            
            -
            
            
            
            6
            
            
            
            -
            
            
            
            17Other,
      net
            
            
            5
            
            
            
            -
            
            
            
            10
            
            
            
            2Total
      non-operating income
            
            
            6
            
            
            
            7
            
            
            
            12
            
            
            
            23Fixed
      charges:Interest
      on long-term debt
            
            
            39
            
            
            
            39
            
            
            
            117
            
            
            
            114Other
      interest expense
            
            
            -
            
            
            
            1
            
            
            
            2
            
            
            
            3Allowance
      for borrowed funds
            
            
            -
            
            
            
            (5
            )
            
            
            (1
            )
            
            
            (11
            )Total
      fixed charges
            
            
            39
            
            
            
            35
            
            
            
            118
            
            
            
            106Income
      before income tax expense
            
            
            89
            
            
            
            130
            
            
            
            257
            
            
            
            353Income
      tax expense (benefit)
            
            
            (47
            )
            
            
            32
            
            
            
            (24
            )
            
            
            88Net
      income
            
            
            136
            
            
            
            98
            
            
            
            281
            
            
            
            265Preferred
      dividends
            
            
            -
            
            
            
            -
            
            
            
            1
            
            
            
            1Earnings
      on common stock
            
            $
            136
            
            
            $
            98
            
            
            $
            280
            
            
            $
            264





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


6


MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


(Amounts
in millions)





Nine-Month
      Periods
                Ended
      September 30,2009
            
            
            2008Cash
      flows from operating activities:Net
      income
            
            $
            281
            
            
            $
            265Adjustments
      to reconcile net income to net cash flows from operating
      activities:Depreciation
      and amortization
            
            
            250
            
            
            
            209Provision
      for deferred income taxes, net
            
            
            164
            
            
            
            145Changes
      in other assets and liabilities
            
            
            23
            
            
            
            21Other,
      net
            
            
            11
            
            
            
            (12
            )Changes
      in other operating assets and liabilities:Receivables,
      net
            
            
            174
            
            
            
            91Inventories
            
            
            (12
            )
            
            
            (41
            )Derivative
      collateral, net
            
            
            12
            
            
            
            (42
            )Accounts
      payable
            
            
            (88
            )
            
            
            (68
            )Taxes
      accrued
            
            
            (27
            )
            
            
            -Other
      current assets and liabilities
            
            
            4
            
            
            
            13Net
      cash flows from operating activities
            
            
            792
            
            
            
            581Cash
      flows from investing activities:Utility
      construction expenditures
            
            
            (346
            )
            
            
            (1,102
            )Purchases
      of available-for-sale securities
            
            
            (212
            )
            
            
            (118
            )Proceeds
      from sales of available-for-sale securities
            
            
            197
            
            
            
            112Decrease
      (increase) in restricted cash and short-term investments
            
            
            10
            
            
            
            (25
            )Other,
      net
            
            
            15
            
            
            
            15Net
      cash flows from investing activities
            
            
            (336
            )
            
            
            (1,118
            )Cash
      flows from financing activities:Dividends
      paid
            
            
            (1
            )
            
            
            (1
            )Proceeds
      from long-term debt
            
            
            -
            
            
            
            451Repayments
      of long-term debt
            
            
            -
            
            
            
            (58
            )Net
      (repayments of) proceeds from short-term debt
            
            
            (457
            )
            
            
            149Other,
      net
            
            
            -
            
            
            
            (1
            )Net
      cash flows from financing activities
            
            
            (458
            )
            
            
            540Net
      change in cash and cash equivalents
            
            
            (2
            )
            
            
            3Cash
      and cash equivalents at beginning of period
            
            
            9
            
            
            
            11Cash
      and cash equivalents at end of period
            
            $
            7
            
            
            $
            14





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


7


MIDAMERICAN
ENERGY COMPANY AND SUBSIDIARY


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)


(Amounts
in millions)








MidAmerican
      Energy Shareholders’ EquityAccumulatedOtherComprehensiveCommon
                Stock
            
            
            Retained
                Earnings
            
            
            Income
                (Loss),
      Net
            
            
            Preferred
                Securities
            
            
            Noncontrolling
                Interests
            
            
            TotalEquityBalance,
      January 1, 2008
            
            $
            561
            
            
            $
            1,726
            
            
            $
            1
            
            
            $
            30
            
            
            $
            1
            
            
            $
            2,319Net
      income
            
            
            -
            
            
            
            265
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            265Other
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            (28
            )
            
            
            -
            
            
            
            -
            
            
            
            (28
            )Preferred
      dividends
            
            
            -
            
            
            
            (1
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1
            )Balance,
      September 30, 2008
            
            $
            561
            
            
            $
            1,990
            
            
            $
            (27
            )
            
            $
            30
            
            
            $
            1
            
            
            $
            2,555Balance,
      January 1, 2009
            
            $
            561
            
            
            $
            2,068
            
            
            $
            (60
            )
            
            $
            30
            
            
            $
            1
            
            
            $
            2,600Net
      income
            
            
            -
            
            
            
            281
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            281Other
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            (5
            )
            
            
            -
            
            
            
            -
            
            
            
            (5
            )Preferred
      dividends
            
            
            -
            
            
            
            (1
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1
            )Balance,
      September 30, 2009
            
            $
            561
            
            
            $
            2,348
            
            
            $
            (65
            )
            
            $
            30
            
            
            $
            1
            
            
            $
            2,875





The
accompanying notes are an integral part of these consolidated 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, which include the following nonregulated
subsidiaries:  InterCoast Capital Company, Midwest Capital Group,
Inc., MEC Construction Services Co. and MidAmerican Services Company. MHC Inc.
is the direct wholly owned subsidiary of MidAmerican Funding, LLC (“MidAmerican
Funding”), which is an Iowa limited liability company with MidAmerican Energy
Holdings Company (“MEHC”) as its sole member. MEHC is a consolidated subsidiary
of Berkshire Hathaway Inc.





The
unaudited Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and the United States Securities and
Exchange Commission’s rules and regulations for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the disclosures required
by GAAP for annual financial statements. Management believes the unaudited
Consolidated Financial Statements contain all adjustments (consisting only of
normal recurring adjustments) considered necessary for the fair presentation of
the Consolidated Financial Statements as of September 30, 2009, and for the
three- and nine-month periods ended September 30, 2009 and 2008. Certain
amounts in the prior period Consolidated Financial Statements have been
reclassified to conform to the current period presentation. Such
reclassifications did not impact previously reported operating income, net
income or retained earnings. The results of operations for the three- and
nine-month periods ended September 30, 2009, are not necessarily indicative
of the results to be expected for the full year. MidAmerican Energy has
evaluated subsequent events through November 6, 2009, which is the date the
unaudited Consolidated Financial Statements were issued.





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 revenue 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, 2008, describes the most significant
accounting policies used in the preparation of the Consolidated Financial
Statements. There have been no significant changes in MidAmerican Energy’s
assumptions regarding significant accounting estimates and policies during the
nine-month period ended September 30, 2009.





(2)
            New
      Accounting Pronouncements





In
September 2009, the Financial Accounting Standards Board (the “FASB”) issued
Accounting Standards Update (“ASU”) No. 2009-12 (“ASU No. 2009-12”),
which amends FASB Accounting Standards Codification (“ASC”) Topic 820,
“Fair Value Measurements and Disclosures” (“ASC Topic 820”). ASU No. 2009-12
allows, as a practical expedient, for the net asset value provided by the
investee entity to be an applicable fair value measurement, if the net asset
value was calculated within the provisions of ASC Topic 946, “Financial Services
– Investment Companies”. Investments within the scope of this update are
investments valued at net asset value that do not have a readily determinable
fair value and have all the following attributes: (i) the investment company’s
primary business activity involves investing its assets, usually in the
securities of other entities not under common management, for current income,
appreciation, or both; (ii) ownership in the investment company is represented
by units of investments, such as shares of stock or partnership interests, to
which proportionate shares of net assets can be attributed; (iii) the funds of
the investment company’sowners are pooled to avail owners of professional
investment management and (iv) the investment company is the primary reporting
entity. Classification within the fair value hierarchy of a fair value
measurement of an investment that is measured at net asset value requires
judgment, which includes consideration of the entity’s ability to redeem its
investment at net asset value at the measurement date. If the entity does not
have the ability to redeem the investment at net asset value at the measurement
date, the length of time until the investment can be redeemed shall be
considered. The guidance also requires disclosures, by major category of
investments, about the attributes of the investments. The guidance is effective
for the first reporting period, including interim periods, ending after December
15, 2009. MidAmerican Energy is currently evaluating the impact of adopting this
guidance on its consolidated financial results and disclosures included within
Notes to Consolidated Financial Statements.


9


In
August 2009, the FASB issued ASU No. 2009-05, which amends ASC
Topic 820. ASU No. 2009-05 clarifies how to measure the fair value of
a liability for which a quoted price in an active market for the identical
liability is not available. In such a circumstance, an entity is required to
measure fair value using one or more of the following valuation
techniques: (i) quoted price of the identical liability when traded as
an asset, (ii) quoted prices for similar liabilities or similar liabilities
when traded as assets or (iii) another valuation technique that is
consistent with fair value principles, such as an income approach or a market
approach. The guidance also clarifies that both a quoted price in an active
market for the identical liability at the measurement date and the quoted price
for the identical liability when traded as an asset in an active market when no
adjustments to the quoted price of the asset are required are Level 1 fair
value measurements. When estimating the fair value of a liability, an entity is
not required to include a separate input or adjustment relating to the existence
of a restriction that prevents the transfer of the liability. The guidance is
effective for the first reporting period, including interim periods, beginning
after its August 2009 issuance. MidAmerican Energy is currently evaluating
the impact of adopting this guidance on its disclosures included within Notes to
Consolidated Financial Statements.





In
June 2009, the FASB issued authoritative guidance that requires a primarily
qualitative analysis to determine if an enterprise is the primary beneficiary of
a variable interest entity. This analysis is based on whether the enterprise has
(i) the power to direct the activities of the variable interest entity that most
significantly impact the entity’s economic performance and (ii) the obligation
to absorb losses of the entity or the right to receive benefits from the entity
that could potentially be significant to the variable interest entity. In
addition, enterprises are required to more frequently reassess whether an entity
is a variable interest entity and whether the enterprise is the primary
beneficiary of the variable interest entity. Finally, the guidance for
consolidation or deconsolidation of a variable interest entity is amended and
disclosure requirements about an enterprise’s involvement with a variable
interest entity are enhanced. This guidance is effective as of the beginning of
the first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter, with early application prohibited.
MidAmerican Energy is currently evaluating the impact of adopting this guidance
on its consolidated financial results and disclosures included within Notes to
Consolidated Financial Statements.





In
April 2009, the FASB issued authoritative guidance (included in ASC
Topic 825, “Financial Instruments”) that requires publicly traded companies
to include the annual fair value disclosures required for all financial
instruments, as defined by GAAP, in interim financial statements. MidAmerican
Energy adopted this guidance on April 1, 2009, and included the required
disclosures within Notes to Consolidated Financial Statements.





In
April 2009, the FASB issued authoritative guidance (included in ASC
Topic 320, “Investments – Debt and Equity Securities”) that amends current
other-than-temporary impairment guidance for debt securities to require a new
other-than-temporary impairment model that shifts the focus from an entity’s
intent to hold the debt security until recovery to its intent, or expected
requirement, to sell the debt security. In addition, this guidance expands the
already required annual disclosures about other-than-temporary impairment for
debt and equity securities, requires companies to include these expanded
disclosures in interim financial statements and addresses whether an
other-than-temporary impairment should be recognized in earnings, other
comprehensive income or some combination thereof. MidAmerican Energy adopted
this guidance on April 1, 2009. The adoption did not have a material impact
on MidAmerican Energy’s consolidated financial results and disclosures included
within Notes to Consolidated Financial Statements.





In
April 2009, the FASB issued authoritative guidance (included in ASC
Topic 820,) that clarifies the determination of fair value when a market is
not active and if a transaction is not orderly. In addition, this guidance
amends previous GAAP to require disclosures in interim and annual periods of the
inputs and valuation techniques used to measure fair value and a discussion of
changes in valuation techniques and related inputs, if any, during the period
and defines “major categories” consistent with those described in previously
existing GAAP. MidAmerican Energy adopted this guidance on April 1, 2009.
The adoption did not have a material impact on MidAmerican Energy’s consolidated
financial results and disclosures included within Notes to Consolidated
Financial Statements.





In
December 2008, the FASB issued authoritative guidance (included in ASC
Topic 715, “Compensation – Retirement Benefits”) that requires enhanced
disclosures about plan assets of defined benefit pension and other
postretirement benefit plans to enable investors to better understand how
investment allocation decisions are made and the major categories of plan
assets. In addition, this guidance requires disclosure of the inputs and
valuation techniques used to measure fair value and the effect of fair value
measurements using significant unobservable inputs on changes in plan assets and
establishes disclosure requirements for significant concentrations of risk
within plan assets. This guidance is effective for fiscal years ending after
December 15, 2009, with early application permitted. MidAmerican Energy is
currently evaluating the impact of adopting this guidance on its disclosures
included within Notes to Consolidated Financial Statements.


