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

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended June 30, 2003

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

333-90553               MIDAMERICAN FUNDING, LLC                  47-0819200
                   (AN IOWA LIMITED LIABILITY COMPANY)
                        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  registrants  (1) have  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
registrants  were required to file such  reports),  and (2) have been subject to
such filing requirements for the past 90 days. Yes [X]  No [ ]

Indicate  by check mark  whether  the  registrants  are  accelerated  filers (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ]  No [X]

As of July 25, 2003, all of the member's equity of MidAmerican  Funding, LLC was
held by its parent company, MidAmerican Energy Holdings Company.

As of July 25, 2003, all  70,980,203  outstanding  shares of MidAmerican  Energy
Company's  voting  stock were held by its parent  company,  MHC Inc.,  a direct,
wholly owned subsidiary of MidAmerican Funding, LLC.


<PAGE>


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


                                TABLE OF CONTENTS
                                -----------------

                       PART I. FINANCIAL INFORMATION                       Page
                                                                           ----

Item 1.   Financial Statements................................................ 3
Item 2.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.........................................21
Item 3.   Quantitative and Qualitative Disclosures About Market Risk..........37
Item 4.   Controls and Procedures.............................................37

                                         PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings...................................................38
Item 2.   Changes in Securities and Use of Proceeds...........................38
Item 3.   Defaults Upon Senior Securities.....................................38
Item 4.   Submission of Matters to a Vote of Security Holders.................38
Item 5.   Other Information...................................................38
Item 6.   Exhibits and Reports on Form 8-K....................................38

SIGNATURES....................................................................39
EXHIBIT INDEX ................................................................40

                                      -2-
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.                                             Page

                           MidAmerican Energy Company

     Independent Accountants' Report......................................... 4
     Consolidated Balance Sheets............................................. 5
     Consolidated Statements of Income....................................... 6
     Consolidated Statements of Comprehensive Income......................... 7
     Consolidated Statements of Cash Flows................................... 8
     Notes to Consolidated Financial Statements.............................. 9

                            MidAmerican Funding, LLC

     Independent Accountants' Report.........................................14
     Consolidated Balance Sheets.............................................15
     Consolidated Statements of Income.......................................16
     Consolidated Statements of Comprehensive Income.........................17
     Consolidated Statements of Cash Flows...................................18
     Notes to Consolidated Financial Statements..............................19

                                      -3-

<PAGE>

                         INDEPENDENT ACCOUNTANTS' REPORT


Board of Directors and Shareholder
MidAmerican Energy Company
Des Moines, Iowa

We have reviewed the  accompanying  consolidated  balance  sheet of  MidAmerican
Energy  Company and  subsidiaries  (the  "Company") as of June 30, 2003, and the
related  consolidated  statements  of income  and  comprehensive  income for the
three-month  and  six-month  periods  ended June 30, 2003 and 2002,  and of cash
flows for the  six-month  periods  ended June 30, 2003 and 2002.  These  interim
financial statements are the responsibility of the Company's management.

We  conducted  our  reviews in  accordance  with  standards  established  by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is  substantially  less in scope  than an audit  conducted  in  accordance  with
auditing  standards  generally  accepted in the United  States of  America,  the
objective  of which is the  expression  of an opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United  States of America,  the  consolidated  balance sheet and
statement of capitalization (not presented herein) of MidAmerican Energy Company
and  subsidiaries  as  of  December  31,  2002,  and  the  related  consolidated
statements of income,  comprehensive income,  retained earnings,  and cash flows
for the year then ended (not presented herein);  and in our report dated January
24, 2003, we expressed an unqualified  opinion on those  consolidated  financial
statements.  In our  opinion,  the  information  set  forth in the  accompanying
consolidated  balance  sheet as of December  31, 2002 is fairly  stated,  in all
material respects,  in relation to the consolidated  balance sheet from which it
has been derived.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Des Moines, Iowa
July 30, 2003

                                      -4-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                    AS OF
                                                          ---------------------------
                                                           JUNE 30,      DECEMBER 31,
                                                             2003           2002
                                                          -----------    ------------
                                                          (UNAUDITED)
                                     ASSETS
<S>                                                       <C>            <C>
UTILITY PLANT, NET
Electric ..............................................   $ 4,991,165    $ 4,731,002
Gas ...................................................       914,284        900,209
                                                          -----------    -----------
                                                            5,905,449      5,631,211
Accumulated depreciation and amortization .............    (3,158,552)    (3,011,123)
                                                          -----------    -----------
                                                            2,746,897      2,620,088
Construction work in progress .........................       106,017        205,988
                                                          -----------    -----------
                                                            2,852,914      2,826,076
                                                          -----------    -----------

CURRENT ASSETS
Cash and cash equivalents .............................        94,129         28,500
Receivables, net ......................................       256,170        321,321
Inventories ...........................................        49,050         88,492
Other .................................................        17,338         28,655
                                                          -----------    -----------
                                                              416,687        466,968
                                                          -----------    -----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ............       286,069        273,864
REGULATORY ASSETS .....................................       284,395        192,514
OTHER ASSETS ..........................................        35,955         52,457
                                                          -----------    -----------
TOTAL ASSETS ..........................................   $ 3,876,020    $ 3,811,879
                                                          ===========    ===========

                         CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ...........................   $ 1,311,171    $ 1,307,067
MidAmerican Energy preferred securities ...............        31,759         31,759
Long-term debt, excluding current portion .............     1,084,903        947,691
                                                          -----------    -----------
                                                            2,427,833      2,286,517
                                                          -----------    -----------
CURRENT LIABILITIES
Notes payable .........................................             -         55,000
Current portion of long-term debt .....................        56,833        105,727
Accounts payable ......................................       131,280        239,531
Taxes accrued .........................................        90,868         83,063
Interest accrued ......................................        10,479          9,731
Other .................................................        52,542         55,464
                                                          -----------    -----------
                                                              342,002        548,516
                                                          -----------    -----------
OTHER LIABILITIES
Deferred income taxes .................................       427,049        424,153
Investment tax credits ................................        54,698         56,886
Asset retirement obligations ..........................       283,141        159,757
Regulatory liabilities ................................       137,734        118,011
Other .................................................       203,563        218,039
                                                          -----------    -----------
                                                            1,106,185        976,846
                                                          -----------    -----------
TOTAL CAPITALIZATION AND LIABILITIES ..................   $ 3,876,020    $ 3,811,879
                                                          ===========    ===========
</TABLE>

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

                                      -5-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (In thousands)
<TABLE>
<CAPTION>

                                              THREE MONTHS                SIX MONTHS
                                             ENDED JUNE 30,             ENDED JUNE 30,
                                          --------------------    ------------------------
                                            2003        2002         2003           2002
                                          --------    --------    ----------    ----------
                                                           (UNAUDITED)
<S>                                       <C>         <C>         <C>           <C>
OPERATING REVENUES
Regulated electric ....................   $329,287    $325,810    $  644,229    $  632,588
Regulated gas .........................    155,075     126,070       568,854       346,127
Nonregulated ..........................     51,521      40,808       137,996        88,257
                                          --------    --------    ----------    ----------
                                           535,883     492,688     1,351,079     1,066,972
                                          --------    --------    ----------    ----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity ...     82,454      72,868       170,872       145,317
  Cost of gas sold ....................    111,747      86,805       441,274       235,319
  Other operating expenses ............     89,221     107,592       171,869       206,191
  Maintenance .........................     37,447      31,751        65,729        60,696
  Depreciation and amortization .......     77,797      71,345       146,282       140,669
  Property and other taxes ............     19,373      19,295        39,930        36,589
                                          --------    --------    ----------    ----------
                                           418,039     389,656     1,035,956       824,781
                                          --------    --------    ----------    ----------
Nonregulated:
  Cost of sales .......................     43,360      32,846       120,749        73,809
  Other ...............................      4,336       4,597         8,068        10,226
                                          --------    --------    ----------    ----------
                                            47,696      37,443       128,817        84,035
                                          --------    --------    ----------    ----------
  Total operating expenses ............    465,735     427,099     1,164,773       908,816
                                          --------    --------    ----------    ----------

OPERATING INCOME ......................     70,148      65,589       186,306       158,156
                                          --------    --------    ----------    ----------

NON-OPERATING INCOME
Interest and dividend income ..........      1,383       2,831         2,509         5,277
Other income ..........................      5,461       2,356         9,899         4,721
Other expense .........................       (523)     (2,583)         (872)       (4,743)
                                          --------    --------    ----------    ----------
                                             6,321       2,604        11,536         5,255
                                          --------    --------    ----------    ----------

FIXED CHARGES
Interest on long-term debt ............     18,012      18,302        36,570        34,888
Other interest expense ................        927         883         1,946         1,708
Preferred dividends of subsidiary trust          -           -             -         1,574
Allowance for borrowed funds ..........     (1,092)       (669)       (2,683)       (1,265)
                                          --------    --------    ----------    ----------
                                            17,847      18,516        35,833        36,905
                                          --------    --------    ----------    ----------

INCOME BEFORE INCOME TAXES ............     58,622      49,677       162,009       126,506
INCOME TAXES ..........................     25,490      20,426        70,185        53,871
                                          --------    --------    ----------    ----------
NET INCOME ............................     33,132      29,251        91,824        72,635
PREFERRED DIVIDENDS ...................        327       1,430           764         2,278
                                          --------    --------    ----------    ----------

EARNINGS ON COMMON STOCK ..............   $ 32,805    $ 27,821    $   91,060    $   70,357
                                          ========    ========    ==========    ==========
</TABLE>

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

                                      -6-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (In thousands)
<TABLE>
<CAPTION>
                                                     THREE MONTHS             SIX MONTHS
                                                    ENDED JUNE 30,          ENDED JUNE 30,
                                                   2003        2002        2003        2002
                                                 --------    --------    --------    --------
                                                                              (UNAUDITED)
<S>                                              <C>         <C>         <C>         <C>

EARNINGS ON COMMON STOCK .....................   $ 32,805    $ 27,821    $ 91,060    $ 70,357
                                                 --------    --------    --------    --------

OTHER COMPREHENSIVE LOSS
Unrealized gains (losses) on cash flow hedges:
  Unrealized gains (losses) during period-
    Before income taxes ......................        967         682      11,635      (2,204)
    Income tax (expense) benefit .............       (402)       (283)     (4,837)        916
                                                 --------    --------    --------    --------
                                                      565         399       6,798      (1,288)
                                                 --------    --------    --------    --------
  Less realized gains (losses) reflected in
    earnings on common stock during period-
      Before income taxes ....................      2,112       1,586      12,843        (380)
      Income tax (expense) benefit ...........       (878)       (659)     (5,339)        158
                                                 --------    --------    --------    --------
                                                    1,234         927       7,504        (222)
                                                 --------    --------    --------    --------

Other comprehensive loss .....................       (669)       (528)       (706)     (1,066)
                                                 --------    --------    --------    --------

COMPREHENSIVE INCOME .........................   $ 32,136    $ 27,293    $ 90,354    $ 69,291
                                                 ========    ========    ========    ========
</TABLE>

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

                                      -7-

<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                             SIX MONTHS
                                                                           ENDED JUNE 30,
                                                                       -----------------------
                                                                         2003         2002
                                                                       ---------    ----------
                                                                            (UNAUDITED)
<S>                                                                    <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..........................................................  $  91,824    $  72,635
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization .....................................    146,856      141,229
  Deferred income taxes and investment tax credit, net ..............      1,210        1,771
  Amortization of other assets and liabilities ......................     14,105       19,789
  Cash outflows of accounts receivable securitization ...............          -       (8,000)
  Impact of changes in working capital ..............................     24,160      (27,069)
  Other, net ........................................................     (2,045)      18,416
                                                                       ---------    ---------
    Net cash provided by operating activities .......................    276,110      218,771
                                                                       ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ...................................   (151,637)    (135,911)
Less non-cash and change in accrued utility construction expenditures     (4,290)       1,988
Quad Cities Station decommissioning trust fund ......................     (4,150)      (4,150)
Nonregulated capital expenditures ...................................       (557)        (381)
Other investing activities, net .....................................      7,496           66
                                                                       ---------    ---------
  Net cash used in investing activities .............................   (153,138)    (138,388)
                                                                       ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ......................................................    (87,014)     (32,278)
Issuance of long-term debt, net .....................................    272,572      391,236
Retirement of long-term debt, including reacquisition cost ..........   (187,901)      (2,478)
Reacquisition of preferred securities ...............................          -     (126,680)
Net decrease in notes payable .......................................    (55,000)     (89,350)
                                                                       ---------    ---------
  Net cash provided by (used in) financing activities ...............    (57,343)     140,450
                                                                       ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ...........................     65,629      220,833
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................     28,500       20,020
                                                                       ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..........................  $  94,129    $ 240,853
                                                                       =========    =========

ADDITIONAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized ...........................  $  32,114    $  21,390
                                                                       =========    =========
Income taxes paid, net ..............................................  $  63,240    $  28,723
                                                                       =========    =========
</TABLE>

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

                                      -8-
<PAGE>


                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

The  consolidated  financial  statements  included  herein have been prepared by
MidAmerican Energy Company  ("MidAmerican  Energy"),  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
Energy, all adjustments,  consisting of normal recurring adjustments,  have been
made to present fairly the financial position, the results of operations and the
changes in cash flows for the periods  presented.  Prior year  amounts have been
reclassified  to a basis  consistent  with the current  year  presentation.  All
significant intercompany transactions have been eliminated. Although MidAmerican
Energy  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 Energy's latest Annual Report on Form 10-K.

