**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, 2005
 
 **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
              
              (I.R.S.
                  Employerincorporation
                  or organization)
              
              Identification
                  No.)24thFloor, 6750 Building, Ayala AvenueMakati,
                  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 T No o
 
 Indicate
        by check mark whether the registrant is an accelerated filer (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 August 5, 2005, the
        number
        of outstanding common stock was 767,162 shares, $0.038 par value.
  
  
 **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
              10Item
                  3.
              Quantitative
                  and Qualitative Disclosures About
                  Market Risk
              14Item
                  4.
              Controls
                  and Procedures
              14**PART
                  II - OTHER INFORMATION**Item
                  1.
              Legal
                  Proceedings
              15Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds
              15Item
                  3.
              Defaults
                  Upon Senior Securities
              15Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              15Item
                  5.
              Other
                  Information
              15Item
                  6.
              Exhibits
              15Signatures
              
              16Exhibit
                  Index
              
              17
 
 
 
  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, 2005, and the related statements
        of
        operations for each of the three-month and six-month periods ended
        June 30, 2005 and 2004 and of cash flows for each of the six-month
        periods ended June 30, 2005 and 2004. 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,
        2004,
        and the related statements of operations, changes in stockholders’ equity and of
        cash flows for the year then ended (not presented herein), and in our report
        dated February 11, 2005, 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, 2004, 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
 August
        10, 2005
  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,****2005**
              
              **2004****(Unaudited)****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              18,144
              
              $
              16,732Restricted
                  cash and investments
              
              
              55,624
              
              
              55,507Trade
                  receivable, net
              
              
              19,549
              
              
              25,242Prepaid
                  insurance and other current assets
              
              
              4,113
              
              
              7,334Total
                  current assets
              
              
              97,430
              
              
              104,815Bond
                  issue costs, net
              
              
              2,211
              
              
              2,678Property,
                  plant and equipment, net
              
              
              354,300
              
              
              365,132Deferred
                  income tax
              
              
              5,371
              
              
              5,371**Total
                  assets**
              
              $
              459,312
              
              $
              477,996**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**Current
                  liabilities:Accounts
                  payable
              
              $
              11,736
              
              $
              12,997Dividends
                  payable
              
              
              17,550
              
              
              15,900Accrued
                  interest
              
              
              9,294
              
              
              8,482Payable
                  to affiliates
              
              
              35,302
              
              
              35,148Current
                  portion of long-term debt
              
              
              45,384
              
              
              54,753Total
                  current liabilities
              
              
              119,266
              
              
              127,280Notes
                  payable
              
              
              51,263
              
              
              51,263Deferred
                  revenue
              
              
              9,444
              
              
              6,120Long-term
                  debt, net of current portion
              
              
              124,338
              
              
              142,345Total
                  liabilities
              
              
              304,311
              
              
              327,008Commitments
                  and contingencies (Note 4)Stockholders’
                  equity:Capital
                  stock - authorized 2,148,000 shares, one Philippine peso ($0.038)
                  par
                  value; 767,162 shares issued and outstanding
              
              
              29
              
              
              29Additional
                  paid-in capital
              
              
              123,807
              
              
              123,807Retained
                  earnings
              
              
              31,165
              
              
              27,152Total
                  stockholders’ equity
              
              
              155,001
              
              
              150,988**Total
                  liabilities and stockholders’ equity**
              
              $
              459,312
              
              $
              477,996
  The
        accompanying notes are an integral part of these financial
        statements.
  4
  
 **CE
        CASECNAN WATER AND ENERGY COMPANY, INC.**
 **STATEMENTS
        OF OPERATIONS**
 (Amounts
        in thousands of U.S. Dollars)
 
 **Three
                  Months**
              
              **Six
                  Months****Ended
                  June 30,**
              
              **Ended
                  June 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(Unaudited)****Revenue:**Lease
                  rentals and service contracts
              