10


In March
2008, the FASB issued authoritative guidance (included in ASC Topic 815,
“Derivatives and Hedging”) that requires enhanced disclosures about derivative
instruments and hedging activities to enable investors to better understand how
and why an entity uses derivative instruments and their effects on an entity’s
financial results. MidAmerican Energy adopted this guidance on January 1,
2009, and included the required disclosures within Notes to Consolidated
Financial Statements.





In
December 2007, the FASB issued authoritative guidance (included in ASC
Topic 810, “Consolidation”) that establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. MidAmerican Energy adopted this guidance on
January 1, 2009. The implementation of this guidance did not have a
material impact on MidAmerican Energy’s consolidated financial
statements.





(3)
            Fair
      Value Measurements





The
carrying amounts of MidAmerican Energy’s cash, certain cash equivalents,
restricted cash and short-term investments, receivables, payables, accrued
liabilities and short-term debt approximate fair value because of the short-term
maturity of these instruments. MidAmerican Energy has various financial assets
and liabilities that are measured at fair value in the Consolidated Financial
Statements using inputs from the three levels of the fair value hierarchy. A
financial asset or liability classification within the hierarchy is determined
based on the lowest level input that is significant to the fair value
measurement. The three levels are as follows:





·
            Level
      1 – Inputs are unadjusted quoted prices in active markets for identical
      assets or liabilities that MidAmerican Energy has the ability to access at
      the measurement date.




·
            Level
      2 – Inputs include quoted prices for similar assets or liabilities in
      active markets, quoted prices for identical or similar assets or
      liabilities in markets that are not active, inputs other than quoted
      prices that are observable for the asset or liability and inputs that are
      derived principally from or corroborated by observable market data by
      correlation or other means (market corroborated
  inputs).




·
            Level
      3 – Unobservable inputs reflect MidAmerican Energy’s judgments about the
      assumptions market participants would use in pricing the asset or
      liability since limited market data exists. MidAmerican Energy develops
      these inputs based on the best information available, including its own
      data.




The
following table presents MidAmerican Energy’s assets and liabilities recognized
in the Consolidated Balance Sheet and measured at fair value on a recurring
basis as of September 30, 2009 (in millions):





Input
      Levels for Fair Value MeasurementsDescription
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            Other(1)
            
            
            TotalAssets(2):Commodity
      derivatives
            
            $
            7
            
            
            $
            47
            
            
            $
            26
            
            
            $
            (41
            )
            
            $
            39Investments
      in available-for-sale securities:Money
      market mutual funds(3)
            
            
            7
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            7Debt
      securities
            
            
            67
            
            
            
            48
            
            
            
            11
            
            
            
            -
            
            
            
            126Equity
      securities
            
            
            140
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            140$
            221
            
            
            $
            95
            
            
            $
            37
            
            
            $
            (41
            )
            
            $
            312Liabilities:Commodity
      derivatives
            
            $
            (7
            )
            
            $
            (106
            )
            
            $
            (6
            )
            
            $
            59
            
            
            $
            (60
            )





(1)
            Primarily
      represents a net cash collateral receivable of $18 million and
      netting under master netting arrangements.(2)
            Does
      not include investments in either pension or other postretirement benefit
      plan assets.(3)
            Amounts
      are included in cash and cash equivalents, restricted cash and short-term
      investments, and investments and nonregulated property, net on the
      Consolidated Balance Sheet. The fair value of these money market mutual
      funds approximates cost.


11


The
following table presents MidAmerican Energy’s assets and liabilities recognized
in the Consolidated Balance Sheet and measured at fair value on a recurring
basis as of December 31, 2008 (in millions):





Input Levels for Fair
      Value MeasurementsDescription
            
            Level
      1
            
            
            Level
      2
            
            
            Level
      3
            
            
            Other(1)
            
            
            TotalAssets(2):Commodity
      derivatives
            
            $
            2
            
            
            $
            55
            
            
            $
            48
            
            
            $
            (48
            )
            
            $
            57Investments
      in available-for-sale securities:Money
      market mutual funds(3)
            
            
            23
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            23Debt
      securities
            
            
            45
            
            
            
            75
            
            
            
            16
            
            
            
            -
            
            
            
            136Equity
      securities
            
            
            103
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            103$
            173
            
            
            $
            130
            
            
            $
            64
            
            
            $
            (48
            )
            
            $
            319Liabilities:Commodity
      derivatives
            
            $
            (55
            )
            
            $
            (120
            )
            
            $
            (8
            )
            
            $
            95
            
            
            $
            (88
            )





(1)
            Primarily
      represents a net cash collateral receivable of $47 million and
      netting under master netting arrangements.(2)
            Does
      not include investments in either pension or other postretirement benefit
      plan assets.(3)
            Amounts
      are included in cash and cash equivalents, restricted cash and short-term
      investments, and investments and nonregulated property, net on the
      Consolidated Balance Sheet. The fair value of these money market mutual
      funds approximates cost.





When
available, the fair value of commodity derivative contracts is determined using
unadjusted quoted prices for identical contracts on the applicable exchange in
which MidAmerican Energy transacts. When quoted prices for identical contracts
are not available, MidAmerican Energy uses forward price curves derived from
market price quotations, when available, or internally developed and commercial
models, with internal and external fundamental data inputs. Market price
quotations are obtained from independent energy brokers, exchanges, direct
communication with market participants and actual transactions executed by
MidAmerican Energy. Market price quotations for certain major electricity and
natural gas trading hubs are generally readily obtainable for the applicable
term of MidAmerican Energy’s outstanding commodity derivative contracts;
therefore, MidAmerican Energy’s forward price curves for those locations and
periods reflect observable market quotes. Market price quotations for other
electricity and natural gas trading hubs are not as readily obtainable. Given
that limited market data exists for these contracts, as well as for those
contracts that are not actively traded, MidAmerican Energy uses forward price
curves derived from internal models based on perceived pricing relationships to
major trading hubs that are based on significant unobservable inputs. Refer to
Note 4 for further discussion regarding MidAmerican Energy’s risk
management and hedging activities.





MidAmerican
Energy’s investments in money market mutual funds and debt and equity securities
are accounted for as available-for-sale and are stated at fair value. When
available, a readily observable quoted market price or net asset value of an
identical security in an active market is used to record the fair value. In the
absence of a quoted market price or net asset value of an identical security,
the fair value is determined using pricing models or net asset values based on
observable market inputs and quoted market prices of securities with similar
characteristics. The fair value of MidAmerican Energy’s investments in auction
rate securities, where there is no current liquid market, is determined using
pricing models based on available observable market data and MidAmerican
Energy’s judgment about the assumptions, including liquidity and nonperformance
risks, which market participants would use when pricing the asset.





12


The
following table reconciles the beginning and ending balances of MidAmerican
Energy’s assets and liabilities measured at fair value on a recurring basis
using significant Level 3 inputs for the three-month periods ended
September 30 (in millions):





2009
            
            
            2008Commodity
            
            
            Debt
            
            
            Commodity
            
            
            DebtDerivatives
            
            
            Securities
            
            
            Derivatives
            
            
            SecuritiesBeginning
      balance
            
            $
            29
            
            
            $
            12
            
            
            $
            (24
            )
            
            $
            31Changes
      included in earnings(1)
            
            
            (3
            )
            
            
            -
            
            
            
            38
            
            
            
            -Changes
      in fair value recognized inother comprehensive income
            
            
            -
            
            
            
            (1
            )
            
            
            -
            
            
            
            (4
            )Changes
      in fair value recognized inregulatoryassets
      and liabilities
            
            
            4
            
            
            
            -
            
            
            
            5
            
            
            
            -Settlements
            
            
            (10
            )
            
            
            -
            
            
            
            1
            
            
            
            -Ending
      balance
            
            $
            20
            
            
            $
            11
            
            
            $
            20
            
            
            $
            27





(1)
            Changes
      included in earnings are reported as nonregulated revenue in the
      Consolidated Statements of Operations. Net unrealized gains (losses)
      included in earnings for the three-month periods ended September 30,
      2009 and 2008, related to commodity derivatives held at September 30,
      2009 and 2008, totaled $(3) million and $32 million,
      respectively.





The
following table reconciles the beginning and ending balances of MidAmerican
Energy’s assets and liabilities measured at fair value on a recurring basis
using significant Level 3 inputs for the nine-month periods ended
September 30 (in millions):





2009
            
            
            2008Commodity
            
            
            Debt
            
            
            Commodity
            
            
            DebtDerivatives
            
            
            Securities
            
            
            Derivatives
            
            
            SecuritiesBeginning
      balance
            
            $
            40
            
            
            $
            16
            
            
            $
            -
            
            
            $
            40Changes
      included in earnings(1)
            
            
            16
            
            
            
            -
            
            
            
            16
            
            
            
            -Changes
      in fair value recognized inother comprehensive income
            
            
            -
            
            
            
            (5
            )
            
            
            1
            
            
            
            (13
            )Changes
      in fair value recognized in regulatory assets and
      liabilities
            
            
            9
            
            
            
            -
            
            
            
            (6
            )
            
            
            -Settlements
            
            
            (45
            )
            
            
            -
            
            
            
            9
            
            
            
            -Ending
      balance
            
            $
            20
            
            
            $
            11
            
            
            $
            20
            
            
            $
            27





(1)
            Changes
      included in earnings are reported as nonregulated revenue in the
      Consolidated Statements of Operations. Net unrealized gains (losses)
      included in earnings for the nine-month periods ended September 30,
      2009 and 2008, related to commodity derivatives held at September 30,
      2009 and 2008, totaled $12 million and $11 million,
      respectively.





MidAmerican
Energy’s long-term debt is carried at cost in the Consolidated Financial
Statements. The fair value of MidAmerican Energy’s long-term debt has been
estimated based upon quoted market prices, where available, or at the present
value of future cash flows discounted at rates consistent with comparable
maturities with similar credit risks. The carrying amount of MidAmerican
Energy’s variable-rate long-term debt approximates fair value because of the
frequent repricing of these instruments at market rates. The following table
presents the carrying amount and estimated fair value of MidAmerican Energy’s
long-term debt (in millions):





As
      of September 30, 2009
            
            
            As
      of December 31, 2008Carrying
                Amount
            
            
            Fair
      Value
            
            
            Carrying
                Amount
            
            
            Fair
      ValueLong-term
      debt
            
            $
            2,865
            
            
            $
            3,125
            
            
            $
            2,865
            
            
            $
            2,887





13





(4)
            Risk
      Management and Hedging Activities





MidAmerican
Energy is exposed to the impact of market fluctuations in commodity prices and
interest rates. MidAmerican Energy is principally exposed to electricity and
natural gas commodity price risk as it has an obligation to serve retail
customer load in its regulated service territory. MidAmerican Energy also
provides nonregulated retail natural gas and electricity services in competitive
markets. MidAmerican Energy’s load and generation assets represent substantial
underlying commodity positions. Exposures to commodity prices consist mainly of
variations in the price of fuel to generate electricity, wholesale electricity
that is purchased and sold, and natural gas supply for regulated and
nonregulated retail customers. Electricity and natural gas prices are subject to
wide price swings as supply and demand for these commodities are impacted by,
among many other unpredictable items, changing weather, market liquidity,
generation plant availability, customer usage, storage, and transmission and
transportation constraints. Interest rate risk exists on variable-rate debt,
commercial paper and future debt issuances. MidAmerican Energy does not engage
in a material amount of proprietary trading activities.





MidAmerican
Energy has established a risk management process that is designed to identify,
assess, monitor, report, manage and mitigate each of the various types of risk
involved in its business. To mitigate a portion of its commodity risk,
MidAmerican Energy uses commodity derivative contracts, including forward
contracts, futures, options, fixed price and basis swaps and other agreements,
to effectively secure future supply or sell future production generally at fixed
prices. MidAmerican Energy manages its interest rate risk by limiting its
exposure to variable interest rates and by monitoring market changes in interest
rates. MidAmerican Energy may from time to time enter into interest rate
derivative contracts, such as interest rate swaps or locks, to effectively
modify its exposure to interest rate risk. MidAmerican Energy does not hedge all
of its commodity price and interest rate risks, thereby exposing the unhedged
portion to the risks and benefits of spot-market price movements.





There
have been no significant changes in MidAmerican Energy’s significant accounting
policies related to derivatives. Refer to Notes 2 and 3 for additional
information on derivative contracts.





