UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the
quarterly period ended June 30, 2008





or





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





For the
transition period from ________to_______





Commission
File No. 001-12995





CE
CASECNAN WATER AND ENERGY COMPANY, INC.


(Exact
name of registrant as specified in its charter)





Philippines
            
            Not
      Applicable(State
      or other jurisdiction of
              incorporation
      or organization)
            
            (I.R.S.
      Employer
              Identification
      No.)24th
      Floor, 6750 Building, Ayala Avenue
                Makati,
      Metro Manila, Philippines
            
            Not
      Applicable(Address
      of principal executive offices)
            
            (Zip
      Code)011
      63 2 892-0276(Registrant’s
      telephone number, including area code)N/A(Former
      name, former address and former fiscal year, if changed since last
      report)





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


Yes  T  No  *





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





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





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


Yes  *  No  T





All of
the shares of common equity of CE Casecnan Water and Energy Company, Inc. are
privately held by a limited group of investors. As of July 25, 2008, the
number of outstanding shares of $0.038 par value common stock was
767,162.

















TABLE OF
CONTENTS





PART I – FINANCIAL INFORMATION





Item 1.
            Financial Statements
            3Item 2.
            Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            13Item 3.
            Quantitative and Qualitative Disclosures About Market
      Risk
            19Item 4.
            Controls and Procedures
            19PART
      II – OTHER INFORMATIONItem 1.
            Legal Proceedings
            20Item 1A.
            Risk Factors
            20Item 2.
            Unregistered Sales of Securities and Use of
      Proceeds
            20Item 3.
            Defaults Upon Senior Securities
            20Item 4.
            Submission of Matters to a Vote of Security
      Holders
            20Item 5.
            Other Information
            20Item 6.
            Exhibits
            20Signatures
            
            21Exhibit Index
            
            22











2





PART I – FINANCIAL INFORMATION









Item 1.
            Financial
      Statements





Report
of Independent Registered Public Accounting Firm








To the
Board of Directors and Shareholders of


CE
Casecnan Water and Energy Company, Inc.





We have
reviewed the accompanying balance sheet of CE Casecnan Water and Energy Company,
Inc. (the “Company”) as of June 30, 2008, and the related statements of
operations for each of the three-month and six-month periods ended
June 30, 2008 and 2007 and of changes in shareholders’ equity and of
cash flows for each of the six-month periods ended June 30, 2008 and 2007.
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, 2007,
and the related statements of operations, of changes in shareholders’ equity and
of cash flows for the year then ended (not presented herein), and in our report
dated February 27, 2008, 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, 2007, 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


July 25,
2008





3





CE
CASECNAN WATER AND ENERGY COMPANY, INC.


BALANCE
SHEETS (Unaudited)


(Amounts
in thousands, except share data)





As
      ofJune
      30,
            
            
            December 31,2008
            
            
            2007ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            21,799
            
            
            $
            31,083Restricted
      cash and investments
            
            
            23,068
            
            
            
            22,414Trade
      receivable, net
            
            
            16,905
            
            
            
            20,365Other
      current assets
            
            
            6,279
            
            
            
            6,653Total
      current assets
            
            
            68,051
            
            
            
            80,515Property,
      plant and equipment, net
            
            
            292,377
            
            
            
            303,056Other
      investments
            
            
            6,921
            
            
            
            7,503Long-term
      restricted cash and investments
            
            
            12,826
            
            
            
            13,906Deferred
      income taxes
            
            
            5,618
            
            
            
            5,198Bond
      issue costs, net
            
            
            381
            
            
            
            539Total
      assets
            
            $
            386,174
            
            
            $
            410,717LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable and other accrued liabilities
            
            $
            3,631
            
            
            $
            5,171Dividends
      payable
            
            
            10,825
            
            
            
            10,825Accrued
      interest
            
            
            3,119
            
            
            
            7,801Income
      tax payable
            
            
            6,657
            
            
            
            3,032Payable
      to affiliates
            
            
            2,597
            
            
            
            2,480Notes
      payable
            
            
            7,115
            
            
            
            39,200Current
      portion of long-term debt
            
            
            25,725
            
            
            
            37,730Total
      current liabilities
            
            
            59,669
            
            
            
            106,239Deferred
      revenue
            
            
            5,529
            
            
            
            1,768Long-term
      debt
            
            
            24,010
            
            
            
            30,870Total
      liabilities
            
            
            89,208
            
            
            
            138,877Commitments
      and contingencies (Note 6)Shareholders’
      equity:Common
      stock – 2,148,000 shares authorized, one Philippine peso($0.038) par
      value; 767,162 shares issued and outstanding
            
            
            29
            
            
            
            29Additional
      paid-in capital
            
            
            123,807
            
            
            
            123,807Retained
      earnings
            
            
            174,211
            
            
            
            148,004Accumulated
      other comprehensive loss, net
            
            
            (1,081
            )
            
            
            -Total
      shareholders’ equity
            
            
            296,966
            
            
            
            271,840Total
      liabilities and shareholders’ equity
            
            $
            386,174
            
            
            $
            410,717





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





4




CE
CASECNAN WATER AND ENERGY COMPANY, INC.


