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, 2008





or





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





For the
transition period from ________to_______





Commission
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.)24th
      Floor, 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)N/A(Former
      name, former address and former fiscal year, if changed since last
      report)





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


Yes  T  No  *





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





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





Indicate
by check mark whether 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 October 31, 2008, 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
            14Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            19Item 4(T).
            Controls and Procedures
            19PART
      II – OTHER INFORMATIONItem 1.
            Legal Proceedings
            20Item 1A.
            Risk Factors
            20Item 2.
            Unregistered Sales of Securities and Use of
      Proceeds
            20Item 3.
            Defaults Upon Senior Securities
            20Item 4.
            Submission of Matters to a Vote of Security
      Holders
            20Item 5.
            Other Information
            20Item 6.
            Exhibits
            20Signatures
            
            21Exhibit Index
            
            22











2





PART
I – FINANCIAL INFORMATION










Item 1.
            Financial
      Statements







Report
of Independent Registered Public Accounting Firm








To the
Board of Directors and Shareholders 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 September 30, 2008, and the related statements
of operations for the three-month and nine-month periods then ended and of
changes in shareholders’ equity and of cash flows for the nine-month period then
ended. These interim financial statements are the responsibility of the
Company's management.





We
conducted our review 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 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 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 review, we are not aware of any material modifications that should be made
to such interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States of
America.




The
accompanying financial information as of December 31, 2007, and for the
three-month and nine-month periods ended September 30, 2007, were not
audited or reviewed by us and, accordingly, we do not express an opinion or any
other form of assurance on them.





/s/
Manabat, Delgado Amper & Co.





Manabat,
Delgado, Amper & Co.


Deloitte
& Touche


Makati
City, Philippines


November
7, 2008





3


CE
CASECNAN WATER AND ENERGY COMPANY, INC.


BALANCE
SHEETS (Unaudited)


(Amounts
in thousands, except share data)





As
      ofSeptember
      30,
            
            
            December 31,2008
            
            
            2007ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            53,769
            
            
            $
            31,083Restricted
      cash and investments
            
            
            23,365
            
            
            
            22,414Trade
      receivable, net
            
            
            17,555
            
            
            
            20,365Other
      current assets
            
            
            6,325
            
            
            
            6,653Total
      current assets
            
            
            101,014
            
            
            
            80,515Property,
      plant and equipment, net
            
            
            286,904
            
            
            
            303,056Other
      investments
            
            
            6,621
            
            
            
            7,503Long-term
      restricted cash and investments
            
            
            11,957
            
            
            
            13,906Deferred
      income taxes
            
            
            6,015
            
            
            
            5,198Bond
      issue costs, net
            
            
            301
            
            
            
            539Total
      assets
            
            $
            412,812
            
            
            $
            410,717LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable and other accrued liabilities
            
            $
            1,255
            
            
            $
            1,995Dividends
      payable
            
            
            10,825
            
            
            
            10,825Accrued
      interest
            
            
            4,721
            
            
            
            7,801Accrued
      income, property and other taxes
            
            
            13,079
            
            
            
            6,208Payable
      to affiliates
            
            
            2,618
            
            
            
            2,480Notes
      payable
            
            
            7,115
            
            
            
            39,200Current
      portion of long-term debt
            
            
            25,725
            
            
            
            37,730Total
      current liabilities
            
            
            65,338
            
            
            
            106,239Deferred
      revenue
            
            
            7,409
            
            
            
            1,768Long-term
      debt
            
            
            24,010
            
            
            
            30,870Total
      liabilities
            
            
            96,757
            
            
            
            138,877Commitments
      and contingencies (Note 6)Shareholders’
      equity:Common
      stock – 2,148,000 shares authorized, one Philippine peso($0.038) par
      value; 767,162 shares issued and outstanding
            
            
            29
            
            
            
            29Additional
      paid-in capital
            
            
            123,807
            
            
            
            123,807Retained
      earnings
            
            
            194,059
            
            
            
            148,004Accumulated
      other comprehensive loss, net
            
            
            (1,840
            )
            
            
            -Total
      shareholders’ equity
            
            
            316,055
            
            
            
            271,840Total
      liabilities and shareholders’ equity
            
            $
            412,812
            
            
            $
            410,717





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)





Three-Month
      Periods
            
            
            Nine-Month
      PeriodsEnded
      September 30,
            
            
            Ended
      September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Revenue:Lease
      rentals and service contracts
            
            $
            38,685
            
            
            $
            27,501
            
            
            $
            96,336
            
            
            $
            73,853Operating
      expenses:Depreciation
            
            
            5,660
            
            
            
            5,483
            
            
            
            16,502
            
            
            
            16,290Plant
      operations and other operating expenses
            
            
            2,747
            
            
            
            2,550
            
            
            
            7,460
            
            
            
            6,476Total
      operating expenses
            
            
            8,407
            
            
            
            8,033
            
            
            
            23,962
            
            
            
            22,766Operating
      income
            
            
            30,278
            
            
            
            19,468
            
            
            
            72,374
            
            
            
            51,087Other
      income (expense):Interest
      expense
            
            
            (1,710
            )
            
            
            (4,113
            )
            
            
            (7,213
            )
            
