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

                                    FORM 10-Q

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

For the quarterly period ended    March 31, 1997
                               --------------------------------------------

                                       or

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

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

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

1-12459              MIDAMERICAN ENERGY HOLDINGS COMPANY         42-1451822
                             (AN IOWA CORPORATION)
                           666 GRAND AVE. PO BOX 657
                             DES MOINES, IOWA 50303
                                  515-242-4300

1-11505                   MIDAMERICAN ENERGY COMPANY             42-1425214
                             (AN IOWA CORPORATION)
                           666 GRAND AVE. PO BOX 657
                            DES MOINES, IOWA 50303
                                 515-242-4300

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X * No

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

     Registrant           Class           Shares Outstanding at April 30, 1997
---------------------  -----------------  ------------------------------------
MidAmerican Energy     Common Stock       99,056,513
  Holdings Company     without par value

MidAmerican Energy     Common Stock      100,751,713 (all of which were held by
  Company              without par value  MidAmerican Energy Holdings Company)

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


<PAGE>


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



                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                                       AND
                           MIDAMERICAN ENERGY COMPANY

                                      INDEX

                          PART I. FINANCIAL INFORMATION               PAGE NO.

ITEM 1.  Financial Statements

                       MidAmerican Energy Holdings Company

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

                           MidAmerican Energy Company

         Consolidated Statements of Income......................           9
         Consolidated Balance Sheets............................          10
         Consolidated Statements of Cash Flows..................          11
         Notes to Consolidated Financial Statements.............          12

ITEM 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations........          13

                           PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings......................................          29

ITEM 6.  Exhibits and Reports on Form 8-K.......................          30

Signatures......................................................          31

<PAGE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                             THREE MONTHS            TWELVE MONTHS
                                                            ENDED MARCH 31           ENDED MARCH 31
                                                        ---------------------     ------------------------
                                                          1997         1996          1997          1996
                                                        ---------    ---------    ----------    ----------
<S>                                                     <C>          <C>          <C>           <C>
OPERATING REVENUES
Electric utility ....................................   $ 254,316    $ 262,274    $1,091,050    $1,110,690
Gas utility .........................................     211,565      195,986       552,332       483,222
Nonregulated ........................................     118,514       49,336       306,029       115,040
                                                        ---------    ---------    ----------    ----------
                                                          584,395      507,596     1,949,411     1,708,952
                                                        ---------    ---------    ----------    ----------

OPERATING EXPENSES
Utility:
   Cost of fuel, energy and capacity ................      59,283       61,375       232,225       237,586
   Cost of gas sold .................................     141,833      122,736       364,111       293,190
   Other operating expenses .........................      93,607       87,601       356,180       397,440
   Maintenance ......................................      23,749       18,736        93,634        82,808
   Depreciation and amortization ....................      42,008       40,944       165,656       160,975
   Property and other taxes .........................      25,490       25,177        92,943        94,544
                                                        ---------    ---------    ----------    ----------
                                                          385,970      356,569     1,304,749     1,266,543
                                                        ---------    ---------    ----------    ----------
Nonregulated:
   Cost of sales ....................................     113,206       42,747       288,715        90,713
   Other ............................................       7,986        8,139        35,217        36,270
                                                        ---------    ---------    ----------    ----------
                                                          121,192       50,886       323,932       126,983
                                                        ---------    ---------    ----------    ----------
   Total operating expenses .........................     507,162      407,455     1,628,681     1,393,526
                                                        ---------    ---------    ----------    ----------

OPERATING INCOME ....................................      77,233      100,141       320,730       315,426
                                                        ---------    ---------    ----------    ----------

NON-OPERATING INCOME
Interest income .....................................       1,553        1,505         4,060         4,930
Dividend income .....................................       3,548        4,506        16,027        17,722
Realized gains and losses on securities, net ........         518        2,725          (312)        2,988
Other, net ..........................................       3,985        1,672        (1,707)      (10,436)
                                                        ---------    ---------    ----------    ----------
                                                            9,604       10,408        18,068        15,204
                                                        ---------    ---------    ----------    ----------
INTEREST CHARGES
Interest on long-term debt ..........................      23,463       26,105       100,267       105,143
Other interest expense ..............................       1,329        3,036         9,234        11,125
Preferred dividends of subsidiaries .................       4,769        2,477        12,981         8,255
Allowance for borrowed funds ........................        (709)      (1,436)       (3,485)       (5,761)
                                                        ---------    ---------    ----------    ----------
                                                           28,852       30,182       118,997       118,762
                                                        ---------    ---------    ----------    ----------
INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES ..............................      57,985       80,367       219,801       211,868
INCOME TAXES ........................................      23,811       31,962        90,271        78,705
                                                        ---------    ---------    ----------    ----------
INCOME FROM CONTINUING OPERATIONS ...................      34,174       48,405       129,530       133,163

DISCONTINUED OPERATIONS
Income from operations (net of income taxes) ........         290        2,642          (235)        5,352
Loss on disposal (net of income taxes) ..............        (524)        --         (15,356)         --
                                                        ---------    ---------    ----------    ----------
                                                             (234)       2,642       (15,591)        5,352
                                                        ---------    ---------    ----------    ----------

NET INCOME ..........................................   $  33,940    $  51,047    $  113,939    $  138,515
                                                        =========    =========    ==========    ==========

AVERAGE COMMON SHARES OUTSTANDING ...................     100,458      100,752       100,661       100,636

EARNINGS PER COMMON SHARE
Continuing operations ...............................   $    0.34    $    0.48    $     1.29    $     1.33
Discontinued operations .............................        --           0.03         (0.16)         0.05
                                                        ---------    ---------    ----------    ----------
Earnings per average common share ...................   $    0.34    $    0.51    $     1.13    $     1.38
                                                        =========    =========    ==========    ==========

DIVIDENDS DECLARED PER SHARE ........................   $    0.30    $    0.30    $     1.20    $     1.19
                                                        =========    ==========   ==========    ==========
</TABLE>

The accompanying notes are an integral part of these statements

                                       -3-
<PAGE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                   AS OF
                                                                   -------------------------------------
                                                                           MARCH 31          DECEMBER 31
                                                                   -----------------------   -----------
                                                                      1997         1996         1996
                                                                   ----------   ----------   ----------
                                                                         (UNAUDITED)
<S>                                                                <C>          <C>          <C>   
ASSETS
UTILITY PLANT
Electric .......................................................   $4,033,782   $3,952,937   $4,010,847
Gas ............................................................      726,906      682,725      723,491
                                                                   ----------   ----------   ----------
                                                                    4,760,688    4,635,662    4,734,338
Less accumulated depreciation and amortization .................    2,188,624    2,071,189    2,153,058
                                                                   ----------   ----------   ----------
                                                                    2,572,064    2,564,473    2,581,280
Construction work in progress ..................................       39,104       69,729       49,305
                                                                   ----------   ----------   ----------
                                                                    2,611,168    2,634,202    2,630,585
                                                                   ----------   ----------   ----------

POWER PURCHASE CONTRACT ........................................      190,326      210,651      190,897
                                                                   ----------   ----------   ----------

INVESTMENT IN DISCONTINUED OPERATIONS ..........................       12,032      171,551      196,356
                                                                   ----------   ----------   ----------

CURRENT ASSETS
Cash and cash equivalents ......................................       93,005       23,862       97,749
Receivables ....................................................      235,413      206,750      312,930
Inventories ....................................................       59,704       60,671       90,864
Other ..........................................................       14,932        8,824       11,696
                                                                   ----------   ----------   ----------
                                                                      403,054      300,107      513,239
                                                                   ----------   ----------   ----------

INVESTMENTS ....................................................      608,147      653,552      628,791
                                                                   ----------   ----------   ----------

OTHER ASSETS ...................................................      395,862      407,370      399,415
                                                                   ----------   ----------   ----------

TOTAL ASSETS ...................................................   $4,220,589   $4,377,433   $4,559,283
                                                                   ==========   ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity ....................................   $1,225,953   $1,244,250   $1,239,946
MidAmerican preferred securities, not subject to
  mandatory redemption .........................................       31,766       81,461       31,769
Preferred securities, subject to mandatory redemption:
  MidAmerican preferred securities .............................       50,000       50,000       50,000
  MidAmerican-obligated preferred securities of
     subsidiary trust holding solely MidAmerican
     junior subordinated debentures ............................      100,000         --        100,000
Long-term debt (excluding current portion) .....................    1,117,234    1,381,240    1,395,103
                                                                   ----------   ----------   ----------
                                                                    2,524,953    2,756,951    2,816,818
                                                                   ----------   ----------   ----------

CURRENT LIABILITIES
Notes payable ..................................................       40,209       99,800      161,990
Current portion of long-term debt ..............................      154,784       64,859       79,598
Current portion of power purchase contract .....................       13,718       13,029       13,718
Accounts payable ...............................................      148,331      155,207      169,806
Taxes accrued ..................................................      123,650       90,191       82,254
Interest accrued ...............................................       23,578       24,658       28,513
Other ..........................................................       53,911       21,030       30,229
                                                                   ----------   ----------   ----------
                                                                      558,181      468,774      566,108
                                                                   ----------   ----------   ----------
OTHER LIABILITIES
Power purchase contract ........................................       97,504      112,700       97,504
Deferred income taxes ..........................................      715,732      723,870      752,336
Investment tax credit ..........................................       87,414       93,591       88,842
Other ..........................................................      236,805      221,547      237,675
                                                                   ----------   ----------   ----------
                                                                    1,137,455    1,151,708    1,176,357
                                                                   ----------   ----------   ----------
TOTAL CAPITALIZATION AND LIABILITIES ...........................   $4,220,589   $4,377,433   $4,559,283
                                                                   ==========   ==========   ==========
</TABLE>
The accompanying notes are an integral part of these statements 

