**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-Q**
 
 **[x]
        Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
        Act
        of 1934**
 
 For
        the
        quarterly period ended September 30, 2007
 
 or
 
 **[  ]
        Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
        Act
        of 1934**
 
 For
        the
        transition period from ________to_______
 
 Commission
        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
 ̈No  T
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See the definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
        Act. (Check one):
 
 Large
                  accelerated filer   ̈
              Accelerated
                  filer   ̈
              Non-accelerated
                  filer  T
 
 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 22, 2007, 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
              12Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market
                  Risk
              17Item
                  4.
              Controls
                  and Procedures
              17**PART
                  II – OTHER INFORMATION**Item
                  1.
              Legal
                  Proceedings
              18Item
                  1A.
              Risk
                  Factors
              18Item
                  2.
              Unregistered
                  Sales of Securities and Use of
                  Proceeds
              18Item
                  3.
              Defaults
                  Upon Senior Securities
              18Item
                  4.
              Submission
                  of Matters to a Vote of Security
                  Holders
              18Item
                  5.
              Other
                  Information
              18Item
                  6.
              Exhibits
              18Signatures
              
              19Exhibit
                  Index
              
              20
 
  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, 2007, and the related statements
        of operations for each of the three-month and nine-month periods ended
        September 30, 2007 and 2006 and of changes in shareholders’ equity and
        of cash flows for each of the nine-month periods ended September 30, 2007
        and 2006. These interim financial statements are the responsibility of the
        Company’s management.
 
 We
        conducted our 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, 2006,
        and the related statements of operations, of changes in shareholders’ equity and
        of cash flows for the year then ended (not presented herein), and in our
        report
        dated February 8, 2007, 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, 2006, 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
 October
        22, 2007
   3
 
 **CE
        CASECNAN WATER AND ENERGY COMPANY, INC.**
 **BALANCE
        SHEETS (Unaudited)**
 (Amounts
        in thousands of U.S. Dollars, except share data)
 
 **As
                    of****September 30,**
              
              
              **December 31,****2007**
              
              
              **2006****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              41,540
              
              
              $
              31,946Restricted
                  cash and investments
              
              
              37,627
              
              
              
              62,659Trade
                  receivable, net
              
              
              18,201
              
              
              
              14,002Prepaid
                  insurance and other current assets
              
              
              5,290
              
              
              
              6,008Total
                  current assets
              
              
              102,658
              
              
              
              114,615Property,
                  plant and equipment, net
              
              
              308,457
              
              
              
              324,203Deferred
                  income taxes
              
              
              5,095
              
              
              
              5,095Bond
                  issue costs, net
              
              
              669
              
              
              
              1,057**Total
                  assets**
              
              $
              416,879
              
              
              $
              444,970**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**Current
                  liabilities:Accounts
                  payable and other accrued liabilities
              
              $
              5,287
              
              
              $
              5,264Dividends
                  payable
              
              
              10,825
              
              
              
              32,475Accrued
                  interest
              
              
              19,529
              
              
              
              15,326Payable
                  to affiliates
              
              
              2,461
              
              
              
              41,011Notes
                  payable
              
              
              51,263
              
              
              
              -Current
                  portion of long-term debt
              
              
              37,730
              
              
              
              37,730Total
                  current liabilities
              
              
              127,095
              
              
              
              131,806Notes
                  payable
              
              
              -
              
              
              
              51,263Deferred
                  revenue
              
              
              5,641
              
              
              
              -Long-term
                  debt, net of current portion
              
              
              49,735
              
              
              
              68,600Total
                  liabilities
              
              
              182,471
              
              
              
              251,669Commitments
                  and contingencies (Note 5)Shareholders’
                  equity:Common
                  shares - 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
              
              
              110,572
              
              
              
              69,465Total
                  shareholders’ equity
              
              
              234,408
              
              
              
              193,301**Total
                  liabilities and shareholders’ equity**
              
              $
              416,879
              
              
              $
              444,970
 
 The
        accompanying notes are an integral part of these financial
        statements.
   4
 
 **CE
        CASECNAN WATER AND ENERGY COMPANY, INC.**
 **STATEMENTS
        OF OPERATIONS (Unaudited)**
 (Amounts
        in thousands of U.S. Dollars)
 
 **Three
                  Months**
              
              
              **Nine
                  Months****Ended
                    September 30,**
              
              
              **Ended
                    September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006****Revenue:**Lease
                  rentals and service contracts
              