              $
              20,633
              
              $
              19,512
              
              $
              41,782
              
              $
              39,427**Operating
                  expenses:**Depreciation
              
              
              5,447
              
              
              5,560
              
              
              10,881
              
              
              11,273Plant
                  operations and other operating expenses
              
              
              2,119
              
              
              2,392
              
              
              4,137
              
              
              4,373Total
                  operating expenses
              
              
              7,566
              
              
              7,952
              
              
              15,018
              
              
              15,646**Operating
                  income**
              
              
              13,067
              
              
              11,560
              
              
              26,764
              
              
              23,781**Other
                  income (expense):**Interest
                  expense
              
              
              (6,306
              )
              
              (7,624
              )
              
              (12,934
              )
              
              (15,184
              )Interest
                  income
              
              
              563
              
              
              191
              
              
              1,133
              
              
              841Other,
                  net
              
              
              (100
              )
              
              42
              
              
              50
              
              
              (78
              )Total
                  other expense, net
              
              
              (5,843
              )
              
              (7,391
              )
              
              (11,751
              )
              
              (14,421
              )**Net
                  income**
              
              $
              7,224
              
              $
              4,169
              
              $
              15,013
              
              $
              9,360
 
 The
        accompanying notes are an integral part of these financial
        statements.
  5
  
 **CE
        CASECNAN WATER AND ENERGY COMPANY, INC.**
 **STATEMENTS
        OF CASH FLOWS**
 (Amounts
        in thousands of U.S. Dollars)
 
 **Six
                  Months****Ended
                  June 30,****2005**
              
              **2004****(Unaudited)****Cash
                  flows from operating activities:**Net
                  income
              
              $
              15,013
              
              $
              9,360Adjustments
                  to reconcile net income to cash flows from operating
                  activities:Depreciation
              
              
              10,881
              
              
              11,273Amortization
                  of bond issue costs
              
              
              467
              
              
              591Changes
                  in other items:Trade
                  receivable, net
              
              
              5,693
              
              
              (911
              )Prepaid
                  expenses and other current assets
              
              
              3,221
              
              
              4,475Accounts
                  payable and accrued interest
              
              
              (449
              )
              
              935Deferred
                  revenue
              
              
              3,324
              
              
              3,091Net
                  cash flows from operating activities
              
              
              38,150
              
              
              28,814**Cash
                  flows from investing activities:**Additions
                  to property, plant and equipment
              
              
              (49
              )
              
              (1,367
              )Liquidated
                  damages received, net of amounts accrued
              
              
              -
              
              
              18,900Collection
                  of ROP Note (Note 2)
              
              
              -
              
              
              97,000Net
                  cash flows (used in) from investing activities
              
              
              (49
              )
              
              114,533**Cash
                  flows from financing activities:**Increase
                  in restricted cash and investments for debt serviceobligations
                  and dividends payable
              
              
              (117
              )
              
              (34,268
              )Increase
                  (decrease) in payable to affiliates
              
              
              154
              
              
              (21
              )Repayment
                  of project financing debt
              
              
              (27,376
              )
              
              (24,681
              )Cash
                  dividends paid
              
              
              (9,350
              )
              
              (72,250
              )Net
                  cash flows used in financing activities
              
              
              (36,689
              )
              
              (131,220
              )**Net
                  change in cash and cash equivalents**
              
              
              1,412
              
              
              12,127**Cash
                  and cash equivalents at beginning of period**
              
              
              16,732
              
              
              4,513**Cash
                  and cash equivalents at end of period**
              
              $
              18,144
              
              $
              16,640**Supplemental
                  disclosure:**Interest
                  paid
              
              $
              12,950
              
              $
              16,109Dividends
                  declared but not paid
              
              $
              1,650
              
              $
              12,750
 
 For
        the
        period ended June 30, 2004, investment in property, plant and equipment was
        reduced by $23.9 million upon settlement of litigation and the accompanying
        receipt of cash of $18.9 million and reversal of liabilities of $5.0
        million.
 
 The
        accompanying notes are an integral part of these financial
        statements.
 
