**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





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





For
      the
      quarterly period ended June 30, 2006





**OR**





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





For
      the
      transition period from ________ to _______





Commission
      File No. 001-12995





**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


(Exact
      name of registrant as specified in its charter)




Philippines
            
            Not
                Applicable(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)24thFloor, 6750 Building, Ayala Avenue
              Makati,
                Metro Manila, Philippines
            
            Not
                Applicable(Address
                of principal executive offices)
            
            (Zip
                Code)




011
                63 2 892-0276(Registrant’s
                telephone number, including area code)(Former
                name, former address and former fiscal year, if changed since last
                report)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes  ̈ No T





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See the 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
                filerT





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


Yes  ̈ No T





All
      of
      the shares of common equity of CE Casecnan Water and Energy Company, Inc. are
      privately held by a limited group of investors. As of July 27, 2006, the
      number of outstanding shares of $0.038 par value common stock was
      767,162.










**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
            11Item 3.
            Quantitative and
              Qualitative Disclosures About Market Risk
            16Item 4.
            Controls and
              Procedures
            16**PART
                II - OTHER
                INFORMATION**Item
              1.
            Legal
              Proceedings
            17Item 1A.
            Risk
              Factors
            17Item 2.
            Unregistered Sales
              of Equity Securities and Use of Proceeds
            17Item 3.
            Defaults Upon
              Senior Securities
            17Item
              4.
            Submission of
              Matters to a Vote of Security Holders
            17Item
              5.
            Other
              Information
            17Item
              6.
            Exhibits
            17Signatures
            18Exhibit
              Index
            19







2








**PART
      I - FINANCIAL INFORMATION**








**Item 1.** **Financial
      Statements.**











**Report
      of Independent Registered Public Accounting Firm**








To
      the
      Board of Directors and Stockholders of


CE
      Casecnan Water and Energy Company, Inc.





We
      have
      reviewed the accompanying balance sheet of CE Casecnan Water and Energy Company,
      Inc. (the “Company”) as of June 30, 2006, and the related statements of
      operations for each of the three-month and six-month periods ended June 30,
      2006 and 2005 and of changes in stockholders’ equity and of cash flows for each
      of the six-month periods ended June 30, 2006 and 2005. These interim
      financial statements are the responsibility of the Company’s
      management.





We
      conducted our review in accordance with standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical review 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
      standards of the Public Company Accounting Oversight Board, 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 review, we are not aware of any material modifications that should be made
      to the accompanying interim financial statements for them to be in conformity
      with accounting principles generally accepted in the United States of
      America.





We
      previously audited in accordance with standards of the Public Company Accounting
      Oversight Board (United States), the balance sheet as of December 31, 2005,
      and the related statements of operations, of changes in stockholders’ equity and
      of cash flows for the year then ended (not presented herein), and in our report
      dated February 8, 2006, we expressed an unqualified opinion on those
      financial statements. In our opinion, the information set forth in the
      accompanying balance sheet as of December 31, 2005, is fairly stated in all
      material respects in relation to the balance sheet from which it has been
      derived.





/s/
      Isla
      Lipana & Co.





ISLA
      LIPANA & CO.


A
      PricewaterhouseCoopers Member Firm


Makati
      City, Philippines


July
      27,
      2006


3





**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**BALANCE
      SHEETS**


(Amounts
      in thousands of U.S. Dollars, except share data)





**As
                of****June
                30,**
            
            **December
                31,****2006**
            
            **2005****(Unaudited)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            21,389
            
            $
            42,317Restricted
                cash and investments
            
            
            55,305
            
            
            44,956Trade
                receivable, net
            
            
            18,055
            
            
            26,638Prepaid
                insurance and other current assets
            
            
            4,768
            
            
            5,215Total
                current assets
            
            
            99,517
            
            
            119,126Bond
                issue costs, net
            
            
            1,401
            
            
            1,745Property,
                plant and equipment, net
            
            
            334,794
            
            
            344,051Deferred
                income tax
            
            
            5,095
            
            
            5,095**Total
                assets**
            
            $
            440,807
            
            $
            470,017**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and other accrued liabilities
            
            $
            8,449
            
            $
            7,156Dividends
                payable
            
            
            25,950
            
            
            17,550Accrued
                interest
            
            
            12,867
            
            
            10,592Payable
                to affiliates
            
            
            33,750
            
            
            35,358Current
                portion of long-term debt
            
            
            36,873
            
            
            36,015Total
                current liabilities
            
            
            117,889
            
            
            106,671Notes
                payable
            
            
            51,263
            
            
            51,263Deferred
                revenue
            
            
            17,517
            
            
            13,756Long-term
                debt, net of current portion
            
            
            87,465
            
            
            106,330Total
                liabilities
            
            
            274,134
            
            
            278,020Commitments
                and contingencies (Note 3)Stockholders’
                equity:Capital
                stock - 2,148,000 shares authorized, one Philippine peso ($0.038)
                parvalue;
                767,162 shares issued and outstanding
            
            
            29
            
            
            29Additional
                paid-in capital
            
            
            123,807
            
            
            123,807Retained
                earnings
            
            
            42,837
            
            
            68,161Total
                stockholders’ equity
            
            
            166,673
            
            
            191,997**Total
                liabilities and stockholders’ equity**
            
            $
            440,807
            
            $
            470,017





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


4





**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**STATEMENTS
      OF OPERATIONS (Unaudited)**


(Amounts
      in thousands of U.S. Dollars)





**Three
                Months**
            
            **Six
                Months****Ended
                June****30,**
            
            **Ended
                June 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Revenue:**Lease
                rentals and service contracts
            
            $
            21,806
            
            $
            20,633
            
            $
            54,533
            
            $
            41,782**Operating
                expenses:**Depreciation
            
            
            5,352
            
            
            5,447
            
            
            10,745
            
            
            10,881Plant
                operations and other operating expenses
            
            
            2,085
            
            
            2,119
            
            
            4,080
            
            
            4,137Total
                operating expenses
            
            
            7,437
            
            
            7,566
            
            
            14,825
            
            
            15,018**Operating
                income**
            
            
            14,369
            
            
            13,067
            
            
            39,708
            
            
            26,764**Other
                income (expense):**Interest
                expense
            
