**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, 2007
 
 or
 
 **[  ]
        Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
        Act
        of 1934**
 
 For
        the
        transition period from _________to _________
 
 Commission
              
              Exact
                  name of registrant as specified in its charter
              
              IRS
                  EmployerFile
                    Number
              
              State
                    or other jurisdiction of incorporation or
                    organization
              
              Identification No.**333-90553**
              
              **MIDAMERICAN
                  FUNDING, LLC**
              
              **47-0819200****(An
                  Iowa Limited Liability Company)****666
                  Grand Avenue, Suite 500****Des
                  Moines, Iowa 50309-2580****333-15387**
              
              **MIDAMERICAN
                  ENERGY COMPANY**
              
              **42-1425214****(An
                  Iowa Corporation)****666
                  Grand Avenue, Suite 500****Des
                  Moines, Iowa 50309-2580**(515)
                    242-4300(Registrant’s
                  telephone number, including area code)N/A(Former
                  name, former address and former fiscal year, if changed since last
                  report)
 
 Indicate
        by check mark whether the registrants (1) have filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrants were
        required to file such reports), and (2) have been subject to such filing
        requirements for the past 90 days.
 
 MidAmerican
                  Funding, LLC
              Yes
                  £  No
                  T
              MidAmerican
                  Energy Company
              Yes
                  T  No
                  £
 
 Indicate
        by check mark whether the registrants are large accelerated filers, accelerated
        filers, or non-accelerated filers. See definition of “accelerated filer and
        large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
 (Check
                  one):
              Large
                  accelerated filer £
              Accelerated
                  filer £
              Non-accelerated
                  filer T
 
 Indicate
        by check mark whether either registrant is a shell company (as defined in
        Rule
        12b-2 of the Exchange Act).
 Yes  £                      No  T
 
 As
        of
        October 31, 2007, all of the member’s equity of MidAmerican Funding, LLC
        was held by its parent company, MidAmerican Energy Holdings
        Company.
 
 As
        of
        October 31, 2007, all 70,980,203 outstanding shares of MidAmerican Energy
        Company’s voting stock were held by its parent company, MHC Inc., a direct,
        wholly owned subsidiary of MidAmerican Funding, LLC.
 
 
  MidAmerican
        Funding, LLC (“MidAmerican Funding”) and MidAmerican Energy Company
        (“MidAmerican Energy”) separately file this combined Form 10-Q. Information
        relating to each individual registrant is filed by such registrant on its
        own
        behalf. Except for its subsidiary, MidAmerican Energy makes no representation
        as
        to information relating to any other subsidiary of MidAmerican
        Funding.
 
 **TABLE
        OF CONTENTS**
 
 
 
 **PART
        I - FINANCIAL INFORMATION**
 
 Item
                  1.
              Financial
                  Statements
              3Item
                  2.
              Management’s
                  Discussion and Analysis of Financial
                  Condition and Results of Operations
              24Item
                  3.
              Quantitative
                  and Qualitative Disclosures About
                  Market Risk
              37Item
                  4.
              Controls
                  and Procedures
              37**PART
                  II – OTHER INFORMATION**Item
                  1.
              Legal
                  Proceedings
              38Item
                  1A.
              Risk
                  Factors
              38Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              38Item
                  3.
              Defaults
                  Upon Senior Securities
              38Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              38Item
                  5.
              Other
                  Information
              39Item 6.
              Exhibits
              39Signatures
              
              40Exhibit
                  Index
              
              41
 
 
 2
 
 **PART
        I - FINANCIAL INFORMATION**
 
 **Item
                  1.**
              **Financial
                  Statements.**
 
  MidAmerican
        Energy Company and Subsidiary
 
 
 Report
                  of Independent Registered Public Accounting
                  Firm
              4Consolidated
                  Balance Sheets
              5Consolidated
                  Statements of
                  Operations
              6Consolidated
                  Statements of Comprehensive
                  Income
              7Consolidated
                  Statements of Cash Flows
              8Notes
                  to Consolidated Financial
                  Statements
              9MidAmerican
                  Funding, LLC and SubsidiariesReport
                  of Independent Registered Public Accounting
                  Firm
              16Consolidated
                  Balance Sheets
              17Consolidated
                  Statements of
                  Operations
              18Consolidated
                  Statements of Comprehensive
                  Income
              19Consolidated
                  Statements of Cash
                  Flows
              20Notes
                  to Consolidated Financial
                  Statements
              21
 
 
 3
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
 
 
 
 To
        the
        Board of Directors and Shareholder
 MidAmerican
        Energy Company
 Des
        Moines, Iowa
 
 We
        have
        reviewed the accompanying consolidated balance sheet of MidAmerican Energy
        Company and subsidiary (the “Company”) as of September 30, 2007, and the
        related consolidated statements of operations and comprehensive income for
        the
        three-month and nine-month periods ended September 30, 2007 and 2006, and
        of cash flows for the nine-month periods ended September 30, 2007 and 2006.
        These interim financial statements are the responsibility of the Company’s
        management.
 
 We
        conducted our reviews in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). A review of interim financial
        information consists principally of applying analytical procedures and making
        inquiries of persons responsible for financial and accounting matters. It
        is
        substantially less in scope than an audit conducted in accordance with the
        standards of the Public Company Accounting Oversight Board (United States),
        the
        objective of which is the expression of an opinion regarding the financial
        statements taken as a whole. Accordingly, we do not express such an
        opinion.
 
 Based
        on
        our reviews, we are not aware of any material modifications that should be
        made
        to such consolidated interim financial statements for them to be in conformity
        with accounting principles generally accepted in the United States of
        America.
 
 We
        have
        previously audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the consolidated balance sheet
        and
        consolidated statement of capitalization of MidAmerican Energy Company and
        subsidiary as of December 31, 2006, and the related consolidated statements
        of operations, comprehensive income, retained earnings, and cash flows for
        the
        year then ended (not presented herein); and in our report dated
        February 27, 2007, we expressed an unqualified opinion on those
        consolidated financial statements, which included an explanatory paragraph
        related to the adoption of Statement of Financial Accounting Standards
        No. 158, *Employers’ Accounting for Defined Benefit Pension and Other
        Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and
        132(R)*. In our opinion, the information set forth in the accompanying
        consolidated balance sheet as of December 31, 2006, is fairly stated, in
        all material respects, in relation to the consolidated balance sheet from
        which
        it has been derived.
 
 
 /s/
        Deloitte & Touche LLP
 
 Des
        Moines, Iowa
 November
        2, 2007
  4
 
 **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **CONSOLIDATED
        BALANCE SHEETS (Unaudited)**
 (In
        millions)
 
 **As
                    of****September 30,**
              
              
              **December 31,****2007**
              
              
              **2006****ASSETS****Utility
                  Plant, Net**Electric
              
              $
              6,833
              
              
              $
              6,366Gas
              
              
              1,063
              
              
              
              1,0317,896
              
              
              
              7,397Accumulated
                  depreciation and amortization
              
              
              (3,180
              )
              
              
              (3,261
              )4,716
              
              
              
              4,136Construction
                  work in progress
              
              
              570
              
              
              
              8675,286
              
              
              
              5,003**Current
                  Assets**Cash
                  and cash equivalents
              
              
              258
              
              
              
              9Short-term
                  investments
              
              
              40
              
              
              
              15Receivables,
                  net
              
              
              421
              
              
              
              394Inventories
              
              
              124
              
              
              
              113Other
              
              
              41
              
              
              
              163884
              
              
              
              694**Investments
                  and Nonregulated Property, Net**
              
              
              437
              
              
              
              410**Regulatory
                  Assets**
              
              
              258
              
              
              
              273**Other
                  Assets**
              
              
              111
              
              
              
              130**Total
                  Assets**
              
              $
              6,976
              
              
              $
              6,510**CAPITALIZATION
                  AND LIABILITIES****Capitalization**Common
                  shareholder’s equity
              
              $
              2,234
              
              
              $
              1,951MidAmerican
                  Energy preferred securities
              
              
              30
              
              
              
              30Long-term
                  debt, excluding current portion
              
              
              2,469
              
              
              
              1,8194,733
              
              
              
              3,800**Current
                  Liabilities**Current
                  portion of long-term debt
              
              
              -
              
              
              
              2Accounts
                  payable
              
              
              274
              
              
              
              498Taxes
                  accrued
              
              
              86
              
              
              
              99Interest
                  accrued
              
              
              38
              
              
              
              33Other
              
              
              111
              
              
              
              171509
              
              
              
              803**Other
                  Liabilities**Deferred
                  income taxes
              
              
              481
              
              
              
              471Investment
                  tax credits
              
              
              38
              
              
              
              41Asset
                  retirement obligations
              
              
              178
              
              
              
              173Regulatory
                  liabilities
              
              
              785
              
              
              
              989Other
              
              
              252
              
              
              
              2331,734
              
              
              
              1,907**Total
                  Capitalization and Liabilities**
              
              $
              6,976
              
              
              $
              6,510
 
 The
        accompanying notes are an integral part of these financial
        statements.
  5
  **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS(Unaudited)**
 (In
        millions)
 
 **Three
                  Months**
              
              
              **Nine
                  Months****Ended September 30,**
              
              
              **Ended September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Operating
                  Revenues**Regulated
                  electric
              
              $
              537
              
              
              $
              494
              
              
              $
              1,484
              
              
              $
              1,370Regulated
                  gas
              
              
              146
              
              
              
              153
              
              
              
              854
              
              
              
              778Nonregulated
              
              
              299
              
              
              
              119
              
              
              
              849
              
              
              
              419982
              
              
              
              766
              
              
              
              3,187
              
              
              
              2,567**Operating
                  Expenses**Regulated:Cost
                  of fuel, energy and capacity
              
              
              184
              
              
              
              199
              
              
              
              557
              
              
              
              517Cost
                  of gas sold
              
              
              110
              
              
              
              113
              
              
              
              684
              
              
              
              619Other
                  operating expenses
              
              
              105
              
              
              
              101
              
              
              
              305
              
              
              
              288Maintenance
              
              
              44
              
              
              
              34
              
              
              
              129
              
              
              
              105Depreciation
                  and amortization
              
              
              70
              
              
              
              58
              
              
              
              215
              
              
              
              219Property
                  and other taxes
              
              
              22
              
              
              
              24
              
              
              
              72
              
              
              
              73535
              
              
              
              529
              
              
              
              1,962
              
              
              
              1,821Nonregulated:Cost
                  of sales
              
              
              272
              
              
              
              104
              
              
              
              783
              
              
              
              392Other
              
              
              4
              
              
              
              4
              
              
              
              13
              
              
              
              11276
              
              
              
              108
              
              
              
              796
              
              
              
              403Total
                  operating expenses
              
              
              811
              
              
              
              637
              
              
              
              2,758
              
              
              
              2,224**Operating
                  Income**
              
              
              171
              
              
              
              129
              
              
              
              429
              
              
              
              343**Non-Operating
                  Income**Interest
                  and dividend income
              
              
              5
              
              
              
              1
              
              
              
              7
              
              
              
              6Allowance
                  for equity funds
              
              
              9
              
              
              
              10
              
              
              
              31
              
              
              
              25Other
                  income
              
              
              3
              
              
              
              3
              
              
              
              7
              
              
              
              6Other
                  expense
              
              
              -
              
              
              
              -
              
              
              
              (2
              )
              
              
              (2
              )17
              
              
              
              14
              
              
              
              43
              
              
              
              35**Fixed
                  Charges**Interest
                  on long-term debt
              
              
              35
              
              
              
              21
              
              
              
              87
              
              
              
              68Other
                  interest expense
              
              
              1
              
              
              
              3
              
              
              
              8
              
              
              
              8Allowance
                  for borrowed funds
              
              
              (3
              )
              
              
              (4
              )
              
              
              (14
              )
              
              
              (11
              )33
              
              
              
              20
              
              
              
              81
              
              
              
              65**Income
                  Before Income Taxes**
              
              
              155
              
              
              
              123
              
              
              
              391
              
              
              
              313**Income
                  Taxes**
              
              
              45
              
              
              
              39
              
              
              
              115
              
              
              
              96**Net
                  Income**
              
              
              110
              
              
              
              84
              
              
              
              276
              
              
              
              217**Preferred
                  Dividends**
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              1**Earnings
                  on Common Stock**
              
              $
              110
              
              
              $
              84
              
              
              $
              275
              
              
              $
              216
 
 The
        accompanying notes are an integral part of these financial
        statements.
  6
  **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF COMPREHENSIVE INCOME
        (Unaudited)**
 (In
        millions)
 
 **Three
                  Months**
              
              
              **Nine
                  Months****Ended September 30,**
              
              
              **Ended September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Earnings
                  on Common Stock**
              
              $
              110
              
              
              $
              84
              
              
              $
              275
              
              
              $
              216**Other
                  Comprehensive Income (Loss)**Unrealized
                  gains (losses) on cash flow hedges:Unrealized
                  gains (losses) during period -Before
                  income taxes
              
              
              (1
              )
              
              
              (7
              )
              
              
              16
              
              
              
              (7
              )Income
                  tax (expense) benefit
              
              
              1
              
              
              
              3
              
              
              
              (6
              )
              
              
              3-
              
              
              
              (4
              )
              
              
              10
              
              
              
              (4
              )Less
                  realized gains reflected in earnings on
                common
                  stock during period -Before
                  income taxes
              
              
              1
              
              
              
              -
              
              
              
              1
              
              
              
              -Income
                  tax expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -1
              
              
              
              -
              
              
              
              1
              
              
              
              -Other
                  comprehensive income (loss)
              
              
              (1
              )
              
              
              (4
              )
              
              
              9
              
              
              
              (4
              )**Comprehensive
                  Income**
              
              $
              109
              
              
              $
              80
              
              
              $
              284
              
              
              $
              212
 
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 7
  **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS
        (Unaudited)**
 (In
        millions)
 
