**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, 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
མ
No T





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





Large
                accelerated filer ̈
            Accelerated
                filer ̈
            Non-accelerated
                filerT





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


Yes  ̈ No T





All
      of
      the shares of common equity of CE Casecnan Water and Energy Company, Inc. are
      privately held by a limited group of investors. As of October 26, 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
            12Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            18Item
                4.
            Controls
                and Procedures
            18





**PART
      II - OTHER INFORMATION**





Item
                1.
            Legal
                Proceedings
            19Item
                1A.
            Risk
                Factors
            19Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            19Item
                3.
            Defaults
                Upon Senior Securities
            19Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            19Item
                5.
            Other
                Information
            19Item
                6.
            Exhibits
            19Signatures
            
            20Exhibit
                Index
            
            21








2





**PART
      I - FINANCIAL INFORMATION**








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











**Report
      of Independent Registered Public Accounting Firm**








To
      the
      Board of Directors and Stockholders of


CE
      Casecnan Water and Energy Company, Inc.





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





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





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





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





/s/
      Isla
      Lipana & Co.





ISLA
      LIPANA & CO.


A
      PricewaterhouseCoopers Member Firm


Makati
      City, Philippines


October
      26, 2006


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,****2006**
            
            **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            25,547
            
            $
            42,317Restricted
                cash and investments
            
            
            83,196
            
            
            44,956Trade
                receivable, net
            
            
            19,817
            
            
            26,638Prepaid
                insurance and other current assets
            
            
            4,845
            
            
            5,215Total
                current assets
            
            
            133,405
            
            
            119,126Bond
                issue costs, net
            
            
            1,229
            
            
            1,745Property,
                plant and equipment, net
            
            
            329,621
            
            
            344,051Deferred
                income tax
            
            
            5,095
            
            
            5,095**Total
                assets**
            
            $
            469,350
            
            $
            470,017**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Accounts
                payable and other accrued liabilities
            
            $
            9,274
            
            $
            7,156Dividends
                payable
            
            
            27,450
            
            
            17,550Accrued
                interest
            
            
            17,942
            
            
            10,592Payable
                to affiliates
            
            
            34,268
            
            
            35,358Current
                portion of long-term debt
            
            
            36,873
            
            
            36,015Total
                current liabilities
            
            
            125,807
            
            
            106,671Notes
                payable
            
            
            51,263
            
            
            51,263Deferred
                revenue
            
            
            19,397
            
            
            13,756Long-term
                debt, net of current portion
            
            
            87,465
            
            
            106,330Total
                liabilities
            
            
            283,932
            
            
            278,020Commitments
                and contingencies (Note 5)Stockholders’
                equity:Common
                stock - 2,148,000 shares authorized, one Philippine peso ($0.038)
                par
                value; 767,162 shares issued and outstanding
            
            
            29
            
            
            29Additional
                paid-in capital
            
            
            123,807
            
            
            123,807Retained
                earnings
            
            
            61,582
            
            
            68,161Total
                stockholders’ equity
            
            
            185,418
            
            
            191,997**Total
                liabilities and stockholders’ equity**
            
            $
            469,350
            
            $
            470,017





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


4





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


**STATEMENTS
      OF OPERATIONS (Unaudited)**


(Amounts
      in thousands of U.S. Dollars)





**Three
                Months**
            
            **Nine
                Months****Ended
                September****30,**
            
            **Ended
                September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005****Revenue:**Lease
                rentals and service contracts
            
            $
            40,585
            
            $
            27,721
            
            $
            95,118
            
            $
            69,503**Operating
                expenses:**Depreciation
            
            
            5,515
            
            
            5,317
            
            
            16,260
            
            
            16,198Plant
                operations and other operating expenses
            
            
            2,547
            
            
            2,552
            
            
            6,627
            
            
            6,689Total
                operating expenses
            
            
            8,062
            
            
            7,869
            
            
            22,887
            
            
            22,887**Operating
                income**
            
            
            32,523
            
            
            19,852
            
            
            72,231
            
            
            46,616**Other
                income (expense):**Interest
                expense
            
            
            (5,247
            )
            
            (5,982
            )
            
