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  September 30, 1997
                               ------------------------------------------------

                                       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 issuer's respective class
of common stock as of the latest practicable date.

     Registrant             Class        Shares Outstanding at October 31, 1997
------------------    -----------------  --------------------------------------
MidAmerican Energy    Common Stock              96,222,113
  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)

*    MidAmerican  Energy Holdings Company  (Holdings)  became the parent holding
     company  for  MidAmerican  Energy  Company  (MidAmerican)   pursuant  to  a
     statutory  share  exchange.  The effective  date of the share  exchange was
     December 1, 1996, and prior to such effective date,  Holdings had no assets
     or operations. Prior to such effective date, MidAmerican was subject to the
     requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
     as amended  (Exchange  Act), and  accordingly  filed in a timely manner all
     reports  required  to be  filed  pursuant  to  Sections  13 or 15(d) of the
     Exchange Act during the preceding 12 months.



<PAGE>


     This combined Form 10-Q represents a separate filing by each of MidAmerican
Energy Holdings  Company  (Company or Holdings) and  MidAmerican  Energy Company
(MidAmerican).  MidAmerican  makes  no  representations  as to  the  information
relating to Holdings' nonregulated operations.



                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                                       AND
                           MIDAMERICAN ENERGY COMPANY

                                      INDEX

                          PART I. FINANCIAL INFORMATION             PAGE NO.

ITEM 1.  Financial Statements

                       MidAmerican Energy Holdings Company

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

                           MidAmerican Energy Company

         Consolidated Statements of Income............................. 10
         Consolidated Balance Sheets................................... 11
         Consolidated Statements of Cash Flows......................... 12
         Notes to Consolidated Financial Statements.................... 13

ITEM 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations................. 15

                           PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings............................................. 33

ITEM 6.  Exhibits and Reports on Form 8-K.............................. 34

Signatures............................................................. 35


                                       -2-

<PAGE>
<TABLE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>

                                                         THREE MONTHS            NINE MONTHS            TWELVE MONTHS
                                                        ENDED SEPT. 30         ENDED SEPT. 30           ENDED SEPT. 30
                                                     --------------------  ----------------------   ----------------------
                                                       1997       1996        1997        1996         1997        1996
                                                     ---------  ---------  ----------  ----------   ----------  ----------
<S>                                                  <C>        <C>        <C>         <C>          <C>         <C>
OPERATING REVENUES
Electric utility...................................  $ 334,336  $ 311,169  $  850,453  $  840,023   $1,109,438  $1,086,681
Gas utility........................................     60,208     72,902     352,686     354,506      534,933     501,658
Nonregulated.......................................     46,154     50,607     212,569     139,211      310,209     169,765
                                                     ---------  ---------  ----------  ----------  -----------  ----------
                                                       440,698    434,678   1,415,708   1,333,740    1,954,580   1,758,104
                                                     ---------  ---------  ----------  ----------  -----------  ----------

OPERATING EXPENSES
Utility:
   Cost of fuel, energy and capacity...............     67,258     61,164     178,682     177,662      235,337     230,229
   Cost of gas sold................................     34,320     48,300     221,252     219,725      346,541     309,558
   Other operating expenses........................     98,686     82,357     290,984     260,126      381,032     364,631
   Maintenance.....................................     24,217     24,741      70,315      68,616       90,320      90,681
   Depreciation and amortization...................     42,815     41,120     126,883     123,126      168,349     163,684
   Property and other taxes........................     26,139     22,686      76,482      71,788       97,324      90,455
                                                     ---------  ---------  ----------  ----------   ----------  ----------
                                                       293,435    280,368     964,598     921,043    1,318,903   1,249,238
                                                     ---------  ---------  ----------  -----------  ----------  ----------
Nonregulated:
   Cost of sales...................................     42,565     47,247     198,366     124,497      292,125     148,432
   Other...........................................      6,750      9,144      22,168      25,136       32,402      34,235
                                                     ---------  ---------  ----------  ----------   ----------  ----------
                                                        49,315     56,391     220,534     149,633      324,527     182,667
                                                     ---------  ---------  ----------  ----------   ----------  ----------
   Total operating expenses........................    342,750    336,759   1,185,132   1,070,676    1,643,430   1,431,905
                                                     ---------  ---------  ----------  ----------   ----------  ----------

OPERATING INCOME...................................     97,948     97,919     230,576     263,064      311,150     326,199
                                                     ---------  ---------  ----------  ----------   ----------  ----------

NON-OPERATING INCOME
Interest income....................................      1,019        564       4,134       3,088        5,058       4,241
Dividend income....................................      3,252      4,179      10,507      13,081       14,411      17,892
Realized gains and losses on securities, net.......       (276)       (30)        340       3,204         (969)      3,829
Other, net.........................................      5,573     (4,187)     12,837         541        8,276      (3,034)
                                                     ---------  ---------- ----------   ---------   ----------  ---------- 
                                                         9,568        526      27,818      19,914       26,776      22,928
                                                     ---------  ---------- ----------   ---------   ----------  ----------
FIXED CHARGES
Interest on long-term debt.........................     20,617     25,818      66,909      77,523       92,295     103,684
Other interest expense.............................      2,383      2,556       7,831       8,279       10,493      10,850
Preferred dividends of subsidiaries................      3,234      2,087      11,234       6,748       15,175       8,567
Allowance for borrowed funds.......................       (620)      (830)     (1,932)     (3,286)      (2,858)     (4,872)
                                                     ---------  ---------  ----------   ---------   ----------  ----------
                                                        25,614     29,631      84,042      89,264      115,105     118,229
                                                     ---------  ---------  ----------   ---------   ----------  ----------
INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES.............................     81,902     68,814     174,352     193,714      222,821     230,898
INCOME TAXES.......................................     32,197     28,266      66,297      79,662       85,057      91,180
                                                     ---------  ---------  ----------   ---------   ----------  ----------
INCOME FROM CONTINUING OPERATIONS..................     49,705     40,548     108,055     114,052      137,764     139,718

DISCONTINUED OPERATIONS
Income (Loss) from operations (net of income taxes)        407     (3,628)      1,105       2,910          312       4,024
Loss on disposal (net of income taxes).............     (3,200)   (14,364)     (3,724)    (14,364)      (4,192)    (14,364)
                                                     ---------  ---------  ----------   ---------   ----------  ----------
                                                        (2,793)   (17,992)     (2,619)    (11,454)      (3,880)    (10,340)
                                                     --------- ----------  ----------   ---------   ----------  ----------
NET INCOME.........................................  $  46,912 $   22,556  $  105,436   $ 102,598   $  133,884  $  129,378
                                                     ========= ==========  ==========   =========   ==========  ==========

AVERAGE COMMON SHARES OUTSTANDING..................     97,097    100,752      98,752     100,752       99,213     100,752

EARNINGS PER COMMON SHARE
Continuing operations..............................  $    0.51  $    0.40  $     1.09   $    1.13   $     1.39  $     1.38
Discontinued operations............................      (0.03)     (0.18)      (0.02)      (0.11)       (0.04)      (0.10)
                                                     ---------  ---------  ----------   ---------   ----------  ----------
Earnings per average common share..................  $    0.48  $    0.22  $     1.07   $    1.02   $     1.35  $     1.28
                                                     =========  =========  ==========   =========   ==========  ==========
DIVIDENDS DECLARED PER SHARE.......................  $    0.30  $    0.30  $     0.90   $    0.90   $     1.20  $     1.20
                                                     =========  =========  ==========   =========   ==========  ==========
</TABLE>
The accompanying notes are an integral part of these statements.

                                       -3-

<PAGE>
<TABLE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<CAPTION>
                                                                                          AS OF
                                                                -------------------------------------------
                                                                      SEPTEMBER 30              DECEMBER 31
                                                                -------------------------------------------
                                                                   1997          1996              1996
                                                                ----------    ----------        ----------
                                                                      (UNAUDITED)
<S>                                                             <C>           <C>               <C>
ASSETS
UTILITY PLANT
Electric....................................................    $4,062,408    $3,981,980        $4,010,847
Gas.........................................................       746,173       718,796           723,491
                                                                ----------    ----------        ----------
                                                                 4,808,581     4,700,776         4,734,338
Less accumulated depreciation and amortization..............     2,250,667     2,132,456         2,153,058
                                                                ----------    ----------        ----------
                                                                 2,557,914     2,568,320         2,581,280
Construction work in progress...............................        53,236        56,452            49,305
                                                                ----------    ----------        ----------
                                                                 2,611,150     2,624,772         2,630,585
                                                                ----------    ----------        ----------

POWER PURCHASE CONTRACT.....................................       188,860       207,725           190,897
                                                                ----------    ----------        ----------

INVESTMENT IN DISCONTINUED OPERATIONS.......................        14,079       214,594           196,356
                                                                ----------    ----------        ----------

CURRENT ASSETS
Cash and cash equivalents...................................        12,290        23,138            97,749
Receivables.................................................       219,447       196,245           312,930
Inventories.................................................        94,969        91,061            90,864
Other.......................................................        12,169        10,275            11,696
                                                                ----------    ----------        ----------
                                                                   338,875       320,719           513,239
                                                                ----------    ----------        ----------

INVESTMENTS.................................................       875,450       628,553           628,791
                                                                ----------    ----------        ----------

OTHER ASSETS................................................       376,814       399,755           399,415
                                                                ----------    ----------        ----------

TOTAL ASSETS................................................    $4,405,228    $4,396,118        $4,559,283
                                                                ==========    ==========        ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity.................................    $1,368,299    $1,238,615        $1,239,946
MidAmerican preferred securities, not subject to
   mandatory redemption.....................................        31,765        77,534            31,769
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
Long-term debt (excluding current portion)..................     1,103,551     1,372,007         1,395,103
                                                                ----------    ----------        ----------
                                                                 2,653,615     2,738,156         2,816,818
                                                                ----------    ----------        ----------
CURRENT LIABILITIES
Notes payable...............................................       141,354       157,728           161,990
Current portion of long-term debt ..........................        77,727        77,624            79,598
Current portion of power purchase contract..................        13,718        13,029            13,718
Accounts payable............................................       136,440       120,663           169,806
Taxes accrued...............................................        72,739        52,269            82,254
Interest accrued............................................        20,503        24,091            28,513
Other.......................................................        55,892        50,500            30,229
                                                                ----------    ----------        ----------
                                                                   518,373       495,904           566,108
                                                                ----------    ----------        ----------
OTHER LIABILITIES
Power purchase contract.....................................        97,504       112,700            97,504
Deferred income taxes.......................................       808,781       732,233           752,336
Investment tax credit.......................................        84,556        90,692            88,842
Other.......................................................       242,399       226,433           237,675
                                                                ----------    ----------        ----------
                                                                 1,233,240     1,162,058         1,176,357
                                                                ----------    ----------        ----------
TOTAL CAPITALIZATION AND LIABILITIES........................    $4,405,228    $4,396,118        $4,559,283
                                                                ==========    ==========        ==========
</TABLE>
The accompanying notes are an integral part of these statements.