            
            (13,144
            )Interest
      income
            
            
            456
            
            
            
            609
            
            
            
            1,573
            
            
            
            2,141Other,
      net
            
            
            1,220
            
            
            
            867
            
            
            
            3,437
            
            
            
            2,747Total
      other income (expense)
            
            
            (34
            )
            
            
            (2,637
            )
            
            
            (2,203
            )
            
            
            (8,256
            )Income
      before income tax expense
            
            
            30,244
            
            
            
            16,831
            
            
            
            70,171
            
            
            
            42,831Income
      tax expense
            
            
            10,396
            
            
            
            540
            
            
            
            24,116
            
            
            
            1,724Net
      income
            
            $
            19,848
            
            
            $
            16,291
            
            
            $
            46,055
            
            
            $
            41,107





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





5








CE
CASECNAN WATER AND ENERGY COMPANY, INC.


STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


FOR
THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2008 AND 2007


(Amounts
in thousands)





AccumulatedAdditional
            
            
            
            
            
            OtherCommon
            
            
            Paid-in
            
            
            Retained
            
            
            ComprehensiveStock
            
            
            Capital
            
            
            Earnings
            
            
            Loss,
      net
            
            
            TotalBalance,
      January 1, 2007
            
            $
            29
            
            
            $
            123,807
            
            
            $
            69,465
            
            
            $
            -
            
            
            $
            193,301Net
      income
            
            
            -
            
            
            
            -
            
            
            
            41,107
            
            
            
            -
            
            
            
            41,107Balance,
      September 30, 2007
            
            $
            29
            
            
            $
            123,807
            
            
            $
            110,572
            
            
            $
            -
            
            
            $
            234,408Balance,
      January 1, 2008
            
            $
            29
            
            
            $
            123,807
            
            
            $
            148,004
            
            
            $
            -
            
            
            $
            271,840Net
      income
            
            
            -
            
            
            
            -
            
            
            
            46,055
            
            
            
            -
            
            
            
            46,055Other
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,840
            )
            
            
            (1,840
            )Balance,
      September 30, 2008
            
            $
            29
            
            
            $
            123,807
            
            
            $
            194,059
            
            
            $
            (1,840
            )
            
            $
            316,055





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)





Nine-Month
      PeriodsEnded
      September 30,2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            46,055
            
            
            $
            41,107Adjustments
      to reconcile net income to cash flows from operations:Depreciation
            
            
            16,502
            
            
            
            16,290Amortization
      of bond issue costs
            
            
            238
            
            
            
            388Provision
      for deferred income taxes
            
            
            174
            
            
            
            -Changes
      in other items:Trade
      receivable, net
            
            
            2,810
            
            
            
            (4,199
            )Other
      current assets
            
            
            328
            
            
            
            718Accounts
      payable and other accrued liabilities
            
            
            (740
            )
            
            
            (4
            )Accrued
      interest
            
            
            (3,080
            )
            
            
            4,203Accrued
      income, property and other taxes
            
            
            6,871
            
            
            
            27Deferred
      revenue
            
            
            5,641
            
            
            
            5,641Net
      cash flows from operating activities
            
            
            74,799
            
            
            
            64,171Cash
      flows from investing activities:Capital
      expenditures
            
            
            (350
            )
            
            
            (544
            )Purchases
      of available-for-sale securities
            
            
            -
            
            
            
            (71,800
            )Proceeds
      from sale of available-for-sale securities
            
            
            -
            
            
            
            60,500(Increase)
      decrease in restricted cash and investments
            
            
            (951
            )
            
            
            28,832Net
      cash flows from investing activities
            
            
            (1,301
            )
            
            
            16,988Cash
      flows from financing activities:Increase
      (decrease) in payable to affiliates
            
            
            138
            
            
            
            (38,550
            )Repayment
      of long-term debt
            
            
            (18,865
            )
            
            
            (18,865
            )Repayment
      of notes payable
            
            
            (32,085
            )
            
            
            -Dividends
      paid
            
            
            -
            
            
            
            (21,650
            )Net
      cash flows from financing activities
            
            
            (50,812
            )
            
            
            (79,065
            )Net
      change in cash and cash equivalents
            
            
            22,686
            
            
            
            2,094Cash
      and cash equivalents at beginning of period
            
            
            31,083
            
            
            
            31,946Cash
      and cash equivalents at end of period
            
            $
            53,769
            
            
            $
            34,040


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





CE Casecnan
Water and Energy Company, Inc. (the “Company” or “CE Casecnan”) is a
privately held Philippine corporation formed indirectly by MidAmerican Energy
Holdings Company (“MEHC”) and was registered with the Philippine Securities and
Exchange Commission on September 21, 1994. The Company is 70% owned by
CE Casecnan II, Inc., 20% owned by CE Casecnan Ltd., a
Bermuda-registered corporation, which are both indirectly wholly owned
subsidiaries of MEHC, and 10% owned by a third party. MEHC is a consolidated
subsidiary of Berkshire Hathaway Inc.





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,
as amended by the Supplemental Agreement dated September 29, 2003 (“Project
Agreement”), covering a 20-year cooperation period (“Cooperation Period”)
commencing December 11, 2001, with “take-or-pay” obligations for water and
electricity. At the end of the Cooperation Period, the combined irrigation and
150 megawatt 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.





