UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
   EXCHANGE ACT OF 1934

For the quarterly period ended               March 31, 1998
                                ----------------------------------------------
                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the transition period from                      to
                               ---------------------   -----------------------

Commission         Registrant, State of Incorporation,        IRS Employer
File Number          Address and Telephone Number           Identification No.
------------       ----------------------------------       ------------------

1-12459            MIDAMERICAN ENERGY HOLDINGS COMPANY      42-1451822
                        (An Iowa Corporation)
                      666 Grand Ave. PO Box 657
                         Des Moines, Iowa 50303
                             515-242-4300

1-11505               MIDAMERICAN ENERGY COMPANY            42-1425214
                         (An Iowa Corporation)
                       666 Grand Ave. PO Box 657
                        Des Moines, Iowa 50303
                           515-242-4300

     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  X   No
                                              ----    ----

     Indicate the number of shares  outstanding of each of the issuers' classes
of common stock as of the latest practicable date.

  Registrant            Class             Shares Outstanding at April 30, 1998
------------------   ----------------     ------------------------------------
MidAmerican Energy     Common Stock       94,595,982
  Holdings Company   without par value

MidAmerican Energy     Common Stock       70,980,203 (all of which were held by
  Company            without par value    MidAmerican Energy Holdings Company)

<PAGE>



                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                                       AND
                           MIDAMERICAN ENERGY COMPANY


This combined  Form 10-Q is  separately  filed by  MidAmerican  Energy  Holdings
Company  (Company or Holdings) and  MidAmerican  Energy  Company  (MidAmerican).
Information  herein  relating  to each  individual  registrant  is filed by such
registrant  on  its  own  behalf.  Accordingly,  except  for  its  subsidiaries,
MidAmerican  makes no  representation  as to  information  relating to any other
subsidiary of Holdings.



                                TABLE OF CONTENTS


                          PART I. FINANCIAL INFORMATION            PAGE NO.

ITEM 1.  Financial Statements

                       MidAmerican Energy Holdings Company

         Consolidated Statements of Income............................... 3
         Consolidated Statements of Comprehensive Income................. 4
         Consolidated Balance Sheets..................................... 5
         Consolidated Statements of Cash Flows........................... 6
         Notes to Consolidated Financial Statements...................... 7

                           MidAmerican Energy Company

         Consolidated Statements of Income...............................12
         Consolidated Balance Sheets.....................................13
         Consolidated Statements of Cash Flows...........................14
         Notes to Consolidated Financial Statements......................15

ITEM 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations.................16

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk......37

                           PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings...............................................38

ITEM 6.  Exhibits and Reports on Form 8-K................................39

Signatures...............................................................40

                                       -2-
<PAGE>
<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                    (In Thousands, except per share amounts)

                                                     Three Months              Twelve Months
                                                    Ended March 31             Ended March 31
                                              -------------------------   -------------------------
                                                 1998          1997          1998          1997
                                              -----------   -----------   -----------   -----------
<S>                                           <C>           <C>           <C>           <C>    
OPERATING REVENUES
Electric utility ...........................  $   256,354   $   254,316   $ 1,128,338   $ 1,091,050
Gas utility ................................      173,200       211,565       497,941       552,332
Nonregulated ...............................       41,974       114,278       187,371       301,793
                                              -----------   -----------   -----------   -----------
                                                  471,528       580,159     1,813,650     1,945,175
                                              -----------   -----------   -----------   -----------

OPERATING EXPENSES
Utility:
  Cost of fuel, energy and capacity ........       45,199        59,283       221,676       232,225
  Cost of gas sold .........................      105,321       141,833       309,504       364,111
  Other operating expenses .................      106,777        93,607       442,964       356,180
  Maintenance ..............................       22,583        23,749        96,924        93,634
  Depreciation and amortization ............       44,191        42,008       172,723       165,656
  Property and other taxes .................       25,470        25,490       101,297        92,943
                                              -----------   -----------   -----------   -----------
                                                  349,541       385,970     1,345,088     1,304,749
                                              -----------   -----------   -----------   -----------
Nonregulated:
  Cost of sales ............................       39,036       108,970       170,248       284,479
  Other ....................................        6,309         7,986        28,399        35,217
                                              -----------   -----------   -----------   -----------
                                                   45,345       116,956       198,647       319,696
                                              -----------   -----------   -----------   -----------
  Total operating expenses..................      394,886       502,926     1,543,735     1,624,445
                                              -----------   -----------   -----------   -----------
OPERATING INCOME ...........................       76,642        77,233       269,915       320,730
                                              -----------   -----------   -----------   -----------

NON-OPERATING INCOME
Interest income ............................        2,452         1,553         6,217         4,060
Dividend income ............................        2,714         3,548        12,958        16,027
Realized gains and losses on securities, net        1,065           518         8,345          (312)
Other, net .................................        5,657         3,985        23,783        (1,707)
                                              -----------   -----------   -----------   -----------
                                                   11,888         9,604        51,303        18,068
                                              -----------   -----------   -----------   -----------
FIXED CHARGES
Interest on long-term debt .................       20,284        23,463        86,719       100,267
Other interest expense .....................        3,212         1,329        11,917         9,234
Preferred dividends of subsidiaries ........        3,232         4,769        12,931        12,981
Allowance for borrowed funds ...............         (754)         (709)       (2,642)       (3,485)
                                              -----------   -----------   -----------   -----------
                                                   25,974        28,852       108,925       118,997
                                              -----------   -----------   -----------   -----------
INCOME FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES ......................       62,556        57,985       212,293       219,801
INCOME TAXES ...............................       23,823        23,811        68,402        90,271
                                              -----------   -----------   -----------   -----------
INCOME FROM CONTINUING OPERATIONS ..........       38,733        34,174       143,891       129,530

DISCONTINUED OPERATIONS
Income from operations (net of income taxes)           --           290          (408)         (235)
Loss on disposal (net of income taxes) .....           --          (524)       (3,586)      (15,356)
                                              -----------   -----------   -----------   -----------
                                                       --          (234)       (3,994)      (15,591)
                                              -----------   -----------   -----------   -----------

NET INCOME .................................  $    38,733   $    33,940   $   139,897   $   113,939
                                              ===========   ===========   ===========   ===========

AVERAGE COMMON SHARES OUTSTANDING ..........       94,857       100,458        96,663       100,661

EARNINGS PER COMMON SHARE:  BASIC AND DILUTED
Continuing operations ......................  $      0.41   $      0.34   $      1.49   $      1.29
Discontinued operations ....................           --            --         (0.04)        (0.16)
                                              -----------   -----------   -----------   -----------
Earnings per average common share ..........  $      0.41   $      0.34   $      1.45   $      1.13
                                              ===========   ===========   ===========   ===========
DIVIDENDS DECLARED PER SHARE ...............  $      0.30   $      0.30   $      1.20   $      1.20
                                              ===========   ===========   ===========   ===========
</TABLE>
The accompanying notes are an integral part of these statements.

                                       -3-
<PAGE>

<TABLE>
<CAPTION>

                      MIDAMERICAN ENERGY HOLDINGS COMPANY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (UNAUDITED)
                                 (IN THOUSANDS)


                                                              THREE MONTHS           TWELVE MONTHS
                                                             ENDED MARCH 31          ENDED MARCH 31
                                                          ---------------------   ---------------------
                                                            1998        1997        1998        1997
                                                          ---------   ---------   ---------   ---------

<S>                                                       <C>         <C>         <C>         <C>      
NET INCOME ............................................   $  38,733   $  33,940   $ 139,897   $ 113,939
                                                          ---------   ---------   ---------   ---------

OTHER COMPREHENSIVE INCOME
Unrealized gains (losses) on securities:
  Unrealized holding gains during period ..............      82,856       4,126     302,657       6,961
  Less reclassification adjustment for realized gains
    (losses) reflected in net income during period ....       1,065         518       8,334        (312)
                                                          ---------   ---------   ---------   ---------
                                                             81,791       3,608     294,323       7,273
  Income tax expense ..................................      28,548       1,218     102,898       2,500
                                                          ---------   ---------   ---------   ---------
    Other comprehensive income, net ...................      53,243       2,390     191,425       4,773
                                                          ---------   ---------   ---------   ---------

COMPREHENSIVE INCOME ..................................   $  91,976   $  36,330   $ 331,322   $ 118,712
                                                          =========   =========   =========   =========
</TABLE>


The accompanying notes are an integral part of these statements.

                                      -4-
<PAGE>
<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                                                              AS OF
                                                              -------------------------------------
                                                                     MARCH 31           DECEMBER 31
                                                              ------------------------  -----------
                                                                 1998         1997         1997
                                                              -----------  -----------  -----------
                                                                    (UNAUDITED)
<S>                                                           <C>          <C>          <C>    
ASSETS
UTILITY PLANT
Electric ...................................................  $ 4,095,470  $ 4,033,782  $ 4,084,920
Gas ........................................................      759,847      726,906      756,874
                                                              -----------  -----------  -----------
                                                                4,855,317    4,760,688    4,841,794
Less accumulated depreciation and amortization .............    2,312,812    2,188,624    2,275,099
                                                              -----------  -----------  -----------
                                                                2,542,505    2,572,064    2,566,695
Construction work in progress ..............................       62,034       39,104       55,418
                                                              -----------  -----------  -----------
                                                                2,604,539    2,611,168    2,622,113
                                                              -----------  -----------  -----------

POWER PURCHASE CONTRACT ....................................      170,771      190,326      173,107
                                                              -----------  -----------  -----------

INVESTMENT IN DISCONTINUED OPERATIONS ......................           --        6,334           --
                                                              -----------  -----------  -----------
CURRENT ASSETS
Cash and cash equivalents ..................................       34,637       93,010       10,468
Receivables ................................................      158,502      233,407      207,471
Inventories ................................................       40,890       59,704       86,091
Other ......................................................       16,324       14,932       18,452
                                                              -----------  -----------  -----------
                                                                  250,353      401,053      322,482
                                                              -----------  -----------  -----------

INVESTMENTS AND NONREGULATED PROPERTY, NET .................      907,528      615,638      799,524
                                                              -----------  -----------  -----------

OTHER ASSETS ...............................................      343,161      395,862      360,865
                                                              -----------  -----------  -----------

TOTAL ASSETS ...............................................  $ 4,276,352  $ 4,220,381  $ 4,278,091
                                                              ===========  ===========  ===========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity ................................  $ 1,349,011  $ 1,225,953  $ 1,301,286
MidAmerican preferred securities, not subject to
  mandatory redemption .....................................       31,761       31,766       31,763
Preferred securities, subject to mandatory redemption:
  MidAmerican preferred securities .........................       50,000       50,000       50,000
  MidAmerican-obligated preferred securities of
    subsidiary trust holding solely MidAmerican
    junior subordinated debentures .........................      100,000      100,000      100,000
Long-term debt (excluding current portion) .................    1,037,598    1,118,723    1,034,211
                                                              -----------  -----------  -----------
                                                                2,568,370    2,526,442    2,517,260
                                                              -----------  -----------  -----------
CURRENT LIABILITIES
Notes payable ..............................................      141,063       40,209      138,054
Current portion of long-term debt ..........................       69,651      155,202      144,558
Current portion of power purchase contract .................       14,361       13,718       14,361
Accounts payable ...........................................      140,198      147,352      145,855
Taxes accrued ..............................................      105,720      123,650       92,629
Interest accrued ...........................................       18,807       23,578       22,355
Other ......................................................       33,515       52,445       38,766
                                                              -----------  -----------  -----------
                                                                  523,315      556,154      596,578
                                                              -----------  -----------  -----------
OTHER LIABILITIES
Power purchase contract ....................................       83,143       97,504       83,143
Deferred income taxes ......................................      785,610      716,062      761,795
Investment tax credit ......................................       81,700       87,414       83,127
Other ......................................................      234,214      236,805      236,188
                                                              -----------  -----------  -----------
                                                                1,184,667    1,137,785    1,164,253
                                                              -----------  -----------  -----------
TOTAL CAPITALIZATION AND LIABILITIES .......................  $ 4,276,352  $ 4,220,381  $ 4,278,091
                                                              ===========  ===========  ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       -5-
<PAGE>
<TABLE>
<CAPTION>

                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

                                                             THREE MONTHS ENDED MARCH 31
                                                             ---------------------------
                                                                  1998         1997
                                                                ---------    ---------

<S>                                                             <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..................................................   $  38,733    $  33,940
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization .............................      48,437       48,409
  Net decrease in deferred income taxes and
    investment tax credit, net ..............................      (5,373)      (4,823)
  Amortization of other assets ..............................       9,212        6,878
  Loss from discontinued operations .........................          --          234
  Gain on sale of securities, assets and other investments ..      (7,532)      (1,465)
  Other-than-temporary decline in value of investments ......          39          160
  Impact of changes in working capital, net of effects
    from discontinued operations ............................      94,933      144,109
  Other .....................................................       2,225       (4,045)
                                                                ---------    ---------
    Net cash provided .......................................     180,674      223,397
                                                                ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ...........................     (24,686)     (26,603)
Quad Cities Nuclear Power Station decommissioning trust fund       (2,813)      (2,140)
Deferred energy efficiency expenditures .....................          --       (3,723)
Nonregulated capital expenditures ...........................     (21,198)      (2,625)
Purchase of securities ......................................     (53,230)     (63,343)
Proceeds from sale of securities ............................      52,045       78,652
Proceeds from sale of assets and other investments ..........       8,199       13,144
Investment in discontinued operations .......................          --      152,713
Other investing activities, net .............................      (2,778)       1,600
                                                                ---------    ---------
  Net cash (used) provided ..................................     (44,461)     147,675
                                                                ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid .......................................     (28,376)     (30,179)
Retirement of long-term debt, including reacquisition cost ..     (75,031)     (29,025)
Reacquisition of preferred shares ...........................          (3)          (3)
Reacquisition of common shares ..............................     (14,843)     (20,329)
Increase (decrease) in MidAmerican Capital Company
  unsecured revolving credit facility .......................       3,200     (174,500)
Net increase(decrease) in notes payable .....................       3,009     (121,780)
                                                                ---------    ---------
  Net cash used .............................................    (112,044)    (375,816)
                                                                ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........      24,169       (4,744)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............      10,468       97,749
                                                                ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................   $  34,637    $  93,005
                                                                =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ...................   $  25,134    $  30,270
                                                                =========    =========
Income taxes paid ...........................................   $     724    $      63
                                                                =========    =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       -6-
<PAGE>

                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A)   GENERAL:

     The consolidated financial statements included herein have been prepared by
Holdings, without audit, pursuant to the rules and regulations of the Securities
and Exchange  Commission.  Certain information and disclosures normally included
in  financial   statements   prepared  in  accordance  with  generally  accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  In the opinion of the Company,  all adjustments  have been made to
present fairly the financial position, the results of operations and the changes
in cash flows for the periods presented.  Although the Company believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested  that  these  financial  statements  be read in  conjunction  with the
consolidated  financial  statements  and  the  notes  thereto  included  in  the
Company's latest Annual Report on Form 10-K.

