**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 March 31, 2006





**OR**





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





For
      the
      transition period from ________ to _______





Commission
      File No. 001-12995





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


(Exact
      name of registrant as specified in its charter)




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




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





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





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See the definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act. (Check one):




Large
                accelerated filer  ̈
            Accelerated
                filer  ̈
            Non-accelerated
                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 May 4, 2006, the number
      of
      outstanding shares of $0.038 par value common stock was 767,162.










**TABLE
      OF CONTENTS**





**PART
      I - FINANCIAL INFORMATION**




Item 1.
            Financial
              Statements
            3Item 2.
            Management’s Discussion
              and Analysis of Financial Condition and Results of
              Operations
            10Item
              3.
            Quantitative
              and Qualitative Disclosures About
              Market Risk
            14Item
              4.
            Controls and
              Procedures
            14**PART
                II -
                OTHER INFORMATION**Item 1.
            Legal
              Proceedings
            15Item 1A.
            Risk
              Factors
            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**








**Item1.**
            **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 March 31, 2006, and the related statements of
      operations and cash flows for each of the three-month periods ended
      March 31, 2006 and 2005. These interim financial statements are the
      responsibility of the Company's management.





We
      conducted our review in accordance with standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical review procedures and
      making inquiries of persons responsible for financial and accounting matters.
      It
      is substantially less in scope than an audit conducted in accordance with
      standards of the Public Company Accounting Oversight Board, the objective of
      which is the expression of an opinion regarding the financial statements taken
      as a whole. Accordingly, we do not express such an opinion.





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





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





/s/
      Isla
      Lipana & Co.





ISLA
      LIPANA & CO.


A
      PricewaterhouseCoopers Member Firm


Makati
      City, Philippines


May
      4,
      2006







3




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


**BALANCE
      SHEETS**


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





**As
                of****March
                31,**
            
            **December
                31,****2006**
            
            **2005****(Unaudited)****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            77,926
            
            $
            42,317Restricted
                cash and investments
            
            
            47,493
            
            
            44,956Trade
                receivable, net
            
            
            21,797
            
            
            26,638Prepaid
                insurance and other current assets
            
            
            5,540
            
            
            5,215Total
                current assets
            
            
            152,756
            
            
            119,126Bond
                issue costs, net
            
            
            1,573
            
            
            1,745Property,
                plant and equipment, net
            
            
            338,961
            
            
            344,051Deferred
                income tax
            
            
            5,095
            
            
            5,095**Total
                assets**
            
            $
            498,385
            
            $
            470,017**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and other accrued liabilities
            
            $
            8,749
            
            $
            7,156Dividends
                payable
            
            
            17,550
            
            
            17,550Accrued
                interest
            
            
            16,089
            
            
            10,592Payable
                to affiliates
            
            
            33,543
            
            
            35,358Current
                portion of long-term debt
            
            
            36,015
            
            
            36,015Total
                current liabilities
            
            
            111,946
            
            
            106,671Notes
                payable
            
            
            51,263
            
            
            51,263Deferred
                revenue
            
            
            15,637
            
            
            13,756Long-term
                debt, net of current portion
            
            
            106,330
            
            
            106,330Total
                liabilities
            
            
            285,176
            
            
            278,020Commitments
                and contingencies (Note 3)Stockholders’
                equity:Capital
                stock - 2,148,000 shares authorized, one Philippine peso ($0.038)
                parvalue;
              767,162
              shares issued and outstanding
            
            
            29
            
            
            29Additional
                paid-in capital
            
            
            123,807
            
            
            123,807Retained
                earnings
            
            
            89,373
            
            
            68,161Total
                stockholders’ equity
            
            
            213,209
            
            
            191,997**Total
                liabilities and stockholders’ equity**
            
            $
            498,385
            
            $
            470,017


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****Ended
                March****31,****2006**
            
            **2005****(Unaudited)****Revenue:**Lease
                rentals and service contracts
            
            $
            32,727
            
            $
            21,149**Operating
                expenses:**Depreciation
            
            
            5,393
            
            
            5,434Plant
                operations and other operating expenses
            
            
            1,995
            
            
            2,018Total
                operating expenses
            
            
            7,388
            
            
            7,452**Operating
                income**
            
            
            25,339
            
            
            13,697**Other
                income (expense):**Interest
                expense
            