STATEMENTS
OF OPERATIONS (Unaudited)


(Amounts
in thousands)





Three-Month
      Periods
            
            
            Six-Month
      PeriodsEnded
      June 30,
            
            
            Ended
      June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Revenue:Lease
      rentals and service contracts
            
            $
            28,757
            
            
            $
            22,014
            
            
            $
            57,651
            
            
            $
            46,352Operating
      expenses:Depreciation
            
            
            5,440
            
            
            
            5,401
            
            
            
            10,842
            
            
            
            10,807Plant
      operations and other operating expenses
            
            
            2,498
            
            
            
            2,103
            
            
            
            4,717
            
            
            
            3,926Total
      operating expenses
            
            
            7,938
            
            
            
            7,504
            
            
            
            15,559
            
            
            
            14,733Operating
      income
            
            
            20,819
            
            
            
            14,510
            
            
            
            42,092
            
            
            
            31,619Other
      income (expense):Interest
      expense
            
            
            (2,401
            )
            
            
            (4,381
            )
            
            
            (5,503
            )
            
            
            (9,031
            )Interest
      income
            
            
            455
            
            
            
            671
            
            
            
            1,117
            
            
            
            1,532Other,
      net
            
            
            1,280
            
            
            
            900
            
            
            
            2,217
            
            
            
            1,880Total
      other income (expense)
            
            
            (666
            )
            
            
            (2,810
            )
            
            
            (2,169
            )
            
            
            (5,619
            )Income
      before income tax expense
            
            
            20,153
            
            
            
            11,700
            
            
            
            39,923
            
            
            
            26,000Income
      tax expense
            
            
            6,807
            
            
            
            558
            
            
            
            13,716
            
            
            
            1,184Net
      income
            
            $
            13,346
            
            
            $
            11,142
            
            
            $
            26,207
            
            
            $
            24,816





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





5





CE
CASECNAN WATER AND ENERGY COMPANY, INC.


STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)


FOR
THE SIX-MONTH PERIODS ENDED JUNE 30, 2008 AND 2007


(Amounts
in thousands)





AccumulatedAdditional
            
            
            
            
            
            OtherCommon
            
            
            Paid-in
            
            
            Retained
            
            
            ComprehensiveStock
            
            
            Capital
            
            
            Earnings
            
            
            Loss,
      net
            
            
            TotalBalance,
      January 1, 2007
            
            $
            29
            
            
            $
            123,807
            
            
            $
            69,465
            
            
            $
            -
            
            
            $
            193,301Net
      income
            
            
            -
            
            
            
            -
            
            
            
            24,816
            
            
            
            -
            
            
            
            24,816Balance,
      June 30, 2007
            
            $
            29
            
            
            $
            123,807
            
            
            $
            94,281
            
            
            $
            -
            
            
            $
            218,117Balance,
      January 1, 2008
            
            $
            29
            
            
            $
            123,807
            
            
            $
            148,004
            
            
            $
            -
            
            
            $
            271,840Net
      income
            
            
            -
            
            
            
            -
            
            
            
            26,207
            
            
            
            -
            
            
            
            26,207Other
      comprehensive loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (1,081
            )
            
            
            (1,081
            )Balance,
      June 30, 2008
            
            $
            29
            
            
            $
            123,807
            
            
            $
            174,211
            
            
            $
            (1,081
            )
            
            $
            296,966





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)





Six-Month
      PeriodsEnded
      June 30,2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            26,207
            
            
            $
            24,816Adjustments
      to reconcile net income to cash flows from operations:Depreciation
            
            
            10,842
            
            
            
            10,807Amortization
      of bond issue costs
            
            
            158
            
            
            
            259Provision
      for deferred income taxes
            
            
            161
            
            
            
            -Changes
      in other items:Trade
      receivable, net
            
            
            3,460
            
            
            
            (500
            )Other
      current assets
            
            
            374
            
            
            
            658Accounts
      payable and other accrued liabilities
            
            
            (1,540
            )
            
            
            (416
            )Accrued
      interest
            
            
            (4,682
            )
            
            
            219Income
      tax payable
            
            
            3,625
            
            
            