 **Nine
                  Months****Ended September 30,****2007**
              
              
              **2006****Net
                  Cash Flows From Operating Activities**Net
                  income
              
              $
              276
              
              
              $
              217Adjustments
                  to reconcile net income to net cash provided:Depreciation
                  and amortization
              
              
              215
              
              
              
              220Deferred
                  income taxes and investment tax credit, net
              
              
              13
              
              
              
              (3
              )Amortization
                  of other assets and liabilities
              
              
              21
              
              
              
              19Impact
                  of changes in working capital -Receivables,
                  net
              
              
              (28
              )
              
              
              172Inventories
              
              
              (10
              )
              
              
              (15
              )Accounts
                  payable
              
              
              17
              
              
              
              (125
              )Taxes
                  accrued
              
              
              6
              
              
              
              15Other
                  current assets and liabilities
              
              
              10
              
              
              
              33Other,
                  net
              
              
              (9
              )
              
              
              (13
              )Net
                  cash provided by operating activities
              
              
              511
              
              
              
              520**Net
                  Cash Flows From Investing Activities**Utility
                  construction expenditures
              
              
              (879
              )
              
              
              (514
              )Purchases
                  of available-for-sale securities
              
              
              (477
              )
              
              
              (518
              )Proceeds
                  from sales of available-for-sale securities
              
              
              442
              
              
              
              534Other,
                  net
              
              
              8
              
              
              
              8Net
                  cash used in investing activities
              
              
              (906
              )
              
              
              (490
              )**Net
                  Cash Flows From Financing Activities**Dividends
                  paid
              
              
              (1
              )
              
              
              (1
              )Issuance
                  of long-term debt, net of issuance cost
              
              
              646
              
              
              
              -Retirement
                  of long-term debt
              
              
              (1
              )
              
              
              (160
              )Net
                  increase in notes payable
              
              
              -
              
              
              
              70Other
              
              
              -
              
              
              
              (6
              )Net
                  cash provided by (used in) financing activities
              
              
              644
              
              
              
              (97
              )**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              
              249
              
              
              
              (67
              )**Cash
                  and Cash Equivalents at Beginning of Period**
              
              
              9
              
              
              
              71**Cash
                  and Cash Equivalents at End of Period**
              
              $
              258
              
              
              $
              4
 
 
 The
        accompanying notes are an integral part of these financial
        statements.
  8
  **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS**
 **(Unaudited)**
 
 **(1)**
              **General**
 
 MidAmerican
        Energy Company (“MidAmerican Energy”) is a public utility with electric and
        natural gas operations and is the principal subsidiary of MHC Inc. (“MHC”). MHC
        is a holding company that conducts no business other than the ownership of
        its
        subsidiaries, and it has the following nonregulated subsidiaries: InterCoast
        Capital Company, MidAmerican Services Company, Midwest Capital Group, Inc.
        and
        MEC Construction Services Co. MHC is the direct wholly owned subsidiary of
        MidAmerican Funding, LLC (“MidAmerican Funding”), which is an Iowa limited
        liability company with MidAmerican Energy Holdings Company (“MidAmerican Energy
        Holdings”) as its sole member. MidAmerican Energy Holdings is a consolidated
        subsidiary of Berkshire Hathaway Inc.
 
 The
        accompanying unaudited Consolidated Financial Statements have been prepared
        by
        MidAmerican Energy in accordance with accounting principles generally accepted
        in the United States of America (“GAAP”) and the rules and regulations of the
        Securities and Exchange Commission for interim financial statements.
        Accordingly, they do not include all of the disclosures required for annual
        financial statements. In the opinion of MidAmerican Energy, all adjustments,
        consisting of normal recurring adjustments, have been made to present fairly
        its
        financial position, results of operations and changes in cash flows for the
        periods presented. Although MidAmerican Energy believes that the disclosures
        contained herein are adequate to make the information presented not misleading,
        it is suggested that these financial statements be read in conjunction with
        the
        Consolidated Financial Statements and the notes thereto included in MidAmerican
        Energy’s latest Annual Report on Form 10-K.
 
 The
        accompanying unaudited Consolidated Financial Statements include the accounts
        of
        MidAmerican Energy and the subsidiary in which it holds a controlling financial
        interest. All intercompany accounts and transactions have been eliminated,
        other
        than those between rate-regulated operations.
 
 The
        preparation of the unaudited Consolidated Financial Statements in conformity
        with GAAP requires management to make estimates and assumptions that affect
        the
        reported amounts of assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the period.
        Actual results may differ from the estimates used in preparing the unaudited
        Consolidated Financial Statements. Note 2 of Notes to Consolidated
        Financial Statements included in MidAmerican Energy’s Annual Report on Form 10-K
        for the year ended December 31, 2006, describes the most significant
        accounting estimates and policies used in the preparation of the Consolidated
        Financial Statements. There have been no significant changes in MidAmerican
        Energy’s assumptions regarding significant accounting policies during the first
        nine months of 2007, except as described in Note 2.
 
 **(2)**
              **New
                  Accounting Pronouncements**
 
 In
        July
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
        interpretation of FASB Statement
        No. 109”**(“FIN 48”)*.* MidAmerican Energy adopted
        the provisions of FIN 48 effective January 1, 2007. Under FIN 48,
        tax benefits are recognized only for tax positions that are more likely than
        not
        to be sustained upon examination by tax authorities. The amount recognized
        is
        measured as the largest amount of benefit that is greater than 50% likely
        to be
        realized upon ultimate settlement. Unrecognized tax benefits are tax benefits
        claimed in MidAmerican Energy’s tax returns that do not meet these recognition
        and measurement standards.
 
 As
        of
        January 1, 2007, MidAmerican Energy had $25 million of unrecognized
        tax benefits. Of this amount, MidAmerican Energy recognized a net increase
        in
        the liability for unrecognized tax benefits of $11 million as a cumulative
        effect of adopting FIN 48, which was offset by reductions in beginning
        retained earnings of $1 million and deferred income tax liabilities of
        $9 million and an increase in regulatory assets of $1 million in the
        Consolidated Balance Sheet. The remaining $14 million had been previously
        accrued under Statement of Financial Accounting Standards (“SFAS”) No. 5,
“Accounting for Contingencies,” or SFAS No. 109, “Accounting for Income
        Taxes.” Unrecognized tax benefits are included in other liabilities – other in
        the Consolidated Balance Sheet.
 
 9
  Included
        in the $25 million is $14 million of net unrecognized tax benefits
        that, if recognized, would have an impact on the effective tax rate. The
        remaining unrecognized tax benefits relate to tax positions for which ultimate
        deductibility is highly certain but for which there is uncertainty as to
        the
        timing of such deductibility. Recognition of these tax benefits, other than
        applicable interest and penalties, would not affect MidAmerican Energy’s
        effective tax rate. MidAmerican Energy recognizes interest and penalties
        accrued
        related to unrecognized tax benefits in income tax expense. As of
        January 1, 2007, MidAmerican Energy had $4 million accrued for the
        payment of interest, which is included in unrecognized tax
        benefits.
 
 MidAmerican
        Energy’s ultimate parent company files income tax returns in the U.S. federal
        jurisdiction and various state jurisdictions. The U.S. Internal Revenue Service
        has closed its examination of income tax returns that include MidAmerican
        Energy
        through 2003. In addition, open tax years related to a number of state
        jurisdictions remain subject to examination. During the nine-month period
        ended
        September 30, 2007, there were no material changes to the liability for
        uncertain tax positions.
 
 In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial**Liabilities - including an
        amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS
        No. 159 permits entities to elect to measure many financial instruments and
        certain other items at fair value. Upon adoption of SFAS No. 159, an entity
        may elect the fair value option for eligible items that exist at the adoption
        date. Subsequent to the initial adoption, the election of the fair value
        option
        may only be made at initial recognition of the asset or liability or upon
        a
        re-measurement event that gives rise to new-basis accounting. The decision
        about
        whether to elect the fair value option is applied on an instrument-by-instrument
        basis, is irrevocable and is applied only to an entire instrument and not
        only
        to specified risks, cash flows or portions of that instrument. SFAS No. 159
        does not affect any existing accounting literature that requires certain
        assets
        and liabilities to be carried at fair value nor does it eliminate disclosure
        requirements included in other accounting standards. SFAS No. 159 is
        effective for fiscal years beginning after November 15, 2007. MidAmerican
        Energy and MidAmerican Funding do not anticipate electing the fair value
        option
        for any existing eligible items. However, each will continue to evaluate
        items
        on a case by case basis for consideration of the fair value option.
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a
        framework for measuring fair value and expands disclosures about fair value
        measurements. SFAS No. 157 does not impose fair value measurements on items
        not already accounted for at fair value; rather it applies, with certain
        exceptions, to other accounting pronouncements that either require or permit
        fair value measurements. SFAS No. 157 is effective for fiscal years
        beginning after November 15, 2007, and interim periods within those fiscal
        years. MidAmerican Energy and MidAmerican Funding are currently evaluating
        the
        impact of adopting SFAS No. 157 on their respective consolidated financial
        position and results of operations.
  **(3)**
              **Risk
                  Management**
 
 MidAmerican
        Energy is exposed to loss of net income, cash flows and asset values due
        to
        market risk, including: 1) changes in the market price of gas, electricity
        and fuel used in its regulated and nonregulated businesses, 2) variations
        in the severity of weather conditions from normal, and 3) changes in
        interest rates. To manage these exposures, MidAmerican Energy enters into
        various financial derivative instruments, including futures, swaps, options
        and
        forward physical contracts. Through the functioning of a risk oversight
        committee, senior management provides the overall direction, structure, conduct
        and control of MidAmerican Energy’s risk management activities, including
        authorization and communication of risk management policies and procedures,
        the
        use of financial derivative instruments, strategic hedging program guidelines,
        appropriate market and credit risk limits, and appropriate systems for
        recording, monitoring and reporting the results of transactional and risk
        management activities.
  10
  The
        following table summarizes the various derivative mark-to-market positions
        included in the Consolidated Balance Sheet as of September 30, 2007 (in
        millions):
 
 AccumulatedRegulatory
              
              
              OtherDerivative
                    Net Assets (Liabilities)
              
              
              Net
                  Assets
              
              
              ComprehensiveAssets
              
              
              Liabilities
              
              
              Net
              
              
              (Liabilities)
              
              
              Loss
                    (1)Regulated
                  electric
              
              $
              16
              
              
              $
              (5
              )
              
              $
              11
              
              
              $
              (11
              )
              
              $
              -Regulated
                  gas
              
              
              1
              
              
              
              (21
              )
              
              
              (20
              )
              
              
              20
              
              
              
              -Nonregulated
              
              
              17
              
              
              
              (22
              )
              
              
              (5
              )
              
              
              -
              
              
              
              5Total
              
              $
              34
              
              
              $
              (48
              )
              
              $
              (14
              )
              
              $
              9
              
              
              $
              5Current
              
              $
              26
              
              
              $
              (44
              )
              
              $
              (18
              )Non-current
              
              
              8
              
              
              
              (4
              )
              
              
              4Total
              
              $
              34
              
              
              $
              (48
              )
              
              $
              (14
              )
  
 (1)
              Before
                  income taxes.
 
 The
        following table summarizes the various derivative mark-to-market positions
        included in the Consolidated Balance Sheet as of December 31, 2006 (in
        millions):
 
 AccumulatedRegulatory
              
              
              OtherDerivative
                    Net Assets (Liabilities)
              
              
              Net
                  Assets
              
              
              ComprehensiveAssets
              
              
              Liabilities
              
              
              Net
              
              
              (Liabilities)
              
              
              Loss
                    (1)Regulated
                  electric
              
              $
              36
              
              
              $
              (14
              )
              
              $
              22
              
              
              $
              (22
              )
              
              $
              -Regulated
                  gas
              
              
              2
              
              
              
              (45
              )
              
              
              (43
              )
              
              
              36
              
              
              
              -Nonregulated
              
              
              35
              
              
              
              (56
              )
              
              
              (21
              )
              
              
              -
              
              
              
              20Total
              
              $
              73
              
              
              $
              (115
              )
              
              $
              (42
              )
              
              $
              14
              
              
              $
              20Current
              
              $
              67
              
              
              $
              (109
              )
              
              $
              (42
              )Non-current
              
              
              6
              
              
              
              (6
              )
              
              
              -Total
              
              $
              73
              
              
              $
              (115
              )
              
              $
              (42
              )
 
 (1)
              Before
                  income taxes.
 
 **(4)**
              **Rate
                  Matters**
 
 The
        Iowa
        Utilities Board (“IUB”) has approved a series of settlement agreements between
        MidAmerican Energy, the Iowa Office of Consumer Advocate (“OCA”) and other
        intervenors, under which MidAmerican Energy has agreed not to seek a general
        increase in electric base rates to become effective prior to January 1,
        2014, unless its Iowa jurisdictional electric return on equity for any year
        covered by the applicable agreement falls below 10%, computed as prescribed
        in
        each respective agreement. Prior to filing for a general increase in electric
        rates, MidAmerican Energy is required to conduct 30 days of good faith
        negotiations with the signatories to the settlement agreements to attempt
        to
        avoid a general increase in such rates. As a party to the settlement agreements,
        the OCA has agreed not to request or support any decrease in MidAmerican
        Energy’s Iowa electric base rates to become effective prior to January 1,
        2014. The settlement agreements specifically allow the IUB to approve or
        order
        electric rate design or cost of service rate changes that could result in
        changes to rates for specific customers as long as such changes do not result
        in
        an overall increase in revenues for MidAmerican Energy.
  11
  The
        settlement agreements also each provide that revenues associated with Iowa
        retail electric returns on equity within specified ranges will be shared
        with
        customers and that the portion assigned to customers will be recorded as
        a
        regulatory liability. The following table summarizes the ranges of Iowa electric
        returns on equity subject to revenue sharing under each settlement agreement,
        the percent of revenues within those ranges to be assigned to customers,
        and the
        method by which the liability to customers will be settled.
 