            
            (5,456
            )
            
            (6,306
            )
            
            (11,124
            )
            
            (12,934
            )Interest
                income
            
            
            710
            
            
            563
            
            
            1,579
            
            
            1,133Other,
                net
            
            
            419
            
            
            (100
            )
            
            1,627
            
            
            50Total
                other expense, net
            
            
            (4,327
            )
            
            (5,843
            )
            
            (7,918
            )
            
            (11,751
            )**Income
                before provision for income tax**
            
            
            10,042
            
            
            7,224
            
            
            31,790
            
            
            15,013**Provision
                for income tax**
            
            
            578
            
            
            -
            
            
            1,114
            
            
            -**Net
                income**
            
            $
            9,464
            
            $
            7,224
            
            $
            30,676
            
            $
            15,013





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


5


**CE
        CASECNAN WATER AND ENERGY COMPANY, INC.**
 **STATEMENTS
        OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)**
 (Amounts
        in thousands of U.S. Dollars)
 
 **Outstanding**
              
              
              
              **Additional****Common**
              
              **Common**
              
              **Paid-in**
              
              **Retained****Shares**
              
              **Stock**
              
              **Capital**
              
              **Earnings**
              
              **Total****January
                  1, 2005**
              
              
              767,162
              
              $
              29
              
              $
              123,807
              
              $
              27,152
              
              $
              150,988Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              15,013
              
              
              15,013Dividends
                  declared
              
              
              -
              
              
              -
              
              
              -
              
              
              (11,000
              )
              
              (11,000
              )**Balance,
                  June 30, 2005**
              
              
              767,162
              
              $
              29
              
              $
              123,807
              
              $
              31,165
              
              $
              155,001
  **Outstanding**
              
              
              
              
              
              **Additional****Common**
              
              
              **Common**
              
              
              **Paid-in**
              
              
              **Retained****Shares**
              
              
              **Stock**
              
              
              **Capital**
              
              
              **Earnings**
              
              
              **Total****January
                  1, 2006**
              
              
              767,162
              
              $
              29
              
              $
              123,807
              
              $
              68,161
              
              $
              191,997Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              30,676
              
              
              30,676Dividends
                  declared
              
              
              -
              
              
              -
              
              
              -
              
              
              (56,000
              )
              
              (56,000
              )**Balance,
                  June 30, 2006**
              
              
              767,162
              
              $
              29
              
              $
              123,807
              
              $
              42,837
              
              $
              166,673
 
 The
        accompanying notes are an integral part of these financial
        statements.







6





**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**STATEMENTS
      OF CASH FLOWS (Unaudited)**


(Amounts
      in thousands of U.S. Dollars)





**Six
                Months****Ended
                June 30,****2006**
            
            **2005****Cash
                flows from operating activities:**Net
                income
            
            $
            30,676
            
            $
            15,013Adjustments
                to reconcile net income to cash flows from operating
                activities:Depreciation
            
            
            10,745
            
            
            10,881Amortization
                of bond issue costs
            
            
            344
            
            
            467Changes
                in other items:Trade
                receivable, net
            
            
            8,583
            
            
            5,693Prepaid
                insurance and other current assets
            
            
            447
            
            
            3,221Accounts
                payable and other accrued liabilities
            
            
            1,293
            
            
            (1,261
            )Accrued
                interest
            
            
            2,275
            
            
            812Deferred
                revenue
            
            
            3,761
            
            
            3,324Net
                cash flows from operating activities
            
            
            58,124
            
            
            38,150**Cash
                flows from investing activities:**Additions
                to property, plant and equipment
            
            
            (1,488
            )
            
            (49
            )Increase
                in restricted cash and investments for debt service
              obligations
                and dividends payable
            
            
            (10,349
            )
            
            (117
            )Net
                cash flows used in investing activities
            
            
            (11,837
            )
            
            (166
            )**Cash
                flows from financing activities:**Increase
                (decrease) in payable to affiliates
            
            
            (1,608
            )
            
            154Repayment
                of project financing debt
            
            
            (18,007
            )
            
            (27,376
            )Cash
                dividends paid
            
            
            (47,600
            )
            
            (9,350
            )Net
                cash flows used in financing activities
            
            
            (67,215
            )
            
            (36,572
            )**Net
                change in cash and cash equivalents**
            
            
            (20,928
            )
            
            1,412**Cash
                and cash equivalents at beginning of period**
            
            
            42,317
            
            
            16,732**Cash
                and cash equivalents at end of period**
            
            $
            21,389
            
            $
            18,144**Supplemental
                disclosure:**Interest
                paid
            
            $
            9,450
            
            $
            12,950Dividends
                declared but not paid
            
            $
            8,400
            
            $
            1,650





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





7


**CE
      CASECNAN WATER AND ENERGY COMPANY, INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**(Unaudited)**





**1.**
            **General**





The
      accompanying unaudited interim financial statements have been prepared by CE
      Casecnan Water and Energy Company, Inc. (“CE Casecnan" or the "Company")
      pursuant to the rules and regulations of the United States Securities and
      Exchange Commission for interim financial reporting. In the opinion of the
      management of the Company, the accompanying unaudited financial statements
      contain all adjustments (consisting of normal recurring accruals) necessary
      to
      present fairly the financial position as of June 30, 2006, and the results
      of operations for each of the three-month and six-month periods ended
      June 30, 2006 and 2005 and the changes in stockholders’ equity and the
      cash flows for the six-month periods ended June 30, 2006 and 2005. The
      results of operations for the three-month and six-month periods ended
      June 30, 2006 are not necessarily indicative of the results to be expected
      for the full year.