            (91
            )Deferred
      revenue
            
            
            3,761
            
            
            
            3,761Net
      cash flows from operating activities
            
            
            42,366
            
            
            
            39,513Cash
      flows from investing activities:Capital
      expenditures
            
            
            (163
            )
            
            
            (155
            )Purchases
      of available-for-sale securities
            
            
            -
            
            
            
            (37,500
            )Proceeds
      from sale of available-for-sale securities
            
            
            -
            
            
            
            30,000(Increase)
      decrease in restricted cash and investments for debt
      serviceobligations and dividends payable
            
            
            (654
            )
            
            
            25,576Net
      cash flows from investing activities
            
            
            (817
            )
            
            
            17,921Cash
      flows from financing activities:Increase
      (decrease) in payable to affiliates
            
            
            117
            
            
            
            (38,857
            )Repayment
      of long-term debt
            
            
            (18,865
            )
            
            
            (18,865
            )Repayment
      of notes payable
            
            
            (32,085
            )
            
            
            -Dividends
      paid
            
            
            -
            
            
            
            (21,650
            )Net
      cash flows from financing activities
            
            
            (50,833
            )
            
            
            (79,372
            )Net
      change in cash and cash equivalents
            
            
            (9,284
            )
            
            
            (21,938
            )Cash
      and cash equivalents at beginning of period
            
            
            31,083
            
            
            
            31,946Cash
      and cash equivalents at end of period
            
            $
            21,799
            
            
            $
            10,008




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




7




CE
CASECNAN WATER AND ENERGY COMPANY, INC.


NOTES
TO FINANCIAL STATEMENTS


(Unaudited)





(1)
            General





CE
Casecnan Water and Energy Company, Inc. (“CE Casecnan” or the “Company”) has a
contract with the Republic of the Philippines (“ROP”), through the Philippine
National Irrigation Administration (“NIA”) (a ROP-owned and controlled
corporation), for the development and construction of a hydroelectric power
plant and related facilities under a build-own-operate-transfer agreement, as
amended by the Supplemental Agreement dated September 29, 2003 (“Project
Agreement”), covering a 20-year cooperation period (“Cooperation Period”)
commencing December 11, 2001, with “take-or-pay” obligations for water and
electricity. At the end of the Cooperation Period, the combined irrigation and
150 megawatt hydroelectric power generation project (the “Casecnan Project”)
will be transferred to the ROP at no cost on an “as is” basis. The ROP also
signed a Performance Undertaking, which, among others, affirms and guarantees
the obligations of NIA under the Project Agreement.





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





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





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





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





The
preparation of the unaudited Financial Statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
may differ from the estimates used in preparing the unaudited Financial
Statements. Note 2 of Notes to Financial Statements included in the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007,
describes the most significant accounting estimates and policies used in the
preparation of the Financial Statements. There have been no significant changes
in the Company’s assumptions regarding significant accounting policies during
the first six months of 2008.





8




(2)
              New Accounting
      Pronouncements


In
February 2007, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities - including an amendment of FASB
Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to elect
to measure many financial instruments and certain other items at fair value.
Upon adoption of SFAS No. 159, an entity may elect the fair value option
for eligible items that exist at the adoption date. Subsequent to the initial
adoption, the election of the fair value option may only be made at initial
recognition of the asset or liability or upon a remeasurement event that gives
rise to new-basis accounting. The decision about whether to elect the fair value
option is applied on an instrument-by-instrument basis, is irrevocable and is
applied only to an entire instrument and not only to specified risks, cash flows
or portions of that instrument. SFAS No. 159 does not affect any existing
accounting literature that requires certain assets and liabilities to be carried
at fair value nor does it eliminate disclosure requirements included in other
accounting standards. The Company adopted SFAS No. 159 effective
January 1, 2008, and did not elect the fair value option for any existing
eligible items.





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




(3)
            Restricted Cash and Investments
      and Other Investments





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





June 30,
            
            
            December 31,2008
            
            
            2007Current:Dividend
      set aside account
            
            $
            13,204
            
            
            $
            13,054Debt
      service reserve fund
            
            
            9,864
            
            
            
            9,360$
            23,068
            
            
            $
            22,414Noncurrent
      - Debt service reserve fund
            
            $
            12,826
            
            
            $
            13,906





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





Other
investments consist of auction rate securities with a carrying value of
$6.9 million and $7.5 million at June 30, 2008 and
December 31, 2007, respectively, and had a remaining maturity of
17 years.