 Range
                  ofIowa
                  Electric
              
              Customers’Return
                  on
              
              Share
                  ofDate
                  Approved
              
              Years
              
              Equity
                  Subject
              
              Revenues
              
              Method
                  to be Used toby
                    the IUB
              
              Covered
              
              to
                    Sharing
              
              Within
                    Range
              
              Settle
                    Liability to CustomersDecember
                  21, 2001
              
              2001 - 2005
              
              12%
                  - 14%
              
              50%
              
              Credits
                  against the cost of new generation plant in IowaAbove
                  14%
              
              83.33%October 17, 2003
              
              2006 - 2010
              
              11.75%
                  - 13%
              
              40%
              
              Credits
                  against the cost of new generation plant in Iowa13%
                  - 14%
              
              50%Above
                  14%
              
              83.3%
 
 January 31, 2005
              
              2011
              
              Same
                  as 2006 - 2010
              
              Credits
                  to customer bills in 2012April
                  18, 2006
              
              2012
              
              Same
                  as 2006 - 2010
              
              Credits
                  to customer bills in 2013July 27, 2007
              
              2013
              
              Same
                  as 2006 - 2010 (1)
              
              Credits
                  against the cost of wind-powered generation projects covered by
                  this
                  agreement
 
 
 (1)
              If
                  a
                  rate case is filed pursuant to the 10% threshold, as discussed
                  above, the
                  revenue sharing arrangement for 2013 is changed such that the amount
                  to be
                  shared with customers will be 83.3% of  revenues associated with Iowa
                  operating income in excess of electric returns on equity allowed
                  by the
                  IUB as a result of the rate case.
 
 Under
        the
        2007 settlement agreement, effective January 1, 2007, through
        December 31, 2013 (or December 31, 2012, in the event there is a rate
        increase in 2013), MidAmerican Energy has reduced its funding into the Quad
        Cities Station’s decommissioning trusts from the 2006 level of $8 million
        annually to a new level of $2 million annually. The difference will be used
        to reduce electric base rates in 2008 and 2009 for MidAmerican Energy’s
        residential customers in eastern and southern Iowa service territories
        previously served by two of MidAmerican Energy’s predecessor companies. To the
        extent the reduction in funding exceeds the annual amount needed to implement
        these rate reductions, as approved by the IUB, the excess will be used during
        the period 2007 through 2013 (or 2007 through 2012 in the event there is
        a rate
        increase in 2013), to reduce MidAmerican Energy’s investment in Walter Scott,
        Jr. Energy Center Unit No. 4 (“WSEC Unit 4”), formerly Council Bluffs
        Energy Center Unit No. 4.
 
 The
        regulatory liabilities created by the settlement agreements have been and
        are
        currently recorded as a regulatory charge in depreciation and amortization
        expense when the liability is accrued. As a result of the credits applied
        to
        generating plant balances when the related plant is placed in service,
        depreciation expense is reduced over the life of the plant. On June 1,
        2007, WSEC Unit 4 was placed in service. Accordingly, the January 1,
        2007 balance of the revenue sharing liability, plus the related interest
        accrued
        in 2007, was applied against the cost of WSEC Unit 4 in utility plant in
        service.
  12
  The
        change in the balance of the regulatory liability is summarized as follows
        (in
        millions):
 
 Balance,
                  January 1, 2007
              
              $
              259Current
                  year revenue sharing
              
              
              29Interest
                  costs
              
              
              5Amounts
                  applied to utility plant in service
              
              
              (264
              )Balance,
                  September 30, 2007
              
              $
              29
 
 **(5)**
              **Employee
                  Benefit Plans**
 
 MidAmerican
        Energy sponsors a noncontributory defined benefit pension plan covering
        substantially all employees of MidAmerican Energy Holdings and its domestic
        energy subsidiaries other than PacifiCorp. MidAmerican Energy also sponsors
        certain postretirement health care and life insurance benefits covering
        substantially all retired employees of MidAmerican Energy Holdings and its
        domestic energy subsidiaries other than PacifiCorp. The components of net
        periodic benefit cost for these plans were as follows (in
        millions):
 
 Three
                  Months
              
              
              Nine
                  MonthsEnded September 30,
              
              
              Ended September 30,2007
              
              
              2006
              
              
              2007
              
              
              2006PensionService
                  cost
              
              $
              8
              
              
              $
              7
              
              
              $
              20
              
              
              $
              19Interest
                  cost
              
              
              10
              
              
              
              10
              
              
              
              29
              
              
              
              29Expected
                  return on plan assets
              
              
              (12
              )
              
              
              (10
              )
              
              
              (32
              )
              
              
              (29
              )Net
                  amortization
              
              
              1
              
              
              
              1
              
              
              
              3
              
              
              
              3Net
                  periodic benefit cost
              
              $
              7
              
              
              $
              8
              
              
              $
              20
              
              
              $
              22Other
                  PostretirementService
                  cost
              
              $
              1
              
              
              $
              2
              
              
              $
              5
              
              
              $
              5Interest
                  cost
              
              
              2
              
              
              
              4
              
              
              
              11
              
              
              
              11Expected
                  return on plan assets
              
              
              (2
              )
              
              
              (3
              )
              
              
              (11
              )
              
              
              (8
              )Net
                  amortization
              
              
              1
              
              
              
              1
              
              
              
              2
              
              
              
              3Net
                  periodic benefit cost
              
              $
              2
              
              
              $
              4
              
              
              $
              7
              
              
              $
              11
 
 MidAmerican
        Energy expects to contribute $6 million and $12 million in 2007 to its
        pension and other postretirement plans, respectively. As of September 30,
        2007, $5 million and $12 million of contributions had been made to the
        pension and other postretirement plans, respectively.
 
 **(6)**
              **Segment
                  Information**
 
 MidAmerican
        Energy has identified two reportable operating segments: regulated electric
        and
        regulated gas. The regulated electric segment derives most of its revenue
        from
        regulated retail sales of electricity to residential, commercial, and industrial
        customers and from wholesale sales to other utilities. The regulated gas
        segment
        derives most of its revenue from regulated retail sales of natural gas to
        residential, commercial, and industrial customers and also obtains significant
        revenues by transporting gas owned by others through its distribution system.
        Pricing for regulated electric and gas sales are established separately by
        regulatory agencies; therefore, management also reviews each segment separately
        to make decisions regarding allocation of resources and in evaluating
        performance. Common operating costs, interest income, interest expense and
        income tax expense are allocated to each segment based on MidAmerican Energy
        allocators most related to the nature of the cost. “Nonregulated and other” in
        the tables below consists principally of nonregulated gas and electric
        activities.
  13
  The
        following tables provide information on a reportable operating segment basis
        (in
        millions):
 
 Three
                  Months
              
              
              Nine
                  MonthsEnded September 30,
              
              
              Ended September 30,2007
              
              
              2006
              
              
              2007
              
              
              2006Segment
                  Profit InformationOperating
                  revenues:Regulated
                  electric
              
              $
              537
              
              
              $
              494
              
              
              $
              1,484
              
              
              $
              1,370Regulated
                  gas
              
              
              146
              
              
              
              153
              
              
              
              854
              
              
              
              778Nonregulated
                  and other
              
              
              299
              
              
              
              119
              
              
              
              849
              
              
              
              419Total
              
              $
              982
              
              
              $
              766
              
              
              $
              3,187
              
              
              $
              2,567Operating
                  income:Regulated
                  electric
              
              $
              157
              
              
              $
              126
              
              
              $
              346
              
              
              $
              308Regulated
                  gas
              
              
              (7
              )
              
              
              (6
              )
              
              
              35
              
              
              
              24Nonregulated
                  and other
              
              
              21
              
              
              
              9
              
              
              
              48
              
              
              
              11Total
              
              $
              171
              
              
              $
              129
              
              
              $
              429
              
              
              $
              343Earnings
                  on common stock:Regulated
                  electric
              
              $
              103
              
              
              $
              84
              
              
              $
              231
              
              
              $
              197Regulated
                  gas
              
              
              (5
              )
              
              
              (6
              )
              
              
              17
              
              
              
              11Nonregulated
                  and other
              
              
              12
              
              
              
              6
              
              
              
              27
              
              
              
              8Total
              
              $
              110
              
              
              $
              84
              
              
              $
              275
              
              
              $
              216
 
 As
                    ofSeptember 30,
              
              
              December 31,2007
              
              
              2006Segment
                  Asset InformationTotal
                  assets:Regulated
                  electric
              
              $
              5,918
              
              
              $
              5,485Regulated
                  gas
              
              
              867
              
              
              
              923Nonregulated
                  and other
              
              
              191
              
              
              
              102Total
              
              $
              6,976
              
              
              $
              6,510
  14
  **(7)**
              **Walter
                  Scott, Jr. Energy Center**
 
 WSEC
        Unit 4, a 790-megawatt (“MW”) (accredited capacity) supercritical,
        coal-fired generating plant, began commercial operation on June 1, 2007.
        MidAmerican Energy operates the plant and holds an undivided ownership interest
        of 59.66%, or approximately 471 MW, as a tenant in common with the other
        owners of the plant. MidAmerican Energy accounts for, and provided financing
        for, its proportional share of the plant. Operating costs of WSEC Unit 4
        are assigned to joint owners based on ownership percentage or energy produced,
        depending on the nature of the cost, and MidAmerican Energy’s share of those
        costs is included in operating expenses on the Consolidated Statements of
        Operations.
 
 In
        conjunction with WSEC Unit 4 being placed in service, certain Consolidated
        Balance Sheet classifications were impacted, the most significant of which
        was
        the transfer of $710 million from construction work in progress to electric
        utility plant. Additionally, as discussed in Note 4, $264 million was
        transferred from the revenue sharing regulatory liability to electric utility
        plant in accordance with the related Iowa regulatory settlement
        agreements.
 
 **(8)**
              **Long-Term
                  Debt**
 
 On
        June 29, 2007, MidAmerican Energy issued $400 million of 5.65% Senior
        Notes due July 15, 2012, and $250 million of 5.95% Senior Notes due
        July 15, 2017. The proceeds are being used by MidAmerican Energy to pay
        construction costs of its interest in WSEC Unit 4 and its wind projects in
        Iowa, to repay short-term indebtedness and for general corporate
        purposes.
  15
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM**
 
 
 
 To
        the
        Board of Managers and Member
 MidAmerican
        Funding, LLC
 Des
        Moines, Iowa
 
 We
        have
        reviewed the accompanying consolidated balance sheet of MidAmerican Funding,
        LLC
        and subsidiaries (the “Company”) as of September 30, 2007, and the related
        consolidated statements of operations and comprehensive income for the
        three-month and nine-month periods ended September 30, 2007 and 2006, and
        of cash flows for the nine-month periods ended September 30, 2007 and 2006.
        These interim financial statements are the responsibility of the Company’s
        management.
 
 We
        conducted our reviews in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). A review of interim financial
        information consists principally of applying analytical procedures and making
        inquiries of persons responsible for financial and accounting matters. It
        is
        substantially less in scope than an audit conducted in accordance with the
        standards of the Public Company Accounting Oversight Board (United States),
        the
        objective of which is the expression of an opinion regarding the financial
        statements taken as a whole. Accordingly, we do not express such an
        opinion.
 
 Based
        on
        our reviews, we are not aware of any material modifications that should be
        made
        to such consolidated interim financial statements for them to be in conformity
        with accounting principles generally accepted in the United States of
        America.
 
 We
        have
        previously audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the consolidated balance sheet
        and
        consolidated statement of capitalization of MidAmerican Funding, LLC and
        subsidiaries as of December 31, 2006, and the related consolidated
        statements of operations, comprehensive income, retained earnings, and cash
        flows for the year then ended (not presented herein); and in our report dated
        February 27, 2007, we expressed an unqualified opinion on those
        consolidated financial statements, which included an explanatory paragraph
        related to the adoption of Statement of Financial Accounting Standards
        No. 158, *Employers’ Accounting for Defined Benefit Pension and Other
        Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and
        132(R)*. In our opinion, the information set forth in the accompanying
        consolidated balance sheet as of December 31, 2006, is fairly stated, in
        all material respects, in relation to the consolidated balance sheet from
        which
        it has been derived.
 