The
following table, which excludes contracts that qualify for the normal purchases
or normal sales exemption afforded by GAAP, summarizes the fair value of
MidAmerican Energy’s derivative contracts, on a gross basis, and reconciles
those amounts to the amounts presented on a net basis on the Consolidated
Balance Sheet as of September 30, 2009 (in millions):





Balance
      Sheet LocationsCurrent
            
            
            Other
            
            
            Current
            
            
            OtherAssets
            
            
            Assets
            
            
            Liabilities
            
            
            Liabilities-
      Other
            
            
            -
      Other
            
            
            -
      Other
            
            
            -
      Other
            
            
            TotalNot
      Designated as Hedging Contracts(1)(2):Commodity
      assets
            
            $
            56
            
            
            $
            12
            
            
            $
            8
            
            
            $
            2
            
            
            $
            78Commodity
      liabilities
            
            
            (13
            )
            
            
            (1
            )
            
            
            (15
            )
            
            
            (4
            )
            
            
            (33
            )Total
            
            
            43
            
            
            
            11
            
            
            
            (7
            )
            
            
            (2
            )
            
            
            45Designated
      as Cash Flow Hedging Contracts(1):Commodity
      assets
            
            
            1
            
            
            
            -
            
            
            
            1
            
            
            
            -
            
            
            
            2Commodity
      liabilities
            
            
            -
            
            
            
            -
            
            
            
            (53
            )
            
            
            (33
            )
            
            
            (86
            )Total
            
            
            1
            
            
            
            -
            
            
            
            (52
            )
            
            
            (33
            )
            
            
            (84
            )Total
      derivatives
            
            
            44
            
            
            
            11
            
            
            
            (59
            )
            
            
            (35
            )
            
            
            (39
            )Cash
      collateral receivable (payable)
            
            
            (16
            )
            
            
            -
            
            
            
            31
            
            
            
            3
            
            
            
            18Total
      derivatives - net basis
            
            $
            28
            
            
            $
            11
            
            
            $
            (28
            )
            
            $
            (32
            )
            
            $
            (21
            )





(1)
            Derivative
      contracts within these categories are subject to master netting
      arrangements and are presented on a net basis in the Consolidated Balance
      Sheet.(2)
            The
      majority of MidAmerican Energy’s commodity derivatives not designated as
      hedging contracts are recoverable from customers in regulated rates and as
      of September 30, a net regulatory liability of $42 million was
      recorded related to the net derivative assets of
      $45 million.




14





Not
Designated As Hedging Contracts





For
MidAmerican Energy’s regulated electric and regulated gas commodity derivatives
not designated as hedging contracts, the settled amount is generally recovered
from customers in regulated rates. Accordingly, the net unrealized gains and
losses associated with interim price movements on contracts that are accounted
for as derivatives and probable of recovery in rates are recorded as net
regulatory assets or liabilities. The following table reconciles the beginning
and ending balances of MidAmerican Energy’s net regulatory assets (liabilities)
and summarizes the pre-tax gains and losses on commodity derivative contracts
recognized in net regulatory assets (liabilities), as well as amounts
reclassified to earnings (in millions):





Three-Month
                Period
      Ended
                September 30, 2009
            
            
            Nine-Month
                Period
      Ended
                September 30, 2009Beginning
      balance
            
            $
            (55
            )
            
            $
            4Changes
      in fair value recognized in net regulatory assets
      (liabilities)
            
            
            (15
            )
            
            
            (50
            )Gains
      reclassified to earnings - operating revenue
            
            
            21
            
            
            
            52Gains
      reclassified to earnings - cost of fuel, energy and
    capacity
            
            
            5
            
            
            
            13Gains
      (losses) reclassified to earnings - cost of gas sold
            
            
            2
            
            
            
            (61
            )Ending
      balance
            
            $
            (42
            )
            
            $
            (42
            )





For most
of MidAmerican Energy’s commodity derivative contracts not designated as hedging
contracts and for which changes in fair value are not recorded as a net
regulatory asset or liability, unrealized gains and losses are recognized on the
Consolidated Statements of Operations as nonregulated operating revenue for
sales contracts and as nonregulated cost of sales for purchase contracts and
electricity and natural gas swap contracts. MidAmerican Energy also had a
weather derivative contract for which unrealized gains and losses were
recognized in regulated cost of gas sold. The following table summarizes the
pre-tax gains (losses) included within the Consolidated Statements of Operations
associated with MidAmerican Energy’s commodity derivative contracts not
designated as hedging contracts and not recorded as a net regulatory asset or
liability (in millions):





Three-Month
                Period
      Ended
                September 30, 2009
            
            
            Nine-Month
                Period
      Ended
                September 30, 2009Nonregulated
      operating revenue
            
            $
            (2
            )
            
            $
            17Regulated
      cost of gas sold
            
            
            -
            
            
            
            1Nonregulated
      cost of sales
            
            
            3
            
            
            
            (10
            )Total
            
            $
            1
            
            
            $
            8





15


Designated
as Cash Flow Hedging Contracts





MidAmerican
Energy uses commodity derivative contracts accounted for as cash flow hedges to
hedge electricity and natural gas commodity prices for delivery to nonregulated
customers.





The
following table reconciles the beginning and ending balances of MidAmerican
Energy’s accumulated other comprehensive loss (pre-tax) and summarizes pre-tax
gains and losses on commodity derivative contracts designated and qualifying as
cash flow hedges recognized in other comprehensive income (“OCI”), as well as
amounts reclassified to earnings (in millions):





Three-MonthPeriod
      Ended
                September 30, 2009
            
            
            Nine-Month
                Period
      Ended
                September 30, 2009Beginning
      balance
            
            $
            101
            
            
            $
            80Losses
      recognized in OCI
            
            
            12
            
            
            
            82Losses
      reclassified to earnings - nonregulated cost of sales
            
            
            (29
            )
            
            
            (78
            )Ending
      balance
            
            $
            84
            
            
            $
            84





Realized
gains and losses on all hedges and hedge ineffectiveness are recognized in
income as nonregulated operating revenue or nonregulated cost of sales depending
upon the nature of the item being hedged. For the three- and nine-month periods
ended September 30, 2009 and 2008, hedge ineffectiveness was insignificant.
As of September 30, 2009, MidAmerican Energy had cash flow hedges with
expiration dates extending through December 2013, and $52 million of
pre-tax net unrealized losses are forecasted to be reclassified from accumulated
other comprehensive loss into earnings over the next twelve months as contracts
settle.





Commodity
Derivative Contract Volumes





The
following table summarizes the net notional amounts of outstanding commodity
derivative contracts with fixed price terms that comprise the mark-to-market
values (in millions):





Unit
      of
            
            As
      ofMeasure
            
            September 30,
      2009Electricity
      purchases
            Megawatt
      hours
            
            
            2Natural
      gas purchases
            Decatherms
            
            
            25Fuel
      purchases
            Gallons
            
            
            2





Credit
Risk





MidAmerican
Energy extends unsecured credit to other utilities, energy marketers, financial
institutions and other market participants in conjunction with wholesale energy
supply and marketing activities. Credit risk relates to the risk of loss that
might occur as a result of nonperformance by counterparties on their contractual
obligations to make or take delivery of electricity, natural gas or other
commodities and to make financial settlements of these obligations. Credit risk
may be concentrated to the extent that one or more groups of counterparties have
similar economic, industry or other characteristics that would cause their
ability to meet contractual obligations to be similarly affected by changes in
market or other conditions. In addition, credit risk includes not only the risk
that a counterparty may default due to circumstances relating directly to it,
but also the risk that a counterparty may default due to circumstances involving
other market participants that have a direct or indirect relationship with the
counterparty.





MidAmerican
Energy analyzes the financial condition of each significant wholesale
counterparty before entering into any transactions, establishes limits on the
amount of unsecured credit to be extended to each counterparty and evaluates the
appropriateness of unsecured credit limits on an ongoing basis. To mitigate
exposure to the financial risks of wholesale counterparties, MidAmerican Energy
enters into netting and collateral arrangements that may include margining and
cross-product netting agreements and obtaining third-party guarantees, letters
of credit and cash deposits. Counterparties may be assessed interest fees for
delayed payments. If required, MidAmerican Energy exercises rights under these
arrangements, including calling on the counterparty’s credit support
arrangement. Based on MidAmerican Energy’s policies and risk exposures related
to credit, it does not anticipate a material adverse effect on its consolidated
financial results as a result of counterparty nonperformance.


16





Collateral
and Contingent Features





In
accordance with industry practice, certain derivative contracts contain
provisions that require MidAmerican Energy to maintain specific credit ratings
from one or more of the major credit rating agencies on its senior unsecured
debt. These derivative contracts may either specifically provide bilateral
rights to demand cash or other security if credit exposures on a net basis
exceed specified rating-dependent threshold levels (“credit-risk-related
contingent features”) or provide the right for counterparties to demand
“adequate assurance” in the event of a material adverse change in MidAmerican
Energy’s creditworthiness. These rights can vary by contract and by
counterparty. As of September 30, 2009, MidAmerican Energy’s credit ratings
from the three recognized credit rating agencies were investment
grade.





The
aggregate fair value of MidAmerican Energy’s derivative contracts in liability
positions with specific credit-risk-related contingent features totaled
$106 million as of September 30, 2009, for which MidAmerican Energy
had posted collateral of $34 million. If all credit-risk-related contingent
features for derivative contracts in liability positions had been triggered as
of September 30, 2009, MidAmerican Energy would have been required to post
$55 million of additional collateral. MidAmerican Energy’s collateral
requirements could fluctuate considerably due to market price volatility,
changes in credit ratings or other factors.





(5)
            Employee
      Benefit Plans





MidAmerican
Energy sponsors a noncontributory defined benefit pension plan covering
substantially all employees of MEHC and its domestic energy subsidiaries other
than PacifiCorp. MidAmerican Energy also sponsors certain postretirement health
care and life insurance benefits covering substantially all retired employees of
MEHC and its domestic energy subsidiaries other than PacifiCorp. Net periodic
benefit cost for pension and other postretirement benefit plans included the
following components (in millions):





Three-Month
      Periods
                Ended
      September 30,
            
            
            Nine-Month
      Periods
                Ended
      September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Pension:Service
      cost
            
            $
            5
            
            
            $
            6
            
            
            $
            14
            
            
            $
            19Interest
      cost
            
            
            11
            
            
            
            11
            
            
            
            32
            
            
            
            31Expected
      return on plan assets
            
            
            (11
            )
            
            
            (11
            )
            
            
            (32
            )
            
            
            (34
            )Net
      amortization
            
            
            -
            
            
            
            -
            
            
            
            (1
            )
            
            
            1Net
      periodic benefit cost
            
            $
            5
            
            
            $
            6
            
            
            $
            13
            
            
            $
            17





Other
      Postretirement:Service
      cost
            
            $
            -
            
            
            $
            1
            
            
            $
            2
            
            
            $
            4Interest
      cost
            
            
            3
            
            
            
            3
            
            
            
            8
            
            
            
            10Expected
      return on plan assets
            
            
            (3
            )
            
            
            (3
            )
            
            
            (8
            )
            
            
            (11
            )Net
      amortization
            
            
            -
            
            
            
            -
            
            
            
            (1
            )
            
            
            1Net
      periodic benefit cost
            
            $
            -
            
            
            $
            1
            
            
            $
            1
            
            
            $
            4





Employer
contributions to pension and other postretirement benefit plans are expected to
be $8 million and $8 million, respectively, during 2009. As of
September 30, 2009, $5 million and $7 million of contributions
had been made to pension and other postretirement benefit plans,
respectively.





17





(6)
            Income
      Taxes





MidAmerican
Energy’s income tax expense decreased $79 million to a benefit of
$47 million for the three-month period ended September30, 2009, with an
effective tax rate of (53)% compared to 25% for the three-month period ended
September 30, 2008. MidAmerican Energy’s income tax expense decreased
$112 million to a benefit of $24 million for the nine-month period
ended September  30, 2009, with an effective tax rate of (9)% compared to
25% for the nine-month period ended September 30, 2008. The decrease in
2009 income taxes and effective tax rates compared to 2008 was mainly due to
$55 million of income tax benefits recognized in the third quarter of 2009
for the repairs deduction discussed below, lower pre-tax income, the effects of
ratemaking and the benefit of additional production tax credits.





MidAmerican
Energy changed the method by which it determines current income tax deductions
for repairs on certain of its regulated utility assets (the “repairs
deduction”), which results in current deductibility for costs that are
capitalized for book purposes. The repairs deduction was computed for tax years
1998 and forward and was deducted on the 2008 income tax return. Iowa,
MidAmerican Energy’s largest jurisdiction for rate-regulated operations,
requires immediate income recognition of such temporary differences. For the
three- and nine-month periods ended September 30, 2009, MidAmerican
Energy’s earnings reflect $55 million of net tax benefits recognized.
Additionally, regulatory assets reflect an increase of $95 million in
recognition of MidAmerican Energy’s ability to recover increased tax expense
when such temporary differences reverse.





(7)
            Commitments
      and Contingencies





Legal
Matters





MidAmerican
Energy is party to a variety of legal actions or claims arising out of the
normal course of business. Plaintiffs occasionally seek punitive or exemplary
damages. MidAmerican Energy does not believe that such normal and routine
matters will have a material effect on its consolidated financial
results.





Environmental
Matters





Climate Change





In
June 2009, the United States House of Representatives passed the American
Clean Energy and Security Act of 2009 (“Waxman-Markey bill”) introduced by
Representatives Henry Waxman and Edward Markey. In addition to a federal
renewable portfolio standard, which would require utilities to obtain a portion
of their energy from certain qualifying renewable sources, and energy efficiency
measures, the bill requires a reduction in greenhouse gas emissions beginning in
2012, with emission reduction targets of 3% below 2005 levels by 2012; 17% below
2005 levels by 2020; 42% below 2005 levels by 2030; and 83% below 2005 levels by
2050 under a “cap and trade” program. In September 2009, a similar bill was
introduced in the United States Senate by Senators Barbara Boxer and John Kerry,
which would require a reduction in greenhouse gas emissions beginning in 2012
with emission reduction targets consistent with the Waxman-Markey bill, with the
exception of the 2020 target, which requires 20% reductions below 2005 levels.
If the Waxman-Markey bill or some other federal comprehensive climate change
bill were to pass both Houses of Congress and be signed into law by the
President, the impact on MidAmerican Energy’s financial performance could be
material and would depend on a number of factors, including the required timing
and level of greenhouse gas reductions, the price and availability of offsets
and allowances used for compliance and the ability of MidAmerican Energy to
receive revenue from customers for increased costs. The new law would likely
result in increased operating costs and expenses, additional capital
expenditures and retirements of existing assets and may negatively impact demand
for electricity. MidAmerican Energy expects it will be allowed to recover the
costs to comply with climate change requirements.