                                      -4-
<PAGE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED MARCH 31
                                                                          ---------------------------
                                                                             1997              1996
                                                                          ---------         ---------
<S>                                                                       <C>               <C>         
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income......................................................          $  33,940         $ 51,047
Adjustments to reconcile net income to net cash provided:
    Depreciation and amortization...............................             48,409           44,965
    Net increase (decrease) in deferred income taxes and
       investment tax credit, net...............................            (34,859)          (1,235)
    Amortization of other assets................................              6,878            6,034
    Capitalized cost of real estate sold........................                290              267
    Loss (income) from discontinued operations..................                234           (2,642)
    Gain on sale of securities, assets and other investments....             (1,465)          (3,070)
    Other-than-temporary decline in value of investments........                160            2,230
    Impact of changes in working capital, net of effects
       from discontinued operations.............................            144,109           65,776
    Other.......................................................             (4,335)           2,808
                                                                          ---------         --------
       Net cash provided........................................            193,361          166,180
                                                                          ---------         --------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures...............................            (26,603)         (28,518)
Quad Cities Nuclear Power Station decommissioning trust fund....             (2,140)          (2,159)
Deferred energy efficiency expenditures.........................             (3,723)          (1,951)
Nonregulated capital expenditures...............................             (2,625)          (1,292)
Purchase of securities..........................................            (63,343)         (82,196)
Proceeds from sale of securities................................             78,652           81,681
Proceeds from sale of assets and other investments..............             13,144              183
Investment in discontinued operations...........................            182,749            6,192
Other investing activities, net.................................              1,600             (563)
                                                                          ---------         --------
    Net cash provided (used)....................................            177,711          (28,623)
                                                                          ---------         --------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid...........................................            (30,179)         (30,222)
Retirement of long-term debt, including reacquisition cost......            (29,025)            (638)
Reacquisition of preferred shares...............................                 (3)          (8,750)
Reacquisition of common shares..................................            (20,329)               -
Decrease in MidAmerican Capital Company
    unsecured revolving credit facility.........................           (174,500)         (22,000)
Net decrease in notes payable...................................           (121,780)         (85,000)
                                                                          ---------        ---------
    Net cash used...............................................           (375,816)        (146,610)
                                                                          ---------         --------

NET DECREASE IN CASH AND CASH EQUIVALENTS.......................             (4,744)          (9,053)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................             97,749           32,915
                                                                          ---------         --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................          $  93,005         $ 23,862
                                                                          =========         ========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized.......................          $  30,270         $ 35,571
                                                                          =========         ========
Income taxes paid...............................................          $      63         $  3,090
                                                                          =========         ========
</TABLE>

The accompanying notes are an integral part of these statements.

                                       -5-
<PAGE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A)  GENERAL:

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

B)  ENVIRONMENTAL MATTERS:

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

     MidAmerican is evaluating 27 properties  which were, at one time,  sites of
gas  manufacturing  plants in which it may be a  potentially  responsible  party
(PRP). The purpose of these  evaluations is to determine whether waste materials
are present,  whether such materials constitute an environmental or health risk,
and whether MidAmerican has any responsibility for remedial action.  MidAmerican
is currently  conducting  field  investigations  at fifteen of the sites and has
completed  investigations  at three of the sites.  In addition,  MidAmerican  is
currently  removing  contaminated  soil at four of the sites,  and has completed
removals at three of the sites. MidAmerican is continuing to evaluate several of
the sites to  determine  the  future  liability,  if any,  for  conducting  site
investigations or other site activity.

     MidAmerican's   estimate  of  probable  remediation  costs  for  the  sites
discussed  above as of March 31, 1997,  is $23 million.  This  estimate has been
recorded as a liability and a regulatory asset for future recovery. The Illinois
Commerce  Commission  (ICC) has approved the use of a tariff rider which permits
recovery  of the  actual  costs of  litigation,  investigation  and  remediation
relating to former MGP sites.  MidAmerican's present rates in Iowa provide for a
fixed annual  recovery of MGP costs.  MidAmerican  intends to pursue recovery of
the remediation costs from other PRPs and its insurance carriers.

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

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

C)  RATE MATTERS:

     On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois.  The proposal would provide  MidAmerican more flexibility to negotiate
with customers who have service options and to mitigate  strandable  costs.  The
proposal would also reduce  regulatory lag in  implementing  new tariff services
and prices. As part of the proposal, MidAmerican would reduce electric revenues,
on a graduated  basis, by  approximately  $25 million annually within five years
and eliminate automatic fuel adjustment clauses. The price reductions,  possible
due to merger and  restructuring  related cost savings,  reduce price  disparity
within

                                       -6-

<PAGE>
customer  classes and would move  MidAmerican  closer to prices that it believes
can be sustained in a competitive  market.  The proposal was later  withdrawn in
Illinois,  and  a  settlement  was  negotiated  in  a  related  proceeding.  The
settlement  resulted in annual  reductions  of $13.1  million and $2.4  million,
effective November 3, 1996, and June 1, 1997, respectively.

     On August 1, 1996, the Iowa Office of Consumer Advocate (OCA) requested the
Iowa  Utilities  Board (IUB) to order  MidAmerican  to reduce its Iowa  electric
rates by 10.7%, or approximately $101 million annually, in electric revenues. On
September  6,  1996,   the  IUB  docketed  the  OCA  request  and  initiated  an
investigation   into   MidAmerican's   rates.  The  IUB  also  consolidated  the
investigation with MidAmerican's alternative regulation and pricing proposal for
purposes  of the  hearings  which  were  scheduled  to  begin in  January  1997.
Effective November 1, 1996,  MidAmerican reduced its electric rates in Iowa $8.7
million annually to the levels in its pricing proposal filed on June 4, 1996.

     In January 1997, a settlement  agreement between  MidAmerican,  the OCA and
other parties to the proceeding was negotiated.  The agreement, which includes a
number of  characteristics  of  MidAmerican's  pricing  proposal,  is subject to
approval by the IUB. A hearing on the settlement was held on April 23, 1997, and
a decision  is expected in the second  quarter of 1997.  Prices for  residential
customers would be reduced $23.5 million annually by June 1, 1998, including the
November 1, 1996, reduction. Rates for commercial and industrial customers would
be  reduced a total of $10  million  annually  by June 1,  1998,  through  pilot
projects, negotiated rates with individual customers and, if needed, a base rate
reduction effective June 1, 1998. The agreement includes a tracking mechanism to
currently  recover  the cost of capital  improvements  from the  Cooper  Nuclear
Station  Power   Purchase   Contract.   The  tracking   mechanism   will  offset
approximately $10 million of these reductions.

     In addition,  the agreement accepts MidAmerican's proposal to eliminate the
energy  adjustment  clause (EAC) which currently is the mechanism  through which
fuel costs are collected from Iowa customers.  The EAC flows the cost of fuel to
customers on a current  basis,  and thus,  fuel costs have little  impact on net
income. Prospectively,  base rates for Iowa customers would include a factor for
recovery  of a  representative  level of fuel costs.  To the extent  actual fuel
costs vary from that factor,  pre-tax earnings would be impacted.  The fuel cost
factor would be reviewed in February 1999 and adjusted  prospectively  if actual
fuel costs vary 15% above or below the factor included in base rates.

     Under the  agreement,  if  MidAmerican's  annual  return  on common  equity
exceeds 12%, then a sharing between customers and shareholders begins, and if it
exceeds 14%, then a portion of MidAmerican's share would be used for accelerated
recovery of certain regulatory assets. The agreement permits MidAmerican to file
for  increased  rates if the return  falls below 9%. Other  parties  signing the
agreement are prohibited  from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.

     The agreement also provides that  MidAmerican  will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers.  The pilot program is limited to 60 MW of participation
the first year and can be expanded by 15 MW  annually,  with the approval of the
IUB, until the conclusion of the program.  Any loss of revenues  associated with
the pilot program would be considered  part of the $10 million annual  reduction
for  commercial  and  industrial  customers but may not be recovered  from other
non-participating  customers.  The program is expected to be offered in the fall
of 1997.

     As of March 31, 1997, MidAmerican had a $4.3 million liability recorded for
its Iowa electric revenues, plus interest, that were affected by the settlement.
In April  1997,  MidAmerican  refunded  approximately  $2.4  million,  including
interest,  for revenues  between August 1, 1996, and October 31, 1996, that were
in excess of those included in the pricing proposal.

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

     Statement  of  Financial  Accounting  Standards  (SFAS)  No. 71 sets  forth
accounting  principles  for  operations  that are  regulated  and  meet  certain
criteria.  For operations  that meet the criteria,  SFAS 71 allows,  among other
things, the deferral of costs that would otherwise be expensed when incurred.  A
possible

                                       -7-

<PAGE>
consequence of the changes in the utility industry is that SFAS 71 may no longer
apply.  MidAmerican's  electric and gas utility operations are currently subject
to the provisions of SFAS 71, but its applicability is periodically  reexamined.
If a portion of MidAmerican's utility operations no longer meets the criteria of
SFAS 71,  MidAmerican  would be required to eliminate from its balance sheet the
regulatory assets and liabilities related to those operations that resulted from
actions of its  regulators.  Although  the amount of such an  elimination  would
depend on the specific  circumstances,  a material adjustment to earnings in the
appropriate  period  could  result from  discontinuing  SFAS 71. As of March 31,
1997,  MidAmerican had  approximately  $371 million of regulatory  assets in its
Consolidated  Balance  Sheet because these costs are expected to be recovered in
charges to utility customers.