                                       -4-
<PAGE>
<TABLE>

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

                                                                         THREE MONTHS ENDED          NINE MONTHS ENDED
                                                                            SEPTEMBER 30                SEPTEMBER 30
                                                                      ------------------------   -------------------------
                                                                        1997         1996           1997           1996
                                                                      ---------   ---------      ---------      ---------

<S>                                                                   <C>         <C>            <C>            <C>    
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.....................................................       $ 46,912    $ 22,556       $ 105,436      $ 102,598
Adjustments to reconcile net income to net cash provided:
   Depreciation and amortization...............................         51,118      47,104         147,100        141,177
   Net decrease in deferred income taxes and
     investment tax credit, net................................         (3,028)      4,848         (44,602)         3,276
   Amortization of other assets................................          5,773       5,001          18,247         15,685
   Capitalized cost of real estate sold........................            627         397           1,423          2,895
   Income from discontinued operations.........................          2,793      17,992           2,619         11,454
   Gain on sale of securities, assets and other investments....            189      (1,898)         (1,638)        (5,471)
   Other-than-temporary decline in value of investments........              3           -             255          2,566
   Impact of changes in working capital, net of effects
     from discontinued operations..............................         (2,818)    (23,383)         63,678        (14,422)
   Other.......................................................          7,366      15,430           6,616         17,327
                                                                      --------    --------       ---------      ---------
     Net cash provided.........................................        108,935      88,047         299,134        277,085
                                                                      --------    --------       ---------      ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures..............................        (49,815)    (35,468)       (113,844)      (101,061)
Quad Cities Nuclear Power Station decommissioning trust fund...         (2,779)     (2,159)         (7,060)        (6,477)
Deferred energy efficiency expenditures........................         (5,909)     (5,753)        (12,258)       (13,200)
Nonregulated capital expenditures..............................         (2,498)    (11,860)         (9,500)       (36,989)
Purchase of securities.........................................        (10,866)    (33,755)       (127,273)      (168,049)
Proceeds from sale of securities...............................         36,168      33,381         168,217        197,472
Proceeds from sale of assets and other investments.............          1,472      16,681          15,142         17,989
Investment in discontinued operations..........................              -       5,221         182,749        (34,022)
Other investing activities, net................................         (6,382)      3,173          (9,046)         7,507
                                                                      --------    --------       ---------      ---------
   Net cash provided (used)....................................        (40,609)    (30,539)         87,127       (136,830)
                                                                      --------    --------       ---------      ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid..........................................        (29,122)    (30,224)        (88,845)       (90,664)
Retirement of long-term debt, including reacquisition cost.....        (58,069)    (64,449)       (119,859)       (65,496)
Reacquisition of preferred shares..............................              -      (1,075)             (4)       (12,800)
Reacquisition of common shares.................................        (21,311)          -         (67,876)             -
Increase (decrease) in MidAmerican Capital Company
   unsecured revolving credit facility.........................              -      44,000        (174,500)        46,000
Net increase (decrease) in notes payable.......................         (4,831)     (6,762)        (20,636)       (27,072)
                                                                      --------    --------       ---------      ---------
   Net cash used...............................................       (113,333)    (58,510)       (471,720)      (150,032)
                                                                      --------    --------       ---------      ---------

NET DECREASE IN CASH AND CASH EQUIVALENTS......................        (45,007)     (1,002)        (85,459)        (9,777)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...............         57,297      24,140          97,749         32,915
                                                                      --------    --------       ---------      ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.....................       $ 12,290    $ 23,138       $  12,290      $  23,138
                                                                      ========    ========       =========      =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized......................       $ 27,085    $ 37,278       $  77,063      $  92,706
                                                                      ========    ========       =========      =========
Income taxes paid..............................................       $ 25,349    $ 23,198       $ 102,102      $  77,082
                                                                      ========    ========       =========      =========
</TABLE>
The accompanying notes are an integral part of these statements.

                                       -5-
<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  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 the future  liability,  if any, for conducting
site investigations or other site activity.

     MidAmerican's   estimate  of  probable  remediation  costs  for  the  sites
discussed above as of September 30, 1997, is $23 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 estimated  recorded  liabilities  for these  properties  are based upon
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.

                                      -6-
<PAGE>

     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.

C)   RATE MATTERS:

     On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois.  The proposal was later withdrawn in Illinois following negotiation of
a settlement in a related Illinois proceeding. The settlement resulted in annual
reductions 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)  issued an order in a
consolidated  rate proceeding  involving  MidAmerican's  pricing  proposal and a
filing by the Iowa Office of Consumer Advocate (OCA). The order approved a March
1997 settlement agreement between MidAmerican,  the OCA and other parties to the
proceeding.  The agreement includes a number of characteristics of MidAmerican's
pricing  proposal.  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  effective June 1, 1998. The agreement includes
a tracking  mechanism  to  currently  recover  the cost of capital  improvements
required by the Cooper  Nuclear  Station Power Purchase  Contract.  The tracking
mechanism will offset approximately $9 million of these reductions.

     In addition,  the agreement accepts MidAmerican's proposal to eliminate the
Iowa energy  adjustment  clause (EAC) which was the mechanism through which fuel
costs were collected from Iowa customers  prior to July 11, 1997. The EAC flowed
the cost of fuel to  customers  on a current  basis,  and thus,  fuel  costs had
little impact on net income.  Prospectively,  base rates for Iowa customers will
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  will be
impacted.  The fuel cost factor will be reviewed in February  1999 and  adjusted
prospectively  if actual fuel costs vary 15% above or below the factor  included
in base rates.

     Under the agreement,  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%.

                                      -7-

<PAGE>

     The agreement also provides that  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 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 before the end
of the second 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 that SFAS 71 may
no longer apply. MidAmerican's electric and gas utility operations are currently
subject to the  provisions  of SFAS 71, but its  applicability  is  periodically
reexamined. If a portion of MidAmerican's utility operations no longer meets the
criteria of SFAS 71, MidAmerican would be required to eliminate from its balance
sheet the regulatory  assets and  liabilities  related to those  operations that
resulted  from  actions  of its  regulators.  Although  the  amount  of  such an
elimination would depend on the specific circumstances, a material adjustment to
earnings in the appropriate  period could result from  discontinuing SFAS 71. As
of September 30, 1997,  MidAmerican had approximately $357 million of regulatory
assets in its Consolidated  Balance Sheet because these costs are expected to be
recovered in future charges to utility customers.

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 September 30, 1997,  the
Company had repurchased approximately 3.9 million shares for $67.8 million under
the plan.  In addition,  a subsidiary  has acquired  445,000  shares of Holdings
common stock which are also excluded from shares outstanding.

G)   ACCOUNTING FOR DERIVATIVES:

     1) Preferred Stock Hedge Instruments:

     The Company is exposed to market value risk from changes in interest  rates
for certain fixed rate sinking fund  preferred and  perpetual  preferred  stocks
(fixed rate  preferred  stocks)  included  in  Investments  on the  Consolidated
Balance  Sheets.  The Company  reviews the interest  rate  sensitivity  of these
securities and purchases put options on U.S.  Treasury  securities (put options)
to reduce interest rate risk on preferred stocks.  The Company does not purchase
or sell put  options  for  speculative  purposes.  The  Company's  intent  is to
substantially  offset  any change in market  value of the fixed  rate  preferred
stocks due to a change in  interest  rates with a change in market  value of the
put options.

                                      -8-
<PAGE>

     The preferred stocks are publicly traded  securities and, as such,  changes
in their fair value are reported,  net of income taxes, as a separate  component
of  shareholders'  equity.  Unrealized  gains and losses on the  associated  put
options are  included in the  determination  of the fair value of the  preferred
stocks.  The fair  value of the put  options,  including  unrealized  gains  and
losses,  included  in the  determination  of the  fair  value  of the  preferred
securities  as of  September  30, 1997 and 1996 and  December  31, 1996 was $1.1
million, $5.4 million and $5.1 million, respectively.  Realized gains and losses
on the put options are included in Realized Gains and Losses on Securities,  Net
in the  Consolidated  Statements of Income in the period the  underlying  hedged
fixed rate preferred stocks are sold.