  6
  
 **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, 2005, and the
        results
        of operations for each of the three-month and six-month periods ended
        June 30, 2005 and 2004 and cash flows for the six-month periods
        ended
        June 30, 2005 and 2004. The results of operations for the three-month and
        six-month periods ended June 30, 2005 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
        (the “Project Agreement”), covering a 20-year cooperation period that commenced
        on December 11, 2001 and will end on December 11, 2021 (the “Cooperation
        Period”). At the end of the Cooperation Period, the combined irrigation and 150
        megawatt (“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 affirms and guarantees the obligations
        of NIA under the contract.
 
 The
        Casecnan Project is dependant 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, 2004. 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.**
              **NIA
                  Arbitration Settlement**
 
 On
        October 15, 2003, the Company closed a transaction settling an arbitral
        proceeding which the Company had initiated against NIA in August 2002. In
        connection with the settlement, CE Casecnan entered into an agreement with
        NIA
        (the “Supplemental Agreement”) which supplements and amends the Project
        Agreement in certain respects. As part
        of the settlement, NIA delivered to CE Casecnan a ROP $97.0 million
        8.375%
        Note due 2013 (the "ROP Note"). The Company had the option, between
        January 14, 2004 and February 14, 2004 to put the ROP Note
        to the ROP,
        for a price of par plus accrued interest.
 
 On
        January 14, 2004, CE Casecnan exercised its right to put the ROP Note
        to
        the ROP and, in accordance with the terms of the put, CE Casecnan received
        $99.2 million (representing $97.0 million par value plus accrued
        interest) from the ROP on January 21, 2004.
 
 **3.**
              **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
        $35.3 million and $35.1 million at June 30, 2005 and December 31,
        2004, 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, 2005 and 2004, respectively, and $0.6 million for each of the six-month
        periods ended June 30, 2005 and 2004, respectively.
   7
  As
        of
        June 30, 2005 and December 31, 2004, the Company had outstanding
        $51.3 million of unsecured subordinated notes payable to CE Casecnan
        Ltd.,
        a stockholder, due November 15, 2005. The notes bear interest at LIBOR
        plus
        two percent which is payable every May 15 and November 15.
        Interest
        expense on the notes was $0.6 million and $0.5 million during the three-month
        periods ended June 30, 2005 and 2004, respectively, and $1.2 million and
        $0.9
        million during the six-month periods ended June 30, 2005 and 2004, respectively.
        Any overdue payment of principal and interest payable on the notes bears
        interest at LIBOR plus four percent. At June 30, 2005, the
        effective
        interest rate on the notes was 5.49%. 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 depository, any party that becomes a permitted counterparty under an
        Interest Rate/Currency Protection Agreement, 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 extend the term of the notes or to convert them into some
        form of capital such that no current assets will be used or current liabilities
        created to retire the notes.
  **4.**
                **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, among others,
        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 (see note 2). 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 and 2005, totaling
        $17.6 million ($1.7 million in the second quarter of 2005),
        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 at June 30, 2005 and December 31, 2004. 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. The
        decision results in LPG having a 15% ownership interest in the Casecnan project.
        MidAmerican intends to appeal this decision. On
        July
        8, 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
        filed
        its opposition to the motion on July 20, 2005, and the matter is scheduled
        to be
        heard on October 4, 2005 at which time a schedule for subsequent phases of
        the
        lawsuit, addressing LPG's remaining claims arising out of the NIA arbitration
        settlement, also is expected to be established.
 
 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’s answer to
        this action is expected to be filed in August 2005.
 