 
 /s/
        Deloitte & Touche LLP
 
 Des
        Moines, Iowa
 November
        2, 2007
 
 16
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS(Unaudited)**
 (In
        millions)
 
 **As
                    of****September 30,**
              
              
              **December 31,****2007**
              
              
              **2006****ASSETS****Utility
                  Plant, Net**Electric
              
              $
              6,833
              
              
              $
              6,366Gas
              
              
              1,063
              
              
              
              1,0317,896
              
              
              
              7,397Accumulated
                  depreciation and amortization
              
              
              (3,180
              )
              
              
              (3,261
              )4,716
              
              
              
              4,136Construction
                  work in progress
              
              
              570
              
              
              
              8675,286
              
              
              
              5,003**Current
                  Assets**Cash
                  and cash equivalents
              
              
              259
              
              
              
              9Short-term
                  investments
              
              
              40
              
              
              
              15Receivables,
                  net
              
              
              427
              
              
              
              391Inventories
              
              
              124
              
              
              
              113Other
              
              
              42
              
              
              
              163892
              
              
              
              691**Investments
                  and Nonregulated Property, Net**
              
              
              453
              
              
              
              427**Goodwill**
              
              
              1,270
              
              
              
              1,270**Regulatory
                  Assets**
              
              
              258
              
              
              
              273**Other
                  Assets**
              
              
              110
              
              
              
              130**Total
                  Assets**
              
              $
              8,269
              
              
              $
              7,794**CAPITALIZATION
                  AND LIABILITIES****Capitalization**Member’s
                  equity
              
              $
              2,776
              
              
              $
              2,514MidAmerican
                  Energy preferred securities
              
              
              30
              
              
              
              30Long-term
                  debt, excluding current portion
              
              
              3,169
              
              
              
              2,5195,975
              
              
              
              5,063**Current
                  Liabilities**Note
                  payable to affiliate
              
              
              39
              
              
              
              3Current
                  portion of long-term debt
              
              
              -
              
              
              
              2Accounts
                  payable
              
              
              274
              
              
              
              493Taxes
                  accrued
              
              
              86
              
              
              
              98Interest
                  accrued
              
              
              43
              
              
              
              48Other
              
              
              111
              
              
              
              172553
              
              
              
              816**Other
                  Liabilities**Deferred
                  income taxes
              
              
              472
              
              
              
              468Investment
                  tax credits
              
              
              38
              
              
              
              41Asset
                  retirement obligations
              
              
              178
              
              
              
              173Regulatory
                  liabilities
              
              
              785
              
              
              
              989Other
              
              
              268
              
              
              
              2441,741
              
              
              
              1,915**Total
                  Capitalization and Liabilities**
              
              $
              8,269
              
              
              $
              7,794
 
 The
        accompanying notes are an integral part of these financial
        statements
 
 17
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS
        (Unaudited)**
 (In
        millions)
 
 
 **Three
                  Months**
              
              
              **Nine
                  Months****Ended September 30,**
              
              
              **Ended September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Operating
                  Revenues**Regulated
                  electric
              
              $
              537
              
              
              $
              494
              
              
              $
              1,484
              
              
              $
              1,370Regulated
                  gas
              
              
              146
              
              
              
              153
              
              
              
              854
              
              
              
              778Nonregulated
              
              
              302
              
              
              
              120
              
              
              
              855
              
              
              
              422985
              
              
              
              767
              
              
              
              3,193
              
              
              
              2,570**Operating
                  Expenses**Regulated:Cost
                  of fuel, energy and capacity
              
              
              184
              
              
              
              199
              
              
              
              557
              
              
              
              517Cost
                  of gas sold
              
              
              110
              
              
              
              113
              
              
              
              684
              
              
              
              619Other
                  operating expenses
              
              
              105
              
              
              
              101
              
              
              
              305
              
              
              
              288Maintenance
              
              
              44
              
              
              
              34
              
              
              
              129
              
              
              
              105Depreciation
                  and amortization
              
              
              70
              
              
              
              58
              
              
              
              215
              
              
              
              219Property
                  and other taxes
              
              
              22
              
              
              
              24
              
              
              
              72
              
              
              
              73535
              
              
              
              529
              
              
              
              1,962
              
              
              
              1,821Nonregulated:Cost
                  of sales
              
              
              272
              
              
              
              104
              
              
              
              784
              
              
              
              393Other
              
              
              7
              
              
              
              4
              
              
              
              18
              
              
              
              13279
              
              
              
              108
              
              
              
              802
              
              
              
              406Total
                  operating expenses
              
              
              814
              
              
              
              637
              
              
              
              2,764
              
              
              
              2,227**Operating
                  Income**
              
              
              171
              
              
              
              130
              
              
              
              429
              
              
              
              343**Non-Operating
                  Income**Interest
                  and dividend income
              
              
              5
              
              
              
              1
              
              
              
              7
              
              
              
              6Allowance
                  for equity funds
              
              
              9
              
              
              
              10
              
              
              
              31
              
              
              
              25Other
                  income
              
              
              3
              
              
              
              4
              
              
              
              8
              
              
              
              53Other
                  expense
              
              
              -
              
              
              
              (1
              )
              
              
              (2
              )
              
              
              (7
              )17
              
              
              
              14
              
              
              
              44
              
              
              
              77**Fixed
                  Charges**Interest
                  on long-term debt
              
              
              47
              
              
              
              32
              
              
              
              122
              
              
              
              103Other
                  interest expense
              
              
              1
              
              
              
              4
              
              
              
              9
              
              
              
              10Preferred
                  dividends of subsidiaries
              
              
              -
              
              
              
              -
              
              
              
              1
              
              
              
              1Allowance
                  for borrowed funds
              
              
              (3
              )
              
              
              (4
              )
              
              
              (14
              )
              
              
              (11
              )45
              
              
              
              32
              
              
              
              118
              
              
              
              103**Income
                  Before Income Taxes**
              
              
              143
              
              
              
              112
              
              
              
              355
              
              
              
              317**Income
                  Taxes**
              
              
              39
              
              
              
              33
              
              
              
              100
              
              
              
              94**Net
                  Income**
              
              $
              104
              
              
              $
              79
              
              
              $
              255
              
              
              $
              223
 
 The
        accompanying notes are an integral part of these financial
        statements.
  18
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF COMPREHENSIVE INCOME
        (Unaudited)**
 (In
        millions)
 
 **Three
                  Months**
              
              
              **Nine
                  Months****Ended September 30,**
              
              
              **Ended September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Net
                  Income**
              
              $
              104
              
              
              $
              79
              
              
              $
              255
              
              
              $
              223**Other
                  Comprehensive Income (Loss)**Unrealized
                  gains on available-for-sale securities:Unrealized
                  gains during period -Before
                  income taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              32Income
                  tax expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (11
              )-
              
              
              
              -
              
              
              
              -
              
              
              
              21Less
                  realized gains reflected in net income
                during
                  period -Before
                  income taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              32Income
                  tax expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (11
              )-
              
              
              
              -
              
              
              
              -
              
              
              
              21Net
                  unrealized gains
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Unrealized
                  gains (losses) on cash flow hedges:Unrealized
                  gains (losses) during period -Before
                  income taxes
              
              
              (1
              )
              
              
              (7
              )
              
              
              16
              
              
              
              (7
              )Income
                  tax (expense) benefit
              
              
              1
              
              
              
              3
              
              
              
              (6
              )
              
              
              3-
              
              
              
              (4
              )
              
              
              10
              
              
              
              (4
              )Less
                  realized gains reflected in net income
                during
                  period -Before
                  income taxes
              
              
              1
              
              
              
              -
              
              
              
              1
              
              
              
              -Income
                  tax expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -1
              
              
              
              -
              
              
              
              1
              
              
              
              -Net
                  unrealized gains (losses)
              
              
              (1
              )
              
              
              (4
              )
              
              
              9
              
              
              
              (4
              )Other
                  comprehensive income (loss)
              
              
              (1
              )
              
              
              (4
              )
              
              
              9
              
              
              
              (4
              )**Comprehensive
                  Income**
              
              $
              103
              
              
              $
              75
              
              
              $
              264
              
              
              $
              219
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
 19
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS
        (Unaudited)**
 (In
        millions)
 
 **Nine
                  Months****Ended
                    September 30,****2007**
              
              
              **2006****Net
                  Cash Flows From Operating Activities**Net
                  income
              
              $
              255
              
              
              $
              223Adjustments
                  to reconcile net income to net cash provided:Depreciation
                  and amortization
              
              
              215
              
              
              
              220Deferred
                  income taxes and investment tax credit, net
              
              
              12
              
              
              
              (2
              )Amortization
                  of other assets and liabilities
              
              
              21
              
              
              
              15Gain
                  on sale of securities, assets and other investments
              
              
              -
              
              
              
              (36
              )Impact
                  of changes in working capital -Receivables,
                  net
              
              
              (36
              )
              
              
              183Inventories
              
              
              (10
              )
              
              
              (15
              )Accounts
                  payable
              
              
              21
              
              
              
              (132
              )Taxes
                  accrued
              
              
              7
              
              
              
              13Other
                  current assets and liabilities
              
              
              (2
              )
              
              
              21Other,
                  net
              
              
              (7
              )
              
              
              (12
              )Net
                  cash provided by operating activities
              
              
              476
              
              
              
              478**Net
                  Cash Flows From Investing Activities**Utility
                  construction expenditures
              
              
              (879
              )
              
              
              (514
              )Purchases
                  of available-for-sale securities
              
              
              (477
              )
              
              
              (518
              )Proceeds
                  from sales of available-for-sale securities
              
              
              442
              
              
              
              562Proceeds
                  from sales of assets and other investments
              
              
              -
              
              
              
              10Other,
                  net
              
              
              7
              
              
              
              7Net
                  cash used in investing activities
              
              
              (907
              )
              
              
              (453
              )**Net
                  Cash Flows From Financing Activities**Issuance
                  of long-term debt, net of issuance cost
              
              
              646
              
              
              
              -Retirement
                  of long-term debt
              
              
              (1
              )
              
              
              (160
              )Net
                  increase in note payable to affiliate
              
              
              36
              
              
              
              4Net
                  increase in notes payable
              
              
              -
              
              
              
              70Other
              
              
              -
              
              
              
              (6
              )Net
                  cash provided by (used in) financing activities
              
              
              681
              
              
              
              (92
              )**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              
              250
              
              
              
              (67
              )**Cash
                  and Cash Equivalents at Beginning of Period**
              
              
              9
              
              
              
              71**Cash
                  and Cash Equivalents at End of Period**
              
              $
              259
              
              
              $
              4
 The
        accompanying notes are an integral part of these financial
        statements.
 
 20
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS**
 **(Unaudited)**
 
 **(1)**
              **General**
 
 MidAmerican
        Funding, LLC (“MidAmerican Funding”) is an Iowa limited liability company with
        MidAmerican Energy Holdings Company as its sole member. MidAmerican Energy
        Holdings Company is a consolidated subsidiary of Berkshire Hathaway Inc.
        MidAmerican Funding’s direct, wholly owned subsidiary is MHC Inc. (“MHC”), which
        constitutes substantially all of MidAmerican Funding’s assets, liabilities and
        business activities except those related to MidAmerican Funding’s long-term debt
        securities. MHC, MidAmerican Funding and MidAmerican Energy Holdings Company
        are
        holding companies headquartered in Des Moines, Iowa. MHC conducts no business
        other than the ownership of its subsidiaries. MHC’s principal subsidiary is
        MidAmerican Energy Company, a public utility with electric and natural gas
        operations. MHC’s nonregulated, direct, wholly owned subsidiaries include
        InterCoast Capital Company, Midwest Capital Group, Inc., MidAmerican Services
        Company and MEC Construction Services Co.
 
 The
        accompanying unaudited Consolidated Financial Statements have been prepared
        by
        MidAmerican Funding in accordance with accounting principles generally accepted
        in the United States of America (“GAAP”) and the rules and regulations of the
        Securities and Exchange Commission for interim financial statements.
        Accordingly, they do not include all of the disclosures required for annual
        financial statements. In the opinion of MidAmerican Funding, all adjustments,
        consisting of normal recurring adjustments, have been made to present fairly
        its
        financial position, results of operations and changes in cash flows for the
        periods presented. Although MidAmerican Funding believes that the disclosures
        contained herein are adequate to make the information presented not misleading,
        it is suggested that these financial statements be read in conjunction with
        the
        Consolidated Financial Statements and the notes thereto included in MidAmerican
        Funding’s latest Annual Report on Form 10-K.
 
 The
        accompanying unaudited Consolidated Financial Statements include the accounts
        of
        MidAmerican Funding and its subsidiaries in which it holds a controlling
        financial interest. All intercompany accounts and transactions have been
        eliminated, other than those between rate-regulated operations.
 
 The
        preparation of the unaudited Consolidated Financial Statements in conformity
        with GAAP requires management to make estimates and assumptions that affect
        the
        reported amounts of assets and liabilities at the date of the financial
        statements and the reported amounts of revenues and expenses during the period.
        Actual results may differ from the estimates used in preparing the unaudited
        Consolidated Financial Statements. Note 2 of Notes to Consolidated
        Financial Statements included in MidAmerican Funding’s Annual Report on Form
        10-K for the year ended December 31, 2006, describes the most significant
        accounting estimates and policies used in the preparation of the Consolidated
        Financial Statements. There have been no significant changes in MidAmerican
        Funding’s assumptions regarding significant accounting policies during the first
        nine months of 2007, except as described in Note 2.
 
 **(2)**
              **New
                  Accounting Pronouncements**
 
 In
        July
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
        interpretation of FASB Statement
        No. 109”**(“FIN 48”)*.* MidAmerican Funding
        adopted the provisions of FIN 48 effective January 1, 2007. Under
        FIN 48, tax benefits are recognized only for tax positions that are more
        likely than not to be sustained upon examination by tax authorities. The
        amount
        recognized is measured as the largest amount of benefit that is greater than
        50%
        likely to be realized upon ultimate settlement. Unrecognized tax benefits
        are
        tax benefits claimed in MidAmerican Funding’s tax returns that do not meet these
        recognition and measurement standards.
  21
  As
        of
        January 1, 2007, MidAmerican Funding had $33 million of unrecognized
        tax benefits. Of this amount, MidAmerican Funding recognized a net increase
        in
        the liability for unrecognized tax benefits of $16 million as a cumulative
        effect of adopting FIN 48, which was offset by reductions in beginning
        retained earnings of $2 million and deferred income tax liabilities of
        $13 million and an increase in regulatory assets of $1 million in the
        Consolidated Balance Sheet. The remaining $17 million had been previously
        accrued under Statement of Financial Accounting Standards (“SFAS”) No. 5,
“Accounting for Contingencies,” or SFAS No. 109, “Accounting for Income
        Taxes.” Unrecognized tax benefits are included in other liabilities – other in
        the Consolidated Balance Sheet.
 