Under the
terms of its registration with the Philippine Board of Investments, the Company
was entitled to certain incentives which include an income tax holiday for six
years from the start of commercial operations. The registration also requires,
among others, the maintenance of a debt-to-equity ratio not exceeding 75:25
during commercial operations. The income tax holiday expired on
December 11, 2007. The Company’s taxable income from December 11, 2007
forward is subject to income tax at the Philippine statutory rate.





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 can produce significant
variability in revenue between reporting periods.





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





The
unaudited Financial Statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for
interim financial information and the United States (“U.S.”) Securities and
Exchange Commission’s rules and regulations for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the disclosures required
by GAAP for annual financial statements. Management believes the unaudited
Financial Statements contain all adjustments (consisting only of normal
recurring adjustments) considered necessary for the fair presentation of the
financial statements as of September 30, 2008, and for the three- and
nine-month periods ended September 30, 2008 and 2007. Certain amounts in
the prior period Financial Statements have been reclassified to conform to the
current period presentation, including the gross presentation of purchases and
sales of available-for-sale securities in the Statements of Cash Flows under
investing activities. Such reclassifications did not impact previously reported
operating income, net income or retained earnings. However, previously reported
cash and cash equivalents and net cash flows from investing activities were
reduced by $7.5 million as of and for the nine-month period ending September 30,
2007. The results of operations for the three- and nine-month periods ended
September 30, 2008, are not necessarily indicative of the results to be
expected for the full year.





8




The
preparation of the unaudited 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 Financial
Statements. Note 2 of Notes to Financial Statements included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007,
describes the most significant accounting estimates and policies used in the
preparation of the Financial Statements. There have been no significant changes
in the Company’s assumptions regarding significant accounting policies during
the first nine months of 2008.




(2)
            New Accounting
      Pronouncements




In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards 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 remeasurement 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. The Company adopted SFAS No. 159 effective
January 1, 2008, and did not elect the fair value option for any existing
eligible items.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. SFAS No. 157 does not impose fair value
measurements on items not already accounted for at fair value; rather it
applies, with certain exceptions, to other accounting pronouncements that either
require or permit fair value measurements. Under SFAS No. 157, fair value
refers to the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants in the
principal or most advantageous market. The standard clarifies that fair value
should be based on the assumptions market participants would use when pricing
the asset or liability. In February 2008, the FASB issued Staff Position
(“FSP”) No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP
FAS 157-2”), which delays the effective date of SFAS No. 157 for all
non-financial assets and liabilities, except those that are recognized or
disclosed at fair value in the financial statements on a recurring basis, until
fiscal years beginning after November 15, 2008. In October 2008, the
FASB issued FSP No. 157-3, “Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active” (“FSP FAS 157-3”), which
clarifies the application of SFAS No. 157 in a market that is not active
and provides an example to illustrate key considerations in determining the fair
value of a financial asset when the market for that financial asset is not
active. FSP FAS 157-3 was effective upon issuance, including prior periods
for which financial statements had not been issued. The Company applied the
guidance of FSP FAS 157-3 when determining the fair value of its auction
rate securities. The Company adopted the provisions of SFAS No. 157 for
assets and liabilities recognized at fair value on a recurring basis effective
January 1, 2008. The partial adoption of SFAS No. 157 did not have a
material impact on the Company’s Financial Statements. Refer to Note 7 for
additional discussion.








9





(3)
              Restricted Cash and Investments
      and Other Investments




Restricted
cash and investments consist of the following (in thousands):





September
      30,2008
            
            
            December 31,2007Current:Dividend
      set aside account
            
            $
            13,250
            
            
            $
            13,054Debt
      service reserve fund
            
            
            10,115
            
            
            
            9,360$
            23,365
            
            
            $
            22,414Noncurrent
      - Debt service reserve fund
            
            $
            11,957
            
            
            $
            13,906





The
dividend set aside account and the current debt service reserve fund are
invested in U.S. dollar money-market instruments. The noncurrent debt service
reserve fund is invested in auction rate securities that had a remaining
maturity of 25 years and 26 years at September 30, 2008 and
December 31, 2007, respectively.





Other
investments at September 30, 2008 and December 31, 2007 consist of auction rate
securities with a carrying value of $6.6 million and $7.5 million,
respectively, and had a remaining maturity of 16 years and 17 years,
respectively.





With the
liquidity issues experienced in global credit and capital markets, the
$21.4 million par value of auction rate securities held by the Company at
September 30, 2008 have experienced multiple failed auctions as the amount
of securities submitted for sale has exceeded the amount of purchase orders. The
securities are rated A2 and Aa3 by Moody’s Investors Service and AA by Standard
& Poor’s at September 30, 2008.





Although
there is no current liquid market for the auction rate securities, the Company
believes the underlying creditworthiness of the repayment sources for these
securities’ principal and interest has not materially deteriorated. Further, the
Company has the intent and ability to hold the auction rate securities for a
period of time sufficient to allow for any anticipated recovery in the credit
and capital markets that would facilitate the periodic auction and sale of these
securities. At September 30, 2008, the pre-tax temporary impairment of the
auction rate securities totaled $2.8 million. If the underlying assets and
the guarantors of the auction rate securities experience credit deterioration,
the Company may not ultimately realize the par value of the investment held at
September 30, 2008.