18





(8)
            Comprehensive
      Income and Components of Accumulated Other Comprehensive Loss,
      Net





Comprehensive
income consists of the following components (in millions):





Three-Month
      Periods
                Ended
      September 30,
            
            
            Nine-Month
      Periods
                Ended
      September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      income
            
            $
            136
            
            
            $
            98
            
            
            $
            281
            
            
            $
            265Other
      comprehensive income (loss):Fair
      value adjustment on cash flow hedges,
              net
      of tax of $7, $(22), $(2) and $(12)
            
            
            10
            
            
            
            (36
            )
            
            
            (2
            )
            
            
            (20
            )Unrealized
      losses on available-for-sale securities,
              net
      of tax of $(1), $(1), $(2) and $(5)
            
            
            -
            
            
            
            (3
            )
            
            
            (3
            )
            
            
            (8
            )Total
      other comprehensive income (loss)
            
            
            10
            
            
            
            (39
            )
            
            
            (5
            )
            
            
            (28
            )Comprehensive
      income
            
            $
            146
            
            
            $
            59
            
            
            $
            276
            
            
            $
            237





Accumulated
other comprehensive loss, net consists of the following components (in
millions):





As
      ofSeptember 30,
            
            
            December 31,2009
            
            
            2008Fair
      value adjustment on cash flow hedges, net of tax of $(33) and
      $(31)
            
            $
            (51
            )
            
            $
            (49
            )Unrealized
      losses on available-for-sale securities, net of tax of $(10) and
      $(8)
            
            
            (14
            )
            
            
            (11
            )Total
      accumulated other comprehensive loss, net
            
            $
            (65
            )
            
            $
            (60
            )





19





(9)
            Segment
      Information





MidAmerican
Energy has identified three reportable operating segments: regulated electric,
regulated gas and nonregulated energy. The regulated electric segment derives
most of its revenue from regulated retail sales of electricity to residential,
commercial, and industrial customers and from wholesale sales. The regulated gas
segment derives most of its revenue from regulated retail sales of natural gas
to residential, commercial, and industrial customers and also obtains
significant revenue by transporting gas owned by others through its distribution
system. Pricing for regulated electric and regulated gas sales are established
separately by regulatory agencies; therefore, management also reviews each
segment separately to make decisions regarding allocation of resources and in
evaluating performance. The nonregulated energy segment derives most of its
revenue from nonregulated retail electric and gas activities. Common operating
costs, interest income, interest expense and income tax expense are allocated to
each segment based on certain factors, which primarily relate to the nature of
the cost.





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





Three-Month
      Periods
                Ended
      September 30,
            
            
            Nine-Month
      Periods
                Ended
      September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Operating
      revenue:Regulated
      electric
            
            $
            451
            
            
            $
            552
            
            
            $
            1,286
            
            
            $
            1,527Regulated
      gas
            
            
            85
            
            
            
            192
            
            
            
            591
            
            
            
            1,043Nonregulated
      energy
            
            
            275
            
            
            
            360
            
            
            
            831
            
            
            
            985Total
      operating revenue
            
            $
            811
            
            
            $
            1,104
            
            
            $
            2,708
            
            
            $
            3,555Depreciation
      and amortization:Regulated
      electric
            
            $
            76
            
            
            $
            51
            
            
            $
            224
            
            
            $
            184Regulated
      gas
            
            
            9
            
            
            
            9
            
            
            
            26
            
            
            
            25Total
      depreciation and amortization
            
            $
            85
            
            
            $
            60
            
            
            $
            250
            
            
            $
            209Operating
      income:Regulated
      electric
            
            $
            112
            
            
            $
            148
            
            
            $
            272
            
            
            $
            353Regulated
      gas
            
            
            (4
            )
            
            
            (5
            )
            
            
            43
            
            
            
            43Nonregulated
      energy
            
            
            14
            
            
            
            15
            
            
            
            48
            
            
            
            40Total
      operating income
            
            $
            122
            
            
            $
            158
            
            
            $
            363
            
            
            $
            436





As
      ofSeptember 30,
            
            
            December 31,2009
            
            
            2008Total
      assets:Regulated
      electric
            
            $
            7,366
            
            
            $
            7,297Regulated
      gas
            
            
            875
            
            
            
            972Nonregulated
      energy
            
            
            212
            
            
            
            251Total
      assets
            
            $
            8,453
            
            
            $
            8,520





20


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 September 30, 2009, and the related
consolidated statements of operations for the three-month and nine-month periods
ended September 30, 2009 and 2008, and of cash flows and changes in equity
for the nine-month periods ended September 30, 2009 and 2008. 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, 2008, and the related
consolidated statements of operations, comprehensive income, cash flows, and
retained earnings for the year then ended prior to retrospective adjustment for
the adoption of new accounting guidance related to noncontrolling interest in a
subsidiary, included in Accounting Standards Codification Topic 810 (not
presented herein); and in our report dated February 27, 2009, we expressed
an unqualified opinion on those consolidated financial statements. We also
audited the adjustments described in Note 2 that were applied to
retrospectively adjust the December 31, 2008 consolidated balance sheet of
MidAmerican Funding, LLC and subsidiaries (not presented herein). In our
opinion, such adjustments are appropriate and have been properly applied to the
previously issued consolidated balance sheet in deriving the accompanying
retrospectively adjusted consolidated balance sheet as of December 31,
2008.








/s/
Deloitte & Touche LLP





Des
Moines, Iowa


November 6,
2009





21


MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS (Unaudited)


(Amounts
in millions)


As
      ofSeptember 30,
                2009
            
            
            December 31,2008ASSETSUtility
      plant, net:Electric
            
            $
            9,243
            
            
            $
            8,952Gas
            
            
            1,171
            
            
            
            1,15510,414
            
            
            
            10,107Accumulated
      depreciation and amortization
            
            
            (3,581
            )
            
            
            (3,426
            )6,833
            
            
            
            6,681Construction
      work in progress
            
            
            105
            
            
            
            233Total
      utility plant, net
            
            
            6,938
            
            
            
            6,914Current
      assets:Cash
      and cash equivalents
            
            
            8
            
            
            
            10Restricted
      cash and short-term investments
            
            
            5
            
            
            
            15Receivables,
      net
            
            
            292
            
            
            
            468Inventories
            
            
            170
            
            
            
            158Other
            
            
            96
            
            
            
            114Total
      current assets
            
            
            571
            
            
            
            765Other
      assets:Investments
      and nonregulated property, net
            
            
            442
            
            
            
            415Goodwill
            
            
            1,270
            
            
            
            1,270Regulatory
      assets
            
            
            456
            
            
            
            368Other
            
            
            65
            
            
            
            78Total
      other assets
            
            
            2,233
            
            
            
            2,131Total
      assets
            
            $
            9,742
            
            
            $
            9,810CAPITALIZATION
      AND LIABILITIESCapitalization:MidAmerican
      Funding member’s equity
            
            $
            3,340
            
            
            $
            3,081Noncontrolling
      interests
            
            
            31
            
            
            
            31Long-term
      debt, excluding current portion
            
            
            3,390
            
            
            
            3,390Total
      capitalization
            
            
            6,761
            
            
            
            6,502Current
      liabilities:Short-term
      debt
            
            
            -
            
            
            
            457Note
      payable to affiliate
            
            
            260
            
            
            
            59Current
      portion of long-term debt
            
            
            -
            
            
            
            175Accounts
      payable
            
            
            193
            
            
            
            352Taxes
      accrued
            
            
            74
            
            
            
            104Interest
      accrued
            
            
            40
            
            
            
            60Other
            
            
            89
            
            
            
            100Total
      current liabilities
            
            
            656
            
            
            
            1,307Other
      liabilities:Deferred
      income taxes
            
            
            988
            
            
            
            700Investment
      tax credits
            
            
            34
            
            
            
            36Asset
      retirement obligations
            
            
            210
            
            
            
            200Regulatory
      liabilities
            
            
            681
            
            
            
            659Other
            
            
            412
            
            
            
            406Total
      other liabilities
            
            
            2,325
            
            
            
            2,001Total
      capitalization and liabilities
            
            $
            9,742
            
            
            $
            9,810





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


22


MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)


(Amounts
in millions)





Three-Month
      Periods
                Ended
      September 30,
            
            
            Nine-Month
      Periods
                Ended
      September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Operating
      revenue:Regulated
      electric
            
            $
            451
            
            
            $
            552
            
            
            $
            1,286
            
            
            $
            1,527Regulated
      gas
            
            
            85
            
            
            
            192
            
            
            
            591
            
            
            
            1,043Nonregulated
            
            
            276
            
            
            
            363
            
            
            
            834
            
            
            
            991Total
      operating revenue
            
            
            812
            
            
            
            1,107
            
            
            
            2,711
            
            
            
            3,561Operating
      costs and expenses:Regulated:Cost
      of fuel, energy and capacity
            
            
            125
            
            
            
            206
            
            
            
            375
            
            
            
            571Cost
      of gas sold
            
            
            45
            
            
            
            154
            
            
            
            417
            
            
            
            866Other
      operating expenses
            
            
            104
            
            
            
            104
            
            
            
            309
            
            
            
            305Maintenance
            
            
            43
            
            
            
            54
            
            
            
            133
            
            
            
            152Depreciation
      and amortization
            
            
            85
            
            
            
            60
            
            
            
            250
            
            
            
            209Property
      and other taxes
            
            
            24
            
            
            
            26
            
            
            
            78
            
            
            
            77426
            
            
            
            604
            
            
            
            1,562
            
            
            
            2,180Nonregulated:Cost
      of sales
            
            
            254
            
            
            
            337
            
            
            
            762
            
            
            
            926Other
            
            
            9
            
            
            
            7
            
            
            
            24
            
            
            
            17263
            
            
            
            344
            
            
            
            786
            
            
            
            943Total
      operating costs and expenses
            
            
            689
            
            
            
            948
            
            
            
            2,348
            
            
            
            3,123Operating
      income
            
            
            123
            
            
            
            159
            
            
            
            363
            
            
            
            438Non-operating
      income:Interest
      and dividend income
            
            
            -
            
            
            
            1
            
            
            
            2
            
            
            
            4Allowance
      for equity funds
            
            
            -
            
            
            
            6
            
            
            
            -
            
            
            
            17Other,
      net
            
            
            6
            
            
            
            -
            
            
            
            11
            
            
            
            3Total
      non-operating income
            
            
            6
            
            
            
            7
            
            
            
            13
            
            
            
            24Fixed
      charges:Interest
      on long-term debt
            
            
            47
            
            
            
            52
            
            
            
            145
            
            
            
            150Other
      interest expense
            
            
            1
            
            
            
            1
            
            
            
            3
            
            
            
            3Allowance
      for borrowed funds
            
            
            -
            
            
            
            (5
            )
            
            
            (1
            )
            
            
            (11
            )Total
      fixed charges
            
            
            48
            
            
            
            48
            
            
            
            147
            
            
            
            142Income
      before income tax expense
            
            
            81
            
            
            
            118
            
            
            
            229
            
            
            
            320Income
      tax expense (benefit)
            
            
            (51
            )
            
            
            27
            
            
            
            (36
            )
            
            
            75Net
      income
            
            
            132
            
            
            
            91
            
            
            
            265
            
            
            
            245Net
      income attributable to noncontrolling interests
            
            
            -
            
            
            
            -
            
            
            
            1
            
            
            
            1Net
      income attributable to MidAmerican Funding
            
            $
            132
            
            
            $
            91
            
            
            $
            264
            
            
            $
            244





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


23


MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)


(Amounts
in millions)





Nine-Month
      Periods
                Ended September 30,2009
            
            
            2008Cash
      flows from operating activities:Net
      income
            
            $
            265
            
            
            $
            245Adjustments
      to reconcile net income to net cash flows from operating
      activities:Depreciation
      and amortization
            
            
            250
            
            
            
            209Provision
      for deferred income taxes, net
            
            
            165
            
            
            
            142Changes
      in other assets and liabilities
            
            
            23
            
            
            
            21Other,
      net
            
            
            13
            
            
            
            (10
            )Changes
      in other operating assets and liabilities:Receivables,
      net
            
            
            175
            
            
            
            91Inventories
            
            
            (12
            )
            
            
            (41
            )Derivative
      collateral, net
            
            
            12
            
            
            
            (42
            )Accounts
      payable
            
            
            (88
            )
            
            
            (68
            )Taxes
      accrued
            
            
            (28
            )
            
            
            2Other
      current assets and liabilities
            
            
            (8
            )
            
            
            2Net
      cash flows from operating activities
            
            
            767
            
            
            