B)   ENVIRONMENTAL MATTERS:

     1)  Manufactured Gas Plant Facilities:

     The  United  States  Environmental  Protection  Agency  (EPA) and the state
environmental  agencies have determined that  contaminated  wastes  remaining at
certain decommissioned manufactured gas plant (MGP) facilities may pose a threat
to the public health or the environment if such  contaminants  are in sufficient
quantities and at such concentrations as to warrant remedial action.

     MidAmerican is evaluating 26 properties  which were, at one time,  sites of
gas  manufacturing  plants in which it may be a  potentially  responsible  party
(PRP). The purpose of these  evaluations is to determine whether waste materials
are present,  whether such materials constitute an environmental or health risk,
and whether MidAmerican has any responsibility for remedial action.  MidAmerican
is currently  conducting field  investigations at seventeen of the sites and has
completed  investigations  at one of the sites.  In  addition,  MidAmerican  has
completed removals at three of the sites.  MidAmerican is continuing to evaluate
several of the sites to determine  its  responsibility,  if any, for  conducting
site investigations or other site activity.

     MidAmerican's  present estimate of probable remediation costs for the sites
discussed  above as of March 31, 1998 is $21  million.  This  estimate  has been
recorded as a liability and a regulatory asset for future recovery. The Illinois
Commerce  Commission  (ICC) has approved the use of a tariff rider which permits
recovery  of the  actual  costs of  litigation,  investigation  and  remediation
relating to former MGP sites.  MidAmerican's present rates in Iowa provide for a
fixed annual  recovery of MGP costs.  MidAmerican  intends to pursue recovery of
the remediation costs from other PRPs and its insurance carriers.

     The  estimate  of  probable  remediation  costs  is  established  on a site
specific  basis.  The costs are  accumulated in a three-step  process.  First, a
determination  is made as to whether  MidAmerican  has potential legal liability
for the site and whether information exists to indicate that contaminated wastes
remain at the site. If so, the costs of  performing a preliminary  investigation
and  the  costs  of  removing  known  contaminated  soil  are  accrued.  As  the
investigation is performed and if it is determined  remedial action is required,
the best estimate of remediation costs is accrued. If necessary, the estimate is
revised when a consent order is issued. The estimated  recorded  liabilities for
these properties  include  incremental  direct costs of the remediation  effort,
costs for future  monitoring at sites and costs of compensation to employees for
time  expected to be spent  directly on the  remediation  effort.  The estimated
recorded liabilities for these properties are based upon

                                       -7-

<PAGE>

preliminary  data.  Thus,  actual  costs  could  vary   significantly  from  the
estimates. The estimate could change materially based on facts and circumstances
derived  from site  investigations,  changes  in  required  remedial  action and
changes in technology relating to remedial alternatives.  In addition, insurance
recoveries  for some or all of the costs may be  possible,  but the  liabilities
recorded have not been reduced by any estimate of such recoveries.

     Although the timing of potential  incurred costs and recovery of such costs
in rates may affect the results of operations in individual periods,  management
believes  that the  outcome of these  issues  will not have a  material  adverse
effect on MidAmerican's financial position or results of operations.

     2)  Clean Air Act:

     On July 18, 1997,  the EPA adopted  revisions  to the National  Ambient Air
Quality  Standards  for ozone and a new  standard for fine  particulate  matter.
Based on data to be obtained from monitors  located  throughout the states,  the
EPA will make a  determination  of whether the states have any areas that do not
meet  the  air  quality   standards   (i.e.,   areas  that  are   classified  as
nonattainment).  If a state has area(s) classified as nonattainment area(s), the
state is required to submit a State  Implementation  Plan specifying how it will
reach attainment of the standards through emission reductions or other means.

     The  impact  of  the  new  standards  on  MidAmerican  will  depend  on the
attainment  status  of  the  areas  surrounding   MidAmerican's  operations  and
MidAmerican's   relative   contribution   to  the   nonattainment   status.   If
MidAmerican's  operations  contribute  to  nonattainment  and  modifications  to
MidAmerican's  operations  or  facilities  are  necessary,  the  cost of  making
emissions  reductions to meet the air quality  standards  will be dependent upon
the  level  of  emissions  reductions  required  and the  available  technology.
MidAmerican   will  continue  to  evaluate  the  potential  impact  of  the  new
regulations.

     Following recommendations provided by the Ozone Transport Assessment Group,
the EPA,  in  November  1997,  issued  a Notice  of  Proposed  Rulemaking  which
identified  22  states  and the  District  of  Columbia  as  making  significant
contribution to nonattainment  of NAAQS for ozone.  Iowa is not subject to these
emissions  reduction  requirements as EPA's rule is currently  drafted,  and, as
such,  MidAmerican  does not anticipate  that its facilities  will be subject to
additional  emissions  reductions  as a  result  of  this  initiative.  The  EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.

C)   RATE MATTERS:

     As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois  electric  service  rates by annual  amounts of $13.1  million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.

     On June 27,  1997,  the Iowa  Utilities  Board (IUB)  approved a March 1997
settlement agreement between  MidAmerican,  the Iowa Office of Consumer Advocate
(OCA)  and  other  parties  in  a   consolidated   rate   proceeding   involving
MidAmerican's  electric pricing proposal and a filing by the OCA.  The agreement
includes a number of components of MidAmerican's pricing proposal as follows:

     * Prices for residential  customers were reduced $8.5 million  annually and
$10.0  million  annually,  effective  November  1,  1996,  and  July  11,  1997,
respectively, and will be reduced an additional $5.0 million annually on June 1,
1998, for a total annual decrease of $23.5 million.

                                       -8-

<PAGE>

     * Rates for commercial and industrial  customers will be reduced a total of
$10 million annually by June 1, 1998,  through pilot projects,  negotiated rates
with  individual  customers  and,  if needed,  a base rate  reduction  currently
scheduled to be effective June 1, 1998.

     *  A  tracking   mechanism  to  currently   recover  the  cost  of  capital
improvements  required by the Cooper Nuclear  Station Power  Purchase  Contract
which will offset approximately $6 million of the rate reductions in 1998.

     * Elimination of the Iowa energy adjustment clause (EAC). Prior to July 11,
1997,  MidAmerican  collected  fuel costs from Iowa customers on a current basis
through the EAC,  and thus,  fuel costs had little  impact on net income.  Since
then,  base  rates  for Iowa  customers  include  a  factor  for  recovery  of a
representative  level of fuel costs.  To the extent  actual fuel costs vary from
that  factor,  pre-tax  earnings  are  impacted.  The fuel cost  factor  will be
reviewed in February 1999 and adjusted  prospectively  if actual 1998 fuel costs
vary 15% above or below the factor included in base rates.

     * If  MidAmerican's  annual Iowa electric  jurisdictional  return on common
equity exceeds 12%, then an equal sharing between  customers and shareholders of
earnings  above the 12% level  begins;  if it exceeds 14%,  then  two-thirds  of
MidAmerican's  share of those earnings will be used for accelerated  recovery of
certain  regulatory  assets.  The  agreement  permits  MidAmerican  to file  for
increased  rates if the  return  falls  below  9%.  Other  parties  signing  the
agreement are prohibited  from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.

     *  MidAmerican  will develop a pilot  program for a market  access  service
which allows  customers  with at least 4 MW of load to choose energy  suppliers.
The pilot  program,  which is subject  to  approval  by the IUB and the  Federal
Energy  Regulatory  Commission  (FERC), is limited to 60 MW of participation the
first year and can be  expanded by 15 MW annually  until the  conclusion  of the
program.  Any  loss of  revenues  associated  with  the  pilot  program  will be
considered  part  of  the  $10  million  annual  reduction  for  commercial  and
industrial  customers as described  above,  but may not be recovered  from other
customer  classes.  The program was filed with the IUB and the FERC in September
1997. The Company  anticipates that the necessary  approvals will be received by
the fourth quarter of 1998.

D)  ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION:

     Statement  of  Financial  Accounting  Standards  (SFAS)  No. 71 sets  forth
accounting  principles  for  operations  that are  regulated  and  meet  certain
criteria.  For operations  that meet the criteria,  SFAS 71 allows,  among other
things, the deferral of costs that would otherwise be expensed when incurred.  A
possible  consequence of the changes in the utility industry is the discontinued
applicability of SFAS 71. The majority of MidAmerican's electric and gas utility
operations  currently  meet the  criteria of SFAS 71, but its  applicability  is
periodically   reexamined.   On  December  16,  1997,  MidAmerican's  generation
operations  serving Illinois were no longer subject to the provisions of SFAS 71
due to passage of restructuring  legislation in Illinois.  Thus, MidAmerican was
required to write off regulatory  assets and liabilities  from its balance sheet
related to its Illinois generation operations. The net amount of such write-offs
were immaterial. If other utility operations no longer meet the criteria of SFAS
71, MidAmerican would be required to write off the related regulatory assets and
liabilities  from its balance sheet and thus, a material  adjustment to earnings
in that period could result. As of March 31, 1998, MidAmerican had approximately
$325 million of  regulatory  assets in its  Consolidated  Balance  Sheet because
these costs are expected to be recovered in future charges to utility customers.


                                       -9-

<PAGE>

E)   MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:

     The MidAmerican  Obligated  Mandatorily  Redeemable Preferred Securities of
Subsidiary  Trust Holding  Solely  MidAmerican  Junior  Subordinated  Debentures
included in the  Consolidated  Balance Sheets were issued by MidAmerican  Energy
Financing I (the Trust), a wholly-owned statutory business trust of MidAmerican.
The sole assets of the Trust are $103.1  million of  MidAmerican  7.98% Series A
Debentures due 2045.

F)  COMMON SHAREHOLDERS' EQUITY:

     In March 1997, Holdings announced its plan to repurchase up to $200 million
of the  Company's  common  stock.  The Company plans to purchase the shares from
time to time as market  conditions  warrant,  with the intent of completing  the
entire  repurchase  program by December  31,  1998.  As of March 31,  1998,  the
Company had  repurchased  approximately  5.7 million  shares for $104.1  million
under the plan.  In  addition,  a  subsidiary  has  acquired  437,131  shares of
Holdings common stock which are also excluded from shares outstanding.