E)  MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:

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

F)  COMMON SHAREHOLDERS' EQUITY:

     In March 1997, Holdings announced its plan to repurchase up to $200 million
of the  Company's  common  stock.  The Company plans to purchase the shares from
time to time as market  conditions  warrant,  with the intent of completing  the
entire  repurchase  program by December  31,  1998.  As of March 31,  1997,  the
Company had repurchased 1.2 million shares for $20.3 million.


                                       -8-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                             THREE MONTHS             TWELVE MONTHS
                                                            ENDED MARCH 31            ENDED MARCH 31
                                                        ----------------------    ------------------------
                                                           1997         1996         1997          1996
                                                        ---------    ---------    ----------    ----------
<S>                                                     <C>          <C>          <C>           <C>
OPERATING REVENUES
Electric utility ....................................   $ 254,316    $ 262,274    $1,091,050    $1,110,690
Gas utility .........................................     211,565      195,986       552,332       483,222
                                                        ---------    ---------    ----------    ----------
                                                          465,881      458,260     1,643,382     1,593,912
                                                        ---------    ---------    ----------    ----------


OPERATING EXPENSES
Cost of fuel, energy and capacity ...................      59,283       61,375       232,225       237,586
Cost of gas sold ....................................     141,833      122,736       364,111       293,190
Other operating expenses ............................      93,607       87,601       356,180       397,440
Maintenance .........................................      23,749       18,736        93,634        82,808
Depreciation and amortization .......................      42,008       40,944       165,656       160,975
Property and other taxes ............................      25,490       25,177        92,943        94,544
Income taxes ........................................      23,504       32,330       102,380        95,333
                                                        ---------    ----------    ----------   ----------
                                                          409,474      388,899     1,407,129     1,361,876
                                                        ---------    ---------    ----------    ----------

OPERATING INCOME ....................................      56,407       69,361       236,253       232,036
                                                        ---------    ---------    ----------    ----------

NON-OPERATING INCOME
Interest and dividend income ........................         906          512         1,992         1,432
Non-operating income taxes ..........................        (919)         207        (2,847)        1,446
Other, net ..........................................       1,331         (948)        4,679        (5,947)
                                                        ---------    ----------   ----------    ----------
                                                            1,318         (229)        3,824        (3,069)
                                                        ---------    ----------   ----------    ----------

INTEREST CHARGES
Interest on long-term debt ..........................      19,886       19,826        79,494        79,937
Other interest expense ..............................       1,329        3,323         8,848        11,415
Preferred dividends of subsidiary trust .............       1,995         --           2,283          --
Allowance for borrowed funds ........................        (709)      (1,436)       (3,485)       (5,761)
                                                        ---------    ---------    ----------    ----------
                                                           22,501       21,713        87,140        85,591
                                                        ---------    ----------   ----------    ----------

INCOME FROM CONTINUING OPERATIONS ...................      35,224       47,419       152,937       143,376

INCOME (LOSS) FROM DISCONTINUED OPERATIONS ..........        --          6,105       (16,266)        3,394
                                                        ---------    ---------    ----------    ----------
NET INCOME ..........................................      35,224       53,524       136,671       146,770
PREFERRED DIVIDENDS .................................       2,774        2,477        10,698         8,255
                                                        ---------    ---------    ----------    ----------

EARNINGS ON COMMON STOCK ............................   $  32,450    $  51,047    $  125,973    $  138,515
                                                        =========    =========    ==========    ==========
</TABLE>
The accompanying notes are an integral part of these statements.
 
                                       -9-
<PAGE>
                          MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                       AS OF
                                                                   -------------------------------------
                                                                           MARCH 31          DECEMBER 31
                                                                   -----------------------   -----------
                                                                      1997         1996         1996
                                                                   ----------   ----------   ----------
                                                                          (UNAUDITED)
<S>                                                                <C>          <C>          <C>
ASSETS
UTILITY PLANT
Electric .......................................................   $4,036,785   $3,955,941   $4,013,851
Gas ............................................................      726,906      682,725      723,491
                                                                   ----------   ----------   ----------
                                                                    4,763,691    4,638,666    4,737,342
Less accumulated depreciation and amortization .................    2,190,212    2,072,255    2,154,505
                                                                   ----------   ----------   ----------
                                                                    2,573,479    2,566,411    2,582,837
Construction work in progress ..................................       39,104       69,729       49,305
                                                                   ----------   ----------   ----------
                                                                    2,612,583    2,636,140    2,632,142
                                                                   ----------   ----------   ----------

POWER PURCHASE CONTRACT ........................................      190,326      210,651      190,897
                                                                   ----------   ----------   ----------

INVESTMENT IN DISCONTINUED OPERATIONS ..........................         --        289,272         --
                                                                   ----------   ----------   ----------

CURRENT ASSETS
Cash and cash equivalents ......................................       22,920       10,831       84,215
Receivables ....................................................      194,823      179,523      253,944
Inventories ....................................................       59,704       60,671       90,864
Other ..........................................................        5,018        3,346        7,776
                                                                   ----------   ----------   ----------
                                                                      282,465      254,371      436,799
                                                                   ----------   ----------   ----------

INVESTMENTS ....................................................       94,513      106,140      118,344
                                                                   ----------   ----------   ----------


OTHER ASSETS ...................................................      380,528      404,908      396,471
                                                                   ----------   ----------   ----------

TOTAL ASSETS ...................................................   $3,560,415   $3,901,482   $3,774,653
                                                                   ==========   ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ....................................   $  987,880   $1,244,250   $  986,825
MidAmerican preferred securities, not subject to
  mandatory redemption .........................................       31,766       81,461       31,769
Preferred securities, subject to mandatory redemption:
  MidAmerican preferred securities .............................       50,000       50,000       50,000
  MidAmerican-obligated preferred securities of
     subsidiary trust holding solely MidAmerican
     junior subordinated debentures ............................      100,000         --        100,000
Long-term debt (excluding current portion) .....................      982,623    1,109,563    1,086,955
                                                                   ----------   ----------   ----------
                                                                    2,152,269    2,485,274    2,255,549
                                                                   ----------   ----------   ----------
CURRENT LIABILITIES
Notes payable ..................................................       40,025       99,800      161,700
Current portion of long-term debt ..............................      125,068          917       49,560
Current portion of power purchase contract .....................       13,718       13,029       13,718
Accounts payable ...............................................      121,125      139,354      122,974
Taxes accrued ..................................................       86,570       89,654       82,338
Interest accrued ...............................................       17,611       18,519       24,245
Other ..........................................................       23,318       15,868       24,452
                                                                   ----------   ----------   ----------
                                                                      427,435      377,141      478,987
                                                                   ----------   ----------   ----------
OTHER LIABILITIES
Power purchase contract ........................................       97,504      112,700       97,504
Deferred income taxes ..........................................      616,207      618,761      616,567
Investment tax credit ..........................................       87,414       93,591       88,842
Other ..........................................................      179,586      214,015      237,204
                                                                   ----------   ----------   ----------
                                                                      980,711    1,039,067    1,040,117
                                                                   ----------   ----------   ----------
TOTAL CAPITALIZATION AND LIABILITIES ...........................   $3,560,415   $3,901,482   $3,774,653
                                                                   ==========   ==========   ==========
</TABLE>
The accompanying notes are an integral part of these statements 
                                      -10-

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

                                                                THREE MONTHS ENDED MARCH 31
                                                                ---------------------------
                                                                      1997         1996
                                                                   ---------    ---------
<S>                                                                <C>          <C>    
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .....................................................   $  35,224    $  53,524
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ................................      47,644       46,637
  Net decrease in deferred income taxes and
    investment tax credit, net .................................      (1,789)        (496)
  Amortization of other assets .................................       6,620        5,258
  Income from discontinued operations ..........................        --         (6,105)
  Other-than-temporary decline in value of investments .........        --          2,230
  Impact of changes in working capital, net of effects from
    discontinued operations ....................................      87,654       60,059
  Other ........................................................     (17,468)      (9,576)
                                                                   ---------    ---------
    Net cash provided ..........................................     157,885      151,531
                                                                   ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ..............................     (26,603)     (28,518)
Quad Cities Nuclear Power Station decommissioning trust fund ...      (2,140)      (2,159)
Deferred energy efficiency expenditures ........................      (3,723)      (1,951)
Nonregulated capital expenditures ..............................      (1,704)        (325)
Investment in discontinued operations ..........................        --          9,818
Other investing activities, net ................................          98          349
                                                                   ---------    ---------
  Net cash used ................................................     (34,072)     (22,786)
                                                                   ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid .................................................     (34,274)     (32,699)
Retirement of long-term debt, including reacquisition cost .....     (29,156)        (166)
Reacquisition of preferred shares ..............................          (3)      (8,750)
Net decrease in notes payable ..................................    (121,675)     (85,000)
                                                                   ---------    ---------
  Net cash used ................................................    (185,108)    (126,615)
                                                                   ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........     (61,295)       2,130
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...............      84,215        8,701
                                                                   ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .....................   $  22,920    $  10,831
                                                                   =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ......................   $  30,448    $  28,050
                                                                   =========    =========
Income taxes paid ..............................................   $  13,218    $   4,412
                                                                   =========    =========

</TABLE>
The accompanying notes are an integral part of these statements  
 
                                      -11-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A)  GENERAL:

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

B)  ENVIRONMENTAL MATTERS:

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

C)  RATE MATTERS:

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

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

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

E)  MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:

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


                                      -12-

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


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

COMPANY STRUCTURE

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

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

     MidAmerican  is a public  utility with electric and natural gas  operations
and is the  principal  subsidiary of Holdings.  MidAmerican  Capital and Midwest
Capital are Holdings' nonregulated subsidiaries.  Midwest Capital functions as a
regional  business   development   company  in  MidAmerican's   utility  service
territory.  During the second  quarter of 1996,  the  Company  restructured  the
former   InterCoast   Energy  Company  and  changed  the  subsidiary's  name  to
MidAmerican  Capital  Company.  MidAmerican  Capital  manages  the rail  service
businesses,   the  marketable  securities  and  passive  investment  activities,
nonregulated   retail  natural  gas   businesses   and  other  energy   related,
nonregulated activities. The Company completed the sale of MidAmerican Capital's
oil and gas exploration and development operations in January 1997.

DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS

     The MidAmerican merger is accounted for as a pooling-of-interests,  and the
consolidated  financial statements are presented as if the merger occurred as of
the beginning of the earliest period  presented.  In addition,  the consolidated
financial  statements of  MidAmerican  present  amounts  related to  MidAmerican
Capital and Midwest  Capital as  discontinued  operations  for all periods  that
include months prior to December 1, 1996, in order to reflect their transfer to
Holdings in December 1996.

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


FORWARD-LOOKING STATEMENTS

     From time to time, the Company or one of its subsidiaries  individually may
make  forward-looking  statements  within the meaning of the federal  securities
laws that involve  judgments,  assumptions  and other  uncertainties  beyond the
control  of  the  Company  or  any  of  its  subsidiaries  individually.   These
forward-looking  statements  may include,  among others,  statements  concerning
revenue  and  cost  trends,  cost  recovery,   cost  reduction   strategies  and
anticipated  outcomes,  pricing  strategies,  changes in the  utility  industry,
planned capital

                                      -13-

<PAGE>
expenditures,  financing  needs and  availability,  statements  of the Company's
expectations, beliefs, future plans and strategies, anticipated events or trends
and similar comments concerning matters that are not historical facts. Investors
and  other  users of the  forward-looking  statements  are  cautioned  that such
statements  are not a guarantee  of future  performance  of the Company and that
such  forward-looking  statements  are subject to risks and  uncertainties  that
could cause actual  results to differ  materially  from those  expressed  in, or
implied by, such statements.  Some, but not all, of the risks and  uncertainties
include weather effects on sales and revenues, fuel prices, competitive factors,
general economic conditions in the Company's service territory, interest rates,
inflation and federal and state regulatory actions.


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

Holdings:
---------

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

<TABLE>
<CAPTION>
                                              Periods Ended March 31
                                       --------------------------------------
                                         Three Months        Twelve Months
                                       ----------------   -------------------
                                        1997      1996     1997       1996
                                       ------    ------   ------     -------
     <S>                            <C>         <C>         <C>         <C>
     Net Income (in millions)
       Continuing operations
         Electric utility           $  13.6     $  22.1     $ 114.3     $ 115.3
         Gas utility                   18.8        22.8        27.9        19.8
                                    -------     -------     -------     -------
         Total                         32.4        44.9       142.2       135.1
         Nonregulated operations        1.7         3.5       (12.7)       (2.0)
       Discontinued operations         (0.2)        2.6       (15.6)        5.4
                                    -------     -------     -------     -------
         Consolidated earnings      $  33.9     $  51.0     $ 113.9     $ 138.5
                                    =======     =======     =======     =======

     Earnings Per Common Share
       Continuing operations
         Electric utility           $  0.13     $  0.22     $  1.13     $  1.15
         Gas utility                   0.19        0.23        0.28        0.20
                                    -------     -------     -------     -------
         Total                         0.32        0.45        1.41        1.35
         Nonregulated operations       0.02        0.03       (0.12)      (0.02)
     Discontinued operations           --          0.03       (0.16)       0.05
                                    -------     -------     -------     -------
        Consolidated earnings       $  0.34     $  0.51     $  1.13     $  1.38
                                    =======     =======     =======     =======
</TABLE>


                                      -14-

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

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

                                                Periods Ended March 31
                                    -------------------------------------------
                                        Three Months             Twelve Months
                                    -------------------     -------------------
                                      1997        1996        1997        1996
                                    -------     -------     -------     -------
                                                  (in millions)
     <S>                            <C>         <C>         <C>         <C>
     Earnings on Common Stock
     Continuing operations
          Electric utility          $  13.6     $  22.1     $ 114.3     $ 115.3
          Gas utility                  18.8        22.8        27.9        19.8
                                    -------     -------     -------     -------
              Total                    32.4        44.9       142.2       135.1
     Discontinued operations*          --           6.1       (16.2)        3.4
                                    -------     -------     -------     -------
          Consolidated earnings     $  32.4     $  51.0     $ 126.0     $ 138.5
                                    =======     =======     =======     =======
</TABLE>

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

EARNINGS DISCUSSION

     The Company's earnings per share for the first quarter of 1997 decreased 17
cents  compared to the 1996 first  quarter.  Some of the  significant  variances
which resulted in the decrease are as follows, on a Holdings per share basis:

     MidAmerican
       Net reduction in electric and gas
         gross margin due to -
           Variation in the effect of weather                $ (0.05)
           Electric retail rate reduction                      (0.03)
           Improvements due to other factors                    0.02
       Increase in nuclear O&M expenses                        (0.03)
       Increase in other O&M expenses                          (0.03)
       Losses on reaquired preferred stock
         and reacquired long-term debt                         (0.02)

     Nonregulated subsidiaries continuing operations           (0.01)

     Discontinued operations                                   (0.03)


     Earnings for the twelve months ended March 31, 1997, decreased 25 cents per
share compared to twelve months ended March 31, 1996. The impact of discontinued
operations  resulted in a 21 cents per share decrease.  Utility electric and gas
margins  decreased 9 cents per share due to a less  favorable  impact of weather
and rate reductions. An increase in utility maintenance expenses resulted in a 6
cents per share decrease.  Earnings of nonregulated  subsidiaries for the twelve
months ended March 31, 1996,  included 5 cents per share from gains on the sales
of a telecommunications subsidiary and a partnership interest in a gas marketing
organization.  Following is a discussion  of several other  significant  factors
affecting the twelve months ended comparison.

                                      -15-

<PAGE>
     In  August  1996,  the  Company  announced  a  proposal  to merge  with IES
Industries Inc. (IES), a holding company  headquartered  in Cedar Rapids,  Iowa.
The IES board of directors rejected the Company's proposal in favor of a pending
merger with WPL Holdings and Interstate  Power Co. (the Wisconsin  Transaction).
At their  September 5, 1996,  annual  meeting,  the holders of a majority of IES
common  stock  voted in  favor of the  Wisconsin  Transaction,  and the  Company
discontinued its attempt to merge with IES. In the effort,  MidAmerican incurred
tax deductible  costs of $8.7 million in 1996 which reduced  earnings by 5 cents
per share for the 1997 twelve-month period.

     The Company's and MidAmerican's  earnings for twelve months ended March 31,
1996,  were reduced by costs related to the MidAmerican  merger.  As part of the
process of combining the operations of MidAmerican's  predecessors,  the Company
developed  a  restructuring   plan  which  included  employee   incentive  early
retirement,  relocation  and  separation  programs.  The Company  recorded $33.4
million of restructuring costs during the twelve months ended March 31, 1996, of
which $31.9 million is included in utility operations. These costs are reflected
in Other Operating Expenses in the Consolidated Statements of Income.

     In addition, MidAmerican incurred transaction costs to complete the merger.
MidAmerican  expensed  $4.4  million of merger  transaction  costs in the twelve
months  ended  March 31,  1996.  These costs are  included in Other,  Net in the
Consolidated Statements of Income.

     In  total,  restructuring  and  transaction  costs  reduced  the  Company's
earnings for the 1996 twelve-month period by 24 cents per share.

     Write-downs of certain assets,  primarily  alternative energy projects,  of
the Company's nonregulated  subsidiaries reduced earnings for each of the twelve
months ended March 31. The  write-downs,  which reflect declines in the value of
those nonregulated investments,  reduced earnings by approximately $9.4 million,
or 9 cents per share, and $10.2 million,  or 10 cents per share, in the 1997 and
1996 twelve-month periods, respectively. The pre-tax amounts of the write-downs,
which are  included  in Other,  Net in the  Consolidated  Statements  of Income,
totaled  $15.6  million  and  $18.0  million  for the  1997  and  1996  periods,
respectively.

     Discontinued Operations -

Holdings:
---------

     The Company is redeploying certain of its nonregulated  investments as part
of its  strategy  of  becoming  the  leading  regional  provider  of energy  and
complementary services. As discussed below, the Company discontinued some of its
nonregulated  operations  during the second half of 1996.  The related income or
loss from  operations  and the  anticipated  losses on disposal are reflected as
discontinued  operations  in each of the periods  presented in the  Consolidated
Statements of Income.  Net assets of the discontinued  operations are separately
presented in the  Consolidated  Balance  Sheets as  Investment  in  Discontinued
Operations.

     In the fourth  quarter of 1996,  the Company and KCS Energy,  Inc. (KCS) of
Edison,  New  Jersey,  signed a  definitive  agreement  to sell a portion of the
Company's  nonregulated  operations  to KCS for $210 million in cash and 435,000
warrants to purchase KCS common stock.  The sale,  which  included the Company's
oil and gas  exploration and  development  operations,  was completed in January
1997. The Company recorded an after-tax loss of $7.1 million for the transaction
in 1996 and an additional $0.5 million in the first quarter of 1997.



                                      -16-

<PAGE>
     The  Company  also  intends  to  divest a  subsidiary  that  developed  and
continues to operate a computerized  information system  facilitating  real-time
exchange of power in the electric industry.  The Company expects the disposition
to occur  during the second  quarter of 1997 and,  accordingly,  recorded a $4.0
million anticipated  after-tax loss on disposal of those operations in September
1996.