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




9




Although
there is no current liquid market for the auction rate securities, the Company
believes the underlying creditworthiness of the repayment sources for these
securities’ principal and interest has not materially deteriorated. Further, the
Company has the intent and ability to hold the auction rate securities for a
period of time sufficient to allow for any anticipated recovery. At
June 30, 2008, the pre-tax temporary impairment of the auction rate
securities totaled $1.7 million. If the underlying assets and the
guarantors of the auction rate securities experience credit deterioration, the
Company may not ultimately realize the par value of the investment held at
June 30, 2008.




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





(4)
            Income
      Taxes





The
Company recognized income taxes totaling $6.8 million and $0.6 million for the
three-month periods ended June 30, 2008 and 2007, respectively, and $13.7
million and $1.2 million for the six-month periods ended June 30, 2008 and
2007, respectively. Prior to the December 11, 2007 expiration of the income
tax holiday granted to the Company by the Philippine Board of Investments,
income taxes were incurred only on interest income earned outside the
Philippines and on other income not covered by the income tax holiday. The
Company’s taxable income from December 11, 2007 forward is subject to
income tax at the Philippine statutory rate. The Company’s deferred income tax
asset of $5.6 million and $5.2 million as of June 30, 2008 and
December 31, 2007, respectively, consists mainly of the difference between the
financial reporting basis and the tax reporting basis for development and
construction costs.




(5)
            Related Party
      Transactions





In the
normal course of business, the Company transacts with its affiliates in the form
of advances for operating expenses. The payable to affiliates was $2.6 million
and $2.5 million at June 30, 2008 and December 31, 2007,
respectively. Costs incurred by the Company in transactions with related parties
amounted to $0.4 million and $0.7 million for the three-month periods
ended June 30, 2008 and 2007, respectively, and $0.8 million and
$1.6 million for the six-month periods ended June 30, 2008 and 2007,
respectively, and consist primarily of cost allocations.





As of
June 30, 2008 and December 31, 2007, the Company had
outstanding $7.1 million and $39.2 million, respectively, of unsecured
subordinated notes payable to CE Casecnan Ltd., a shareholder. The notes
mature on November 1, 2015, and bear an interest rate consisting of the
London Interbank Offer Rate plus 5.25%; however, CE Casecnan Ltd. can
demand payment of the outstanding principal amount at any time prior to the
maturity date. The interest is payable each May 15 and November 15.
Interest expense on the notes was $0.6 million and $1.4 million for
the three-month periods ended June 30, 2008 and 2007, respectively, and
$1.6 million and $2.7 million for the six-month periods ended June 30,
2008 and 2007, respectively. Any overdue payment of principal or interest
payable on the notes shall increase the annual interest rate by two percentage
points. At June 30, 2008, the effective interest rate on the notes was
8.08%. The notes may be prepaid at any time without premium or penalty but with
accrued interest, if any. The notes and any and all payments, whether of
principal, interest or otherwise are subject in all respects to the terms of the
Subordination Agreement dated November 15, 2001, and as amended on
November 1, 2005, between CE Casecnan Ltd. and the Company in favor of
the Trustee, the Collateral Agent, the co-collateral agent, the Depositary, any
party that becomes a Permitted Counterparty under an Interest Rate/Currency
Protection Agreement, and any party that becomes a working capital facility
agent and any other Person that becomes a secured party under the Intercreditor
Agreement.





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




10




(6)
            Commitments
      and Contingencies





Shareholder
Litigation





In
February 2002, pursuant to the share ownership adjustment mechanism in the
CE Casecnan shareholder agreement, MidAmerican Energy Holdings Company’s
(“MEHC”) indirect wholly owned subsidiary, CE Casecnan Ltd., advised
the minority shareholder of the Company, LaPrairie Group Contractors
(International) Ltd. (“LPG”) that MEHC’s indirect ownership interest in
CE Casecnan had increased to 100% effective from commencement of commercial
operations. On July 8, 2002, LPG filed a complaint in the Superior Court of
the State of California, City and County of San Francisco, against
CE Casecnan Ltd. and MEHC. On January 3, 2006, the Superior Court
of the State of California entered a judgment in favor of LPG against CE
Casecnan Ltd. Pursuant to the judgment, 15% of the distributions of the Company
was deposited into escrow plus interest at 9% per annum. The judgment was
appealed, and as a result of the appellate decision, CE Casecnan Ltd. determined
that LPG would retain ownership of 10% of the shares of the Company, with the
remaining 5% share to be transferred to CE Casecnan Ltd. subject to certain
buy-up rights under the shareholder agreement, which are also being litigated.
The remaining issues are fully briefed and pending before the court. Exercise of
the buy-up rights is a transaction between shareholders and is not expected to
have any impact on the Company’s results of operations.