Given the
failed auctions, it is uncertain if the auction rate securities will be sold
within the next twelve months. Accordingly, the Company’s investments in auction
rate securities are classified as non-current on the Balance
Sheets.




(4)
            Income
      Taxes




The
Company recognized income taxes totaling $10.4 million and $0.5 million for the
three-month periods ended September 30, 2008 and 2007, respectively, and
$24.1 million and $1.7 million for the nine-month periods ended
September 30, 2008 and 2007, respectively. Prior to the December 11,
2007 expiration of the income tax holiday granted to the Company by the
Philippine Board of Investments, income taxes were incurred only on interest
income earned outside the Philippines and on other income not covered by the
income tax holiday. The Company’s taxable income from December 11, 2007
forward is subject to income tax at the Philippine statutory rate.




(5)
            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 $2.6 million
and $2.5 million at September 30, 2008 and December 31, 2007,
respectively. Costs incurred by the Company in transactions with related parties
amounted to $0.4 million and $0.5 million for the three-month periods
ended September 30, 2008 and 2007, respectively, and $1.2 million and
$2.1 million for the nine-month periods ended September 30, 2008 and
2007, respectively, and consist primarily of cost allocations.




10




As of
September 30, 2008 and December 31, 2007, the Company had
outstanding $7.1 million and $39.2 million, respectively, of unsecured
subordinated notes payable to CE Casecnan Ltd., a shareholder. The notes
mature on November 1, 2015, and bear an interest rate consisting of the
London Interbank Offer Rate plus 5.25%; however, 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 $0.1 million and $1.4 million for
the three-month periods ended September 30, 2008 and 2007, respectively,
and $1.7 million and $4.1 million for the nine-month periods ended
September 30, 2008 and 2007, respectively. Any overdue payment of principal
or interest payable on the notes shall increase the annual interest rate by two
percentage points. At September 30, 2008, the effective interest rate on
the notes was 8.08%. The notes may be prepaid at any time without premium or
penalty but with accrued interest, if any. The 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, and as
amended on November 1, 2005, 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.





On
May 15, 2007, CE Casecnan Ltd. demanded payment in full of the
outstanding principal amount of the notes and accrued interest. To the extent
that the Company does not have available cash from distributions from the
Distribution Fund under the Depositary Agreement (each, as defined in the
Subordination Agreement) to pay such amount in full, the Company shall be deemed
to have satisfied this demand by paying, to the extent of such available cash,
first accrued but unpaid interest on the outstanding principal amount of the
notes, and then the outstanding principal amount of the notes. To the extent
that such available cash is insufficient to pay any accrued interest or
outstanding principal, the Company shall not be deemed in default and such
amounts shall remain outstanding and payable pursuant to the terms of the notes
and the Subordination Agreement. CE Casecnan intends to repay the
outstanding notes and accrued interest within the next three months. The Company
expects to generate sufficient cash from operations, after considering income
taxes, to pay the notes and other short-term obligations.






(6)
            Commitments
      and Contingencies




Shareholder
Litigation





In
February 2002, pursuant to the share ownership adjustment mechanism in the
CE Casecnan shareholder agreement, MEHC’s indirect wholly owned subsidiary,
CE Casecnan Ltd., advised the minority shareholder of the Company,
LaPrairie Group Contractors (International) Ltd. (“LPG”) that MEHC’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 MEHC. On
January 3, 2006, the Superior Court of the State of California entered
a judgment in favor of LPG against CE Casecnan Ltd. Pursuant to the judgment,
15% of the distributions of the Company was deposited into escrow plus interest
at 9% per annum. The judgment was appealed, and as a result of the appellate
decision, CE Casecnan Ltd. determined that LPG would retain ownership of 10% of
the shares of the Company, with the remaining 5% share to be transferred to CE
Casecnan Ltd. subject to certain buy-up rights under the shareholder agreement,
which are also being litigated. The remaining issues are fully briefed and
pending before the court. Exercise of the buy-up rights is a transaction between
shareholders and is not expected to have any impact on the Company’s results of
operations.





On
July 1, 2005, MEHC and CE Casecnan Ltd. commenced an action
against San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
Lorenzo”) in the District Court of Douglas County, Nebraska, seeking a
declaratory judgment as to San Lorenzo’s right to repurchase 15% of the
shares in the Company.  On January 30, 2006,
San Lorenzo filed a counterclaim against MEHC 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. Currently, the action is in the discovery phase, and a one-week trial
has been set to begin May 4, 2009. The impact, if any, of this litigation on the
Company cannot be determined at this time.




11




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 revenue. 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 shareholders,
partners or affiliates of the Company, including MEHC, and no directors,
officers or employees of the Company have guaranteed or will 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 revenue from
the Company’s business after the payment of operating expenses.