              $
              27,501
              
              
              $
              40,585
              
              
              $
              73,853
              
              
              $
              95,118**Operating
                  expenses:**Depreciation
              
              
              5,483
              
              
              
              5,515
              
              
              
              16,290
              
              
              
              16,260Plant
                  operations and other operating expenses
              
              
              2,550
              
              
              
              2,547
              
              
              
              6,476
              
              
              
              6,627Total
                  operating expenses
              
              
              8,033
              
              
              
              8,062
              
              
              
              22,766
              
              
              
              22,887**Operating
                  income**
              
              
              19,468
              
              
              
              32,523
              
              
              
              51,087
              
              
              
              72,231**Other
                  income (expense):**Interest
                  expense
              
              
              (4,113
              )
              
              
              (5,247
              )
              
              
              (13,144
              )
              
              
              (16,371
              )Interest
                  income
              
              
              609
              
              
              
              690
              
              
              
              2,141
              
              
              
              2,269Other,
                  net
              
              
              867
              
              
              
              1,336
              
              
              
              2,747
              
              
              
              2,963Total
                  other expense, net
              
              
              (2,637
              )
              
              
              (3,221
              )
              
              
              (8,256
              )
              
              
              (11,139
              )**Income
                  before provision for income tax**
              
              
              16,831
              
              
              
              29,302
              
              
              
              42,831
              
              
              
              61,092**Provision
                  for income tax**
              
              
              540
              
              
              
              557
              
              
              
              1,724
              
              
              
              1,671**Net
                  income**
              
              $
              16,291
              
              
              $
              28,745
              
              
              $
              41,107
              
              
              $
              59,421
 
 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)**
 (Amounts
        in thousands of U.S. Dollars)
 
 **Outstanding**
              
              
              
              
              
              **Additional****Common**
              
              
              **Common**
              
              
              **Paid-in**
              
              
              **Retained****Shares**
              
              
              **Shares**
              
              
              **Capital**
              
              
              **Earnings**
              
              
              **Total****Balance,
                  January 1, 2006**
              
              
              767,162
              
              
              $
              29
              
              
              $
              123,807
              
              
              $
              68,161
              
              
              $
              191,997Net
                  income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              59,421
              
              
              
              59,421Dividends
                  declared
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (66,000
              )
              
              
              (66,000
              )**Balance, September 30, 2006**
              
              
              767,162
              
              
              $
              29
              
              
              $
              123,807
              
              
              $
              61,582
              
              
              $
              185,418**Balance,
                  January 1, 2007**
              
              
              767,162
              
              
              $
              29
              
              
              $
              123,807
              
              
              $
              69,465
              
              
              $
              193,301Net
                  income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              41,107
              
              
              
              41,107**Balance, September 30, 2007**
              
              
              767,162
              
              
              $
              29
              
              
              $
              123,807
              
              
              $
              110,572
              
              
              $
              234,408
 
 The
        accompanying notes are an integral part of these financial
        statements.
   6
 
 **CE
        CASECNAN WATER AND ENERGY COMPANY, INC.**
 **STATEMENTS
        OF CASH FLOWS (Unaudited)**
 (Amounts
        in thousands of U.S. Dollars)
 
 **Nine
                  Months****Ended
                    September 30,****2007**
              
              
              **2006****Cash
                  flows from operating activities:**Net
                  income
              
              $
              41,107
              
              
              $
              59,421Adjustments
                  to reconcile net income to cash flows from operating
                  activities:Depreciation
              
              
              16,290
              
              
              
              16,260Amortization
                  of bond issue costs
              
              
              388
              
              
              
              516Changes
                  in other items:Trade
                  receivable, net
              
              
              (4,199
              )
              
              
              6,821Prepaid
                  insurance and other current assets
              
              
              718
              
              
              
              370Accounts
                  payable and other accrued liabilities
              
              
              23
              
              
              
              2,118Accrued
                  interest
              
              
              4,203
              
              
              
              7,350Deferred
                  revenue
              
              
              5,641
              
              
              
              5,641Net
                  cash flows from operating activities
              
              
              64,171
              
              
              
              98,497**Cash
                  flows from investing activities:**Additions
                  to property, plant and equipment
              
              
              (544
              )
              
              
              (1,830
              )Decrease
                  (increase) in restricted cash and investments for debt
                service
                  obligations and dividends payable
              
              
              25,032
              
              
              