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

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

UTILITY GROSS MARGIN

     Electric Gross Margin:
     ---------------------
<TABLE>
<CAPTION>
                                              Periods Ended March 31
                                           ----------------------------
                                           Three Months   Twelve Months
                                           ------------   -------------
                                           1997   1996    1997     1996
                                           ----   ----   ------   ------
                                                   (In millions)
     <S>                                   <C>    <C>    <C>      <C>   
     Operating revenues                    $254   $262   $1,091   $1,111
     Cost of fuel, energy and capacity       59     61      232      238
                                           ----   ----   ------   ------

       Electric gross margin               $195   $201   $  859   $  873
                                           ====   ====   ======   ======
</TABLE>

     Variations  in gross  margin are the result of changes in  revenues  due to
price and sales volume  variances.  Changes in the cost of electric fuel, energy
and capacity  (collectively,  Energy Costs) reflect  fluctuations  in generation
levels and mix, fuel cost, and energy and capacity  purchases.  MidAmerican  has
been allowed to recover Energy Costs from most of its electric utility customers
through energy  adjustment  clauses  (EACs) in revenues.  Variations in revenues
collected through the EACs, reflecting changes in Energy Costs per unit sold and
volumes sold, do not affect gross margin or net income.  Refer to "Rate Matters"
under the  Operating  Activities  and Other  Matters  section of  Liquidity  and
Capital Resources for proposed changes in the recovery of fuel costs in Iowa.

     Electric  gross margin for three  months  ended March 31,  1997,  decreased
compared to the 1996 three-month period due to warmer 1997 temperatures and rate
reductions.  Weather  in the  first  quarter  of 1997  was  milder  than  normal
resulting in a $3 million  reduction in electric  gross margin in the 1997 first
quarter  while  weather  in the 1996  first  quarter  was  colder  than  normal,
contributing  $2 million to the electric  margin for that period.  Reductions in
electric  retail rates  decreased  margin by $5.1 million  compared to the first
quarter of 1996.  In total,  electric  retail  sales  increased 1% due to modest
customer growth and an improvement in sales not dependent upon weather. Sales to
the more weather-sensitive customers have a higher margin per unit than sales to
other customers and, therefore, affect gross margin to a greater degree.

     The  reduction  in  electric  rates was the  result of two rate  reductions
effective in 1996.  In October  1996,  the Illinois  Commerce  Commission  (ICC)
ordered  MidAmerican to reduce rates for its Illinois customers by 10%, or $13.1
million in annual revenues, effective November 3, 1996. A negotiated termination
of the rate

                                      -17-

<PAGE>
reduction  proceeding  left in place the initial $13.1 million annual  reduction
and included a second price  reduction of $2.4 million  annually to be effective
on June 1, 1997. In Iowa,  MidAmerican reduced its electric retail rates by $8.7
million  effective  November 1, 1996.  The reduction  lowered rates to levels in
MidAmerican's pricing proposal filed on June 4, 1996. Refer to "Rate Matters" in
Liquidity and Capital Resources later in this discussion for further information
regarding the status of the Iowa proceeding.

     Electric  gross margin  decreased  $14 million for the twelve  months ended
March 31,  1997,  compared  to the 1996  period.  In  addition  to the impact of
weather  discussed  above,  cooler weather  conditions in the 1996 third quarter
compared to the 1995 third quarter caused a decrease in  weather-related  sales.
In total,  electric  retail sales increased 1% due to modest customer growth and
an improvement in sales not dependent upon weather. As mentioned above, sales to
the more weather-sensitive customers have a higher margin per unit than sales to
other  customers.  As a result,  the decrease in sales to those  customers had a
greater  impact on margin than increases in sales to other  customers.  The rate
reductions  discussed  above also  contributed to the decrease in electric gross
margin for the twelve months ended  comparison.  In addition,  electric revenues
and gross margin were  reduced by $3.7 million in the twelve  months ended March
31, 1997,  for a rate refund  reserve for revenues  between August 1 and October
31, 1996, in connection with the Iowa proceeding.

<TABLE>
<CAPTION>
     Gas Gross Margin:
     -----------------                       Periods Ended March 31
                                          -------------------------------
                                          Three Months    Twelve Months
                                          ------------    -------------
                                           1997   1996    1997     1996
                                           ----   ----   ------   ------
                                                  (In millions)
     <S>                                   <C>    <C>    <C>      <C>   
     Operating revenues                    $212   $196   $  552   $  483
     Cost of gas sold                       142    123      364      293
                                           ----   ----   ------   ------
       Gas gross margin                    $ 70   $ 73   $  188   $  190
                                           ====   ====   ======   ======
</TABLE>

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

     Gas gross  margin for three  months  ended  March 31,  1997,  decreased  $3
million  compared to the 1996  three-month  period due to warmer  1997  weather.
Weather in the first  quarter of 1997 was milder than normal  resulting  in a $1
million decrease in gas gross margin while weather in the 1996 first quarter was
colder than normal,  contributing  $2 million to the gas margin for that period.
Retail sales of natural gas decreased 10% compared to the first quarter of 1996.

     Gas gross margin decreased $2 million for the twelve months ended March 31,
1997,  compared to the 1996 period.  The decrease is due primarily to the impact
of weather.  Retail sales of natural gas  decreased 7% compared to twelve months
ended March 31, 1996.

UTILITY OPERATING EXPENSES

     Utility other operating expenses increased for three months ended March 31,
1997,  compared to the 1996 three-month period due to a $2.7 million increase in
operating  costs at the Quad Cities  Nuclear  Station (Quad Cities  Station) and
increases in consulting services fees, uncollectible accounts expense,  employee
benefits costs and various  operations  expenses.  The decrease in utility other
operating  expenses for the 1997 twelve months ended period was due primarily to
costs in the 1996 period of the restructuring plan discussed under "Earnings" in
the Results of Operations  section.  In addition,  the 1997 twelve-month  period
includes

                                      -18-
<PAGE>
a full year of cost savings resulting from the merger.  Nuclear operations costs
decreased  $2.2 million for the twelve months ended March 31, 1997,  compared to
the 1996 period.  The decreases were partially offset by increases in consulting
services fees, uncollectible accounts expense, marketing expenses and regulatory
costs related to ratemaking activity.

     Maintenance  expenses  increased  for  each  1997  period  compared  to the
respective  1996 periods.  The timing of power plant  maintenance  and increased
nuclear  maintenance  costs  accounted  for much of the  variation  between  the
periods.  For the 1997  three  months  ended  period,  steam  power  maintenance
increased  $1.8  million  and  maintenance  costs  at the  Quad  Cities  Station
increased $2.6 million compared to the 1996 period.  For the twelve months ended
comparison,  steam power  maintenance  increased  $3.4  million.  This  increase
includes an  offsetting  reduction  from a $6.2 million  adjustment  in the 1996
fourth  quarter  to  align  inventory   accounting  of  predecessor   companies.
Maintenance  expense for the Quad Cities Station  increased $4.7 million for the
1997  period  compared to the 1996  twelve-month  period.  Based on  information
currently available, MidAmerican expects 1997 nuclear operations and maintenance
expenses to be  substantially  above the 1996 level due in part to outage  costs
and other activities at the Quad Cities Station.

     Property  and  other  taxes  decreased  for the  1997  twelve-month  period
compared to the 1996  twelve-month  period due to a reduction in assessments for
regulatory activities.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

Holdings:
---------

     Revenues of MidAmerican  Capital and Midwest  Capital  increased a total of
$69.2 million and $191.0 million for the  three-month and  twelve-month  periods
ended March 31, 1997, relative to the comparable 1996 periods.  The increase was
due  primarily to respective  increases of $67.1  million and $182.9  million in
revenues from natural gas marketing subsidiaries,  one of which did not exist in
1995.  Sales  volumes for the natural gas marketing  firms  increased 22 million
MMBtu's  (150%) for the 1997 three months  ended  period and 69 million  MMBtu's
(187%) for the 1997 twelve months ended period compared to the 1996 periods.  In
addition,  the  average  price of natural  gas  increased  for the 1997  periods
compared to the 1996 levels.

     Cost of sales includes  expenses  directly related to sales of natural gas.
Increases in gas sales volumes and cost per unit resulted in the increase in the
cost of sales for each 1997 period compared to the 1996 periods.

     Average  margins  (total  price less cost of gas) on sales of  natural  gas
decreased  in the  1997  periods  compared  to the 1996  periods  due in part to
increased competition in the nonregulated natural gas industry.  Compared to the
1996 periods,  total gross margin on  nonregulated  natural gas sales  decreased
$1.7 million and $4.9 million for the three months and twelve months ended March
31, 1997, periods, respectively.

NON-OPERATING INCOME AND INTEREST EXPENSE

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

     Other, Net -

     During the first  quarter of 1996,  MidAmerican  recorded a reserve of $2.2
million for a dispute with a vendor.  In the fourth quarter of 1996, the reserve
was reversed  following  successful  resolution of the dispute.  The accrual and
reversal  resulted  in a $4.4  million  impact on the  comparison  of the twelve
months ended periods. During the twelve months ended March 31, 1997, MidAmerican
recorded a pre-tax gain of $3.2

                                      -19-

<PAGE>
million on the sale of certain  storage gas  supplies and $2.7 million of income
as a result of  successful  performance  under  its  incentive  gas  procurement
program.  Other, Net for the 1997 twelve months ended period was reduced by $8.7
million  for costs  incurred  by  MidAmerican  for its  merger  proposal  to IES
Industries Inc. Merger  transaction  costs related to MidAmerican's  1995 merger
reduced Other, Net for the twelve months ended March 31, 1996, by $4.4 million.

     Interest Charges -

     A decrease in the average amount of commercial paper  outstanding  compared
to the 1996  first  quarter  was the  cause of the  decrease  in other  interest
expense for the 1997 three-months ended period.  Interest expense related to IRS
settlements in the 1996 twelve-month  period resulted in higher expense for that
period.