On
July 1, 2005, MEHC and CE Casecnan Ltd. commenced an action
against San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
Lorenzo”) in the District Court of Douglas County, Nebraska, seeking a
declaratory judgment as to San Lorenzo’s right to repurchase shares in the
Company. On January 30, 2006, San Lorenzo filed a counterclaim
against MEHC and CE Casecnan Ltd. seeking declaratory relief that it
has effectively exercised its option to purchase 15% of the shares of the
Company, that it is the rightful owner of such shares and that it is due all
dividends paid on such shares. Currently, the action is in the discovery phase,
and a one-week trial has been set to begin November 3, 2008. The
impact, if any, of this litigation on the Company cannot be determined at this
time.





Concentration of
Risk





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





Franchise
Tax





CE Casecnan
received franchise tax assessments for the years 2001 to 2006 totaling
$2.2 million from the Province of Nueva Vizcaya. CE Casecnan believes
that franchise tax is imposed on companies which have a secondary or special
franchise from the government. CE Casecnan is an independent power producer
and does not have a government franchise. The Electric Power Industry Reform Act
of 2001 provides that independent power generation is not a public utility
operation and does not require a franchise. Therefore, the Company has not
recognized a liability relating to these assessments. CE Casecnan filed
appeals of the assessments with the Regional Trial Court of Nueva Vizcaya. The
appeals were referred to the Supreme Court Office of the Court Administrator who
assigned the consolidated cases to the Regional Trial Court of Bayombong Vizcaya
South Sector.




11





Real Property
Tax





On July
1, 2008, CE Casecnan received a real property tax assessment adjustment
totaling $28.6 million from the province of Nueva Ecija and the municipality of
Pantabangan for the years 2002 through the second quarter of 2008. On July 2,
2008, CE Casecnan forwarded the tax assessment adjustment to NIA and the
Philippine Department of Finance (“DOF”), who must authorize any payment for
real property taxes and are obligated to reimburse the Company pursuant to the
Project Agreement.





National Wealth
Tax





On July
17, 2008, CE Casecnan received an assessment totaling $4.1 million from the
municipality of Alfonso Castaneda for a share of national wealth tax it claims
is owed by the Company for the years from 2002 through 2007.  On July
22, 2008, CE Casecnan forwarded the assessment to NIA and the DOF, who are
obligated to reimburse the Company pursuant to the Project
Agreement.




(7)
            Fair Value
      Measurements


The
Company has auction rate securities that are measured at fair value in the
Financial Statements. The Company uses a three level hierarchy for determining
fair value and a financial asset or liability classification within the
hierarchy is determined based on the lowest level input that is significant to
the fair value measurement. The auction rate securities were valued using Level
3 inputs that reflect the Company’s judgment about the assumptions market
participants would use in pricing the asset. The fair value of these securities
was determined using broker quotes, which the Company considers to be Level 3
inputs due to the limited market data that exists. The following table
reconciles the beginning and ending balance of the Company’s auction rate
securities measured at fair value on a recurring basis during the six-month
period ended June 30, 2008 (in thousands):





Balance,
      January 1, 2008
            
            $
            21,409Unrealized
      losses included in other comprehensive loss
            
            
            (1,662
            )Balance,
      June 30, 2008
            
            $
            19,747




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


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





Three-Month
      Periods
            
            
            Six-Month
      PeriodsEnded
      June 30,
            
            
            Ended
      June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Net
      income
            
            $
            13,346
            
            
            $
            11,142
            
            
            $
            26,207
            
            
            $
            24,816Other
      comprehensive income (loss) – unrealized gains(losses) on marketable
      securities, net of tax of $55;$-; $(581); and $-
            
            
            100
            
            
            
            -
            
            
            
            (1,081
            )
            
            
            -Comprehensive
      income
            
            $
            13,446
            
            
            $
            11,142
            
            
            $
            25,126
            
            
            $
            24,816





Accumulated
other comprehensive loss, net is included in the Balance Sheets in the
shareholders’ equity section, and consists of unrealized losses on marketable
securities totaling $1.1 million, net of tax of $0.6 million, as of
June 30, 2008.




12




Item
      2.
              Management’s Discussion and
      Analysis of Financial Condition and Results of
  Operations


The
following is management’s discussion and analysis of certain significant factors
that have affected the financial condition and results of operations of CE
Casecnan Water and Energy Company, Inc. (“CE Casecnan” or the “Company”) during
the periods included herein. Explanations include management’s best estimate of
the impact of weather and other factors. This discussion should be read in
conjunction with the Company’s historical unaudited Financial Statements and the
related notes included elsewhere in Item 1 of this Form 10-Q. The Company’s
actual results in the future could differ significantly from the historical
results.