G)   DETAIL OF OTHER COMPREHENSIVE INCOME - INCOME TAXES

     For  fiscal  years   beginning  after  December  15,  1997,  full  sets  of
general-purpose  financial  statements  are  required  to display  comprehensive
income and its  components in a financial  statement  that is displayed with the
same prominence as the other financial statements.  Comprehensive income refers,
in general,  to changes in the Company's  equity,  except those  resulting  from
transactions with shareholders. "Unrealized holding gains (losses)" reflects the
overall increase (decrease) in the market value of marketable securities held by
the Company as available-for-sale. The "reclassification adjustment" removes any
gains  (losses)  that have been  realized  from  sales of those  securities  and
reflected in the Company's Net Income.  The following table shows the income tax
expense or benefit related to each component (in thousands):

                                  Three Months             Twelve Months
                                 Ended March 31            Ended March 31
                               --------------------    ---------------------
                                 1998        1997         1998        1997
                               --------    --------    ---------    --------
Unrealized holding gains 
  (losses) during period
    Before income taxes        $ 82,856    $ 4,126     $ 302,657    $  6,961
    Income tax expense          (28,921)    (1,399)     (105,815)     (2,391)
                               --------    -------     ---------    --------
                                 53,935      2,727       196,842       4,570
                               --------    -------     ---------    --------

Less reclassification 
  adjustment for realized 
  gains (losses) reflected in 
  net income during period
    Before income taxes           1,065        518         8,334        (312)
    Income tax expense             (373)      (181)       (2,917)        109
                               --------    -------     ---------    --------
                                    692        337         5,417        (203)
                               --------    -------     ---------    --------

Other Comprehensive Income     $ 53,243    $ 2,390     $ 191,425    $  4,773
                               ========    =======     =========    ========

                                      -10-

<PAGE>

H)   MCLEODUSA INCORPORATED INVESTMENT:

     Included in investments on the Consolidated Balance Sheets is the Company's
investment  in common stock of  McLeodUSA  Incorporated  (McLeodUSA).  McLeodUSA
common stock has been publicly traded since June 14, 1996.  Investor  agreements
related to  McLeodUSA's  initial  public  offering  and  subsequent  merger with
Consolidated  Communications Inc. prohibit the Company from selling or otherwise
disposing of any of the common stock of McLeodUSA  prior to September  24, 1998,
without  approval  of  McLeodUSA's  board  of  directors.  As a  result  of  the
agreements,  the Company's  investment was considered  restricted  stock and, as
such, was recorded at cost in all periods prior to September 1997.  Beginning in
September 1997, the investment is no longer considered restricted for accounting
purposes  and is recorded at fair value.  At March 31,  1998,  the cost and fair
value of the  McLeodUSA  investment  were  $45.2  million  and  $340.5  million,
respectively.  The  unrealized  gain  is  recorded,  net  of  income  taxes,  as
accumulated  comprehensive income in common  shareholders'  equity. At March 31,
1998, the unrealized  gain and deferred  income taxes for this  investment  were
$295.3 million and $103.4 million, respectively.

                                      -11-

<PAGE>

<TABLE>
<CAPTION>

                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                 (IN THOUSANDS)

                                                        THREE MONTHS                TWELVE MONTHS
                                                       ENDED MARCH 31               ENDED MARCH 31
                                                  ------------------------      --------------------------
                                                     1998           1997           1998           1997
                                                  -----------    ---------      -----------    -----------
<S>                                               <C>            <C>            <C>            <C>   
OPERATING REVENUES
Electric utility ..............................   $   256,354    $ 254,316      $ 1,128,338    $ 1,091,050
Gas utility ...................................       173,200      211,565          497,941        552,332
                                                  -----------    ---------      -----------    -----------
                                                      429,554      465,881        1,626,279      1,643,382
                                                  -----------    ---------      -----------    -----------
OPERATING EXPENSES
Cost of fuel, energy and capacity .............        45,757       59,283          222,234        232,225
Cost of gas sold ..............................       105,321      141,833          309,504        364,111
Other operating expenses ......................       106,777       93,607          442,964        356,180
Maintenance ...................................        22,583       23,749           96,924         93,634
Depreciation and amortization .................        44,191       42,008          172,723        165,656
Property and other taxes ......................        25,470       25,490          101,297         92,943
Income taxes ..................................        28,953       23,504           80,011        102,380
                                                  -----------    ---------      -----------    -----------
                                                      379,052      409,474        1,425,657      1,407,129
                                                  -----------    ---------      -----------    -----------

OPERATING INCOME ..............................        50,502       56,407          200,622        236,253
                                                  -----------    ---------      -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ..................         1,947          906            3,373          1,992
Non-operating income taxes ....................         4,926         (919)           4,090         (2,847)
Other, net ....................................        (2,234)       1,331            8,802          4,679
                                                  -----------    ---------      -----------    -----------
                                                        4,639        1,318           16,265          3,824
                                                  -----------    ---------      -----------    -----------

FIXED CHARGES
Interest on long-term debt ....................        17,553       19,886           75,787         79,494
Other interest expense ........................         3,168        1,329           11,866          8,848
Preferred dividends of subsidiary trust .......         1,995        1,995            7,980          2,283
Allowance for borrowed funds ..................          (754)        (709)          (2,642)        (3,485)
                                                  -----------    ---------      -----------    -----------
                                                       21,962       22,501           92,991         87,140
                                                  -----------    ---------      -----------    -----------

INCOME FROM CONTINUING OPERATIONS .............        33,179       35,224          123,896        152,937

INCOME (LOSS) FROM DISCONTINUED OPERATIONS ....          --           --               --          (16,266)
                                                  -----------    ---------      -----------    -----------
NET INCOME ....................................        33,179       35,224          123,896        136,671
PREFERRED DIVIDENDS ...........................         1,237        2,774            4,951         10,698
                                                  -----------    ---------      -----------    -----------

EARNINGS ON COMMON STOCK ......................   $    31,942    $  32,450      $   118,945    $   125,973
                                                  ===========    =========      ===========    ===========
</TABLE>

The accompanying notes are an integral part of these statements.


                                       -12-
<PAGE>
<TABLE>
<CAPTION>
                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                                                           AS OF
                                                         ------------------------------------
                                                                 MARCH 31         DECEMBER 31
                                                         -----------------------  -----------
                                                            1998         1997         1997
                                                         ----------   ----------   ----------
                                                             (UNAUDITED)
<S>                                                      <C>          <C>          <C>    
ASSETS
UTILITY PLANT
Electric .............................................   $4,098,474   $4,036,785   $4,087,924
Gas ..................................................      759,847      726,906      756,874
                                                         ----------   ----------   ----------
                                                          4,858,321    4,763,691    4,844,798
Less accumulated depreciation and amortization .......    2,314,918    2,190,212    2,277,110
                                                         ----------   ----------   ----------
                                                          2,543,403    2,573,479    2,567,688
Construction work in progress ........................       62,034       39,104       55,418
                                                         ----------   ----------   ----------
                                                          2,605,437    2,612,583    2,623,106
                                                         ----------   ----------   ----------

POWER PURCHASE CONTRACT ..............................      170,771      190,326      173,107
                                                         ----------   ----------   ----------

CURRENT ASSETS
Cash and cash equivalents ............................       29,650       22,920        9,318
Receivables ..........................................      140,476      194,823      184,153
Inventories ..........................................       39,039       59,704       84,298
Other ................................................        4,322        5,018        6,174
                                                         ----------   ----------   ----------
                                                            213,487      282,465      283,943
                                                         ----------   ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ...........      141,479       94,513      115,029
                                                         ----------   ----------   ----------

OTHER ASSETS .........................................      330,357      380,528      347,122
                                                         ----------   ----------   ----------

TOTAL ASSETS .........................................   $3,461,531   $3,560,415   $3,542,307
                                                         ==========   ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ..........................   $  989,085   $  987,880   $  985,744
MidAmerican preferred securities, not subject to
  mandatory redemption ...............................       31,761       31,766       31,763
Preferred securities, subject to mandatory redemption:
  MidAmerican preferred securities ...................       50,000       50,000       50,000
  MidAmerican-obligated preferred securities of
     subsidiary trust holding solely MidAmerican
     junior subordinated debentures ..................      100,000      100,000      100,000
Long-term debt (excluding current portion) ...........      919,815      982,623      920,203
                                                         ----------   ----------   ----------
                                                          2,090,661    2,152,269    2,087,710
                                                         ----------   ----------   ----------
CURRENT LIABILITIES
Notes payable ........................................      115,102       40,025      122,500
Current portion of long-term debt ....................       49,837      125,068      124,460
Current portion of power purchase contract ...........       14,361       13,718       14,361
Accounts payable .....................................      129,198      121,125      128,390
Taxes accrued ........................................      101,818       86,570       91,449
Interest accrued .....................................       14,181       17,611       20,616
Other ................................................       20,298       23,318       22,598
                                                         ----------   ----------   ----------
                                                            444,795      427,435      524,374
                                                         ----------   ----------   ----------
OTHER LIABILITIES
Power purchase contract ..............................       83,143       97,504       83,143
Deferred income taxes ................................      591,341      616,207      592,840
Investment tax credit ................................       81,700       87,414       83,127
Other ................................................      169,891      179,586      171,113
                                                         ----------   ----------   ----------
                                                            926,075      980,711      930,223
                                                         ----------   ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES .................   $3,461,531   $3,560,415   $3,542,307
                                                         ==========   ==========   ==========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -13-
<PAGE>
<TABLE>
<CAPTION>

                          MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

                                                            THREE MONTHS ENDED MARCH 31
                                                            ---------------------------
                                                                 1998          997
                                                               ---------    ---------
<S>                                                            <C>          <C>    
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .................................................   $  33,179    $  35,224
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ............................      47,774       47,644
  Net decrease in deferred income taxes and
    investment tax credit, net .............................      (2,925)      (1,789)
  Amortization of other assets .............................       9,165        6,620
  Impact of changes in working capital .....................      93,230       87,654
  Other ....................................................        (928)     (17,468)
                                                               ---------    ---------
    Net cash provided ......................................     179,495      157,885
                                                               ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ..........................     (24,686)     (26,603)
Quad Cities Nuclear Power Station decommissioning trust fund      (2,813)      (2,140)
Deferred energy efficiency expenditures ....................          --       (3,723)
Nonregulated capital expenditures ..........................     (19,966)      (1,704)
Other investing activities, net ............................         667           98
                                                               ---------    ---------
    Net cash used ..........................................     (46,798)     (34,072)
                                                               ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid .............................................     (29,838)     (34,274)
Retirement of long-term debt, including reacquisition cost .     (75,126)     (29,156)
Reacquisition of preferred shares ..........................          (3)          (3)
Net decrease in notes payable ..............................      (7,398)    (121,675)
                                                               ---------    ---------
    Net cash used ..........................................    (112,365)    (185,108)
                                                               ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......      20,332      (61,295)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...........       9,318       84,215
                                                               ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................   $  29,650    $  22,920
                                                               =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ..................   $  27,303    $  30,448
                                                               =========    =========
Income taxes paid ..........................................   $      84    $  13,218
                                                               =========    =========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -14-
<PAGE>



                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A)   GENERAL:

     The consolidated financial statements included herein have been prepared by
MidAmerican,  without  audit,  pursuant  to the  rules  and  regulations  of the
Securities and Exchange Commission. Certain information and disclosures normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.  In the opinion of MidAmerican,  all adjustments  have been made to
present fairly the financial position, the results of operations and the changes
in cash flows for the periods presented.  Although MidAmerican believes that the
disclosures are adequate to make the information presented not misleading, it is
suggested  that  these  financial  statements  be read in  conjunction  with the
consolidated   financial   statements   and  the  notes   thereto   included  in
MidAmerican's latest Annual Report on Form 10-K.

B)   ENVIRONMENTAL MATTERS:

     Refer to Note B of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's environmental matters.

C)   RATE MATTERS:

     Refer to Note C of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's rate matters.

D)   ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION:

     Refer to Note D of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's  accounting for the effects of certain types
of regulation.

E)   MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:

     Refer to Note E of Holdings' Notes to Consolidated Financial Statements for
information regarding the MidAmerican-Obligated Mandatorily Redeemable Preferred
Securities.

F)   STATEMENT OF COMPREHENSIVE INCOME:

     MidAmerican  did not  have  other  comprehensive  income  for  the  periods
presented,  and  accordingly,  a  statement  of  comprehensive  income  has been
omitted.  MidAmerican's total  comprehensive  income is equal to its earnings on
common stock for each period presented.


                                      -15-
<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

                                  INTRODUCTION
                                  ------------

COMPANY STRUCTURE

     MidAmerican  Energy Holdings Company (Holdings or the Company) is an exempt
public utility  holding company  headquartered  in Des Moines,  Iowa.  Effective
December  1, 1996,  Holdings  became the parent  company of  MidAmerican  Energy
Company  (MidAmerican),  MidAmerican Capital Company  (MidAmerican  Capital) and
Midwest  Capital  Group,  Inc.  (Midwest  Capital).  Prior to  December 1, 1996,
MidAmerican Capital and Midwest Capital were subsidiaries of MidAmerican.

     MidAmerican  is a public  utility with electric and natural gas  operations
and is the  principal  subsidiary  of  Holdings.  MidAmerican  Capital,  Midwest
Capital  and  MidAmerican  Realty  Services  Company  (MidAmerican  Realty)  are
Holdings'  nonregulated  subsidiaries.  MidAmerican  Capital manages  marketable
securities and passive investment activities,  nonregulated wholesale and retail
natural gas businesses, security services and other energy-related, nonregulated
activities. Midwest Capital functions as a regional business development company
in  MidAmerican's  utility service  territory.  MidAmerican  Realty was recently
established and will include the Company's real estate operations.

     On April 6, 1998, the Company  announced its intent to purchase AmerUs Home
Services Inc. (Home Services).  Home Services includes real estate operations in
five states: Iowa Realty, the state's largest, and First Realty/Better Homes and
Gardens in Iowa;  Edina Realty in  Minnesota,  North Dakota and  Wisconsin;  and
Carol Jones,  Realtors,  in Missouri.  It has more than 800  employees and 3,400
sales  agents  and  is  the  nation's   third  largest  real  estate   brokerage
organization based on over 46,000 residential buyer/seller transactions in 1997.
In addition to residential brokerage, Home Services offers relocation, title and
abstract  services.  The Company  expects the transaction to be completed in the
second quarter of 1998.

DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS

     The  consolidated  financial  statements  of  MidAmerican  present  amounts
related to MidAmerican  Capital and Midwest Capital as  discontinued  operations
for all periods  that  include  months  prior to  December 1, 1996,  in order to
reflect their transfer to Holdings in December 1996.

     Management's   Discussion  and  Analysis  (MD&A)  addresses  the  financial
statements  of Holdings  and  MidAmerican  as  presented  in this joint  filing.
Information related to MidAmerican also relates to Holdings. Information related
to MidAmerican  Capital and Midwest  Capital  pertains only to the discussion of
the financial  condition  and results of  operations of Holdings.  To the extent
necessary,  certain  discussions  have been  segregated  to allow the  reader to
identify information applicable only to Holdings.



                                      -16-

<PAGE>

FORWARD-LOOKING STATEMENTS

     From time to time, the Company or one of its subsidiaries  individually 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  or  any  of  its  subsidiaries  individually.   These
forward-looking  statements  may include,  among others,  statements  concerning
revenue  and  cost  trends,  cost  recovery,   cost  reduction   strategies  and
anticipated  outcomes,  pricing  strategies,  changes in the  utility  industry,
planned capital  expenditures,  financing needs and availability,  statements of
the Company's expectations,  beliefs,  future plans and strategies,  anticipated
events or trends and similar comments concerning matters that are not historical
facts. Investors and other users of the forward-looking statements are cautioned
that such  statements  are not a guarantee of future  performance of the Company
and that such forward-looking  statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in, or
implied by, such statements.  Some, but not all, of the risks and  uncertainties
include weather effects on sales and revenues, fuel prices, competitive factors,
general economic conditions in the Company's service territory,  interest rates,
inflation and federal and state regulatory actions.

                              RESULTS OF OPERATIONS
                              ---------------------

Holdings:
---------

     The following tables provide a summary of the earnings contributions of 
the Company's operations for each of the periods presented:

                                              Periods Ended March 31
                                       -----------------------------------
                                         Three Months       Twelve Months
                                       ----------------    ---------------
                                        1998      1997      1998     1997
                                       ------    ------    ------   ------
   Net Income (in millions)
      Continuing operations
         Utility                       $ 31.9    $ 32.4    $118.9   $142.2
         Nonregulated operations          6.8       1.7      25.0    (12.7)
      Discontinued operations               -      (0.2)     (4.0)   (15.6)
                                       ------    ------    ------   ------
         Consolidated earnings         $ 38.7    $ 33.9    $139.9   $113.9
                                       ======    ======    ======   ======

   Earnings Per Common Share -
      Basic and Diluted
      Continuing operations
         Utility                       $ 0.34    $ 0.32    $ 1.23   $ 1.41
         Nonregulated operations         0.07      0.02      0.26    (0.12)
      Discontinued operations               -         -     (0.04)   (0.16)
                                       ------    ------    ------   ------
         Consolidated earnings         $ 0.41    $ 0.34    $ 1.45   $ 1.13
                                       ======    ======    ======   ======



                                      -17-

<PAGE>


MidAmerican:
------------

      The following  table provides a summary of the earnings  contributions  of
MidAmerican's operations for each of the periods presented:

                                           Periods Ended March 31
                                      --------------------------------
                                      Three Months       Twelve Months
                                      --------------   ---------------
                                      1998     1997     1998     1997
                                     ------   ------   ------   ------
                                                (in millions)
   Earnings on Common Stock
      Continuing operations          $ 31.9   $ 32.4   $118.9   $142.2
      Discontinued operations*            -        -        -    (16.2)
                                     ------   ------   ------   ------
         Consolidated earnings       $ 31.9   $ 32.4   $118.9   $126.0
                                     ======   ======   ======   ======

     * Twelve months  ended March 31, 1997,  includes  the loss of  MidAmerican
Capital and Midwest  Capital prior to their  transfer to Holdings on December 1,
1996.

EARNINGS DISCUSSION

     Earnings per share for the first quarter of 1998 increased 7 cents compared
to the first  quarter of 1997.  For the twelve  months ended period  comparison,
earnings  per  share  increased  32  cents  in  the  1998  period.  Some  of the
significant  factors  resulting in the variances are listed below, on a Holdings
per-share basis. The per-share  amounts are comparative  amounts;  therefore,  a
factor that had a negative  impact on earnings  in both  periods,  but which had
less of a negative  impact in the 1998 period than in the 1997 period,  would be
displayed as a positive  factor for comparison  purposes.  The  discussion  that
follows  addresses  these factors as well as other items affecting the Company's
results of operations.

     For purposes of this list, the  amortization of deferred energy  efficiency
costs,  ongoing energy  efficiency costs and costs recovered through a mechanism
(Cooper  Tracker) to recover  capital  improvements  costs at the Cooper Nuclear
Station,  (all of which are included in Other  Operating  Expenses on the income
statement),  have been netted  against their recovery in revenues for portraying
the impact on earnings from variances in gross margin and operating expenses.


                                      -18-

<PAGE>



                                        Three Months Ended  Twelve Months Ended
                                            March 31,           March 31,
                                          1998 vs 1997        1998 vs 1997
                                        ------------------  -------------------
     MidAmerican
       Net reduction in electric and
         gas gross margin due to -
           Variation in the effect of 
             weather                           $(0.08)             $(0.06)
           Customer growth                       0.02                0.08
           Electric retail rate changes             -               (0.04)
           Improvements due to other 
             factors                             0.08                0.15
     Nuclear O&M expenses                        0.03                0.01
     1996 inventory adjustment                      -               (0.04)
     Other O&M expenses                         (0.04)              (0.36)
     1996 merger proposal costs                     -                0.05

    Nonregulated subsidiaries
      Write-downs of certain assets                 -                0.07
      Realized gain on sale of McLeodUSA
        Incorporated common stock                   -                0.05
      Gains on sales of certain assets           0.03                0.09
      Income from a venture capital 
        investment                               0.01                0.01
      Reduction of interest on long-term
        debt                                        -                0.06

   Discontinued operations                          -                0.12

     The Company continued its strategic realignment of utility and nonregulated
operations which began in 1996. Earnings of nonregulated  subsidiaries have been
significantly affected by the realignment.  During 1997 and the first quarter of
1998,  the Company  divested a number of its  interests in  nonregulated  assets
which did not align with the corporate  vision of becoming the leading  regional
provider of energy and  complementary  services.  Earnings for the twelve months
ended  March 31,  1998,  include  6 cents  per share  from the sale of assets of
railcar  leasing  and repair  businesses  in the fourth  quarter of 1997.  First
quarter 1998  earnings  reflect 3 cents per share for the sale of the  Company's
interest in a financial  management company and the liquidation of a partnership
that owned commercial  office  buildings.  Losses from  discontinued  operations
reduced  earnings in each  twelve-month  period shown above,  though to a lesser
degree  in the  1997  period.  Cash  proceeds  from  the  sale  of  discontinued
operations  in  early  1997  allowed  the  Company  to pay off  long-term  debt,
significantly  reducing its interest expense compared to the twelve months ended
March 31, 1997.

     In December  1997,  the  Company  sold a portion of its  investment  in the
common  stock of  McLeodUSA  Incorporated  (McLeodUSA).  Earnings for the twelve
months ended March 31, 1998, reflect the related gain of 5 cents per share.

     Although  utility earnings for the current  twelve-month  period were lower
than in the prior year,  a reduction  was  anticipated  because of the  electric
pricing   settlements   achieved  in  1996  and  1997  in  Iowa  and   Illinois.
Additionally,  utility operating expenses increased as the Company continued its
strategic  realignment  which included  strengthening its marketing and customer
service capabilities and adding to its information technology resources.


                                      -19-

<PAGE>



     The Company's  evaluation of its  nonregulated  investments has resulted in
write-downs of certain  assets,  primarily  investments  in  alternative  energy
projects, in the past two years. The write-downs,  which reflect declines in the
value of those nonregulated investments,  reduced earnings by approximately $2.0
million,  or 2 cents per share,  and $9.4 million,  or 9 cents per share, in the
twelve months ended March 31, 1998 and 1997, respectively.

      Discontinued Operations -

Holdings:
---------

     During 1996, the Company discontinued some of its nonregulated  operations.
The  income  or loss from  those  operations  and the  losses  on  disposal  are
reflected as  discontinued  operations  in each of the periods  presented in the
Consolidated Statements of Income. Net assets of the discontinued operations are
separately  presented  in the  Consolidated  Balance  Sheets  as  Investment  in
Discontinued Operations.

     In the fourth  quarter of 1996,  the  Company and KCS  Energy,  Inc.  (KCS)
signed a definitive  agreement to sell a portion of the  Company's  nonregulated
operations  to KCS for $210 million in cash plus warrants to purchase KCS common
stock.  The sale,  which  included the  Company's  oil and gas  exploration  and
development  operations,  was completed in January 1997. The twelve months ended
March 31, 1997,  reflects a $7.6 million after-tax loss for the transaction.  An
additional  $0.4 million  after-tax  loss is included in the twelve months ended
March 31, 1998.

     In October 1997, the Company also divested a subsidiary  that developed and
operated a computerized  information system which facilitated real-time exchange
of  power  in the  electric  industry.  The  Company  recorded  a  $4.0  million
anticipated after-tax loss on disposal of those operations in September 1996 and
an additional $3.2 million after-tax loss on disposal in September 1997.

MidAmerican:
------------

     MidAmerican  received $15.3 million in cash in 1996 as final settlement for
the sale of a former coal mining  subsidiary which was reflected as discontinued
operations in 1982 by one of  MidAmerican's  predecessors.  The final settlement
included  reacquisition  by the buyer of preferred  equity issued to MidAmerican
and the settlement of reclamation  reserves.  MidAmerican  recorded an after-tax
loss on disposal of $3.3 million for the  transaction  in September  1996.  This
transaction is included in discontinued operations in the consolidated financial
statements  of  MidAmerican  as well as  Holdings.  Discontinued  operations  of
MidAmerican  includes the net  earnings/loss of MidAmerican  Capital and Midwest
Capital for periods prior to their December 1, 1996, transfer to Holdings.



                                      -20-

<PAGE>



UTILITY GROSS MARGIN

     Electric Gross Margin:
     ----------------------

                                               Periods Ended March 31
                                          -----------------------------------
                                           Three Months       Twelve Months
                                          -------------     -----------------
                                          1998     1997      1998       1997
                                          ----     ----     ------     ------
                                                   (In millions)
   Operating revenues                     $256     $254     $1,128     $1,091
   Cost of fuel, energy and capacity        45       59        222        232
                                          ----     ----     ------     ------

      Electric gross margin               $211     $195     $  906     $  859
                                          ====     ====     ======     ======

     A variety of factors contributed to the increase in MidAmerican's  electric
gross  margin for the 1998  periods  shown above  compared to the 1997  periods.
Although mild temperatures had a negative impact on the 1998 quarter compared to
the 1997 quarter, the impact was more than offset by other factors. Temperatures
had a small  positive  impact on the  twelve-month  comparison.  An  increase in
electric  retail  sales  volumes  that are not  dependent  on weather,  customer
growth,  additional  recovery of energy  efficiency costs and the elimination of
Iowa's energy  adjustment  clause (EAC) all  contributed  to the  improvement in
gross margin for the quarter and the twelve-month period.  Electric service rate
reductions also reduced gross margin for the twelve months ended March 31, 1998,
relative to the 1997 period.

     The  increase  in  recovery of  electric  energy  efficiency  costs in Iowa
accounted for more than half of the increase in electric  margin for the quarter
comparison. On September 29, 1997, MidAmerican began collection of its remaining
deferred energy  efficiency costs and current,  ongoing energy efficiency costs.
Including  an allowed  return on the  deferred  costs,  the annual  increase  in
electric  revenues is $36.1 million.  The effect on earnings of this increase in
revenues  and gross margin is partially  offset by a  corresponding  increase in
other  operating  expenses of $31.1  million  annually  for  currently  incurred
electric energy efficiency costs and amortization of previously incurred costs.

     Although  temperatures  were milder than normal in both of the  three-month
periods  above,  comparatively,  gross  margin  for the first  quarter  1998 was
reduced $5 million  more from the effect of  temperatures  than gross margin for
the first quarter  1997.  When  compared to normal,  the impact of  temperatures
resulted  in an $8  million  reduction  in  electric  gross  margin in the first
quarter of 1998  compared to a $3 million  reduction in the margin for the first
quarter of 1997. A moderate but steady  growth in the number of customers and an
increase  in sales that are not  dependent  on  weather  offset a portion of the
decrease due to milder  temperatures.  In total, retail sales of electricity for
the first quarter of 1998 were  unchanged from the level in the first quarter of
1997.

     Revenues  from  sales of  electricity  to other  utilities  decreased  $7.5
million for the 1998 quarter  compared to the first quarter of 1997 due to a 24%
decrease in sales volumes.

     Prior to July 11, 1997, MidAmerican was allowed to recover its energy costs
from most of its electric utility  customers  through EACs included in revenues.
Effective  July 11, 1997, the EAC was eliminated for Iowa customers as part of a
new Iowa pricing plan. Previously,  variations in revenues collected through the
EACs did not affect gross margin or net income due to  corresponding  changes in
energy costs. With the elimination of the Iowa EAC, fluctuations in energy costs
now have an impact on gross margin and net income.