            (16,371
            )
            
            (18,916
            )Interest
                income
            
            
            690
            
            
            148
            
            
            2,269
            
            
            1,281Other,
                net
            
            
            1,336
            
            
            (102
            )
            
            2,963
            
            
            (52
            )Total
                other expense, net
            
            
            (3,221
            )
            
            (5,936
            )
            
            (11,139
            )
            
            (17,687
            )**Income
                before provision for income tax**
            
            
            29,302
            
            
            13,916
            
            
            61,092
            
            
            28,929**Provision
                for income tax**
            
            
            557
            
            
            13
            
            
            1,671
            
            
            13**Net
                income**
            
            $
            28,745
            
            $
            13,903
            
            $
            59,421
            
            $
            28,916





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


5





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


**STATEMENTS
      OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)**


(Amounts
      in thousands of U.S. Dollars)





**Outstanding**
            
            
            
            **Additional****Common**
            
            **Common**
            
            **Paid-in**
            
            **Retained****Shares**
            
            **Stock**
            
            **Capital**
            
            **Earnings**
            
            **Total****January 1,
                2005**
            
            
            767,162
            
            $
            29
            
            $
            123,807
            
            $
            27,152
            
            $
            150,988Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            28,916
            
            
            28,916Dividends
                declared
            
            
            -
            
            
            -
            
            
            -
            
            
            (11,000
            )
            
            (11,000
            )**Balance,
                September 30, 2005**
            
            
            767,162
            
            $
            29
            
            $
            123,807
            
            $
            45,068
            
            $
            168,904**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








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,****2006**
            
            **2005****Cash
                flows from operating activities:**Net
                income
            
            $
            59,421
            
            $
            28,916Adjustments
                to reconcile net income to cash flows from operating
                activities:Depreciation
            
            
            16,260
            
            
            16,198Amortization
                of bond issue costs
            
            
            516
            
            
            700Changes
                in other items:Trade
                receivable, net
            
            
            6,821
            
            
            (2,894
            )Prepaid
                insurance and other current assets
            
            
            370
            
            
            3,701Accounts
                payable and other accrued liabilities
            
            
            2,118
            
            
            (2,623
            )Accrued
                interest
            
            
            7,350
            
            
            6,562Deferred
                revenue
            
            
            5,641
            
            
            5,031Net
                cash flows from operating activities
            
            
            98,497
            
            
            55,591**Cash
                flows from investing activities:**Additions
                to property, plant and equipment
            
            
            (1,830
            )
            
            (92
            )Increase
                in restricted cash and investments for debt service obligations and
                dividends payable
            
            
            (38,240
            )
            
            (640
            )Net
                cash flows used in investing activities
            
            
            (40,070
            )
            
            (732
            )**Cash
                flows from financing activities:**Increase
                (decrease) in payable to affiliates
            
            
            (1,090
            )
            
            384Repayment
                of project financing debt
            
            
            (18,007
            )
            
            (27,376
            )Cash
                dividends paid
            
            
            (56,100
            )
            
            (9,350
            )Net
                cash flows used in financing activities
            
            
            (75,197
            )
            
            (36,342
            )**Net
                change in cash and cash equivalents**
            
            
            (16,770
            )
            
            18,517**Cash
                and cash equivalents at beginning of period**
            
            
            42,317
            
            
            16,732**Cash
                and cash equivalents at end of period**
            
            $
            25,547
            
            $
            35,249**Supplemental
                disclosure:**Interest
                paid
            
            $
            9,656
            
            $
            13,230Dividends
                declared but not paid
            
            $
            9,900
            
            $
            1,650





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





7





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


**NOTES
      TO FINANCIAL STATEMENTS**


**(Unaudited)**





**1.**
            **General**





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





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





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





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.** **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 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. FIN 48 is effective for fiscal years beginning after
      December 15, 2006. The Company is currently evaluating the impact of
      adopting FIN 48 on its financial position and results of
      operations.