            551Cash
      flows from investing activities:Utility
      construction expenditures
            
            
            (346
            )
            
            
            (1,102
            )Purchases
      of available-for-sale securities
            
            
            (212
            )
            
            
            (118
            )Proceeds
      from sales of available-for-sale securities
            
            
            197
            
            
            
            112Decrease
      (increase) in restricted cash and short-term investments
            
            
            10
            
            
            
            (25
            )Other,
      net
            
            
            14
            
            
            
            15Net
      cash flows from investing activities
            
            
            (337
            )
            
            
            (1,118
            )Cash
      flows from financing activities:Dividends
      paid
            
            
            (1
            )
            
            
            (1
            )Proceeds
      from long-term debt
            
            
            -
            
            
            
            451Repayment
      of long-term debt
            
            
            (175
            )
            
            
            (58
            )Net
      change in note payable to affiliate
            
            
            201
            
            
            
            30Net
      (repayments of) proceeds from short-term debt
            
            
            (457
            )
            
            
            149Other,
      net
            
            
            -
            
            
            
            (1
            )Net
      cash flows from financing activities
            
            
            (432
            )
            
            
            570Net
      change in cash and cash equivalents
            
            
            (2
            )
            
            
            3Cash
      and cash equivalents at beginning of period
            
            
            10
            
            
            
            12Cash
      and cash equivalents at end of period
            
            $
            8
            
            
            $
            15





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





24


MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(Unaudited)


(Amounts
in millions)





MidAmerican
      Funding Member’s EquityAccumulatedOtherComprehensivePaid-in
                Capital
            
            
            Retained
                Earnings
            
            
            Income
                (Loss),
      Net
            
            
            Noncontrolling
                Interests
            
            
            TotalEquityBalance,
      January 1, 2008
            
            $
            1,670
            
            
            $
            1,154
            
            
            $
            1
            
            
            $
            31
            
            
            $
            2,856Net
      income
            
            
            -
            
            
            
            244
            
            
            
            -
            
            
            
            1
            
            
            
            245Other
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            (28
            )
            
            
            -
            
            
            
            (28
            )Distributions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1
            )
            
            
            (1
            )Balance,
      September 30, 2008
            
            $
            1,670
            
            
            $
            1,398
            
            
            $
            (27
            )
            
            $
            31
            
            
            $
            3,072Balance,
      January 1, 2009
            
            $
            1,670
            
            
            $
            1,471
            
            
            $
            (60
            )
            
            $
            31
            
            
            $
            3,112Net
      income
            
            
            -
            
            
            
            264
            
            
            
            -
            
            
            
            1
            
            
            
            265Other
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            (5
            )
            
            
            -
            
            
            
            (5
            )Distributions
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1
            )
            
            
            (1
            )Balance,
      September 30, 2009
            
            $
            1,670
            
            
            $
            1,735
            
            
            $
            (65
            )
            
            $
            31
            
            
            $
            3,371





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








25


MIDAMERICAN
FUNDING, LLC AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





(1)
            General





MidAmerican
Funding, LLC (“MidAmerican Funding”) is an Iowa limited liability company with
MidAmerican Energy Holdings Company (“MEHC”) as its sole member. MEHC is a
consolidated subsidiary of Berkshire Hathaway Inc. MidAmerican Funding’s direct,
wholly owned subsidiary is MHC Inc. (“MHC”), which constitutes substantially all
of MidAmerican Funding’s assets, liabilities and business activities except
those related to MidAmerican Funding’s long-term debt securities. MHC conducts
no business other than the ownership of its subsidiaries. MHC’s principal
subsidiary is MidAmerican Energy Company (“MidAmerican Energy”), a public
utility with electric and natural gas operations. Direct, wholly owned
nonregulated subsidiaries of MHC are InterCoast Capital Company, Midwest Capital
Group, Inc., MEC Construction Services Co. and MidAmerican Services
Company.





The
unaudited Consolidated Financial Statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”) for interim financial information and the United States Securities and
Exchange Commission’s rules and regulations for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
disclosures required by GAAP for annual financial statements. Management
believes the unaudited Consolidated Financial Statements contain all adjustments
(consisting only of normal recurring adjustments) considered necessary for the
fair presentation of the Consolidated Financial Statements as of
September 30, 2009, and for the three- and nine-month periods ended
September 30, 2009 and 2008. Certain amounts in the prior period
Consolidated Financial Statements have been reclassified to conform to the
current period presentation. Such reclassifications did not impact previously
reported operating income, net income or retained earnings. The results of
operations for the three- and nine-month periods ended September 30, 2009,
are not necessarily indicative of the results to be expected for the full year.
MidAmerican Funding has evaluated subsequent events through November 6,
2009, which is the date the unaudited Consolidated Financial Statements were
issued.





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 revenue 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, 2008, describes the most significant
accounting policies used in the preparation of the Consolidated Financial
Statements. There have been no significant changes in MidAmerican Funding’s
assumptions regarding significant accounting estimates and policies during the
nine-month period ended September 30, 2009.





(2)
            New
      Accounting Pronouncements





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





In
December 2007, the Financial Accounting Standards Board (the “FASB”) issued
authoritative guidance (included in Accounting Standards Codification
Topic 810, “Consolidation”) that establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. MidAmerican Funding adopted this guidance on
January 1, 2009. The implementation of this guidance did not have a
material impact on MidAmerican Funding’s Consolidated Financial Statements. On
the Consolidated Balance Sheets, MidAmerican Energy preferred securities, which
was previously reported separately in the capitalization section, is now
included in noncontrolling interests. Also, MidAmerican Funding has presented
net income attributable to noncontrolling interests separately on the
Consolidated Statements of Operations. Previously, these amounts were reported
as preferred dividends of subsidiaries on the Consolidated Statements of
Operations.





26





(3)
            Fair
      Value Measurements





Refer to
Note 3 of MidAmerican Energy’s Notes to Consolidated Financial
Statements.





MidAmerican
Funding’s long-term debt is carried at cost in the Consolidated Financial
Statements. The fair value of MidAmerican Funding’s long-term debt has been
estimated based upon quoted market prices, where available, or at the present
value of future cash flows discounted at rates consistent with comparable
maturities with similar credit risks. The carrying amount of MidAmerican
Funding’s variable-rate long-term debt approximates fair value because of the
frequent repricing of these instruments at market rates. The following table
presents the carrying amount and estimated fair value of MidAmerican Funding’s
long-term debt (in millions):





As
      of September 30, 2009
            
            
            As
      of December 31, 2008Carrying
                Amount
            
            
            Fair
      Value
            
            
            Carrying
                Amount
            
            
            Fair
      ValueLong-term
      debt
            
            $
            3,390
            
            
            $
            3,721
            
            
            $
            3,565
            
            
            $
            3,610





(4)
            Risk
      Management and Hedging Activities





Refer to
Note 4 of MidAmerican Energy’s Notes to Consolidated Financial
Statements.





(5)
            Employee
      Benefit Plans





Refer to
Note 5 of MidAmerican Energy’s Notes to Consolidated Financial
Statements.





(6)
            Income
      Taxes





MidAmerican
Funding’s income tax expense decreased $78 million to a benefit of
$51 million for the three-month period ended September 30, 2009, with
an effective tax rate of (63)% compared to 23% for the three-month period ended
September 30, 2008. MidAmerican Funding’s income tax expense decreased
$111 million to a benefit of $36 million for the nine-month period
ended September 30, 2009, with an effective tax rate of (16)% compared to
23% for the nine-month period ended September 30, 2008. Refer to
Note 6 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for a discussion of the factors affecting the  decrease in the 2009
effective tax rates compared to 2008.





(7)
            Commitments
      and Contingencies





MidAmerican
Funding is party to a variety of legal actions or claims arising out of the
normal course of business. Plaintiffs occasionally seek punitive or exemplary
damages. MidAmerican Funding does not believe that such normal and routine
matters will have a material effect on its consolidated financial
results.





Refer to
Note 7 of MidAmerican Energy’s Notes to Consolidated Financial
Statements.





27





(8)
            Comprehensive
      Income and Components of Accumulated Other Comprehensive Loss,
      Net





Comprehensive
income attributable to MidAmerican Funding consists of the following components
(in millions):





Three-Month
      Periods
                Ended
      September 30,
            
            
            Nine-Month
      Periods
                Ended
      September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Net
      income attributable to MidAmerican Funding
            
            $
            132
            
            
            $
            91
            
            
            $
            264
            
            
            $
            244Other
      comprehensive income (loss) attributable toMidAmerican
      Funding:Fair
      value adjustment on cash flow hedges,
              net
      of tax of $7, $(22), $(2) and $(12)
            
            
            10
            
            
            
            (36
            )
            
            
            (2
            )
            
            
            (20
            )Unrealized
      losses on available-for-sale securities,
              net
      of tax of $(1), $(1), $(2) and $(5)
            
            
            -
            
            
            
            (3
            )
            
            
            (3
            )
            
            
            (8
            )Total
      other comprehensive income (loss) attributable toMidAmerican
      Funding
            
            
            10
            
            
            
            (39
            )
            
            
            (5
            )
            
            
            (28
            )Comprehensive
      income attributable to MidAmerican Funding
            
            $
            142
            
            
            $
            52
            
            
            $
            259
            
            
            $
            216





Refer to
Note 8 of MidAmerican Energy’s Notes to Consolidated Financial Statements
for the components of accumulated other comprehensive loss, net.





(9)
            Segment
      Information





MidAmerican
Funding has identified three reportable operating segments: regulated electric,
regulated gas and nonregulated energy. The regulated electric segment derives
most of its revenue from regulated retail sales of electricity to residential,
commercial, and industrial customers and from wholesale sales. The regulated gas
segment derives most of its revenue from regulated retail sales of natural gas
to residential, commercial, and industrial customers and also obtains
significant revenue by transporting gas owned by others through its distribution
system. Pricing for regulated electric and regulated gas sales are established
separately by regulatory agencies; therefore, management also reviews each
segment separately to make decisions regarding allocation of resources and in
evaluating performance. The nonregulated energy segment derives most of its
revenue from nonregulated retail electric and gas activities. Common operating
costs, interest income, interest expense and income tax expense are allocated to
each segment based on certain factors, which primarily related to the nature of
the cost. “Other” in the tables below consists of the nonregulated subsidiaries
of MidAmerican Funding not engaged in the energy business and parent company
interest expense.





28


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





Three-Month
      Periods
                Ended
      September 30,
            
            
            Nine-Month
      Periods
                Ended
      September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Operating
      revenue:Regulated
      electric
            
            $
            451
            
            
            $
            552
            
            
            $
            1,286
            
            
            $
            1,527Regulated
      gas
            
            
            85
            
            
            
            192
            
            
            
            591
            
            
            
            1,043Nonregulated
      energy
            
            
            275
            
            
            
            360
            
            
            
            831
            
            
            
            985Other
            
            
            1
            
            
            
            3
            
            
            
            3
            
            
            
            6Total
      operating revenue
            
            $
            812
            
            
            $
            1,107
            
            
            $
            2,711
            
            
            $
            3,561Depreciation
      and amortization:Regulated
      electric
            
            $
            76
            
            
            $
            51
            
            
            $
            224
            
            
            $
            184Regulated
      gas
            
            
            9
            
            
            
            9
            
            
            
            26
            
            
            
            25Total
      depreciation and amortization
            
            $
            85
            
            
            $
            60
            
            
            $
            250
            
            
            $
            209Operating
      income:Regulated
      electric
            
            $
            112
            
            
            $
            148
            
            
            $
            272
            
            
            $
            353Regulated
      gas
            
            
            (4
            )
            
            
            (5
            )
            
            
            43
            
            
            
            43Nonregulated
      energy
            
            
            14
            
            
            
            15
            
            
            
            48
            
            
            
            40Other
            
            
            1
            
            
            
            1
            
            
            
            -
            
            
            
            2Total
      operating income
            
            $
            123
            
            
            $
            159
            
            
            $
            363
            
            
            $
            438





As
      ofSeptember 30,
            
            
            December 31,2009
            
            
            2008Total
      assets(1):Regulated
      electric
            
            $
            8,557
            
            
            $
            8,488Regulated
      gas
            
            
            954
            
            
            
            1,051Nonregulated
      energy
            
            
            212
            
            
            
            251Other
            
            
            19
            
            
            
            20Total
      assets
            
            $
            9,742
            
            
            $
            9,810





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





29





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 Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, as amended. 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 MidAmerican Energy’s current
intentions, assumptions, expectations and beliefs and are subject to risks,
uncertainties and other important factors. Many of these factors are outside the
control of MidAmerican Funding or MidAmerican Energy and could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements. These factors include, among others:





·
            general
      economic, political and business conditions in the jurisdictions in which
      MidAmerican Energy’s facilities
operate;




·
            changes
      in governmental, legislative, or regulatory requirements affecting
      MidAmerican Energy or the electric or gas utility
    industries;




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




·
            the
      outcome of general rate cases and other proceedings conducted by
      regulatory commissions or other governmental and legal
    bodies;




·
            changes
      in economic, industry or weather conditions, as well as demographic
      trends, that could affect customer growth and usage or supply of
      electricity and gas;




·
            a
      high degree of variance between actual and forecasted load and prices that
      could impact the hedging strategy and costs to balance electricity and
      load supply;




·
            changes
      in prices and availability for both purchases and sales of wholesale
      electricity, coal, natural gas, other fuel sources and fuel transportation
      that could have a significant impact on generation capacity and energy
      costs;




·
            the
      financial condition and creditworthiness of MidAmerican Energy’s
      significant customers and
suppliers;




·
            changes
      in business strategy or development
plans;




·
            availability,
      terms and deployment of capital, including severe reductions in demand for
      investment grade commercial paper, debt securities and other sources of
      debt financing and volatility in the London Interbank Offered Rate, the
      base interest rate for MidAmerican Energy’s credit
    facilities;




·
            changes
      in MidAmerican Energy’s credit
ratings;




·
            performance
      of MidAmerican Energy’s generating facilities, including unscheduled
      outages or repairs;




30




·
            risks
      relating to nuclear generation;




·
            the
      impact of derivative instruments used to mitigate or manage volume, price
      and interest rate risks, including increased collateral requirements, and
      changes in the commodity prices, interest rates and other conditions that
      affect the value of derivative
instruments;




·
            the
      impact of increases in healthcare costs and changes in interest rates,
      mortality, morbidity, investment performance and legislation on pension
      and other postretirement benefits expense and funding
      requirements;




·
            unanticipated
      construction delays, changes in costs, receipt of required permits and
      authorizations, ability to fund capital projects and other factors that
      could affect future generating facilities and infrastructure
      additions;




·
            the
      impact of new accounting pronouncements or changes in current accounting
      estimates and assumptions on financial
results;




·
            other
      risks or unforeseen events, including litigation, 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 filings with the
      United States (“U.S.”) Securities and Exchange Commission (“SEC”) or in
      other publicly disseminated written
documents.