              (38,240
              )Net
                  cash flows from investing activities
              
              
              24,488
              
              
              
              (40,070
              )**Cash
                  flows from financing activities:**Decrease
                  in payable to affiliates
              
              
              (38,550
              )
              
              
              (1,090
              )Repayment
                  of project financing debt
              
              
              (18,865
              )
              
              
              (18,007
              )Cash
                  dividends paid
              
              
              (21,650
              )
              
              
              (56,100
              )Net
                  cash flows from financing activities
              
              
              (79,065
              )
              
              
              (75,197
              )**Net
                  change in cash and cash equivalents**
              
              
              9,594
              
              
              
              (16,770
              )**Cash
                  and cash equivalents at beginning of period**
              
              
              31,946
              
              
              
              42,317**Cash
                  and cash equivalents at end of period**
              
              $
              41,540
              
              
              $
              25,547
 
 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. (“CE Casecnan” or 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. CE Casecnan is
        registered with the Philippine Board of Investments as a new operator of
        hydroelectric power plant with pioneer status under the Omnibus Investments
        Code
        of 1987. Under the terms of its registration, CE Casecnan is entitled to
        certain incentives which include an income tax holiday for six years from
        the
        start of commercial operations. The Casecnan Project Cooperation Period began
        upon commencement of commercial operations on December 11, 2001. The income
        tax holiday will expire on December 11, 2007. The Company’s taxable income
        from December 11, 2007 to December 31, 2008 will become subject to income
        tax at
        the Philippine statutory rate of 35% and 30% in 2009 and
        thereafter.
 
 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
        accompanying 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 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, 2007 and for the three- and nine-month periods
        ended September 30, 2007 and 2006. The results of operations for the three-
        and nine-month periods ended September 30, 2007 are not necessarily
        indicative of the results to be expected for the full year.
 
 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. Management’s Discussion and Analysis and Note 2 of Notes to
        Financial Statements included in the Company’s Annual Report on Form 10-K for
        the year ended December 31, 2006, describe 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
        critical accounting estimates and significant accounting policies during
        the
        first nine months of 2007.
  8
  **(2)           New
        Accounting Pronouncements**
 
 In
        July
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an
        interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48
        clarifies the accounting for uncertainty in income taxes recognized in
        accordance with Statement of Financial Accounting Standards (“SFAS”)
        No. 109, “Accounting for Income Taxes,” and prescribes a recognition
        threshold and measurement attribute for the financial statement recognition
        and
        measurement of a tax position taken or expected to be taken in a return.
        Guidance is also provided on de-recognition, classification, interest and
        penalties, accounting in interim periods, disclosure and transition. The
        Company
        adopted the provisions of FIN 48 effective January 1, 2007, and such
        adoption did not have a material effect on the Financial
        Statements.
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities - Including an Amendment of FASB
        Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to
        elect to measure many financial instruments and certain other items at fair
        value. Upon adoption of SFAS No. 159, an entity may elect the fair value
        option for eligible items that exist at the adoption date. Subsequent to
        the
        initial adoption, the election of the fair value option should 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. SFAS No. 159 is effective for fiscal years
        beginning after November 15, 2007. The Company does not anticipate electing
        the fair value option for any existing eligible items. However, the Company
        will
        continue to evaluate items on a case by case basis for consideration of the
        fair
        value option.
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a
        framework for measuring fair value and expands disclosures about fair value
        measurements. SFAS No. 157 does not impose fair value measurements on items
        not already accounted for at fair value; rather it applies, with certain
        exceptions, to other accounting pronouncements that either require or permit
        fair value measurements. SFAS No. 157 is effective for fiscal years
        beginning after November 15, 2007, and interim periods within those fiscal
        years. The Company is currently evaluating the impact of adopting SFAS
        No. 157 on its financial position and results of operations.
 
 **(3)           Restricted
        Cash and Investments**
 
 Restricted
        cash and investments consist of the following (in thousands):
 
 **September 30,
                    2007**
              
              
              **December 31,
                    2006**Debt
                  service reserve fund
              
              $
              24,667
              
              
              $
              25,407Dividend
                  set aside account
              
              
              12,960
              
              
              
              37,252$
              37,627
              
              
              $
              62,659
 
 Refer
        to
        Note 5, shareholder litigation, for additional information concerning the
        movement in the dividend set aside account.
 