 Real
        Property Tax
 
 On
        December 6, 2004, the Municipality of Alfonso Castaneda (the
        “Municipality”), Province of Nueva Vizcaya (the “Province”) passed an ordinance
        which required the submission of a tax clearance from each of the provincial
        treasurer and municipal treasurer as a condition to issuing to CE Casecnan
        the
        annual renewal of its license to operate and business permit. On
        January 17, 2005, the Office of the Treasurer of the Municipality
        provided CE Casecnan a copy of such ordinance and threatened to close the
        Casecnan Project pending submittal by CE Casecnan of the tax clearance
        certificate. CE Casecnan cannot obtain a tax clearance certificate
        from the
        Province until real property taxes due to the Province are paid. Pursuant
        to the
        Supplemental Agreement, before paying such real property taxes CE Casecnan
        must either receive direction from NIA and the Philippine Department of Finance
        or be subject to risk of imminent assessment of penalties for non payment.
        These
        taxes have been fully accrued as of June 30, 2005 and December 31,
        2004 as
        part of accounts payable and trade receivable. CE Casecnan filed an
        action
        in the Regional Trial Court on January 21, 2005, against the
        Municipality and was granted a temporary restraining order barring the
        Municipality from closing the Casecnan Project. On February 7, 2005,
        the temporary restraining order was extended until the court resolves the
        petition for an injunction. On May 25, 2005, the Province served CE Casecnan
        a
        notice of delinquency stating that the assets of the Casecnan Project located
        in
        the Province will be included in the list of delinquent assets and will be
        sold
        in a public auction scheduled on July 26, 2005, if CE Casecnan fails to pay
        the
        real property tax on or before such date. CE Casecnan filed a complaint for
        injunction with an application for a temporary restraining order on July
        11,
        2005 against the Province, impleading the Department of Finance and the National
        Irrigation Administration as necessary parties, seeking an order enjoining
        the
        Province from proceeding with any public auction or sale of any Casecnan
        Project
        assets. On July 21, 2005, the Regional Trial Court denied CE Casecnan’s request
        for a temporary restraining order. On July 25, 2005, CE Casecnan paid the
        real
        property taxes, plus interest and penalties, due to the Province of
        approximately $4.7 million and submitted an invoice for reimbursement of
        such
        amount to NIA in accordance with the Supplemental Agreement. On August 1,
        2005,
        CE Casecnan received the business license and mayor’s permit from the
        Municipality.
 
 8
 On
        August
        3, 2005, CE Casecnan received a tax assessment from the Province of Nueva
        Ecija
        for approximately $4.5 million in respect of Project property located in
        the
        Province of Nueva Ecija. These taxes have been fully accrued as of June 30,
        2005 and December 31, 2004 as part of accounts payable and trade receivable.
        CE
        Casecnan intends to seek authorization from NIA and the Department of Finance
        to
        pay such taxes, and to invoice NIA for such taxes, as contemplated by the
        Supplemental Agreement.
 
 Tax
        Legislation
 
 On
        May
        24, 2005, President Arroyo signed an amended tax law, which was scheduled
        to
        come into effect on July 1, 2005. The law raises the corporate income tax
        rate
        from 32% to 35% through 2008 (reducing to 30% thereafter) and imposes
        value-added tax of 10% on, among other goods and services, the generation
        of
        electricity and the provision of water delivery services. However, the law
        provides that electricity generated from hydro-electric power, such as the
        Casecnan Project, shall be subject to value-added tax at zero rate. The law
        (and
        the Project Agreement) also permits CE Casecnan to invoice NIA for value-added
        tax on water delivery fees (and, if electricity generated from hydro-electric
        power were to become subject to value-added tax, on energy delivery fees
        as
        well). Certain parties in the Philippines have filed a lawsuit with the
        Philippine Supreme Court, challenging a provision of the law which grants
        to the
        president of the ROP the discretion to increase the value-added tax rate
        from
        10% to 12% as being an unconstitutional delegation of authority. The Philippine
        Supreme Court has suspended the implementation of the law pending hearings
        on
        the matter. Neither the suspension of the law, nor the implementation of
        the
        law, is expected to have an adverse impact on the Casecnan Project.
 
 Concentration
        of Risk
 
 NIA’s
        payments of 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.
  **5.**
                **Reclassifications**
  Certain
        amounts of restricted cash and investments in the 2004 balance sheet have
        been
        reclassified to current assets to conform to the fiscal 2005 presentation.
        Such
        reclassification did not impact previously reported net income or retained
        earnings.
  9
  **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 to those statements. 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,
        pricing strategies, changes in the utility industry, planned capital
        expenditures, 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”), covering a 20-year cooperation period that commenced on
        December 11, 2001 and will end on December 11, 2021 (“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 contract.
 