MidAmerican  Energy is a public utility with electric and natural gas operations
and is the  principal  subsidiary  of MHC Inc ("MHC").  MHC is a direct,  wholly
owned subsidiary of MidAmerican Funding, LLC ("MidAmerican Funding"), whose sole
member is MidAmerican Energy Holdings Company.

2.   NEW ACCOUNTING PRONOUNCEMENTS

In January 2003,  MidAmerican  Energy adopted Statement of Financial  Accounting
Standards ("SFAS") No. 143, "Accounting for Asset Retirement  Obligations." SFAS
No.  143  requires  recognition  on  the  balance  sheet  of  legal  obligations
associated  with the  retirement  of  long-lived  assets  that  result  from the
acquisition,  construction,  development and/or normal operation of such assets.
Concurrent with the recognition of the liability, the estimated cost of an asset
retirement  obligation is capitalized and depreciated over the remaining life of
the asset.

On  January  1,  2003,  MidAmerican  Energy  recorded  $275.2  million  of asset
retirement  obligation  ("ARO")  liabilities;  $12.6 million of  associated  ARO
assets,  net of accumulated  depreciation;  $101.8 million of regulatory assets;
and reclassified  $1.0 million of accumulated  depreciation to the ARO liability
in conjunction  with adoption of SFAS No. 143.  Adoption of SFAS No. 143 did not
impact net income. The initial ARO liability  recognized includes $266.5 million
that pertains to obligations  associated  with the  decommissioning  of the Quad
Cities   Station.   The  $266.5  million   includes  a  $159.8  million  nuclear
decommissioning  liability that had been recorded as of December 31, 2002. As of
June  30,  2003,   $173.1  million  of  assets   reflected  in  Investments  and
Nonregulated  Property, Net on the Consolidated Balance Sheet are restricted for
satisfying the Quad Cities Station obligation.

The change in the balance of the ARO liability  during the first half of 2003 is
summarized as follows (in thousands):

                   Balance January 1, 2003 ......   $275,228
                   Capitalized accretion ........      7,913
                                                    --------
                   Balance June 30, 2003 ........   $283,141
                                                    ========

Capitalized  accretion is charged to a regulatory  asset. In addition to the ARO
liabilities recognized on January 1, MidAmerican Energy has accrued for the cost
of removing  other electric and gas assets through its  depreciation  rates,  in
accordance  with  accepted  regulatory  practices.  As of  June  30,  2003,  the
estimated  amount of such  accruals  included in  accumulated  depreciation  was
approximately  $395  million  based on the cost of removal  component in current
depreciation rates.

                                      -9-
<PAGE>

On April 30, 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 149,  "Amendment  of Statement  133 on  Derivative  Instruments  and Hedging
Activities."  SFAS No.  149  amends  SFAS No.  133 for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging   activities.   SFAS  No.  149  also  amends   certain  other   existing
pronouncements and will require contracts with comparable  characteristics to be
accounted for similarly.  In particular,  SFAS No. 149 clarifies when a contract
with an initial net  investment  meets the  characteristic  of a derivative  and
clarifies  when a derivative  that contains a financing  component  will require
special  reporting in the statement of cash flows. SFAS No. 149 is effective for
MidAmerican  Energy  and  MidAmerican  Funding  for  contracts  entered  into or
modified after June 30, 2003.  MidAmerican  Energy and  MidAmerican  Funding are
evaluating the impact of adopting the requirements of SFAS No. 149.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer  classify a financial  instrument that is within
its scope as a liability  (or an asset in some  circumstances).  SFAS No. 150 is
effective  for  MidAmerican   Funding  and  MidAmerican   Energy  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the third quarter of 2003. MidAmerican Funding and
MidAmerican Energy do not currently have financial  instruments within the scope
of SFAS No. 150.

3.   ENVIRONMENTAL MATTERS

a.   Manufactured Gas Plant Facilities:

The  United  States  Environmental  Protection  Agency  ("EPA"),  and the  state
environmental  agencies have determined that  contaminated  wastes  remaining at
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.

MidAmerican  Energy has evaluated or is  evaluating 27 properties  that were, at
one time,  sites of gas  manufacturing  plants in which it may be a  potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste  materials  are  present,  whether the  materials  constitute  a health or
environmental  risk, and whether  MidAmerican  Energy has any responsibility for
remedial  action.  MidAmerican  Energy is actively  working with the  regulatory
agencies and has received  regulatory closure on four sites.  MidAmerican Energy
is  continuing  to  evaluate  several  of the  sites  to  determine  the  future
liability, if any, for conducting site investigations or other site activity.

MidAmerican  Energy  estimates  the range of possible  costs for  investigation,
remediation  and monitoring for the sites  discussed  above to be $16 million to
$54  million.  As of June 30,  2003,  MidAmerican  Energy  has  recorded a $19.0
million  liability  for these  sites and a  corresponding  regulatory  asset for
future recovery through the regulatory process. MidAmerican Energy projects that
these amounts will be incurred or paid over the next four years.

The estimated  liability is the cumulation of a  site-specific  cost  evaluation
process.  First, a determination  is made as to whether  MidAmerican  Energy has
potential  legal  liability  for the  site and  whether  information  exists  to
indicate  that  contaminated  wastes  remain  at the site.  If so,  the costs of
performing  a  preliminary   investigation  and  the  costs  of  removing  known
contaminated  soil are  accrued.  If it is  determined  during  the  preliminary
investigation  that remedial  action is required,  then the best estimate of the
costs is accrued. The estimate includes incremental direct costs of remediation,
site  monitoring  costs and costs of compensation to employees for time expected
to  be  spent  directly  on  the  remediation  effort.  The  estimated  recorded
liabilities for these properties are based upon 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.  Insurance recoveries have been received for

                                      -10-
<PAGE>

some of the sites under investigation.  Those recoveries are intended to be used
principally  for  accelerated  remediation,  as specified by the Iowa  Utilities
Board ("IUB"), and are recorded as a regulatory liability.

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 Energy's financial position, results of operations or cash
flows.

b.   Air Quality:

In July 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 each state,  the EPA will
determine  which  states have areas that do not meet the air  quality  standards
(i.e., areas that are classified as nonattainment). The standards were subjected
to legal  proceedings,  and in February  2001,  the United States  Supreme Court
upheld the  constitutionality  of the standards,  though  remanding the issue of
implementation  of the ozone  standard  to the EPA.  As a result  of a  decision
rendered  by the United  States  Circuit  Court of Appeals  for the  District of
Columbia,  the EPA is moving  forward  in  implementation  of the ozone and fine
particulate  standards  and is analyzing  existing  monitored  data to determine
attainment status.

The impact of the new  standards on  MidAmerican  Energy is  currently  unknown.
MidAmerican  Energy's  generating stations may be subject to emission reductions
if  the  stations  are  located  in   nonattainment   areas  or   contribute  to
nonattainment  areas in other states. As part of state  implementation  plans to
achieve  attainment of the  standards,  MidAmerican  Energy could be required to
install control  equipment on its generating  stations or decrease the number of
hours during which these stations operate.

The ozone and fine  particulate  matter standards could, in whole or in part, be
superceded by one of a number of multi-pollutant  emission  reduction  proposals
currently under  consideration  at the federal level. In July 2002,  legislation
was  introduced  in Congress to  implement  the  Administration's  "Clear  Skies
Initiative,"  calling for  reduction in emissions  of sulfur  dioxide,  nitrogen
oxides and mercury through a  cap-and-trade  system.  Reductions  would begin in
2008 with additional emission reductions being phased in through 2018.

While  legislative  action is necessary for the Clear Skies  Initiative or other
multi-pollutant emission reduction initiatives to become effective,  MidAmerican
Energy has  implemented  a planning  process that  forecasts  the  site-specific
controls and actions  required to meet emissions  reductions of this nature.  On
April 1, 2002, in accordance  with Iowa law passed in 2001,  MidAmerican  Energy
filed with the IUB its first  multi-year plan and budget for managing  regulated
emissions  from  its  generating  facilities  in  a  cost-effective  manner.  An
administrative law judge issued a ruling approving MidAmerican Energy's plan but
disallowing  the proposed  recovery of plan costs  through a tracker  mechanism.
MidAmerican Energy appealed the disallowance of the tracker and asked the IUB to
declare the tracker  moot as it would not be used until at least 2010 if the IUB
approves a pending  settlement  that will  "freeze"  MidAmerican  Energy's  Iowa
electric  rates through 2010.  The Iowa Office of Consumer  Advocate's  appealed
asking the IUB to find that Iowa law allows the IUB to conduct a separate review
of plan investments for reasonableness  when the costs are proposed for recovery
in a rate  case.  On July  17,  2003,  the IUB  issued  an order  affirming  the
administrative  law judge's  decision.  Accordingly,  the IUB has  rejected  the
future  application of a tracker mechanism to recover emission  reduction costs.
However, the approved  expenditures will not be subject to a subsequent prudence
review in a future electric rate case.

In recent years,  the EPA has requested from several  utilities  information and
support  regarding their capital  projects for various  generating  plants.  The
requests  were  issued  as  part of an  industry-wide  investigation  to  assess
compliance with the New Source Review and the New Source  Performance  Standards
of the Clean  Air Act.  In  December  2002 and April  2003,  MidAmerican  Energy
received requests from the EPA to provide  documentation  related to its capital
projects  from  January 1, 1980,  to the present for its Neal,  Council  Bluffs,
Louisa and Riverside Energy Centers. MidAmerican Energy will continue to respond
to requests  from the EPA and at this time  cannot  predict the outcome of these
requests.

                                      -11-

<PAGE>

4.   RATE MATTERS

Under  a  settlement  agreement  approved  by the  IUB  on  December  21,  2001,
MidAmerican  Energy's Iowa retail electric rates in effect on December 31, 2000,
are effectively  frozen through December 31, 2005. In approving that settlement,
the IUB  specifically  allows the filing of electric  rate design and/or cost of
service  rate  changes  that  are  intended  to  keep  overall  company  revenue
unchanged,  but  could  result  in  changes  to  individual  tariffs.  The  2001
settlement  agreement  further  provides that an amount equal to 50% of revenues
associated with Iowa retail electric  returns on equity between 12% and 14%, and
83.33% of revenues  associated with Iowa retail electric returns on equity above
14%, in each year is recorded as a  regulatory  liability to be used to offset a
portion of the cost to Iowa customers of future generating plant investment.  An
amount equal to the regulatory  liability is recorded as a regulatory  charge in
depreciation  and amortization  expense when the liability is accrued.  Interest
expense is accrued on the portion of the regulatory  liability  related to prior
years.  Beginning  in 2002,  the  liability  is being  reduced as it is credited
against plant in service in amounts equal to the allowance for funds used during
construction,  or capitalized financing costs,  associated with generating plant
additions.  As of June 30, 2003 and December 31,  2002,  the related  regulatory
liability  reflected on the  Consolidated  Balance Sheets was $123.2 million and
$102.9 million, respectively.

Illinois law provides for Illinois  earnings above a computed level of return on
common equity to be shared equally between  regulated retail electric  customers
and MidAmerican Energy.  MidAmerican Energy's computed level of return on common
equity is based on a rolling two-year average of the Monthly Treasury  Long-Term
Average Rate, as published by the Federal Reserve System, plus a premium of 8.5%
for 2000  through  2004 and a premium of 12.5% for 2005 and 2006.  The  two-year
average  above  which  sharing  must occur for 2002 was  14.03%.  The law allows
MidAmerican  Energy to  mitigate  the sharing of  earnings  above the  threshold
return on common equity through accelerated recovery of electric assets.

On November 8, 2002, the IUB approved a settlement  agreement  previously  filed
with it by  MidAmerican  Energy and the Iowa  Office of Consumer  Advocate.  The
settlement agreement provided for an increase in rates of $17.7 million annually
for MidAmerican Energy's Iowa retail natural gas customers and effectively froze
base rates through  November  2004.  However,  MidAmerican  Energy will continue
collecting  fluctuations  in gas costs  through  its  purchased  gas  adjustment
clause. The new rates were implemented for usage beginning November 25, 2002.

5.   SEGMENT INFORMATION

MidAmerican  Energy has  identified  four  reportable  operating  segments based
principally on management structure.  The generation segment derives most of its
revenue from the sale of regulated and  nonregulated  wholesale  electricity and
natural gas. The energy delivery  segment derives its revenue  principally  from
the sale and delivery of regulated retail electricity and natural gas, while the
transmission  segment  obtains most of its revenue from the sale of transmission
capacity.  The marketing and sales segment receives its revenue principally from
nonregulated  retail  sales of natural  gas and  electricity.  Common  operating
costs, interest income,  interest expense,  income tax expense and equity in the
net income or loss of investees are allocated to each segment.