The
      Company has a contract with the Republic of the Philippines (“ROP”), through the
      Philippine National Irrigation Administration (“NIA”) (a ROP-owned and
      controlled corporation), for the development and construction of a hydroelectric
      power plant and related facilities under a build-own-operate-transfer agreement
      (“Project Agreement”), as amended by the Supplemental Agreement dated
      September 29, 2003 (the “Supplemental Agreement”), covering a 20-year
      cooperation period (“Cooperation Period”). At the end of the Cooperation Period,
      the combined irrigation and 150 MW hydroelectric power generation project (the
      “Casecnan Project”) will be transferred to the ROP at no cost on an “as is”
basis. The ROP also signed a Performance Undertaking, which, among others,
      affirms and guarantees the obligations of NIA under the Project Agreement.
      Construction of the Casecnan Project commenced in 1995. CE Casecnan is
      registered with the Philippine Board of Investments as a new operator of
      hydroelectric power plant with pioneer status under the Omnibus Investments
      Code
      of 1987. Under the terms of its registration, CE Casecnan is entitled to certain
      incentives which include an income tax holiday for six years from the start
      of
      commercial operations. The Cooperation Period began upon commencement of
      commercial operations on December 11, 2001. The income tax holiday will
      expire on December 11, 2007.





The
      Casecnan Project is dependent upon sufficient rainfall to generate electricity
      and deliver water. The seasonality of rainfall patterns and the variability
      of
      rainfall from year to year, all of which are outside the control of the Company,
      have a material impact on the amounts of electricity generated and water
      delivered by the Casecnan Project. Rainfall has historically been highest from
      June through December and lowest from January through May.





The
      unaudited financial statements should be read in conjunction with the financial
      statements and notes thereto included in the Company’s Annual Report on Form
      10-K for the year ended December 31, 2005. In particular, the Company’s
      significant accounting policies are presented in Note 2 to the financial
      statements included therein.




The
      Company’s operations consist of one reportable segment, the water delivery and
      electricity generation industry.





**2.**
            **Related
                Party Transactions**





In
      the
      normal course of business, the Company transacts with its affiliates in the
      form
      of advances for operating expenses. The payable to affiliates was
      $33.8 million and $35.4 million at June 30, 2006 and
      December 31, 2005, respectively. Costs incurred by the Company in
      transactions with related parties amounted to $0.3 million for each of the
      three-month periods ended June 30, 2006 and 2005, and $0.6 million for
      the each of the six-month periods ended June 30, 2006 and 2005.





As
      of
      June 30, 2006 and December 31, 2005, the Company had outstanding
      $51.3 million of unsecured subordinated notes payable to CE Casecnan Ltd.,
      a stockholder. On November 1, 2005, the Company extended the due date of
      the notes from November 15, 2005 to November 1, 2006 and amended the
      interest rate to 10% per annum. On December 6, 2005, the notes’ original
      maturity date was changed to November 1, 2015 and the interest rate from
      LIBOR plus 2% to LIBOR plus 5.25%; provided, however, that CE Casecnan Ltd.
      can
      demand payment of the outstanding principal amount at any time prior to the
      maturity date. The interest is payable each May 15 and November 15.
      Interest expense on the notes was $1.3 million and $0.6 million during
      the three-month periods ended June 30, 2006 and 2005, respectively, and
      $2.5 million and $1.2 million during the six-month periods ended
      June 30, 2006 and 2005, respectively. Any overdue payment of principal or
      interest payable on the notes shall increase the annual interest rate by two
      (2%) percentage points. At June 30, 2006, the effective interest rate on
      the notes was 10.53%. The notes may be prepaid at any time without premium
      or
      penalty but with accrued interest, if any. The unsecured subordinated notes
      and
      any and all payments, whether of principal, interest or otherwise are subject
      in
      all respects to the terms of the Subordination Agreement dated November 15,
      2001 between CE Casecnan Ltd. and the Company in favor of the Trustee, the
      Collateral Agent, the co-collateral agent, the Depositary, any party that
      becomes a Permitted Counterparty under an Interest Rate/Currency Protection
      Agreement, and any party that becomes a working capital facility agent and
      any
      other Person that becomes a secured party under the Intercreditor Agreement.
      The
      Company intends to repay the notes or convert them to some other form of capital
      prior to maturity.




8




**3.**
            **Commitments
                and Contingencies**





Stockholder
      Litigation




Pursuant
        to the share ownership adjustment mechanism in the CE Casecnan stockholder
        agreement, which is based upon proforma financial projections of the Casecnan
        Project prepared following commencement of commercial operations, in February
        2002, MidAmerican Energy Holdings Company’s (“MidAmerican”) indirect wholly
        owned subsidiary, CE Casecnan Ltd., advised the minority stockholder
        of the Company, LaPrairie Group Contractors (International) Ltd. (“LPG”), that
        MidAmerican’s indirect ownership interest in CE Casecnan had increased to
        100% effective from commencement of commercial operations. On
        July 8, 2002, LPG filed a complaint in the Superior Court of the State
        of California, City and County of San Francisco against CE Casecnan Ltd.
        and MidAmerican. LPG’s complaint, as amended, seeks compensatory and punitive
        damages arising out of CE Casecnan Ltd.’s and MidAmerican’s alleged improper
        calculation of the proforma financial projections and alleged improper
        settlement of the NIA arbitration. The Company is not a defendant in the
        action.
        On January 21, 2004, CE Casecnan Ltd., LPG and the Company entered into a
        status quo agreement pursuant to which the parties agreed to set aside certain
        distributions related to the shares subject to the LPG dispute and CE Casecnan
        agreed not to take any further actions with respect to such distributions
        without at least 15 days’ prior notice to LPG. Accordingly, 15% of the dividend
        declarations in 2004, 2005 and 2006, totaling $26.0 million, was set aside
        in a separate bank account in the name of the Company and is shown as restricted
        cash and investments and dividends payable in the accompanying balance sheets.
        On August 4, 2005, the court issued a decision, ruling in favor of LPG on
        five of the eight disputed issues in the first phase of the litigation. On
        September 12, 2005, LPG filed a motion seeking the release of the funds
        which have been set aside pursuant to the status quo agreement referred to
        above. MidAmerican and CE Casecnan Ltd. filed an opposition to the motion
        on
        October 3, 2005, and at the hearing on October 26, 2005, the court
        denied LPG’s motion. On January 3, 2006, the court entered a judgment in
        favor of LPG against CE Casecnan Ltd. According to the judgment, LPG would
        retain its ownership of 15% of the shares of the Company and distributions
        of
        the amounts deposited into escrow plus interest at 9% per annum. On
        February 28, 2006, CE Casecnan Ltd. filed an appeal of this judgment and
        the August 4, 2005 decision. Initial briefs were filed May 24, 2006
        and reply briefs are due August 1, 2006. The appeal is expected to be
        resolved sometime in 2007.