                                      -21-

<PAGE>



Energy  costs per unit in the first  quarter  of 1998  were  below the  per-unit
amount  recovered  in rates under the new Iowa  pricing  plan and resulted in an
increase to gross margin compared to the first quarter of 1997.

     For the twelve  months  ended  March 31  comparison,  temperatures  reduced
revenues and gross margin less in the 1998 period than in the 1997 period.  When
compared  to  normal,  the impact of  temperatures  resulted  in an $18  million
reduction in electric gross margin in the 1998 twelve-month period compared to a
$20 million  reduction in the gross margin for the twelve months ended March 31,
1997. As with the quarter comparison, a moderate but steady growth in the number
of  customers  and an  increase  in sales  that  are not  dependent  on  weather
contributed  to the  increase in  revenues  and margin.  Electric  retail  sales
increased  2.3% for the 1998 twelve month period  compared to the twelve  months
ended March 31, 1997.

     Increased  recovery  of  electric  energy  efficiency  costs and the Cooper
Tracker accounted for  approximately one half of the increase.  Energy costs per
unit in the twelve  months ended March 31, 1998 were below the  per-unit  amount
recovered  in rates under the new Iowa  pricing plan and resulted in an increase
to gross margin.

     In October 1996, the Illinois Commerce Commission (ICC) ordered MidAmerican
to reduce  electric  retail  rates for its  Illinois  customers by 10%, or $13.1
million in annual revenues, effective November 3, 1996. A negotiated termination
of the rate reduction  proceeding left in place the initial $13.1 million annual
reduction  and  included  a second  price  reduction  of $2.4  million  annually
effective on June 1, 1997.  In Iowa,  MidAmerican  reduced its  electric  retail
rates by $8.7 million effective November 1, 1996. The reduction lowered rates to
levels  proposed by  MidAmerican  in its pricing  plan filed in June 1996.  With
implementation  of  the  approved  settlement  in  July  1997,  rates  for  Iowa
residential customers were reduced an additional $10.0 million annually.  Net of
the effect of the Cooper Tracker,  rate reductions reduced electric gross margin
by $12.2 million  compared to the twelve  months ended March 31, 1997.  Refer to
"Rate Matters" in Liquidity and Capital  Resources  later in this discussion for
further information regarding the Iowa proceeding.

     Gas Gross Margin:
     -----------------

                                       Periods Ended March 31
                                  --------------------------------
                                   Three Months      Twelve Months
                                  --------------    --------------
                                   1998     1997     1998     1997
                                  -----    -----    -----    -----
                                           (In millions)
      Operating revenues          $ 173   $  212    $ 498    $ 552
         Cost of gas sold           105      142      310      364
                                  -----   ------    -----    -----
         Gas gross margin         $  68   $   70    $ 188    $ 188
                                  =====   ======    =====    =====

     Variations in gas gross margin are the result of changes in revenues due to
price and sales  volume  variances.  MidAmerican  has been allowed to recover in
revenues  the cost of gas sold from most of its gas  utility  customers  through
purchase gas adjustment clauses (PGAs). Variations in revenues collected through
the PGAs,  reflecting  changes in the cost of gas per unit and volumes  sold, do
not affect gross margin or net income.

     Temperatures  in the first  quarter  of 1998 were 15% warmer  than  normal,
resulting in an $8 million  decrease in gas gross  margin for the period,  while
temperatures  in the first  quarter of 1997 were close to  normal,  with  little
effect on margin. Although moderate customer growth helped to offset some of the
effect of milder temperatures, total retail sales of natural gas decreased 12.6%
compared to the first quarter of 1997.


                                      -22-

<PAGE>



     Increased  recovery of gas energy efficiency costs resulted in a $3 million
positive impact on the comparison of gross margin for the quarters. As discussed
in the electric  margin  discussion,  on September 29, 1997,  MidAmerican  began
recovery of its energy  efficiency  costs which had not previously been approved
for recovery. Including an allowed return on deferred costs, the annual increase
in gas  revenues is $12.8  million.  The effect on earnings of this  increase in
revenues  and gross margin is partially  offset by a  corresponding  increase in
other operating  expenses of  approximately  $11.1 million annually for deferred
and ongoing gas energy efficiency costs.

     The average cost of gas per unit decreased in the 1998 compared to the 1997
quarter and is reflected in revenues and cost of gas sold.

     Mild  temperatures  resulted in an $11 million decrease in gas gross margin
for the twelve months ended March 31, 1998,  compared to the twelve months ended
March 31, 1997. When compared to normal, the impact of temperatures  resulted in
a $7  million  reduction  in gas gross  margin in the 1998  twelve-month  period
compared  to a $4 million  increase  in gas gross  margin for the twelve  months
ended March 31, 1997.

     The increase in recovery of gas energy  efficiency  costs recovered most of
the loss in margin resulting from milder temperatures.  Moderate customer growth
also contributed to gross margin in the 1998 period.

UTILITY OPERATING EXPENSES

     Utility  other  operating  expenses  increased  $13.2 million for the first
quarter of 1998  compared to the first quarter of 1997 and $86.8 million for the
comparable twelve-month periods ended March 31, 1998 and 1997.

     As  mentioned  in the gross  margin  discussions,  on  September  29, 1997,
MidAmerican  began additional  recovery of deferred energy  efficiency costs and
current recovery of ongoing costs. As the deferred costs are recovered, they are
amortized to expense.  Ongoing energy efficiency costs,  which historically were
deferred  until  future  periods,  are now charged to expense.  The  increase in
energy  efficiency  costs  accounted  for $10.8 million of the increase in other
operating  expenses for the 1998  quarter and $22.4  million of the increase for
the twelve-month comparison.

     In addition to the energy efficiency  expense increase,  operating expenses
related to Cooper  increased due to the ratemaking  treatment for Cooper capital
improvements.  As a result of 1996 and 1997  rate  settlements,  Cooper  capital
improvements are now expensed when incurred,  instead of being  capitalized.  As
mentioned  previously  in the Electric  Gross  Margin  section,  MidAmerican  is
recovering  on a current  basis the Iowa  portion  of these  costs from its Iowa
electric customers.  Recovery in Illinois is included in base rates. This change
accounted for increases of $1.3 million and $5.5 million for the three-month and
twelve-month comparisons,  respectively.  An additional increase of $4.9 million
in other Cooper costs also contributed to the twelve-month increase.

     Continued  restructuring  of the Company in  preparation  for a competitive
industry  has  required  additional  expenses.  MidAmerican  has  increased  its
emphasis on  marketing-related  efforts, as well as customer service operations,
resulting in increases in  consulting  costs,  advertising,  employee  incentive
compensation and other related  expenses.  Increases in such expenses  accounted
for more than $30 million of the  increase in other  operating  expenses for the
twelve months ended March 31, 1998. In addition,  the 1998  twelve-month  period
reflects  increases in certain employee benefits expenses,  customer  assistance
and energy

                                      -23-

<PAGE>



efficiency  administrative  costs,  manufactured  gas plant site clean-up costs,
transmission wheeling expense due in part to changes required by FERC Order Nos.
888 and 889, and other general operations costs.

     A decrease in  maintenance  costs at the Quad Cities Station was the reason
for the decrease in total maintenance  expenses for the current quarter compared
to the first quarter of 1997. The decrease was due mostly to higher costs in the
1997 quarter for activities at the plant at that time.

     Maintenance  expenses for the twelve months ended March 31, 1998, were $3.3
million  greater  than in the  comparable  1997  period.  The main  cause of the
increase was an  adjustment  in the fourth  quarter of 1996 to align power plant
inventory accounting of predecessor companies.  That adjustment reduced expenses
by $6.2 million for the  twelve-month  period ended March 31, 1997. In addition,
the Company  incurred  $2.0  million in  maintenance  expenses  for  restoration
following a snow storm in October 1997.  Maintenance expenses at the Quad Cities
Station decreased $7.0 million in the twelve-month  period ended March 31, 1998,
compared to the twelve months ended March 31, 1997.  Refer to the  discussion of
Quad Cities Nuclear  Station in the Liquidity and Capital  Resources  section of
MD&A for information regarding the status of the plant.

     Property  taxes  increased  for the twelve  months  ended  March 31,  1998,
relative  to the  comparable  1997  period due  primarily  to an increase in the
assessed value for Iowa property taxes.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

Holdings:
---------

     Revenues of MidAmerican  Capital and Midwest  Capital  decreased a total of
$72.3 million and $114.4 million for the  three-month and  twelve-month  periods
ended March 31, 1998,  compared to their respective 1997 periods.  Revenues from
the  natural  gas  marketing  subsidiaries  decreased  $69.0  million and $109.5
million,  respectively,  for the  1998  three-month  and  twelve-month  periods.
Related sales volumes  decreased 18 million MMBtu's (51%) and 41 million MMBtu's
(39%)  compared to the sales volumes in the 1997 periods.  The decrease in sales
volumes is due to the expiration of contracts  which have not been  replaced.  A
decrease in the average price per unit,  reflective of a decrease in the cost of
gas sold, also reduced revenues for the natural gas marketing subsidiaries.

     Cost of sales includes  expenses  directly related to sales of natural gas.
The  decrease  in cost of sales for the first  quarter  of 1998  reflects  a 29%
decrease in the average cost of gas per unit.  Total gross  margin  (total price
less  cost of gas) on  nonregulated  natural  gas sales  was  unchanged  for the
quarter and increased $2.5 million for the 1998 twelve-month  period compared to
the 1997 twelve-month period.

NON-OPERATING INCOME AND INTEREST EXPENSE

MidAmerican:
------------

     Interest and Dividend Income -

     Interest  income  increased  in  each  1998  comparative  period  due to an
increase in temporary cash investments.



                                      -24-

<PAGE>



     Other, Net -

     Other,  net for the first  quarter  of 1998  includes a  deduction  of $2.2
million for discounts on  receivables  sold.  Refer to the Financing  Activities
section of Liquidity and Capital Resources later in MD&A for a discussion of the
receivables  sale in 1997.  Other,  Net for the first  quarter of 1997  reflects
income of $2.0 million for recognition of deferred income from energy efficiency
programs and a reduction for a $0.9 million loss on reacquired long-term debt.

     In addition to the items discussed above,  Other, Net for the twelve months
ended March 31, 1998 and 1997,  includes the items  discussed  in the  following
paragraphs.

     In  September  1997,  MidAmerican  received a $15 million cash payment from
Nebraska  Public Power  District  (NPPD) as  settlement  for a lawsuit  filed by
MidAmerican   against   NPPD.   Approximately   $12  million  was   refunded  to
MidAmerican's  customers.  The remaining  amount was retained by MidAmerican for
recovery  of  litigation  costs  in  the  lawsuit.   Other,  Net  for  the  1998
twelve-month  period  reflects  $2.2  million of pre-tax  income for recovery of
litigation costs incurred in pre-1997 years.

     MidAmerican was awarded $4.9 million of pre-tax income in the twelve months
ended March 31,  1998,  for  performance  under its  incentive  gas  procurement
program  during  the May 1996 to  April  1997  period.  In the  comparable  1997
twelve-month  period,  MidAmerican  recorded an award of $2.7 million of pre-tax
income as a result of successful performance under its incentive gas procurement
program during the 1995- 1996 heating season.

     Other, Net for the 1997  twelve-month  period includes  approximately  $8.7
million of expenses for costs incurred by MidAmerican for its merger proposal to
IES Industries Inc. in 1996.

     In the fourth quarter of 1996, MidAmerican recorded an initial pre-tax gain
of $3.2 million on its sale of certain  storage gas supplies  which is reflected
in the twelve  months ended March 31, 1997.  MidAmerican  recorded an additional
$0.8  million  gain in the second  quarter of 1997,  which is  reflected  in the
twelve months ended March 31, 1998, after receiving  favorable  treatment on the
transaction from the Iowa Utilities Board (IUB).

     The twelve  months  ended March 31,  1997,  also  includes  $2.2 million of
income from reversal of a reserve after successful  resolution of a dispute with
a vendor.

     Recognition of deferred income from energy efficiency programs totaled $3.1
million  in the 1998  twelve-month  period  compared  to $4.6  million  for 1997
period.

     Fixed Charges -

     Interest on long-term  debt  decreased due to long-term  debt reduction and
refinancing  activities in 1996 and 1997. Other interest  expense  increased for
the quarter  comparison  due to an increase in the average  amount of commercial
paper outstanding.  For the twelve months ended comparison,  the increase in the
1998 period is due primarily to interest  expense  related to IRS settlements in
1997.

     Preferred  securities  of  subsidiary  trust were issued in  December  1996
resulting in the twelve  months ended March 31, 1997,  including  only a partial
year of  dividends.  MidAmerican  preferred  shares were  reacquired at the same
time, resulting in a decrease in preferred dividends deducted after net income.

                                      -25-

<PAGE>



Holdings:
---------

     Dividend Income -

     Dividend  income  decreased  for the three  months and twelve  months ended
March 31,  1998,  compared to the  respective  1997  periods due to  MidAmerican
Capital's  reduced  holdings of preferred stock  portfolios,  a portion of which
MidAmerican Capital liquidated in 1996.