 Included
        in the $33 million is $19 million of net unrecognized tax benefits
        that, if recognized, would have an impact on the effective tax rate. The
        remaining unrecognized tax benefits relate to tax positions for which ultimate
        deductibility is highly certain but for which there is uncertainty as to
        the
        timing of such deductibility. Recognition of these tax benefits, other than
        applicable interest and penalties, would not affect MidAmerican Funding’s
        effective tax rate. MidAmerican Funding recognizes interest and penalties
        accrued related to unrecognized tax benefits in income tax expense. As of
        January 1, 2007, MidAmerican Funding had $5 million accrued for the
        payment of interest, which is included in unrecognized tax
        benefits.
 
 MidAmerican
        Funding’s ultimate parent company files income tax returns in the U.S. federal
        jurisdiction and various state jurisdictions. The U.S. Internal Revenue Service
        has closed its examination of income tax returns that include MidAmerican
        Funding through 2003. In addition, open tax years related to a number of
        state
        jurisdictions remain subject to examination. During the nine-month period
        ended
        September 30, 2007, there were no material changes to the liability for
        uncertain tax positions.
 
 Refer
        to
        Note 2 of MidAmerican Energy’s Notes to Consolidated Financial Statements
        for additional disclosure of new accounting pronouncements.
 
 **(3)**
              **Risk
                  Management**
 
 Refer
        to
        Note 3 of MidAmerican Energy’s Notes to Consolidated Financial Statements
        for information regarding MidAmerican Funding’s risk management.
 
 **(4)**
              **Rate
                  Matters**
 
 Refer
        to
        Note 4 of MidAmerican Energy’s Notes to Consolidated Financial Statements
        for information regarding MidAmerican Funding’s rate matters.
 
 **(5)**
              **Employee
                  Benefit Plans**
 
 Refer
        to
        Note 5 of MidAmerican Energy’s Notes to Consolidated Financial Statements
        for information regarding MidAmerican Funding’s employee benefit
        plans.
 
 **(6)**
              **Segment
                  Information**
 
 MidAmerican
        Funding has identified two reportable operating segments: regulated electric
        and
        regulated gas. The regulated electric segment derives most of its revenue
        from
        regulated retail sales of electricity to residential, commercial, and industrial
        customers and from wholesale sales to other utilities. The regulated gas
        segment
        derives most of its revenue from regulated retail sales of natural gas to
        residential, commercial, and industrial customers and also obtains significant
        revenues by transporting gas owned by others through its distribution system.
        Pricing for regulated electric and gas sales are established separately by
        regulatory agencies; therefore, management also reviews each segment separately
        to make decisions regarding allocation of resources and in evaluating
        performance. Common operating costs, interest income, interest expense and
        income tax expense are allocated to each segment based on MidAmerican Funding
        allocators most related to the nature of the cost. “Nonregulated and other” in
        the tables below consists principally of nonregulated gas and electric
        activities and parent company interest expense.
 
 22
  The
        following tables provide information on a reportable operating segment basis
        (in
        millions):
 
 Three
                  Months
              
              
              Nine
                  MonthsEnded September 30,
              
              
              Ended September 30,2007
              
              
              2006
              
              
              2007
              
              
              2006Segment
                  Profit InformationOperating
                  revenues:Regulated
                  electric
              
              $
              537
              
              
              $
              494
              
              
              $
              1,484
              
              
              $
              1,370Regulated
                  gas
              
              
              146
              
              
              
              153
              
              
              
              854
              
              
              
              778Nonregulated
                  and other
              
              
              302
              
              
              
              120
              
              
              
              855
              
              
              
              422Total
              
              $
              985
              
              
              $
              767
              
              
              $
              3,193
              
              
              $
              2,570Operating
                  income:Regulated
                  electric
              
              $
              157
              
              
              $
              126
              
              
              $
              346
              
              
              $
              308Regulated
                  gas
              
              
              (7
              )
              
              
              (6
              )
              
              
              35
              
              
              
              24Nonregulated
                  and other
              
              
              21
              
              
              
              10
              
              
              
              48
              
              
              
              11Total
              
              $
              171
              
              
              $
              130
              
              
              $
              429
              
              
              $
              343Net
                  income:Regulated
                  electric
              
              $
              103
              
              
              $
              84
              
              
              $
              231
              
              
              $
              197Regulated
                  gas
              
              
              (5
              )
              
              
              (6
              )
              
              
              17
              
              
              
              11Nonregulated
                  and other
              
              
              6
              
              
              
              1
              
              
              
              7
              
              
              
              15Total
              
              $
              104
              
              
              $
              79
              
              
              $
              255
              
              
              $
              223
 
 As
                    ofSeptember 30,
              
              
              December 31,2007
              
              
              2006Segment
                  Asset InformationTotal
                  assets (a):Regulated
                  electric
              
              $
              7,109
              
              
              $
              6,676Regulated
                  gas
              
              
              946
              
              
              
              1,002Nonregulated
                  and other
              
              
              214
              
              
              
              116Total
              
              $
              8,269
              
              
              $
              7,794
 
 (a)
              Total
                  assets by operating segment reflect the assignment of goodwill
                  to
                  applicable reporting units in accordance with
                  GAAP.
 
 
 **(7)**
              **Walter
                  Scott, Jr. Energy Center**
 
 Refer
        to
        Note 7 of MidAmerican Energy’s Notes to Consolidated Financial Statements
        for information regarding the Walter Scott, Jr. Energy Center.
 
 **(8)**
              **Long-Term
                  Debt**
 
 Refer
        to
        Note 8 of MidAmerican Energy’s Notes to Consolidated Financial Statements
        for information regarding MidAmerican Funding’s long-term debt.
   23
   **Item
                2.**
              **Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations.**
  MidAmerican
        Energy Company (“MidAmerican Energy”) is a public utility with electric and
        natural gas operations and is the principal subsidiary within MidAmerican
        Funding, LLC (“MidAmerican Funding”).
 
 Management’s
        Discussion and Analysis (“MD&A”) addresses the financial statements of
        MidAmerican Funding and its subsidiaries and MidAmerican Energy and its
        subsidiary as presented in this joint filing. Information in MD&A related to
        MidAmerican Energy, whether or not segregated, also relates to MidAmerican
        Funding. Information related to other subsidiaries of MidAmerican Funding
        pertains only to the discussion of the financial condition and results of
        operations of MidAmerican Funding. Where necessary, discussions have been
        segregated under the heading “MidAmerican Funding” to allow the reader to
        identify information applicable only to MidAmerican Funding.
 
 MD&A
        should be read in conjunction with the financial statements included in this
        Form 10-Q and the notes to those statements, together with MD&A in
        MidAmerican Energy’s and MidAmerican Funding’s most recently filed Annual Report
        on Form 10-K.
 
 **Forward-Looking
        Statements**
 
 This
        report contains statements that do not directly or exclusively relate to
        historical facts. These statements are ‘‘forward-looking statements’’ within the
        meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
        statements can typically be identified by the use of forward-looking words,
        such
        as ‘‘may,’’ ‘‘could,’’ ‘‘project,’’ ‘‘believe,’’ ‘‘anticipate,’’ ‘‘expect,’’
‘‘estimate,’’ ‘‘continue,’’ “intend,” ‘‘potential,’’ ‘‘plan,’’ ‘‘forecast,’’ and
        similar terms. These statements are based upon MidAmerican Funding’s and/or
        MidAmerican Energy’s current intentions, assumptions, expectations and beliefs
        and are subject to risks, uncertainties and other important factors. Many
        of
        these factors are outside the control of MidAmerican Funding or MidAmerican
        Energy and could cause actual results to differ materially from those expressed
        or implied by such forward-looking statements. These factors include, among
        others:
 
 ·
              general
                  economic and business conditions in the United States as a whole
                  and in
                  the midwestern United States and MidAmerican Energy’s service territory in
                  particular;
 
 ·
              the
                  financial condition and creditworthiness of their significant customers
                  and suppliers;
 
 ·
              governmental,
                  statutory, legislative, regulatory or administrative initiatives,
                  proceedings or decisions, including those relating to the Energy
                  Policy
                  Act of 2005;
 
 ·
              changes
                  in, and compliance with, environmental laws, regulations, decisions
                  and
                  policies that could increase operating and capital improvement
                  costs or
                  affect plant output and/or delay plant
                  construction;
 
 ·
              weather
                  effects on costs, sales and
                  revenues;
 
 ·
              changes
                  in expected customer growth or usage of electricity or
                  gas;
 
 ·
              economic
                  or industry trends that could impact electricity or gas
                  usage;
 
 ·
              increased
                  competition in the power generation, electric or gas
                  industries;
 
 ·
              fuel,
                  fuel transportation and power costs and
                  availability;
 
 ·
              changes
                  in business strategy, development plans or customer or vendor
                  relationships;
 
 ·
              availability,
                  term and deployment of capital;
  24
  ·
              availability
                  of qualified personnel;
 
 ·
              unscheduled
                  generation outages or repairs;
 
 ·
              risks
                  relating to nuclear generation;
 
 ·
              financial
                  or regulatory accounting principles or policies imposed by the
                  Public
                  Company Accounting Oversight Board, the Financial Accounting Standards
                  Board (“FASB”), the Securities and Exchange Commission (“SEC”), the
                  Federal Energy Regulatory Commission (“FERC”) and similar entities with
                  regulatory oversight;
 
 ·
              other
                  risks or unforeseen events, including wars, the effects of terrorism,
                  embargoes and other catastrophic events;
                  and
 
 ·
              other
                  business or investment considerations that may be disclosed from
                  time to
                  time in MidAmerican Funding’s or MidAmerican Energy’s SEC filings or in
                  other publicly disseminated written
                  documents.
 
 Further
        details of the potential risks and uncertainties affecting MidAmerican Energy
        or
        MidAmerican Funding are described in their filings with the SEC, including
        Item 1A and other discussions contained in this Form 10-Q. MidAmerican
        Funding and MidAmerican Energy undertake no obligation to publicly update
        or
        revise any forward-looking statements, whether as a result of new information,
        future events or otherwise. The foregoing review of factors should not be
        construed as exclusive.
 
 **Executive
        Summary**
 
 MidAmerican
        Energy’s earnings on common stock improved $59 million to $275 million
        for the first nine months of 2007 compared to $216 million for the first
        nine months of 2006. MidAmerican Funding’s net income increased $32 million
        to $255 million for the first nine months of 2007 compared to
        $223 million for the first nine months of 2006.
 
 The
        following significant events and changes, as discussed in more detail herein,
        highlight some of the factors that had an effect on MidAmerican Energy’s and
        MidAmerican Funding’s financial results:
 
 ·
              MidAmerican
                  Energy’s third quarter 2007 regulated electric gross margin increased
                  $58 million compared to 2006 due to improved margins on wholesale
                  sales and greater electric retail sales volumes. MidAmerican Energy’s
                  nonregulated gross margin increased $12 million compared to the third
                  quarter of 2006 due to a substantial increase in nonregulated electric
                  sales volumes and improved margins per
                  unit.
  ·
              In
                  February 2007, MidAmerican Energy’s electric distribution and transmission
                  systems sustained extensive damage from several winter storms.
                  Capital
                  expenditures for restoration of facilities damaged by the storms
                  totaled
                  approximately $28 million. Additionally, MidAmerican Energy incurred
                  $11 million of maintenance expense in the first quarter for storm
                  restoration.
  ·
              On
                  June 1, 2007, Walter Scott, Jr. Energy Center Unit No. 4 (“WSEC
                  Unit 4”), formerly Council Bluffs Energy Center Unit No. 4,
                  began commercial operation. The unit is a 790-megawatt (“MW”) (accredited
                  capacity) supercritical, coal-fired generation plant operated by
                  MidAmerican Energy. MidAmerican Energy owns 59.66% of the plant
                  as a
                  tenant in common with other owners of the plant and has invested
                  $835 million in the plant.
  ·
              On
                  July 27, 2007, the Iowa Utilities Board (“IUB”) approved a settlement
                  agreement between MidAmerican Energy and the Iowa Office of Consumer
                  Advocate (“OCA”) in conjunction with MidAmerican Energy’s ratemaking
                  principles application for up to 540 MW (nameplate ratings) of
                  additional wind-powered generation in
                  Iowa.
   25
   Following
        is a discussion of various factors that affected earnings for the periods
        presented on the Consolidated Statements of Operations. Explanations include
        management’s best estimate of the impact of weather, customer growth and other
        factors. MidAmerican Energy’s and MidAmerican Funding’s future results could
        differ significantly from historical results.
 
 **Results
        of Operations for the Three Months Ended September 30, 2007 and
        2006**
 
 Regulated
        Electric Gross Margin
 
 Three
                  MonthsEnded September 30,2007
              
              
              2006Gross
                  margin (in millions):Operating
                  revenues
              
              $
              537
              
              
              $
              494Less
                  cost of fuel, energy and capacity
              
              
              184
              
              
              
              199Electric
                  gross margin
              
              $
              353
              
              
              $
              295Sales
                  (Gigawatt hours (“GWh”)):Retail
              
              
              5,850
              
              
              
              5,515Wholesale
              
              
              3,097
              
              
              
              2,618Total
              
              
              8,947
              
              
              
              8,133
 
 Electric
        gross margin for the third quarter of 2007 increased $58 million compared
        to the third quarter of 2006 primarily due to a $41 million increase in
        gross margin on wholesale sales, which include sales of energy to other
        utilities, municipalities and marketers inside and outside of MidAmerican
        Energy’s balancing authority area. Electric wholesale gross margin increased
        $38 million as a result of improved average electric wholesale margins per
        megawatt hour sold, which was due to increased availability of low-cost energy
        principally resulting from the addition of WSEC Unit 4 generation. Wholesale
        sales volumes increased 18% resulting in a $3 million increase in wholesale
        gross margin compared to the third quarter of 2006.
 