The energy  delivery  and  transmission  segments and  substantially  all of the
generation  segment are  regulated as to rates,  and other  factors,  related to
services  to  external  customers.  For  internal  segment  reporting  purposes,
MidAmerican  Energy has developed  transfer prices for services provided between
the segments. MidAmerican Energy's external revenues by product and services are
displayed on the Consolidated Statements of Income.

                                     -12-

<PAGE>

The following tables provide  MidAmerican  Energy's operating  revenues,  income
before  income  taxes  and  total  assets  on an  operating  segment  basis  (in
thousands):
<TABLE>
<CAPTION>

                                        Three Months                Six Months
                                       Ended June 30,             Ended June 30,
                                   ----------------------    --------------------------
                                     2003         2002          2003           2002
                                   ---------    ---------    -----------    -----------

<S>                                <C>          <C>          <C>            <C>
Operating revenues:
  External revenues -
    Generation .................   $ 108,172    $ 113,186    $   265,708    $   222,924
    Energy delivery ............     375,008      353,178        944,735        779,120
    Transmission ...............       5,856        5,211         12,104         10,136
    Marketing & sales ..........      46,847       21,113        128,532         54,792
                                   ---------    ---------    -----------    -----------
      Total ....................     535,883      492,688      1,351,079      1,066,972
                                   ---------    ---------    -----------    -----------

  Intersegment revenues -
    Generation .................     148,689      161,285        279,044        292,327
    Transmission ...............      14,486       13,801         28,973         27,601
    Marketing & sales ..........         754          776            754            776
                                   ---------    ---------    -----------    -----------
      Total ....................     163,929      175,862        308,771        320,704

  Intersegment eliminations ....    (163,929)    (175,862)      (308,771)      (320,704)
                                   ---------    ---------    -----------    -----------
    Consolidated ...............   $ 535,883    $ 492,688    $ 1,351,079    $ 1,066,972
                                   =========    =========    ===========    ===========

Income before income taxes:
  Generation ...................   $  34,129    $  26,307    $    62,960    $    41,173
  Energy delivery ..............      12,967       11,286         73,547         63,432
  Transmission .................      10,605       10,928         23,047         20,844
  Marketing & sales ............         594         (274)         1,691         (1,221)
                                   ---------    ---------    -----------    -----------
    Total ......................      58,295       48,247        161,245        124,228
  Preferred dividends ..........         327        1,430            764          2,278
                                   ---------    ---------    -----------    -----------
    Consolidated ...............   $  58,622    $  49,677    $   162,009    $   126,506
                                   =========    =========    ===========    ===========
</TABLE>

                                             As of
                                   ---------------------------
                                     June 30,     December 31,
                                      2003           2002
                                   -----------    -----------
Total assets:
  Generation ...................   $ 1,411,294    $ 1,393,271
  Energy delivery ..............     2,277,627      2,224,238
  Transmission .................       222,433        222,051
  Marketing & sales ............        40,072         52,143
                                   -----------    -----------
    Total ......................     3,951,426      3,891,703
  Reclassifications and
    intersegment eliminations(a)       (75,406)       (79,824)
                                   -----------    -----------
  Consolidated .................   $ 3,876,020    $ 3,811,879
                                   ===========    ===========

(a)  Reclassifications  and intersegment  eliminations relate principally to the
     reclassification  of income  tax  balances  in  accordance  with  generally
     accepted accounting principles and the elimination of intersegment accounts
     receivables and payables.

                                      -13-
<PAGE>

                         INDEPENDENT ACCOUNTANTS' REPORT


Board of Managers and Member
MidAmerican Funding, LLC
Des Moines, Iowa

We have reviewed the  accompanying  consolidated  balance  sheet of  MidAmerican
Funding,  LLC and  subsidiaries  (the  "Company")  as of June 30, 2003,  and the
related  consolidated  statements  of income  and  comprehensive  income for the
three-month  and  six-month  periods  ended June 30, 2003 and 2002,  and of cash
flows for the  six-month  periods  ended June 30, 2003 and 2002.  These  interim
financial statements are the responsibility of the Company's management.

We  conducted  our  reviews in  accordance  with  standards  established  by the
American  Institute  of  Certified  Public  Accountants.  A  review  of  interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is  substantially  less in scope  than an audit  conducted  in  accordance  with
auditing  standards  generally  accepted in the United  States of  America,  the
objective  of which is the  expression  of an opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

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

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United  States of America,  the  consolidated  balance sheet and
statement of capitalization (not presented herein) of MidAmerican  Funding,  LLC
and  subsidiaries  as  of  December  31,  2002,  and  the  related  consolidated
statements of income,  comprehensive income,  retained earnings,  and cash flows
for the year then ended (not presented herein);  and in our report dated January
24, 2003, we expressed an unqualified  opinion on those  consolidated  financial
statements.  In our  opinion,  the  information  set  forth in the  accompanying
consolidated  balance  sheet as of December  31, 2002 is fairly  stated,  in all
material respects,  in relation to the consolidated  balance sheet from which it
has been derived.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Des Moines, Iowa
July 30, 2003

                                      -14-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                        AS OF
                                                              ---------------------------
                                                               JUNE 30,      DECEMBER 31,
                                                                 2003           2002
                                                              -----------    -----------
                                                              (UNAUDITED)
                                     ASSETS
<S>                                                           <C>            <C>
UTILITY PLANT, NET
Electric ..................................................   $ 4,991,165    $ 4,731,002
Gas .......................................................       914,284        900,209
                                                              -----------    -----------
                                                                5,905,449      5,631,211
Accumulated depreciation and amortization .................    (3,158,552)    (3,011,123)
                                                              -----------    -----------
                                                                2,746,897      2,620,088
Construction work in progress .............................       106,017        205,988
                                                              -----------    -----------
                                                                2,852,914      2,826,076
                                                              -----------    -----------

CURRENT ASSETS
Cash and cash equivalents .................................        94,226         28,915
Receivables, net ..........................................       260,115        321,698
Inventories ...............................................        49,050         88,492
Other .....................................................        18,600         35,009
                                                              -----------    -----------
                                                                  421,991        474,114
                                                              -----------    -----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ................       340,905        333,382
GOODWILL ..................................................     1,275,143      1,275,143
REGULATORY ASSETS .........................................       284,395        192,514
OTHER ASSETS ..............................................        36,241         52,755
                                                              -----------    -----------
TOTAL ASSETS ..............................................   $ 5,211,589    $ 5,153,984
                                                              ===========    ===========

                         CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Member's equity ...........................................   $ 1,856,851    $ 1,867,119
MidAmerican Energy preferred securities ...................        31,759         31,759
Long-term debt, excluding current portion .................     1,784,903      1,647,691
                                                              -----------    -----------
                                                                3,673,513      3,546,569
                                                              -----------    -----------

CURRENT LIABILITIES
Notes payable .............................................             -         55,000
Current portion of long-term debt .........................        66,833        105,727
Accounts payable ..........................................       132,150        242,733
Taxes accrued .............................................        94,459         85,987
Interest accrued ..........................................        26,260         25,487
Other .....................................................        53,225         56,291
                                                              -----------    -----------
                                                                  372,927        571,225
                                                              -----------    -----------
OTHER LIABILITIES
Deferred income taxes .....................................       466,026        461,862
Investment tax credits ....................................        54,698         56,886
Asset retirement obligations ..............................       283,141        159,757
Regulatory liabilities ....................................       137,734        118,011
Other .....................................................       223,550        239,674
                                                              -----------    -----------
                                                                1,165,149      1,036,190
                                                              -----------    -----------
TOTAL CAPITALIZATION AND LIABILITIES ......................   $ 5,211,589    $ 5,153,984
                                                              ===========    ===========
</TABLE>

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

                                      -15-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (In thousands)
<TABLE>
<CAPTION>

                                                      THREE MONTHS                 SIX MONTHS
                                                     ENDED JUNE 30,              ENDED JUNE 30,
                                                ------------------------    --------------------------
                                                  2003         2002           2003           2002
                                                ---------    -----------    -----------    -----------
                                                                   (UNAUDITED)
<S>                                             <C>          <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ..........................   $ 329,287    $   325,810    $   644,229    $   632,588
Regulated gas ...............................     155,075        126,070        568,854        346,127
Nonregulated ................................      52,078         41,976        139,273         90,176
                                                ---------    -----------    -----------    -----------
                                                  536,440        493,856      1,352,356      1,068,891
                                                ---------    -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity .........      82,454         72,868        170,872        145,317
  Cost of gas sold ..........................     111,747         86,805        441,274        235,319
  Other operating expenses ..................      89,221        107,592        171,869        206,191
  Maintenance ...............................      37,447         31,751         65,729         60,696
  Depreciation and amortization .............      77,797         71,345        146,282        140,669
  Property and other taxes ..................      19,373         19,295         39,930         36,589
                                                ---------    -----------    -----------    -----------
                                                  418,039        389,656      1,035,956        824,781
                                                ---------    -----------    -----------    -----------
Nonregulated:
  Cost of sales .............................      43,390         33,041        120,896         74,135
  Other .....................................       5,407          6,342         10,157         13,779
                                                ---------    -----------    -----------    -----------
                                                   48,797         39,383        131,053         87,914
                                                ---------    -----------    -----------    -----------
  Total operating expenses ..................     466,836        429,039      1,167,009        912,695
                                                ---------    -----------    -----------    -----------

OPERATING INCOME ............................      69,604         64,817        185,347        156,196
                                                ---------    -----------    -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ................       1,223          4,513          2,465          8,757
Marketable securities gains and (losses), net         107           (306)           201         (3,524)
Other income ................................       6,652          3,879         11,809         12,842
Other expense ...............................        (657)        (2,720)        (3,208)        (5,014)
                                                ---------    -----------    -----------    -----------
                                                    7,325          5,366         11,267         13,061
                                                ---------    -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ..................      29,793         30,269         60,133         58,822
Other interest expense ......................         994            884          2,038          1,712
Preferred dividends of subsidiaries .........         327          1,430            764          3,852
Allowance for borrowed funds ................      (1,092)          (669)        (2,683)        (1,265)
                                                ---------    -----------    -----------    -----------
                                                   30,022         31,914         60,252         63,121
                                                ---------    -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ..................      46,907         38,269        136,362        106,136
INCOME TAXES ................................      20,614         15,564         59,716         45,003
                                                ---------    -----------    -----------    -----------
NET INCOME ..................................   $  26,293    $    22,705    $    76,646    $    61,133
                                                =========    ===========    ===========    ===========
</TABLE>

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

                                      -16-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                  THREE MONTHS             SIX MONTHS
                                                                 ENDED JUNE 30,          ENDED JUNE 30,
                                                              --------------------    --------------------
                                                                2003        2002        2003        2002
                                                              --------    --------    --------    --------
                                                                               (UNAUDITED)

<S>                                                           <C>         <C>         <C>         <C>
NET INCOME ................................................   $ 26,293    $ 22,705    $ 76,646    $ 61,133
                                                              --------    --------    --------    --------

OTHER COMPREHENSIVE LOSS
Unrealized gains (losses) on available-for-sale securities:
  Unrealized holding gains (losses) during period-
    Before income taxes ...................................        602      (1,697)        136      (8,614)
    Income tax (expense) benefit ..........................       (211)        594         (48)      3,015
                                                              --------    --------    --------    --------
                                                                   391      (1,103)         88      (5,599)
                                                              --------    --------    --------    --------
  Less realized gains (losses) reflected in
    net income during period-
      Before income taxes .................................        481         109          71      (2,931)
      Income tax (expense) benefit ........................       (169)        (38)        (25)      1,026
                                                              --------    --------    --------    --------
                                                                   312          71          46      (1,905)
                                                              --------    --------    --------    --------
        Net unrealized gains (losses) .....................         79      (1,174)         42      (3,694)
                                                              --------    --------    --------    --------

Unrealized gains (losses) on cash flow hedges:
  Unrealized gains (losses) during period-
    Before income taxes ...................................        967         682      11,635      (2,204)
    Income tax (expense) benefit ..........................       (402)       (283)     (4,837)        916
                                                              --------    --------    --------    --------
                                                                   565         399       6,798      (1,288)
                                                              --------    --------    --------    --------
  Less realized gains (losses) reflected in
    net income during period-
      Before income taxes .................................      2,112       1,586      12,843        (380)
      Income tax (expense) benefit ........................       (878)       (659)     (5,339)        158
                                                              --------    --------    --------    --------
                                                                 1,234         927       7,504        (222)
                                                              --------    --------    --------    --------
        Net unrealized losses .............................       (669)       (528)       (706)     (1,066)
                                                              --------    --------    --------    --------

Other comprehensive loss ..................................       (590)     (1,702)       (664)     (4,760)
                                                              --------    --------    --------    --------

COMPREHENSIVE INCOME ......................................   $ 25,703    $ 21,003    $ 75,982    $ 56,373
                                                              ========    ========    ========    ========
</TABLE>