Forward-Looking
Statements




This report contains
statements that do not directly or exclusively relate to historical facts. These
statements are “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements can
typically be identified by the use of forward-looking words, such as “may,”
“could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,”
“intend,” “potential,” “plan,” “forecast” and similar terms. These statements
are based upon the Company’s current intentions, assumptions, expectations and
beliefs and are subject to risks, uncertainties and other important factors.
Many of these factors are outside the Company’s control and could cause actual
results to differ materially from those expressed or implied by the Company’s
forward-looking statements. These factors include, among others:




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




Further
details of the potential risks and uncertainties affecting the Company are
described in the Company’s filings with the SEC, including Item 1A and other
discussions contained in this Form 10-Q. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. The foregoing review of factors
should not be construed as exclusive.




Business




The
Company has a contract with the Republic of the Philippines (“ROP”), through the
Philippine National Irrigation Administration (“NIA”) (a ROP-owned and
controlled corporation), for the development and construction of a hydroelectric
power plant and related facilities under a build-own-operate-transfer agreement,
as amended by the Supplemental Agreement dated September 29, 2003 (the
“Project Agreement”), covering a 20-year cooperation period (“Cooperation
Period”) commencing December 11, 2001, with “take-or-pay” obligations for
water and electricity. On December 11, 2021, the end of the Cooperation Period,
the combined irrigation and 150 megawatt hydroelectric power generation
project (the “Casecnan Project”) will be transferred to the ROP at no cost on an
“as is” basis. The ROP also signed a Performance Undertaking, which, among
others, affirms and guarantees the obligations of NIA under the Project
Agreement. Under the terms of its registration with the Philippine Board of
Investments, CE Casecnan is entitled to certain incentives which 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 expired on
December 11, 2007. The Company’s taxable income from December 11, 2007
forward is subject to income tax at the Philippine statutory rate.




13




Seasonality





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





Under the
Project Agreement, the water delivery fee is a fixed monthly payment based upon
an assumed annual water delivery of 801.9 million cubic meters, pro-rated
to approximately 66.8 million cubic meters per month, multiplied by the
water delivery fee rate of $0.07381 per cubic meter. For each contract year
starting from December 25, 2003 and ending on December 25, 2008, a
water delivery fee credit (deferred revenue) is computed equal to
801.9 million cubic meters minus the greater of actual water deliveries or
700.0 million cubic meters - the minimum threshold. The water delivery fee
credit at the end of each contract year is available to be earned in the
succeeding contract year through December 25, 2008. The cumulative water
delivery fee credit at December 25, 2008, if any, shall be amortized on a
straight-line basis from December 25, 2008 through December 25, 2013,
as a reduction from billings to NIA. Accordingly, in recognizing revenue, the
water delivery fees are recorded each month pro-rated to approximately
58.3 million cubic meters per month until the minimum threshold has been
reached for the current contract year. Subsequent water delivery fees within the
contract year are based on actual water delivered. For contract years starting
from December 25, 2008 through the end of the Cooperation Period,
guaranteed water delivery fees will be $51.7 million (the
700.0 million cubic meter minimum threshold multiplied by the water
delivery fee rate of $0.07381).





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





The
Company earns guaranteed energy fees based upon an assumed delivery of 19.0
gigawatt hours (“GWh”) per month, at a rate of $0.1596 per kilowatt hour
(“kWh”).





The
Company earns variable energy fees based upon actual energy delivered in each
month in excess of 19.0 GWh, currently payable at a rate of $0.1509 per
kWh. On December 25, 2008, the kWh rate for energy deliveries in excess of
19.0 GWh per month is reduced to $0.1132, escalating at 1% per annum
thereafter. Any deliveries of energy in excess of 490.0 GWh, but less than
550.0 GWh per year are paid at a rate of 1.3 pesos per kWh, reduced to
0.98 pesos starting in 2009 and escalated at 1% per annum thereafter.
Deliveries in excess of 550.0 GWh per year are at no cost to NIA. Within
each contract year, no variable energy fees are payable until energy in excess
of the cumulative 19.0 GWh per month for the contract year to date has been
delivered.