8


**3.** **Restricted
      cash and Investments**





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





September
                30, 2006
            
            December
                31, 2005Debt
                service reserve fund
            
            $
            51,713
            
            $
            26,718Dividend
                set aside account
            
            
            31,483
            
            
            18,238$
            83,196
            
            $
            44,956





**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
      $34.3 million and $35.4 million at September 30, 2006 and
      December 31, 2005, respectively. Costs incurred by the Company in
      transactions with related parties amounted to $1.0 million and $0.5 million
      for the three-month periods ended September 30, 2006 and 2005,
      respectively, and $1.6 million and $1.1 million for the nine-month periods
      ended September 30, 2006 and 2005, respectively.





As
      of
      September 30, 2006 and December 31, 2005, the Company had
      outstanding $51.3 million of unsecured subordinated notes payable to
      CE Casecnan Ltd., a stockholder. On November 1, 2005, the Company
      extended the due date of the notes from November 15, 2005 to
      November 1, 2006 and amended the interest rate to 10% per annum. On
      December 6, 2005, the notes’ original maturity date was changed to
      November 1, 2015 and the interest rate from LIBOR plus 2% to LIBOR
      plus 5.25%; provided, however, that CE Casecnan Ltd. can demand payment of
      the outstanding principal amount at any time prior to the maturity date. The
      interest is payable each May 15 and November 15. Interest expense on
      the notes was $1.4 million and $0.7 million during the three-month
      periods ended September 30, 2006 and 2005, respectively, and
      $3.9 million and $1.9 million during the nine-month periods ended
      September 30, 2006 and 2005, 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, 2006, the effective
      interest rate on the notes was 10.53%. The notes may be prepaid at any time
      without premium or penalty but with accrued interest, if any. The unsecured
      subordinated notes and any and all payments, whether of principal, interest
      or
      otherwise are subject in all respects to the terms of the Subordination
      Agreement dated November 15, 2001 between CE Casecnan Ltd. and
      the Company in favor of the Trustee, the Collateral Agent, the co-collateral
      agent, the Depositary, any party that becomes a Permitted Counterparty under
      an
      Interest Rate/Currency Protection Agreement, and any party that becomes a
      working capital facility agent and any other Person that becomes a secured
      party
      under the Intercreditor Agreement. The Company intends to repay the notes or
      convert them to some other form of capital prior to maturity.





**5.**
            **Commitments
                and Contingencies**





Stockholder
      Litigation





Pursuant
      to the share ownership adjustment mechanism in the CE Casecnan stockholder
      agreement, which is based upon proforma financial projections of the Casecnan
      Project prepared following commencement of commercial operations, in
      February 2002, MidAmerican Energy Holdings Company’s (“MidAmerican”)
      indirect wholly owned subsidiary, CE Casecnan Ltd., advised the
      minority stockholder of the Company, LaPrairie Group Contractors (International)
      Ltd. (“LPG”), that MidAmerican’s indirect ownership interest in CE Casecnan
      had increased to 100% effective from commencement of commercial operations.
      On
      July 8, 2002, LPG filed a complaint in the Superior Court of the State
      of California, City and County of San Francisco against CE Casecnan Ltd.
      and MidAmerican. LPG’s complaint, as amended, seeks compensatory and punitive
      damages arising out of CE Casecnan Ltd.’s and MidAmerican’s alleged
      improper calculation of the proforma financial projections and alleged improper
      settlement of the NIA arbitration. The Company is not a defendant in the action.
      On January 21, 2004, CE Casecnan Ltd., LPG and the Company entered
      into a status quo agreement pursuant to which the parties agreed to set aside
      certain distributions related to the shares subject to the LPG dispute and
      CE
      Casecnan agreed not to take any further actions with respect to such
      distributions without at least 15 days’ prior notice to LPG. Accordingly, 15% of
      the dividend declarations in 2004, 2005 and 2006, totaling $27.5 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. The appeal is fully briefed and is expected to be resolved sometime
      in
      2007. The parties are proceeding in the trial court on LPG’s remaining claim
      against MidAmerican for damages for alleged breach of fiduciary duty. This
      claim
      is expected to be resolved sometime in 2007.





9


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 matter is currently in the early
      stages of discovery. 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 installments during 2006. CE Casecnan has received the first four payments,
      totaling $3.9 million. The last payment of $0.6 million is due on
      December 25, 2006.