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

                                      -17-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                              SIX MONTHS
                                                                            ENDED JUNE 30,
                                                                        ----------------------
                                                                          2003         2002
                                                                        ---------    ---------
                                                                             (UNAUDITED)
<S>                                                                     <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..........................................................   $  76,646    $  61,133
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization .....................................     146,950      141,781
  Deferred income taxes and investment tax credit, net ..............       2,335        1,004
  Amortization of other assets and liabilities ......................      12,816       18,288
  Loss from impairment of assets and investments ....................       2,069        2,913
  Income on equity investments ......................................      (1,188)      (6,388)
  Cash outflows of accounts receivable securitization ...............           -       (8,000)
  Impact of changes in working capital ..............................      23,900      (32,432)
  Other, net ........................................................           7       18,298
                                                                        ---------    ---------
    Net cash provided by operating activities .......................     263,535      196,597
                                                                        ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ...................................    (151,637)    (135,911)
Less non-cash and change in accrued utility construction expenditures      (4,290)       1,988
Quad Cities Station decommissioning trust fund ......................      (4,150)      (4,150)
Nonregulated capital expenditures ...................................      (1,121)        (550)
Notes receivable from affiliate .....................................      10,000       21,532
Other investing activities, net .....................................       9,553        5,741
                                                                        ---------    ---------
  Net cash used in investing activities .............................    (141,645)    (111,350)
                                                                        ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid ...............................................     (86,250)     (30,000)
Issuance of long-term debt, net .....................................     272,572      391,236
Retirement of long-term debt, including reacquisition cost ..........    (187,901)      (2,478)
Reacquisition of preferred securities ...............................           -     (126,680)
Net decrease in notes payable .......................................     (55,000)     (89,680)
                                                                        ---------    ---------
  Net cash provided by financing activities .........................     (56,579)     142,398
                                                                        ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ...........................      65,311      227,645
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................      28,915       20,270
                                                                        ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..........................   $  94,226    $ 247,915
                                                                        =========    =========

ADDITIONAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized ...........................   $  55,733    $  45,939
                                                                        =========    =========
Income taxes paid, net ..............................................   $  50,950    $  23,969
                                                                        =========    =========
</TABLE>

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

                                     -18-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

The  consolidated  financial  statements  included  herein have been prepared by
MidAmerican Funding, LLC ("MidAmerican Funding"), 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
Funding, all adjustments,  consisting of normal recurring adjustments, have been
made to present fairly the financial position, the results of operations and the
changes in cash flows for the periods  presented.  Prior year  amounts have been
reclassified  to a basis  consistent  with the current  year  presentation.  All
significant intercompany transactions have been eliminated. Although MidAmerican
Funding  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 Funding's latest Annual Report on Form 10-K.

MidAmerican Funding is an Iowa limited liability company with MidAmerican Energy
Holdings Company as its sole member.  MidAmerican Funding's direct, wholly owned
subsidiary is MHC Inc. ("MHC").  MHC, MidAmerican Funding and MidAmerican Energy
Holdings  Company are exempt public utility holding  companies  headquartered in
Des Moines,  Iowa. MHC's principal  subsidiary is MidAmerican  Energy Company, a
public utility with electric and natural gas  operations.  Other direct,  wholly
owned subsidiaries of MHC include MidAmerican  Capital Company,  Midwest Capital
Group, Inc., MidAmerican Services Company and MEC Construction Services Co.

2.   NEW ACCOUNTING PRONOUNCEMENTS

Refer  to  Note  2 of  MidAmerican  Energy's  Notes  to  Consolidated  Financial
Statements  for  information  regarding  MidAmerican  Funding's  new  accounting
pronouncements.

3.   ENVIRONMENTAL MATTERS

Refer  to  Note  3 of  MidAmerican  Energy's  Notes  to  Consolidated  Financial
Statements  for  information  regarding   MidAmerican  Funding's   environmental
matters.

4.   RATE MATTERS

Refer  to  Note  4 of  MidAmerican  Energy's  Notes  to  Consolidated  Financial
Statements for information regarding MidAmerican Funding's rate matters.

5.   SEGMENT INFORMATION

MidAmerican  Funding has identified  four  reportable  operating  segments based
principally on management structure.  The generation segment derives most of its
revenue from the sale of regulated and  nonregulated  wholesale  electricity and
natural gas. The energy delivery  segment derives its revenue  principally  from
the sale and delivery of regulated retail electricity and natural gas, while the
transmission  segment  obtains most of its revenue from the sale of transmission
capacity.  The marketing and sales segment receives its revenue principally from
nonregulated  retail  sales of natural  gas and  electricity.  Common  operating
costs, interest income,  interest expense,  income tax expense and equity in the
net income or loss of investees are allocated to each segment.

                                      -19-
<PAGE>

The energy  delivery  and  transmission  segments and  substantially  all of the
generation  segment are  regulated as to rates,  and other  factors,  related to
services  to  external  customers.  For  internal  segment  reporting  purposes,
MidAmerican  Energy has developed  transfer prices for services provided between
the segments.  MidAmerican  Funding's  external revenues by product and services
are displayed on the Consolidated Statements of Income.

The following tables provide MidAmerican  Funding's  operating revenues,  income
before  income  taxes  and  total  assets  on an  operating  segment  basis  (in
thousands):

<TABLE>
<CAPTION>
                                        Three Months                 Six Months
                                       Ended June 30,              Ended June 30,
                                   ----------------------    --------------------------
                                     2003         2002          2003           2002
                                   ---------    ---------    -----------    -----------
<S>                                <C>          <C>          <C>            <C>
Operating revenues:
  External revenues -
    Generation .................   $ 108,172    $ 113,186    $   265,708    $   222,924
    Energy delivery ............     375,008      353,178        944,735        779,120
    Transmission ...............       5,856        5,211         12,104         10,136
    Marketing & sales ..........      46,847       21,113        128,532         54,792
    Other ......................         557        1,168          1,277          1,919
                                   ---------    ---------    -----------    -----------
      Total ....................     536,440      493,856      1,352,356      1,068,891
                                   ---------    ---------    -----------    -----------

   Intersegment revenues -
     Generation ................     148,689      161,285        279,044        292,327
     Transmission ..............      14,486       13,801         28,973         27,601
     Marketing & sales .........         754          776            754            776
                                   ---------    ---------    -----------    -----------
       Total ...................     163,929      175,862        308,771        320,704

   Intersegment eliminations ...    (163,929)    (175,862)      (308,771)      (320,704)
                                   ---------    ---------    -----------    -----------
     Consolidated ..............   $ 536,440    $ 493,856    $ 1,352,356    $ 1,068,891
                                   =========    =========    ===========    ===========

Income before income taxes:
  Generation ...................   $  34,129    $  26,307    $    62,960    $    41,173
  Energy delivery ..............      12,967       11,286         73,547         63,432
  Transmission .................      10,605       10,928         23,047         20,844
  Marketing & sales ............         594         (274)         1,691         (1,221)
  Other ........................     (11,388)      (9,978)       (24,883)       (18,092)
                                   ---------    ---------    -----------    -----------
    Total ......................   $  46,907    $  38,269    $   136,362    $   106,136
                                   =========    =========    ===========    ===========
</TABLE>

                                             As of
                                   ---------------------------
                                     June 30,     December 31,
                                      2003           2002
                                   -----------    ------------
Total assets (a):
  Generation ...................   $ 2,339,113    $ 2,321,090
  Energy delivery ..............     2,540,779      2,487,390
  Transmission .................       306,605        306,223
  Marketing & sales ............        40,072         52,143
  Other ........................       193,109        179,141
                                   -----------    -----------
    Total ......................     5,419,678      5,345,987
  Reclassifications and
    intersegment eliminations(b)      (208,089)      (192,003)
                                   -----------    -----------
  Consolidated .................   $ 5,211,589    $ 5,153,984
                                   ===========    ===========

(a)  Total assets by operating  segment  reflect the  assignment  of goodwill to
     applicable  reporting units in accordance with SFAS No. 142,  "Goodwill and
     Other Intangible Assets."

(b)  Reclassifications  and intersegment  eliminations relate principally to the
     reclassification  of income  tax  balances  in  accordance  with  generally
     accepted accounting principles and the elimination of intersegment accounts
     receivables and payables.

                                      -20-
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

MidAmerican  Energy  Company  ("MidAmerican  Energy") is a public  utility  with
electric  and natural gas  operations  and is the  principal  subsidiary  within
MidAmerican Funding, LLC ("MidAmerican Funding").

Management's Discussion and Analysis ("MD&A") addresses the financial statements
of MidAmerican Funding and MidAmerican Energy as presented in this joint filing.
Information in MD&A related to MidAmerican  Energy,  whether or not  segregated,
also relates to MidAmerican  Funding.  Information related to other subsidiaries
of  MidAmerican  Funding  pertains  only  to the  discussion  of  the  financial
condition and results of operations of  MidAmerican  Funding.  Where  necessary,
discussions  have been  segregated  and  labeled to allow the reader to identify
information applicable only to MidAmerican Funding.

MD&A should be read in  conjunction  with the financial  statements  included in
this  Form  10-Q and the  notes  to  those  statements,  together  with  MD&A in
MidAmerican Energy's and MidAmerican Funding's most recently filed Annual Report
on Form 10-K.

FORWARD-LOOKING STATEMENTS

From time to time, MidAmerican Funding, or one of its subsidiaries individually,
including  MidAmerican  Energy, may make  forward-looking  statements within the
meaning of the federal securities laws that involve  judgments,  assumptions and
other  uncertainties  beyond the  control of  MidAmerican  Funding 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 MidAmerican Funding's expectations, beliefs, future
plans  and  strategies,  anticipated  events  or  trends  and  similar  comments
concerning  matters that are not historical facts. These type of forward-looking
statements are based on current  expectations  and involve a number of known and
unknown  risks and  uncertainties  that  could  cause  the  actual  results  and
performance of MidAmerican Funding to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In  connection  with  the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995,  MidAmerican  Funding has  identified  important
factors  that  could  cause  actual  results  to differ  materially  from  those
expectations,  including  weather  effects on sales volumes and  revenues,  fuel
prices,  fuel  transportation  and other  operating  uncertainties,  acquisition
uncertainty,  uncertainties  relating to economic and political  conditions  and
uncertainties regarding the impact of regulations, changes in government policy,
utility industry deregulation and competition.  Neither MidAmerican Funding, nor
any one of its subsidiaries  individually,  assumes any responsibility to update
forward-looking information contained herein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

MidAmerican Energy's and MidAmerican Funding's  significant  accounting policies
are described in their  respective Note (1) of Notes to  Consolidated  Financial
Statements in Item 15 of their most  recently  filed Annual Report on Form 10-K.
For a  discussion  of their  critical  accounting  policies and  estimates,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in their most recently filed Annual Report on Form 10-K.

NEW ACCOUNTING PRONOUNCEMENT

In January 2003,  MidAmerican  Energy adopted Statement of Financial  Accounting
Standards ("SFAS") No. 143, "Accounting for Asset Retirement  Obligations." SFAS
No.  143  requires  recognition  on  the  balance  sheet  of  legal  obligations
associated  with the  retirement  of  long-lived  assets  that  result  from the
acquisition,  construction,  development and/or normal operation of such assets.
Concurrent with the recognition of the liability, the estimated cost of an asset
retirement  obligation is capitalized and depreciated over the remaining life of
the asset.

                                      -21-
<PAGE>

On  January  1,  2003,  MidAmerican  Energy  recorded  $275.2  million  of asset
retirement  obligation  ("ARO")  liabilities;  $12.6 million of  associated  ARO
assets,  net of accumulated  depreciation;  $101.8 million of regulatory assets;
and reclassified  $1.0 million of accumulated  depreciation to the ARO liability
in conjunction  with adoption of SFAS No. 143.  Adoption of SFAS No. 143 did not
impact net income. The initial ARO liability  recognized includes $266.5 million
that pertains to obligations  associated  with the  decommissioning  of the Quad
Cities   Station.   The  $266.5  million   includes  a  $159.8  million  nuclear
decommissioning  liability that had been recorded as of December 31, 2002. As of
June  30,  2003,   $173.1  million  of  assets   reflected  in  Investments  and
Nonregulated  Property, Net on the Consolidated Balance Sheet are restricted for
satisfying the Quad Cities Station obligation.

The change in the balance of the ARO liability  during the first half of 2003 is
summarized as follows (in thousands):

                   Balance January 1, 2003 ......   $275,228
                   Capitalized accretion ........      7,913
                                                    --------
                   Balance June 30, 2003 ........   $283,141
                                                    ========

Capitalized  accretion is charged to a regulatory  asset. In addition to the ARO
liabilities recognized on January 1, MidAmerican Energy has accrued for the cost
of removing  other electric and gas assets through its  depreciation  rates,  in
accordance  with  accepted  regulatory  practices.  As of  June  30,  2003,  the
estimated  amount of such  accruals  included in  accumulated  depreciation  was
approximately  $395  million  based on the cost of removal  component in current
depreciation rates.