In
      February 2003, San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
      Lorenzo”), an original shareholder substantially all of whose shares in the
      Company were purchased by MidAmerican in 1998, threatened to initiate legal
      action against the Company in the Philippines in connection with certain aspects
      of its option to repurchase such shares. The Company believes that San Lorenzo
      has no valid basis for any claim and, if named as a defendant in any action
      that
      may be commenced by San Lorenzo, the Company will vigorously defend such action.
      On July 1, 2005, MidAmerican and CE Casecnan Ltd. commenced an action
      against San Lorenzo in the District Court of Douglas County, Nebraska, seeking
      a
      declaratory judgment as to MidAmerican’s and CE Casecnan Ltd.’s rights vis-à-vis
      San Lorenzo in respect of such shares. San Lorenzo filed a motion to dismiss
      on
      September 19, 2005. Subsequently, San Lorenzo purported to exercise its
      option to repurchase such shares. On January 30, 2006, San Lorenzo filed a
      counterclaim against MidAmerican and CE Casecnan Ltd. seeking declaratory relief
      that it has effectively exercised its option to purchase 15% of the shares
      of
      the Company, that it is the rightful owner of such shares and that it is due
      all
      dividends paid on such shares. On March 9, 2006, the court granted San
      Lorenzo’s motion to dismiss, but has since permitted MidAmerican and CE Casecnan
      Ltd. to file an amended complaint incorporating the purported exercise of the
      option. The impact, if any, of San Lorenzo’s purported exercise of its option
      and the Nebraska litigation on the Company cannot be determined at this time.





Real
      Property Tax





On
      July 25, 2005, CE Casecnan paid real property taxes, plus interest and
      penalties, due to the Province of Nueva Vizcaya of $4.5 million and
      submitted an invoice for reimbursement of such amount to NIA in accordance
      with
      the Supplemental Agreement. A receivable of $4.5 million was recorded for
      the expected full reimbursement to CE Casecnan in respect of the Province of
      Nueva Vizcaya tax assessment. On January 24, 2006, NIA, the Philippine
      Department of Finance (the “DOF”) and CE Casecnan agreed that NIA will reimburse
      CE Casecnan the full amount of the Province of Nueva Vizcaya tax assessment
      in
      five approximately equal installments during 2006. CE Casecnan has received
      the
      first three payments, totaling $2.9 million, on March 3, 2006,
      March 28, 2006 and June 27, 2006. The remaining payments, totaling
      $1.6 million, are due on September 25, 2006 and December 25,
      2006.




9




On
      December 28, 2005, CE Casecnan paid real property taxes of
      $4.7 million to the Province of Nueva Ecija. CE Casecnan has received
      letters from NIA and the DOF, respectively, authorizing the payment. A
      receivable of $4.7 million has been recorded for the expected full
      reimbursement to CE Casecnan in respect of the Province of Nueva Ecija tax
      assessment. The DOF and CE Casecnan agreed that NIA will reimburse CE Casecnan
      the full amount of real property taxes with an initial payment of
      $2.0 million in April 2006 and the remaining balance in three approximately
      equal installments of $0.9 million on June 25, 2006,
      September 25, 2006 and December 25, 2006. The initial payment was
      received by CE Casecnan on May 23, 2006. The second payment was received on
      June 27, 2006.




On
        January 12, 2006, CE Casecnan received an assessment from the treasurer of
        the Province of Nueva Vizcaya in the total amount of $1.2 million for the
        real property taxes for 2006. On March 23, 2006, CE Casecnan received the
        assessment for 2006 real property taxes amounting to $0.9 million from the
        treasurer of the Province of Nueva Ecija. CE Casecnan subsequently received
        written authorization from NIA and the DOF to pay such assessments and
        thereafter paid both assessments under protest on March 31,
        2006. The 2006
        real property taxes were billed to NIA pursuant to the Supplemental Agreement
        and were collected by the Company on July 25, 2006. On April 27, 2006,
        CE Casecnan filed protests to the treasurers of the Province of Nueva Vizcaya
        and the Province of Nueva E cija
        in
        order to preserve the rights and remedies of NIA which is ultimately liable
        for
        the tax. As a government owned and controlled corporation, NIA may be subject
        to
        a lower assessment level or be exempt from the tax. The cases remain pending
        at
        the provincial treasurer’s office.




Franchise
      Tax





On
      January 27, 2006, CE Casecnan received from the Province of Nueva Vizcaya a
      franchise tax assessment for the years 2001 to 2004 totaling $1.6 million.
      CE Casecnan believes that franchise tax is a tax imposed on companies which
      have
      a secondary or special franchise from the government. CE Casecnan does not
      have
      a government franchise. The Electric Power Industry Reform Act (“EPIRA”)
      specifically provides that a government franchise is not required to operate
      a
      power plant. The EPIRA further provides that power generation is not a public
      utility operation and that it does not require a franchise. On April 25,
      2006, CE Casecnan filed an appeal with the Regional Trial Court of Nueva
      Vizcaya.





On
      March 30, 2006, CE Casecnan received from the Province of Nueva Vizcaya a
      franchise tax assessment for the year 2005 totaling $0.3 million. CE
      Casecnan filed a protest with the treasurer of the Province of Nueva Vizcaya
      on
      April 5, 2006. On June 30, 2006, CE Casecnan filed an appeal to the
      Regional Trial Court of Nueva Vizcaya after the province failed to act on the
      protest within the period required by law.