 **(4)           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
        $2.5 million and $41.0 million at September 30, 2007 and
        December 31, 2006, respectively. Costs incurred by the Company in
        transactions with related parties amounted to $0.5 million and
        $1.6 million for each of the three-month periods ended
        September 30, 2007 and 2006, respectively, and $2.1 million and
        $5.0 million for each of the nine-month periods ended September 30, 2007
        and 2006, respectively. On April 20, 2007, the Company repaid
        $36.0 million of advances received from affiliates.
  9
  As
        of
        September 30, 2007 and December 31, 2006, the Company had
        outstanding $51.3 million of unsecured subordinated notes payable to
        CE Casecnan Ltd., a shareholder. The notes mature on November 1, 2015,
        and bear an interest rate of LIBOR plus 5.25%; provided, however, that
        CE Casecnan Ltd. can demand payment of the outstanding principal amount at
        any time prior to the maturity date. The interest is payable each May 15
        and November 15. Interest expense on the notes was $1.4 million for
        each of the three-month periods ended September 30, 2007 and 2006, and
        $4.1 million and $3.9 million during the nine-month periods ended
        September 30, 2007 and 2006, 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, 2007, the effective interest rate on
        the notes was 10.61%. 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 and/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. On May 15, 2007, CE Casecnan paid
        $2.0 million of accrued interest expense. CE Casecnan intends to repay
        the notes and accrued interest within the next twelve months. The Company
        expects to generate sufficient cash from operations to pay the notes and
        other
        short-term obligations.
 
 **(5)**
              **Commitments
                  and Contingencies**
 
 Shareholder
        Litigation
 
 Pursuant
        to the share ownership adjustment mechanism in the CE Casecnan shareholder
        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 shareholder of the Company, LaPrairie Group Contractors (International)
        Ltd. (“LPG”), that MidAmerican’s indirect ownership interest in CE Casecnan
        had increased to 100% effective from commencement of commercial operations.
        On
        July 8, 2002, LPG filed a complaint in the Superior Court of the State of
        California, City and County of San Francisco, against CE Casecnan Ltd., and
        MidAmerican. LPG’s complaint, as amended, seeks compensatory and punitive
        damages arising out of CE Casecnan Ltd.’s and MidAmerican’s alleged
        improper calculation of the proforma financial projections and alleged improper
        settlement of the NIA arbitration. The Company is not a defendant in the
        action.
        On January 21, 2004, CE Casecnan Ltd., LPG and the Company entered
        into a status quo agreement pursuant to which the parties agreed to set aside
        certain distributions related to the shares subject to the LPG dispute and
        CE
        Casecnan agreed not to take any further actions with respect to such
        distributions without at least 15 days prior notice to LPG. Accordingly,
        15% of
        the Company’s dividend declarations from 2004 to 2006 was set aside in a
        separate bank account in the name of the Company and was shown as restricted
        cash and investments and dividends payable in the accompanying Balance Sheets.
        On January 3, 2006, the court 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. On February 21,
        2007, the appellate court issued a decision, and as a result of the decision,
        CE Casecnan Ltd. determined that LPG would retain ownership of 10% of the
        shares of the Company, with the remaining 5% ownership being transferred
        to
        CE Casecnan Ltd. subject to certain buy-up rights under the shareholder
        agreement. Exercise of the buy-up rights under the shareholder agreement
        is a
        transaction between shareholders of the Company and is not expected to have
        any
        impact on the Company’s financial position or results of operations. Pursuant to
        the appellate court decision, on May 7, 2007, the Company released
        $21.7 million of dividends and $3.8 million of accrued interest from
        the dividend set aside account representing the 10% share to LPG while the
        remaining 5% share is still held in escrow. The parties have submitted briefs
        on
        the final calculation of the internal rate of return and whether LPG is entitled
        to buy-up its interest to 15% and, if so, the buy-up price. The parties have
        agreed to stipulate that the final calculation of the internal rate of return
        is
        24.06%. At a hearing on October 10, 2007, the court determined that
        LPG was ready, willing and able to exercise its buy-up rights in 2002.
        Thereafter, the court scheduled hearings on October 23 and 24, 2007, regarding
        the issue of the buy-up price calculation and the issue of the right to a
        jury
        trial for the breach of fiduciary duty claim.
 