On April 30, 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 149,  "Amendment  of Statement  133 on  Derivative  Instruments  and Hedging
Activities."  SFAS No.  149  amends  SFAS No.  133 for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging   activities.   SFAS  No.  149  also  amends   certain  other   existing
pronouncements and will require contracts with comparable  characteristics to be
accounted for similarly.  In particular,  SFAS No. 149 clarifies when a contract
with an initial net  investment  meets the  characteristic  of a derivative  and
clarifies  when a derivative  that contains a financing  component  will require
special  reporting in the statement of cash flows. SFAS No. 149 is effective for
MidAmerican  Energy  and  MidAmerican  Funding  for  contracts  entered  into or
modified after June 30, 2003.  MidAmerican  Energy and  MidAmerican  Funding are
evaluating the impact of adopting the requirements of SFAS No. 149.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer  classify a financial  instrument that is within
its scope as a liability  (or an asset in some  circumstances).  SFAS No. 150 is
effective  for  MidAmerican   Funding  and  MidAmerican   Energy  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the third quarter of 2003. MidAmerican Funding and
MidAmerican Energy do not currently have financial  instruments within the scope
of SFAS No. 150.

                                      -22-
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 AND 2002

Regulated Electric Gross Margin
-------------------------------

                                                   Three Months
                                                  Ended June 30,
                                                  ---------------
                                                   2003     2002
                                                  ------   ------
                                                   (In millions)
         Operating revenues ...................   $329.3   $325.8
         Cost of fuel, energy and capacity ....     82.5     72.9
                                                  ------   ------
           Electric gross margin ..............   $246.8   $252.9
                                                  ======   ======

Electric  gross  margin for the second  quarter of 2003  decreased  $6.1 million
compared to the second quarter of 2002.

Effective  August 1, 2002,  MidAmerican  Energy and the  Nebraska  Public  Power
District  ("NPPD")  restructured  their  contract  for Cooper  Nuclear  Station.
Accordingly,  MidAmerican  Energy's costs for energy and capacity purchased from
Cooper  Nuclear  Station are now  classified  differently  on the  statement  of
income.  As a result,  electric  gross  margin  for the  second  quarter of 2003
decreased  by $10.1  million  compared to the second  quarter of 2002 due to the
change in classification of the related costs. Prior to August 1, 2002, only the
fuel costs for energy purchased from Cooper Nuclear Station were classified as a
cost of  fuel,  energy  and  capacity.  Other  costs  under  the  contract  were
classified as other operating expenses.  Following the restructuring,  all costs
for  energy  and  capacity   purchased  under  that  contract  are  included  in
MidAmerican Energy's cost of fuel, energy and capacity,  as with other purchased
power costs.  Other  operating  expenses  decreased  accordingly.  Refer to Note
(1)(h) of Notes to Consolidated  Financial  Statements in Item 15 of MidAmerican
Energy's most recently  filed Annual Report on Form 10-K for a discussion of the
contract restructuring.

Temperature conditions during the second quarter of 2003 were milder than in the
second quarter of 2002,  resulting in  approximately a $10.2 million decrease in
electric  margin.  Electricity  usage and rate factors not  dependent on weather
increased  electric  margin by $4.1  million  compared to the second  quarter of
2002.  In total,  retail  electric  sales volumes  decreased  3.7% for the three
months ended June 30, 2003.

Lower fuel costs related to Iowa retail electric sales,  excluding the impact of
restructuring the Cooper Nuclear Station contract,  increased electric margin by
$3.8 million  relative to the second quarter of 2002. The decrease in fuel costs
for Iowa  electric  retail sales  includes the Iowa portion of $10.9  million of
cost recovery  recognized in the second  quarter of 2003 related to  MidAmerican
Energy's coal purchase  contract with Enron Corp.  ("Enron").  In November 2001,
MidAmerican  Energy  received  collateral  from  Enron for costs to  MidAmerican
Energy  related to the coal  purchase  contract  as a result of a  downgrade  in
Enron's credit ratings in 2001.  MidAmerican Energy deferred  recognition of the
value of the collateral at that time,  pending  resolution of related bankruptcy
proceedings.  MidAmerican  Energy  and  Enron  agreed on a  settlement  of their
bankruptcy claims,  including the coal purchase contract, and received the final
required approval in June 2003.  Accordingly,  MidAmerican Energy recognized the
reduced costs  associated  with the  collateral  for the  settlement of the coal
purchase contract.  The decrease in fuel costs due to the coal purchase contract
with Enron was  partially  offset by the Iowa portion of $5.1 million of expense
related to the write-off of the remaining  value of failed  nuclear fuel at Quad
Cities Station.

In addition  to the effect of  restructuring  the  contract  for Cooper  Nuclear
Station, MidAmerican Energy's gross margin on electric wholesale sales increased
$6.5  million  for the  second  quarter  of 2003 due to an  increase  in prices,
partially offset by a decrease in sales volumes,  compared to the second quarter
of  2002.   Wholesale  sales  are  the  sales  of  energy  to  other  utilities,
municipalities and marketers inside and outside of MidAmerican Energy's delivery
system.

                                      -23-
<PAGE>

Regulated Gas Gross Margin
--------------------------

                                                Three Months
                                               Ended June 30,
                                              ---------------
                                               2003     2002
                                              ------   ------
                                               (In millions)
                  Operating revenues ......   $155.1   $126.1
                  Cost of gas sold ........    111.7     86.8
                                              ------   ------
                     Gas gross margin .....   $ 43.4   $ 39.3
                                              ======   ======

Regulated gas revenues  include  purchased gas adjustment  clauses through which
MidAmerican  Energy is allowed  to recover  the cost of gas sold from its retail
gas utility customers. Consequently, fluctuations in the cost of gas sold do not
affect  gross  margin  or  net  income  because  revenues   reflect   comparable
fluctuations  from  purchased gas adjustment  clauses.  An 83.8% increase in the
average  per-unit  cost of gas for the  three-month  period ended June 30, 2003,
compared to the same period in 2002,  increased revenues and cost of gas sold by
approximately  $51 million.  These increases were partially offset by the impact
of a 10.3% decrease in sales volumes.

Gas margin for the three  months  ended June 30,  2003,  increased  $4.1 million
compared to the three months ended June 30, 2002.

Increases in retail gas rates that largely took effect  subsequent to the second
quarter of 2002  improved  gas  margin by $2.8  million  compared  to the second
quarter of 2002. On June 12, 2002,  the Iowa  Utilities  Board ("IUB") issued an
order granting an interim rate increase of approximately $13.8 million annually,
effective  immediately.  On  November  8,  2002,  the IUB  approved  a  proposed
settlement  agreement previously filed by MidAmerican Energy and the Iowa Office
of Consumer Advocate that provided for a final increase, implemented on November
25, 2002, of $17.7 million annually for MidAmerican Energy's Iowa retail natural
gas customers.  On September 11, 2002, MidAmerican Energy received a final order
from the Illinois Commerce Commission to increase its Illinois natural gas rates
by $2.2 million  annually and implemented the rates on September 18, 2002. Refer
to the  "Rate  Matters"  section  of MD&A  for  comments  on the  Iowa  gas rate
settlement.

Additionally,  gas gross margin increased compared to the second quarter of 2002
due to a  $1.0  million  increase  in  revenues  from  the  recovery  of  energy
efficiency costs.

Regulated Operating Expenses
----------------------------

Regulated  other  operating  expenses for the second  quarter of 2003  decreased
$18.4 million compared to the second quarter of 2002.  Effective August 1, 2002,
MidAmerican  Energy and NPPD  restructured  their  contract  for Cooper  Nuclear
Station. Prior to August 1, 2002, costs under the contract other than fuel costs
for energy purchased were classified as other operating expenses.  Following the
restructuring,  all costs for energy and capacity  purchased under that contract
are included in MidAmerican Energy's cost of fuel, energy and capacity,  as with
other  purchased  power. As a result,  other  operating  expenses for the second
quarter of 2003  decreased by $24.1  million  compared to the second  quarter of
2002.

In addition,  other operating  expenses related to Quad Cities Station decreased
$2.0  million  compared to the second  quarter of 2002.  The  decreases in other
operating  expenses  were  partially  offset by increases  totaling $6.5 million
related to employee  costs for  compensation,  health care and pension and other
postretirement costs.

Maintenance  expenses  increased $5.7 million  compared to the second quarter of
2002 due primarily to a $3.0 million increase in Quad Cities Station maintenance
costs  attributable  mostly  to fuel  assembly  replacement.  Maintenance  costs
related to fossil fuel  generation  and  electric  distribution  also  increased
compared to the second quarter of 2002.

Depreciation  and  amortization  expense  increased $6.5 million compared to the
three  months  ended June 30,  2003,  due  principally  to  increases in expense
related to revenue sharing arrangements in Iowa and Illinois.

                                      -24-
<PAGE>

Interest and Dividend Income
----------------------------

MidAmerican Energy -

The  decrease in interest  and  dividend  income was due  principally  to a $1.0
million decrease in interest income on a note receivable  related to MidAmerican
Energy's accounts receivable sold. The related arrangement terminated in October
2002.

MidAmerican Funding -

Interest income related to notes  receivable with  MidAmerican  Funding's parent
company  decreased  $1.4 million.  The note  receivable  balances have been zero
throughout 2003.

Other Income and Other Expense
------------------------------

MidAmerican Energy -

The  increase  in  MidAmerican  Energy's  other  income is due  primarily  to an
increase in net earnings related to the cash surrender value of  corporate-owned
life insurance.  Related net earnings increased $3.0 million to $2.6 million for
the second quarter of 2003.

As a regulated public utility,  MidAmerican Energy is allowed to capitalize, and
record as  income,  a cost of  construction  for  equity  funds  used,  based on
guidelines set forth by the Federal Energy Regulatory Commission ("FERC"). Other
income for the  capitalized  allowance on equity funds used during  construction
totaled $2.7 million in the second  quarter of 2003  compared to $2.1 million in
the second quarter of 2002.  MidAmerican Energy anticipates recording income for
the  allowance  on equity funds used during  construction  over the next several
years while the announced generating plants are constructed.

Other expense includes a discount on MidAmerican  Energy's  accounts  receivable
sold to  MidAmerican  Energy Funding  Corporation.  The discount was designed to
cover the expenses of MidAmerican Energy Funding Corporation, including bad debt
expense,  subservicer  fees,  monthly  administrative  costs and  interest.  The
discount was recorded in other  expense  because it is not  reflected in utility
cost of service for regulatory  purposes.  The discount totaled $1.9 million for
the second quarter of 2002. The related arrangement terminated in October 2002.

Fixed Charges and Preferred Dividends
-------------------------------------

The  decrease  in  interest  on  long-term  debt was due to the  effect  of debt
maturities  in 2002 and 2003 offset  partially  by  interest on $275  million of
MidAmerican Energy notes issued in January 2003.

MidAmerican  Energy's  preferred  dividends  decreased  compared  to the  second
quarter of 2002 due to the reacquisition of preferred securities in May 2002 and
the related loss on reacquistion.

                                      -25-
<PAGE>

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002

Regulated Electric Gross Margin
-------------------------------

                                                      Six Months
                                                    Ended June 30,
                                                   ---------------
                                                    2003     2002
                                                   ------   ------
                                                    (In millions)
          Operating revenues ...................   $644.2   $632.6
          Cost of fuel, energy and capacity ....    170.9    145.3
                                                   ------   ------
            Electric gross margin ..............   $473.3   $487.3
                                                   ======   ======

Electric gross margin for the first six months of 2003  decreased  $14.0 million
compared to the first six months of 2002.

Electric  gross  margin  for the first six  months  of 2003  decreased  by $18.0
million  compared  to the  first  six  months  of  2002  due to  the  change  in
classification  of costs  related to  MidAmerican  Energy's  contract for Cooper
Nuclear  Station.  Refer to the  "Regulated  Electric  Gross Margin"  section in
three-month  results of operations  discussion above for additional  information
regarding this change.

The effect of milder  temperature  conditions  during the second quarter of 2003
compared to the second quarter of 2002,  partially offset by colder  temperature
conditions  in the first  quarter of 2003 compared to the first quarter of 2002,
resulted  in   approximately  a  $1.7  million   decrease  in  electric  margin.
Electricity usage and rate factors not dependent on weather  decreased  electric
margin by $0.9  million  compared  to the first  six  months of 2002.  In total,
retail  electric sales volumes  increased 0.4% for the six months ended June 30,
2003.

Lower  fuel  costs for Iowa  retail  electric  sales,  excluding  the  impact of
restructuring the Cooper Nuclear Station contract,  increased electric margin by
$6.3  million  relative  to first  six  months  of  2002.  As  discussed  in the
three-month  discussion of regulated electric gross margin, the decrease in fuel
costs for Iowa retail  electric  sales was affected by income  related to a coal
purchase contract with Enron and the write-off of nuclear fuel.

Electric revenues from the recovery of energy efficiency program costs increased
$1.3 million compared to the first six months of 2002. Changes in these revenues
are  substantially   matched  with  corresponding  changes  in  other  operating
expenses.

In addition  to the effect of  restructuring  the  contract  for Cooper  Nuclear
Station, MidAmerican Energy's gross margin on electric wholesale sales increased
$3.9  million for the first six months of 2003  compared to the first six months
of 2002 due to an  increase in prices,  partially  offset by a decrease in sales
volumes.

MidAmerican  Energy  sells and  purchases  electric  capacity  in the  wholesale
market.  The net margin from those sales and  purchases  decreased  $4.9 million
compared to the first six months of 2002.