Franchise
Tax





CE Casecnan
received franchise tax assessments for the years 2001 to 2006 totaling
$2.2 million from the Province of Nueva Vizcaya. CE Casecnan believes
that franchise tax is imposed on companies which have a secondary or special
franchise from the government. CE Casecnan is an independent power producer
and does not have a government franchise. The Electric Power Industry Reform Act
of 2001 provides that independent power generation is not a public utility
operation and does not require a franchise. Therefore, the Company has not
recognized a liability relating to these assessments. CE Casecnan filed
appeals of the assessments which are currently pending before the Supreme Court
Office of the Court Administrator for re-assignment to another court to hear and
decide on these cases.





Real Property
Tax





On July
1, 2008, CE Casecnan received a real property tax assessment adjustment
totaling $28.6 million from the province of Nueva Ecija and the municipality of
Pantabangan for the years 2002 through the second quarter of 2008. On July 2,
2008, CE Casecnan forwarded the tax assessment adjustment to NIA and the
Philippine Department of Finance (“DOF”), who must authorize any payment for
real property taxes and are obligated to reimburse the Company pursuant to the
Project Agreement. On August 28, 2008, CE Casecnan filed an appeal with the
local Board of Assessment Appeals. CE Casecnan received a temporary restraining
order against the province of Nueva Ecija to enjoin collection efforts until the
matter is resolved by the courts. On October 24, 2008, the Court denied CE
Casecnan’s application for preliminary injunction. A motion for reconsideration
on the denial will be filed within 15 days from receipt of the court order. In
the meantime, CE Casecnan will proceed with the main case for
injunction.





National Wealth
Tax





On July
17, 2008, CE Casecnan received an assessment totaling $4.1 million from the
municipality of Alfonso Castaneda for a share of national wealth tax it claims
is owed by the Company for the years from 2002 through 2007. On July 22, 2008,
CE Casecnan forwarded the assessment to NIA and the DOF, who must authorize any
payment for national wealth taxes and are obligated to reimburse the Company
pursuant to the Project Agreement. On September 24, 2008, CE Casecnan received a
temporary restraining order to enjoin the municipality of Alfonso Castaneda from
pursuing its collection efforts. Considering that the facts are not disputed and
the case involves purely questions of law or legal issues, the parties agreed to
dispense with the presentation of their respective evidences in the application
for preliminary injunction and proceed directly to the main case. The parties
agreed, which the Court approved, to a status quo pending the final outcome of
the main case. A pre-trial conference is set on November 28, 2008.





12








(7)
            Fair Value
      Measurements




The
Company has auction rate securities that are measured at fair value in the
Financial Statements. The Company uses a three level hierarchy for determining
fair value and a financial asset or liability classification within the
hierarchy is determined based on the lowest level input that is significant to
the fair value measurement. The auction rate securities were valued using
internally developed discounted cash flow models based on available observable
market data and the Company’s judgment about the assumptions, including
liquidity and nonperformance risks, which market participants would use in
pricing the asset. As such, the Company considers these securities to be valued
using Level 3 inputs. The following table reconciles the beginning and ending
balance of the Company’s auction rate securities measured at fair value on a
recurring basis (in thousands):








Three-Month
              Period
      Ended
                September 30,2008
            
            
            Nine-Month
              Period
      Ended
                September 30,2008Beginning
      balance
            
            $
            19,747
            
            
            $
            21,409Unrealized
      losses included in other comprehensive loss, net
            
            
            (1,169
            )
            
            
            (2,831
            )Ending
      balance
            
            $
            18,578
            
            
            $
            18,578






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





The
components of comprehensive income are as follows (in thousands):





Three-Month
      Periods
            
            
            Nine-Month
      PeriodsEnded
      September 30,
            
            
            Ended
      September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      income
            
            $
            19,848
            
            
            $
            16,291
            
            
            $
            46,055
            
            
            $
            41,107Other
      comprehensive loss – unrealized losses on marketable securities, net
      of tax of $(410); $-; $(991); and $-
            
            
            (759
            )
            
            
            -
            
            
            
            (1,840
            )
            
            
            -Comprehensive
      income
            
            $
            19,089
            
            
            $
            16,291
            
            
            $
            44,215
            
            
            $
            41,107





Accumulated
other comprehensive loss, net is included in the Balance Sheets in the
shareholders’ equity section, and consists of unrealized losses on marketable
securities totaling $2.8 million, net of tax of $1.0 million, as of
September 30, 2008.








13








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
that 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 herein. Explanations include management’s best estimate of
the impact of weather and other factors. This discussion should be read in
conjunction with the Company’s historical unaudited Financial Statements and the
related notes included elsewhere in Item 1 of this Form 10-Q. The Company’s
actual results in the future could differ significantly from the historical
results.





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 the Company’s current intentions, assumptions,
expectations and beliefs and are subject to risks, uncertainties and other
important factors. Many of these factors are outside the Company’s control and
could cause actual results to differ materially from those expressed or implied
by the Company’s forward-looking statements. These factors include, among
others:




changes
      in weather conditions that could affect operating
  revenue;general
      economic, political and business conditions in the
      Philippines;changes
      in governmental, legislative or regulatory requirements affecting the
      Company or the power generation industry;availability
      of qualified personnel;changes
      in financial or regulatory accounting principles or policies imposed by
      the Public Company Accounting Oversight Board (United States), the
      Financial Accounting Standards Board, the United States Securities and
      Exchange Commission (“SEC”) and similar entities with regulatory
      oversight; andother
      business or investment considerations that may be disclosed from time to
      time in filings with the SEC or in other publicly disseminated written
      documents.