 10
  In
        February 2003, San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
        Lorenzo”), an original shareholder substantially all of whose shares in the
        Company were purchased by MidAmerican in 1998, threatened to initiate legal
        action against the Company in the Philippines in connection with certain
        aspects
        of its option to repurchase such shares. The Company believes that San Lorenzo
        has no valid basis for any claim and, if named as a defendant in any action
        that
        may be commenced by San Lorenzo, the Company will vigorously defend such
        action.
        On July 1, 2005, MidAmerican and CE Casecnan Ltd. commenced an action
        against San Lorenzo in the District Court of Douglas County, Nebraska, seeking
        a
        declaratory judgment as to MidAmerican’s and CE Casecnan Ltd.’s rights
        vis-à-vis San Lorenzo in respect of such shares. San Lorenzo filed a motion to
        dismiss on September 19, 2005. Subsequently, San Lorenzo purported to
        exercise its option to repurchase such shares. On January 30, 2006, San
        Lorenzo filed a counterclaim against MidAmerican and CE Casecnan Ltd.
        seeking declaratory relief that it has effectively exercised its option to
        purchase 15% of the shares of the Company, that it is the rightful owner
        of such
        shares and that it is due all dividends paid on such shares. On March 9,
        2006, the court granted San Lorenzo’s motion to dismiss, but has since permitted
        MidAmerican and CE Casecnan Ltd. to file an amended complaint incorporating
        the purported exercise of the option. The complaint has been amended and
        the
        action is proceeding. The impact, if any, of San Lorenzo’s purported exercise of
        its option and the Nebraska litigation on the Company cannot be determined
        at
        this time.
 
 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 with the Regional Trial Court of Nueva Vizcaya.
        A
        hearing has been scheduled for October 26, 2007.
 
 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 MidAmerican, 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.
   11
   **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 herein. This discussion should be read in
        conjunction with the Company’s historical Financial Statements and the related
        notes thereto included elsewhere in this report. The Company’s actual results in
        the future could differ significantly from the historical results.
 
 **Forward-Looking
        Statements**
 
 From
        time
        to time, CE Casecnan may make forward-looking statements within the meaning
        of the federal securities laws that involve judgments, assumptions and other
        uncertainties beyond the control of the Company. These forward-looking
        statements may include, among others, statements concerning revenue and cost
        trends, cost recovery, cost reduction strategies and anticipated outcomes,
        collections, pricing strategies, changes in the electric generation industry,
        financing needs and availability, statements of the Company’s expectations,
        beliefs, future plans and strategies, anticipated events or trends and similar
        comments concerning matters that are not historical facts. These types of
        forward-looking statements are based on current expectations and involve
        a
        number of known and unknown risks and uncertainties that could cause the
        actual
        results and performance of the Company to differ materially from any expected
        future results or performance, expressed or implied, by the forward-looking
        statements. In connection with the safe harbor provisions of the Private
        Securities Litigation Reform Act of 1995, the Company has identified important
        factors that could cause actual results to differ materially from those
        expectations, including weather effects on revenues and other operating
        uncertainties, uncertainties relating to economic and political conditions
        and
        uncertainties regarding the impact of regulations, changes in government
        policy
        and competition. The Company does not assume any responsibility to update
        forward-looking information contained herein.
 
 **Business**
  The
          Company has a contract with the Republic of the Philippines (“ROP”), through the
          Philippine National Irrigation Administration (“NIA”) (a ROP-owned and
          controlled corporation), for the development and construction of a hydroelectric
          power plant and related facilities under a build-own-operate-transfer agreement
          (“Project Agreement”), as amended by the Supplemental Agreement dated
          September 29, 2003 (the “Supplemental Agreement”), covering a 20-year
          cooperation period (“Cooperation Period”) 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. CE Casecnan is registered with the Philippine Board of
          Investments as a new operator of hydroelectric power plant with pioneer
          status
          under the Omnibus Investments Code of 1987. Under the terms of its registration,
          CE Casecnan is entitled to certain incentives which include an income tax
          holiday for six years from the start of commercial operations. The Casecnan
          Project Cooperation Period began upon commencement of commercial operations
          on
          December 11, 2001. The income tax holiday will expire on December 11,
          2007. The Company’s taxable income from December 11, 2007 to December 31,
          2008 will become subject to income tax at the Philippine statutory rate
          of 35%
          and 30% in 2009 and thereafter.  The Company will therefore begin to
          pay income taxes on its registered activity taxable income commencing December
          11, 2007.  The Company does not believe that there is a material
          difference between taxable income and pre-tax income.
 