Regulated Gas Gross Margin
--------------------------

                                                Six Months
                                              Ended June 30,
                                             ---------------
                                              2003     2002
                                             ------   ------
                                              (In millions)
                  Operating revenues .....   $568.9   $346.1
                  Cost of gas sold .......    441.3    235.3
                                             ------   ------
                    Gas gross margin .....   $127.6   $110.8
                                             ======   ======

                                      -26-
<PAGE>

Regulated gas revenues  include  purchased gas adjustment  clauses through which
MidAmerican  Energy is allowed  to recover  the cost of gas sold from its retail
gas utility customers.  A 92.0% increase in the average per-unit cost of gas for
the six-month  period ended June 30, 2003,  compared to the same period in 2002,
increased revenues and cost of gas sold by approximately $211 million.

Gas gross margin for the six months ended June 30, 2003, increased $16.8 million
compared to the six months ended June 30, 2002.

Increases in retail gas rates that largely took effect  subsequent to the second
quarter of 2002 improved gas margin by $11.3  million  compared to the first six
months of 2002. In addition to the rate increases  discussed in the  three-month
"Regulated  Gas Gross Margin"  section,  on February 20, 2002,  the South Dakota
Public Utilities  Commission approved a settlement  agreement allowing increased
natural gas rates of $3.1 million annually, effective immediately.

The effect of colder  temperature  conditions  during the first  quarter of 2003
compared  to the same  quarter  in 2002 was  partially  offset by the  effect of
milder  temperature  conditions  in the second  quarter of 2003  compared to the
second quarter of 2002.  Accordingly,  gas gross margin for the first six months
of 2003 increased  approximately  $6 million compared to the first six months of
2002. A $2.2 million loss on a weather hedge  partially  offset the increase due
to  temperature  conditions.  Other  usage  factors  not  dependent  on  weather
decreased  gas margin by $4.0 million  compared to the first six months of 2002.
Total natural gas retail sales volumes increased 8.9%.

Gas gross  margin  increased  compared  to the first six months of 2002 due to a
$3.0 million  increase in revenues from the recovery of energy  efficiency costs
and a $2.7 million increase from gas transported.

Regulated Operating Expenses
----------------------------

Regulated  other  operating  expenses for the first six months of 2003 decreased
$34.3  million  compared to the first six months of 2002 due to a $48.2  million
decrease in costs related to Cooper  Nuclear  Station.  Cooper  Nuclear  Station
costs are now  classified  differently on the statement of income as a result of
the restructuring of the related contract.  Refer to the three-month  discussion
of regulated  operating expenses for additional comments on the restructuring of
the contract.

The decrease in other operating expenses due to Cooper Nuclear Station costs was
partially  offset by increases  totaling $10.4 million related to employee costs
for compensation, health care costs, and pension and other postretirement costs;
and by a $4.4 million increase in energy efficiency program costs.

Maintenance  expenses increased $5.0 million compared to the first six months of
2002 due  principally to a $2.3 million  increase in  maintenance  costs at Quad
Cities  Station  and  a  $1.2  million   increase  in  fossil  fuel   generation
maintenance.

Depreciation  and  amortization  expense  increased $5.6 million compared to the
first  six  months  of 2002 due to a $3.5  million  increase  in  utility  plant
depreciation and amortization and a $2.8 million increase related to an Illinois
revenue  sharing  arrangement.  Expense  related  to the  Iowa  revenue  sharing
arrangement  decreased  $1.0  million  compared to the first six months of 2002.
Refer  to the  "Legislative  and  Utility  Regulatory  Matters"  section  for an
explanation of these revenue sharing arrangements.

Property and other taxes  increased  $3.3 million due to an increase in property
taxes as a result of higher levels of electricity generated and delivered.  Iowa
law provides for property taxes for electric utilities to be based predominantly
on energy consumption.

                                      -27-
<PAGE>

Nonregulated Operating Revenues and Operating Expenses
------------------------------------------------------

                                                        Six Months
                                                      Ended June 30,
                                                      --------------
                                                       2003     2002
                                                      ------   -----
                                                       (In millions)
            MidAmerican Energy -
              Nonregulated operating revenues .....   $138.0   $88.3
              Nonregulated cost of sales ..........    120.7    73.8
                                                      ------   -----
              Nonregulated gross margin ...........   $ 17.3   $14.5
                                                      ======   =====

            MidAmerican Funding Consolidated -
              Nonregulated operating revenues .....   $139.3   $90.2
              Nonregulated cost of sales ..........    120.9    74.1
                                                      ------   -----
              Nonregulated gross margin ...........   $ 18.4   $16.1
                                                      ======   =====

MidAmerican Energy -

All gains and losses on MidAmerican  Energy's  energy trading  contracts are now
reported net on the statement of income in accordance  with Emerging Issues Task
Force  ("EITF")  Issue No. 02-3,  and 2002 amounts have been  reclassified  to a
consistent  presentation.  MidAmerican Energy's  nonregulated  wholesale gas and
electric  marketing  activities  qualify as "energy trading" contracts under the
guidance of EITF Issue No. 02-3.

MidAmerican Energy's  nonregulated gross margin for the first six months of 2003
increased $2.8 million compared to the first six months of 2002.

Nonregulated  revenues and cost of sales consist  substantially  of nonregulated
retail natural gas marketing  operations.  Gross margin for MidAmerican Energy's
nonregulated retail natural gas operations  increased $1.1 million for the first
six months of 2003. The improvement in gross margin reflects a 68.2% increase in
margin per unit and a 13.0%  increase in sales  volumes.  An increase in related
revenues was due  principally to an increase in the average price per unit sold,
which  reflects a 58.4%  increase in the average  cost of gas and  accounts  for
$35.5 million of the increase in nonregulated retail natural gas revenues.

Electric  retail  customers  in  Illinois,  except for those  served by electric
cooperatives  and  municipalities,  are allowed to select their  electric  power
supplier. Related revenues increased $6.9 million to $31.0 million for the first
six months of 2003 while cost of sales increased $6.1 million to $26.2 million.

Additionally,  nonregulated  revenues  include income from sharing  arrangements
under regulated natural gas tariffs. Related income totaled $4.0 million for the
first six months of 2003 and $1.6 million for the first six months of 2002.

Interest and Dividend Income
----------------------------

MidAmerican Energy -

The  decrease in interest  and  dividend  income was due  principally  to a $2.2
million decrease in interest income on a note receivable  related to MidAmerican
Energy's accounts receivable sold. The related arrangement terminated in October
2002.

MidAmerican Funding -

Interest income related to notes  receivable with  MidAmerican  Funding's parent
company  decreased  $2.8 million  compared to the first six months of 2002.  The
related note receivable balances have been zero throughout 2003.

                                      -28-
<PAGE>

Marketable Securities Gains and Losses, Net
-------------------------------------------

MidAmerican Funding -

Net losses on marketable securities decreased $3.7 million compared to the first
six months of 2002 due  primarily to a $2.9  million  loss  recorded in the 2002
period related to other-than-temporary  declines in two of MidAmerican Funding's
common stock investments.

Other Income and Other Expense
------------------------------

MidAmerican Energy -

Other  income  from  net  earnings  related  to  the  cash  surrender  value  of
corporate-owned  life insurance totaled $3.0 million for the first six months of
2003 and $0.2  million  for the first six months of 2002.  Other  income for the
capitalized  allowance  on equity  funds used during  construction  totaled $6.6
million in the first six months of 2003  compared  to $3.3  million in the first
six months of 2002.

Other expense includes a discount on MidAmerican  Energy's  accounts  receivable
sold to  MidAmerican  Energy  Funding  Corporation.  The  discount  totaled $3.5
million for the first six months of 2002. The related arrangement  terminated in
October 2002

MidAmerican Funding -

Other income for the first six months of 2003 and 2002 includes $1.2 million and
$6.0 million,  respectively,  of income from MidAmerican Capital's equity method
investments.  Equity  income  for 2002  includes  $5.3  million  of income for a
distribution  of  common  stock  held by one of  MidAmerican  Capital's  venture
capital fund investments.

Other  expense for the first six months of 2003  includes a $2.1  million  write
down for the impairment of a special purpose fund investment.

Fixed Charges and Preferred Dividends
-------------------------------------

The increase in interest on  long-term  debt was due to interest on $400 million
of  MidAmerican  Energy notes  issued in February  2002 and another $275 million
issued in January 2003. The increase was partially  offset by the effect of debt
maturities in 2002 and 2003.

MidAmerican  Energy's preferred  dividends of its subsidiary trust decreased due
to the  reacquisition  of all of the related  preferred  securities on March 11,
2002. In addition,  preferred  dividends  decreased due to the  reacquisition of
preferred securities in May 2002.

                                      -29-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

MidAmerican  Energy and MidAmerican  Funding have 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,  MidAmerican Energy's
net cash provided by operating  activities was $276.1 million and $218.8 million
for the six  months  ended  June 30,  2003 and 2002,  respectively.  MidAmerican
Funding's  net cash  provided by  operating  activities  was $263.5  million and
$196.6 million for the six months ended June 30, 2003 and 2002, respectively.

Investing Activities and Plans
------------------------------

Utility Construction Expenditures -

MidAmerican   Energy's   primary  need  for  capital  is  utility   construction
expenditures.   For  the  first  six  months  of  2003,   utility   construction
expenditures  totaled $151.6 million,  including allowance for funds used during
construction,  or capitalized  financing  costs, and Quad Cities Station nuclear
fuel purchases.

Forecasted utility construction expenditures, including allowance for funds used
during  construction,  are $374 million for 2003. Capital  expenditure needs are
reviewed  regularly by management  and may change  significantly  as a result of
such reviews.

Through 2007,  MidAmerican  Energy plans to develop and construct three electric
generating  projects in Iowa.  The projects  would provide  service to regulated
retail electricity customers and, subject to regulatory  approvals,  be included
in regulated rate base in Iowa,  Illinois and South Dakota.  Wholesale sales may
also be made from the plants to the extent the power is not needed for regulated
retail service. MidAmerican Energy expects to invest approximately $1.44 billion
in the three projects.

The first project is a natural  gas-fired  combined cycle unit with an estimated
cost of $357  million,  plus  allowance  for  funds  used  during  construction.
MidAmerican  Energy  will own  100% of the  plant  and  operate  it.  Commercial
operation  of the simple  cycle  mode  began on May 5,  2003.  The plant will be
operated in simple cycle mode during 2003 and 2004,  resulting in 327  megawatts
("MW") of  accredited  capacity.  The  combined  cycle  operation is expected to
commence  in  December  2004,  resulting  in an  expected  additional  190 MW of
accredited capacity.

The second project is currently under development and is expected to be a 790-MW
(based on expected accreditation)  super-critical-temperature,  coal-fired plant
fueled with low-sulfur coal. If constructed, MidAmerican Energy will operate the
plant and expects to own approximately 475 MW of the plant.  MidAmerican  Energy
expects to invest approximately $759 million in the project,  plus allowance for
funds  used  during  construction.   Municipal,  cooperative  and  public  power
utilities will own the remainder,  which is a typical ownership  arrangement for
large  base-load  plants in Iowa. On May 29, 2003,  the IUB issued an order that
approves  the  ratemaking  principles  for  the  plant,  and on June  27,  2003,
MidAmerican  Energy  received a  certificate  from the IUB allowing  MidAmerican
Energy to construct the plant. On February 12, 2003, MidAmerican Energy executed
a contract  with Mitsui & Co.  Energy  Development,  Inc.  for the  engineering,
procurement and construction of the plant and issued a limited notice to proceed
authorizing  detailed   engineering.   A  full  notice  to  proceed  authorizing
construction  is expected in the third  quarter of 2003.  MidAmerican  Energy is
also  seeking an order from the IUB  approving  construction  of the  associated
transmission facilities.

The third  project is  currently  under  development  and is expected to be wind
power  facilities  totaling  310 MW based  on the  nameplate  rating.  Generally
speaking, accredited capacity ratings for wind power facilities are considerably
less than the nameplate  ratings due to the varying  nature of wind. The current
projected  accredited  capacity for these wind power facilities is approximately
53 MW. If constructed, MidAmerican Energy will own and operate these facilities,
which are expected to cost approximately $323 million. MidAmerican Energy's plan

                                      -30-
<PAGE>

to construct the wind project is in  conjunction  with a settlement  proposal to
extend through December 31, 2010, an Iowa electric rate freeze that is currently
scheduled to expire at the end of 2005. The proposed settlement, which was filed
with  the  IUB as  part  of  MidAmerican  Energy's  application  for  ratemaking
principles for the wind project, is subject to approval by the IUB.  MidAmerican
Energy  has  received  authorization  from the IUB to  construct  the wind power
facilities and expects an order on its requested  ratemaking  principles for the
project in the third quarter of 2003.  Refer to the "Rate Matters" section below
for more discussion of the rate aspects of the proposed settlement.