 Gross
        margin on electric retail sales increased $17 million compared to the third
        quarter of 2006 due primarily to a 6% increase in retail sales volumes. The
        effect of warmer temperature conditions, an increase in the average number
        of
        retail customers and electricity usage factors not dependent on weather,
        such as
        home size, technology changes and multiple appliances, contributed $12 million
        to the improvement in electric retail gross margin. A decrease in fuel costs
        related to retail electric sales improved retail gross margin by $5 million
        due
        in part to a decrease in the portion of energy requirements met with higher
        cost
        generation resources as a result of the availability of WSEC Unit 4 and new
        wind-powered generation.
  26
  Regulated
        Gas Gross Margin
 
 Three
                  MonthsEnded
                    September 30,2007
              
              
              2006Gross
                  margin (in millions):Operating
                  revenues
              
              $
              146
              
              
              $
              153Less
                  cost of gas sold
              
              
              110
              
              
              
              113Gas
                  gross margin
              
              $
              36
              
              
              $
              40Sales
                  (000’s decatherms (“Dths”)):Retail
              
              
              5,536
              
              
              
              6,323Wholesale
              
              
              11,222
              
              
              
              11,494Total
              
              
              16,758
              
              
              
              17,817
 
 Regulated
        gas revenues include purchased gas adjustment clauses through which MidAmerican
        Energy is allowed to recover the cost of gas sold from its retail gas utility
        customers. Consequently, fluctuations in the cost of gas sold do not directly
        affect gross margin or net income because revenues reflect comparable
        fluctuations through the purchased gas adjustment clauses. Regulated gas
        revenues and cost of gas sold decreased $10 million due to the reduction in
        total sales volumes in the third quarter of 2007. Compared to the third quarter
        of 2006, MidAmerican Energy’s average per-unit cost of gas sold increased 3%,
        resulting in a $7 million increase in gas revenues and cost of gas sold for
        the third quarter of 2007.
 
 The
        following table summarizes the variance in gas operating revenues based on
        the
        change in gas cost recoveries and margin components (in millions):
 
 Three
                  MonthsEnded
                  September 30,2007
                    vs. 2006Change
                  in recoveries of cost of gas sold:Average
                  cost per
                  unit
              
              $
              7Sales
                  volumes
              
              
              (10
              )Total
                  change in cost of gas sold
              
              
              (3
              )Change
                  in margin:Usage
                  factors
              
              
              (2
              )Energy
                  efficiency cost recovery
              
              
              (2
              )Total
                  revenue
                  variance
              
              $
              (7
              )
 
 Usage
        factors includes the effect of warmer temperatures compared to the third
        quarter
        of 2006, a 1% growth in the average number of gas retail customers, and
        influences on customer usage other than weather, such as technology, energy
        efficiency and economics. Changes in revenues from the recovery of energy
        efficiency program costs are substantially matched with corresponding changes
        in
        other operating expenses.
 
 Regulated
        Operating Expenses
 
 Other
        operating expenses increased $4 million for the third quarter of 2007
        compared to the third quarter of 2006 due to increases of $3 million in
        fossil-fueled generation operation costs, due in part to WSEC Unit 4
        beginning commercial operation in June 2007, and $2 million in gas
        distribution costs.
  27
  Maintenance
        expenses for the third quarter of 2007 increased $10 million compared to
        the third quarter of 2006 due to increases of $7 million in generation
        maintenance, resulting principally from the timing of plant maintenance and
        new
        wind-powered generation, and $2 million in electric distribution
        maintenance, due primarily to summer storms and related restoration
        costs.
 
 Depreciation
        and amortization expense for the third quarter of 2007 increased
        $12 million compared to the third quarter of 2006 due to a $7 million
        increase in utility plant depreciation expense as a result of additional
        plant
        in service, including 99 MW (nameplate capacity) of wind-powered generating
        facilities placed in service in the fourth quarter of 2006 and WSEC Unit 4
        on June 1, 2007. Additionally, regulatory expense related to a revenue
        sharing arrangement in Iowa increased $4 million as a result of higher Iowa
        electric equity returns. Refer to the “Utility Regulatory Matters” section for
        an explanation of the revenue sharing arrangement.
 
 Nonregulated
        Gross Margin
 
 Three
                  MonthsEnded
                    September 30,2007
              
              
              2006(In
                  millions)MidAmerican
                  Energy -Nonregulated
                  operating revenues
              
              $
              299
              
              
              $
              119Less
                  nonregulated cost of sales
              
              
              272
              
              
              
              104Nonregulated
                  gross margin
              
              $
              27
              
              
              $
              15MidAmerican
                  Funding Consolidated -Nonregulated
                  operating revenues
              
              $
              302
              
              
              $
              120Less
                  nonregulated cost of sales
              
              
              272
              
              
              
              104Nonregulated
                  gross margin
              
              $
              30
              
              
              $
              16
 
 Nonregulated
        revenues, cost of sales and gross margin for the third quarter of 2007 increased
        compared to the third quarter of 2006 due primarily to an increase in
        nonregulated electric sales volumes driven by a greater number of commercial
        and
        industrial customers being served by MidAmerican Energy in the Illinois market.
        Beginning January 1, 2007, the Illinois electricity market became fully
        competitive. Higher average prices and costs related to nonregulated electric
        sales also contributed to the increases. These increases were partially offset
        by the impact of a decrease in nonregulated gas sales volumes and average
        prices
        and costs.
 
 Non-Operating
        Income
 
 MidAmerican
        Energy’s non-operating income for the third quarter of 2007 increased
        $3 million compared to the third quarter of 2006 due to an increase in
        interest income resulting from greater temporary cash and short-term investments
        during the third quarter of 2007 compared to the third quarter of
        2006.
 
 Fixed
        Charges
 
 The
        $14 million increase in MidAmerican Energy’s interest on long-term debt for
        the third quarter of 2007 compared to the third quarter of 2006 was primarily
        due to long-term debt issuances of $350 million in October 2006 and $650
        million in June 2007.
  28
  Income
        Taxes
 
 Federal
        law currently provides for federal production tax credits for energy produced
        by
        renewable electricity generation facilities, including wind-powered generation,
        for ten years after the in-service date. MidAmerican Energy’s income taxes for
        the third quarter of 2007 include $6 million of additional production tax
        credits compared to the third quarter of 2006 due to additional wind-powered
        generation.
 
 State
        utility rate regulation in Iowa requires that the tax effect of certain timing
        differences be flowed through immediately to customers. Therefore, amounts
        that
        would otherwise have been recognized in income tax expense have been included
        as
        changes in regulatory assets. This flow-through treatment of such timing
        differences impacts the effective tax rates from year to year.
 
 **Results
        of Operations for the Nine Months Ended September 30, 2007 and
        2006**
 
 Regulated
        Electric Gross Margin
 
 Nine
                  MonthsEnded September 30,2007
              
              
              2006Gross
                  margin (in millions):Operating
                  revenues
              
              $
              1,484
              
              
              $
              1,370Less
                  cost of fuel, energy and capacity
              
              
              557
              
              
              
              517Electric
                  gross margin
              
              $
              927
              
              
              $
              853Sales
                  (GWh):Retail
              
              
              15,906
              
              
              
              15,111Wholesale
              
              
              9,489
              
              
              
              8,357Total
              
              
              25,395
              
              
              
              23,468
 
 Electric
        gross margin for the first nine months of 2007 increased $74 million
        compared to the first nine months of 2006 principally due to a $50 million
        increase in gross margin on wholesale sales, which include sales of energy
        to
        other utilities, municipalities and marketers inside and outside of MidAmerican
        Energy’s balancing authority area. Electric wholesale gross margin increased $36
        million compared to the first nine months of 2006 as a result of improved
        average electric wholesale margins per megawatt hour sold, which was due
        to
        increased availability of low-cost energy principally resulting from the
        addition of WSEC Unit 4 generation. The remaining $14 million increase in
        electric wholesale gross margin is attributable to a 14% increase in wholesale
        sales volumes compared to the first nine months of 2006 due to newly added
        wind-powered generation to supply retail customers, the addition of WSEC
        Unit 4
        in June 2007 and greater regional wholesale market opportunities.
 
 Gross
        margin on electric retail sales increased $24 million, with electric retail
        sales volumes increasing 5% compared to the first nine months of 2006. The
        effect of more extreme temperature conditions during the first nine months
        of
        2007 compared to the first nine months of 2006, an increase in the average
        number of retail customers, and other retail usage factors, such as home
        size,
        technology changes and multiple appliances, contributed $27 million to the
        improvement in electric retail gross margin. An increase in fuel costs related
        to Iowa retail electric sales reduced electric retail gross margin by
        $10 million compared to the first nine months of 2006 due in part to an
        increase in the portion of energy requirements met with higher cost generation
        resources, particularly prior to the addition of WSEC Unit 4. Additionally,
        recoveries of energy efficiency program costs increased electric retail gross
        margin by $3 million compared to the first nine months of 2006. Changes in
        revenues from the recovery of energy efficiency program costs are substantially
        matched with corresponding changes in other operating expenses.
  29
  Regulated
        Gas Gross Margin
 
 Nine
                  MonthsEnded
                    September 30,2007
              
              
              2006Gross
                  margin (in millions):Operating
                  revenues
              
              $
              854
              
              
              $
              778Less
                  cost of gas sold
              
              
              684
              
              
              
              619Gas
                  gross margin
              
              $
              170
              
              
              $
              159Sales
                  (000’s Dths):Retail
              
              
              53,100
              
              
              
              46,266Wholesale
              
              
              34,892
              
              
              
              34,811Total
              
              
              87,992
              
              
              
              81,077
 
 Regulated
        gas revenues include purchased gas adjustment clauses through which MidAmerican
        Energy is allowed to recover the cost of gas sold from its retail gas utility
        customers. Consequently, fluctuations in the cost of gas sold do not directly
        affect gross margin or net income because revenues reflect comparable
        fluctuations through the purchased gas adjustment clauses. Regulated gas
        revenues and cost of gas sold increased $59 million due to improved sales
        volumes for the first nine months of 2007. Compared to the first nine months
        of
        2006, MidAmerican Energy’s average per-unit cost of gas sold increased 2%,
        resulting in a $6 million increase in gas revenues and cost of gas
        sold.
 
 The
        following table summarizes the variance in gas operating revenues based on
        the
        change in gas cost recoveries and margin components (in millions):
 
 Nine
                  MonthsEnded
                  September 30,2007
                    vs. 2006Change
                  in recoveries of cost of gas sold:Sales
                  volumes
              
              $
              59Average
                  cost per unit
              
              
              6Total
                  change in cost of gas sold
              
              
              65Change
                  in margin:Usage
                  factors
              
              
              10Energy
                  efficiency cost recovery
              
              
              1Total
                  revenue
                  variance
              
              $
              76
 
 Usage
        factors includes the effect of colder temperature conditions in the first
        quarter of 2007 compared to the same period in 2006, a 1% increase in the
        average number of gas retail customers, and influences other than weather
        on
        customer usage, such as technology, energy efficiency and economics. Changes
        in
        revenues from the recovery of energy efficiency program costs are substantially
        matched with corresponding changes in other operating expenses.
  30
  Regulated
        Operating Expenses
 
 Other
        operating expenses increased $17 million for the first nine months of 2007
        compared to the first nine months of 2006 due largely to a $4 million
        increase in energy efficiency program costs, a $3 million increase in gas
        distribution costs, and increases of $4 million and $3 million in fossil-fueled
        and nuclear generation operation costs, respectively. The increase in
        fossil-fueled generation operation costs is primarily attributable to WSEC
        Unit
        4, which was placed in service on June 1, 2007. Changes in energy efficiency
        program costs are substantially matched by changes in related electric and
        gas
        revenues. Additionally, compared to the first nine months of 2006, information
        technology, transmission, electric distribution and a number of other operating
        costs each experienced less significant increases. These increases were
        partially offset by a $5 million decrease in pension and postretirement
        costs compared to the first nine months of 2006.
 
 Maintenance
        expenses for the first nine months of 2007 increased $24 million compared
        to the first nine months of 2006 due principally to $13 million of costs
        incurred for restoration of facilities damaged by storms, primarily in February
        2007. Additionally, fossil-fueled generation maintenance increased $5 million
        and other power generation maintenance costs increased $4 million due to
        additional wind-powered generation facilities.
 
 Depreciation
        and amortization expense for the first nine months of 2007 decreased
        $4 million compared to the first nine months of 2006 due to a
        $16 million decrease in regulatory expense related to a revenue sharing
        arrangement in Iowa as a result of lower Iowa electric equity returns. Refer
        to
        the “Utility Regulatory Matters” section for an explanation of the revenue
        sharing arrangement. Partially offsetting this decrease was higher utility
        plant
        depreciation expense due to additional plant in service, including wind-powered
        generating facilities placed in service in the fourth quarter of 2006 and
        WSEC
        Unit 4 on June 1, 2007.
 
 Nonregulated
        Gross Margin
 
 Nine
                  MonthsEnded
                    September 30,2007
              
              
              2006(In
                  millions)MidAmerican
                  Energy -Nonregulated
                  operating revenues
              
              $
              849
              
              
              $
              419Less
                  nonregulated cost of sales
              
              
              783
              
              
              
              392Nonregulated
                  gross margin
              
              $
              66
              
              
              $
              27MidAmerican
                  Funding Consolidated -Nonregulated
                  operating revenues
              
              $
              855
              
              
              $
              422Less
                  nonregulated cost of sales
              
              
              784
              
              
              
              393Nonregulated
                  gross margin
              
              $
              71
              
              
              $
              29
 
 Nonregulated
        revenues, cost of sales and gross margin for the first nine months of 2007
        increased compared to the first nine months of 2006 due primarily to an increase
        in nonregulated electric sales volumes driven by a greater number of commercial
        and industrial customers being served by MidAmerican Energy in the Illinois
        market. Beginning January 1, 2007, the Illinois electricity market became
        fully
        competitive. Higher average prices and costs related to nonregulated electric
        sales also contributed to the increases. These increases were partially offset
        by decreases in nonregulated gas sales volumes and average prices and
        costs.
  31
  Non-Operating
        Income
 
 MidAmerican
        Energy -
 
 MidAmerican
        Energy’s non-operating income for the first nine months of 2007 increased
        $8 million compared to the first nine months of 2006 due primarily to a
        $6 million increase in allowance for equity funds as a result of the
        increase in construction work in progress. As a regulated public utility,
        MidAmerican Energy is allowed to capitalize, and record as income, a cost
        of
        construction for equity funds used, based on guidelines set forth by the
        FERC.
 