 **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.
 
 12
  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. The per cubic meter water delivery fee rate is $0.029 per cubic meter
        as
        of January 1, 1994, and escalated at 7.5% per annum, pro-rated on a monthly
        basis, through the end of the fifth year of the Cooperation Period and then
        kept
        flat at that level for the last 15 years of the Cooperation Period. For each
        contract year starting from December 25, 2003 and ending on
        December 25, 2008, a water delivery fee credit (deferred revenue) is
        computed equal to 801.9 million cubic meters minus the greater of actual
        water deliveries or 700.0 million cubic meters - the minimum threshold. The
        water delivery fee credit at the end of the contract year is available to
        be
        earned in the succeeding contract year through December 25, 2008. The
        cumulative water delivery fee credit at December 25, 2008, if any, shall be
        amortized from December 25, 2008 through December 25, 2013.
        Accordingly, in recognizing revenue, the water delivery fees are recorded
        each
        month pro-rated to approximately 58.3 million cubic meters per month until
        the minimum threshold has been reached for the contract year. Subsequent
        water
        delivery fees within the current contract year are based on actual water
        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, 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 Philippine pesos per kWh, reduced
        to 0.98
        Philippine 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:
 
 **Third
                    Quarter**
              
              
              **First
                    Nine Months****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Electricity
                  produced (GWh)
              
              
              135.3
              
              
              
              190.7
              
              
              
              234.4
              
              
              
              369.4Water
                  delivered (million cubic meters)
              
              
              224.3
              
              
              
              358.4
              
              
              
              392.3
              
              
              
              676.9
 
 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):
 
 **Third
                    Quarter**
              
              
              **First
                    Nine Months****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**Water
                  delivery fees
              
              $
              14.7
              
              
              $
              14.4
              
              
              $
              44.4
              
              
              $
              42.6Guaranteed
                  energy fees
              
              
              9.1
              
              
              
              9.1
              
              
              
              27.3
              
              
              
              27.3Variable
                  energy fees
              
              
              5.5
              
              
              
              19.0
              
              
              
              7.8
              
              
              
              30.8Deferred
                  water delivery fees
              
              
              (1.8
              )
              
              
              (1.9
              )
              
              
              (5.6
              )
              
              
              (5.6
              )$
              27.5
              
              
              $
              40.6
              
              
              $
              73.9
              
              
              $
              95.1
 
 The
        increase in water delivery fees was mainly due to the contractual 7.5% annual
        escalation factor.  The water delivery fee rate stopped escalating on
        December 11, 2006. The decrease in variable energy fees was due to lower
        rainfall in 2007 compared to higher than normal water flows in 2006 which
        resulted in lower water deliveries and related energy production. The deferred
        water delivery fees represent the difference between the actual water delivery
        fees earned and water delivery fees invoiced pursuant to the Supplemental
        Agreement.
  13
  Interest
        expense for the third quarter and the first nine months of 2007 decreased
        to
        $4.1 million and $13.1 million, respectively, compared to
        $5.2 million and $16.4 million, respectively, for the same periods in
        2006, due to lower outstanding debt balances resulting from the scheduled
        repayment of debt.
 **Liquidity
        and Capital Resources**
 
 CE
        Casecnan constructed and operates the Casecnan Project, which was developed
        as
        an unsolicited proposal under the Philippine build-own-operate-transfer law,
        pursuant to the terms of the Project Agreement. CE Casecnan is registered
        with the Philippine Board of Investments as a new operator of hydroelectric
        power plant with pioneer status under the Omnibus Investments Code of 1987
        (Executive Order No. 226). Under the terms of its registration,
        CE Casecnan is entitled to certain incentives which include an income tax
        holiday for six years from the start of commercial operations, tax and duty-free
        importation of capital equipment, tax credits on domestic capital equipment,
        and
        exemption from customs duties and national internal revenue taxes for the
        importation and unrestricted use of the consigned equipment for the development,
        construction, start-up, testing and operation of the power plant.
        CE Casecnan developed, financed and constructed the Casecnan Project over
        the construction period, 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,
        partners or affiliates of the Company, including MidAmerican Energy Holdings
        Company’s (“MidAmerican”), 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.
 
 The
        Company’s cash and cash equivalents were $41.5 million and
        $31.9 million at September 30, 2007, and December 31, 2006,
        respectively.
 