Further
details of the potential risks and uncertainties affecting MidAmerican Funding
or MidAmerican Energy are described in their filings with the SEC, including
Part II, Item 1A and other discussions contained in this Form 10-Q.
MidAmerican Funding and MidAmerican Energy undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The foregoing review of factors should
not be construed as exclusive.





Results
of Operations for the Third Quarter and First Nine Months of 2009 and
2008





Overview





MidAmerican
Energy’s earnings on common stock for the third quarter of 2009 was
$136 million, an increase of $38 million, or 39%, and for the first
nine months of 2009 was $280 million, an increase of $16 million, or
6%, compared to 2008. The increases were primarily due to $55 million of income
tax benefits recognized in the third quarter of 2009 for a change in the tax
accounting method determining current income tax deductions for certain asset
repairs. Additionally, income taxes for 2009 decreased compared to 2008 due to
the benefits of additional production tax credits in 2009 and the effects of
ratemaking. Operating income decreased $36 million for the third quarter of
2009 and $73 million for the first nine months of 2009 compared to 2008 due in
large part to current weak economic conditions and mild weather, which lowered
demand for electricity. Accordingly, prices and volumes for electric wholesale
sales and sales volumes for electric retail customers decreased compared to
2008. These decreases were partially offset by a lower average cost of energy
due in part to reduced costs of purchased energy and the addition of
wind-powered generating facilities in 2008. As a result of the increase in
wind-powered generation plant, depreciation expense increased compared to the
third quarter and first nine months of 2008. Maintenance expense decreased for
2009 due to significant emergency storm restoration in 2008.





Net
income attributable to MidAmerican Funding for the third quarter of 2009 was
$132 million, an increase of $41 million, or 45%, and for the first
nine months of 2009 was $264 million, an increase of $20 million, or
8%, compared to 2008.





31


Regulated Electric Gross
Margin





Third
      Quarter
            
            
            First
      Nine Months2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeGross
      margin (in millions):Operating
      revenue
            
            $
            451
            
            
            $
            552
            
            
            $
            (101
            )
            
            
            (18
            )%
            
            $
            1,286
            
            
            $
            1,527
            
            
            $
            (241
            )
            
            
            (16
            )%Less
      - cost of fuel, energy and capacity
            
            
            125
            
            
            
            206
            
            
            
            (81
            )
            
            
            (39
            )
            
            
            375
            
            
            
            571
            
            
            
            (196
            )
            
            
            (34
            )Electric
      gross margin
            
            $
            326
            
            
            $
            346
            
            
            $
            (20
            )
            
            
            (6
            )
            
            $
            911
            
            
            $
            956
            
            
            $
            (45
            )
            
            
            (5
            )Sales
      (Gigawatt hours (“GWh”)):Retail
            
            
            5,318
            
            
            
            5,596
            
            
            
            (278
            )
            
            
            (5
            )%
            
            
            15,207
            
            
            
            15,844
            
            
            
            (637
            )
            
            
            (4
            )%Wholesale
            
            
            2,981
            
            
            
            3,508
            
            
            
            (527
            )
            
            
            (15
            )
            
            
            9,523
            
            
            
            10,686
            
            
            
            (1,163
            )
            
            
            (11
            )Total
            
            
            8,299
            
            
            
            9,104
            
            
            
            (805
            )
            
            
            (9
            )
            
            
            24,730
            
            
            
            26,530
            
            
            
            (1,800
            )
            
            
            (7
            )





Electric
gross margin for the third quarter of 2009 decreased $20 million compared
to the third quarter of 2008 due to a $12 million decrease in gross margin
on electric wholesale sales, which include sales of energy to markets operated
by regional transmission organizations, other utilities, municipalities and
marketers, and an $8 million decrease in gross margin on electric retail sales.
The decrease in electric wholesale gross margin was due to a 15% decrease in
wholesale volumes and a reduction in the average margin on sales principally as
a result of current economic conditions, which have created reduced demand for
electricity and downward pressure on prices in the market. The decrease in
electric retail gross margin was primarily due to a 5% reduction in sales
volumes as a result of mild temperatures in the service territory, partially
offset by customer growth and lower average costs of purchased electricity and
natural gas and less energy produced with natural gas. Additionally, income from
sales of renewable energy credits decreased $4 million compared to the third
quarter of 2008 primarily due to significantly lower market prices. Recovery of
electric energy efficiency program costs increased $2 million compared to
the third quarter of 2008, contributing to electric retail gross margin. Changes
in the recovery of energy efficiency program costs are substantially matched by
changes in other operating expenses.





Electric
gross margin for the first nine months of 2009 decreased $45 million
compared to the first nine months of 2008. Electric wholesale gross margin
decreased $51 million due to a significant reduction in the average margin
on wholesale sales and an 11% decrease in wholesale volumes as a result of the
current economy’s downward pressure on prices and demand for electricity in the
wholesale market. Electric retail gross margin increased $6 million
compared to the first nine months of 2008 principally due to a reduction in the
average cost of purchased electricity and natural gas and less energy produced
with natural gas. Customer growth also contributed to the increase in electric
retail gross margin. The positive impact of these factors was significantly
offset by a reduction in sales to industrial customers as a result of current
economic conditions and in sales to other retail customers due to the effects of
milder temperatures in the service territory during the first nine months of
2009. Recovery of electric energy efficiency program costs increased
$7 million compared to the first nine months of 2008. Changes in the
recovery of energy efficiency program costs are substantially matched by changes
in other operating expenses. Income from the sales of renewable energy credits
decreased $6 million due to significantly lower market prices.





32


Regulated Gas Gross
Margin





Third
      Quarter
            
            
            First
      Nine Months2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeGross
      margin (in millions):Operating
      revenue
            
            $
            85
            
            
            $
            192
            
            
            $
            (107
            )
            
            
            (56
            )%
            
            $
            591
            
            
            $
            1,043
            
            
            $
            (452
            )
            
            
            (43
            )%Less
      - cost of gas sold
            
            
            45
            
            
            
            154
            
            
            
            (109
            )
            
            
            (71
            )
            
            
            417
            
            
            
            866
            
            
            
            (449
            )
            
            
            (52
            )Gas
      gross margin
            
            $
            40
            
            
            $
            38
            
            
            $
            2
            
            
            
            5
            
            
            $
            174
            
            
            $
            177
            
            
            $
            (3
            )
            
            
            (2
            )Sales
      (000’s decatherms (“Dths”)):Retail
            
            
            5,984
            
            
            
            6,222
            
            
            
            (238
            )
            
            
            (4
            )%
            
            
            54,749
            
            
            
            59,287
            
            
            
            (4,538
            )
            
            
            (8
            )%Wholesale
            
            
            4,951
            
            
            
            10,387
            
            
            
            (5,436
            )
            
            
            (52
            )
            
            
            27,881
            
            
            
            32,302
            
            
            
            (4,421
            )
            
            
            (14
            )Total
            
            
            10,935
            
            
            
            16,609
            
            
            
            (5,674
            )
            
            
            (34
            )
            
            
            82,630
            
            
            
            91,589
            
            
            
            (8,959
            )
            
            
            (10
            )





Regulated
gas revenue includes 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 regulated gas revenue reflects
comparable fluctuations through the purchased gas adjustment clauses. Compared
to the third quarter of 2008, MidAmerican Energy’s average per-unit cost of gas
sold decreased 56%, resulting in a $55 million decrease in gas revenue and
cost of gas sold for the third quarter of 2009. MidAmerican Energy’s average
per-unit cost of gas sold decreased 47% for the first nine months of 2009
compared to the first nine months of 2008, resulting in a $364 million
decrease in gas revenue and cost of gas sold. Additionally, regulated gas
revenue decreased compared to the third quarter and the first nine months of
2008 due to lower retail sales volumes as a result of milder temperatures during
2009 and fewer wholesale market opportunities in the third quarter of 2009.
Recovery of gas energy efficiency program costs for the third quarter and the
first nine months of 2009 increased $2 million and $4 million,
respectively, compared to the third quarter and first nine months of 2008.
Changes in the recovery of energy efficiency program costs are substantially
matched by changes in other operating expenses.





Regulated Operating Costs
and Expenses





Other
operating expenses of $104 million for the third quarter of 2009 were
unchanged compared to the third quarter of 2008 reflecting a $4 million
increase in energy efficiency program costs, which was substantially matched by
an increase in related revenue, offset by the impact of cost containment
efforts.





Other
operating expenses of $309 million for the first nine months of 2009
increased $4 million compared to the first nine months of 2008 due to an
$11 million increase in energy efficiency program costs, which was
substantially matched by an increase in related revenue. Additionally, increases
in Quad Cities Generating Station costs and a lower property insurance refund
were more than offset by the impact of cost containment efforts.





Maintenance
expense of $43 million for the third quarter of 2009 decreased
$11 million compared to the third quarter of 2008 due to a $14 million
decrease in costs for emergency response and restoration due to intense storms
and extensive flooding in the third quarter of 2008. Maintenance expense
increased $2 million for the third quarter of 2009 due to the addition of
new wind-powered generating facilities during 2008.





Maintenance
expense of $133 million for the first nine months of 2009 decreased
$19 million compared to the first nine months of 2008 due to a
$22 million decrease in costs for emergency response and restoration as a
result of the storms and flooding in the second and third quarters of 2008 and a
$2 million decrease in fossil-fueled generation plant maintenance.
Maintenance expense increased $5 million due to the addition of new
wind-powered generating facilities during 2008.





Depreciation
and amortization expense of $85 million for the third quarter of 2009
increased $25 million compared to the third quarter of 2008. For the first
nine months of 2009, depreciation and amortization expense of $250 million
increased $41 million compared to the first nine months of 2008. Utility
plant depreciation expense increased $15 million for the third quarter of
2009 and $44 million for the first nine months of 2009 primarily as a
result of additional wind-powered generating facilities placed in service in
2008. In addition, for the third quarter of 2009, regulatory expense related to
a revenue sharing arrangement in Iowa increased $11 million as a result of
an adjustment in the third quarter of 2008 necessitated by lower than expected
Iowa electric returns.





33


Nonregulated Gross
Margin





Third
      Quarter
            
            
            First
      Nine Months2009
            
            
            2008
            
            
            Change
            
            
            2009
            
            
            2008
            
            
            ChangeMidAmerican
      Energy (in millions):Nonregulated
      operating revenue
            
            $
            275
            
            
            $
            360
            
            
            $
            (85
            )
            
            
            (24
            )%
            
            $
            831
            
            
            $
            985
            
            
            $
            (154
            )
            
            
            (16
            )%Less
      - nonregulated cost of sales
            
            
            254
            
            
            
            337
            
            
            
            (83
            )
            
            
            (25
            )
            
            
            761
            
            
            
            925
            
            
            
            (164
            )
            
            
            (18
            )Nonregulated
      gross margin
            
            $
            21
            
            
            $
            23
            
            
            $
            (2
            )
            
            
            (9
            )
            
            $
            70
            
            
            $
            60
            
            
            $
            10
            
            
            
            17MidAmerican
      Funding (in millions):Nonregulated
      operating revenue
            
            $
            276
            
            
            $
            363
            
            
            $
            (87
            )
            
            
            (24
            )%
            
            $
            834
            
            
            $
            991
            
            
            $
            (157
            )
            
            
            (16
            )%Less
      - nonregulated cost of sales
            
            
            254
            
            
            
            337
            
            
            
            (83
            )
            
            
            (25
            )
            
            
            762
            
            
            
            926
            
            
            
            (164
            )
            
            
            (18
            )Nonregulated
      gross margin
            
            $
            22
            
            
            $
            26
            
            
            $
            (4
            )
            
            
            (15
            )
            
            $
            72
            
            
            $
            65
            
            
            $
            7
            
            
            
            11Nonregulated
      electric retail sales (GWh)
            
            
            2,830
            
            
            
            2,517
            
            
            
            313
            
            
            
            12
            %
            
            
            7,639
            
            
            
            7,169
            
            
            
            470
            
            
            
            7
            %Nonregulated
      gas sales (Dths)
            
            
            7,825
            
            
            
            9,257
            
            
            
            (1,432
            )
            
            
            (15
            )%
            
            
            30,825
            
            
            
            35,417
            
            
            
            (4,592
            )
            
            
            (13
            )%





Nonregulated
revenue and cost of sales for the third quarter of 2009 decreased compared to
the third quarter of 2008 due to lower average prices and costs for nonregulated
gas sales and a 15% decrease in related sales volumes. An increase in
nonregulated electric retail revenue and cost of sales due to a 12% increase in
sales volumes partially offset the decreases from nonregulated gas activities.
Nonregulated gross margin decreased compared to the third quarter of 2008
primarily due to reduced earnings from sharing arrangements under applicable
state regulations and tariffs related to MidAmerican Energy’s regulated natural
gas operations.