Nuclear Decommissioning -

Each licensee of a nuclear facility is required to provide  financial  assurance
for the cost of  decommissioning  its  licensed  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  Energy  expects  to
contribute  approximately  $41 million  during the period 2003  through  2007 to
external trusts established for the investment of funds for decommissioning Quad
Cities Station.  Approximately 65% of the fair value of the trusts' funds is now
invested in domestic corporate debt and common equity securities.  The remainder
is invested in investment grade municipal and U.S.  Treasury bonds.  Funding for
Quad Cities Station nuclear decommissioning is reflected as depreciation expense
in the Consolidated  Statements of Income.  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.

Contractual Obligations and Commercial Commitments -

MidAmerican Energy and MidAmerican Funding have various contractual  obligations
and commercial  commitments.  The following  table,  which has been updated from
December 31, 2002, to reflect  issuances and  retirements  of long-term debt and
on-going  changes in commitments due to operating  lease and fuel  transactions,
summarizes as of June 30, 2003,  the material cash  obligations  of  MidAmerican
Energy and MidAmerican Funding (in millions).
<TABLE>
<CAPTION>

                                                                          Period Payments are Due
                                                                -------------------------------------------
                                                                July 1 to
                                                                 Dec. 31,     2004 -     2006 -       After
Type of Obligation                                      Total     2003        2005       2007         2007
------------------                                     -------- ---------     ------     ------     --------

<S>                                                    <C>          <C>       <C>        <C>        <C>
MidAmerican Energy:
Long-term debt, excluding unamortized
  debt premium and discount, net .................     $1,147.5     $ 1.2     $147.0     $162.0     $  837.3
Operating leases (1) .............................         17.6       3.8        8.8        4.2          0.8
Coal, electricity and natural gas
  contract commitments (1) .......................        599.4      91.2      293.7      124.5         90.0
                                                       --------     -----     ------     ------     --------
  Total ..........................................      1,764.5      96.2      449.5      290.7        928.1

MidAmerican Funding parent and other subsidiaries:
Long-term debt, excluding unamortized
  debt premium and discount, net .................        700.0         -          -          -        700.0
                                                       --------     -----     ------     ------     --------
  Total ..........................................     $2,464.5     $96.2     $449.5     $290.7     $1,628.1
                                                       ========     =====     ======     ======     ========
</TABLE>

(1)  The operating  leases and fuel and energy  commitments are not reflected on
     the  Consolidated  Balance  Sheets.  Refer  to  Note  (4)(f)  in  Notes  to
     Consolidated  Financial  Statements in Item 15 of MidAmerican  Energy's and
     MidAmerican  Funding's most recently filed Annual Report on Form 10-K for a
     discussion of the nature of these commitments.

                                      -31-
<PAGE>

MidAmerican Energy has other types of commitments that are subject to change and
relate primarily to the items listed below. For additional  information,  refer,
where  applicable,  to the respective  referenced  note in Notes to Consolidated
Financial  Statements of  MidAmerican  Energy's and  MidAmerican  Funding's most
recently filed Annual Report on Form 10-K.

     -    Construction   expenditures:   Refer  to  the  "Utility   Construction
          Expenditures" section above.
     -    Manufactured gas plant facilities (see Note 3 a. of this Form 10-Q)
     -    Nuclear decommissioning costs (see Note (4)(d) of MidAmerican Energy's
          and  MidAmerican  Funding's  most recently filed Annual Report on Form
          10-K)
     -    Residual   guarantees   on  operating   leases  (see  Note  (1)(j)  of
          MidAmerican  Energy's and  MidAmerican  Funding's  most recently filed
          Annual Report on Form 10-K)

Financing Activities, Plans and Availability
--------------------------------------------

Debt Authorizations and Credit Facilities -

MidAmerican  Energy has authority from the FERC to issue through April 14, 2005,
short-term debt in the form of commercial paper and bank notes  aggregating $500
million.  MidAmerican  Energy currently has in place a $370.4 million  revolving
credit facility that supports its $250 million  commercial paper program and its
variable  rate  pollution  control  revenue  obligations.  The facility  expires
January 15, 2004.

On  January  14,  2003,   MidAmerican  Energy  issued  $275  million  of  5.125%
medium-term notes due in 2013. The proceeds were used to refinance existing debt
and for other corporate purposes.

On February 10, 2003,  MidAmerican Energy redeemed all $75 million of its 7.375%
series of mortgage  bonds,  and on March 17, 2003, it redeemed all $6.94 million
of its 7.45% series of mortgage bonds. Additionally, MidAmerican Energy's 7.125%
series of mortgage bonds totaling $100 million matured on February 3, 2003.

MidAmerican  Energy has on file with the  Securities  and Exchange  Commission a
registration statement providing for an additional $425 million in various forms
of senior and subordinated,  unsecured long-term debt and preferred  securities.
MidAmerican  Energy  also has  authorization  from the  FERC to  issue,  through
November  30, 2004,  an  additional  $425 million in various  forms of long-term
debt.

MidAmerican  Energy  is  required  to  obtain  authorization  from the  Illinois
Commerce  Commission ("ICC") prior to issuing any securities.  If 90% or more of
the proceeds  from a  securities  issuance  are used for  refinancing  purposes,
MidAmerican  Energy need only provide the ICC with an "informational  statement"
prior to the issuance which sets forth the type,  amount and use of the proceeds
of the  securities  to be issued.  If less than 90% of the proceeds are used for
refinancing,  MidAmerican Energy must file a comprehensive  application  seeking
authorization  prior to issuance.  The ICC is required to hold a hearing  before
issuing its  authorization.  MidAmerican Energy currently has authority from the
ICC  to  issue  up  to  approximately  $15  million  of  medium-term  notes  for
refinancing purposes and intends to file an application  requesting authority to
issue additional long-term debt.

Other Information -

MidAmerican  Funding or one of its subsidiaries,  including  MidAmerican Energy,
may from time to time seek to retire its outstanding debt through cash purchases
and/or  exchanges for equity  securities,  in open market  purchases,  privately
negotiated transactions or otherwise. The repurchases or exchanges, if any, will
depend  on  prevailing  market  conditions,   the  issuing  company's  liquidity
requirements,  contractual  restrictions and other factors. The amounts involved
may be material.

                                      -32-
<PAGE>

CREDIT RATINGS RISKS

Debt and preferred  securities of MidAmerican Funding and MidAmerican Energy are
rated by nationally  recognized credit rating agencies.  Assigned credit ratings
are  based on each  rating  agency's  assessment  of  MidAmerican  Funding's  or
MidAmerican Energy's ability to, in general, meet the obligations of the debt or
preferred  securities issued by the rated company.  The credit ratings are not a
recommendation to buy, sell or hold securities, and there is no assurance that a
particular  credit rating will continue for any given period of time. Other than
the energy trading agreements  discussed below,  neither MidAmerican Funding nor
MidAmerican  Energy has any credit  agreements  that  require  termination  or a
material change in collateral requirements or payment schedule in the event of a
downgrade  in  the  credit  ratings  of  the  respective  company's  securities.
MidAmerican  Funding's long-term debt agreements provide that no additional debt
can be issued by  MidAmerican  Funding if doing so would  cause a  downgrade  in
MidAmerican Funding's credit ratings.

In conjunction with its wholesale marketing and trading activities,  MidAmerican
Energy  must meet  credit  quality  standards  as  required  by  counterparties.
MidAmerican  Energy has energy  trading  agreements  that,  in  accordance  with
industry practice,  either specifically  require it to maintain investment grade
credit  ratings  or provide  the right for  counterparties  to demand  "adequate
assurances" in the event of a material  adverse  change in MidAmerican  Energy's
creditworthiness.  If one or more of MidAmerican Energy's credit ratings decline
below  investment  grade,  MidAmerican  Energy  may be  required  to  post  cash
collateral,  letters of credit or other  similar  credit  support to  facilitate
ongoing  wholesale  marketing  and  trading  activities.  As of June  30,  2003,
MidAmerican  Energy's  estimated  potential   collateral   requirements  totaled
approximately $74 million.  MidAmerican  Energy's collateral  requirements could
fluctuate  considerably due to seasonality,  market price volatility,  a loss of
key MidAmerican Energy generating facilities or other related factors.

LEGISLATIVE AND UTILITY REGULATORY MATTERS

Electric Deregulation
---------------------

Under  Illinois law, as of December 31, 2000, all  non-residential  customers in
Illinois had been phased in to allow them to select  their  provider of electric
supply  services.  Residential  customers all received the opportunity to select
their electric supplier beginning May 1, 2002.

In Iowa and elsewhere,  the pace of  deregulation  has slowed  considerably as a
result  of the  energy  crisis  and  related  events  in  California  that  have
heightened  concerns  nationally  about  deregulation  of the  electric  utility
industry.

Rate Matters
------------

Under  a  settlement  agreement  approved  by the  IUB  on  December  21,  2001,
MidAmerican  Energy's Iowa retail electric rates in effect on December 31, 2000,
are effectively  frozen through December 31, 2005. In approving that settlement,
the IUB  specifically  allows the filing of electric  rate design and/or cost of
service rate changes that are intended to keep overall company revenue unchanged
but could result in changes to individual tariffs. The 2001 settlement agreement
further  provides that an amount equal to 50% of revenues  associated  with Iowa
retail  electric  returns on equity  between 12% and 14%, and 83.33% of revenues
associated with Iowa retail  electric  returns on equity above 14%, in each year
is recorded as a regulatory liability to be used to offset a portion of the cost
to Iowa customers of future generating plant investment.  An amount equal to the
regulatory  liability is recorded as a  regulatory  charge in  depreciation  and
amortization expense when the liability is accrued.  Interest expense is accrued
on the portion of the regulatory liability related to prior years.  Beginning in
2002, the liability is being reduced as it is credited  against plant in service
in  amounts  equal to the  allowance  for funds  used  during  construction,  or
capitalized financing costs,  associated with generating plant additions.  As of
June 30, 2003 and December 31, 2002, the related regulatory  liability reflected
on the  Consolidated  Balance  Sheets was  $123.2  million  and $102.9  million,
respectively.

                                      -33-
<PAGE>

On March 20, 2003,  MidAmerican  Energy and the Iowa Office of Consumer Advocate
agreed upon a proposed settlement in which the rate freeze described above would
be extended  through  December 31,  2010.  Under the  proposed  settlement,  for
calendar years 2006 through 2010, an amount equal to 40% of revenues  associated
with Iowa retail  electric  returns on equity between  11.75% and 13.0%;  50% of
revenues  associated with Iowa retail  electric  returns on equity between 13.0%
and 14.0%; and 83.3% of revenues associated with Iowa retail electric returns on
equity  greater  than 14.0% will be applied as a reduction to offset some of the
capital costs on the Iowa portion of three generation projects. In addition, the
proposed settlement provides that if Iowa retail electric returns on equity fall
below 10% in any consecutive 12-month period after January 1, 2006,  MidAmerican
Energy  may seek to file for a  general  increase  in rates.  However,  prior to
filing for a general  increase in rates,  MidAmerican  Energy is required by the
proposed  settlement to conduct 30 days of good faith  negotiations  with all of
the  signatories  to the  proposed  settlement  to  attempt  to avoid a  general
increase in rates. The proposed settlement,  which is subject to approval by the
IUB, was filed with the IUB on May 27,  2003,  as part of  MidAmerican  Energy's
application  for  ratemaking  principles on its wind power  project.  The IUB is
expected  to  rule  on  the  ratemaking  application,   including  the  proposed
settlement, in the third quarter of 2003.

Illinois law provides for Illinois  earnings above a computed level of return on
common equity to be shared equally between  regulated retail electric  customers
and MidAmerican Energy.  MidAmerican Energy's computed level of return on common
equity is based on a rolling two-year average of the Monthly Treasury  Long-Term
Average Rate, as published by the Federal Reserve System, plus a premium of 8.5%
for 2000  through  2004 and a premium of 12.5% for 2005 and 2006.  The  two-year
average  above  which  sharing  must occur for 2002 was  14.03%.  The law allows
MidAmerican  Energy to  mitigate  the sharing of  earnings  above the  threshold
return on common equity through accelerated recovery of electric assets.

TRANSLink
---------

In December  1999,  the FERC issued  Order No.  2000  establishing,  among other
things,   minimum   characteristics  and  functions  for  regional  transmission
organizations.  Public utilities that were not a member of an independent system
operator at the time of the order were required to submit either a plan by which
its  transmission  facilities  would be transferred  to a regional  transmission
organization  or an  alternate  filing  providing  a detailed  explanation  of a
utility's plans with respect to the future operation of its transmission assets.
MidAmerican Energy's filing was an alternative compliance filing indicating that
MidAmerican   Energy  expects  to   participate   in  a  regional   transmission
organization  and that  MidAmerican  Energy is actively engaged in developing an
independent   transmission  company  that  would  be  a  member  of  a  regional
transmission organization.