Concentration
      of Risk





NIA’s
      obligations under the Project Agreement are substantially denominated in U.S.
      Dollars and are the Company’s sole source of operating revenues. Because of the
      Company’s dependence on NIA, any material failure of NIA to fulfill its
      obligations under the Project Agreement and any material failure of the ROP
      to
      fulfill its obligations under the Performance Undertaking would significantly
      impair the ability of the Company to meet its existing and future obligations,
      including obligations pertaining to its outstanding debt. No stockholders,
      partners or affiliates of the Company, including MidAmerican, and no directors,
      officers or employees of the Company will guarantee or be in any way liable
      for
      payment of the Company’s obligations. As a result, payment of the Company’s
      obligations depends upon the availability of sufficient revenues from the
      Company’s business after the payment of operating expenses.





**4.**
            **Reclassification**





The
      increase in restricted cash and investments for debt service obligations and
      dividends payable has been reclassified from financing activities to investing
      activities in the 2005 statement of cash flows to conform to the current period
      presentation.




10




**Item 2.** **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.**





The
      following is management’s discussion and analysis of certain significant factors
      which have affected the financial condition and results of operations of CE
      Casecnan Water and Energy Company, Inc. (“CE Casecnan” or the “Company”), during
      the periods included in the accompanying statements of operations. This
      discussion should be read in conjunction with the Company’s historical financial
      statements and the notes related thereto included elsewhere in this report.
      The
      Company’s actual results in the future could differ significantly from the
      historical results.





**Forward-Looking
      Statements**





From
      time
      to time, CE Casecnan may make forward-looking statements within the meaning
      of
      the federal securities laws that involve judgments, assumptions and other
      uncertainties beyond the control of the Company. These forward-looking
      statements may include, among others, statements concerning revenue and cost
      trends, cost recovery, cost reduction strategies and anticipated outcomes,
      collections, pricing strategies, changes in the utility industry, financing
      needs and availability, statements of the Company’s expectations, beliefs,
      future plans and strategies, anticipated events or trends and similar comments
      concerning matters that are not historical facts. These types of forward-looking
      statements are based on current expectations and involve a number of known
      and
      unknown risks and uncertainties that could cause the actual results and
      performance of the Company to differ materially from any expected future results
      or performance, expressed or implied, by the forward-looking statements. In
      connection with the safe harbor provisions of the Private Securities Litigation
      Reform Act of 1995, the Company has identified important factors that could
      cause actual results to differ materially from those expectations, including
      weather effects on revenues and other operating uncertainties, uncertainties
      relating to economic and political conditions and uncertainties regarding the
      impact of regulations, changes in government policy and competition. The Company
      does not assume any responsibility to update forward-looking information
      contained herein.





**Business**





The
      Company has a contract with the Republic of the Philippines (“ROP”), through the
      Philippine National Irrigation Administration (“NIA”) (a ROP-owned and
      controlled corporation), for the development and construction of a hydroelectric
      power plant and related facilities under a build-own-operate-transfer agreement
      (“Project Agreement”), as amended by the Supplemental Agreement dated
      September 29, 2003 (the “Supplemental Agreement”), covering a 20-year
      cooperation period (“Cooperation Period”). At the end of the Cooperation Period,
      the combined irrigation and 150 MW hydroelectric power generation project (the
      “Casecnan Project”) will be transferred to the ROP at no cost on an “as is”
basis. The ROP also signed a Performance Undertaking, which, among others,
      affirms and guarantees the obligations of NIA under the Project Agreement.
      Construction of the Casecnan Project commenced in 1995. CE Casecnan is
      registered with the Philippine Board of Investments as a new operator of
      hydroelectric power plant with pioneer status under the Omnibus Investments
      Code
      of 1987. Under the terms of its registration, CE Casecnan is entitled to certain
      incentives which include an income tax holiday for six years from the start
      of
      commercial operations. The Cooperation Period began upon commencement of
      commercial operations on December 11, 2001. The income tax holiday will
      expire on December 11, 2007.





**Seasonality**





The
      Casecnan Project is dependent upon sufficient rainfall to generate electricity
      and deliver water. The seasonality of rainfall patterns and the variability
      of
      rainfall from year to year, all of which are outside the control of the Company,
      have a material impact on the amounts of electricity generated and water
      delivered by the Casecnan Project. Rainfall has historically been highest from
      June through December and lowest from January through May. The contractual
      terms
      for water delivery fees and variable energy fees (described below) can produce
      significant variability in revenue between reporting periods.





Under
      the
      Supplemental Agreement, the water delivery fee is payable in a fixed monthly
      payment based upon an average annual water delivery of 801.9 million cubic
      meters, pro-rated to approximately 66.8 million cubic meters per month,
      multiplied by the applicable per cubic meter rate through December 25,
      2008. For each contract year starting from December 25, 2003 and ending on
      December 25, 2008, a water delivery fee credit (deferred revenue) is
      computed equal to 801.9 million cubic meters minus the greater of actual
      water deliveries or 700.0 million cubic meters - the minimum threshold. The
      water delivery fee credit at the end of the contract year is available to be
      earned in the succeeding contract years ending December 25, 2008. The
      cumulative water delivery fee credit at December 25, 2008, if any, shall be
      amortized from December 25, 2008 through December 25, 2013.
      Accordingly, in recognizing revenue, the water delivery fees are recorded each
      month pro-rated to approximately 58.3 million cubic meters per month until
      the minimum threshold has been reached for the contract year. Subsequent water
      delivery fees within the contract year are based on actual water delivered.




11




The
      Company earns guaranteed energy fees based upon an assumed delivery of 19.0
      gigawatt-hours (“GWh”) per month, at a rate of $0.1596 per kilowatt-hour
      (“kWh”). The Company earns variable energy fees based upon actual energy
      delivered in each month in excess of 19.0 GWh, payable at a rate of $0.1509
      per
      kWh. Starting in 2009, the kWh rate for energy deliveries in excess of 19.0
      GWh
      per month is reduced to $0.1132, escalating at 1% per annum thereafter. Any
      deliveries of energy in excess of 490.0 GWh, but less than 550.0 GWh per year
      are paid at a rate of 1.3 Philippine pesos per kWh. Deliveries in excess of
      550.0 GWh per year are at no cost to NIA. Within each contract year, no variable
      energy fees are payable until energy in excess of the cumulative 19.0 GWh per
      month for the contract year to date has been delivered.