            
            (5,668
            )
            
            (6,628
            )Interest
                income
            
            
            869
            
            
            570Other,
                net
            
            
            1,208
            
            
            150Total
                other expense, net
            
            
            (3,591
            )
            
            (5,908
            )**Income
                before provision for income tax**
            
            
            21,748
            
            
            7,789**Provision
                for income tax**
            
            
            536
            
            
            -**Net
                income**
            
            $
            21,212
            
            $
            7,789





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)





**Three
                Months****Ended
                March 31,****2006**
            
            **2005****(Unaudited)****Cash
                flows from operating activities:**Net
                income
            
            $
            21,212
            
            $
            7,789Adjustments
                to reconcile net income to cash flows from operating
                activities:Depreciation
            
            
            5,393
            
            
            5,434Amortization
                of bond issue costs
            
            
            172
            
            
            233Changes
                in other items:Trade
                receivable, net
            
            
            4,841
            
            
            6,167Prepaid
                insurance and other current assets
            
            
            (325
            )
            
            1,156Accounts
                payable and other accrued liabilities
            
            
            1,593
            
            
            (940
            )Accrued
                interest
            
            
            5,497
            
            
            6,395Deferred
                revenue
            
            
            1,881
            
            
            1,647Net
                cash flows from operating activities
            
            
            40,264
            
            
            27,881**Cash
                flows from investing activities:**Additions
                to property, plant and equipment
            
            
            (303
            )
            
            (52
            )Increase
              in
              restricted cash and investments for debt serviceobligations
                and dividends payable
            
            
            (2,537
            )
            
            (358
            )Net
                cash flows used in investing activities
            
            
            (2,840
            )
            
            (410
            )**Cash
                flows from financing activities:**Decrease
                in payable to affiliates
            
            
            (1,815
            )
            
            (35
            )Net
                cash flows used in financing activities
            
            
            (1,815
            )
            
            (35
            )**Net
                change in cash and cash equivalents**
            
            
            35,609
            
            
            27,436**Cash
                and cash equivalents at beginning of period**
            
            
            42,317
            
            
            16,732**Cash
                and cash equivalents at end of period**
            
            $
            77,926
            
            $
            44,168**Supplemental
                disclosure:**Interest
                paid
            
            $
            236
            
            $
            324





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 March 31, 2006, and the results
      of
      operations and cash flows for each of the three-month periods ended
      March 31, 2006 and 2005. The results of operations for the three-month
      period ended March 31, 2006 are not necessarily indicative of the results to
      be
      expected for the full year.





The
      Company has a contract with the Republic of the Philippines (“ROP”), through the
      Philippine National Irrigation Administration (“NIA”) (a ROP-owned and
      controlled corporation), for the development and construction of a hydroelectric
      power plant and related facilities under a build-own-operate-transfer agreement
      (“Project Agreement”), as amended by the Supplemental Agreement dated September
      29, 2003 (the “Supplemental Agreement”), covering a 20-year cooperation period
      (“Cooperation Period”). At the end of the Cooperation Period, the combined
      irrigation and 150 MW hydroelectric power generation project (the “Casecnan
      Project”) will be transferred to the ROP at no cost on an “as is” basis. The ROP
      also signed a Performance Undertaking, which, among others, affirms and
      guarantees the obligations of NIA under the contract. Construction of the
      Casecnan Project commenced in 1995. CE Casecnan is registered with the
      Philippine Board of Investments as a new operator of hydroelectric power plant
      with pioneer status under the Omnibus Investments Code of 1987. Under the terms
      of its registration, CE Casecnan is entitled to certain incentives which include
      an income tax holiday for six years from the start of commercial operations.
      The
      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
      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, 2005. In particular, the Company’s
      significant accounting policies are presented in Note 2 to the financial
      statements included therein.