Holdings:
---------

     Realized Gains and Losses on Securities, Net -

     Net realized  gains on securities  decreased for the 1997  three-month  and
twelve-month  periods compared to the 1996 periods.  During the first quarter of
1996,  MidAmerican  Capital  began  liquidation  of certain  common  equity fund
holdings,  realizing  gains  on  such  sales.  In the  first  quarter  of  1997,
MidAmerican  Capital began  liquidation of its special purpose fund investments,
but did not have net gains  comparable  to those in the first  quarter  of 1996.
Losses on  continued  liquidation  of common  equity fund  holdings  and managed
preferred  stock  portfolios  in the last nine months of 1996  resulted in a net
loss on securities for the twelve months ended March 31, 1997.

     Other, Net -

     As  discussed  in the  "Earnings"  section at the  beginning  of Results of
Operations,  write-downs of nonregulated  investments  decreased  Other,  Net by
$15.6  million and $18.0 million for the 1997 and 1996 twelve months ended March
31 periods,  respectively.  The $18.0 million includes a $3.0 million write-down
in December 1995 of the Hub Tower,  a Des Moines office  building.  The carrying
value of the  property  was  previously  written down by $5.8 million in 1992 to
reflect then anticipated  market values.  In the third quarter of 1996,  Midwest
Capital  recorded a $1.8 million pre-tax gain on the sale of the Hub Tower.  The
1996  twelve-month  period  includes  pre-tax gains totaling $8.5 million on the
sales  of  a  partnership  interest  in  a  gas  marketing  organization  and  a
telecommunication subsidiary.

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

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

     For the first three  months of 1997,  Holdings had net cash  provided  from
operating  activities  of $193  million  compared  to $166  million for the same
period in 1996.  MidAmerican's  net cash provided from operating  activities was
$158  million  for the  first  quarter  of 1997 and $152  million  for the first
quarter of 1996.

INVESTING ACTIVITIES AND PLANS

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

     MidAmerican's   primary   need  for   capital   is   utility   construction
expenditures. Utility construction

                                      -20-

<PAGE>
expenditures,  including allowance for funds used during  construction  (AFUDC),
Quad Cities Station nuclear fuel purchases and Cooper Nuclear  Station  (Cooper)
capital  improvements,  were $27 million for the first quarter of 1997. All such
expenditures  were met with  cash  generated  from  utility  operations,  net of
dividends.

     Forecasted  utility  construction  expenditures  for 1997 are $200  million
including  AFUDC.   Capital   expenditures   needs  are  reviewed  regularly  by
MidAmerican's  management  and may  change  significantly  as a  result  of such
reviews. For the years 1997 through 2001, MidAmerican forecasts $840 million for
utility  construction  expenditures.  MidAmerican  presently  expects  that  all
utility  construction  expenditures  for 1997 through 2001 will be met with cash
generated from utility  operations,  net of dividends.  The actual level of cash
generated from utility  operations is affected by, among other things,  economic
conditions  in the  utility  service  territory,  weather  and federal and state
regulatory actions.

     Operators of a nuclear  facility are required to set aside funds to provide
for costs of future  decommissioning  of their  nuclear  facility.  In  general,
decommissioning  of a nuclear  facility means to safely remove the facility from
service and restore the property to a condition allowing unrestricted use by the
operator.  Based on  information  presently  available,  MidAmerican  expects to
contribute  approximately  $47 million during the period 1997 through 2001 to an
external trust established for the investment of funds for  decommissioning  the
Quad  Cities  Station.  Currently,  the  funds  are  invested  predominately  in
investment  grade  municipal  and U.S.  Treasury  bonds.  In  1997,  MidAmerican
directed  the  trust to begin  investing  a  portion  of the  funds in  domestic
corporate  debt and common  equity  securities.  In  addition,  a portion of the
payments  made  under a power  purchase  contract  with  Nebraska  Public  Power
District (NPPD) are for  decommissioning  funding related to Cooper.  The Cooper
costs are reflected in Other Operating  Expenses in the Consolidated  Statements
of Income. Based on NPPD estimates, MidAmerican expects to pay approximately $59
million to NPPD for Cooper  decommissioning during the period 1997 through 2001.
NPPD  invests the funds  predominantly  in U.S.  Treasury  Bonds.  MidAmerican's
obligation  for Cooper  decommissioning  may be  affected  by the  actual  plant
shutdown  date and the  status  of the power  purchase  contract  at that  time.
MidAmerican currently recovers Quad Cities Station decommissioning costs charged
to Illinois customers through a rate rider on customer billings. Cooper and Quad
Cities Station  decommissioning  costs charged to Iowa customers are included in
base rates,  and  increases in those  amounts must be sought  through the normal
ratemaking process.

Holdings:
---------

     Capital  expenditures of nonregulated  subsidiaries were $3 million for the
first quarter of 1997. Capital expenditures of nonregulated  subsidiaries depend
primarily upon the availability of suitable investment  opportunities which meet
the  Company's  objectives.  The Company  continues  to  evaluate  nonstrategic,
nonregulated  investments  and may  redeploy  certain  assets in 1997.  External
financing may also be used to provide for nonregulated capital expenditures.

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

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

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

     MidAmerican  currently has  authority  from the Federal  Energy  Regulatory
Commission  (FERC) to issue  short-term debt in the form of commercial paper and
bank notes aggregating $400 million. As of

                                      -21-

<PAGE>
March  31,  1997,  MidAmerican  had a $250  million  revolving  credit  facility
agreement and a $10 million line of credit to provide  short-term  financing for
utility operations. MidAmerican's commercial paper borrowings, which totaled $40
million at March 31, 1997,  are supported by the revolving  credit  facility and
the line of credit.  MidAmerican  also has a revolving  credit facility which is
dedicated to provide liquidity for its obligations  under outstanding  pollution
control revenue bonds that are periodically remarketed.

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

     During the first quarter of 1997, MidAmerican  repurchased $19.6 million of
7.45%  Series  first  mortgage  bonds and $9.5  million of its 7.0% Series first
mortgage bonds.

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

     As of March 31,  1997,  MidAmerican  had $449  million  of  long-term  debt
maturities and sinking fund requirements for 1997 through 2001.

Credit Ratings -

     MidAmerican's  access  to  external  capital  and its cost of  capital  are
influenced by the credit ratings of its securities. MidAmerican's credit ratings
as of May 2, 1997,  are shown in the table below.  The ratings  reflect only the
views of such rating agencies, and each rating should be evaluated independently
of  any  other  rating.  Generally,   rating  agencies  base  their  ratings  on
information  furnished  to them by the  issuing  company  and on  investigation,
studies and assumptions by the rating  agencies.  There is no assurance that any
particular rating will continue for any given period of time or that it will not
be  changed or  withdrawn  entirely  if in the  judgment  of the  rating  agency
circumstances so warrant.  Such ratings are not a recommendation to buy, sell or
hold securities.

                                     Moody's
                                     Investors     Standard
                                      Service      & Poor's

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

     The  following is a summary of the meanings of the ratings  shown above and
the relative rank of  MidAmerican's  rating within each agency's  classification
system.


                                      -22-

<PAGE>
     Moody's top four bond ratings (Aaa, Aa, A and Baa) are generally considered
"investment  grade."  Obligations  which are rated "A"  possess  many  favorable
investment  attributes  and are  considered  as upper medium grade  obligations.
Factors giving  security to principal and interest are  considered  adequate but
elements may be present which suggest a susceptibility to impairment sometime in
the future.  A numerical  modifier ranks the security within the category with a
"1" indicating the high end, a "2" indicating the mid-range and a "3" indicating
the low end of the category. Standard & Poor's top four bond ratings (AAA, AA, A
and BBB) are considered "investment grade". Debt rated "A" has a strong capacity
to pay interest and repay principal  although it is somewhat more susceptible to
the adverse effects of changes in economic  conditions than debt in higher rated
categories. Standard & Poor's may use a plus (+) or minus (-) sign after ratings
to designate the relative position of a credit within the rating category.

     Ratings of preferred stocks are an indication of a company's ability to pay
the  preferred  dividend and any sinking  fund  obligations  on a timely  basis.
Moody's top four  preferred  stock  ratings  (aaa,  aa, a and baa) are generally
considered  "investment grade".  Moody's "a" rating is considered to be an upper
medium grade preferred  stock.  Earnings and asset protection are expected to be
maintained at adequate levels in the foreseeable  future.  Standard & Poor's top
four preferred  stock ratings (AAA,  AA, A and BBB) are  considered  "investment
grade".  Standard & Poor's  "A" rating  indicates  adequate  earnings  and asset
protection.

     Moody's top three commercial paper ratings (P-1, P-2 and P-3) are generally
considered  "investment grade".  Issuers rated "P-1" have a superior ability for
repayment of senior  short-term debt obligations and repayment  ability is often
evidenced by a  conservative  structure,  broad margins in earnings  coverage of
fixed  financial  charges and well  established  access to a range of  financial
markets and assured sources of alternate liquidity. Standard & Poor's commercial
paper ratings are a current  assessment of the  likelihood of timely  payment of
debt having an original  maturity less than 365 days.  The top three  Standard &
Poor's  commercial  paper ratings (A-1, A-2 and A-3) are considered  "investment
grade".  Issues rated "A-1" indicate that the degree of safety  regarding timely
payment is either  overwhelming  or very  strong.  Those  issues  determined  to
possess overwhelming safety are denoted with a plus (+) sign designation.

Preferred Dividends -

     Preferred  dividends  include net gains or losses on the  reacquisition  of
MidAmerican preferred shares. Net losses on reacquisitions  totaled $1.4 million
and  $2.8  million  for  the  1997   three-month   and   twelve-month   periods,
respectively,  and $0.2 million for the comparable 1996 periods. Excluding these
losses,  preferred dividends increased for the first quarter of 1997 compared to
the first quarter of 1996 due to the increase in preferred stock outstanding.