**Results
      of Operations for the Three-Month Periods Ended June 30, 2006 and
      2005**





The
      following table provides certain operating data of the Casecnan Project for
      the
      three-month periods ended June 30, 2006 and 2005:




**2006**
            
            
            **2005**Electricity
              produced (GWh)
            
            
            58.1
            
            
            33.4Water
              delivered (million cubic meters)
            
            
            102.1
            
            
            55.7




For
        accounting purposes, the Project Agreement with NIA contains both an operating
        lease and a service contract, which the Company accounted for pursuant to
        the
        provisions of Statement of Financial Accounting Standards No. 13, "Accounting
        for Leases.” Pursuant to the provisions of the Project Agreement, the Company
        earned water and energy fees as follows (in millions):




**2006**
            
            **2005**Water
                delivery fees
            
            $
            14.3
            
            $
            13.2Guaranteed
                energy fees
            
            
            9.1
            
            
            9.1Variable
                energy fees
            
            
            0.3
            
            
            -Deferred
                water delivery fees
            
            
            (1.9
            )
            
            (1.7
            )Total
                lease rentals and service contracts revenue
            
            $
            21.8
            
            $
            20.6





Revenue
      increased by $1.2 million to $21.8 million for the three-month period
      ended June 30, 2006 from $20.6 million for the same period in 2005.
      The increase in water delivery fees was mainly due to the contractual 7.5%
      annual escalation factor. The increase in the variable energy fees was due
      primarily to the higher rainfall which resulted in higher electricity production
      in the second quarter of 2006 than in 2005. The deferred water delivery fees
      represent the difference between the actual water delivery fees earned and
      water
      delivery fees invoiced pursuant to the Supplemental Agreement.





Interest
      expense decreased to $5.5 million for the three-month period ended
      June 30, 2006 from $6.3 million for the same period in 2005, due to
      lower outstanding debt balances resulting from the scheduled repayment of
      debt.





Other,
      net increased to $0.4 million for the three-month period ended
      June 30, 2006 from $(0.1) million for the same period in 2005. The
      higher other income was due to value-added tax (“VAT”) recoveries exceeding
      obligations as a result of a change in the VAT law which became effective on
      November 1, 2005.





Income
      tax expense increased to $0.6 million for the three-month period ended
      June 30, 2006 from zero for the same period in 2005. The income tax expense
      relates to value-added tax recoveries and interest income earned outside the
      Philippines which are not covered by the income tax holiday.





12




**Results
      of Operations for the Six-Month Periods Ended June 30, 2006 and
      2005**





The
      following table provides certain operating data of the Casecnan Project for
      the
      six-month period ended June 30, 2006 and 2005:





**2006**
            
            
            **2005**Electricity
                produced (GWh)
            
            
            178.7
            
            
            75.8Water
                delivered (million cubic meters)
            
            
            318.5
            
            
            128.7





For
      accounting purposes, the Project Agreement with NIA contains both an operating
      lease and a service contract, which the Company accounted for pursuant to the
      provisions of Statement of Financial Accounting Standards No. 13, "Accounting
      for Leases". Pursuant to the provisions of the Project Agreement, the Company
      earned water and energy fees as follows (in millions):





**2006**
            
            
            **2005**Water
                delivery fees
            
            $
            28.2
            
            $
            26.2Guaranteed
                energy fees
            
            
            18.2
            
            
            18.2Variable
                energy fees
            
            
            11.9
            
            
            0.7Deferred
                water delivery fees
            
            
            (3.8
            )
            
            (3.3
            )Total
                water and energy fees
            
            $
            54.5
            
            $
            41.8





Revenue
      increased by $12.7 million to $54.5 million for the six-month period
      ended June 30, 2006 from $41.8 million for the same period in 2005.
      The $2.0 million increase in water delivery fees was primarily due to the
      7.5% increase in the water delivery rate based on a contractual annual
      escalation factor. The $11.2 million increase in variable energy fees was
      due primarily to higher rainfall in the first six months of 2006 than in 2005
      which resulted in higher water deliveries and electricity production. The
      deferred water delivery fees represent the difference between the actual water
      delivery fees earned and water delivery fees invoiced pursuant to the
      Supplemental Agreement.





Interest
      expense decreased by $1.8 million to $11.1 million for the six-month
      period ended June 30, 2006 from $12.9 million for the same period in
      2005 due to lower outstanding debt balances resulting from the scheduled
      repayment of debt.





Other,
      net increased to $1.6 million for the three-month period ended
      June 30, 2006 from $0.1 million for the same period in 2005. The
      higher other income was due primarily to value-added tax (“VAT”) recoveries
      exceeding obligations as a result of a change in the VAT law which became
      effective on November 1, 2005.





Income
      tax expense increased to $1.1 million for the six-month period ended
      June 30, 2006 from zero for the same period in 2005. The income tax expense
      relates to value-added tax recoveries and interest income earned outside the
      Philippines which are not covered by the income tax holiday.




**Liquidity
      and Capital Resources**





The
      Company’s cash and cash equivalents were $21.4 million and
      $42.3 million at June 30, 2006 and December 31, 2005,
      respectively.





The
      Company generated cash flows from operations of $58.1 million and
      $38.2 million for the six-month periods ended June 30, 2006 and 2005,
      respectively. The increase in cash from operations in 2006 was primarily due
      to
      higher net income as a result of higher water flows and corresponding variable
      energy revenues and lower interest payments.





The
      Company used $11.8 million and $0.2 million for investing activities for
      the six-month periods ended June 30, 2006 and 2005, respectively. The
      Company increased its restricted cash and investments related to obligations
      for
      debt service and unpaid dividends by $10.3 million.





The
      Company used $67.2 million and $36.6 million for financing activities
      for the six-month periods ended June 30, 2006 and 2005, respectively. The
      Company declared dividends totaling $56.0 million during the six-month
      period ended June 30, 2006 and $11.0 million during the same period in
      2005 (of which $8.4 million and $1.7 million, respectively, were set
      aside in a separate bank account in the name of the Company and shown as
      restricted cash and investments and dividends payable in the accompanying
      balance sheets). The Company also repaid $18.0 million and
      $27.4 million on the balance of its outstanding debt obligations during the
      six-month periods ended June 30, 2006 and 2005, respectively.