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





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





In
      the
      normal course of business, the Company transacts with its affiliates in the
      form
      of advances for operating expenses. The payable to affiliates was
      $33.5 million and $35.4 million at March 31, 2006 and December 31,
      2005, respectively. Costs incurred by the Company in transactions with related
      parties amounted to $0.3 million for each of the three-month periods ended
      March 31, 2006 and 2005.





As
      of
      March 31, 2006 and December 31, 2005, the Company had outstanding $51.3 million
      of unsecured subordinated notes payable to CE Casecnan Ltd., a stockholder.
      On
      November 1, 2005, the Company extended the due date of the notes from November
      15, 2005 to November 1, 2006 and amended the interest rate to 10% per annum.
      On
      December 6, 2005, the notes’ original maturity date was changed to November 1,
      2015 and the interest rate from LIBOR plus 2% to LIBOR plus 5.25%; provided,
      however, that CE Casecnan Ltd. can demand payment of the outstanding principal
      amount at any time prior to the maturity date. The interest is payable every
      May 15 and November 15. Interest expense on the notes was $1.2 million
      and $0.6 million during the three-month periods ended March 31, 2006 and 2005,
      respectively. Any overdue payment of principal or interest payable on the notes
      shall increase the annual interest by two (2%) percent. At March 31, 2006,
      the effective interest rate on the notes was 9.8%. The notes may be prepaid
      at
      any time without premium or penalty but with accrued interest, if any. The
      unsecured subordinated notes and any and all payments, whether of principal,
      interest or otherwise are subject in all respects to the terms of the
      Subordination Agreement dated November 15, 2001 between CE Casecnan Ltd.
      and the Company in favor of the Trustee, the Collateral Agent, the co-collateral
      agent, the Depositary, any party that becomes a Permitted Counterparty under
      an
      Interest Rate/Currency Protection Agreement, and any party that becomes a
      working capital facility agent and any other Person that becomes a secured
      party
      under the Intercreditor Agreement. The Company intends to repay the notes or
      convert them to some form of capital prior to maturity.







7




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





Stockholder
      Litigation





Pursuant
      to the share ownership adjustment mechanism in the CE Casecnan stockholder
      agreement, which is based upon proforma financial projections of the Casecnan
      Project prepared following commencement of commercial operations, in February
      2002, MidAmerican Energy Holdings Company’s (“MidAmerican”) indirect wholly
      owned subsidiary, CE Casecnan Ltd., advised the minority stockholder
      of the Company, LaPrairie Group Contractors (International) Ltd. (“LPG”), that
      MidAmerican’s indirect ownership interest in CE Casecnan had increased to
      100% effective from commencement of commercial operations. On
      July 8, 2002, LPG filed a complaint in the Superior Court of the State
      of California, City and County of San Francisco against CE Casecnan Ltd.
      and MidAmerican. LPG’s complaint, as amended, seeks compensatory and punitive
      damages arising out of CE Casecnan Ltd.’s and MidAmerican’s alleged improper
      calculation of the proforma financial projections and alleged improper
      settlement of the NIA arbitration. The Company is not a defendant in the action.
      On January 21, 2004, CE Casecnan Ltd., LPG and the Company entered into a
      status quo agreement pursuant to which the parties agreed to set aside certain
      distributions related to the shares subject to the LPG dispute and CE Casecnan
      agreed not to take any further actions with respect to such distributions
      without at least 15 days’ prior notice to LPG. Accordingly, 15% of the dividend
      declarations in 2004 and 2005, totaling $17.6 million, was set aside in a
      separate bank account in the name of the Company and is shown as restricted
      cash
      and investments and dividends payable in the accompanying balance sheets. On
      August 4, 2005, the court issued a decision, ruling in favor of LPG on five
      of the eight disputed issues in the first phase of the litigation. On September
      12, 2005, LPG filed a motion seeking the release of the funds which have been
      set aside pursuant to the status quo agreement referred to above. MidAmerican
      and CE Casecnan Ltd. filed an opposition to the motion on October 3, 2005,
      and
      at the hearing on October 26, 2005, the court denied LPG’s motion. On
      January 3, 2006, the court entered a judgment in favor of LPG against CE
      Casecnan Ltd. According to the judgment LPG would retain its ownership of 15%
      of
      the shares of the Company and distributions of the amounts deposited into escrow
      plus interest at 9% per annum. On February 28, 2006, CE Casecnan Ltd. filed
      an
      appeal of this judgment and the August 4, 2005 decision. Initial briefs are
      due
      May 24, 2006. The appeal is expected to be resolved sometime in 2007.