Results
of Operations for the Three- and Six-Month Periods Ended June 30, 2008 and
2007





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





Second
      Quarter
            
            
            First
      Six Months2008
            
            
            2007
            
            
            2008
            
            
            2007Electricity
      produced (GWh)
            
            
            106.2
            
            
            
            40.1
            
            
            
            205.6
            
            
            
            99.1Water
      delivered (million cubic meters)
            
            
            178.0
            
            
            
            65.5
            
            
            
            350.3
            
            
            
            168.0




14


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





Second
      Quarter
            
            
            First
      Six Months2008
            
            
            2007
            
            
            2008
            
            
            2007Water
      delivery fees
            
            $
            14.8
            
            
            $
            14.8
            
            
            $
            29.7
            
            
            $
            29.7Guaranteed
      energy fees
            
            
            9.1
            
            
            
            9.1
            
            
            
            18.2
            
            
            
            18.2Variable
      energy fees
            
            
            6.8
            
            
            
            -
            
            
            
            13.6
            
            
            
            2.3Deferred
      water delivery fees
            
            
            (1.9
            )
            
            
            (1.9
            )
            
            
            (3.8
            )
            
            
            (3.8
            )$
            28.8
            
            
            $
            22.0
            
            
            $
            57.7
            
            
            $
            46.4





Revenue
for the second quarter and the first six months of 2008 increased $6.8 million
and $11.3 million, respectively, from the comparable periods in 2007. The
increase in variable energy fees was due to the higher rainfall which resulted
in higher electricity production in 2008 compared to 2007. Deferred water
delivery fees represent the difference between the actual water delivery fees
earned and the water delivery fees invoiced pursuant to the Project
Agreement.





Plant
operations and other operating expenses for the second quarter and the first six
months of 2008 increased $0.4 million and $0.8 million, respectively, from
the comparable periods in 2007, due to higher general and administrative cost
allocations in 2008.





Interest
expense for the second quarter and the first six months of 2008 decreased
$2.0 million and $3.5 million, respectively, from the comparable periods in
2007.  The lower interest expense was due to lower outstanding debt
balances resulting from the scheduled repayment of Series B bonds and the
repayment of notes payable.





Income
tax expense for the second quarter and the first six months of 2008 increased
$6.2 million and $12.5 million, respectively, from the comparable periods
in 2007, due to the expiration of the income tax holiday on December 11,
2007.  From December 11, 2007 forward, the Company’s taxable
income is subject to income tax at the Philippine statutory rate.





Liquidity
and Capital Resources





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





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





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




15




The
Company’s cash and cash equivalents were $21.8 million and $31.1 million at
June 30, 2008 and December 31, 2007,
respectively.





Cash
flows from operations were $42.4 million and $39.5 million for the
six-month periods ended June 30, 2008 and 2007, respectively. The
increase in cash from operations in 2008 was primarily due to collection of
higher variable energy revenue resulting from higher water flow and related
energy generation in 2008.





Cash
flows from investing activities were ($0.8) million and $17.9 million
for the six-month periods ended June 30, 2008 and 2007, respectively.
The Company decreased its restricted cash and investments related to obligations
for debt service and unpaid dividends in 2007 by paying $25.6 million of
dividends and accrued interest held in escrow. This was partially offset by net
purchases of available-for-sale securities totaling $7.5 million during the
six-month period ended June 30, 2007.





Cash
flows from financing activities were ($50.8) million and
($79.4) million for the six-month periods ended June 30, 2008 and
2007, respectively. The Company repaid $18.9 million of its outstanding project
financing debt and $32.1 million of its notes payable during the six-month
period ended June 30, 2008. The Company repaid $38.9 million of
advances received from its affiliates and $18.9 million of its outstanding
project financing debt and also released $21.7 million of dividends held in
escrow during the six-month period ended June 30, 2007.





Auction
Rate Securities





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





Although
there is no current liquid market for the auction rate securities, the Company
believes the underlying creditworthiness of the repayment sources for these
securities’ principal and interest has not materially deteriorated. Further, the
Company has the intent and ability to hold the auction rate securities for a
period of time sufficient to allow for any anticipated recovery. At
June 30, 2008, the Company’s pre-tax temporary impairment of the auction
rate securities totaled $1.7 million. If the underlying assets and the
guarantors of the auction rate securities experience credit deterioration, the
Company may not ultimately realize the par value of the investment at
June 30, 2008.





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





Shareholder
Litigation





In
February 2002, pursuant to the share ownership adjustment mechanism in the
CE Casecnan shareholder agreement, MEHC’s indirect wholly owned subsidiary,
CE Casecnan Ltd., advised the minority shareholder of the Company,
LaPrairie Group Contractors (International) Ltd. (“LPG”) that MEHC’s indirect
ownership interest in CE Casecnan had increased to 100% effective from
commencement of commercial operations. On July 8, 2002, LPG filed a
complaint in the Superior Court of the State of California, City and County of
San Francisco, against CE Casecnan Ltd. and MEHC. On
January 3, 2006, the Superior Court of the State of California entered
a judgment in favor of LPG against CE Casecnan Ltd. Pursuant to the judgment,
15% of the distributions of the Company was deposited into escrow plus interest
at 9% per annum. The judgment was appealed, and as a result of the appellate
decision, CE Casecnan Ltd. determined that LPG would retain ownership of 10% of
the shares of the Company, with the remaining 5% share to be transferred to CE
Casecnan Ltd. subject to certain buy-up rights under the shareholder agreement,
which are also being litigated. The remaining issues are fully briefed and
pending before the court. Exercise of the buy-up rights is a transaction between
shareholders and is not expected to have any impact on the Company’s results of
operations.