In September 2001,  MidAmerican  Energy and five other electric  utilities filed
with  the  FERC a plan  to  create  TRANSLink  Transmission  Company  LLC and to
integrate their electric transmission systems into a single,  coordinated system
operating as a for-profit independent transmission company in conjunction with a
FERC-approved  regional transmission  organization.  On April 25, 2002, the FERC
issued an order  approving  the  transfer of control of  MidAmerican  Energy and
other   utilities'   transmission   assets  to  TRANSLink  in  conjunction  with
TRANSLink's   participation  in  the  Midwest  Independent  Transmission  System
Operator, Inc. regional transmission organization. In December 2002, MidAmerican
Energy filed an application for state regulatory  approval with the IUB. On June
13, 2003, the IUB issued an order  disapproving the application  based primarily
on the  uncertainty  of related  issues at the  federal  level  with  respect to
requirements for the independent  operation of transmission assets on a regional
basis.  In  the  Order,  the  IUB  invites  MidAmerican  Energy  to  refile  its
application  after some of the  questions  at the  federal  level are  answered.
MidAmerican  Energy is  currently  evaluating  its options in light of the IUB's
decision. In addition,  applications by other TRANSLink participants are pending
before the state public utility  commissions.  The outcomes of these proceedings
could impact the future viability of TRANSLink.

Transferring  the operations and control of  MidAmerican  Energy's  transmission
assets to other entities could increase costs for MidAmerican  Energy;  however,
the actual impact of TRANSLink,  or alternate  strategies that might be employed
to comply with FERC requirements,  on MidAmerican  Energy's future  transmission
costs is not yet known.

                                      -34-
<PAGE>

Standard Electricity Market Design
----------------------------------

On July 31, 2002, the FERC issued a notice of proposed  rulemaking  with respect
to  "Standard  Market  Design" for the  electric  industry.  The FERC  initially
characterized  the  proposal  as  portending  "sweeping  changes" to the use and
expansion of the interstate transmission and wholesale bulk power systems in the
United States.  The proposal  includes  numerous proposed changes to the current
regulation  of  transmission  and  generation  facilities  designed  "to promote
economic  efficiency"  and to replace the  "obsolete  patchwork  we have today,"
according to the FERC's  chairman.  On April 28, 2003,  the FERC issued a "White
Paper"  describing how it intends to change the proposed  rulemaking.  The White
Paper,  which  uses the term  "Wholesale  Market  Platform"  in lieu of the term
"Standard Market Design," indicates that a final rule may focus on the formation
of regional transmission organizations and allow for regional differences.

Any final rule may  impact the costs of  MidAmerican  Energy's  electricity  and
transmission products. A final rule is unlikely to be fully implemented until at
least  2004.  MidAmerican  Energy  is still  evaluating  the  proposed  rule and
recognizes there is uncertainty as to the timing and outcome of this rulemaking.
Accordingly,  the likely  impact of the proposed  rule on  MidAmerican  Energy's
transmission and generation businesses is unknown.

ENVIRONMENTAL MATTERS

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

MidAmerican  Energy has evaluated or is  evaluating 27 properties  that were, at
one time,  sites of gas  manufacturing  plants in which it may be a  potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste materials are present,  whether the materials  constitute an environmental
or health  risk,  and  whether  MidAmerican  Energy has any  responsibility  for
remedial  action.  As of June 30,  2003,  MidAmerican  Energy has recorded a $19
million  liability  for these  sites and a  corresponding  regulatory  asset for
future  recovery  through the regulatory  process.  Refer to Note 3a of Notes to
Consolidated  Financial  Statements  in Item 1 of this  Form  10-Q  for  further
discussion  of  MidAmerican   Energy's   environmental   activities  related  to
manufactured gas plant sites and cost recovery.

Although the timing of potential  incurred  costs and recovery of 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 Energy's financial position or results of operations.

In July 1997,  the EPA adopted  revisions  to the  National  Ambient Air Quality
Standards for ozone and a new standard for fine particulate  matter. In February
2001,  the United  States  Supreme  Court  upheld the  constitutionality  of the
standards, though remanding the issue of implementation of the ozone standard to
the EPA.  The impact of the new  standards  on  MidAmerican  Energy is currently
unknown. These standards could be superceded,  in whole or in part, by a variety
of multi-pollutant emission reduction initiatives.  Refer to Note 3b of Notes to
Consolidated  Financial  Statements  in Item 1 of this  Form  10-Q  for  further
discussion of this issue.

In  2001,  the  state  of  Iowa  passed  legislation  that,  in  part,  requires
rate-regulated  utilities to develop a  multi-year  plan and budget for managing
regulated emissions from their generating facilities in a cost-effective manner.
MidAmerican  Energy's proposed plan,  including the associated budget, was filed
with the IUB on April 1, 2002, in accordance  with state law. An  administrative
law judge issued a ruling  approving  MidAmerican  Energy's plan but disallowing
the proposed  recovery of plan costs  through a tracker  mechanism.  MidAmerican
Energy appealed the disallowance of the tracker and asked the IUB to declare the
tracker  moot as it would not be used until at least 2010 if the IUB  approves a
pending settlement that will "freeze"  MidAmerican  Energy's Iowa electric rates
through 2010. The Iowa Office of Consumer  Advocate's appealed asking the IUB to
find  that  Iowa  law  allows  the IUB to  conduct  a  separate  review  of plan
investments  for  reasonableness  when the costs are  proposed for recovery in a
rate  case.  On  July  17,  2003,   the  IUB  issued  an  order   affirming  the
administrative  law

                                      -35-
<PAGE>

judge's decision.  Accordingly, the IUB has rejected the future application of a
tracker  mechanism to recover emission  reduction costs.  However,  the approved
expenditures  will not be subject to a  subsequent  prudence  review in a future
electric rate case.  MidAmerican  Energy is required to file updates to the plan
at least every two years.

The  plan  provides  MidAmerican  Energy's  projected  air  emission  reductions
considering  the current  proposals  that are being debated at the federal level
and  describes  a  coordinated  long-range  plan to achieve  these air  emission
reductions.  The  plan  also  provides  specific  actions  to be  taken  at each
coal-fired generating facility and the related costs and timing for each action.

MidAmerican  Energy's plan outlines $732.0 million in environmental  investments
to existing coal-fired generating units, some of which are jointly owned, over a
nine-year  period from 2002 through 2010.  MidAmerican  Energy's  share of these
investments  is $546.6  million,  $67.9  million  of which was  projected  to be
incurred in the years 2002 through 2005, when  MidAmerican  Energy's Iowa retail
electric rates are effectively  frozen.  The plan also identifies  expenses that
are expected to be incurred at the generating facilities to operate and maintain
the environmental equipment.

Under the New Source  Review  ("NSR")  provisions of the Clean Air Act ("CAA") a
utility  is  required  to obtain a permit  from the EPA  prior to (1)  beginning
construction of a new major stationary  source of an NSR-regulated  pollutant or
(2) making a  physical  or  operational  change (a "major  modification")  to an
existing facility that potentially  increases emissions,  unless the changes are
exempt under the  regulations.  In general,  projects subject to NSR regulations
are subject to  pre-construction  review and permitting  under the Prevention of
Significant  Deterioration ("PSD") provisions of the CAA. Under the PSD program,
a project that emits  threshold  levels of regulated  pollutants  must undergo a
Best  Available  Control  Technology  analysis and  evaluate the most  effective
emissions  controls.  These  controls  must be  installed  in order to receive a
permit.  Routine maintenance,  repair and replacement are not subject to the NSR
provisions; however, these types of activities have historically been subject to
changing interpretations under the NSR program. The EPA has proposed a change to
the NSR  provisions  relating to routine  maintenance,  repair and  replacement.
Violation  of NSR  regulations  potentially  subjects a utility to fines  and/or
other  sanctions.  The impact on  MidAmerican  Energy of any final  rules is not
currently known.

In recent years, the EPA has requested, from several utilities,  information and
support  regarding their capital  projects for various  generating  plants.  The
requests  were  issued  as  part of an  industry-wide  investigation  to  assess
compliance with the NSR and the New Source Performance  Standards of the CAA. In
December  2002,  MidAmerican  Energy  received a request from the EPA to provide
documentation  related to its  capital  projects  from  January 1, 1980,  to the
present for a number of its generating  plants. A second request was received in
April 2003. MidAmerican Energy will continue to respond to requests from the EPA
and at this time cannot predict the outcome of these requests.

GENERATING CAPABILITY

In July 2002,  retail  customer usage of electricity  caused a new record hourly
peak  demand  of  3,889   megawatts  on  MidAmerican   Energy's  energy  system.
MidAmerican Energy is interconnected with Iowa and neighboring  utilities and is
involved in an electric  power pooling  agreement  known as  Mid-Continent  Area
Power Pool ("MAPP"). Each MAPP participant is required to maintain for emergency
purposes a net  generating  capability  reserve of at least 15% above its system
peak  demand.  For the 2002 cooling  season,  MidAmerican  Energy's  reserve was
approximately 21% above its system peak demand.

MidAmerican  Energy believes it has adequate  electric  capacity reserve through
2003 and  continues  to manage its  generating  resources  to ensure an adequate
reserve in the future.  MidAmerican  Energy is in the process of  constructing a
natural gas-fired  combined cycle unit to be completed in two phases.  The first
phase,  totaling 327 MW, began commercial operation on May 5, 2003.  MidAmerican
Energy expects the second phase to begin  commercial  operation in December 2004
and to provide  approximately 190 MW of additional accredited capacity. Up to an
additional 475 MW of owned  coal-fired  generation is expected to be operational
by the summer of 2007.

                                      -36-
<PAGE>

MidAmerican Energy has also announced a plan to construct wind power facilities,
subject  to  approval  by the  IUB.  However,  significantly  higher-than-normal
temperatures during the cooling season could cause MidAmerican  Energy's reserve
to fall below the 15%  minimum.  If  MidAmerican  Energy  fails to maintain  the
appropriate  reserve,  significant  penalties could be contractually  imposed by
MAPP.

MidAmerican Energy is financially exposed to movements in energy prices since it
no longer recovers fluctuations in its energy costs through an energy adjustment
clause  in  Iowa.  Although   MidAmerican  Energy  believes  it  has  sufficient
generation under typical  operating  conditions for its retail electric needs, a
loss of adequate  generation  by  MidAmerican  Energy  requiring the purchase of
replacement  power at a time of high market  prices  could  subject  MidAmerican
Energy to losses on its energy sales.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Reference  is  made to  MidAmerican  Energy's  and  MidAmerican  Funding's  most
recently filed Annual Report on Form 10-K,  and in particular,  Notes (1)(i) and
(8) in Notes to Consolidated  Financial Statements in Item 15 of that report. As
of June 30,  2003,  there have been no  material  changes  in the  market  risks
described therein.

ITEM 4. CONTROLS AND PROCEDURES.

With the supervision and participation of MidAmerican  Funding's and MidAmerican
Energy's  management,  including their  respective  chief executive  officer and
chief  financial  officer,  each company  performed an evaluation  regarding the
effectiveness  of the  design  and  operation  of its  disclosure  controls  and
procedures  (as defined in Rule 13a-15(e)  promulgated  under the Securities and
Exchange Act of 1934, as amended) as of June 30, 2003. Based on that evaluation,
MidAmerican  Funding's and  MidAmerican  Energy's  management,  including  their
respective chief executive officer and chief financial  officer,  concluded that
their respective  disclosure controls and procedures were effective.  There have
been no  significant  changes in MidAmerican  Funding's or MidAmerican  Energy's
internal controls or in other factors that could  significantly  affect internal
controls.

                                      -37-

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

MidAmerican  Funding  and its  subsidiaries  currently  have no  material  legal
proceedings.

Information on  MidAmerican  Energy's  environmental  matters is included in the
"Environmental  Matters" section of Management's Discussion and Analysis in Item
2 of this Form 10-Q.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 5.  OTHER INFORMATION.

Not applicable.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(A)  EXHIBITS

Reference is made to the accompanying Exhibit Index for a list of exhibits filed
as a part of this Quarterly Report.

(B)  REPORTS ON FORM 8-K

None.

                                      -38-
<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 FUNDING, LLC
                                  MIDAMERICAN ENERGY COMPANY
                                  --------------------------
                                       (Registrants)







Date:  August 6, 2003             /s/  Patrick J. Goodman
       --------------        --------------------------------------------
                                        Patrick J. Goodman
                                     Vice President and Treasurer
                                     of MidAmerican Funding, LLC
                             (principal financial and accounting officer)



                                   /s/  Thomas B. Specketer
                             --------------------------------------------
                                        Thomas B. Specketer
                                  Vice President and Controller
                                  of MidAmerican Energy Company
                             (principal financial and accounting officer)

                                      -39-
<PAGE>

                                  EXHIBIT INDEX

EXHIBIT NO.
-----------

MidAmerican Energy
------------------

15    Awareness Letter of Independent Accountants

31.1  Section 302 Certification for Form 10-Q (co-chief executive officer)

31.2  Section 302 Certification for Form 10-Q (co-chief executive officer)

31.3  Section 302 Certification for Form 10-Q (chief financial officer)

32.1  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
      (co-chief executive officer)

32.2  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
      (co-chief executive officer)

32.3  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
      (chief financial officer)

MidAmerican Funding
-------------------

31.4  Section 302 Certification for Form 10-Q (chief executive officer)

31.5  Section 302 Certification for Form 10-Q (chief financial officer)

32.4  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
      (chief executive officer)

32.5  Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
      (chief financial officer)

                                      -40-