Further
details of the potential risks and uncertainties affecting the Company are
described in the Company’s filings with the SEC, including Item 1A and other
discussions contained in this Form 10-Q. The Company undertakes 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.





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,
as amended by the Supplemental Agreement dated September 29, 2003 (the
“Project Agreement”), covering a 20-year cooperation period (“Cooperation
Period”) commencing December 11, 2001, with “take-or-pay” obligations for
water and electricity. On December 11, 2021, the end of the Cooperation Period,
the combined irrigation and 150 megawatt 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. Under the terms of its registration with the Philippine Board of
Investments, CE Casecnan is entitled to certain incentives which included
an income tax holiday for six years from the start of commercial operations. The
Casecnan Project Cooperation Period began upon commencement of commercial
operations on December 11, 2001. The income tax holiday expired on
December 11, 2007. The Company’s taxable income from December 11, 2007
forward is subject to income tax at the Philippine statutory rate.




14




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
Project Agreement, the water delivery fee is a fixed monthly payment based upon
an assumed annual water delivery of 801.9 million cubic meters, pro-rated
to approximately 66.8 million cubic meters per month, multiplied by the
water delivery fee rate of $0.07381 per cubic meter. 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 each contract year is available to be earned in the
succeeding contract year through December 25, 2008. The cumulative water
delivery fee credit at December 25, 2008, if any, shall be amortized on a
straight-line basis from December 25, 2008 through December 25, 2013,
as a reduction from billings to NIA. 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 current contract year. Subsequent water delivery fees within the
contract year are based on actual water delivered. For contract years starting
from December 25, 2008 through the end of the Cooperation Period,
guaranteed water delivery fees will be $51.7 million (the
700.0 million cubic meter minimum threshold multiplied by the water
delivery fee rate of $0.07381).





For
contract years starting from December 25, 2008 through the end of the
Cooperation Period, variable water delivery fees will be earned for all water
deliveries, if any, exceeding the 700.0 million cubic meter annual minimum
threshold until a cumulative 1.324 billion cubic meters of water subject to
variable water delivery fees have been delivered.





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, currently payable at a rate of $0.1509 per
kWh. On December 25, 2008, 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 pesos per kWh, reduced to
0.98 pesos starting in 2009 and escalated at 1% per annum thereafter.
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





The
following table provides certain operating data of the Casecnan
Project:





Three-Month
      Periods
            
            
            Nine-Month
      PeriodsEnded
      September 30,
            
            
            Ended
      September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Electricity
      produced (GWh)
            
            
            177.3
            
            
            
            135.3
            
            
            
            382.9
            
            
            
            234.4Water
      delivered (million cubic meters)
            
            
            315.1
            
            
            
            224.3
            
            
            
            665.4
            
            
            
            392.3








15





The
Company’s water and energy fees are as follows (in millions):





Three-Month
      Periods
            
            
            Nine-Month
      PeriodsEnded
      September 30,
            
            
            Ended
      September 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Water
      delivery fees
            
            $
            14.7
            
            
            $
            14.7
            
            
            $
            44.4
            
            
            $
            44.4Guaranteed
      energy fees
            
            
            9.1
            
            
            
            9.1
            
            
            
            27.3
            
            
            
            27.3Variable
      energy fees
            
            
            16.7
            
            
            
            5.5
            
            
            
            30.2
            
            
            
            7.8Deferred
      water delivery fees
            
            
            (1.8
            )
            
            
            (1.8
            )
            
            
            (5.6
            )
            
            
            (5.6
            )$
            38.7
            
            
            $
            27.5
            
            
            $
            96.3
            
            
            $
            73.9





Revenue
for the third quarter and the first nine months of 2008 increased
$11.2 million and $22.4 million, respectively, from the comparable
periods in 2007. The increase in variable energy fees was due to the higher
rainfall which resulted in higher electricity production in 2008 compared to
2007. Deferred water delivery fees represent the difference between the actual
water delivery fees earned and the water delivery fees invoiced pursuant to the
Project Agreement.





Plant
operations and other operating expenses for the first nine months of 2008
increased $1.0 million from the comparable period in 2007, due to higher general
and administrative cost allocations in 2008.





Interest
expense for the third quarter and the first nine months of 2008 decreased
$2.4 million and $5.9 million, respectively, from the comparable periods in
2007.  The lower interest expense was due to lower outstanding debt
balances resulting from the scheduled repayment of Series B bonds and the
repayment of notes payable.





Income
tax expense for the third quarter and the first nine months of 2008 increased
$9.9 million and $22.4 million, respectively, from the comparable periods
in 2007, due to the expiration of the income tax holiday on December 11,
2007.  From December 11, 2007 forward, the Company’s taxable
income is subject to income tax at the Philippine statutory rate.





Liquidity
and Capital Resources





CE
Casecnan developed, financed, constructed and owns and operates the Casecnan
Project for the term of the Cooperation Period, which commenced on
December 11, 2001. During the Cooperation Period, NIA is obligated to
accept all deliveries of water and energy, and so long as the Casecnan Project
is physically capable of operating and delivering in accordance with agreed
levels set forth in the Project Agreement, NIA is obligated to pay CE Casecnan a
fixed fee for the delivery of a threshold volume of water and a fixed fee for
the delivery of a threshold amount of electricity. In addition, NIA is obligated
to pay a fee for all electricity delivered in excess of the threshold amount up
to a specified amount and will be obligated to pay a fee for all water delivered
in excess of the threshold amount up to a specified amount beginning after
December 25, 2008.