Nonregulated
revenue and cost of sales for the first nine months of 2009 decreased compared
to the first nine months of 2008 due to lower average prices and costs for
nonregulated gas sales and a 13% decrease in related sales volumes. An increase
in nonregulated electric retail revenue and cost of sales due to a 7% increase
in sales volumes partially offset the decreases from nonregulated gas
activities. Nonregulated gross margin increased compared to the first nine
months of 2008 primarily due to improved price spreads for both nonregulated
electric and nonregulated gas sales and an increase in nonregulated electric
sales volumes. Reduced earnings from sharing arrangements under applicable state
regulations and tariffs related to MidAmerican Energy’s regulated natural gas
operations partially offset these increases.





Non-Operating
Income





MidAmerican
Energy’s non-operating income for the third quarter and first nine months of
2009 decreased $1 million and $11 million, respectively, compared to
the third quarter and first nine months of 2008 due to a decrease in allowance
for equity funds as a result of higher short-term borrowings and a decrease in
construction work in progress during 2009. As a regulated public utility,
MidAmerican Energy is allowed to capitalize, and record as income, a cost of
construction for equity funds used, based on guidelines set forth by the Federal
Energy Regulatory Commission (“FERC”). The decreases in allowance for equity
funds was partially offset by increases in income from corporate-owned life
insurance policies as a result of improvement in the capital markets and gains
on the sales of property in 2009.





Fixed
Charges





The
$3 million increase in MidAmerican Energy’s interest on long-term debt for
the first nine months of 2009 compared to the first nine months of 2008 was due
to the issuance of $350 million of 5.3% Senior Notes in March 2008,
partially offset by decreases due to the retirement of long-term debt and lower
variable interest rates. 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. Allowance for borrowed funds
decreased $5 million and $10 million for the third quarter and first
nine months of 2009, respectively, due to a decrease in construction work in
progress compared to 2008.





In
February 2009, MidAmerican Funding repaid $175 million of 6.339% Senior
notes, which reduced its interest on long-term debt for the third quarter and
first nine months of 2009.


34


Income Tax Expense
(Benefit)





MidAmerican
Energy’s income tax expense decreased $79 million to a benefit of
$47 million for the third quarter of 2009 with an effective tax rate of
(53)% compared to 25% for the third quarter of 2008. MidAmerican Energy’s income
tax expense decreased $112 million to a benefit of $24 million for the
first nine months of 2009 with an effective tax rate of (9)% compared to 25% for
the first nine months of 2008. The decrease in 2009 income taxes and effective
tax rates compared to 2008 was mainly due to $55 million of income tax
benefits recognized in the third quarter of 2009 for a change in the tax
accounting method for the repairs deduction discussed below, lower pre-tax
income, the effects of ratemaking and the benefit of additional production tax
credits.





MidAmerican
Energy changed the method by which it determines current income tax deductions
for repairs on certain of its regulated utility assets (the “repairs
deduction”), which results in current deductibility for costs that are
capitalized for book purposes. The repairs deduction was computed for tax years
1998 and forward and was deducted on the 2008 income tax return. Iowa,
MidAmerican Energy’s largest jurisdiction for rate-regulated operations,
requires immediate income recognition of such temporary differences. For the
third quarter and first nine months of 2009, MidAmerican Energy’s earnings
reflect $55 million of net tax benefits recognized. Additionally,
regulatory assets reflect an increase of $95 million in recognition of
MidAmerican Energy’s ability to recover increased tax expense when such
temporary differences reverse.





Federal
law 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 third
quarter and first nine months of 2009 include $6 million and
$17 million, respectively, of additional production tax credits compared to
the third quarter and first nine months of 2008 due to additional wind-powered
generation.





State
utility rate regulation in Iowa requires that the tax effect of certain
temporary 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 treatment of such temporary
differences impacts the effective tax rates from year to year. Accordingly,
greater tax depreciation in 2009, due primarily to the addition of wind-powered
generation facilities in the fourth quarter of 2008, decreased the effective tax
rate compared to 2008.





MidAmerican
Funding’s income tax expense decreased $78 million to a benefit of
$51 million for the third quarter of 2009 with an effective tax rate of
(63)% compared to 23% for the third quarter of 2008. MidAmerican Funding’s
income tax expense decreased $111 million to a benefit of $36 million
for the first nine months of 2009 with an effective tax rate of (16)% compared
to 23% for the first nine months of 2008.





Liquidity
and Capital Resources





As of
September 30, 2009, MidAmerican Energy’s total net liquidity available was
$462 million consisting of $7 million of cash and cash equivalents and
$650 million of revolving credit facilities reduced by $195 million of
the revolving credit facilities reserved to support MidAmerican Energy’s
variable-rate tax-exempt bond obligations. As of September 30, 2009,
MidAmerican Funding’s total net liquidity available was $467 million,
including MHC’s $4 million revolving credit facility and an additional
$1 million of cash and cash equivalents.





MidAmerican
Energy has restricted cash and investments included in restricted cash and
short-term investments and investments and nonregulated property, net on the
Consolidated Balance Sheets totaling $260 million and $246 million as
of September 30, 2009 and December 31, 2008, respectively, primarily
related to funds held in trust for nuclear decommissioning.





Cash Flows From Operating
Activities





MidAmerican
Energy’s net cash flows from operating activities for the nine-month periods
ended September 30, 2009 and 2008, were $792 million and
$581 million, respectively. MidAmerican Funding’s net cash flows from
operating activities for the nine-month periods ended September 30, 2009
and 2008, were $767 million and $551 million, respectively. The
increase was principally due to higher income tax receipts resulting from the
current repairs deduction, lower pre-tax income, additional production tax
credits and greater tax depreciation on increased capital additions in 2009.
Additionally, a return of cash collateral posted for derivative positions and
reduced working capital requirements as a result of lower gas prices contributed
to the increase in net cash flows from operating activities.




35





Cash Flows From Investing
Activities





MidAmerican
Energy’s net cash flows from investing activities for the nine-month periods
ended September 30, 2009 and 2008, were $(336) million and
$(1.118) billion, respectively. MidAmerican Funding’s net cash flows from
investing activities for the nine-month periods ended September 30, 2009
and 2008, were $(337) million and $(1.118) billion, respectively. Net
cash flows from investing activities consist almost entirely of utility
construction expenditures. The decrease in utility construction expenditures is
due to the construction of wind-powered generating facilities during
2008.





Cash Flows From Financing
Activities





MidAmerican
Energy’s net cash flows from financing activities for the nine-month periods
ended September 30, 2009 and 2008, were $(458) million and
$540 million, respectively. MidAmerican Funding’s net cash flows from
financing activities for the nine-month periods ended September 30, 2009
and 2008, were $(432) million and $570 million, respectively. In 2009,
MidAmerican Energy made repayments of short-term debt totaling $457 million
compared to proceeds from short-term debt of $149 million in 2008 due to
the improvement in cash flows from operating activities and lower requirements
for utility construction expenditures. In 2008, MidAmerican Energy received
proceeds from the issuance of its long-term debt totaling $451 million and
repaid $58 million of its long-term debt. In 2009, MidAmerican Funding repaid
$175 million of 6.339% Senior notes and received $201 million,
compared to $30 million in 2008, through its note payable with MidAmerican
Energy Holdings Company.





Debt
Authorizations and Related Matters





MidAmerican
Energy has authority from the FERC to issue commercial paper and bank notes
aggregating $1.2 billion through October 30, 2010. MidAmerican Energy
currently has an unsecured $645 million multi-bank revolving credit
facility that supports its commercial paper program and its variable-rate
tax-exempt bond obligations. The credit facility reduces in July 2012 to
$530 million and expires in July 2013. Additionally, MidAmerican Energy has
a $5 million unsecured revolving credit facility for general corporate
purposes.





MidAmerican
Energy currently has an effective registration statement with the SEC to issue
any amount of long-term securities through October 1, 2011. It also has
authorization from the FERC to issue long-term securities totaling up to
$870 million through October 30, 2010. Regarding annual and multiple
year capital projects, MidAmerican Energy has authorizations from the Illinois
Commerce Commission (“ICC”), expiring from October 8, 2010 to
October 8, 2012, to issue up to an aggregate of $993 million of
long-term debt securities.





In
conjunction with the March 1999 merger, MidAmerican Energy committed to the Iowa
Utilities Board (“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 September 30, 2009, MidAmerican Energy’s common equity
ratio was 49% computed on a basis consistent with its commitment.





Future Uses of
Cash





MidAmerican
Energy and MidAmerican Funding have available a variety of sources of liquidity
and capital resources, both internal and external, including net cash flows from
operating activities, public and private debt offerings, the issuance of
commercial paper, the use of unsecured revolving credit facilities, and other
sources. These sources are expected to provide funds required for current
operations, capital expenditures, debt retirements and other capital
requirements. The availability and terms under which MidAmerican Energy and
MidAmerican Funding have access to external financing depends on a variety of
factors, including their credit ratings, investors’ judgment of risk and
conditions in the overall capital market, including the condition of the utility
industry in general.




36


Utility
Construction Expenditures





MidAmerican
Energy’s primary need for capital is utility construction expenditures.
MidAmerican Energy’s utility construction expenditures for 2009, excluding the
non-cash allowance for equity funds used during construction, are estimated to
be approximately $393 million, which includes $21 million for
emissions control equipment to address current and anticipated air quality
regulations and $371 million for ongoing operational projects, including
distribution, transmission, generation and other infrastructure needed to serve
existing and expected growing demand. Capital expenditure needs are reviewed
regularly by management and may change significantly as a result of such
reviews, which may consider, among other factors, changes in rules and
regulations, including environmental and nuclear, changes in income tax laws,
general business conditions, load projections, system reliability standards, the
cost and efficiency of construction labor, equipment and materials, and the cost
and availability of capital.





MidAmerican
Energy continues to evaluate additional cost effective wind-powered generation.
On March 25, 2009, MidAmerican Energy filed with the IUB for its approval
of a settlement agreement between MidAmerican Energy and the Iowa Office of
Consumer Advocate (“OCA”) in conjunction with MidAmerican Energy’s ratemaking
principles application to construct up to 1,001 MW (nameplate ratings) of
additional wind-powered generation in Iowa through 2012. MidAmerican Energy has
not entered into any material contracts for the development or construction of
new wind-powered generation or the purchase of any related wind
turbines.





MidAmerican
Energy is subject to federal, state and local laws and regulations with regard
to air and water quality, hazardous and solid waste disposal, protected species
and other environmental matters that have the potential to impact MidAmerican
Energy’s current and future operations. The future costs (beyond existing
planned capital expenditures) of complying with applicable environmental laws,
regulations and rules cannot yet be reasonably estimated but could be material
to MidAmerican Energy. MidAmerican Energy is not aware of any proven,
commercially available technology that eliminates or captures and stores carbon
dioxide emissions from coal-fired and natural gas-fired generation facilities,
and MidAmerican Energy is uncertain when, or if, such technology will be
commercially available.





MidAmerican
Energy has implemented a planning process that forecasts the site-specific
controls and actions that may be required to meet emissions reductions as
promulgated by the U.S. Environmental Protection Agency (“EPA”). The plan is
designed to effectively manage its expenditures required to comply with
emissions standards. On April 1, 2008, MidAmerican Energy submitted to the
IUB an updated plan, as required every two years by Iowa law, which increased
its estimate of required expenditures. That plan estimated that the cost of
capital expenditures for emission control equipment included in its plan for
compliance with current air quality requirements would total approximately
$260 million for January 1, 2009, 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.





Contractual
Obligations





Subsequent
to December 31, 2008, there were no material changes outside the normal
course of business in MidAmerican Energy’s and MidAmerican Funding’s contractual
obligations from the information provided in Item 7 of their Annual Report
on Form 10-K for the year ended December 31, 2008. Additionally, refer
to the “Utility Construction Expenditures” discussion included in Liquidity and
Capital Resources.