     2) Gas Futures Contracts and Swaps:

     The Company  uses gas futures  contracts  and swap  contracts to reduce its
exposure to changes in the price of natural gas  purchased  to meet the needs of
its  customers  and to manage  margins on  natural  gas  storage  opportunities.
Investments  in natural gas futures  contracts,  which total $2.3 million,  $0.4
million and $0.8  million as of  September  30, 1997 and 1996 and  December  31,
1996, are included in Receivables on the Consolidated  Balance Sheets. Gains and
losses on gas futures  contracts that qualify for hedge  accounting are deferred
and  reflected  as  adjustments  to the  carrying  value of the  hedged  item or
included in Other Assets on the Consolidated Balance Sheets until the underlying
physical  transaction  is  recorded  if the  instrument  is  used  to  hedge  an
anticipated future transaction. The net gain or loss on gas futures contracts is
included  in the  determination  of income in the same period as the expense for
the  physical  delivery of the  natural  gas.  Realized  gains and losses on gas
futures contracts and the net amounts exchanged or accrued under the natural gas
swap contracts are included in Cost of Gas Sold, Other Net or Nonregulated-Costs
of Sales  consistent with the expense for the physical  commodity.  Deferred net
gains (losses) related to the Company's gas futures  contracts are $2.7,  $(0.2)
million and $0.8  million as of  September  30, 1997 and 1996 and  December  31,
1996, respectively.

     The Company  periodically  evaluates the  effectiveness  of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved,  the contracts
are  recorded  at fair  value  and the  gains  or  losses  are  included  in the
determination of income.

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,
which is one  year  after  the  completion  of the  merger.  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 the investment is recorded at fair value.  At September 30, 1997,
the cost and fair  value of the  McLeodUSA  investment  were $45.7  million  and
$325.9 million,  respectively.  The unrealized  gain is recorded,  net of income
taxes, as a separate component of common shareholders'  equity. At September 30,
1997, the unrealized  gain and deferred  income taxes for this  investment  were
$280.2 million and $98.1 million, respectively.

                                      -9-
<PAGE>
<TABLE>
                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                 (IN THOUSANDS)


<CAPTION>

                                                        THREE MONTHS           NINE MONTHS            TWELVE MONTHS
                                                       ENDED SEPT. 30        ENDED SEPT. 30           ENDED SEPT. 30
                                                    -------------------  ----------------------    --------------------
                                                      1997       1996       1997        1996          1997        1996
                                                    --------   --------  ----------  ----------    ----------  ----------
<S>                                                 <C>        <C>       <C>         <C>           <C>         <C>
OPERATING REVENUES
Electric utility..................................  $334,336   $311,169  $  850,453  $  840,023    $1,109,438  $1,086,681
Gas utility.......................................    60,208     72,902     352,686     354,506       534,933     501,658
                                                    --------   --------  ----------  ----------    ----------  ----------
                                                     394,544    384,071   1,203,139   1,194,529     1,644,371   1,588,339
                                                    --------   --------  ----------  ----------    ----------  ----------
OPERATING EXPENSES
Cost of fuel, energy and capacity.................    67,258     61,164     178,682     177,662       235,337     230,229
Cost of gas sold..................................    34,320     48,300     221,252     219,725       346,541     309,558
Other operating expenses..........................    98,686     82,357     290,984     260,126       381,032     364,631
Maintenance.......................................    24,217     24,741      70,315      68,616        90,320      90,680
Depreciation and amortization.....................    42,815     41,120     126,883     123,126       168,349     163,684
Property and other taxes..........................    26,139     22,686      76,482      71,788        97,324      90,455
Income taxes......................................    31,332     33,603      67,753      86,967        91,992     104,996
                                                    --------   --------  ----------  ----------    ----------  ----------
                                                     324,767    313,971   1,032,351   1,008,010     1,410,895   1,354,233
                                                    --------   --------  ----------  ----------    ----------  ----------

OPERATING INCOME..................................    69,777     70,100     170,788     186,519       233,476     234,106
                                                    --------   --------  ----------  ----------    ----------  ----------

NON-OPERATING INCOME
Interest and dividend income......................       358        192       1,685       1,010         2,273       1,361
Non-operating income taxes........................    (2,200)     2,654      (4,493)      2,220        (8,434)      3,723
Other, net........................................     4,727     (7,689)      9,066      (7,285)       18,751      (7,697)
                                                    --------   --------  ----------  ----------     ---------   ---------
                                                       2,885     (4,843)      6,258      (4,055)       12,590      (2,613)
                                                    --------   --------  ----------  ----------     ---------   ---------

FIXED CHARGES
Interest on long-term debt........................    18,650     19,879      57,868      59,647        77,655      79,699
Other interest expense............................     2,382      2,550       7,824       8,180        10,486      10,744
Preferred dividends of subsidiary trust...........     1,995          -       5,985           -         6,273           -
Allowance for borrowed funds......................      (620)      (830)     (1,932)     (3,286)       (2,858)     (4,872)
                                                    --------   --------  ----------  ----------    ----------  ----------
                                                      22,407     21,599      69,745      64,541        91,556      85,571
                                                    --------   --------  ----------  ----------    ----------  ----------
INCOME FROM CONTINUING OPERATIONS.................    50,255     43,658     107,301     117,923       154,510     145,922

LOSS FROM DISCONTINUED OPERATIONS.................         -    (19,015)          -      (8,577)       (1,584)     (7,977)
                                                    --------   --------  ----------  ----------    ----------   --------- 
NET INCOME........................................    50,255     24,643     107,301     109,346       152,926     137,945
PREFERRED DIVIDENDS...............................     1,239      2,087       5,249       6,748         8,902       8,567
                                                    --------   --------  ----------  ----------    ----------   ---------

EARNINGS ON COMMON STOCK..........................  $ 49,016   $ 22,556  $  102,052  $  102,598    $  144,024   $ 129,378
                                                    ========   ========  ==========  ==========    ==========   =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -10-

<PAGE>
<TABLE>
                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<CAPTION>
                                                                                         AS OF
                                                                -------------------------------------------
                                                                     SEPTEMBER 30               DECEMBER 31
                                                                ------------------------        -----------
                                                                   1997          1996              1996
                                                                ----------    ----------        ----------
                                                                      (UNAUDITED)
<S>                                                             <C>           <C>               <C>
ASSETS
UTILITY PLANT
Electric...............................................         $4,065,411    $3,984,983        $4,013,851
Gas....................................................            746,173       718,796           723,491
                                                                ----------    ----------        ----------
                                                                 4,811,584     4,703,779         4,737,342
Less accumulated depreciation and amortization.........          2,252,537     2,133,775         2,154,505
                                                                ----------    ----------        ----------
                                                                 2,559,047     2,570,004         2,582,837
Construction work in progress..........................             53,236        56,452            49,305
                                                                ----------    ----------        ----------
                                                                 2,612,283     2,626,456         2,632,142
                                                                ----------    ----------        ----------

POWER PURCHASE CONTRACT................................            188,860       207,725           190,897
                                                               -----------    ----------        ----------

INVESTMENT IN DISCONTINUED OPERATIONS..................                  -       280,111                 -
                                                               -----------    ----------        ----------
CURRENT ASSETS
Cash and cash equivalents..............................              7,065        16,756            84,215
Receivables............................................            192,574       173,625           253,944
Inventories............................................             93,142        91,061            90,864
Other..................................................              6,024         6,666             7,776
                                                               -----------    ----------        ----------
                                                                   298,805       288,108           436,799
                                                               -----------    ----------        ----------

INVESTMENTS............................................            106,318       105,598           118,344
                                                               -----------    ----------        ----------

OTHER ASSETS...........................................            361,807       397,582           396,471
                                                               -----------    ----------        ----------

TOTAL ASSETS...........................................         $3,568,073    $3,905,580        $3,774,653
                                                                ==========    ==========        ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity............................         $  997,342    $1,238,615        $  986,825
MidAmerican preferred securities, not subject to
   mandatory redemption................................             31,765        77,534            31,769
Preferred shares, 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
Long-term debt (excluding current portion).............            969,175     1,062,350         1,086,955
                                                                ----------    ----------        ----------
                                                                 2,148,282     2,428,499         2,255,549
                                                                ----------    ----------        ----------

CURRENT LIABILITIES
Notes payable..........................................            131,100       160,063           161,700
Current portion of long-term debt......................             77,730        47,713            49,560
Current portion of power purchased contract............             13,718        13,029            13,718
Accounts payable.......................................            118,436       103,300           122,974
Taxes accrued..........................................             56,175        60,398            82,338
Interest accrued.......................................             16,062        18,524            24,245
Other..................................................             26,438        29,532            24,452
                                                                ----------    ----------        ----------
                                                                   439,659       432,559           478,987
                                                                ----------    ----------        ----------

OTHER LIABILITIES
Power purchase contract................................             97,504       112,700            97,504
Deferred income taxes..................................            615,589       620,526           616,567
Investment tax credit..................................             84,556        90,692            88,842
Other..................................................            182,483       220,604           237,204
                                                                ----------    ----------        ----------
                                                                   980,132     1,044,522         1,040,117
                                                                ----------    ----------        ----------
TOTAL CAPITALIZATION AND LIABILITIES...................         $3,568,073    $3,905,580        $3,774,653
                                                                ==========    ==========        ==========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -11-
<PAGE>


<TABLE>
                           MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<CAPTION>