     Realized Gains and Losses on Securities, Net -

     Net realized  gains on  securities  for twelve months ended March 31, 1998,
includes an $8.0 million pre-tax gain on the sale of shares of McLeodUSA  common
stock.

     Other, Net -

     Other,  Net for the first  quarter of 1998  includes  $4.7 million from the
divestment of nonregulated assets,  including the sale of the Company's interest
in a financial  management company, the sale of a commercial office building and
liquidation of a partnership interest concurrent with the sale of its commercial
property.  In  addition,  the Company  recorded  $2.1  million of income from an
equity investment in a venture capital fund.

     In addition to the above  items,  the twelve  months ended March 31 periods
were also affected by the factors discussed in the next paragraph.

     During the twelve months ended March 31, 1998,  the Company sold all of the
assets of its railcar repair  services  subsidiary and most of the assets of its
railcar  leasing  subsidiary and recorded  pre-tax gains totaling $10.0 million.
Write-downs of nonregulated investments, as discussed in the Earnings Discussion
section at the beginning of Results of Operations,  decreased Other, Net by $3.4
million and $15.6  million for the 1998 and 1997 twelve  months  ended March 31,
respectively.  Excluding  the  investment  mentioned  above,  income from equity
investments decreased for the 1998 twelve-month period due to the liquidation of
such investments during 1996 and early 1997.

     Interest Charges -

     MidAmerican  Capital's  interest on long-term debt decreased  significantly
for the  twelve-month  comparison  due to the reduction of its long-term debt in
early 1997.

INCOME TAXES

Holdings:
---------

     During  the second  quarter of 1997,  the  Company  contributed  part of an
appreciated  common stock  investment to its tax exempt  foundation and realized
$2.9 million of tax benefit.



                                      -26-

<PAGE>



                         LIQUIDITY AND CAPITAL RESOURCES
                         -------------------------------

     The Company has  available  a variety of sources of  liquidity  and capital
resources,  both internal and external.  These resources  provide funds required
for current operations,  construction  expenditures,  dividends, debt retirement
and other capital requirements.

     As of March 31, 1998,  common  equity  represented  52.5% of the  Company's
total  capitalization  compared to 51.7% and 48.5% as of December 31, 1997,  and
March 31, 1997, respectively. Several factors other than earnings, dividends and
scheduled  maturities  of  debt  affected  the  change.   Recording  accumulated
comprehensive income for an investment in McLeodUSA to reflect its market value,
and  repurchases  and  retirement of debt prior to its  scheduled  maturity were
major  contributors  to the move to a higher  percentage  of common equity since
March 31, 1997. The Company's common stock repurchase program has reduced common
equity during that period.

     MidAmerican's common equity as of March 31, 1998,  represented 47.3% of its
capitalization  compared to 45.9% as of March 31, 1997. A reduction of long-term
debt was the primary cause of the change.

     As reflected on the Consolidated Statements of Cash Flows, Holdings had net
cash provided from operating activities of $181 million for the first quarter of
1998 compared to $223 million for the same period in 1997.  The decrease in cash
from operating  activities for the 1998 quarter is due to changes in the working
capital of  nonregulated  subsidiaries.  MidAmerican's  net cash  provided  from
operating  activities  was $179  million for the first  quarter of 1998 and $158
million for the first quarter of 1997.

INVESTING ACTIVITIES AND PLANS

MidAmerican:
------------

     Utility Construction Expenditures -

     MidAmerican's   primary   need  for   capital   is   utility   construction
expenditures.   For  the  first  three  months  of  1998,  utility  construction
expenditures  totaled $25  million,  including  allowance  for funds used during
construction  (AFUDC)  and  Quad  Cities  Station  nuclear  fuel  purchases.  In
addition,  MidAmerican's  nonregulated  railway  subsidiary  had $20  million of
construction  expenditures in the same period.  All such  expenditures  were met
with cash generated from utility operations, net of dividends.

     Beginning  with  July  1997  expenditures,   advances  for  Cooper  capital
improvements are no longer included in utility construction expenditures but are
expensed when incurred in Other Operating Expenses.  Previously,  these expenses
were capitalized in accordance with then applicable rate regulation.  As part of
the 1997 settlement of MidAmerican's  electric pricing proposal,  MidAmerican is
recovering  on a current  basis the Iowa portion of expenses for Cooper  capital
improvements  advances  from its Iowa  electric  customers  through  a  tracking
mechanism.

     Forecasted  utility  construction  expenditures  for 1998 are $201  million
including  AFUDC.   Capital   expenditure   needs  are  reviewed   regularly  by
MidAmerican's  management  and may  change  significantly  as a  result  of such
reviews.   MidAmerican   presently   expects   that  all  utility   construction
expenditures  for the next  five  years  will be met with  cash  generated  from
utility  operations,  net of dividends.  The actual level of cash generated from
utility  operations is affected by, among other things,  economic  conditions in
the utility service territory, weather and federal and state regulatory actions.

                                      -27-

<PAGE>



     Deferred Energy Efficiency Expenditures -

     The Company stopped  reflecting costs of its energy efficiency  programs as
an investing activity on its Consolidated  Statement of Cash Flows following the
IUB's  approval  in  September  1997  of  current  recovery  of  ongoing  energy
efficiency  program costs.  Under prior energy efficiency  regulations,  program
costs were deferred for several years prior to beginning  their  recovery over a
four-year  period,  and accordingly,  the Company reflected them as an investing
activity.

     Nuclear Decommissioning -

     Operators of a nuclear  facility are required to set aside funds to provide
for costs of future  decommissioning  of their  nuclear  facility.  In  general,
decommissioning  of a nuclear  facility means to safely remove the facility from
service and restore the property to a condition allowing unrestricted use by the
operator.  Based on  information  presently  available,  MidAmerican  expects to
contribute  approximately  $51 million during the period 1998 through 2002 to an
external trust established for the investment of funds for  decommissioning  the
Quad Cities Station.  Historically,  the funds were invested in investment grade
municipal and U.S.  Treasury bonds;  however,  in 1997 MidAmerican  directed the
trust to begin  investing a portion of the funds in domestic  corporate debt and
common  equity  securities.  Approximately  45% of the  trust's  funds  are  now
invested in domestic corporate debt and common equity securities.

     In addition,  MidAmerican makes payments to NPPD related to decommissioning
Cooper.  These  payments  are  reflected  in  Other  Operating  Expenses  in the
Consolidated  Statements of Income.  NPPD estimates call for  MidAmerican to pay
approximately $57 million to NPPD for Cooper  decommissioning  during the period
1998 through 2002. NPPD invests the funds  predominantly in U.S. Treasury Bonds.
MidAmerican's  obligation  for Cooper  decommissioning  may be  affected  by the
actual plant shutdown date and the status of the power purchase contract at that
time. In July 1997, NPPD filed a lawsuit in United States District Court for the
District  of  Nebraska  naming  MidAmerican  as  the  defendant  and  seeking  a
declaration of  MidAmerican's  rights and  obligations in connection with Cooper
nuclear decommissioning funding.

     MidAmerican  currently recovers Quad Cities Station  decommissioning  costs
charged to Illinois customers through a rate rider on customer billings.  Cooper
and Quad Cities  Station  decommissioning  costs  charged to Iowa  customers are
included in base rates,  and  recovery of  increases  in those  amounts  must be
sought through the normal ratemaking process.

Holdings:
---------

     Nonregulated Capital Expenditures -

     Capital  expenditures of MidAmerican Capital and Midwest Capital totaled $1
million  for  the  first  quarter  of  1998.   Capital   expenditures  of  these
subsidiaries  depend  primarily  upon the  availability  of suitable  investment
opportunities  which meet the  Company's  objectives.  The Company  continues to
evaluate nonregulated investments and may redeploy certain assets in the future.
External  financing  may  also be  used  to  provide  for  nonregulated  capital
expenditures.



                                      -28-

<PAGE>

     Investments -

     MidAmerican Capital invests in a variety of marketable  securities which it
holds for  indefinite  periods of time. In the  Consolidated  Statements of Cash
Flows,  the lines  Purchase of  Securities  and Proceeds from Sale of Securities
consist primarily of the gross amounts of these activities,  including  realized
gains and losses on investments in marketable securities.

     Included in investments on the Consolidated Balance Sheets is the Company's
investment  in  common  stock of  McLeodUSA.  McLeodUSA  common  stock  has been
publicly traded since June 14, 1996.  Investor agreements related to McLeodUSA's
initial public offering and subsequent merger with  Consolidated  Communications
Inc.  prohibit the Company  from  selling or  otherwise  disposing of any of the
common stock of McLeodUSA  prior to September 24, 1998,  without the approval of
McLeodUSA's  board of directors.  As a result of the  agreements,  the Company's
investment was considered restricted stock and, as such, was recorded at cost in
all periods prior to September 1997. Beginning in September 1997, the investment
is no longer  considered  restricted for accounting  purposes and is recorded at
fair  value.  As of March 31,  1998,  the cost and fair  value of the  McLeodUSA
investment were $45.2 million and $340.5 million,  respectively.  The unrealized
gain is recorded,  net of income taxes, as accumulated  comprehensive  income in
common  shareholders'  equity.  As of March 31, 1998,  the  unrealized  gain and
deferred  income  taxes for this  investment  were  $295.3  million  and  $103.4
million, respectively.

     MidAmerican Capital received approximately $302 million in cash during 1997
from sales of  investments  primarily  as part of its efforts to align them with
the Company's strategy.  A portion of the proceeds from these sales was used for
retirement of $174 million of  MidAmerican  Capital  long-term debt in the first
quarter of 1997 and for  dividends to Holdings for use in the  repurchase of the
Company's common stock.

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

MidAmerican:
------------

     MidAmerican  currently has  authority  from the Federal  Energy  Regulatory
Commission  (FERC) to issue  short-term debt in the form of commercial paper and
bank notes  aggregating  $400 million.  As of March 31, 1998,  MidAmerican had a
$250  million  revolving  credit  facility  agreement  and a $10 million line of
credit to provide  short-term  financing for utility  operations.  MidAmerican's
commercial paper borrowings,  which totaled $95.3 million at March 31, 1998, are
supported by the revolving  credit facility and the line of credit.  MidAmerican
also has a revolving credit facility which is dedicated to provide liquidity for
its  obligations  under  outstanding  pollution  control  revenue bonds that are
periodically remarketed.

     In 1997,  MidAmerican entered into a revolving agreement,  which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican.  Funding  Corp.  in  turn  sold  receivable  interests  to  outside
investors.  In consideration for the sale,  MidAmerican  received $70 million in
cash and the remaining  balance in the form of a subordinated  note from Funding
Corp.  The  agreement is  structured  as a true sale, as determined by SFAS 125,
under which the creditors of Funding Corp.  will be entitled to be satisfied out
of the assets of Funding Corp.  prior to any value being returned to MidAmerican
or its creditors.  Therefore,  the accounts receivable sold are not reflected on
Holdings' or MidAmerican's  Consolidated  Balance Sheets.  As of March 31, 1998,
$135.6 million, net of reserves, was sold under the agreement.

                                      -29-

<PAGE>



     As of March 31,  1998,  MidAmerican  had $326  million  of  long-term  debt
maturities and sinking fund requirements for 1998 through 2002.

     MidAmerican  currently has regulatory authority to issue an additional $300
million of preferred  securities and long-term debt,  including issues under its
medium-term  note  program.  It is  management's  intent  to  refinance  certain
MidAmerican  debt  securities  with  additional  issuances of unsecured debt and
preferred securities of a subsidiary trust as market conditions allow.

Credit Ratings -

     MidAmerican's  access  to  external  capital  and its cost of  capital  are
influenced by the credit ratings of its securities. MidAmerican's credit ratings
as of April 30, 1998, are shown in the table below. The ratings reflect only the
views of such rating agencies, and each rating should be evaluated independently
of  any  other  rating.  Generally,   rating  agencies  base  their  ratings  on
information  furnished  to them by the  issuing  company  and on  investigation,
studies and assumptions by the rating  agencies.  There is no assurance that any
particular rating will continue for any given period of time or that it will not
be  changed or  withdrawn  entirely  if in the  judgment  of the  rating  agency
circumstances so warrant.  Such ratings are not a recommendation to buy, sell or
hold securities.

                                    Moody's
                                    Investors         Standard
                                     Service          & Poor's
                                    ---------         --------

      Mortgage Bonds                   A2                AA-
      Unsecured Medium-Term Notes      A3                A
      Preferred Stocks                 a3                A
      Commercial Paper                 P-1               A-1


     Preferred Dividends -

     Preferred  dividends  include net gains or losses on the  reacquisition  of
MidAmerican preferred shares. Net losses on reacquisitions  totaled $1.4 million
and $2.8 million for the  three-month and  twelve-month  periods ended March 31,
1997, respectively.

Holdings:
---------

     As of March 31, 1998,  Holdings had lines of credit  totaling  $120 million
available to provide for short-term financing needs.

     In addition,  Holdings has the  necessary  authority to issue shares of its
common stock through its Shareholder  Options Plan (a dividend  reinvestment and
stock  purchase  plan).  Since July 1, 1995,  the  Company  has used open market
purchases of its common stock  rather than  original  issue shares to meet share
obligations  under its Employee Stock Purchase Plan and the Shareholder  Options
Plan.  Holdings  currently plans to continue using open market purchases to meet
share obligations under these plans.