Environmental
Regulations





In
addition to the updates contained herein, refer to Note 7 of Notes to
Consolidated Financial Statements included in Item 1 of this Form 10-Q
and the “Environmental Regulations” section of Item 1 of MidAmerican
Energy’s and MidAmerican Funding’s Annual Report on Form 10-K for the year ended
December 31, 2008, for additional information regarding certain
environmental matters affecting MidAmerican Energy’s operations.





37


Climate
Change





As a
result of increased attention to global climate change in the United States,
there are significant future environmental regulations under consideration to
increase the deployment of clean energy technologies and regulate emissions of
greenhouse gases at the state, regional and federal levels. Congress and federal
policy makers are considering climate change legislation and a variety of
national climate change policies, such as the American Clean Energy and Security
Act of 2009 (“Waxman-Markey bill”) discussed in Note 7 of Notes to
Consolidated Financial Statements. In addition, governmental and nongovernmental
organizations and others have become more active in initiating litigation under
existing environmental and other laws.





In April
2009, the EPA issued a proposed finding, in response to the United States
Supreme Court’s 2007 decision in the case of Massachusetts v. EPA, that
under Section 202(a) of the Clean Air Act six greenhouse gases - carbon dioxide,
methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur
hexafluoride - threaten the public health and welfare of current and future
generations. The finding does not include any proposed regulations regarding
greenhouse gas emissions; however, such regulatory or legislative action could
have a significant adverse impact on MidAmerican Energy’s current and future
fossil-fueled generating facilities. In September 2009, in anticipation of
the regulation of greenhouse gases under Section 202(a) of the Clean Air Act,
the EPA released a proposed greenhouse gas “tailoring” rule which would require
new or modified facilities with increased greenhouse gas emissions in excess of
25,000 tons per year of carbon dioxide equivalent emissions to undergo a best
available control technology review. In addition, the proposal would require the
incorporation of greenhouse gas emissions under Title V operating
permits.





In
September 2009, the United States Court of Appeals for the Second Circuit
(the “Second Circuit”) issued its opinion in the case of Connecticut v. American Electric
Power, which remanded to the lower court a nuisance action by eight
states and the City of New York against five large utility emitters of carbon
dioxide. The United States District Court for the Southern District of New York
(the “Southern District of New York”) dismissed the case in 2005, holding that
the claims that emissions of greenhouse gases from the defendants' coal-fueled
generating facilities were causing harmful climate change and should be enjoined
as a public nuisance under federal common law presented a “political question”
that the court lacked jurisdiction to decide. The Second Circuit rejected the
Southern District of New York’s conclusion that the plaintiffs' claims were
barred from consideration as a political question and the Southern District of
New York was not precluded from determining the case on its merits. MidAmerican
Energy cannot predict the outcome of this litigation or its potential impact at
this time.





In
October 2009, a three judge panel in the United States Court of Appeals for
the Fifth Circuit (the “Fifth Circuit”) issued its opinion in the case of Ned Comer, et al. v. Murphy Oil USA,
et al., a putative class action lawsuit against insurance, oil, coal and
chemical companies, based on claims that the defendants’ emissions of greenhouse
gases contributed to global warming that in turn caused a rise in sea levels and
added to the ferocity of Hurricane Katrina, which combined to destroy the
plaintiff’s private property, as well as public property. In 2007, the United
States District Court for the Southern District of Mississippi (the “Southern
District of Mississippi”) had dismissed the case based on the lack of standing
and further held that the claims were barred by the political question doctrine.
The Fifth Circuit reversed the lower court decision and held that the plaintiffs
had standing to assert their public and private nuisance, trespass, and
negligence claims and concluded that the claims did not present a political
question. The case was remanded to the Southern District of Mississippi for
further proceedings with the court noting that it had not determined, and would
leave to the lower court to analyze, whether the alleged chain of causation
satisfies the proximate cause requirement under Mississippi state common
law.





In
October 2009, the United States District Court for the Northern District of
California (the “Northern District of California”) granted the defendants’
motions to dismiss in the case of Native Village of Kivalina v.
ExxonMobil Corporation, et al. The plaintiffs filed their complaint in
February 2008, asserting claims against 24 defendants, including electric
generating companies, oil companies and a coal company, for public nuisance
under state and federal common law based on the defendants’ greenhouse gas
emissions. The Northern District of California dismissed all of the plaintiffs’
federal claims, holding that the court lacked subject matter jurisdiction to
hear the claims under the political question doctrine, and that the plaintiffs
lacked standing to bring their claims. The Northern District of California
declined to hear the state law claims and the case was dismissed with prejudice
to their future presentation in an appropriate state court.





38


Credit
Ratings





MidAmerican
Energy’s senior unsecured debt credit ratings are as follows: Moody’s Investors
Service, “A2/stable;” Standard & Poor’s, “A-/stable;” and Fitch Ratings,
“A/stable.” Debt and preferred securities of MidAmerican Energy are rated by
nationally recognized credit rating agencies. Assigned credit ratings are based
on each rating agency’s assessment of MidAmerican Energy’s ability to, in
general, meet the obligations of its issued debt or preferred securities. The
credit ratings are not a recommendation to buy, sell or hold securities, and
there is no assurance that a particular credit rating will continue for any
given period of time.





MidAmerican
Funding and MidAmerican Energy have no credit rating downgrade triggers that
would accelerate the maturity dates of their outstanding debt, and a change in
ratings is not an event of default under the applicable debt instruments.
MidAmerican Energy’s unsecured revolving credit facilities do not require the
maintenance of a minimum credit rating level in order to draw upon their
availability, but are subject to certain covenant tests. However, commitment
fees and interest rates under the credit facilities are tied to credit ratings
and increase or decrease when the ratings change. A ratings downgrade could also
increase the future cost of commercial paper, short- and long-term debt
issuances or new credit facilities.





In
accordance with industry practice, certain agreements, including derivative
contracts, contain provisions that require MidAmerican Energy to maintain
specific credit ratings on their unsecured debt from one or more of the major
credit ratings agencies. These agreements, including derivative contracts, may
either specifically provide bilateral rights to demand cash or other security if
credit exposures on a net basis exceed specified rating-dependent threshold
levels (“credit-risk-related contingent features”) or provide the right for
counterparties to demand “adequate assurance” in the event of a material adverse
change in MidAmerican Energy’s creditworthiness. These rights can vary by
contract and by counterparty. If all credit-risk-related contingent features or
adequate assurance provisions for these agreements, including derivative
contracts, had been triggered as of September 30, 2009, MidAmerican Energy
would have been required to post $287 million of additional collateral.
MidAmerican Energy’s collateral requirements could fluctuate considerably due to
market price volatility, changes in credit ratings or other factors. Refer to
Note 4 of Notes to Consolidated Financial Statements included in
Item 1 of this Form 10-Q for a discussion of MidAmerican Energy’s
collateral requirements specific to its derivative contracts.





Transmission
System Regulation





The FERC
regulates MidAmerican Energy’s wholesale transmission services. The regulations
require MidAmerican Energy to provide open access transmission service at
cost-based rates. The FERC also regulates unbundled transmission service to
retail customers. These services are offered on a non-discriminatory basis,
meaning that all potential customers are provided an equal opportunity to access
the transmission system. MidAmerican Energy’s transmission services are managed
and operated independently from its wholesale marketing activities in accordance
with the FERC Standards of Conduct.





MidAmerican
Energy determined that participation in a regional transmission operator (“RTO”)
market as a transmission-owning member would provide it with enhanced wholesale
marketing opportunities through greater access to wholesale electric buyers.
Effective September 1, 2009, MidAmerican Energy became a transmission-owning
member of the Midwest Independent Transmission System Operator, Inc. (“MISO”).
While MidAmerican Energy retains ownership of its transmission assets, the MISO
is responsible for the operation of the transmission system and the
administration of transmission services.





New
Accounting Pronouncements





For a
discussion of new accounting pronouncements affecting MidAmerican Energy and
MidAmerican Funding, refer to Note 2 of Notes to Consolidated Financial
Statements included in Item 1 of this Form 10-Q.





Critical
Accounting Policies





Certain
accounting policies require management to make estimates and judgments
concerning transactions that will be settled several years in the future.
Amounts recognized in the Consolidated Financial Statements from such estimates
are necessarily based on numerous assumptions involving varying and potentially
significant degrees of judgment and uncertainty. Accordingly, the amounts
currently reflected in the Consolidated Financial Statements will likely
increase or decrease in the future as additional information becomes available.
Estimates are used for, but not limited to, the accounting for the effects of
certain types of regulation, derivatives, impairment of long-lived assets and
goodwill, pension and other postretirement benefits, income taxes and revenue
recognition - unbilled revenue. For additional discussion of MidAmerican
Energy’s and MidAmerican Funding’s critical accounting policies, see Item 7
of their Annual Report on Form 10-K for the year ended December 31,
2008. MidAmerican Energy’s and MidAmerican Funding’s critical accounting
policies have not changed materially since December 31,
2008.


39





Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk





For
quantitative and qualitative disclosures about market risk affecting MidAmerican
Energy and MidAmerican Funding, see Item 7A of their Annual Report on
Form 10-K for the year ended December 31, 2008. MidAmerican Energy’s
and MidAmerican Funding’s exposure to market risk and their management of such
risk has not changed materially since December 31, 2008. Refer to
Note 4 of Notes to Consolidated Financial Statements included in
Item 1 of this Form 10-Q for disclosure of MidAmerican Energy’s derivative
positions as of September 30, 2009.





Item 4(T).
            Controls and
Procedures





At the
end of the period covered by this Quarterly Report on Form 10-Q, the Company
(MidAmerican Energy or MidAmerican Funding, as applicable) carried out an
evaluation, under the supervision and with the participation of the Company’s
management, including the Chief Executive Officer (principal executive officer)
and the Chief Financial Officer (principal financial officer), of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) promulgated under the Securities
and Exchange Act of 1934, as amended). Based upon that evaluation, the Company’s
management, including the Chief Executive Officer (principal executive officer)
and the Chief Financial Officer (principal financial officer), concluded that
the Company’s disclosure controls and procedures were effective to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms, and is
accumulated and communicated to management, including the Company’s Chief
Executive Officer (principal executive officer) and Chief Financial Officer
(principal financial officer), or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. There has
been no change in the Company’s internal control over financial reporting during
the quarter ended September 30, 2009, that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.





40


PART
II





Item 1.
            Legal
Proceedings





None.





Item 1A.
            Risk Factors





Except as
discussed below, 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,
2008.





MidAmerican
Energy is subject to extensive regulations and legislation that affect its
operations and costs. These regulations and laws are complex, dynamic and
subject to change.





In
June 2009, the United States House of Representatives passed the American
Clean Energy and Security Act of 2009 (“Waxman-Markey bill”), introduced by
Representatives Henry Waxman and Edward Markey. In addition to a federal
renewable portfolio standard, which would require utilities to obtain a portion
of their energy from certain qualifying renewable sources, and energy efficiency
measures, the bill requires a reduction in greenhouse gas emissions beginning in
2012, with emission reduction targets of 3% below 2005 levels by 2012; 17% below
2005 levels by 2020; 42% below 2005 levels by 2030; and 83% below 2005 levels by
2050 under a “cap and trade” program. In September 2009, a similar bill was
introduced in the United States Senate by Senators Barbara Boxer and John Kerry,
which would require an initial reduction in greenhouse gas emissions beginning
in 2012 with emission reduction targets consistent with the Waxman-Markey
bill, with the exception of the 2020 target, which requires 20% reduction below
2005 levels. If the Waxman-Markey bill or some other federal comprehensive
climate change bill were to pass both Houses of Congress and be signed into law
by the President, the impact on MidAmerican Energy’s financial performance could
be material and would depend on a number of factors, including the required
timing and level of greenhouse gas reductions, the price and availability of
offsets and allowances used for compliance, and its ability to receive revenue
from customers for increased costs. The new law would likely result in increased
operating costs and expenses, additional capital expenditures and asset
retirements and may negatively impact demand for electricity. To the extent that
MidAmerican Energy is not allowed by its regulators to recover or cannot
otherwise recover the costs to comply with climate change requirements, these
requirements could have a material adverse impact on MidAmerican Energy’s
consolidated financial results. Additionally, even if such costs are recoverable
in rates, if they are substantial and result in rates increasing to levels that
substantially reduce customer demand, this could have a material adverse impact
on MidAmerican Energy’s consolidated financial results.





Item 2.
            Unregistered
      Sales of Equity Securities and Use of
Proceeds





Not
applicable.





Item 3.
            Defaults
      Upon Senior Securities





Not
applicable.





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





Not
applicable.





Item 5.
            Other
Information





Not
applicable.





Item 6.
            Exhibits





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


41


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, each registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








MIDAMERICAN
      FUNDING, LLCMIDAMERICAN ENERGY
  COMPANYRegistrantsDate:  November 6,
      2009
            /s/  Thomas B.
      SpecketerThomas
      B. SpecketerVice
      President and Controllerof
      MidAmerican Funding, LLCand
      MidAmerican Energy Company(principal
      financial and accounting officer)





42





EXHIBIT INDEX





Exhibit No.
            DescriptionMidAmerican Energy15
            Awareness
      Letter of Independent Registered Public Accounting
Firm.31.1
            Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            Principal
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            Principal
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.MidAmerican Funding31.3
            Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.4
            Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.3
            Principal
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.4
            Principal
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.







43