The ROP
has provided a Performance Undertaking under which NIA’s obligations under the
Project Agreement are guaranteed by the full faith and credit of the ROP. The
Project Agreement and the Performance Undertaking provide for the resolution of
disputes by binding arbitration in Singapore under international arbitration
rules.





NIA’s
obligations under the Project Agreement are substantially denominated in U.S.
dollars and are the Company’s sole source of operating revenue. 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 shareholders or
affiliates of the Company, including MidAmerican Energy Holdings Company
(“MEHC”), and no directors, officers or employees of the Company have guaranteed
or will 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 revenue from the Company’s business after the payment of operating
expenses.




16




The
Company’s cash and cash equivalents were $53.8 million and $31.1 million at
September 30, 2008 and December 31, 2007,
respectively.





Cash
flows from operations were $74.8 million and $64.2 million for the
nine-month periods ended September 30, 2008 and 2007, respectively.
The increase in cash from operations in 2008 was primarily due to collection of
higher variable energy revenue resulting from higher water flow and related
energy generation in 2008.





Cash
flows from investing activities were $(1.3) million and $17.0 million
for the nine-month periods ended September 30, 2008 and 2007,
respectively. Restricted cash and investments decreased by $28.8 million in
2007, primarily as a result of the payment of $25.5 million of dividends and
accrued interest held in escrow. Net purchases of available-for-sale securities
were $11.3 million during the nine-month period ended September 30,
2007.





Cash
flows from financing activities were $(50.8) million and
$(79.1) million for the nine-month periods ended
September 30, 2008 and 2007, respectively. The Company repaid $18.9
million of its outstanding project financing debt and $32.1 million of its
notes payable during the nine-month period ended September 30, 2008. The
Company repaid $38.6 million of advances received from its affiliates and
$18.9 million of its outstanding project financing debt and also released
$21.7 million of dividends held in escrow during the nine-month period
ended September 30, 2007.





Auction
Rate Securities





With the
liquidity issues experienced in global credit and capital markets, the
$21.4 million par value of auction rate securities held by the Company at
September 30, 2008 have experienced multiple failed auctions as the amount
of securities submitted for sale has exceeded the amount of purchase orders. The
securities are rated A2 and Aa3 by Moody’s Investors Service and AA by Standard
& Poor’s at September 30, 2008.





Although
there is no current liquid market for the auction rate securities, the Company
believes the underlying creditworthiness of the repayment sources for these
securities’ principal and interest has not materially deteriorated. Further, the
Company has the intent and ability to hold the auction rate securities for a
period of time sufficient to allow for any anticipated recoveryin the credit and capital
markets that would facilitate the periodic auction and sale of these securities.
At September 30, 2008, the Company’s pre-tax temporary impairment of the
auction rate securities totaled $2.8 million. If the underlying assets and the
guarantors of the auction rate securities experience credit deterioration, the
Company may not ultimately realize the par value of the investment at
September 30, 2008.





Given the
failed auctions, it is uncertain if the auction rate securities will be sold
within the next twelve months. Accordingly, the Company’s investments in auction
rate securities are classified as non-current on the Balance
Sheets.





Shareholder
Litigation





In
February 2002, pursuant to the share ownership adjustment mechanism in the
CE Casecnan shareholder agreement, MidAmerican Energy Holdings Company’s
(“MEHC”) indirect wholly owned subsidiary, CE Casecnan Ltd., advised
the minority shareholder of the Company, LaPrairie Group Contractors
(International) Ltd. (“LPG”) that MEHC’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 MEHC. On January 3, 2006, the Superior Court
of the State of California entered a judgment in favor of LPG against CE
Casecnan Ltd. Pursuant to the judgment, 15% of the distributions of the Company
was deposited into escrow plus interest at 9% per annum. The judgment was
appealed, and as a result of the appellate decision, CE Casecnan Ltd. determined
that LPG would retain ownership of 10% of the shares of the Company, with the
remaining 5% share to be transferred to CE Casecnan Ltd. subject to certain
buy-up rights under the shareholder agreement, which are also being litigated.
The remaining issues are fully briefed and pending before the court. Exercise of
the buy-up rights is a transaction between shareholders and is not expected to
have any impact on the Company’s results of operations.




17




On
July 1, 2005, MEHC and CE Casecnan Ltd. commenced an action
against San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
Lorenzo”) in the District Court of Douglas County, Nebraska, seeking a
declaratory judgment as to San Lorenzo’s right to repurchase 15% of the
shares in the Company. On January 30, 2006, San Lorenzo filed a
counterclaim against MEHC 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. Currently, the action is in the
discovery phase, and a one-week trial has been set to begin May 4, 2009. The
impact, if any, of this litigation on the Company cannot be determined at this
time.