 Cash
        flows from operations were $64.2 million and $98.5 million for the
        nine-month periods ended September 30, 2007 and 2006, respectively. The
        decrease in cash from operations in 2007 was primarily due to lower variable
        energy revenue resulting from lower water flow and related energy generation
        in
        2007 and higher collections of trade receivables in the first nine months
        of
        2006.
 
 Cash
        flows from investing activities were $24.5 million and ($40.1) million
        for the nine-month periods ended September 30, 2007 and 2006, respectively.
        The Company decreased its restricted cash and investments for debt service
        obligations and dividends payable in 2007 in connection with the payment
        of
        $25.5 million of dividends and accrued interest held in escrow. The Company
        increased its restricted cash and investments for debt service obligations
        and
        dividends payable in 2006 by $38.2 million, of which $25.0 million relates
        to the timing of debt service payments and $13.2 million relates to additional
        deposits to the debt service account.
  14
 Cash
        flows from financing activities were ($79.1) million and
        ($75.2) million for the nine-month periods ended September 30, 2007
        and 2006, respectively. During the nine-month period ended September 30,
        2007, the Company repaid $38.6 million of advances received from its
        affiliates and released $21.7 million of dividends held in the escrow
        account. The Company declared dividends totaling $66.0 million during the
        nine-month period ended September 30, 2006 (of which $9.9 million was
        set aside in a separate bank account in the name of the Company and shown
        as
        restricted cash and investments and dividends payable in the accompanying
        Balance Sheets). Additionally, the Company repaid $18.9 million and
        $18.0 million on the balance of its outstanding project financing debt
        during the nine-month periods ended September 30, 2007 and 2006,
        respectively.
  On
          May 15, 2007, CE Casecnan Ltd. demanded payment in full of the
          outstanding principal amount of the notes of $51.3 million and related
          accrued interest (the “Notes”). In the next twelve months, the Company expects
          to generate sufficient cash from operations, after considering income taxes,
          to
          pay the Notes and other short term obligations. For a discussion of the
          contractual provisions of the Notes relating to the payment demand from
          CE Casecnan Ltd., refer to Note 4 of Notes to Financial Statements
          included in Item 1.
  Shareholder
        Litigation
 
 Pursuant
        to the share ownership adjustment mechanism in the CE Casecnan shareholder
        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 shareholder of the Company,
        LaPrairie Group Contractors (International) Ltd. (“LPG”) that MidAmerican’s
        indirect ownership interest in CE Casecnan had increased to 100% effective
        from commencement of commercial operations. On July 8, 2002, LPG filed a
        complaint in the Superior Court of the State of California, City and County
        of
        San Francisco, against CE Casecnan Ltd. and MidAmerican. LPG’s complaint,
        as amended, seeks compensatory and punitive damages arising out of
        CE Casecnan Ltd.’s and MidAmerican’s alleged improper calculation of the
        proforma financial projections and alleged improper settlement of the NIA
        arbitration. The Company is not a defendant in the action. On January 21,
        2004, CE Casecnan Ltd., LPG and the Company entered into a status quo
        agreement pursuant to which the parties agreed to set aside certain
        distributions related to the shares subject to the LPG dispute and
        CE Casecnan agreed not to take any further actions with respect to such
        distributions without at least 15 days prior notice to LPG. Accordingly,
        15% of
        the Company’s dividend declarations from 2004 to 2006 was set aside in a
        separate bank account in the name of the Company and was shown as restricted
        cash and investments and dividends payable in the accompanying Balance Sheets.
        On January 3, 2006, the court 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. On
        February 21, 2007, the appellate court issued a decision, and as a result
        of the decision, CE Casecnan Ltd. determined that LPG would retain
        ownership of 10% of the shares of the Company, with the remaining 5% ownership
        being transferred to CE Casecnan Ltd. subject to certain buy-up rights
        under the shareholder agreement. Exercise of the buy-up rights under the
        shareholder agreement is a transaction between shareholders of the Company
        and
        is not expected to have any impact on the Company’s financial position or
        results of operations. Pursuant to the appellate court decision, on May 7,
        2007, the Company released $21.7 million of dividends and $3.8 million
        of accrued interest from the dividend set aside account representing the
        10%
        share to LPG while the remaining 5% share is still held in escrow. The parties
        have submitted briefs on the final calculation of the internal rate of return
        and whether LPG is entitled to buy-up its interest to 15% and, if so, the
        buy-up
        price. The parties have agreed to stipulate that the final calculation of
        the
        internal rate of return is 24.06%. At a hearing on October 10, 2007,
        the court determined that LPG was ready, willing and able to exercise its
        buy-up
        rights in 2002. Thereafter, the court scheduled hearings on October 23 and
        24,
        2007, regarding the issue of the buy-up price calculation and the issue of
        the
        right to a jury trial for the breach of fiduciary duty claim.
 