 MidAmerican
        Funding -
 
 MidAmerican
        Funding’s non-operating income decreased $33 million for first nine months
        of 2007 compared to the first nine months of 2006. In addition to the
        MidAmerican Energy item discussed above, MidAmerican Funding’s other income for
        the first nine months of 2006 includes $28 million of pre-tax gains from
        sales of MidAmerican Funding’s shares of common stock of an electronic energy
        and metals trading exchange and a $4 million pre-tax gain on MidAmerican
        Funding’s remaining shares of that common stock, which it donated to a
        charitable foundation. Other expense for the first nine months of 2006 reflects
        $4 million of expense for the donation of the shares. Other income for the
        first nine months of 2006 also includes an $8 million pre-tax gain on the
        sale of MidAmerican Funding’s non-controlling interest in a non-utility
        gas-fired cogeneration plant and $5 million of pre-tax income resulting
        from changes in a financing arrangement related to a non-strategic investment
        in
        a hydroelectric generating plant.
 
 Fixed
        Charges
 
 The
        $19 million increase in MidAmerican Energy’s interest on long-term debt was
        due to long-term debt issuances of $350 million in October 2006 and $650
        million in June 2007, offset partially by the maturity of higher interest
        rate
        debt in 2006. MidAmerican Energy is allowed to capitalize, and record as
        a
        reduction to fixed charges, a cost of construction for debt funds used, based
        on
        guidelines set forth by the FERC. The $3 million increase in allowance for
        borrowed funds for the first nine months of 2007 was due to the increase
        in
        construction work in progress compared to the first nine months of
        2006.
 
 Income
        Taxes
 
 Federal
        law currently provides for federal production tax credits for energy produced
        by
        renewable electricity generation facilities, including wind-powered generation,
        for ten years after the in-service date. MidAmerican Energy’s income taxes for
        the first nine months of 2007 include $9 million of additional production
        tax credits compared to the first nine months of 2006 due to additional
        wind-powered generation.
 
 State
        utility rate regulation in Iowa requires that the tax effect of certain timing
        differences be flowed through immediately to customers. Therefore, amounts
        that
        would otherwise have been recognized in income tax expense have been included
        as
        changes in regulatory assets. This flow-through treatment of such timing
        differences impacts the effective tax rates from year to year.
 
 **Liquidity
        and Capital Resources**
 
 MidAmerican
        Energy and MidAmerican Funding have available a variety of sources of liquidity
        and capital resources, both internal and external. These resources provide
        funds
        required for current operations, construction expenditures, dividends, debt
        retirement and other capital requirements.
 
 As
        reflected on the Consolidated Statements of Cash Flows, MidAmerican Energy’s net
        cash provided by operating activities was $511 million and
        $520 million for the first nine months of 2007 and 2006, respectively.
        MidAmerican Funding’s net cash provided by operating activities was
        $476 million and $478 million for the first nine months of 2007 and
        2006, respectively.
  32
  Utility
        Construction Expenditures
 
 MidAmerican
        Energy’s primary need for capital is utility construction expenditures, which
        totaled $879 million for the first nine months of 2007. MidAmerican
        Energy’s utility construction expenditures for 2007, excluding the non-cash
        allowance for equity funds used during construction, are estimated to be
        approximately $1,331 million, which includes $750 million for the
        coal-fired and wind-powered generation projects discussed below;
        $143 million for emissions control equipment to address current and
        anticipated air quality regulations; and $438 million for ongoing
        operational projects, including connections for new customers and facilities
        to
        accommodate load growth. Capital expenditure needs are reviewed regularly
        by
        management and may change significantly as a result of such reviews. MidAmerican
        Energy expects to fund these capital expenditures with short-term borrowings,
        cash flows from operations and the issuance of long-term debt.
 
 MidAmerican
        Energy has constructed WSEC Unit 4, a 790-MW (accredited capacity)
        supercritical, coal-fired generating plant, which began commercial operation
        on
        June 1, 2007. MidAmerican Energy operates the plant and holds an undivided
        ownership interest as a tenant in common with the other owners of the plant.
        In
        conjunction with the completion of the project, MidAmerican Energy transferred
        a
        1.01% ownership interest in WSEC Unit 4 to another public utility as
        partial payment for electric distribution property MidAmerican Energy received
        from the utility in 2005. Accordingly, MidAmerican Energy’s ownership interest
        is 59.66%, or approximately 471 MW. Prior to construction, MidAmerican
        Energy obtained approval from the IUB to include the Iowa portion of the
        actual
        cost of WSEC Unit 4 in its Iowa rate base as long as the actual cost did
        not exceed the agreed cap that MidAmerican Energy deemed reasonable. As of
        September 30, 2007, MidAmerican Energy had invested $835 million in
        the plant, including $63 million of non-cash allowance for equity funds
        used during construction. It is presently expected that the actual final
        cost of
        WSEC Unit 4 will be within the agreed cap. If the cap is ultimately
        exceeded, MidAmerican Energy has the right to demonstrate the prudence of
        the
        expenditures above the cap, subject to regulatory review. Refer to Note 7
        of MidAmerican Energy’s Notes to Consolidated Financial Statements in
        Item 1 for a discussion of the material financial statement impacts of WSEC
        Unit 4 being placed in service.
 
 On
        April 18, 2006, the IUB approved a settlement agreement regarding
        ratemaking principles for additional wind-powered generation capacity to
        be
        installed in Iowa in 2006 and 2007. On July 27, 2007, the IUB approved a
        settlement agreement in conjunction with MidAmerican Energy’s ratemaking
        principles application for up to 540 MW (nameplate ratings) of additional
        wind-powered generation capacity in Iowa to be placed in service on or before
        December 31, 2013. With the exception of 123 MW (nameplate ratings) of
        capacity MidAmerican Energy has under construction, all new wind-powered
        generation capacity up to the 540 MW will be subject to the 2007 settlement
        agreement. Including the 123 MW previously mentioned, MidAmerican Energy
        has 213
        MW (nameplate ratings) of wind-powered generation under construction that
        is
        expected to be in service by December 31, 2007. Another 75 MW (nameplate
        ratings) of wind-powered generation is under construction and expected to
        be in
        service in mid-2008. Generally speaking, accredited capacity ratings for
        wind-powered generation facilities are considerably less than the nameplate
        ratings due to the varying nature of wind. MidAmerican Energy continues to
        pursue additional cost effective wind-powered generation. Refer to Note 4
        of Notes to Consolidated Financial Statements in Item 1 for a more in-depth
        discussion of the settlement agreement.
 
 Refer
        to
        the “Environmental Matters” section later in MD&A for additional information
        regarding capital expenditures for emission control equipment.
 
 Spent
        Nuclear Fuel
 
 In
        the
        third quarter of 2007, MidAmerican Energy implemented a practice of retiring
        fully amortized spent nuclear fuel two years after it is removed from a reactor.
        Accordingly, electric utility plant and accumulated depreciation and
        amortization were each reduced by $227 million, the original cost of the
        qualifying spent nuclear fuel. The adjustment did not affect net utility
        plant,
        net income or cost of service.
  33
  Contractual
        Obligations and Commercial Commitments
 
 During
        the nine-month period ended September 30, 2007, there were no material
        changes outside the normal course of business in MidAmerican Energy’s and
        MidAmerican Funding’s contractual obligations and commercial commitments from
        the information provided in Item 7 of their Annual Report on Form 10-K
        for the year ended December 31, 2006, other than the issuance of
        $650 million of long-term debt on June 29, 2007 and the payment of
        $200 million of previously deferred construction payments.
 
 Debt
        Issuance
 
 On
        June 29, 2007, MidAmerican Energy issued $400 million of 5.65% Senior
        Notes due July 15, 2012, and $250 million of 5.95% Senior Notes due
        July 15, 2017. The proceeds are being used by MidAmerican Energy to pay
        construction costs of its interest in WSEC Unit 4 and its wind projects in
        Iowa, to repay short-term indebtedness and for general corporate
        purposes.
 
 Debt
        Authorizations and Credit Facilities
 
 MidAmerican
        Energy has authority from the FERC to issue through April 14, 2009,
        short-term debt in the form of commercial paper and bank notes aggregating
        $800 million. MidAmerican Energy currently has in place a $500 million
        revolving credit facility, expiring July 6, 2012, that supports its
        $380 million commercial paper program and its variable rate pollution
        control revenue obligations.
 
 MidAmerican
        Energy currently has an effective registration statement with the SEC to
        issue
        up to $680 million of long-term securities. It also has authorization from
        the FERC to issue long-term securities totaling up to $700 million through
        May 14, 2009. Additionally, regarding annual and multiple year capital
        projects, MidAmerican Energy has authorizations, expiring May 2, 2009 and
        May 2, 2011, respectively, from the Illinois Commerce Commission (“ICC”) to
        issue up to an aggregate of $631 million of long-term debt securities. On
        July 11, 2007, MidAmerican Energy received authorization from the ICC to
        refinance approximately $57 million of pollution control revenue bonds
        issued in 1993.
 
 In
        conjunction with the March 1999 merger, MidAmerican Energy committed to the
        IUB
        to use commercially reasonable efforts to maintain an investment grade rating
        on
        its long-term debt and to maintain its common equity level above 42% of total
        capitalization unless circumstances beyond its control result in the common
        equity level decreasing to below 39% of total capitalization. MidAmerican
        Energy
        must seek the approval of the IUB of a reasonable utility capital structure
        if
        MidAmerican Energy’s common equity level decreases below 42% of total
        capitalization, unless the decrease is beyond the control of MidAmerican
        Energy.
        MidAmerican Energy is also required to seek the approval of the IUB if
        MidAmerican Energy’s equity level decreases to below 39%, even if the decrease
        is due to circumstances beyond the control of MidAmerican Energy. If MidAmerican
        Energy’s common equity level were to drop below the required thresholds,
        MidAmerican Energy’s ability to issue debt could be restricted. As of
        September 30, 2007, MidAmerican Energy’s common equity ratio was 50.9%
        computed on a basis consistent with its commitment.
 
 Other
        Financing Information
 
 MidAmerican
        Funding or one of its subsidiaries, including MidAmerican Energy, may from
        time
        to time seek to retire its outstanding debt through cash purchases and/or
        exchanges for other securities, in open market purchases, privately negotiated
        transactions or otherwise. The repurchases or exchanges, if any, will depend
        on
        prevailing market conditions, the issuing company’s liquidity requirements,
        contractual restrictions and other factors. The amounts involved may be
        material.
 
 **Credit
        Ratings Risks**
 
 As
        of
        September 30, 2007, MidAmerican Energy’s senior unsecured debt credit
        ratings were as follows: Fitch Ratings, “A/stable;” Moody’s Investor Service,
“A2/stable;” and Standard and Poor’s, “A-/stable.”
   34
  Debt
        and
        preferred securities of MidAmerican Funding and MidAmerican Energy may be
        rated
        by nationally recognized credit rating agencies. Assigned credit ratings
        are
        based on each rating agency’s assessment of MidAmerican Funding’s or MidAmerican
        Energy’s ability to, in general, meet the obligations of its issued debt or
        preferred securities. The credit ratings are not a recommendation to buy,
        sell
        or hold securities, and there is no assurance that a particular credit rating
        will continue for any given period of time. Other than the energy supply
        and
        marketing agreements discussed below, neither MidAmerican Funding nor
        MidAmerican Energy has any credit agreements that require termination or
        a
        material change in collateral requirements or payment schedule in the event
        of a
        downgrade in the credit ratings of the respective company’s
        securities.
 
 In
        conjunction with its risk management activities, MidAmerican Energy must
        meet
        credit quality standards as required by counterparties. In accordance with
        industry practice, master agreements that govern MidAmerican Energy’s energy
        supply and marketing activities either specifically require it to maintain
        investment grade credit ratings or provide the right for counterparties to
        demand “adequate assurances” in the event of a material adverse change in
        MidAmerican Energy’s creditworthiness. If one or more of MidAmerican Energy’s
        credit ratings decline below investment grade, MidAmerican Energy may be
        required to post cash collateral, letters of credit or other similar credit
        support to facilitate ongoing wholesale energy supply and marketing activities.
        As of September 30, 2007, MidAmerican Energy’s estimated potential
        collateral requirements totaled approximately $173 million. MidAmerican
        Energy’s potential collateral requirements could fluctuate considerably due to
        seasonality, market price volatility, and a loss of key MidAmerican Energy
        generating facilities or other related factors.
 
 **Utility
        Regulatory Matters**
 
 Rate
        Matters
 
 The
        IUB
        has approved a series of electric settlement agreements between MidAmerican
        Energy, the Iowa Office of Consumer Advocate (“OCA”) and other intervenors,
        under which MidAmerican Energy has agreed not to seek a general increase
        in
        electric base rates to become effective prior to January 1, 2014, unless
        its Iowa jurisdictional electric return on equity in any year covered by
        the
        applicable agreement falls below 10%, computed as prescribed in each respective
        agreement. As a party to the settlement agreements, the OCA has agreed not
        to
        request or support any decrease in MidAmerican Energy’s Iowa electric base rates
        to become effective prior to January 1, 2014. Refer to Note 4 of
        MidAmerican Energy’s Notes to Consolidated Financial Statements in Item 1
        for further discussion of these rate matters.
 