16




On
July 1, 2005, MEHC and CE Casecnan Ltd. commenced an action
against San Lorenzo Ruiz Builders and Developers Group, Inc. (“San
Lorenzo”) in the District Court of Douglas County, Nebraska, seeking a
declaratory judgment as to San Lorenzo’s right to repurchase shares in the
Company. On January 30, 2006, San Lorenzo filed a counterclaim
against MEHC and CE Casecnan Ltd. seeking declaratory relief that it
has effectively exercised its option to purchase 15% of the shares of the
company, that it is the rightful owner of such shares and that it is due all
dividends paid on such shares. Currently, the action is in the discovery phase,
and a one-week trial has been set to begin November 3, 2008. The
impact, if any, of this litigation on the Company cannot be determined at this
time.





Franchise
Tax





CE Casecnan
received franchise tax assessments for the years 2001 to 2006 totaling
$2.2 million from the Province of Nueva Vizcaya. CE Casecnan believes
that franchise tax is imposed on companies which have a secondary or special
franchise from the government. CE Casecnan is an independent power producer
and does not have a government franchise. The Electric Power Industry Reform Act
of 2001 provides that independent power generation is not a public utility
operation and does not require a franchise. Therefore, the Company has not
recognized a liability relating to these assessments. CE Casecnan filed
appeals of the assessments with the Regional Trial Court of Nueva Vizcaya. The
appeals were referred to the Supreme Court Office of the Court Administrator who
assigned the consolidated cases to the Regional Trial Court of Bayombong Vizcaya
South Sector.





Real
Property Tax





On July
1, 2008, CE Casecnan received a real property tax assessment adjustment
totaling $28.6 million from the province of Nueva Ecija and the municipality of
Pantabangan for the years 2002 through the second quarter of 2008. On July 2,
2008, CE Casecnan forwarded the tax assessment adjustment to NIA and the
Philippine Department of Finance (“DOF”), who must authorize any payment for
real property taxes and are obligated to reimburse the Company pursuant to the
Project Agreement.





National
Wealth Tax





On July
17, 2008, CE Casecnan received an assessment totaling $4.1 million from the
municipality of Alfonso Castaneda for a share of national wealth tax it claims
is owed by the Company for the years from 2002 through 2007.  On July
22, 2008, CE Casecnan forwarded the assessment to NIA and the DOF, who are
obligated to reimburse the Company pursuant to the Project
Agreement.





Contractual
Obligations and Commercial Commitments





Subsequent
to December 31, 2007, there were no material changes outside the normal
course of business in the contractual obligations and commercial commitments
from the information provided in Item 7 of the Company’s Annual Report on
Form 10-K for the year ended December 31, 2007.





New
Accounting Pronouncements





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




17




Critical
Accounting Policies





Certain
accounting policies require management to make estimates and judgments
concerning transactions that will be settled in the future. Amounts recognized
in the Financial Statements from such estimates are necessarily based on
numerous assumptions involving varying and potentially significant degrees of
judgment and uncertainty. Accordingly, the amounts currently reflected in the
Financial Statements will likely increase or decrease in the future as
additional information becomes available. Estimates are used for, but not
limited to, the allowance for doubtful accounts and revenue. For additional
discussion of the Company’s critical accounting policies, see Item 7 of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
The Company’s critical accounting policies have not changed materially since
December 31, 2007.




18




Item
      3.
            Quantitative and Qualitative
      Disclosures About Market Risk


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





Item
      4.
            Controls and
Procedures





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




19





PART II – OTHER INFORMATION





Item
      1.
            Legal
Proceedings





None.





Item
      1A.
            Risk Factors





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





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





Not
applicable.





Item
      3.
            Defaults Upon Senior
  Securities





Not
applicable.





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





Not
applicable.





Item
      5.
            Other
Information





Not
applicable.





Item
      6.
            Exhibits





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





20








SIGNATURES








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.











CE CASECNAN WATER AND
      ENERGY COMPANY, INC.(Registrant)Date:
      July 25, 2008
            
            /s/ Patrick J.
      GoodmanPatrick
      J. GoodmanSenior
      Vice President and Chief Financial Officer(principal
      financial and accounting officer)





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EXHIBIT INDEX





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





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