On
      December 28, 2005, CE Casecnan paid real property taxes of
      $4.7 million to the Province of Nueva Ecija. CE Casecnan has received
      letters from NIA and the DOF, respectively, authorizing the payment. A
      receivable of $4.7 million has been recorded for the expected full
      reimbursement to CE Casecnan in respect of the Province of Nueva Ecija tax
      assessment. As agreed, NIA has reimbursed CE Casecnan a total of $3.9 million
      in
      2006. The final payment of $0.8 million is due on December 25, 2006.





The
        Company billed the 2006 real property taxes to NIA pursuant to the Supplemental
        Agreement and received timely payment from NIA. On April 27, 2006, CE Casecnan
        filed protests to the treasurers of the Province of Nueva Vizcaya and the
        Province of Nueva Ecija in order to preserve the rights and remedies of NIA
        which is ultimately liable for the tax. As a government owned and controlled
        corporation, NIA may be subject to a lower assessment level or be exempt
        from
        the tax.


10


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. On April 25, 2006, CE Casecnan filed an appeal
      with the Regional Trial Court of Nueva Vizcaya. 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”) provides that power generation
      is not a public utility operation and does not require a franchise.


On
      March 30, 2006, CE Casecnan received from the Province of Nueva
      Vizcaya a franchise tax assessment for the year 2005 totaling $0.3 million.
      CE Casecnan filed a protest with the treasurer of the Province of Nueva Vizcaya
      on April 5, 2006. On June 30, 2006, CE Casecnan filed an
      appeal to the Regional Trial Court of Nueva Vizcaya after the province failed
      to
      act on the protest within the period required by law. CE
      Casecnan moved to consolidate the two cases, which was granted by the court.
      The
      consolidated cases are set for pre-trial on November 24, 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.





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 in the accompanying statements of operations. This
      discussion should be read in conjunction with the Company’s historical financial
      statements and the notes related thereto included elsewhere in this report.
      The
      Company’s actual results in the future could differ significantly from the
      historical results.





**Forward-Looking
      Statements**





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





**Business**





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





**Seasonality**





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


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 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.





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, reduced to 0.98 Philippine
      pesos starting 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 for the Three-Month Periods Ended September 30, 2006 and
      2005**





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





**2006**
            
            **2005**Electricity
                produced (GWh)
            190.7
            
            148.2Water
                delivered (million cubic meters)
            358.4
            
            258.9





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):





**2006**
            
            **2005**Water
                delivery fees
            
            $
            14.4
            
            $
            13.4Guaranteed
                energy fees
            
            
            9.1
            
            
            9.1Variable
                energy fees
            
            
            19.0
            
            
            6.9Deferred
                water delivery fees
            
            
            (1.9
            )
            
            (1.7
            )Total
                lease rentals and service contracts revenue
            
            $
            40.6
            
            $
            27.7





Revenue
      increased by $12.9 million to $40.6 million for the three-month period
      ended September 30, 2006 from $27.7 million for the same period
      in 2005. The increase in water delivery fees was due to the contractual 7.5%
      annual escalation factor. The increase in the variable energy fees was due
      primarily to the higher rainfall which resulted in higher electricity production
      in the third 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.


13


Interest
      expense decreased by $0.7 million to $5.2 million for the three-month
      period ended September 30, 2006 from $6.0 million for the same
      period in 2005, due to lower outstanding debt balances resulting from the
      scheduled repayment of debt.





Interest
      income increased to $0.7 million for the three-month period ended September
      30,
      2006 from $0.1 million for the same period in 2005 primarily due to higher
      interest rates and higher average cash and cash equivalents and restricted
      cash
      and investments balances.





Other,
      net increased to $1.3 million for the three-month period ended
      September 30, 2006 from $(0.1) million for the same period in
      2005. The higher other, net was due to value-added tax (“VAT”) recoveries
      exceeding obligations as a result of a change in the VAT law which became
      effective on November 1, 2005.