 In
        connection with the settlement of an arbitral proceeding on October 15, 2003,
        CE
        Casecnan entered into an agreement with NIA (the “Supplemental Agreement”) which
        supplements and amends the Project Agreement in certain respects.
 
 **Seasonality**
 
 The
        Casecnan Project is dependant 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. Therefore, portions
        of the 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 credit 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
        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 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. The cumulative
        water delivery credit was $9.4 million and $6.1 million at June 30, 2005
        and
        December 31, 2004, respectively.
  10
  The
        Company earns variable energy fees based upon actual energy delivered in
        each
        month in excess of 19.0 gigawatt-hours ("GWh"), payable at a rate of $0.1509
        per
        kilowatt-hour ("kWh"). Starting in 2009, the per kWh rate for energy deliveries
        in excess of 19.0 GWh per month is reduced to $0.1132 (escalating at 1% per
        annum thereafter), provided that 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 (reduced to 0.975 Philippine pesos in 2009 and escalated at 1% per
        annum) thereafter and 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, 2005 and
        2004**
 
 The
        following table provides certain operating data of the Casecnan Project for
        the
        three-month periods ended June 30, 2005 and 2004:
 
 **2005**
              
              **2004**Electricity
                  produced (GWh)
              33.4
              
              57.1Water
                  delivered (million cubic meters)
              55.7
              
              100.2
 
 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):
 
 **2005**
              
              **2004**Water
                  delivery fees
              
              $
              13.2
              
              $
              12.3Guaranteed
                  energy fees
              
              
              9.1
              
              
              9.1Deferred
                  water delivery fees
              
              
              (1.7
              )
              
              (1.9
              )Total
                  water and energy fees
              
              $
              20.6
              
              $
              19.5
 
 Revenue
        increased by $1.1 million to $20.6 million for the three-month
        period
        ended June 30, 2005 from $19.5 million for the same period in 2004.
        The
        increase in water delivery fees was mainly due to the 7.5% increase in the
        water
        delivery rate based on a contractual annual escalation factor. 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 $1.3 million to $6.3 million for the three-month
        period
        ended June 30, 2005 from $7.6 million for the same period in 2004,
        due to
        lower outstanding debt balances resulting from the scheduled repayment of
        debt.
 
 **Results
        of Operations for the Six-Month Periods Ended June 30, 2005 and
        2004**
 
 The
        following table provides certain operating data of the Casecnan Project for
        the
        six-month periods ended June 30, 2005 and 2004:
 
 **2005**
              
              **2004**Electricity
                  produced (GWh)
              75.8
              
              98.1Water
                  delivered (million cubic meters)
              128.7
              
              172.2
 
 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):
 
 **2005**
              
              **2004**Water
                  delivery fees
              
              $
              26.2
              
              $
              24.4Guaranteed
                  energy fees
              
              
              18.2
              
              
              18.1Variable
                  energy fees
              
              
              0.7
              
              
              -Deferred
                  water delivery fees
              
              
              (3.3
              )
              
              (3.1
              )Total
                  water and energy fees
              
              $
              41.8
              
              $
              39.4
   11
  Revenue
        increased by $2.4 million to $41.8 million for the six-month
        period
        ended June 30, 2005 from $39.4 million for the same period
        in 2004.
        The $1.8 million increase in water delivery fees was mainly due to the 7.5%
        increase in the water delivery rate based on a contractual annual escalation
        factor. The $0.7 million increase in the variable energy fees was due primarily
        to the wetter conditions in the first quarter of 2005 than in 2004. 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.
 
 Depreciation
        expense decreased by $0.4 million to $10.9 million for the six-month
        period
        ended June 30, 2005 from $11.3 million for the same period in 2004. In
        April 2004, property, plant and equipment was reduced by the
        $18.9 million collected under the contractor arbitration
        settlement.
 
 Interest
        expense decreased by $2.3 million to $12.9 million for the six-month
        period
        ended June 30, 2005 from $15.2 million for the same period
        in 2004 due
        to lower outstanding debt balances resulting from the scheduled repayment
        of
        debt.
 