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





Real
      Property Tax





On
      July 25, 2005, CE Casecnan paid real property taxes, plus interest and
      penalties, due to the Province of Nueva Vizcaya of $4.5 million and
      submitted an invoice for reimbursement of such amount to NIA in accordance
      with
      the Supplemental Agreement. A receivable of $4.5 million was recorded for the
      expected full reimbursement to CE Casecnan in respect of the Province of Nueva
      Vizcaya tax assessment. On January 24, 2006, NIA, the Philippine Department
      of
      Finance (the “DOF”) and CE Casecnan agreed that NIA will reimburse CE Casecnan
      the full amount of the Province of Nueva Vizcaya tax assessment in five
      approximately equal installments during 2006. CE Casecnan has received the
      first
      two payments, totaling $2.0 million, on March 3, 2006 and March 28, 2006,
      respectively. The remaining payments, totaling $2.5 million, are due on June
      25,
      September 25, and December 25, 2006, respectively.




8




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




On
      January 12, 2006, CE Casecnan received an assessment from the treasurer of
      the
      Province of Nueva Vizcaya in the total amount of $1.2 million for the real
      property taxes for 2006. On March 23, 2006, CE Casecnan received the assessment
      for 2006 real property taxes amounting to $0.9 million from the treasurer of
      the
      Province of Nueva Ecija. CE Casecnan subsequently received written authorization
      from NIA and the DOF to pay such assessments and thereafter paid both
      assessments under protest on March 31, 2006. The 2006
      real property taxes were billed to NIA pursuant to the Supplemental Agreement
      and are expected to be reimbursed by NIA to the Company in the ordinary course
      of business. On April 27, 2006, CE Casecnan filed protests to the treasurers
      of
      the Province of Nueva Vizcaya and the Province of Nueva Ecija.




Franchise
      Tax





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





On
      March
      30, 2006, CE Casecnan received from the Province of Nueva Vizcaya a franchise
      tax assessment for the year 2005 totaling $0.3 million. CE Casecnan filed a
      protest with the treasurer of the Province of Nueva Vizcaya on April 5, 2006.





Concentration
      of Risk





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





**4.**
            **Reclassification**





The
      increase in restricted cash and investments for debt service obligations and
      dividends payable has been reclassified from financing activities to investing
      activities, while interest and other receivables have been aggregated with
      prepaid insurance and other assets in the 2005 statement of cash flows to
      conform to the current period presentation.





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 related thereto included elsewhere in this report.
      The
      Company’s actual results in the future could differ significantly from the
      historical results.





**Forward-Looking
      Statements**





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





**Business**





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





**Seasonality**





The
      Casecnan Project is 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 contractual
      terms
      for water delivery fees and variable energy fees (described below) can produce
      significant variability in revenue between reporting periods.





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




10




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





**Results
      of Operations for the Three-Month Periods Ended March 31, 2006 and
      2005**





The
      following table provides certain operating data of the Casecnan Project for
      the
      three-month periods ended March 31, 2006 and 2005:





**2006**
            
            **2005**Electricity
                produced (GWh)
            120.6
            
            42.4Water
                delivered (million cubic meters)
            216.4
            
            73.0





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





**2006**
            
            
            **2005**Water
                delivery fees
            $
            13.9
            
            $
            12.9Guaranteed
                energy fees
            
            9.1
            
            
            9.1Variable
                energy fees
            
            11.6
            
            
            0.7Deferred
                water delivery fees
            
            (1.9
            )
            
            (1.6
            )Total
                lease rentals and service contracts revenue
            $
            32.7
            
            $
            21.1





Revenue
      increased by $11.6 million to $32.7 million for the three-month period
      ended March 31, 2006 from $21.1 million for the three-month period
      ended March 31, 2005. The increase in water delivery fees was mainly due to
      the contractual 7.5% annual escalation factor. The increase in the variable
      energy fees was due primarily to the higher than normal rainfall which resulted
      in higher electricity production in the first quarter of 2006 than in 2005.
      The
      deferred water delivery fees represent the difference between the actual water
      delivery fees earned and water delivery fees invoiced pursuant to the
      Supplemental Agreement.