                                      -30-

<PAGE>



     In March 1997, Holdings announced its plan to repurchase up to $200 million
of the  Company's  common  stock.  The Company plans to purchase the shares from
time to time as market  conditions  warrant,  with the intent of completing  the
entire repurchase program by December 31, 1998. As of March 31, 1998 the Company
had repurchased approximately 5.7 million shares for $104.1 million. The Company
believes  repurchasing  Holding's common stock is the best investment of Company
funds at this time.  Repurchasing  the common  stock will  reduce  total  common
dividend  requirements and aid in improving the Company's dividend payout ratio.
In addition,  a subsidiary of the Company holds approximately  437,000 shares of
Holdings common stock which are also excluded from shares outstanding.

     On April 29,  1998,  Holdings'  board of  directors  declared  a  quarterly
dividend on common shares of $0.30 per share payable June 1, 1998.  The dividend
represents an annual rate of $1.20 per share.

     Nonregulated Subsidiaries -

     As of March 31, 1998,  MidAmerican  Capital had unsecured  revolving credit
facilities  in the amount of $114 million with $3.2  million  outstanding  under
these  facilities.  MidAmerican  Capital  has $118  million  of  long-term  debt
maturities and sinking fund  requirements  for 1998 through 2002 related to debt
outstanding at March 31, 1998.

     Midwest   Capital   currently  has  a  $25  million  line  of  credit  with
MidAmerican, of which $5 million was outstanding at March 31, 1998.

OPERATING ACTIVITIES AND OTHER MATTERS

     Throughout the country,  the utility  industry  continues to move towards a
competitive  environment.  Although the extent of  deregulation  varies  between
states, increased competition is becoming a reality in virtually every region of
the country.  Numerous  states have passed  restructuring  legislation,  some of
which  initiated  a  phase-in  of  customer  choice  in  1998.  Legislators  and
regulators in many other states are addressing the issue.

     As part of many restructuring legislation packages,  electric utilities are
required to unbundle  traditional  services  previously  provided as a "packaged
product" under their rate tariffs.  Unbundling  allows customers to choose their
energy  supplier  and the level of energy  delivery  and  retail  services  they
desire.  Gas  utilities  are also  experiencing  separation  of the merchant and
delivery functions for all classes of customers.

     The  generation  segment of the  electric  industry  will be  significantly
impacted by competition. The introduction of competition in the wholesale market
has resulted in a proliferation of power marketers and a substantial increase in
market activity.  As retail  competition  evolves,  margins will be pressured by
competition from other utilities, power marketers, and self-generation.

     MidAmerican  has been active in promoting and  monitoring  legislative  and
regulatory changes that affect the jurisdictions in which it operates.  In order
to successfully  compete in the new  environment,  the Company  believes it must
become the leading regional provider of energy and complementary  services.  The
Company is evaluating all aspects of its business to determine what  adjustments
are necessary to align them with this strategy. Aligning nonregulated businesses
with the Company's strategy has resulted, and may continue to result in the next
year, in negative  impacts on Holdings'  earnings in the form of write-downs for
the  sale,   revaluation  or  discontinuance  of  nonregulated   operations  and
investments. (Refer to the Results of

                                      -31-

<PAGE>



Operations section of MD&A for comments on the earnings impact of such actions.)
The following  discussion  further  addresses changes affecting the industry and
actions the Company is taking to implement its strategy.

     Competition -

     MidAmerican is subject to regulation by several utility regulatory agencies
which significantly  influences the operating environment and the recoverability
of costs from utility  customers.  That regulatory  environment has, in general,
given  MidAmerican  an  exclusive  right to serve  customers  within its service
territory  and, in turn,  the  obligation to provide  electric  service to those
customers.

     Although  the  anticipated  changes in the  electric  utility  industry may
create opportunities,  they will also create additional challenges and risks for
utilities.  Competition  will put pressure on margins for  traditional  electric
services.  In order to lessen the impact of reduced  margins,  MidAmerican  will
continue to focus on controlling the cost of traditional services. As part of an
electric pricing settlement approved by the IUB in 1997, MidAmerican reduced its
prices  for  most of its  Iowa  electric  retail  customers.  In the  IUB  order
approving  the  settlement,  MidAmerican  was  also  authorized  to  enter  into
long-term contracts with industrial and commercial electric customers.  Refer to
"Rate Matters" later in this  discussion for further  information.  In addition,
MidAmerican is positioning itself to offer  complementary  products and services
as expected  opportunities  become  available in a  competitive  utility  retail
market.  Additional products and services may provide avenues to replace margins
lost on traditional electric services.

     As discussed  in the  Introduction  section of MD&A,  the Company is in the
process  of  purchasing  a  real  estate  brokerage  organization.  The  Company
anticipates  benefits to its utility operations from the additional contact with
customers and  potential  customers at times when the Company can meet a variety
of their needs.

     In December 1997, an Iowa industrial customer located within  MidAmerican's
IUB-approved  exclusive  electric  service  territory,  filed a lawsuit  against
Holdings and  MidAmerican  in the United States  District Court for the Southern
District of Iowa alleging  various  violations of federal  antitrust  laws.  The
lawsuit  stems from a claim that  because the customer is not free to choose its
retail  energy  supplier,   MidAmerican  is  engaging  in  illegal  monopolistic
behavior.  In addition to damages,  the  customer is seeking the right to choose
its electric retail supplier. MidAmerican maintains that its provision of retail
electric  service  is in  accordance  with Iowa laws and  regulations  governing
electric service  territories,  and all other applicable legal  requirements.  A
ruling in favor of the plaintiff  could have the effect of  accelerating  retail
competition in MidAmerican's Iowa service territory.

     Legislative and Regulatory Evolution -

     On December  16, 1997,  the Governor of Illinois  signed into law a bill to
restructure   Illinois'  electric  utility  industry  and  transition  it  to  a
competitive   market  beginning  October  1,  1999.   MidAmerican  is  presently
participating  in proceedings  which detail the new competitive  environment and
continues to evaluate the impact of the law on its operations.

                                      -32-

<PAGE>

     The law requires a 15% electric rate reduction for all Illinois residential
customers in 1998. To satisfy its  obligation,  the law  specifically  permitted
MidAmerican to receive credit for the $15.5 million,  or approximately 13%, rate
reductions  implemented  in  Illinois  in 1996  and  1997.  MidAmerican  is also
exempted from the requirement to join an independent system operator (ISO) or to
form an in-state ISO.

     In addition,  the law provides for Illinois  earnings above a certain level
of return on equity (ROE) to be shared equally between customers and MidAmerican
beginning in April 2000. The ROE level at which  MidAmerican will be required to
share  earnings is a multi-step  calculation  of average  30-year  Treasury Bond
rates  plus  5.50%  for 1998 and 1999 and 6.50% for 2000  through  2004.  If the
resulting average Treasury Bond rate  approximated  rates which existed in 1997,
the ROE level above which sharing must occur would be approximately 12%.

     Beginning October 1, 1999, larger non-residential  customers and 33% of the
remaining  non-residential customers will be allowed to select their provider of
electric supply services. All other non-residential customers will have supplier
choice  starting  December  31,  2000.  Residential  customers  all  receive the
opportunity to select their electric supplier on May 1, 2002.

     The law also addresses charges to customers for transition costs based on a
lost-revenue approach. These transition fees, designed to help utilities address
stranded costs, will end December 31, 2006, subject to possible extension.

     MidAmerican's Iowa legislative  priority for 1998 has been utility property
tax  reform,   a  condition   it  considers   precedent   to  utility   industry
restructuring.  A bill to replace the current utility property tax system, which
is supported by MidAmerican,  was recently  approved by the Iowa legislature and
signed into law by the Governor.  The legislation becomes effective on 
January 1, 1999.

     Because energy costs are low in Iowa,  industry  restructuring has not been
an  issue  aggressively  pursued  in the  state to date.  During  the 1998  Iowa
legislative session, a group of industrial  customers introduced  legislation to
allow  retail  service  competition,  but  it  did  not  develop  further.  With
resolution of the utility property tax issue,  MidAmerican intends to pursue the
adoption of restructuring legislation in the 1999 Iowa legislative session.

     In October  1997,  the IUB adopted  rules to encourage  gas  transportation
service  for small  volume  customers  starting in 1999.  MidAmerican  has until
November 15, 1998, to file its own plan to unbundle service for its small volume
customers.  MidAmerican  presently  believes  that  these  rules will not have a
material impact on its results of operations.

     On May 4, 1998, MidAmerican filed a proposal with the IUB to allow at least
15,000 Iowa  families  and 2,000 small  businesses  to have the  opportunity  to
select among competing electricity providers.  If approved, the two-year program
would allow  participating  retail  customers in a selected  test area to choose
among several electricity  providers,  including  MidAmerican,  and to have that
energy  delivered by MidAmerican.  MidAmerican  would select a test market later
this year, and customers  would begin choosing  among  electricity  providers in
December 1998.  Businesses in the test area would be eligible for the program if
their  annual  peak  demand  is  less  than  four   megawatts.   New   suppliers
participating  in the  program  would have to be  certified  by the IUB and meet
specified  requirements.  Under the proposal,  lost revenues  during the program
would be recorded as a regulatory asset for future recovery.

                                      -33-

<PAGE>
     Accounting Effects of Industry Restructuring -

     A possible  consequence  of  competition  in the  utility  industry is that
Statement of Financial  Accounting  Standards (SFAS) No. 71 may no longer apply.
SFAS 71 sets forth  accounting  principles for operations that are regulated and
meet certain  criteria.  For operations that meet the criteria,  SFAS 71 allows,
among other things,  the deferral of costs that would otherwise be expensed when
incurred.  A majority  of  MidAmerican's  electric  and gas  utility  operations
currently  meet the  criteria  required  by SFAS 71,  but its  applicability  is
periodically   reexamined.   On  December  16,  1997,  MidAmerican's  generation
operations  serving Illinois were no longer subject to the provisions of SFAS 71
due to passage of restructuring  legislation in Illinois.  Thus, MidAmerican was
required to write off those amounts of regulatory  assets and  liabilities  from
its  balance  sheet  related  to  its  Illinois  generation  operations.   These
write-offs  were not material.  If other  portions of its utility  operations no
longer meet the criteria of SFAS 71,  MidAmerican would be required to write off
the related regulatory assets and liabilities from its balance sheet and thus, a
material  adjustment  to earnings in that period could  result.  As of March 31,
1998,  MidAmerican  had $325 million of  regulatory  assets in its  Consolidated
Balance Sheet.

     Energy Efficiency -

     MidAmerican's  regulatory  assets as of March  31,  1998,  included  $100.1
million of deferred energy efficiency costs. On September 29, 1997,  MidAmerican
received  approval from the IUB,  effective  immediately,  to begin  recovery of
deferred energy efficiency costs not previously approved for recovery.  Based on
the current level of recovery,  MidAmerican expects to recover approximately $35
million  of the  deferred  energy  efficiency  costs in 1998.  MidAmerican  also
received  approval  to  recover  ongoing  energy  efficiency  costs,  which were
projected to be $18.5  million for the period May 1997 through  April 1998.  The
projected $18.5 million of ongoing costs,  will be collected in the twelve-month
period ending in September  1998.  Amortization  of deferred  energy  efficiency
costs and current  expenditures for energy efficiency costs will be reflected in
other operating expenses over the related periods of recovery.

     Rate Matters -

     As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois  electric  service  rates by annual  amounts of $13.1  million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.

     On June 27,  1997,  the IUB  approved  a March  1997  settlement  agreement
between MidAmerican, the OCA and other parties in a consolidated rate proceeding
involving  MidAmerican's  electric  pricing  proposal  and a filing  by the Iowa
Office of Consumer Advocate (OCA). The agreement includes a number of components
of MidAmerican's pricing proposal as follows:

     * Prices for residential  customers were reduced $8.5 million  annually and
$10.0  million  annually,  effective  November  1,  1996,  and  July  11,  1997,
respectively, and will be reduced an additional $5.0 million annually on June 1,
1998, for a total annual decrease of $23.5 million.

     * Rates for commercial and industrial  customers will be reduced a total of
$10 million annually by June 1, 1998,  through pilot projects,  negotiated rates
with  individual  customers  and,  if needed,  a base rate  reduction  currently
scheduled  to be  effective  June 1,  1998.  MidAmerican  has  made  significant
progress toward the $10 million  reduction  through  long-term  contracts with a
number of industrial and commercial customers.

                                      -34-

<PAGE>

     *  A  tracking   mechanism  to  currently   recover  the  cost  of  capital
improvements  required by the Cooper  Nuclear  Station Power  Purchase  Contract
which will offset approximately $6 million of the rate reductions in 1998.

     * Elimination of the Iowa energy adjustment clause (EAC). Prior to July 11,
1997,  MidAmerican  collected  fuel costs from Iowa customers on a current basis
through the EAC,  and thus,  fuel costs had little  impact on net income.  Since
then,  base  rates  for Iowa  customers  include  a  factor  for  recovery  of a
representative  level of fuel costs.  To the extent  actual fuel costs vary from
that  factor,  pre-tax  earnings  are  impacted.  The fuel cost  factor  will be
reviewed in February 1999 and adjusted  prospectively  if actual 1998 fuel costs
vary 15% above or below the factor included in base rates.