 **Liquidity
        and Capital Resources**
 
 NIA’s
        payments of 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
        stockholders, partners or affiliates of the Company, including MidAmerican
        Energy Holdings Company (“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.
 
 The
        Company's cash and cash equivalents were $18.1 million and
        $16.7 million at June 30, 2005 and December 31, 2004,
        respectively.
 
 The
        Company generated cash flows from operations of $38.2 million and
        $28.8 million for the six-month periods ended June 30, 2005
        and 2004,
        respectively. The increase in cash from operations in 2005 was primarily
        due to
        the collection of billed revenues and lower interest payments.
 
 The
        Company used $0.1 million for and generated $114.5 million from investing
        activities for the six-month periods ended June 30, 2005 and 2004,
        respectively. On January 21, 2004, the Company collected $97.0 million
        from
        the put of the R OP
        $97.0 million 8.375% Note due 2013 (the “ROP Note”) received
        in connection with the NIA Arbitration Settlement. On April 7, 2004, the
        Company
        received $18.9 million ($19.1 million in proceeds less $0.2 million placed
        in
        escrow) from the settlement of the International Chamber of Commerce arbitration
        case involving the construction of the project.
 
 The
        Company used $36.7 million and $131.2 million for financing
        activities
        for the six-month periods ended June 30, 2005 and 2004, respectively.
        During the six-month period ended June 30, 2005, the Company declared
        dividends out of its cash funds amounting to $11.0 million, of which
        $9.3
        million was paid and $1.7 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 balance sheet. During the six month period ended
        June
        30, 2004, the Company increased its restricted cash related to obligations
        for
        debt service and unpaid dividends by $34.3 million and distributed dividends
        out
        of its cash funds amounting to $72.2 million, of which $12.8 million was
        set
        aside in a separate bank account in the name of the Company. The increase
        in
        restricted cash and payment of dividends was largely funded by the collection
        of
        the ROP Note and the receipt of $18.9 million of cash in connection with
        the
        contractor arbitration settlement. The Company also made principal payments
        amounting to $27.4 million and $24.7 million on the outstanding balance of
        the
        Series A and B bonds during the six-month periods ended June 30, 2005 and
        2004,
        respectively.
  12
  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’s 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, among others, 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 (see note 2). 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 and 2005, totaling $17.6 million ($1.7 million
        in
        the second quarter of 2005), 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 at June 30, 2005 and December 31,
        2004. 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. The
        decision results in LPG having a 15% ownership interest in the Casecnan project.
        MidAmerican intends to appeal this decision. On
        July
        8, 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
        filed
        its opposition to the motion on July 20, 2005, and the matter is scheduled
        to be
        heard on October 4, 2005 at which time a schedule for subsequent phases of
        the
        lawsuit, addressing LPG's remaining claims arising out of the NIA arbitration
        settlement, also is expected to be established.
 
 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’s answer to
        this action is expected to be filed in August 2005.
 