Interest
      expense decreased to $5.7 million for the three-month period ended
      March 31, 2006 from $6.6 million for the three-month period ended
      March 31, 2005, due to lower outstanding debt balances resulting from the
      scheduled repayment of debt.





Other
      income increased to $1.2 million for the three-month period ended March 31,
      2006 from $0.2 million for the three-month period ended March 31, 2005. The
      higher other income was due to value-added tax (“VAT”) recoveries exceeding
      obligations as a result of a change in the VAT law which became effective on
      November 1, 2005 and gains from translation of foreign currency denominated
      monetary assets and liabilities.





Income
      tax expense increased to $0.5 million for the three-month period ended
      March 31, 2006 from zero for the three-month period ended March 31,
      2005. The income tax expense relates to interest income earned outside the
      Philippines which is not covered by the income tax holiday.





**Liquidity
      and Capital Resources**





The
      Company's cash and cash equivalents were $77.9 million and
      $42.3 million at March 31, 2006 and December 31, 2005, respectively.





The
      Company generated cash flows from operations of $40.3 million and
      $27.9 million for the three-month periods ended March 31, 2006 and
      2005, respectively. The increase in cash from operations in 2006 was primarily
      due to higher net income as a result of higher water flows and corresponding
      variable energy revenues.




11




The
      Company used $2.8 million and $0.4 million for investing activities for the
      three-month periods ended March 31, 2006 and 2005, respectively. During the
      three-month period ended March 31, 2006, the Company increased its restricted
      cash related to obligations for debt service and unpaid dividends by
      $2.5 million.





The
      Company used $1.8 million and $0.1 million for financing activities
      for the three-month periods ended March 31, 2006 and 2005,
      respectively. Advances from MidAmerican to the Company were repaid in March
      2006. On April 26, 2006, the Company paid dividends of $45.0 million, $6.8
      million of which was deposited into an escrow account pending final resolution
      of the stockholder litigation described below.





Stockholder
      Litigation





Pursuant
      to the share ownership adjustment mechanism in the CE Casecnan stockholder
      agreement, which is based upon proforma financial projections of the Casecnan
      Project prepared following commencement of commercial operations, in February
      2002, MidAmerican Energy Holdings Company’s (“MidAmerican”) indirect wholly
      owned subsidiary, CE Casecnan Ltd., advised the minority stockholder
      of the Company, LaPrairie Group Contractors (International) Ltd. (“LPG”), that
      MidAmerican’s indirect ownership interest in CE Casecnan had increased to
      100% effective from commencement of commercial operations. On
      July 8, 2002, LPG filed a complaint in the Superior Court of the State
      of California, City and County of San Francisco against CE Casecnan Ltd.
      and MidAmerican. LPG’s complaint, as amended, seeks compensatory and punitive
      damages arising out of CE Casecnan Ltd.’s and MidAmerican’s alleged improper
      calculation of the proforma financial projections and alleged improper
      settlement of the NIA arbitration. The Company is not a defendant in the action.
      On January 21, 2004, CE Casecnan Ltd., LPG and the Company entered into a
      status quo agreement pursuant to which the parties agreed to set aside certain
      distributions related to the shares subject to the LPG dispute and CE Casecnan
      agreed not to take any further actions with respect to such distributions
      without at least 15 days’ prior notice to LPG. Accordingly, 15% of the dividend
      declarations in 2004 and 2005, totaling $17.6 million, was set aside in a
      separate bank account in the name of the Company and is shown as restricted
      cash
      and investments and dividends payable in the accompanying balance sheets. On
      August 4, 2005, the court issued a decision, ruling in favor of LPG on five
      of the eight disputed issues in the first phase of the litigation. On September
      12, 2005, LPG filed a motion seeking the release of the funds which have been
      set aside pursuant to the status quo agreement referred to above. MidAmerican
      and CE Casecnan Ltd. filed an opposition to the motion on October 3, 2005,
      and
      at the hearing on October 26, 2005, the court denied LPG’s motion. On
      January 3, 2006, the court entered a judgment in favor of LPG against CE
      Casecnan Ltd. According to the judgment LPG would retain its ownership of 15%
      of
      the shares of the Company and distributions of the amounts deposited into escrow
      plus interest at 9% per annum. On February 28, 2006, CE Casecnan Ltd. filed
      an
      appeal of this judgment and the August 4, 2005 decision. Initial briefs are
      due
      May 24, 2006. The appeal is expected to be resolved sometime in 2007.