                                                                      THREE MONTHS ENDED        NINE MONTHS ENDED
                                                                         SEPTEMBER 30              SEPTEMBER 30
                                                                      -------------------      -------------------
                                                                         1997      1996          1997       1996
                                                                      --------   --------      --------   --------
<S>                                                                   <C>        <C>           <C>        <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income.........................................................   $ 50,255   $ 24,643      $107,301   $109,346
Adjustments to reconcile net income to net cash provided:
   Depreciation and amortization...................................     50,290     45,794       144,719    137,729
   Net decrease in deferred income taxes and
      investment tax credit, net...................................     (1,686)    (1,778)       (5,264)    (3,572)
   Amortization of other assets....................................      5,635      5,004        17,727     15,336
   Income from discontinued operations.............................          -     19,015             -      8,577
   Other-than-temporary decline in value of investments............          -          -             -      2,230
   Impact of changes in working capital, net of effects
      from discontinued operations.................................     (4,530)   (30,701)       23,947    (34,695)
   Other...........................................................     14,877     20,530       (10,284)    20,206
                                                                      --------   --------      --------   --------
      Net cash provided............................................    114,841     82,507       278,146    255,157
                                                                      --------   --------      --------   --------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures..................................    (49,815)   (35,468)     (113,844)  (101,061)
Quad Cities Nuclear Power Station decommissioning trust fund.......     (2,779)    (2,159)       (7,060)    (6,477)
Deferred energy efficiency expenditures............................     (5,909)    (5,752)      (12,258)   (13,200)
Nonregulated capital expenditures..................................     (2,071)      (531)       (5,377)    (1,804)
Investment in discontinued operations..............................          -     11,104             -     16,373
Other investing activities, net....................................       (176)    (2,031)          751     (5,110)
                                                                      --------   --------      --------   --------
   Net cash used...................................................    (60,750)   (34,837)     (137,788)  (111,279)
                                                                      --------   --------      --------   --------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid.....................................................    (21,238)   (32,311)      (96,749)   (97,412)
Retirement of long-term debt, including reacquisition cost.........    (28,102)      (183)      (90,155)      (874)
Reacquisition of preferred shares..................................          -     (1,432)           (4)   (12,800)
Net increase (decrease) in notes payable...........................    (13,200)    (6,254)      (30,600)   (24,737)
                                                                      --------   --------      --------   --------
   Net cash used...................................................    (62,540)   (40,180)     (217,508)  (135,823)
                                                                      --------   --------      --------   --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...............     (8,449)     7,490       (77,150)     8,055
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...................     15,514      9,266        84,215      8,701
                                                                      --------   --------      --------   --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.........................   $  7,065   $ 16,756      $  7,065   $ 16,756
                                                                      ========   ========      ========   ========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized..........................   $ 25,525   $ 25,996      $ 68,188   $ 66,012
                                                                      ========   ========      ========   ========
Income taxes paid..................................................   $ 23,714   $ 28,796      $ 91,179   $ 90,066
                                                                      ========   ========      ========   ========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -12-
<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)   ACCOUNTING FOR DERIVATIVES:

     1) Gas Futures Contracts and Swaps:

     MidAmerican  uses gas futures  contracts  and swap  contracts to reduce its
exposure to changes in the price of natural gas  purchased  to meet the needs of
its  customers  and to manage  margins on  natural  gas  storage  opportunities.
Investments  in natural gas futures  contracts,  which total $2.2 million,  $0.2
million,  and $0.1  million as of  September  30, 1997 and 1996 and December 31,
1996, are included in Receivables on the Consolidated  Balance Sheets. Gains and
losses on gas futures  contracts that qualify for hedge  accounting are deferred
and  reflected  as  adjustments  to the  carrying  value of the  hedged  item or
included in Other Assets on the Consolidated Balance Sheets until the underlying
physical  transaction  is  recorded  if the  instrument  is  used  to  hedge  an
anticipated future transaction. The net gain or loss on gas futures contracts is
included  in the  determination  of income in the same period as the expense for
the physical delivery of the natural gas.

                                      -13-
<PAGE>


Realized gains and losses on gas futures contracts and the net amounts exchanged
or accrued under the natural gas swap contracts are included in Cost of Gas Sold
or Other Net consistent  with the expense for the physical  commodity.  Deferred
net gains  (losses)  related to the  Company's  gas futures  contracts  are $2.6
million,  $(0.2)  million and $0.1 million as of September 30, 1997 and 1996 and
December 31, 1996, respectively

     MidAmerican  periodically  evaluates the  effectiveness  of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments  and prices for the physical  delivery is not achieved the contracts
are  recorded  at fair  value  and the  gains  or  losses  are  included  in the
determination of income.


                                      -14-
<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  was  formed  on July 1,  1995,  as a result  of the  merger of
Iowa-Illinois Gas and Electric Company,  Midwest Resources Inc.  (Resources) and
Midwest Power Systems Inc., the utility subsidiary of Resources.

     MidAmerican  is a public  utility with electric and natural gas  operations
and is the  principal  subsidiary of Holdings.  MidAmerican  Capital and Midwest
Capital are Holdings' nonregulated subsidiaries.  Midwest Capital functions as a
regional  business   development   company  in  MidAmerican's   utility  service
territory.   MidAmerican  Capital  manages  marketable  securities  and  passive
investment activities, nonregulated wholesale and retail natural gas businesses,
rail service businesses and other energy related,  nonregulated activities.  The
Company completed the sale of MidAmerican  Capital's oil and gas exploration and
development operations in January 1997.

DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS

     The  MidAmerican  merger is accounted  for as a  pooling-of-interests.  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 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.


                                      -15-

<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 table provides a summary of the earnings contributions of the
Company's operations for each of the periods presented
<TABLE>
<CAPTION>


                                                 Periods Ended September 30
                                    -------------------------------------------------------
                                    Three Months         Nine Months        Twelve Months
                                    ----------------  ------------------   -----------------
                                     1997     1996      1997      1996      1997      1996
                                    ------   ------   -------   --------  -------   -------
<S>                                 <C>      <C>      <C>       <C>       <C>       <C>
Net Income (in millions)
  Continuing operations
    Electric utility                $ 55.8   $ 48.4   $  90.2   $  95.8   $ 117.2   $ 111.5
    Gas utility                       (6.8)    (6.8)     11.8      15.4      28.4      25.9
                                    ------   ------   -------   -------   -------   -------
      Total                           49.0     41.6     102.0     111.2     145.6     137.4
    Nonregulated operations            0.7     (1.0)      6.0       2.9      (7.8)      2.3
  Discontinued operations             (2.8)   (18.0)     (2.6)    (11.5)     (3.9)    (10.3)
                                    ------   ------   -------   -------   -------   -------
    Consolidated earnings           $ 46.9   $ 22.6   $ 105.4   $ 102.6   $ 133.9   $ 129.4
                                    ======   ======   =======   =======   =======   =======

Earnings Per Common Share
  Continuing operations
    Electric utility                $ 0.57   $ 0.48   $  0.91   $  0.95   $  1.18   $  1.10
    Gas utility                      (0.07)   (0.07)     0.12      0.15      0.29      0.26
                                    ------   ------   -------   -------   -------   -------
      Total                           0.50     0.41      1.03      1.10      1.47      1.36
    Nonregulated operations           0.01    (0.01)     0.06      0.03     (0.08)     0.02
  Discontinued operations            (0.03)   (0.18)    (0.02)    (0.11)    (0.04)    (0.10)
                                    ------   ------   -------   -------   -------   -------
    Consolidated earnings           $ 0.48   $ 0.22   $  1.07   $  1.02   $  1.35   $  1.28
                                    ======   ======   =======   =======   =======   =======

</TABLE>

                                                       -16-

<PAGE>
MidAmerican:
------------

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

                                               Periods Ended September 30
                                    ------------------------------------------------
                                     Three Months    Nine Months      Twelve Months
                                    --------------  --------------   ---------------
                                     1997    1996    1997    1996     1997      1996
                                    ------  ------  ------  -------  -------  -------
                                                    (in millions)

<S>                                 <C>     <C>     <C>     <C>      <C>      <C>
Earnings on Common Stock
  Continuing operations
       Electric utility             $55.8   $48.4   $ 90.2  $ 95.8   $117.2   $111.5
       Gas utility                   (6.8)   (6.8)    11.8    15.4     28.4     25.9
                                    -----   -----   ------  ------   ------   ------
         Total                       49.0    41.6    102.0   111.2    145.6    137.4
  Discontinued operations*            --    (19.0)    --      (8.6)    (1.6)    (8.0)
                                    -----   -----   ------  ------   ------   ------
    Consolidated earnings           $49.0   $22.6   $102.0  $102.6   $144.0   $129.4
                                    =====   =====   ======  ======   ======   ======
</TABLE>

     * Includes the income  (loss) of  MidAmerican  Capital and Midwest  Capital
     prior to their transfer to Holdings on December 1, 1996.

EARNINGS DISCUSSION

     The Company's  earnings per share for the 1997  three-month  and nine-month
periods  increased  26 cents  and 5 cents,  respectively,  compared  to the 1996
periods. Some of the significant variances which resulted in the increase are as
follows, on a Holdings per share basis:
<TABLE>
<CAPTION>

                                                     Three Months    Nine Months
                                                     ------------    -----------
<S>                                                    <C>           <C>   
MidAmerican
  Net reduction in electric and gas
    gross margin due to 
       Variation in the effect of weather              $   0.07      $    --
       Customer growth                                     0.01          0.08
       Electric retail rate reductions                    (0.03)        (0.09)
       Improvements due to other factors                   0.06          0.04
  Increase in nuclear O&M expenses                        (0.01)        (0.05)
  Increase in other O&M expenses                          (0.08)        (0.14)
  1996 merger proposal costs                               0.05          0.05
  Settlement of NPPD lawsuit                               0.01          0.01
  Gas procurement program award
    and storage gas sale                                    --           0.03
  Losses on reacquired preferred stock
    and reacquired long-term debt                           --          (0.02)

Nonregulated subsidiaries continuing operations            0.02          0.03

Discontinued operations                                    0.15          0.09
</TABLE>

                                      -17-
<PAGE>

     Earnings for the twelve months ended September 30, 1997,  increased 7 cents
per share  compared to twelve  months ended  September  30, 1996.  The impact of
discontinued  operations  resulted  in  a 6  centsper  share  increase.  Utility
electric  and gas margins  increased 7 cents per share in spite of the  electric
rate  reductions.  Losses on reacquired  preferred  stock reduced  earnings by 2
cents per share for the 1997 twelve-month-period. For the Company's nonregulated
subsidiaries,  earnings from  continuing  operations for the twelve months ended
September  30,  1997,  decreased 3 cents per share,  excluding  the  write-downs
discussed  later in this  section.  Following is a discussion  of several  other
significant factors affecting the twelve months ended comparison.