 In
        February 2003, San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
        Lorenzo”), an original shareholder substantially all of whose shares in the
        Company were purchased by MidAmerican in 1998, threatened to initiate legal
        action against the Company in the Philippines in connection with certain
        aspects
        of its option to repurchase such shares. The Company believes that San Lorenzo
        has no valid basis for any claim and, if named as a defendant in any action
        that
        may be commenced by San Lorenzo, the Company will vigorously defend such
        action.
        On July 1, 2005, MidAmerican and CE Casecnan Ltd. commenced an action
        against San Lorenzo in the District Court of Douglas County, Nebraska, seeking
        a
        declaratory judgment as to MidAmerican’s and CE Casecnan Ltd.’s rights
        vis-à-vis San Lorenzo in respect of such shares. San Lorenzo filed a motion to
        dismiss on September 19, 2005. Subsequently, San Lorenzo purported to
        exercise its option to repurchase such shares. On January 30, 2006, San
        Lorenzo filed a counterclaim against MidAmerican and CE Casecnan Ltd.
        seeking declaratory relief that it has effectively exercised its option to
        purchase 15% of the shares of the Company, that it is the rightful owner
        of such
        shares and that it is due all dividends paid on such shares. On March 9,
        2006, the court granted San Lorenzo’s motion to dismiss, but has since permitted
        MidAmerican and CE Casecnan Ltd. to file an amended complaint incorporating
        the purported exercise of the option. The complaint has been amended and
        the
        action is proceeding. The impact, if any, of San Lorenzo’s purported exercise of
        its option and the Nebraska litigation on the Company cannot be determined
        at
        this time.
 
 15
  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 with the Regional Trial Court of Nueva Vizcaya.
        A
        hearing has been scheduled for October 26, 2007.
 
 **Contractual
        Obligations and Commercial Commitments**
 
 During
        the nine months ended September 30, 2007, there were no material
        changes in the contractual obligations andcommercialcommitments
        from the
        information provided in Item 7 of the Company’s Annual Report on Form 10-K for
        the year ended December 31, 2006.
 
 **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.
 
 **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 concentration of
        risk.
 
 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,
        2006. The Company’s critical accounting policies have not changed materially
        since December 31, 2006.
   16
  
 **Item 3.**
              **Quantitative
                  and Qualitative Disclosures About Market
                  Risk.**
 
 For
        quantitative and qualitative disclosures about market risk affecting
        CE Casecnan, see Item 7A of CE Casecnan’s Annual Report on Form 10-K
        for the year ended December 31, 2006. CE Casecnan’s exposure to market
        risk has not changed materially since December 31, 2006.
 
 **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
        September 30, 2007. 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.
   17
 
 **PART
        II – OTHER INFORMATION**
 
 **Item 1.**
              **Legal
                  Proceedings.**
 
 For
        a
        description of certain legal proceedings affecting the Company, refer to
        Item 3 of the Company’s Annual Report on Form 10-K for the year ended
        December 31, 2006. Material developments to these proceedings during the
        nine-month period ended September 30, 2007, are included in Note 5 of
        Notes to Financial Statements included in Item 1.
 
 **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, 2006.
 
 **Item 2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds.**
 
 Not
        applicable.
 
 **Item 3.**
              **Defaults
                  Upon Senior
                  Securities.**
 
 Not
        applicable.
 
 **Item 4.**
              **Submission
                  of Matters to a Vote of Security
                  Holders.**
 
 Not
        applicable.
 
 **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.
   18
  
 **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:
                  October 22, 2007
              /s/
                  Patrick J. GoodmanPatrick
                  J. GoodmanSenior
                  Vice President and Chief Financial
                  Officer
   19
   
 **EXHIBIT
        INDEX**
 
 Exhibit
                  No.31.1
              
              Chief
                  Executive Officer’s Certificate Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.31.2
              
              Chief
                  Financial Officer’s Certificate Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.32.1
              
              Chief
                  Executive Officer’s Certificate Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.32.2
              
              Chief
                  Financial Officer’s Certificate Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.
    20