 Real
        Property Tax
 
 On
        December 6, 2004, the Municipality of Alfonso Castaneda (the
        “Municipality”), Province of Nueva Vizcaya (the “Province”) passed an ordinance
        which required the submission of a tax clearance from each of the provincial
        treasurer and municipal treasurer as a condition to issuing to CE Casecnan
        the
        annual renewal of its license to operate and business permit. On
        January 17, 2005, the Office of the Treasurer of the Municipality
        provided CE Casecnan a copy of such ordinance and threatened to close the
        Casecnan Project pending submittal by CE Casecnan of the tax clearance
        certificate. CE Casecnan cannot obtain a tax clearance certificate
        from the
        Province until real property taxes due to the Province are paid. Pursuant
        to the
        Supplemental Agreement, before paying such real property taxes CE Casecnan
        must either receive direction from NIA and the Philippine Department of Finance
        or be subject to risk of imminent assessment of penalties for non payment.
        These
        taxes have been fully accrued as of June 30, 2005 and December 31,
        2004 as
        part of accounts payable and trade receivable. CE Casecnan filed an
        action
        in the Regional Trial Court on January 21, 2005, against the
        Municipality and was granted a temporary restraining order barring the
        Municipality from closing the Casecnan Project. On February 7, 2005,
        the temporary restraining order was extended until the court resolves the
        petition for an injunction. On May 25, 2005, the Province served CE Casecnan
        a
        notice of delinquency stating that the assets of the Casecnan Project located
        in
        the Province will be included in the list of delinquent assets and will be
        sold
        in a public auction scheduled on July 26, 2005, if CE Casecnan fails to pay
        the
        real property tax on or before such date. CE Casecnan filed a complaint for
        injunction with an application for a temporary restraining order on July
        11,
        2005 against the Province, impleading the Department of Finance and NIA as
        necessary parties, seeking an order enjoining the Province from proceeding
        with
        any public auction or sale of any Casecnan Project assets. On July 21, 2005,
        the
        Regional Trial Court denied CE Casecnan’s request for a temporary restraining
        order. On July 25, 2005, CE Casecnan paid the real property taxes, plus interest
        and penalties, due to the Province of approximately $4.7 million, and submitted
        an invoice for reimbursement of such amount to NIA, in accordance with the
        Supplemental Agreement. On August 1, 2005, CE Casecnan received the business
        license and mayor’s permit from the Municipality.
 
 On
        August
        3, 2005, CE Casecnan received a tax assessment from the Province of Nueva
        Ecija
        for approximately $4.5 million in respect of Project property located in
        the
        Province of Nueva Ecija. These taxes have been fully accrued as of June 30,
        2005 and December 31, 2004 as part of accounts payable and trade receivable.
        CE
        Casecnan intends to seek authorization from NIA and the Department of Finance
        to
        pay such taxes, and to invoice NIA for such taxes, as contemplated by the
        Supplemental Agreement.
 
  13
  Tax
        Legislation
 
 On
        May
        24, 2005, President Arroyo signed an amended tax law, which was scheduled
        to
        come into effect on July 1, 2005. The law raises the corporate income tax
        rate
        from 32% to 35% through 2008 (reducing to 30% thereafter) and imposes
        value-added tax of 10% on, among other goods and services, the generation
        of
        electricity and the provision of water delivery services. However, the law
        provides that electricity generated from hydro-electric power, such as the
        Casecnan Project, shall be subject to value-added tax at zero rate. The law
        (and
        the Project Agreement) also permits CE Casecnan to invoice NIA for value-added
        tax on water delivery fees (and, if electricity generated from hydro-electric
        power were to become subject to value-added tax, on energy delivery fees
        as
        well). Certain parties in the Philippines have filed a lawsuit with the
        Philippine Supreme Court, challenging a provision of the law which grants
        to the
        president of the ROP the discretion to increase the value-added tax rate
        from
        10% to 12% as being an unconstitutional delegation of authority. The Philippine
        Supreme Court has suspended the implementation of the law pending hearings
        on
        the matter. Neither the suspension of the law, nor the implementation of
        the
        law, is expected to have an adverse impact on the Casecnan Project.
 
 **Contractual
        Obligations and Commercial Commitments**
 
 During
        the six months ended June 30, 2005, 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, 2004.
 
 **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 its Annual Report on Form 10-K
        for the year ended December 31, 2004 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 estimates.
 
 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, 2004.
 
 **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, 2004. CE Casecnan’s exposure to market risk has not
        changed materially since December 31, 2004.
 
 **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, 2005. 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.
 
  14
  **PART
        II - OTHER INFORMATION**
 
 **Item
        1.** **Legal
        Proceedings.**
 
 For
        a
        description of certain legal proceedings affecting the Company, please review
        Note 4 to the Interim Financial Statements, "Commitments and
        Contingencies".
 
 **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.
 
  15
  
 **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:
                  August 10, 2005
              
              /s/
                  Patrick J. GoodmanPatrick
                  J. GoodmanSenior
                  Vice President and Chief Financial
                  Officer
 
  16
  **EXHIBIT
        INDEX**
 
 Exhibit
                  No.
              
              Description31.1
              
              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.