     In  August  1996,  the  Company  announced  a  proposal  to merge  with IES
Industries Inc. (IES), a holding company  headquartered  in Cedar Rapids,  Iowa.
The IES board of directors rejected the Company's proposal in favor of a pending
merger with WPL Holdings and Interstate  Power Co. (the Wisconsin  Transaction).
At their  September 5, 1996,  annual  meeting,  the holders of a majority of IES
common  stock  voted in  favor of the  Wisconsin  Transaction,  and the  Company
discontinued its attempt to merge with IES. In the effort,  MidAmerican incurred
tax deductible  costs of $8.7 million in 1996 which reduced  earnings by 5 cents
per share for the 1996 twelve-month period.

     Costs  of the  Company's  restructuring  plan  implemented  as  part of the
process of combining its predecessors in 1995 reduced the Company's  earnings by
2 cents per share for the twelve months ended September 30, 1996.

     Write-downs of certain assets,  primarily  alternative energy projects,  of
the Company's nonregulated  subsidiaries reduced earnings for each of the twelve
months ended September 30. The write-downs,  which reflect declines in the value
of those  nonregulated  investments,  reduced  earnings  by  approximately  $9.4
million,  or 9 cents per share,  and $1.8 million,  or 2 cents per share, in the
1997 and 1996  twelve-month  periods,  respectively.  The pre-tax amounts of the
write-downs,  which are included in Other, Net in the Consolidated Statements of
Income,   totaled  $15.6  million  and  $3.0  million  for  the  1997  and  1996
twelve-month periods ended September 30, respectively.

     Discontinued Operations -

Holdings:
---------

     The Company is redeploying certain of its nonregulated  investments as part
of its  strategy  of  becoming  the  leading  regional  provider  of energy  and
complementary services. As discussed below, the Company discontinued some of its
nonregulated  operations  during the second half of 1996.  The related income or
loss from  operations  and the  anticipated  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) of
Edison,  New  Jersey,  signed a  definitive  agreement  to sell a portion of the
Company's  nonregulated  operations to KCS for $210 million in cash and 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
Company  recorded an after-tax loss of $7.1 million for the  transaction in 1996
and an additional $0.5 million in the first quarter of 1997.

                                      -18-
<PAGE>                                   

     The Company has 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 disposed of the investment in October 1997.
In September  1996, the Company  recorded a $4.0 million  anticipated  after-tax
loss on disposal of those operations.  The Company recorded in September 1997 an
additional $3.2 million after-tax loss on disposal.

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  also  includes the net  earnings/loss  of  MidAmerican  Capital and
Midwest Capital for periods prior to the December 1, 1996, transfer to Holdings.

UTILITY GROSS MARGIN

     Electric Gross Margin:
     ----------------------
<TABLE>
<CAPTION>
                                                         Periods Ended September 30
                                               --------------------------------------------------
                                               Three Months      Nine Months      Twelve Months
                                               ------------      -----------      ---------------
                                               1997    1996      1997   1996       1997     1996
                                               ----    ----      ----   ----      ------   ------
                                                                (in millions)

     <S>                                       <C>     <C>       <C>    <C>       <C>      <C>   
     Operating revenues                        $334    $311      $850   $840      $1,109   $1,087
     Cost of fuel, energy and capacity           67      61       179    178         235      230
                                              -----    ----      ----   ----      ------   ------
       Electric gross margin                   $267    $250      $671   $662      $  874   $  857
                                               ====    ====      ====   ====      ======   ======
</TABLE>

     Variations  in gross  margin are the result of changes in  revenues  due to
price and sales volume  variances.  Changes in the cost of electric fuel, energy
and capacity  (collectively,  Energy Costs) reflect  fluctuations  in generation
levels and mix, fuel cost, and energy and capacity purchases.

     MidAmerican previously had been allowed to recover in revenues Energy Costs
from most of its electric utility customers  through energy  adjustment  clauses
(EACs).  Effective  July 11, 1997,  the EAC was eliminated for Iowa customers as
part of a recently  approved  settlement  agreement  in Iowa.  Prior to July 11,
1997,  variations  in revenues  collected  through the EACs did not affect gross
margin or net income.  With the  elimination  of the Iowa EAC,  fluctuations  in
Energy Costs now have an impact on gross  margin and net income.  Refer to "Rate
Matters" under the Operating  Activities and Other Matters  section of Liquidity
and Capital Resources for further discussion of the settlement agreement.

     Electric gross margin for three months ended September 30, 1997,  increased
compared to the 1996 three-month period. Though cooler than normal, temperatures
during the 1997 period were warmer than in the 1996  period.  Cooler-than-normal
temperatures  resulted in a $9 million reduction in electric gross margin in the
third  quarter of 1997  compared  to a $20 million  reduction  in the 1996 third
quarter.  Moderate  but  steady  growth  in  the  number  of  customers  and  an
improvement in sales not dependent upon weather also contributed to the increase
in margin.  In total,  electric  retail sales increased 4%. Energy Costs for the
period were below the amount  recovered in rates under the new Iowa pricing plan
and  resulted in an  increase to gross  margin of  

                                      -19-
<PAGE>
approximately  $4.0  million.  Reductions  in electric  retail  rates  decreased
revenues and gross margin by $5.0 million compared to the third quarter of 1996.

     Reductions in electric retail service rates have affected customers in Iowa
and Illinois.  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 in  MidAmerican's  pricing  proposal  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.  The
Iowa rate reductions are partially  offset by a new tracking  mechanism  (Cooper
Tracker) for capital  improvement costs at the Cooper Nuclear Station.  The rate
reduction  amount in the discussion of margin variance for each period is net of
the effect of the Cooper  Tracker.  Refer to "Rate  Matters"  in  Liquidity  and
Capital Resources later in this discussion for further information regarding the
Iowa proceeding.

     Gross margin for the nine months  ended  September  30, 1997,  improved for
reasons similar to those mentioned in the  three-month  discussion.  Temperature
variation  from normal  reduced  gross margin for the 1997 period by $14 million
compared  to  a  decrease  in  margin  of  $17  million  for  the  1996  period.
Additionally,  customer  growth and  increases in sales not dependent on weather
contributed to the increase. In total, electric retail sales increased 3% in the
1997 nine-month period compared to the nine months ended September 30, 1996. The
elimination  of the ECA  resulted in a $4.0  million  increase in margin for the
1997 year to date period as well.  Rate  reductions  reduced  revenues and gross
margin by $14.3 million for the nine months ended  September 30, 1997,  relative
to the 1996 period.

     Electric  gross margin  increased  $17 million for the twelve  months ended
September  30,  1997,  compared  to the  1996  period.  Customer  growth  and an
improvement in sales not dependent upon weather contributed to the increase. The
variation in  temperatures  caused an increase in  weather-related  sales in the
1997  twelve-month  period  relative to the comparable  1996 period and improved
gross  margin by  approximately  $5 million.  In total,  electric  retail  sales
increased 4% relative to the comparable 1996 twelve-month  period.  Revenues and
margin from  non-retail  sales  increased due to a 19% increase in sales volumes
for the 1997  twelve-month  period compared to the twelve months ended September
30,  1996.  The  $4.0  million  benefit  from  the  elimination  of the ECA also
contributed  to  the  improved  twelve-month  comparison.  The  rate  reductions
discussed  above reduced  electric  gross margin by $18.5 million for the twelve
months ended comparison.

     Gas Gross Margin:
     ---------------- 
<TABLE>
<CAPTION>
                                      Periods Ended September 30
                             ---------------------------------------------
                             Three Months     Nine Months    Twelve Months
                             ------------     -----------    -------------
                             1997    1996    1997    1996    1997    1996
                             ----    ----    ----    ----    ----    ----
                                             (in millions)

     <S>                     <C>     <C>     <C>     <C>     <C>     <C> 
     Operating revenues      $ 60    $ 73    $353    $355    $535    $502
       Cost of gas sold        34      48     221     220     347     310
                             ----    ----    ----    ----    ----    ----
       Gas gross margin      $ 26    $ 25    $132    $135    $188    $192
                             ====    ====    ====    ====    ====    ====
</TABLE>

                                      -20-

<PAGE>

     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.

     Gas gross margin for the three months ended was relatively  unchanged.  The
decrease in revenues and cost of gas was due primarily to a decrease in the cost
of gas per unit.

     Gas gross margin for the nine months ended September 30, 1997, decreased $3
million  compared  to  the  1996  nine-month  period  due  primarily  to  warmer
temperatures  in 1997.  Weather in the first  quarter  of 1997 was  milder  than
normal  resulting in a $1 million  decrease in gas gross margin while weather in
the 1996 first  quarter was colder than normal,  contributing  $2 million to the
gas margin for that period. Retail sales of natural gas decreased 7% compared to
the nine months ended September 30, 1996.

     Gas gross margin decreased $4 million for the twelve months ended September
30, 1997, compared to the 1996 period.  Retail sales of natural gas decreased 6%
compared  to twelve  months  ended  September  30,  1996.  The  decrease  is due
primarily to the impact of weather. The increase in revenues and cost of gas was
due to an increase in the cost of gas per unit.