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




Real
      Property Tax





On
      July 25, 2005, CE Casecnan paid real property taxes, plus interest and
      penalties, due to the Province of Nueva Vizcaya of $4.5 million and
      submitted an invoice for reimbursement of such amount to NIA in accordance
      with
      the Supplemental Agreement. A receivable of $4.5 million was recorded for the
      expected full reimbursement to CE Casecnan in respect of the Province of Nueva
      Vizcaya tax assessment. On January 24, 2006, NIA, the Philippine Department
      of
      Finance (the “DOF”) and CE Casecnan agreed that NIA will reimburse CE Casecnan
      the full amount of the Province of Nueva Vizcaya tax assessment in five
      approximately equal installments during 2006. CE Casecnan has received the
      first
      two payments, totaling $2.0 million, on March 3, 2006 and March 28, 2006,
      respectively. The remaining payments, totaling $2.5 million, are due on June
      25,
      September 25, and December 25, 2006, respectively.




12




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




On
      January 12, 2006, CE Casecnan received an assessment from the treasurer of
      the
      Province of Nueva Vizcaya in the total amount of $1.2 million for the real
      property taxes for 2006. On March 23, 2006, CE Casecnan received the assessment
      for 2006 real property taxes amounting to $0.9 million from the treasurer of
      the
      Province of Nueva Ecija. CE
      Casecnan subsequently received written authorization from NIA and the DOF to
      pay
      such assessments and thereafter paid
      both assessments under protest on March 31, 2006. The 2006 real property taxes
      were billed to NIA pursuant to the Supplemental Agreement and are expected
      to be
      reimbursed by NIA to the Company in the ordinary course of business. On April
      27, 2006, CE Casecnan filed protests to the treasurers of the Province of Nueva
      Vizcaya and the Province of Nueva Ecija.




Franchise
      Tax




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





On
      March
      30, 2006, CE Casecnan received from the Province of Nueva Vizcaya a franchise
      tax assessment for the year 2005 totaling $0.3 million. CE Casecnan filed a
      protest with the treasurer of the Province of Nueva Vizcaya on April 5, 2006.





Concentration
      of Risk





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





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





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





**Critical
      Accounting Policies**





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




13




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





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





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





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





An
      evaluation was performed under the supervision and with the participation of
      the
      Company’s management, including the chief executive officer and chief financial
      officer, regarding the effectiveness of the design and operation of the
      Company’s disclosure controls and procedures (as defined in Rule 13a-15(e)
      promulgated under the Securities and Exchange Act of 1934, as amended) as of
      March 31, 2006. Based on that evaluation, the Company’s management,
      including the chief executive officer and chief financial officer, concluded
      that the Company’s disclosure controls and procedures were effective. There have
      been no changes during the quarter covered by this report in the Company’s
      internal control over financial reporting that has materially affected, or
      is
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




14




**PART
      II - OTHER INFORMATION**





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





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





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





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





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





Not
      applicable.





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





Not
      applicable.





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





Not
      applicable.





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





Not
      applicable.





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





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





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:
                May 4, 2006
            
            /s/
                Patrick J. GoodmanPatrick
                J. GoodmanSenior
                Vice President and Chief Financial
                Officer





16


**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.








17