Holdings:
---------

     As of March 31,  1997,  Holdings  had lines of credit in the  amount of $40
million available to provide for short-term financing needs.

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

     In March 1997, Holdings announced its plan to repurchase up to $200 million
of the  Company's  common  stock.  The Company plans to purchase the shares from
time to time as market  conditions  warrant,  with the intent of completing  the
entire repurchase program by December 31, 1998. As of March 31, 1997,

                                      -23-

<PAGE>
the Company had repurchased 1.2 million shares.

     On April 23,  1997,  Holdings'  board of  directors  declared  a  quarterly
dividend on common shares of $0.30 per share payable June 1, 1997.  The dividend
represents an annual rate of $1.20 per share.

     As of March 31, 1997,  continuing  operations  of  MidAmerican  Capital had
unsecured  revolving credit facilities in the amount of $114 million.  Currently
MidAmerican  Capital has a zero balance  outstanding under these facilities.  In
January 1997,  MidAmerican  Capital paid off $90 million  outstanding  under the
revolving credit facilities with proceeds from the sale transaction with KCS.

     Another $100 million  revolving  credit  facility  related to  discontinued
operations was terminated in January 1997, and the $84 million  outstanding  was
paid  off.  In  addition,   MidAmerican   Capital  terminated  two  $32  million
floating-rate-to-fixed-interest-rate   swaps   related  to  amounts   previously
outstanding under one of the revolving credit facilities.

     MidAmerican  Capital has $142  million of  long-term  debt  maturities  and
sinking  fund  requirements  for 1997 through  2001,  of which $30 million is in
1997.

     Midwest Capital   currently  has  a  $25  million  line  of  credit  with
MidAmerican, of which $5 million was outstanding at March 31, 1997.

OPERATING ACTIVITIES AND OTHER MATTERS

     The Company  continues to adjust its  strategies and operations for changes
it  expects in the  electric  utility  industry.  The merger  that  resulted  in
MidAmerican and the subsequent reorganization of utility operations were some of
the first steps taken to better  position the Company for  competition.  In June
1996,  MidAmerican  filed an electric pricing proposal in Iowa and Illinois that
it believes benefits  customers and is designed to allow MidAmerican to function
more effectively in a competitive environment. Refer to the following discussion
under the heading "Rate Matters" for the current  status of those  filings.  The
following  discussion  addresses some of the changes  affecting the industry and
actions the Company is taking to better position itself as the industry evolves.

Holdings:
---------

     During 1996, the Company began to reevaluate its nonregulated  investments.
Through the evaluation process,  management will determine which investments fit
the Company's objectives and which should be divested. The method of divestiture
could  include  alternatives  from  finding an  immediate  buyer to holding  the
investment  until  maturity.   The  Company  holds  approximately  50  different
investments  within its  MidAmerican  Capital and Midwest  Capital  subsidiaries
which  it is  evaluating.  In the  twelve  months  ended  March  31,  1997,  the
evaluation of nonregulated  investments resulted in a $20.9 million reduction in
earnings  because of asset  impairments  or a decision  to pursue the sale of an
investment at an amount below its carrying value.  The process will continue for
the next 15 to 21 months and could  result in  additional  losses if the Company
decides to divest of investments for less than carrying value.

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

     Regulatory Evolution and Competition -

     MidAmerican  is  subject  to  regulation  by  several  utility   regulatory
agencies. The operating environment and the recoverability of costs from utility
customers are significantly influenced by the regulation

                                      -24-

<PAGE>
of those agencies. MidAmerican supports changes in the electric utility industry
that  will  create  a more  competitive  environment  for  the  entire  electric
industry, as long as appropriate  transitional steps are in place to accommodate
moving from a regulated  cost-of-service  industry  to a  competitive  industry.
Although  these  anticipated  changes may create  opportunities,  they will also
create additional challenges and risks for utilities.

     MidAmerican  is taking  steps to  address  the  future  entrance  of retail
competition  in the  electric  utility  industry.  MidAmerican  is, and will be,
negotiating  long-term  contracts with its industrial and commercial  customers,
the customer classes currently mostly likely to have alternate supplier choices.
In March  1997,  MidAmerican  initiated  an  advertising  campaign  designed  to
establish MidAmerican's brand identity within MidAmerican's service territory. A
distinctive  brand identity will become  increasingly  important as the electric
industry is restructured to allow customer choice.

     In  December  1996,  MidAmerican  was  selected  from  among  20  potential
suppliers to provide electric service for the Resale Power Group of Iowa (RPGI).
The RPGI includes 27 municipal  utilities,  a rural electric  cooperative and an
investor-owned utility. Members of the RPGI serve nearly 27,000 retail customers
and purchase approximately 500,000 megawatt hours annually.  Under the five-year
contract beginning January 1, 1999,  MidAmerican will also offer electric system
maintenance  services,  energy  efficiency  services  and  economic  development
assistance.   Electricity  to  RPGI  utilities  presently  is  supplied  by  IES
Utilities.  This opportunity  provided  MidAmerican  valuable  experience in the
evolving competitive electric market.

     MidAmerican  is  a  member  of  the  Illinois   Coalition  for  Responsible
Electricity Choice (the Coalition). The Coalition has produced draft legislation
(the  Proposal) that would  restructure  Illinois'  electric  industry and allow
Illinois  customers to choose their electric service  provider.  The Proposal is
designed to, among other things, balance tax and regulatory burdens;  transition
the industry to a competitive  electric  marketplace in phases between the years
2000 and 2005; stabilize or reduce tariffed electric rates; provide for recovery
of prior mandated  investments of the utilities;  and increase  flexibility  for
utilities  while  providing for oversight of reliability  and safety by the ICC.
The Proposal and others are being addressed by the Illinois legislature in 1997,
and MidAmerican is an active participant in the legislative subcommittee that is
developing  a single  bill.  The  Illinois  legislature  previously  passed laws
allowing the filing of  alternative  pricing  plans by utilities  and  increased
flexibility for agreements with industrial customers.

     In Iowa, no  legislation  has yet been  introduced  to allow  generation or
retail service  competition.  MidAmerican expects legislation on competition and
utility  industry  restructuring  may be introduced in the 1998 Iowa legislative
session  since the 1997  session is closed.  MidAmerican  is  preparing  its own
legislative proposal regarding electric industry  restructuring to be offered at
the appropriate time.

     In 1996,  the IUB  directed  MidAmerican  and another  Iowa  investor-owned
utility to sign alternative energy contracts by March 11, 1997.  MidAmerican has
reached agreement with Zond Development  Corporation to supply  MidAmerican with
wind-generated  energy,  subject  to IUB  approval.  Zond is  required  to begin
supplying the energy to MidAmerican within three years after regulatory agencies
approve the agreement.  Energy  received  under the 20-year  contract with Zond,
together with 10 MW of electricity  already received from other alternate energy
producers,  will fulfill MidAmerican's requirement under Iowa law to purchase 55
MW of  electricity  generated by alternate  energy  sources in Iowa.  Due to the
declining  per unit  cost  over  the life of the  contract,  the  impact  on the
Company's financial position or results of operations will be minimal.

     The Energy Policy Act (EPAct) was enacted in 1992 to promote competition in
the  wholesale  electric  market.  In April 1996,  the FERC  issued  final rules
(Orders 888 and 889) to direct the  implementation of EPAct. In general,  Orders
888 and 889, require public utilities and other transmission providers and users
to provide other  companies the same  transmission  access,  service and pricing
that they provide themselves. In

                                      -25-

<PAGE>
compliance  with Order 888,  which was effective July 9, 1996,  MidAmerican  has
filed a pro forma open access  transmission  tariff and is  currently  operating
under it. In accordance  with Order 889,  which was  effective  January 3, 1997,
MidAmerican  has separated  its electric  wholesale  marketing and  transmission
operation  functions.  Order  889  establishes  standards  of  conduct  for this
functional  separation  and  further  requires  transmission  providers  such as
MidAmerican  to  either  create  or  participate  in an Open  Access  Same  Time
Information   System  (OASIS).   MidAmerican  is  a  long-time   member  of  the
Mid-Continent  Area Power Pool (MAPP) and has elected to participate in the MAPP
OASIS. These developments assure that all transmission customers of MidAmerican,
including   MidAmerican's   own  wholesale   marketing   function,   can  obtain
transmission  information  at the same time and can request  service on the same
basis.

     A possible  consequence  of  competition  in the  utility  industry is that
Statement of Financial  Accounting  Standards (SFAS) No. 71 may no longer apply.
SFAS 71 sets forth  accounting  principles for operations that are regulated and
meet certain  criteria.  For operations that meet the criteria,  SFAS 71 allows,
among other things,  the deferral of costs that would otherwise be expensed when
incurred.  MidAmerican's  electric  and gas  utility  operations  are  currently
subject to the  provisions  of SFAS 71, but its  applicability  is  periodically
reexamined. If a portion of MidAmerican's utility operations no longer meets the
criteria of SFAS 71, MidAmerican would be required to eliminate from its balance
sheet the assets and liabilities  related to those operations that resulted from
actions of its  regulators.  Although  the amount of such an  elimination  would
depend on the specific  circumstances,  a material adjustment to earnings in the
appropriate  period could result from the discontinuance of SFAS 71. As of March
31, 1997,  MidAmerican had $371 million of regulatory assets in its Consolidated
Balance Sheet.