UTILITY OPERATING EXPENSES

     Utility  other  operating  expenses  increased  for three,  nine and twelve
months ended  September  30,  1997,  compared to the 1996 periods due in part to
increases of $3.9  million,  $8.5  million and $5.8  million,  respectively,  in
nuclear operating costs. For the nine and twelve-month periods, the increase was
due  primarily  to  increases at the Quad Cities  Nuclear  Station  (Quad Cities
Station).   Operating  expenses  related  to  Cooper  Nuclear  Station  (Cooper)
increased  in  part  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 now
recovering  on a current  basis the Iowa  portion  of these  costs from its Iowa
electric  customers.  This  change  accounted  for $2.5  million of the  nuclear
operating expense increase in the nine and twelve-month periods and $1.9 million
of the increase for the quarter.

     In addition,  the 1997 periods reflect increases in marketing  salaries and
expenses,  consulting services fees,  uncollectible  accounts expense,  employee
incentive  compensation,  manufactured  gas  plant  cleanup  costs  and  certain
employee  benefits  expenses.  Each of the 1997 periods  reflects an increase in
transmission  wheeling expense due to activities which also produced  additional
revenues.  The increases for the twelve  months ended  September 30, 1997,  were
partially offset by a $2.8 million decrease due to restructuring  costs included
in the 1996 twelve-month period.

     Maintenance  expenses decreased slightly for three months and twelve months
ended  September 30, 1997,  and increased  $1.7 million for the 1997  nine-month
period relative to their  comparable 1996 periods.  Maintenance  expenses at the
Quad Cities Station  decreased $1.9 million for the 1997 quarter compared to the
1996  third  quarter.   For  the  1997  nine-month  and  twelve-month   periods,
maintenance  expenses at the Quad Cities Station increased $0.6 million and $2.1
million,  respectively,  compared  to the 1996  periods.  There  was a  moderate
increase in non-nuclear  maintenance expenses for the three-month and nine-month
comparisons. Steam power maintenance increased $3.4 million for the twelve-month
comparison, but was offset by a $6.2 

                                      -21-

<PAGE>

million  reduction  from an  adjustment  in the  1996  fourth  quarter  to align
inventory accounting of predecessor companies.

     Based on information currently available,  MidAmerican expects 1997 nuclear
operations  and  maintenance  expenses to be $12-14 million above the 1996 level
due in part to  scheduled  outage  costs,  the  change in  treatment  for Cooper
capital  additions and other  activities at the Quad Cities  Station and Cooper.
MidAmerican  is a 25% owner of the Quad Cities  Station and purchases 50% of the
output of Cooper  under a power  sales  contract.  MidAmerican  does not operate
either of the facilities.  Actual nuclear  operations and  maintenance  expenses
could differ  significantly  from the expected level due to, but not limited to,
unplanned outages, additional maintenance needs or regulatory intervention.

     Property taxes  increased  $3.0 million,  $3.8 million and $4.7 million for
the three,  nine and twelve  months  ended  September  30,  1997,  respectively,
compared to the 1996 periods, due to an increase in assessed value.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

Holdings:
---------

     Revenues of MidAmerican  Capital and Midwest Capital decreased $4.5 million
for the third  quarter of 1997  compared to the 1996 third  quarter due to a 21%
decrease in sales volumes of  nonregulated  natural gas marketing  subsidiaries.
For the nine-month and twelve-month  periods ended September 30, 1997,  revenues
of MidAmerican Capital and Midwest Capital increased a total of $73.4 and $140.4
million,  compared to the respective 1996 periods. Revenues from the natural gas
marketing  subsidiaries  increased  $74.5  million  and $138.8  million  for the
nine-month and twelve-month periods, respectively. Sales volumes for the natural
gas marketing  firms  increased 23 million  MMBtu's (48%) and 50 million MMBtu's
(86%) for the 1997 nine and twelve  months  ended  September  30 compared to the
1996 periods.

     Cost of sales includes expenses directly related to sales of natural gas. A
fluctuation  in gas sales  volumes was the primary  cause of the variance in the
cost of sales for each 1997  period  compared to the 1996  periods.  The average
cost of gas per unit also increased for each of the 1997 periods.

     Compared to the 1996 periods,  total gross margin on  nonregulated  natural
gas sales  increased $0.3 million and $0.4 million for the three months and nine
months ended September 30, 1997, and decreased $0.8 million for the twelve-month
period.

NON-OPERATING INCOME AND INTEREST EXPENSE

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

     Other, Net -

     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  is being  refunded  to
MidAmerican's  customers.  The remaining  amount was retained by MidAmerican for
recovery of  litigation  costs in the lawsuit.  Other,  Net for each 1997 period
presented  reflects  $2.2 million of pre-tax  income for recovery of  litigation
costs incurred in prior years. (Refer to "Cooper Litigation I", in Part II, Item
1, of this document for additional information.)

                                      -22-

<PAGE>

     Other, Net for each of the 1996 periods 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 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.
MidAmerican  was awarded $1.7 million of pre-tax income in the second quarter of
1997 for its  performance  under the  program  during  the May to  October  1996
period.

     In the first quarter of 1996,  MidAmerican  recorded a $2.2 million reserve
for an inventory dispute with a vendor.  Following successful  resolution of the
dispute in the fourth  quarter of 1996,  MidAmerican  reversed  the  reserve and
recorded  an initial  pre-tax  gain of $3.2  million on its sale of the  related
storage gas supplies.  MidAmerican  reflected an additional $0.8 million gain in
the  second  quarter  of  1997  after  receiving   favorable  treatment  on  the
transaction   from  the  Iowa  Utilities  Board  (IUB).   The  impact  of  these
transactions on the comparison of Other,  Net between the nine and twelve months
ended  September  30 periods was an increase in income for the 1997 periods over
the 1996 periods of $3.0 million and $8.4 million, respectively.

     In addition,  the  recognition  of deferred  income from energy  efficiency
programs and income from gas marketing  activities increased in each of the 1997
periods compared to the respective 1996 periods.

     Interest Charges -

     A decrease in the average amount of commercial paper  outstanding  compared
to the 1996 periods resulted in a decrease in related other interest expense for
the 1997 periods. The decreases for the 1997 nine-month and twelve-month periods
ended  September 30 were  partially  offset by interest  expense  related to IRS
settlements in the second quarter of 1997.

Holdings:
---------

     Dividend Income

     Dividend income  decreased for the 1997 periods due  MidAmerican  Capital's
reduced holdings of preferred stock portfolios as discussed below.

     Realized Gains and Losses on Securities, Net -

     Net realized  gains on  securities  decreased for the 1997  nine-month  and
twelve-month  periods compared to the 1996 periods.  During the first quarter of
1996,  MidAmerican  Capital  began  liquidation  of certain  common  equity fund
holdings,  realizing  gains on such  sales.  Losses on  liquidation  of  managed
preferred  stock  portfolios  in the last three months of 1996 resulted in a net
loss on securities for the twelve months ended September 30, 1997.

     Other, Net -

     As  discussed  in the  "Earnings"  section at the  beginning  of Results of
Operations,  write-downs of nonregulated  investments  decreased  Other,  Net by
$15.6  million  and $3.0  million  for the 1997 and  1996  twelve  months  ended
September  30  periods,  respectively.  In the third  quarter  of 1996,  Midwest
Capital recorded a $1.8 million pre-tax gain on the sale of a building which was
previously  written-down  in  


                                      -23-

<PAGE>


expectation  of a lower market value.  Each of the period  comparisons  was also
affected by reductions in the 1997 periods of income from equity investments due
to liquidation activity discussed above.

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.

                         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 reflected on the  Consolidated  Statements of Cash Flows,  for the first
nine months of 1997, Holdings had net cash provided from operating activities of
$299 million compared to $277 million for the same period in 1996. MidAmerican's
net cash provided from operating  activities was $278 million for the first nine
months of 1997 and $255 million for the first nine months of 1996.

INVESTING ACTIVITIES AND PLANS

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

     MidAmerican's   primary   need  for   capital   is   utility   construction
expenditures.   For  the  first  nine  months  of  1997,  utility   construction
expenditures  totaled $114  million,  including  allowance for funds used during
construction  (AFUDC),  Quad Cities  Station  nuclear fuel  purchases and Cooper
capital  improvements.  All such  expenditures were met with cash generated from
utility operations, net of dividends.

     Beginning with July 1997 expenditures,  Cooper capital  improvements are no
longer  included in utility  construction  expenditures  but are  expensed  when
incurred  in Other  Operating  Expenses.  As part of the  recent  settlement  of
MidAmerican's pricing proposal, MidAmerican is recovering on a current basis the
Iowa portion of Cooper  capital  improvements  from its Iowa electric  customers
through a tracking mechanism.

     Forecasted  utility  construction  expenditures  for 1997 are $200  million
including  AFUDC.   Capital   expenditures   needs  are  reviewed  regularly  by
MidAmerican's  management  and may  change  significantly  as a  result  of such
reviews. For the years 1997 through 2001, MidAmerican forecasts $840 million for
utility  construction  expenditures.  MidAmerican  presently  expects  that  all
utility  construction  expenditures  for 1997 through 2001 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.