Franchise
Tax





CE Casecnan
received franchise tax assessments for the years 2001 to 2006 totaling
$2.2 million from the Province of Nueva Vizcaya. CE Casecnan believes
that franchise tax is imposed on companies which have a secondary or special
franchise from the government. CE Casecnan is an independent power producer
and does not have a government franchise. The Electric Power Industry Reform Act
of 2001 provides that independent power generation is not a public utility
operation and does not require a franchise. Therefore, the Company has not
recognized a liability relating to these assessments. CE Casecnan filed
appeals of the assessments which are currently pending before the Supreme Court
Office of the Court Administrator for re-assignment to another court to hear and
decide on these cases.





Real
Property Tax





On July
1, 2008, CE Casecnan received a real property tax assessment adjustment
totaling $28.6 million from the province of Nueva Ecija and the municipality of
Pantabangan for the years 2002 through the second quarter of 2008. On July 2,
2008, CE Casecnan forwarded the tax assessment adjustment to NIA and the
Philippine Department of Finance (“DOF”), who must authorize any payment for
real property taxes and are obligated to reimburse the Company pursuant to the
Project Agreement. On August 28, 2008, CE Casecnan filed an appeal with the
local Board of Assessment Appeals. CE Casecnan received a temporary restraining
order against the province of Nueva Ecija to enjoin collection efforts until the
matter is resolved by the courts. On October 24, 2008, the Court denied CE
Casecnan’s application for preliminary injunction. A motion for reconsideration
on the denial will be filed within 15 days from receipt of the court order. In
the meantime, CE Casecnan will proceed with the main case for
injunction.





National
Wealth Tax





On July
17, 2008, CE Casecnan received an assessment totaling $4.1 million from the
municipality of Alfonso Castaneda for a share of national wealth tax it claims
is owed by the Company for the years from 2002 through 2007.  On July
22, 2008, CE Casecnan forwarded the assessment to NIA and the DOF, who must
authorize any payment for national wealth taxes and are obligated to reimburse
the Company pursuant to the Project Agreement. On September 24, 2008, CE
Casecnan received a temporary restraining order to enjoin the municipality of
Alfonso Castaneda from pursuing its collection efforts. Considering that the
facts are not disputed and the case involves purely questions of law or legal
issues, the parties agreed to dispense with the presentation of their respective
evidences in the application for preliminary injunction and proceed directly to
the main case. The parties agreed, which the Court approved, to a status quo
pending the final outcome of the main case. A pre-trial conference is set on
November 28, 2008.





Contractual
Obligations and Commercial Commitments





Subsequent
to December 31, 2007, there were no material changes outside the normal
course of business 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, 2007.








18





New
Accounting Pronouncements





For a
discussion of new accounting pronouncements affecting the Company, refer to
Note 2 of Notes to Financial Statements included in Item 1 of this Form
10-Q.





Critical
Accounting Policies





Certain
accounting policies require management to make estimates and judgments
concerning transactions that will be settled 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 allowance for doubtful accounts and revenue. For additional
discussion of the Company’s critical accounting policies, see Item 7 of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
The Company’s critical accounting policies have not changed materially since
December 31, 2007.






Item
      3.
            Quantitative and Qualitative
      Disclosures About Market Risk




For
quantitative and qualitative disclosures about market risk affecting the
Company, see Item 7A of CE Casecnan’s Annual Report on Form 10-K for
the year ended December 31, 2007. The Company’s exposure to market
risk and its management of such risk has not changed materially since
December 31, 2007.




Item
      4(T).
            Controls and
      Procedures




At the
end of the period covered by this Quarterly Report on Form 10-Q, the Company
carried out an evaluation, under the supervision and with the participation of
the Company’s management, including the President (principal executive officer)
and the Chief Financial Officer (principal financial officer), of the
effectiveness of the design and operation of the Company’s disclosure controls
and procedures (as defined in Rule 13a-15(e) promulgated under the Securities
and Exchange Act of 1934, as amended). Based upon that evaluation, the Company’s
management, including the President (principal executive officer) and the Chief
Financial Officer (principal financial officer), concluded that the Company’s
disclosure controls and procedures were effective to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and is accumulated and
communicated to management, including the Company’s
President  (principal executive officer) and Chief Financial Officer
(principal financial officer), or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. There has
been no change in the Company’s internal control over financial reporting during
the quarter ended September 30, 2008 that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.








19








PART
II – OTHER INFORMATION









Item
      1.
            Legal Proceedings





None.




Item
      1A.
            Risk Factors





There has
been no material change to the Company’s risk factors from those disclosed in
Item 1A of the Company’s Annual Report on Form 10-K for the year ended
December 31, 2007.




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




Not
applicable.




Item
      3.
            Defaults Upon Senior
  Securities




Not
applicable.






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





Not
applicable.




Item
      5.
            Other Information





Not
applicable.






Item
      6.
            Exhibits





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





20








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:
      November 7, 2008
            
            /s/ Patrick J.
      GoodmanPatrick
      J. GoodmanSenior
      Vice President and Chief Financial Officer(principal
      financial and accounting officer)





21





EXHIBIT INDEX





Exhibit
      No.
            
            Description31.1
            
            Principal
      Executive Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            
            Principal
      Financial Officer Certification Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            
            Principal
      Executive Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            
            Principal
      Financial Officer Certification Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.




22