 In
        an
        order issued September 27, 2004, the IUB required MidAmerican Energy to
        file various plans to fully equalize and consolidate its class zonal electric
        rates by the end of each of the years 2007 through 2010. On October 18,
        2004, MidAmerican Energy filed a motion for reconsideration opposing full
        rate
        equalization and proposing a series of rate reductions. On March 21, 2005,
        the IUB required MidAmerican Energy to file additional information about
        potential rate changes concerning phased equalization or consolidation of
        existing zonal rate differences that could have the effect of bringing rates
        together on a basis designed to have no impact on the overall revenues
        MidAmerican Energy receives from its Iowa electric customers. MidAmerican
        Energy
        filed the requested information on April 11, 2005. In the same proceeding,
        MidAmerican Energy has a pending plan to reduce rates for some residential
        customers by a total of approximately $4 million in the 2008-2009 time
        frame in addition to the reductions to be offset by cost decreases related
        to
        existing contracts. On June 19, 2006, without ruling on revenue requirement
        issues, the IUB issued an order requiring MidAmerican Energy to hold informal
        workshops in 2007 and file a comprehensive class cost-of-service study and
        a
        revenue neutral rate equalization/rate consolidation plan by mid-2009.
        MidAmerican Energy completed the series of informal workshops in October
        2007.
        Refer to Note 4 of Notes to Consolidated Financial Statements in
        Item 1 for discussion of a July 2007 settlement agreement and its impact on
        zonal rate equalization in Iowa.
  35
  Electric
        Market Developments
 
 On
        July 13, 2004, the FERC issued an order requiring MidAmerican Energy to
        conduct a study to determine whether MidAmerican Energy or its affiliates
        possess generation market power as part of the FERC’s triennial market power
        review process. MidAmerican Energy must show the absence of generation market
        power in order to be allowed to continue to sell wholesale electric power
        at
        market-based rates. MidAmerican Energy filed the required study on
        October 29, 2004. On June 1, 2005, the FERC issued an order setting
        for investigation the reasonableness of MidAmerican Energy’s market-based rates
        within its balancing authority area. The order also terminated the previously
        established November 1, 2004, refund date and instead required that
        market-based sales made by MidAmerican Energy within its balancing authority
        area beginning August 7, 2005, be subject to refund until the matter is
        resolved. In response to the order, MidAmerican Energy filed a proposed
        cost-based sales tariff (“CBST”) applicable to sales made within its balancing
        authority area to replace its market-based sales tariff. On March 17, 2006,
        the FERC issued an order (“March 17 Order”) accepting MidAmerican Energy’s
        commitment not to make sales using market-based rates in its balancing authority
        area but rejected the proposed applicable tariff language. MidAmerican Energy
        filed revised tariff language together with a request for clarification,
        or in
        the alternative, rehearing (“Request for Clarification”) of the March 17
        Order. On November 9, 2006, the FERC approved a settlement agreement among
        MidAmerican Energy and the other parties to the proceeding for rates to be
        charged under the CBST and ordered that refunds be paid to customers within
        30
        days for certain sales transactions in the balancing authority area on or
        after
        August 7, 2005. MidAmerican Energy timely made the refunds of an immaterial
        amount. Any actual remaining refund will depend upon the FERC’s ruling on the
        Request for Clarification and the applicability of the CBST to certain sales
        made within the balancing authority area for delivery outside the balancing
        authority area. MidAmerican Energy believes the ultimate outcome of this
        matter
        will not have a material effect on its financial results. On June 21, 2007,
        the FERC issued Order 697 addressing electric wholesale market-based sales
        for the utility industry. MidAmerican Energy had previously made changes
        to its
        wholesale sales practices that it believes substantially comply with the
        requirements of Order 697. Subject to a request for clarification filed by
        MidAmerican Energy regarding the schedule for its next triennial review
        established by Order 697, MidAmerican Energy’s next triennial filing will occur
        in June 2008.
 
 **Environmental
        Matters**
 
 MidAmerican
        Energy’s generating facilities are subject to applicable provisions of the Clean
        Air Act and related air quality standards promulgated by the United States
        Environmental Protection Agency (“EPA”). The Clean Air Act provides the
        framework for regulation of certain air emissions and permitting and monitoring
        associated with those emissions. MidAmerican Energy believes it is in material
        compliance with current air quality requirements.
 
 The
        EPA
        has in recent years implemented and proposed more stringent national ambient
        air
        quality standards. Additionally, legislation is pending, and could be proposed
        in the future, that may impact MidAmerican Energy if enacted. MidAmerican
        Energy
        has implemented a planning process that forecasts the site-specific controls
        and
        actions that may be required to meet emissions reductions as promulgated
        by the
        EPA. The plan allows MidAmerican Energy to more effectively manage its
        expenditures required to comply with emissions standards. On April 1, 2006,
        MidAmerican Energy submitted to the IUB an updated plan, as required every
        two
        years by Iowa law, which increased its estimate of required expenditures.
        MidAmerican Energy currently estimates that the incremental capital expenditures
        for emission control equipment to comply with air quality requirements will
        total approximately $540 million for January 1, 2007 through
        December 31, 2015. Additionally, MidAmerican Energy expects to incur
        significant incremental operating costs in conjunction with the utilization
        of
        the emissions control equipment. Estimates of the environmental capital and
        operating requirements may change significantly at any time as a result of,
        among other factors, changes in related regulations, prices of products used
        to
        meet the requirements and management’s strategies for achieving compliance with
        the regulations. Refer to Item 1. Business of MidAmerican Energy’s most
        recently filed Form 10-K for further discussion of air quality standards
        affecting MidAmerican Energy.
 
 As
        a
        result of increased attention to climate change in the United States, numerous
        bills have been introduced in the current session of the United States Congress
        that would reduce greenhouse gas emissions in the United States. Congressional
        leadership has made climate change legislation a priority, and many
        congressional observers expect to see the passage of climate change legislation
        within the next several years. In addition, nongovernmental organizations
        have
        become more active in initiating citizen suits under existing environmental
        and
        other laws. In April 2007, a United States Supreme Court decision concluded
        that
        the EPA has the authority under the Clean Air Act to regulate emissions of
        greenhouse gases from motor vehicles. In addition, pending cases that address
        the potential public nuisance from greenhouse gas emissions from electricity
        generators and the EPA’s failure to regulate greenhouse gas emissions from new
        and existing coal-fired plants are expected to become active. Furthermore,
        while
        debate continues at the national level over the direction of domestic climate
        policy, several states have developed state-specific laws or regional
        legislative initiatives to reduce greenhouse gas emissions, including Oregon,
        Washington, California and several Northeastern states, and individual state
        actions to regulate greenhouse gas emissions are likely to increase. The
        impact
        of any pending judicial proceedings and any pending or enacted federal and
        state
        climate change legislation and regulation cannot be determined at this time;
        however, adoption of stringent limits on greenhouse gas emissions could
        significantly impact MidAmerican Energy’s current and future fossil-fueled
        facilities, and, therefore, its financial results.
  36
  **New
        Accounting Pronouncements**
 
 For
        a
        discussion of new accounting pronouncements affecting MidAmerican Energy
        and
        MidAmerican Funding, refer to Note 2 of Notes to Consolidated Financial
        Statements in Item 1.
 
 **Critical
        Accounting Policies and Estimates**
 
 Certain
        accounting policies require management to make estimates and judgments
        concerning transactions that will be settled in the future. Amounts recognized
        in the financial statements from such estimates are necessarily based on
        numerous assumptions involving varying and potentially significant degrees
        of
        judgment and uncertainty. Accordingly, the amounts currently reflected in
        the
        financial statements will likely increase or decrease in the future as
        additional information becomes available. Estimates are used for, but not
        limited to, the accounting for the effects of certain types of regulation,
        derivatives, impairment of long-lived assets and goodwill, accrued pension
        and
        other postretirement expense, income taxes and revenue recognition - unbilled
        revenue.
 
 For
        a
        discussion of MidAmerican Energy’s and MidAmerican Funding’s critical accounting
        policies, see Item 7 of their Annual Report on Form 10-K for the year
        ended December 31, 2006. MidAmerican Energy’s and MidAmerican Funding’s
        critical accounting policies have not changed materially since December 31,
        2006, other than the adoption of FIN 48.
  **Item
                  3.**
                **Quantitative
                  and Qualitative Disclosures About
                  Market Risk.**
  Refer
        to
        Note 3 of Notes to Consolidated Financial Statements in Item 1 for
        disclosure of MidAmerican Energy’s derivative positions as of September 30,
        2007 and December 31, 2006. For quantitative and qualitative disclosures
        about market risk affecting MidAmerican Energy and MidAmerican Funding, see
        Item 7A of their Annual Report on Form 10-K for the year ended
        December 31, 2006. MidAmerican Energy’s and MidAmerican Funding’s exposure
        to market risk and their management of such risk has not changed materially
        since December 31, 2006.
  **Item
                4.**
              **Controls
                and
                Procedures.**
  Under
        the
        supervision and with the participation of MidAmerican Funding’s and MidAmerican
        Energy’s management, including the respective persons acting as chief executive
        officer and chief financial officer, each company performed evaluations
        regarding the effectiveness of the design and operation of its disclosure
        controls and procedures (as defined in Rule 13a-15(e) promulgated under the
        Securities and Exchange Act of 1934, as amended) as of September 30, 2007.
        Based on those evaluations, MidAmerican Funding’s and MidAmerican Energy’s
        management, including the respective persons acting as chief executive officer
        and chief financial officer, concluded that its disclosure controls and
        procedures were effective. There have been no changes during the quarter
        covered
        by this report in MidAmerican Funding’s or MidAmerican Energy’s internal control
        over financial reporting that has materially affected, or is reasonably likely
        to materially affect, its internal control over financial
        reporting.
  37
  **PART
        II – OTHER INFORMATION**
 
 **Item 1.**
              **Legal
                Proceedings.**
  On
        December 28, 2004, an apparent gas explosion and fire resulted in three
        fatalities, one serious injury and property damage at a commercial building
        in
        Ramsey, Minnesota. According to the Minnesota Office of Pipeline Safety,
        an
        improper installation of a pipeline connection may have been a cause of the
        explosion and fire. A predecessor company to MidAmerican Energy provided
        gas
        service in Ramsey, Minnesota, at the time of the original installation in
        1980.
        In 1993, a predecessor of CenterPoint Energy, Inc. (“CenterPoint”) acquired all
        of the Minnesota gas properties owned by the MidAmerican Energy predecessor
        company.
 
 All
        of
        the wrongful death, personal injury and property damage claims arising from
        this
        incident have been settled by CenterPoint. MidAmerican Energy’s exposure, if
        any, to these settlements is covered under its liability insurance to which
        a
        $2 million retention applies.
 
 Two
        lawsuits naming MidAmerican Energy as a third party defendant have been filed
        by
        CenterPoint Energy Resources Corp. in the U.S. District Court, District of
        Minnesota, related to this incident. The complaints seek reimbursement of
        all
        sums associated with CenterPoint’s replacement of all service lines in the
        MidAmerican Energy predecessor company’s properties located in Minnesota at a
        cost of approximately $39 million according to publicly available reports.
        MidAmerican Energy filed a motion for summary judgment in both of these actions
        requesting that CenterPoint’s third party claims based upon misrepresentation
        and negligent installation and negligent operation and maintenance of the
        gas
        pipeline be barred. On March 5, 2007, the U.S. District Court issued an
        order granting MidAmerican Energy’s motion for summary judgment as to
        CenterPoint’s misrepresentation and negligent installation claims and denying
        MidAmerican Energy’s motion for summary judgment as to CenterPoint’s negligent
        operation and maintenance claims. A court-ordered settlement conference was
        held
        September 21, 2007, but the parties did not achieve a settlement.
        Subsequently, the court ordered the parties to be ready for trial on or after
        February 1, 2008. MidAmerican Energy intends to vigorously defend its
        position in these claims and believes their ultimate outcome will not have
        a
        material impact on its financial results.
 
 Other
        than the litigation described above, MidAmerican Funding and its subsidiaries
        currently have no material legal proceedings. Information on MidAmerican
        Energy’s environmental matters is included in the “Environmental Matters”
section of MD&A in Item 2. Information regarding MidAmerican Energy’s
        regulatory matters is included in the “Utility Regulatory Matters” section of
        MD&A in Item 2.
  **Item 1A.**
                **Risk
                  Factors.**
 There
        has
        been no material change to MidAmerican Funding’s or MidAmerican Energy’s risk
        factors from those disclosed in Item 1A of their Annual Report on
        Form 10-K for the year ended December 31, 2006.
 
 **Item 2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds.**
 
 Not
        applicable.
 
 **Item 3.**
              **Defaults
                  Upon Senior
                  Securities.**
 
 Not
        applicable.
 
 **Item 4.**
              **Submission
                  of Matters to a Vote of Security
                  Holders.**
 
 Not
        applicable.
  38
  **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.
 
  39
   **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 2, 2007
              /s/  Thomas
                  B. SpecketerThomas
                  B. SpecketerVice
                  President and Controllerof
                  MidAmerican Funding, LLCand
                  MidAmerican Energy Company(principal
                  financial and accounting officer)
 
 40
 
 **EXHIBIT
        INDEX**
 
 **Exhibit
                  No.**
              **Description**MidAmerican
                  Energy15
              Awareness
                  Letter of Independent Registered Public Accounting Firm31.1
              Chief
                  executive officer certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.2
              Chief
                  financial officer certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200232.1
              Chief
                  executive officer certification pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 200232.2
              Chief
                  financial officer certification pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002MidAmerican
                  Funding31.3
              Chief
                  executive officer certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.4
              Chief
                  financial officer certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200232.3
              Chief
                  executive officer certification pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 200232.4
              Chief
                  financial officer certification pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
 
  41