     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  $47 million during the period 1997 through 2001 to an
external trust established for the investment of funds for  

                                      -24-

<PAGE>

decommissioning the Quad Cities Station.  Currently, a majority of the funds are
invested  in  investment  grade  municipal  and U.S.  Treasury  bonds.  In 1997,
MidAmerican  directed  the trust to begin  investing  a portion  of the funds in
domestic corporate debt and common equity  securities.  Approximately 30% of the
trust's  funds are now  invested in domestic  corporate  debt and common  equity
securities.  In addition,  MidAmerican  makes payments to Nebraska  Public Power
District (NPPD) related to decommissioning  Cooper. These payments are reflected
in Other Operating Expenses in the Consolidated  Statements of Income.  Based on
NPPD estimates, MidAmerican expects to pay approximately $57 million to NPPD for
Cooper  decommissioning  during the period 1997 through  2001.  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.  See  Part  II,  Item 1 Legal
Proceedings for a discussion of a lawsuit filed by NPPD 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:
---------

     Capital expenditures of nonregulated  subsidiaries were $10 million for the
first nine months of 1997.  Capital  expenditures of  nonregulated  subsidiaries
depend  primarily upon the  availability  of suitable  investment  opportunities
which  meet  the  Company's  objectives.   The  Company  continues  to  evaluate
nonstrategic,  nonregulated  investments and may redeploy  certain assets in the
next  year.  External  financing  may also be used to provide  for  nonregulated
capital expenditures.

     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  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,
which is one  year  after  the  completion  of the  merger.  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 the investment is recorded at fair value.  At September 30, 1997,
the cost and fair  value of the  McLeodUSA  investment  were $45.7  million  and
$325.9 million,  respectively.  The unrealized  gain is recorded,  net of income
taxes, as a separate component of common shareholders'  equity. At September 30,
1997, the unrealized  gain and deferred  income taxes for this  investment  were
$280.2 million and $98.1 million, respectively.

     MidAmerican Capital has received  approximately $28 million from 1997 sales
of most of its venture  capital funds.  Most of the proceeds of these sales have
been  transferred  to Holdings by way of a dividend for use in the repurchase of
the Company's common stock.

                                      -25-

<PAGE>


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 September 30, 1997, 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 $131 million at September 30, 1997,
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.

 
     During  1996,  MidAmerican  redeemed  all shares of its  $1.7375  Series of
preferred securities. In October 1996, MidAmerican reacquired $28 million of its
6.95% Series first  mortgage bonds due 2025 and $3.5 million of its 7.45% Series
first mortgage bonds due 2023. In December 1996, MidAmerican issued $103 million
of 7.98% Series subordinated debt debentures to a subsidiary  statutory business
trust which in turn issued $100 million of 7.98%  Series A redeemable  preferred
securities.  MidAmerican  also  issued in December  1996 $100  million of 6 1/2%
Medium-Term  Notes due 2001.  Proceeds from these financings were used to redeem
all $40 million of MidAmerican's  8.15% Series first mortgage bonds due 2001 and
the remaining  $45.8 million of $1.7375 Series  preferred  securities  mentioned
above.  The  balance  of the  proceeds  was  used  to  reduce  commercial  paper
outstanding.

     During the first nine months of 1997, MidAmerican repurchased $42.4 million
of first mortgage bonds with annual interest rates from 6.95% to 7.70%.

     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.

     As of September 30, 1997,  MidAmerican  had $401 million of long-term  debt
maturities and sinking fund requirements for 1997 through 2001.

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 November 1, 1997, 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  


                                      -26-

<PAGE>



if in the judgment of the rating agency  circumstances so warrant.  Such ratings
are not a recommendation to buy, sell or hold securities.

<TABLE>
<CAPTION>

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

     <S>                                      <C>                <C>
     Mortgage Bonds                           A2                 A+
     Unsecured Medium-Term Notes              A3                 A
     Preferred Stocks                         a3                 A
     Commercial Paper                         P-1                A-1
</TABLE>

Preferred Dividends -

     Preferred  dividends  include net gains or losses on the  reacquisition  of
MidAmerican  preferred shares.  Net losses on reacquisitions  totaled zero, $1.4
million and $2.7 million for the 1997  three-month,  nine-month and twelve-month
periods,  respectively,  and  zero,  $0.3  million  and  $0.3  million  for  the
comparable 1996 periods.  Excluding these losses,  preferred dividends increased
for the  1997  periods  compared  to the 1996  periods  due to the  increase  in
preferred stock outstanding.

Holdings:
---------

     As of September 30, 1997, Holdings had lines of credit totaling $75 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.

     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 September 30, 1997,  the
Company had repurchased  approximately 3.9 million shares for $67.8 million.  In
addition,  a subsidiary  has acquired  445,000  shares of Holdings  common stock
which are also excluded from shares outstanding.

     On October 29,  1997,  Holdings'  board of  directors  declared a quarterly
dividend  on common  shares of $0.30 per share  payable  December  1, 1997.  The
dividend represents an annual rate of $1.20 per share.

     As of  September  30, 1997,  MidAmerican  Capital had  unsecured  revolving
credit facilities in the amount of $114 million.  Currently  MidAmerican Capital
has a zero balance  outstanding under these facilities.  MidAmerican Capital has
$112 million of long-term debt maturities and sinking fund requirements for 1997
through 2001.

     Midwest   Capital   currently  has  a  $25  million  line  of  credit  with
MidAmerican, of which $5 million was outstanding at September 30, 1997.

                                      -27-

<PAGE>

OPERATING ACTIVITIES AND OTHER MATTERS

     The Company  continues to adjust its  strategies and operations for changes
it  expects in the  electric  utility  industry.  The merger  that  resulted  in
MidAmerican and the subsequent reorganization of utility operations were some of
the first  steps taken to better  position  the  Company  for  competition.  The
following  discussion  addresses some of the changes  affecting the industry and
actions the Company is taking to better position itself as the industry evolves.

Holdings:
---------

     During 1996, the Company began to reevaluate its nonregulated  investments.
Through the evaluation process,  management will determine which investments fit
the Company's objectives and which should be divested. The method of divestiture
could  include  alternatives  from  finding an  immediate  buyer to holding  the
investment  until  maturity.  The  evaluation of  nonregulated  investments  has
resulted in a net  reduction in earnings  since the Company began the process in
1996.  Losses  on  disposal  of  discontinued  nonregulated  operations  and the
write-downs  discussed in the "Earnings"  section of this discussion account for
substantially  all of the  reductions.  The Company  expects  the  process  will
continue for the next year and could result in additional  losses if the Company
decides to divest of investments for less than carrying value.

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

     Regulatory Evolution and Competition -

     MidAmerican  is  subject  to  regulation  by  several  utility   regulatory
agencies. The operating environment and the recoverability of costs from utility
customers  are  significantly  influenced by the  regulation of those  agencies.
MidAmerican supports changes in the electric utility industry that will create a
more  competitive  environment  for the  entire  electric  industry,  as long as
appropriate  transitional  steps  are in  place  to  accommodate  moving  from a
regulated  cost-of-service  industry to a competitive  industry.  Although these
anticipated changes may create  opportunities,  they will also create additional
challenges and risks for utilities.

     MidAmerican  has been  authorized  in an order from the IUB  approving  the
electric  pricing  settlement to enter into long-term  contracts with industrial
and commercial  customers.  MidAmerican is, and will be,  negotiating  long-term
contracts with several of its industrial and commercial  customers.  In addition
to initiating a brand identity advertising campaign within MidAmerican's service
territory,  MidAmerican is investigating  potential  complementary  products and
services  it  can  provide  in  preparation  for  opportunities  expected  to be
available in a competitive utility retail market.

     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 October  30,  1997,  the  Illinois Senate  passed a bill to restructure
Illinois'  electric  industry.  The bill must go before  the  Illinois  House of
Representatives,  which previously  passed a similar bill, and, if approved,  be
signed  by the  Governor.  The  bill  provides  for  residential  electric  rate
reductions, but MidAmerican is granted credit for rate reductions implemented in
Illinois in 1996 and 1997. In addition,  the bill provides for a sharing between
customers and shareholders if MidAmerican's  Illinois electric returns on common
equity exceed an amount  determined by a formula in the statute.  MidAmerican is
assessing the impact of the 
 
                                      -28-

<PAGE>

legislation on its operations, but, at this time, does not believe the foregoing
provisions will have a material impact on its Illinois  results of operations or
financial condition.

     In Iowa, no legislation has been  introduced to allow  generation or retail
service competition.

     In April 1996,  the FERC issued Order Nos. 888 and 889 which require public
utilities and other transmission  providers and users to provide other companies
the same transmission access,  service and pricing that they provide themselves.
In compliance with Order 888, which was effective July 9, 1996,  MidAmerican has
filed a pro forma open access  transmission  tariff and is  currently  operating
under it. In May 1997,  MidAmerican  filed revisions to the tariff in accordance
with Order No. 888-A which was issued in March 1997.  In  accordance  with Order
889, which was effective January 3, 1997, MidAmerican has separated its electric
wholesale marketing and transmission operation functions.  Order 889 establishes
standards  of  conduct  for this  functional  separation  and  further  requires
transmission providers such as MidAmerican to either create or participate in an
Open Access Same Time  Information  System  (OASIS).  MidAmerican is a long-time
member  of  the  Mid-Continent  Area  Power  Pool  (MAPP)  and  has  elected  to
participate  in the MAPP OASIS.  



     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.  MidAmerican's  electric and gas utility operations currently meet the
criteria required by SFAS 71, but its applicability is periodically  reexamined.
If a portion of MidAmerican's utility operations no longer meets the criteria of
SFAS 71,  MidAmerican  would be required to eliminate from its balance sheet the
assets and liabilities related to those operations that resulted from actions of
its regulators.  Although the amount of such an elimination  would depend on the
specific  circumstances,  a material  adjustment to earnings in the  appropriate
period could  result from the  discontinuance  of SFAS 71. As of  September  30,
1997,  MidAmerican  had $357 million of  regulatory  assets in its  Consolidated
Balance Sheet.