13




Stockholder
      Litigation





Pursuant
      to the share ownership adjustment mechanism in the CE Casecnan stockholder
      agreement, which is based upon proforma financial projections of the Casecnan
      Project prepared following commencement of commercial operations, in February
      2002, MidAmerican Energy Holdings Company’s (“MidAmerican”) indirect wholly
      owned subsidiary, CE Casecnan Ltd., advised the minority stockholder
      of the Company, LaPrairie Group Contractors (International) Ltd. (“LPG”), that
      MidAmerican’s indirect ownership interest in CE Casecnan had increased to
      100% effective from commencement of commercial operations. On July 8, 2002,
      LPG filed a complaint in the Superior Court of the State of California, City
      and
      County of San Francisco against CE Casecnan Ltd. and MidAmerican. LPG’s
      complaint, as amended, seeks compensatory and punitive damages arising out
      of CE
      Casecnan Ltd.’s and MidAmerican’s alleged improper calculation of the proforma
      financial projections and alleged improper settlement of the NIA arbitration.
      The Company is not a defendant in the action. On January 21, 2004, CE
      Casecnan Ltd., LPG and the Company entered into a status quo agreement pursuant
      to which the parties agreed to set aside certain distributions related to the
      shares subject to the LPG dispute and CE Casecnan agreed not to take any further
      actions with respect to such distributions without at least 15 days’ prior
      notice to LPG. Accordingly, 15% of the dividend declarations in 2004, 2005
      and
      2006, totaling $26.0 million, was set aside in a separate bank account in
      the name of the Company and is shown as restricted cash and investments and
      dividends payable in the accompanying balance sheets. On August 4, 2005,
      the court issued a decision, ruling in favor of LPG on five of the eight
      disputed issues in the first phase of the litigation. On September 12,
      2005, LPG filed a motion seeking the release of the funds which have been set
      aside pursuant to the status quo agreement referred to above. MidAmerican and
      CE Casecnan Ltd. filed an opposition to the motion on October 3, 2005,
      and at the hearing on October 26, 2005, the court denied LPG’s motion. On
      January 3, 2006, the court entered a judgment in favor of LPG against CE
      Casecnan Ltd. According to the judgment, LPG would retain its ownership of
      15%
      of the shares of the Company and distributions of the amounts deposited into
      escrow plus interest at 9% per annum. On February 28, 2006, CE Casecnan
      Ltd. filed an appeal of this judgment and the August 4, 2005 decision.
      Initial briefs were filed on May 24, 2006 and reply briefs are due
      August 1, 2006. The appeal is expected to be resolved sometime in 2007.





In
      February 2003, San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
      Lorenzo”), an original shareholder substantially all of whose shares in the
      Company were purchased by MidAmerican in 1998, threatened to initiate legal
      action against the Company in the Philippines in connection with certain aspects
      of its option to repurchase such shares. The Company believes that San Lorenzo
      has no valid basis for any claim and, if named as a defendant in any action
      that
      may be commenced by San Lorenzo, the Company will vigorously defend such action.
      On July 1, 2005, MidAmerican and CE Casecnan Ltd. commenced an action
      against San Lorenzo in the District Court of Douglas County, Nebraska, seeking
      a
      declaratory judgment as to MidAmerican’s and CE Casecnan Ltd.’s rights vis-à-vis
      San Lorenzo in respect of such shares. San Lorenzo filed a motion to dismiss
      on
      September 19, 2005. Subsequently, San Lorenzo purported to exercise its
      option to repurchase such shares. On January 30, 2006, San Lorenzo filed a
      counterclaim against MidAmerican and CE Casecnan Ltd. seeking declaratory relief
      that it has effectively exercised its option to purchase 15% of the shares
      of
      the Company, that it is the rightful owner of such shares and that it is due
      all
      dividends paid on such shares. On March 9, 2006, the court granted San
      Lorenzo’s motion to dismiss, but has since permitted MidAmerican and CE Casecnan
      Ltd. to file an amended complaint incorporating the purported exercise of the
      option. The impact, if any, of San Lorenzo’s purported exercise of its option
      and the Nebraska litigation on the Company cannot be determined at this time.





Real
      Property Tax





On
      July 25, 2005, CE Casecnan paid real property taxes, plus interest and
      penalties, due to the Province of Nueva Vizcaya of $4.5 million and
      submitted an invoice for reimbursement of such amount to NIA in accordance
      with
      the Supplemental Agreement. A receivable of $4.5 million was recorded for
      the expected full reimbursement to CE Casecnan in respect of the Province of
      Nueva Vizcaya tax assessment. On January 24, 2006, NIA, the Philippine
      Department of Finance (the “DOF”) and CE Casecnan agreed that NIA will reimburse
      CE Casecnan the full amount of the Province of Nueva Vizcaya tax assessment
      in
      five approximately equal installments during 2006. CE Casecnan has received
      the
      first three payments, totaling $2.9 million, on March 3, 2006,
      March 28, 2006 and June 27, 2006. The remaining payments, totaling
      $1.6 million, are due on September 25, 2006 and December 25,
      2006.





On
      December 28, 2005, CE Casecnan paid real property taxes of
      $4.7 million to the Province of Nueva Ecija. CE Casecnan has received
      letters from NIA and the DOF, respectively, authorizing the payment. A
      receivable of $4.7 million has been recorded for the expected full
      reimbursement to CE Casecnan in respect of the Province of Nueva Ecija tax
      assessment. The DOF and CE Casecnan agreed that NIA will reimburse CE Casecnan
      the full amount of real property taxes with an initial payment of
      $2.0 million in April 2006 and the remaining balance in three approximately
      equal installments of $0.9 million on June 25, 2006,
      September 25, 2006 and December 25, 2006. The initial payment was
      received by CE Casecnan on May 23, 2006. The second payment was received on
      June 27, 2006.