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





**Results
      of Operations for the Nine-Month Periods Ended September 30, 2006 and
      2005**





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





**2006**
            
            **2005**Electricity
                produced (GWh)
            369.4
            
            224.0Water
                delivered (million cubic meters)
            676.9
            
            387.6





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
            
            $
            42.6
            
            $
            39.6Guaranteed
                energy fees
            
            
            27.3
            
            
            27.3Variable
                energy fees
            
            
            30.8
            
            
            7.6Deferred
                water delivery fees
            
            
            (5.6
            )
            
            (5.0
            )Total
                water and energy fees
            
            $
            95.1
            
            $
            69.5





Revenue
      increased by $25.6 million to $95.1 million for the nine-month period
      ended September 30, 2006 from $69.5 million for the same period
      in 2005. The $3.0 million increase in water delivery fees was due to the
      7.5% increase in the water delivery rate based on a contractual annual
      escalation factor. The $23.2 million increase in variable energy fees was
      due primarily to higher rainfall in the first nine months of 2006 than in 2005
      which resulted in higher water deliveries and electricity production. The
      deferred water delivery fees represent the difference between the actual water
      delivery fees earned and water delivery fees invoiced pursuant to the
      Supplemental Agreement.





Interest
      expense decreased by $2.5 million to $16.4 million for the nine-month
      period ended September 30, 2006 from $18.9 million for the same
      period in 2005 due to lower outstanding debt balances resulting from the
      scheduled repayment of debt.





14


Interest
      income increased by $1.0 million to $2.3 million for the nine-month period
      ended
      September 30, 2006 from $1.3 million for the same period in 2005 due to higher
      interest rates and higher cash and cash equivalents and restricted cash and
      investments balances.





Other,
      net increased to $3.0 million for the nine-month period ended
      September 30, 2006 from $(0.1) million for the same period in
      2005. The higher other, net was due primarily to VAT recoveries exceeding
      obligations as a result of a change in the VAT law which became effective on
      November 1, 2005.





Income
      tax expense increased to $1.7 million for the nine-month period ended
      September 30, 2006 from $- million for the same period in 2005. The
      income tax expense relates to VAT recoveries and interest income earned outside
      the Philippines which are not covered by the income tax holiday.





**Liquidity
      and Capital Resources**





The
      Company’s cash and cash equivalents were $25.5 million and
      $42.3 million at September 30, 2006 and
      December 31, 2005, respectively.





The
      Company generated cash flows from operations of $98.5 million and
      $55.6 million for the nine-month periods ended September 30, 2006
      and 2005, respectively. The increase in cash from operations in 2006 was
      primarily due to higher net income as a result of higher water flows and
      corresponding variable energy revenues, reimbursements from NIA for property
      taxes paid by CE Casecnan in 2005 and lower interest payments.





Cash
      flows used in investing activities were $40.1 million and $0.7 million
      for the nine-month periods ended September 30, 2006 and 2005,
      respectively. The Company increased its restricted cash and investments related
      to obligations for debt service and unpaid dividends by $38.2 million, of
      which $25.0 million relates to timing of the payments of debt service and $13.2
      million relates to the increase in unpaid dividends.





Cash
      flows used in financing activities $75.2 million and $36.3 million for
      the nine-month periods ended September 30, 2006 and 2005,
      respectively. The Company declared dividends totaling $66.0 million during
      the nine-month period ended September 30, 2006 and $11.0 million
      during the same period in 2005 (of which $9.9 million and
      $1.7 million, respectively, were placed in an escrow account in the name of
      the Company and shown as restricted cash and investments and dividends payable
      in the accompanying balance sheets). The Company also repaid $18.0 million
      and $27.4 million on the balance of its outstanding debt obligations during
      the nine-month periods ended September 30, 2006 and 2005,
      respectively.