     Energy Efficiency -

     On  July  1,  1996,  new  legislation  became  effective  enhancing  energy
efficiency program flexibility, eliminating mandatory spending levels for energy
efficiency  programs  and  allowing  more timely  recovery of energy  efficiency
expenditures as determined by the IUB. Previously, electric and gas utilities in
Iowa were required to spend  approximately 2% and 1.5%,  respectively,  of their
annual Iowa jurisdictional  revenues on energy efficiency  activities.  On April
24, 1997, the IUB issued an order adopting final rules, effective June 25, 1997,
for  energy   efficiency  cost  recovery  and  prudence  review  under  the  new
legislation. MidAmerican plans to file in the third quarter of 1997 for approval
to accelerate  recovery of deferred and current  energy  efficiency  costs.  The
Consolidated  Balance  Sheet as of March 31,  1997,  included  $113  million  of
deferred energy efficiency  costs. Of that total,  approximately $21 million has
been  approved  for  collection  from  customers.   Currently,   MidAmerican  is
collecting  approximately  $14.3 million  annually  related to those costs.  The
remaining $92 million of deferred  energy  efficiency  costs will be included in
future energy efficiency cost recovery filings.

     Rate Matters -

     On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois.  The proposal would provide  MidAmerican more flexibility to negotiate
with customers who have service options and to mitigate  strandable  costs.  The
proposal would also reduce  regulatory lag in  implementing  new tariff services
and prices. As part of the proposal, MidAmerican would reduce electric revenues,
on a graduated  basis, by  approximately  $25 million annually within five years
and eliminate automatic fuel adjustment clauses. The price reductions,  possible
due to merger and  restructuring  related cost savings,  reduce price  disparity
within  customer  classes  and would move  MidAmerican  closer to prices that it
believes  can be  sustained  in a  competitive  market.  The  proposal was later
withdrawn in Illinois,  and a settlement was negotiated in a related proceeding.
The settlement  resulted in annual reductions of $13.1 million and $2.4 million,
effective November 3, 1996, and June 1, 1997, respectively.


                                      -26-

<PAGE>
     On August 1, 1996, the Iowa Office of Consumer Advocate (OCA) requested the
IUB to order  MidAmerican  to  reduce  its Iowa  electric  rates  by  10.7%,  or
approximately $101 million annually, in electric revenues. On September 6, 1996,
the  IUB  docketed  the  OCA  request  and  initiated  an   investigation   into
MidAmerican's   rates.  The  IUB  also  consolidated  the   investigation   with
MidAmerican's  alternative  regulation and pricing  proposal for purposes of the
hearings  which were scheduled to begin in January 1997.  Effective  November 1,
1996,  MidAmerican  reduced its electric rates in Iowa $8.7 million  annually to
the levels in its pricing proposal filed on June 4, 1996.

     In January 1997, a settlement  agreement between  MidAmerican,  the OCA and
other parties to the proceeding was negotiated.  The agreement, which includes a
number of  characteristics  of  MidAmerican's  pricing  proposal,  is subject to
approval by the IUB. A hearing on the settlement was held on April 23, 1997, and
a decision  is expected in the second  quarter of 1997.  Prices for  residential
customers would be reduced approximately $23.5 million annually by June 1, 1998,
including the November 1, 1996,  reduction.  Rates for commercial and industrial
customers  would be  reduced a total of $10  million  annually  by June 1, 1998,
through pilot  projects,  negotiated  rates with  individual  customers  and, if
needed, a base rate reduction  effective June 1, 1998. The agreement  includes a
tracking  mechanism to currently  recover the cost of capital  improvements from
the Cooper Nuclear Station Power Purchase Contract.  The tracking mechanism will
offset approximately $9 million of these reductions.

     In addition,  the agreement accepts MidAmerican's proposal to eliminate the
energy  adjustment  clause (EAC) which currently is the mechanism  through which
fuel costs are collected from Iowa customers.  The EAC flows the cost of fuel to
customers on a current  basis,  and thus,  fuel costs have little  impact on net
income. Prospectively,  base rates for Iowa customers would include a factor for
recovery  of a  representative  level of fuel costs.  To the extent  actual fuel
costs vary from that factor,  pre-tax earnings would be impacted.  The fuel cost
factor would be reviewed in February 1999 and adjusted  prospectively  if actual
fuel costs vary 15% above or below the factor included in base rates.

     Under the  agreement,  if  MidAmerican's  annual  return  on common  equity
exceeds 12%, then a sharing between customers and shareholders begins, and if it
exceeds 14%, then a portion of MidAmerican's share would be used for accelerated
recovery of certain regulatory assets. The agreement permits MidAmerican to file
for  increased  rates if the return  falls below 9%. Other  parties  signing the
agreement are prohibited  from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.

     The agreement also provides that  MidAmerican  will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers.  The pilot program is limited to 60 MW of participation
the first year and can be expanded by 15 MW  annually,  with the approval of the
IUB, until the conclusion of the program.  Any loss of revenues  associated with
the pilot program would be considered  part of the $10 million annual  reduction
for  commercial  and  industrial  customers but may not be recovered  from other
non-participating  customers.  The program is expected to be offered by the fall
of 1997.

     As of March 31, 1997, MidAmerican had a $4.3 million liability recorded for
its Iowa electric revenues, plus interest, that were affected by the settlement.
In April  1997,  MidAmerican  refunded  approximately  $2.4  million,  including
interest,  for revenues  between August 1, 1996, and October 31, 1996, that were
in excess of those included in the pricing proposal.


                                      -27-

<PAGE>
     Environmental Matters -

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

     The Company is evaluating 27 properties  which were, at one time,  sites of
gas  manufacturing  plants in which it may be a  potentially  responsible  party
(PRP). The purpose of these  evaluations is to determine whether waste materials
are present,  whether such materials constitute an environmental or health risk,
and  whether  the  Company  has any  responsibility  for  remedial  action.  The
Company's present estimate of probable  remediation costs for these sites is $23
million.  This estimate has been recorded as a liability and a regulatory  asset
for future recovery through the regulatory  process.  Refer to Note (B) of Notes
for further  discussion of the  Company's  environmental  activities  related to
manufactured gas plant sites and cost recovery.

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

     Other Matters -

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

ACCOUNTING ISSUES

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

     The  Financial  Accounting  Standards  Board has issued a new  statement of
financial accounting standards No. 128 regarding the calculation of earnings per
share which is effective  for periods  ending after  December 15, 1997.  The new
standard is not expected to have a material effect on the Company's  calculation
of earnings per share.


                                      -28-

<PAGE>
PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS
--------------------------

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

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

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

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

     For information  relating to the Company's Rate Matters,  reference is made
to Part I. Note C of Holdings' Notes to Consolidated Financial Statements.

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

     On May 26,  1995,  a  predecessor  of  MidAmerican  filed a lawsuit  naming
Nebraska Public Power District  (NPPD) as defendant.  The action is filed in the
U.S.  District Court for the Southern  District of Iowa and is identified as No.
4-95-CV-803556.  The legal  proceeding is based upon a long-term  power purchase
agreement between MidAmerican and NPPD, pursuant to which MidAmerican  purchases
one-half the output of NPPD's Cooper Nuclear Station  (Cooper) and pays one-half
the cost of operating  Cooper.  NPPD, in turn, is obligated to operate the plant
in an efficient and economical  manner consistent with good business and utility
practices and in compliance with the terms of its operating license issued to it
by the Nuclear  Regulatory  Commission (NRC). In 1993 and 1994, as a response to
NPPD actions, the NRC issued numerous notices of violations to NPPD; as a result
of these  violations  and other safety  issues  identified  by the NRC and NPPD,
Cooper   experienced   unplanned  outages  and  outages  were  unduly  extended.
MidAmerican's  position  is that  NPPD's  failure to meet its  obligations  with
respect to the operation of Cooper  deprived  MidAmerican of the benefits it was
entitled to under the power sales contract,  causing MidAmerican to lose profits
and incur  increased  costs of  operation,  which damages  MidAmerican  seeks to
collect from NPPD. A settlement  has been reached that  eliminates  the need for
trial.  The settlement  agreement  results in no negative impact on earnings and
provides for  discussion by the Company and NPPD of potential  future changes in
their relationship regarding Cooper.  Similar litigation has been filed against
NPPD by the Lincoln Electric System (LES), a municipal  utility serving the City
of Lincoln, Nebraska, and purchasing one-eighth of the output of Cooper pursuant
to a similar power  purchase  contract.  The LES legal  proceeding is pending in
Nebraska state court.


                                      -29-

<PAGE>
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------

(A)  EXHIBITS

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

Holdings

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

MidAmerican

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

Holdings and MidAmerican

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

(B)  REPORTS ON FORM 8-K

     On January 31, 1997,  Holdings and MidAmerican filed a joint report on Form
8-K, dated January 31, 1997. The report included the following information:

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

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

     Financial  information  of  Holdings  and  MidAmerican  including  selected
     financial data for the years ended and as of December 31, 1996, 1995, 1994,
     1993 and 1992; management's discussion and analysis of financial condition
     and results of operations;  consolidated  statements of income,  cash flows
     and retained earnings for the years ended December 31, 1996, 1995 and 1994;
     consolidated  balance sheets and consolidated  statements of capitalization
     as of  December  31,  1996 and 1995;  notes to the  consolidated  financial
     statements;   report  of  the  independent  public  accountant;  report  of
     management; and supplemental financial and statistical data.

     On March 11,  1997,  Holdings  filed a report on Form 8-K,  dated  March 6,
1997, regarding the announcement of a stock repurchase program which would allow
Holdings to repurchase up to $200 million of its common stock. The press release
issued in  conjunction  with the  announcement  was filed as an  Exhibit  to the
report.


                                      -30-

<PAGE>
                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrants  have duly caused  this  report to be signed on their  behalf by the
undersigned, thereunto duly authorized.


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





Date    May 13, 1997                          /s/ P. G. Lindner
        ------------                         ----------------------------
                                                  P. G. Lindner
                                                Senior Vice President and
                                                  Chief Financial Officer

                                      -31-