14




On
        January 12, 2006, CE Casecnan received an assessment from the treasurer of
        the Province of Nueva Vizcaya in the total amount of $1.2 million for the
        real property taxes for 2006. On March 23, 2006, CE Casecnan received the
        assessment for 2006 real property taxes amounting to $0.9 million from the
        treasurer of the Province of Nueva Ecija. CE Casecnan subsequently received
        written authorization from NIA and the DOF to pay such assessments and
        thereafter paid both assessments under protest on March 31,
        2006. The 2006
        real property taxes were billed to NIA pursuant to the Supplemental Agreement
        and were collected by the Company on July 25, 2006. On April 27, 2006,
        CE Casecnan filed protests to the treasurers of the Province of Nueva Vizcaya
        and the Province of Nueva Ecija in
        order
        to preserve the rights and remedies of NIA which is ultimately liable for
        the
        tax. As a government owned and controlled corporation, NIA may be subject
        to a
        lower assessment level or be exempt from the tax. The
        cases remain pending at the provincial treasurer’s office.




Franchise
      Tax





On
      January 27, 2006, CE Casecnan received from the Province of Nueva Vizcaya a
      franchise tax assessment for the years 2001 to 2004 totaling $1.6 million.
      CE Casecnan believes that franchise tax is a tax imposed on companies which
      have
      a secondary or special franchise from the government. CE Casecnan does not
      have
      a government franchise. The Electric Power Industry Reform Act (“EPIRA”)
      specifically provides that a government franchise is not required to operate
      a
      power plant. The EPIRA further provides that power generation is not a public
      utility operation and that it does not require a franchise. On April 25,
      2006, CE Casecnan filed an appeal with the Regional Trial Court of Nueva
      Vizcaya.





On
      March 30, 2006, CE Casecnan received from the Province of Nueva Vizcaya a
      franchise tax assessment for the year 2005 totaling $0.3 million. CE
      Casecnan filed a protest with the treasurer of the Province of Nueva Vizcaya
      on
      April 5, 2006. On June 30, 2006, CE Casecnan filed an appeal to the
      Regional Trial Court of Nueva Vizcaya after the province failed to act on the
      protest within the period required by law.





Concentration
      of Risk





NIA’s
      obligations under the Project Agreement are substantially denominated in U.S.
      Dollars and are the Company’s sole source of operating revenues. Because of the
      Company’s dependence on NIA, any material failure of NIA to fulfill its
      obligations under the Project Agreement and any material failure of the ROP
      to
      fulfill its obligations under the Performance Undertaking would significantly
      impair the ability of the Company to meet its existing and future obligations,
      including obligations pertaining to its outstanding debt. No stockholders,
      partners or affiliates of the Company, including MidAmerican, and no directors,
      officers or employees of the Company will guarantee or be in any way liable
      for
      payment of the Company’s obligations. As a result, payment of the Company’s
      obligations depends upon the availability of sufficient revenues from the
      Company’s business after the payment of operating expenses.





**Contractual** **** **Obligations
      and** **** **Commercial** **** **Commitments**





During
      the six months ended June 30, 2006, there were no material changes in the
      contractual obligations and  commercial  commitments
      from the information provided in Item 7 of the Company’s Annual Report on Form
      10-K for the year ended December 31, 2005.





**Critical
      Accounting Policies**





The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make judgments, assumptions and estimates that affect
      the
      amounts reported in the financial statements and accompanying notes. Note 2
      to
      the Company’s financial statements included in the Company’s Annual Report on
      Form 10-K for the year ended December 31, 2005 describes the significant
      accounting policies and methods used in the preparation of the financial
      statements. Estimates are used for, but not limited to, the impairment of
      long-lived assets and accounting for the allowance for doubtful accounts. Actual
      results could differ from these estimates.




15




For
      additional discussion of the Company’s critical accounting policies, see
“Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” included in the Company’s Annual Report on Form 10-K for the year
      ended December 31, 2005. The Company’s critical accounting policies
      have not changed since December 31, 2005.





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





For
      quantitative and qualitative disclosures about market risk affecting CE
      Casecnan, see Item 7A “Qualitative and Quantitative Disclosures About Market
      Risk” of CE Casecnan’s Annual Report on Form 10-K for the year ended
      December 31, 2005. CE Casecnan’s exposure to market risk has not
      changed materially since December 31, 2005.





**Item 4.** **Controls
      and Procedures.**





An
      evaluation was performed under the supervision and with the participation of
      the
      Company’s management, including the chief executive officer and chief financial
      officer, regarding the effectiveness of the design and operation of the
      Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)
      promulgated under the Securities and Exchange Act of 1934, as amended) as of
      June 30, 2006. Based on that evaluation, the Company’s management,
      including the chief executive officer and chief financial officer, concluded
      that the Company’s disclosure controls and procedures were effective. There have
      been no changes during the quarter covered by this report in the Company’s
      internal control over financial reporting that has materially affected, or
      is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.


16





**PART
      II - OTHER INFORMATION**





**Item 1.** **Legal
      Proceedings.**





For
      a
      description of certain legal proceedings affecting the Company, please review
      Note 3 “Commitments and Contingencies” to the Interim Financial
      Statements.





**Item 1A.** **Risk
      Factors.**





There
      has
      been no material change to the Company’s risk factors from those disclosed in
      the Company’s Annual Report on Form 10-K for the year ended December 31,
      2005.





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





Not
      applicable.





**Item 3.****Defaults
      Upon Senior Securities.**





Not
      applicable.





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





Not
      applicable.





**Item 5.** **Other
      Information.**





Not
      applicable.





**Item 6.** **Exhibits.**





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


17





**SIGNATURES**








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











CE
                CASECNAN WATER AND ENERGY COMPANY, INC.(Registrant)Date:
                July 27, 2006
            
            /s/
                Patrick J. GoodmanPatrick
                J. GoodmanSenior
                Vice President and Chief Financial
                Officer





18


**EXHIBIT
      INDEX**





Exhibit
                No.31.1
            
            Chief
                Executive Officer’s Certificate Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Chief
                Financial Officer’s Certificate Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            
            Chief
                Executive Officer’s Certificate Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.32.2
            
            Chief
                Financial Officer’s Certificate Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.











19