Stockholder
      Litigation





Pursuant
      to the share ownership adjustment mechanism in the CE Casecnan stockholder
      agreement, which is based upon proforma financial projections of the Casecnan
      Project prepared following commencement of commercial operations, in
      February 2002, MidAmerican Energy Holdings Company’s (“MidAmerican”)
      indirect wholly owned subsidiary, CE Casecnan Ltd., advised the
      minority stockholder of the Company, LaPrairie Group Contractors (International)
      Ltd. (“LPG”), that MidAmerican’s indirect ownership interest in CE Casecnan
      had increased to 100% effective from commencement of commercial operations.
      On
      July 8, 2002, LPG filed a complaint in the Superior Court of the State
      of California, City and County of San Francisco against CE Casecnan Ltd.
      and MidAmerican. LPG’s complaint, as amended, seeks compensatory and punitive
      damages arising out of CE Casecnan Ltd.’s and MidAmerican’s alleged improper
      calculation of the proforma financial projections and alleged improper
      settlement of the NIA arbitration. The Company is not a defendant in the action.
      On January 21, 2004, CE Casecnan Ltd., LPG and the Company entered
      into a status quo agreement pursuant to which the parties agreed to set aside
      certain distributions related to the shares subject to the LPG dispute and
      CE
      Casecnan agreed not to take any further actions with respect to such
      distributions without at least 15 days’ prior notice to LPG. Accordingly, 15% of
      the dividend declarations in 2004, 2005 and 2006, totaling $27.5 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. The appeal is fully briefed and is expected to be resolved sometime
      in
      2007. The parties are proceeding in the trial court on LPG’s remaining claim
      against MidAmerican for damages for alleged breach of fiduciary duty. This
      claim
      is expected to be resolved sometime in 2007.





15


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 matter is currently in the early
      stages of discovery. 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 installments during 2006. CE Casecnan has received the first four payments,
      totaling $3.9 million. The last payment of $0.6 million is due on
      December 25, 2006.





On
      December 28, 2005, CE Casecnan paid real property taxes of
      $4.7 million to the Province of Nueva Ecija. CE Casecnan has received
      letters from NIA and the DOF, respectively, authorizing the payment. A
      receivable of $4.7 million has been recorded for the expected full
      reimbursement to CE Casecnan in respect of the Province of Nueva Ecija tax
      assessment. As agreed, NIA has reimbursed CE Casecnan a total of $3.9 million
      in
      2006. The final payment of $0.8 million is due on December 25,
      2006.





The
        Company billed the 2006 real property taxes to NIA pursuant to the Supplemental
        Agreement and received timely payment from NIA. On April 27, 2006, CE Casecnan
        filed protests to the treasurers of the Province of Nueva Vizcaya and the
        Province of Nueva Ecija in order to preserve the rights and remedies of NIA
        which is ultimately liable for the tax. As a government owned and controlled
        corporation, NIA may be subject to a lower assessment level or be exempt
        from
        the tax.


16


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. On April 25, 2006, CE Casecnan filed an appeal
      with the Regional Trial Court of Nueva Vizcaya. 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”) provides that power
      generation is not a public utility operation and does not require a franchise.
      On March 30, 2006, CE Casecnan received from the Province of Nueva
      Vizcaya a franchise tax assessment for the year 2005 totaling $0.3 million.
      CE Casecnan filed a protest with the treasurer of the Province of Nueva Vizcaya
      on April 5, 2006. On June 30, 2006, CE Casecnan filed
      an appeal to the Regional Trial Court of Nueva Vizcaya after the province failed
      to act on the protest within the period required by law.  CE
      Casecnan moved to consolidate the two cases, which was granted by the court.
      The
      consolidated cases are set for pre-trial on November 24, 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 nine months ended September 30, 2006, there were no material
      changes in the contractual obligations and  commercial  commitments
      from the information provided in Item 7 of the Company’s Annual Report on Form
      10-K for the year ended December 31, 2005.





**Critical
      Accounting Policies**





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





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.





17


**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
      September 30, 2006. Based on that evaluation, the Company’s
      management, including the chief executive officer and chief financial officer,
      concluded that the Company’s disclosure controls and procedures were effective.
      There have been no changes during the quarter covered by this report in the
      Company’s internal control over financial reporting that has materially
      affected, or is reasonably likely to materially affect, the Company’s internal
      control over financial reporting.





18





**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.


19





**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 26, 2006
            
            /s/
                Patrick J. GoodmanPatrick
                J. GoodmanSenior
                Vice President and Chief Financial
                Officer





20


**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.




21