     Energy Efficiency -

     MidAmerican's  regulatory assets as of September 30, 1997,  included $116.4
million of deferred energy efficiency costs. MidAmerican is currently collecting
amounts  related to $16.1  million of that total in accordance  with  previously
received approvals.  On September 29, 1997,  MidAmerican  received approval from
the IUB to begin recovery of the remaining  deferred  energy  efficiency  costs,
effective  immediately.  Accordingly,  $95.1  million will be  collected  over a
four-year  period,  along  with a  return  of  $26.6  million  on  those  costs.
MidAmerican also received  approval to recover current energy  efficiency costs,
which are  expected to be $18.5  million for the period May 1997  through  April
1998. The projected  $18.5 million of current costs,  $5.3 million of which were
deferred from May through  September 1997, will be collected in the twelve-month
period  ending in  September  1998.  The filing is subject to periodic  prudence
reviews  by the IUB.  Deferred  and  current  energy  efficiency  costs  will be
reflected in operating expenses over the related periods of recovery.

     Rate Matters -

     On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois.  The proposal was later withdrawn in Illinois following negotiation of
a settlement in a related Illinois proceeding. The settlement resulted in annual
reductions of $13.1 million and $2.4 million,  effective  November 3, 1996,  and
June 1, 1997, respectively.

                                      -29-

<PAGE>

     On June 27, 1997, the IUB issued an order in a consolidated rate proceeding
involving  MidAmerican's  pricing  proposal  and a filing by the Iowa  Office of
Consumer  Advocate (OCA).  The order approved a March 1997 settlement  agreement
between MidAmerican,  the OCA and other parties to the proceeding. The agreement
includes a number of characteristics of MidAmerican's  pricing proposal.  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 effective June 1, 1998. The agreement includes a tracking mechanism to
currently  recover  the cost of  capital  improvements  required  by the  Cooper
Nuclear  Station Power  Purchase  Contract.  The tracking  mechanism will offset
approximately $9 million of these reductions.

     In addition,  the agreement accepts MidAmerican's proposal to eliminate the
energy  adjustment clause (EAC) which was the mechanism through which fuel costs
were collected  from Iowa  customers  prior to July 11, 1997. The EAC flowed the
cost of fuel to customers on a current  basis,  and thus,  fuel costs had little
impact on net income. Prospectively,  base rates for Iowa customers will 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 will be impacted. The
fuel cost factor will be reviewed in February 1999 and adjusted prospectively if
actual fuel costs vary 15% above or below the factor included in base rates.

     Under the  agreement,  if  MidAmerican's  annual  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%.

     The agreement also provides that  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 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 but may not be
recovered  from other customer  classes.  The program was filed with the IUB and
the FERC in September 1997. MidAmerican anticipates that the necessary approvals
will be received before the end of the second 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 $23
million. This estimate has been recorded as a liability and a regulatory


                                      -30-

<PAGE>


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 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.

     Coal Deliveries -

     A  coal  transportation  provider  of  MidAmerican  has  been  experiencing
nationwide operational problems.  Consequently, coal deliveries to MidAmerican's
Neal station have been delayed resulting in reduced coal inventory at that site.
MidAmerican has discussed the situation with the transportation provider and has
received assurance that adequate  deliveries can be made to the four Neal units.
If deliveries decrease or cease, MidAmerican's off-system sales may be adversely
affected. It is not expected that sales to retail customers will be affected.

     Quad Cities Nuclear Station Outage -

     Commonwealth Edison Company (ComEd),  operator and 75% owner of Quad Cities
Station  Units 1 and 2,  has  extended  a  scheduled  outage  at Unit 2  pending
resolution of concerns expressed by the Nuclear Regulatory  Commission  relating
to safety systems and procedures common to both units.  ComEd has until December
2, 1997, to complete the necessary  modifications to Unit 1. During the extended
outage of Unit 2 or a possible outage of Unit 1,  MidAmerican  will be required,
at different  times and to varying  extents,  to operate more  expensive  units,
purchase more off-system energy and/or curtail  off-system sales. The use of the
more  expensive  replacement  power  could  result in reduced  off-system  sales
opportunities and lower margins on those sales.

     Other Matters -

     MidAmerican has initiated an incentive  compensation  plan which covers all
of its salaried  employees.  One goal in the plan is achievement of a designated
threshold  earnings target.  The 1997 earnings target,  which was established by
management, reflects a 12.9% return on average common equity for MidAmerican.

                                      -31-

<PAGE>



YEAR 2000

     The Company has  undertaken  an extensive  project to ensure the ability of
its  information   technology   systems,   including   hardware,   software  and
applications  programs, to perform correctly on January 1, 2000. The Company, in
addition to its  internal  resources,  has engaged  independent  contractors  to
assist with the conversion project.  The project timetable specifies  completion
of all conversion work and testing sufficiently in advance of January 1, 2000 to
identify any residual concerns.  Although  management  believes that 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.

ACCOUNTING ISSUES

     The staff of the Securities and Exchange  Commission has questioned certain
of the current  accounting  practices of the electric utility industry regarding
the recognition, measurement and classification of nuclear decommissioning costs
in the financial statements. In response to these questions, the FASB has issued
an Exposure  Draft,  "Accounting for Certain  Liabilities  Related to Closure or
Removal of Long-Lived  Assets,"  which  addresses the accounting for closure and
removal costs,  including  decommissioning  of nuclear power plants.  If current
electric  utility industry  accounting  practices for such  decommissioning  are
changed, the annual provision for decommissioning could increase relative to the
current  level,  and the  total  estimated  cost  for  decommissioning  could be
recorded as a liability  with  recognition of an increase in the cost of related
nuclear power plant. Due to the continuing  evolution of the exposure draft, the
Company is uncertain as to the impact on its results of operations and financial
position.

     The Financial  Accounting  Standards Board has issued SFAS No. 128 and SFAS
No. 130. SFAS 128, which  addresses the  calculation  of earnings per share,  is
effective  for periods  ending  after  December  15,  1997.  The standard is not
expected to have a material effect on the Company's  calculation of earnings per
share.  SFAS 130, which is effective for fiscal years  beginning  after December
15, 1997,  requires that all items  required to be recognized  under  accounting
standards  as changes in equity  during a period,  except those  resulting  from
investments by owners and  distributions  to owners,  be reported in a financial
statement  that is displayed  with the same  prominence  as the other  financial
statements.  The  display  can be a  separate  statement  or an  addition  to an
existing  statement.  The material  components  of the  Company's  comprehensive
income will  include net income and the  aftertax  effect of changes in the fair
value of investments classified as available for resale.

                                      -32-


<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 I
-------------------

         On May 26, 1995,  the Company filed a lawsuit  naming  Nebraska  Public
Power District  (NPPD) as defendant.  The action was filed in the U.S.  District
Court for the Southern District of Iowa and was identified as No. 4-95-CV-80356.
The legal proceeding was based upon a long-term power purchase agreement between
the Company  and NPPD,  pursuant to which the  Company  purchases  one-half  the
output of NPPD's Cooper Nuclear  Station  (Cooper) and pays one-half the cost of
operating  Cooper.  NPPD,  in turn,  is  obligated  to  operate  the plant in an
efficient  and  economical  manner  consistent  with good  business  and utility
practices and in compliance with the terms of its operating license issued to it
by the Nuclear  Regulatory  Commission (NRC). In 1993 and 1994, as a response to
NPPD actions, the NRC issued numerous notices of violations to NPPD; as a result
of these  violations  and other safety  issues  identified  by the NRC and NPPD,
Cooper  experienced  unplanned outages and outages were unduly extended.  NPPD's
failure to meet its obligations with respect to the operation of Cooper deprived
the  Company  of the  benefits  it was  entitled  to under  the  power  purchase
contract,  causing the  Company to lose  profits  and incur  increased  costs of
operation.  Similar  litigation  has  been  filed  against  NPPD by the  Lincoln
Electric  System  (LES),  a  municipal  utility  serving  the  City of  Lincoln,
Nebraska,  and  purchasing  one-eighth  of the  output of Cooper  pursuant  to a
similar power purchase contract. The LES legal proceeding is pending in Nebraska
state court.

         MidAmerican  and  NPPD  reached  an  agreement  settling  the  parties'
disputes and resolving  MidAmerican's claims without the need for a trial. Under
the  settlement,  NPPD paid  MidAmerican  $15  million  on  September  2,  1997.
MidAmerican  retained  approximately  $3  million  for  recovery  of expert  and
attorney fees, and is refunding approximately $12 million to its customers.  The
parties  also  amended the  existing  power  purchase  contract.  The  amendment
concerns operating standards at the plant.

         MidAmerican dismissed the lawsuit, with prejudice.

Cooper Litigation II
--------------------

         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  

                                      -33-

<PAGE>
agreement; and (3) that the current method of investing decommissioning funds is
proper under the power purchase  agreement.  On September 12, 1997,  MidAmerican
filed a "Motion to Dismiss or Transfer  Venue" (the Motion).  NPPD filed a brief
in opposition to the Motion on October 16, 1997.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         Exhibits Filed Herewith
         -----------------------
 
         Holdings and MidAmerican

               Exhibit 10.1 - Amendment  No. 5, dated  September 2, 1997, to the
               Power  Sales  Contract  between  MidAmerican  Energy  Company and
               Nebraska Public Power District, dated September 22, 1967.

               Exhibit 10.2 - Amendment  No. 1, dated October 29,  1997,  to the
               MidAmerican Energy Company 1995 Long-Term Incentive Plan.

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

         Exhibit 27 - Financial Data Schedules

(b)      Reports on Form 8-K

         None.

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<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  November 10, 1997                      A. L. Wells
    -------------------      -------------------------------------------------
                                             A. L. Wells
                             Senior Vice President and Chief Financial Officer







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