     * If  MidAmerican's  annual Iowa electric  jurisdictional  return on common
equity exceeds 12%, then an equal sharing between  customers and shareholders of
earnings  above the 12% level  begins;  if it exceeds 14%,  then  two-thirds  of
MidAmerican's  share of those earnings will be used for accelerated  recovery of
certain  regulatory  assets.  The  agreement  permits  MidAmerican  to file  for
increased  rates if the  return  falls  below  9%.  Other  parties  signing  the
agreement are prohibited  from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.

     *  MidAmerican  will develop a pilot  program for a market  access  service
which allows  customers  with at least 4 MW of load to choose energy  suppliers.
The pilot  program,  which is subject  to  approval  by the IUB and the  Federal
Energy  Regulatory  Commission  (FERC), is limited to 60 MW of participation the
first year and can be  expanded by 15 MW annually  until the  conclusion  of the
program.  Any  loss of  revenues  associated  with  the  pilot  program  will be
considered  part  of  the  $10  million  annual  reduction  for  commercial  and
industrial  customers as described  above,  but may not be recovered  from other
customer  classes.  The program was filed with the IUB and the FERC in September
1997. The Company  anticipates that the necessary  approvals will be received by
the fourth quarter of 1998.

     Environmental Matters -

     The  United  States   Environmental   Protection  Agency  (EPA)  and  state
environmental  agencies have determined that  contaminated  wastes  remaining at
certain  decommissioned  manufactured  gas plant facilities may pose a threat to
the public  health or the  environment  if such  contaminants  are in sufficient
quantities and at such concentrations as to warrant remedial action.

     The Company is evaluating 26 properties  which were, at one time,  sites of
gas  manufacturing  plants in which it may be a  potentially  responsible  party
(PRP). The purpose of these  evaluations is to determine whether waste materials
are present,  whether such materials constitute an environmental or health risk,
and  whether  the  Company  has any  responsibility  for  remedial  action.  The
Company's present estimate of probable  remediation costs for these sites is $21
million.  This estimate has been recorded as a liability and a regulatory  asset
for future recovery through the regulatory process. Refer to Note B of Notes for
further  discussion  of  the  Company's  environmental   activities  related  to
manufactured gas plant sites and cost recovery.

     Although the timing of potential  incurred  costs and recovery of such cost
in rates may affect the results of operations in individual periods,  management
believes  that the  outcome of these  issues  will not have a  material  adverse
effect on the Company's financial position or results of operations.

     On July 18, 1997,  the EPA adopted  revisions  to the National  Ambient Air
Quality  Standards  for ozone and a new  standard for fine  particulate  matter.
Based on data to be obtained from monitors located throughout

                                      -35-

<PAGE>



the  states,  the EPA will make a  determination  of whether the states have any
areas  that  do not  meet  the air  quality  standards  (i.e.,  areas  that  are
classified as nonattainment). If a state has area(s) classified as nonattainment
area(s),  the state is required to submit a State Implementation Plan specifying
how it will reach  attainment of the standards  through  emission  reductions or
other means.

     The  impact  of  the  new  standards  on  MidAmerican  will  depend  on the
attainment  status  of  the  areas  surrounding   MidAmerican's  operations  and
MidAmerican's   relative   contribution   to  the   nonattainment   status.   If
MidAmerican's  operations  contribute  to  nonattainment  and  modifications  to
MidAmerican's  operations  or  facilities  are  necessary,  the  cost of  making
emissions  reductions to meet the air quality  standards  will be dependent upon
the  level  of  emissions  reductions  required  and the  available  technology.
MidAmerican   will  continue  to  evaluate  the  potential  impact  of  the  new
regulations.

     Following recommendations provided by the Ozone Transport Assessment Group,
the EPA,  in  November  1997,  issued  a Notice  of  Proposed  Rulemaking  which
identified  22  states  and the  District  of  Columbia  as  making  significant
contribution to nonattainment  of NAAQS for ozone.  Iowa is not subject to these
emissions  reduction  requirements as EPA's rule is currently  drafted,  and, as
such,  MidAmerican  does not anticipate  that its facilities  will be subject to
additional  emissions  reductions  as a  result  of  this  initiative.  The  EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.

     Coal Inventories -

     Coal inventory levels at MidAmerican's  coal-fired generating stations have
declined  since  March  1997.  Inventories  of  Powder  River  Basin  coal,  the
predominate  type of coal burned at MidAmerican  generating  stations,  declined
about 59% (in terms of tons of coal) in the twelve months ended March 31, 1998.

     The  decrease  is  due   primarily  to  nationwide   operational   problems
experienced  by  a  rail  transportation  provider  of  MidAmerican.  Inadequate
delivery service to MidAmerican's Neal Energy Center (Neal Center) in the fourth
quarter of 1997 resulted in reduced coal inventory at that site. The Neal Center
represents approximately 37% of MidAmerican's coal-fired generating capacity.

     Inventory levels at other MidAmerican  coal-fired  generating stations also
decreased  in  part  due to  higher-than-expected  generation  levels  at  those
stations  caused in part by the effort to conserve  coal at the Neal Center.  An
extended  outage at the Quad Cities  Nuclear  Station also affected the need for
additional generation at MidAmerican's coal-fired generating stations.

     While  deliveries to the Neal Center improved in the first quarter of 1998,
MidAmerican's total coal inventory remains below the desired level.  MidAmerican
will be working throughout the year to build its coal inventory to the currently
desired  level,  which is  approximately  double the level as of March 31, 1998.
This effort to build  MidAmerican's  coal inventory may result in a reduction of
sales to other utilities,  increased purchases of off-system energy and/or other
efforts to conserve coal.  

     Quad Cities Nuclear Station Outage -

     In September 1997,  Commonwealth  Edison Company (ComEd),  operator and 75%
owner of Quad Cities Station Units 1 and 2, shut down Unit 2 and entered early a
scheduled outage to address safety system concerns. In December 1997, Unit 1 was
also taken  off-line  for the same reason.  In January  1998,  ComEd  received a
Confirmatory  Action Letter (CAL) from the Nuclear Regulatory  Commission (NRC).
The CAL

                                      -36-

<PAGE>

details  corrective  actions  required  prior to restart  of the units.  Also in
January,  ComEd was  informed  by the NRC that the  performance  of Quad  Cities
Station is trending  adversely.  Preliminary  results from the NRC Architectural
Engineering  Inspection  of  design  issues  found  no  significant  threats  to
continued operation.  ComEd addressed all issues facing Quad Cities Station, and
a recent  meeting with the NRC  substantially  narrowed the list of open startup
issues. ComEd has informed MidAmerican that it expects successful  inspection by
the NRC to close all CAL  issues,  allowing  the  startup of Unit 2 to  commence
before the end of May and Unit 1 in June.

YEAR 2000

     The Company has  undertaken  an extensive  ongoing  project to identify and
assess its critical business and operational systems potentially affected by the
year 2000 date change and to repair or replace  those systems which are not year
2000 compliant.  The Company, in addition to its internal resources, has engaged
independent  contractors to assist with the conversion and replacement  project.
The project  timetable  specifies  completion of all conversion and  replacement
work and  testing  sufficiently  in advance of January 1, 2000 to  identify  any
residual concerns.

     The Company's  operations  utilize systems and equipment  provided by other
organizations.  As a result,  the Company's  operations could be impacted by its
suppliers',  vendors' or service  providers' year 2000 efforts.  The Company has
undertaken  an initiative  to assess the efforts of such  constituent  entities;
however,  there is no  assurance  that the Company  will not be affected by year
2000  problems  of those  organizations  or their  failure  to repair or replace
systems or equipment which is incompatible with year 2000 dates.

     The Company  estimates the remaining  cost to remediate  year 2000 flaws in
its  critical  business  systems  to  be  approximately  $3  million,   although
additional  unforeseen  expenses for critical systems and embedded  systems,  as
discussed above, may be incurred.  Although management believes the project will
be  completed  within the required  time frame,  unforeseen  and other  factors,
including  failure of the  contractors  to perform,  could  cause  delays in the
project, the results of which could be material to the Company.



PART I.

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

     As of March 31, 1998, the Company's and MidAmerican's  financial  positions
related to  financial  instruments  and assets that are  sensitive to changes in
interest  rates or commodity  price  changes have not changed  materially  since
December 31, 1997.  Refer to the Company's 1997 Annual Report on Form 10-K under
Item 7A for the applicable information as of December 31, 1997.



                                      -37-

<PAGE>



PART II - OTHER INFORMATION

Item 1.  Legal Proceedings
--------------------------

     The Company and its subsidiaries have no material legal proceedings  except
for the following:

Environmental Matters
---------------------

     For information relating to the Company's Environmental Matters,  reference
is made to Part  I,  Note  (B) of  Holdings'  Notes  to  Consolidated  Financial
Statements.

Cooper Litigation
-----------------

     On July 23, 1997,  NPPD filed a Complaint,  in the United  States  District
Court for the District of Nebraska,  naming  MidAmerican  as the  defendant  and
seeking  declaratory  judgment as to three issues  under the parties'  long-term
power purchase agreement for Cooper capacity and energy. More specifically, NPPD
seeks a declaratory judgment in the following respects:  (1) that MidAmerican is
obligated to pay 50% of all costs and expenses  associated with  decommissioning
Cooper,  and that in the event NPPD continues to operate Cooper after expiration
of the power purchase agreement (September 2004), MidAmerican is not entitled to
reimbursement  of any  decommissioning  funds it has paid to date or will pay in
the future; (2) that the current method of allocating transition costs as a part
of the decommissioning  cost is proper under the power purchase  agreement;  and
(3) that the current method of investing  decommissioning  funds is proper under
the  power  purchase  agreement.   MidAmerican  has  filed  a  counterclaim  for
declaratory  relief  and each  party  has made  additional  procedural  filings.
Discovery  is  currently  underway.  MidAmerican  is  vigorously  defending  its
interests in this declaratory judgment action.

North Star Steel Company
------------------------

     On December 8, 1997,  North Star Steel Company (NSS), a retail  MidAmerican
electric customer, filed a Complaint in the United States District Court for the
Southern  District of Iowa naming  Holdings and  MidAmerican as defendants.  The
Complaint  alleges  that  MidAmerican's  refusal  to allow NSS to obtain  retail
electric  service from an unspecified  alternative  energy company  amounts to a
violation of federal  antitrust  laws.  NSS is seeking to recover an unspecified
level of damages,  and to require MidAmerican to provide retail wheeling service
so that NSS can obtain  electricity  from an unnamed  supplier.  MidAmerican  is
vigorously defending its conduct.


                                      -38-

<PAGE>

Item 6.  Exhibits and Reports on Form 8-K

(a)   Exhibits

Exhibits Filed Herewith
-----------------------

     The exhibits  filed  herewith are  attached to this  combined  Form 10-Q in
numerical  order.  They are listed below under the heading of the  registrant or
registrants to whom they apply.

Holdings

     Exhibit  12.1 -  Computation  of ratios of  earnings  to fixed  charges and
computation  of ratios of  earnings to fixed  charges  plus  preferred  dividend
requirements.

MidAmerican

     Exhibit 3.3 - Restated  Articles of  Incorporation  of  MidAmerican  Energy
Company, as amended April 27, 1998.

     Exhibit  12.2 -  Computation  of ratios of  earnings  to fixed  charges and
computation  of ratios of  earnings to fixed  charges  plus  preferred  dividend
requirements.

Holdings and MidAmerican

     Exhibit 27 - Financial Data Schedules (for electronic filing only).

(b)   Reports on Form 8-K

     On February 6, 1998,  Holdings and MidAmerican filed a joint report on Form
8-K, dated February 6, 1998. The report included the following information:

     Holdings computation of ratios of earnings to fixed charges and computation
of ratios of earnings to fixed charges plus preferred dividend requirements.

     MidAmerican  computation  of  ratios  of  earnings  to  fixed  charges  and
computation  of ratios of  earnings to fixed  charges  plus  preferred  dividend
requirements.

     Financial  information  of  Holdings  and  MidAmerican  including  selected
financial data for the years ended and as of December 31, 1997, 1996, 1995, 1994
and 1993;  management's  discussion  and  analysis of  financial  condition  and
results  of  operations;  consolidated  statements  of  income,  cash  flows and
retained  earnings  for the  years  ended  December  31,  1997,  1996 and  1995;
consolidated balance sheets and consolidated  statements of capitalization as of
December  31, 1997 and 1996;  notes to the  consolidated  financial  statements;
report  of  the  independent  public  accountant;   report  of  management;  and
supplemental financial and statistical data.



                                      -39-

<PAGE>


                                   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.


                                        MIDAMERICAN ENERGY HOLDINGS COMPANY
                                             MIDAMERICAN ENERGY COMPANY
                                        -----------------------------------
                                                  (Registrants)








Date  May 14, 1998
      ------------
                                               /s/ A. L. Wells
                             --------------------------------------------------
                             Senior Vice President and Chief  Financial Officer

                                      -40-