**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-Q**
 
 
 **[X]
        Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
        Act
        of 1934**
 
 For
        the
        quarterly period ended September 30, 2005
 
 or
 
 **[
        ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
        Act of 1934**
 
 For
        the
        transition period from _________to _________
 
 
 Commission
              
              Exact
                  name of registrant as specified in its charter
              
              IRS
                  EmployerFile
                  Number
              
              State
                  or other jurisdiction of incorporation or organization
              
              Identification No.**333-90553**
              
              **MIDAMERICAN
                  FUNDING, LLC**
              
              **47-0819200****(An
                  Iowa Limited Liability Company)****666
                  Grand Avenue, PO Box 657****Des
                  Moines, Iowa 50303****333-15387**
              
              **MIDAMERICAN
                  ENERGY COMPANY**
              
              **42-1425214****(An
                  Iowa Corporation)****666
                  Grand Avenue, PO Box 657****Des
                  Moines, Iowa 50303**(515)
                  242-4300(Registrant’s
                  telephone number, including area code)(Former
                  name, former address and former fiscal year, if changed since last
                  report)
 
 Indicate
        by check mark whether the registrants (1) have filed all reports required
        to be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrants were
        required to file such reports), and (2) have been subject to such filing
        requirements for the past 90 days. Yes T No o
 
 Indicate
        by check mark whether the registrants are accelerated filers (as defined
        in Rule
        12b-2 of the Exchange Act).
 Yes o
        No T
 
 Indicate
        by check mark whether either registrant is a shell company (as defined in
        Rule
        12b-2 of the Exchange Act).
 Yes  ̈ No T
 
 As
        of
        October 21, 2005, all of the member’s equity of MidAmerican Funding, LLC
        was held by its parent company, MidAmerican Energy Holdings
        Company.
 
 As
        of
        October 21, 2005, all 70,980,203 outstanding shares of MidAmerican
        Energy
        Company’s voting stock were held by its parent company, MHC Inc., a direct,
        wholly owned subsidiary of MidAmerican Funding, LLC.
  
 
  MidAmerican
        Funding, LLC (“MidAmerican Funding”) and MidAmerican Energy Company
        (“MidAmerican Energy”) separately file this combined Form 10-Q. Information
        relating to each individual registrant is filed by such registrant on its
        own
        behalf. Except for its subsidiary, MidAmerican Energy makes no representation
        as
        to information relating to any other subsidiary of MidAmerican
        Funding.
 
 **TABLE
        OF CONTENTS**
 
 **PART
        I - FINANCIAL INFORMATION**
 
 Item
                  1.
              Financial
                  Statements
              3Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              23Item
                  3
              Quantitative
                  and Qualitative Disclosures About Market Risk
              39Item
                  4.
              Controls
                  and Procedures
              39**PART
                  II - OTHER INFORMATION**Item
                  1.
              Legal
                  Proceedings
              40Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              40Item
                  3.
              Defaults
                  Upon Senior Securities
              40Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              40Item
                  5.
              Other
                  Information
              40Item
                  6.
              Exhibits
              40Signatures
              
              41Exhibit
                  Index
              
              42
 
 
  2
  
 **PART
        I - FINANCIAL INFORMATION**
 
 **Item 1.**
              **Financial
                  Statements.**
 
 
 MidAmerican
                  Energy Company and SubsidiaryReport
                  of Independent Registered Public Accounting Firm
              4Consolidated
                  Balance Sheets
              5Consolidated
                  Statements of Operations
              6Consolidated
                  Statements of Cash Flows
              7Notes
                  to Consolidated Financial Statements
              8MidAmerican
                  Funding, LLC and SubsidiariesReport
                  of Independent Registered Public Accounting Firm
              15Consolidated
                  Balance Sheets
              16Consolidated
                  Statements of Operations
              17Consolidated
                  Statements of Cash Flows
              18Notes
                  to Consolidated Financial Statements
              19
 
  3
  **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 To
        the
        Board of Directors and Shareholder
 MidAmerican
        Energy Company
 Des
        Moines, Iowa
 
 We
        have
        reviewed the accompanying consolidated balance sheet of MidAmerican Energy
        Company and subsidiary (the “Company”) as of September 30, 2005, and the
        related consolidated statements of operations for the three-month and nine-month
        periods ended September 30, 2005 and 2004, and of cash flows for the
        nine-month periods ended September 30, 2005 and 2004. These interim
        financial statements are the responsibility of the Company's
        management.
 
 We
        conducted our reviews in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). A review of interim financial
        information consists principally of applying analytical procedures and making
        inquiries of persons responsible for financial and accounting matters. It
        is
        substantially less in scope than an audit conducted in accordance with the
        standards of the Public Company Accounting Oversight Board (United States),
        the
        objective of which is the expression of an opinion regarding the financial
        statements taken as a whole. Accordingly, we do not express such an
        opinion.
 
 Based
        on
        our reviews, we are not aware of any material modifications that should be
        made
        to such consolidated interim financial statements for them to be in conformity
        with accounting principles generally accepted in the United States of
        America.
 
 We
        have
        previously audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the consolidated balance sheet
        and
        statement of capitalization (not presented herein) of MidAmerican Energy
        Company
        and subsidiary as of December 31, 2004, and the related consolidated
        statements of operations, comprehensive income, retained earnings, and cash
        flows for the year then ended (not presented herein); and in our report dated
        February 25, 2005, we expressed an unqualified opinion on those
        consolidated financial statements. In our opinion, the information set forth
        in
        the accompanying consolidated balance sheet as of December 31, 2004
        is
        fairly stated, in all material respects, in relation to the consolidated
        balance
        sheet from which it has been derived.
 
 
 /s/
        Deloitte & Touche LLP
 
 Des
        Moines, Iowa
 October
        21, 2005
 
  4
  **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **CONSOLIDATED
        BALANCE SHEETS**
 (In
        thousands)
 
 **As
                  of****September 30,**
              
              **December 31,****2005**
              
              **2004****(Unaudited)****ASSETS****Utility
                  Plant, Net**Electric
              
              $
              5,827,892
              
              $
              5,498,878Gas
              
              
              985,495
              
              
              957,0116,813,387
              
              
              6,455,889Accumulated
                  depreciation and amortization
              
              
              (3,096,128
              )
              
              (2,956,856
              )3,717,259
              
              
              3,499,033Construction
                  work in progress
              
              
              516,789
              
              
              369,4064,234,048
              
              
              3,868,439**Current
                  Assets**Cash
                  and cash equivalents
              
              
              47,488
              
              
              88,113Short-term
                  investments
              
              
              -
              
              
              39,500Receivables,
                  net
              
              
              240,001
              
              
              332,759Inventories
              
              
              92,371
              
              
              89,646Other
              
              
              127,338
              
              
              22,080507,198
              
              
              572,098**Investments
                  and Nonregulated Property, Net**
              
              
              356,554
              
              
              333,360**Regulatory
                  Assets**
              
              
              223,981
              
              
              227,997**Other
                  Assets**
              
              
              123,680
              
              
              110,057**Total
                  Assets**
              
              $
              5,445,461
              
              $
              5,111,951**CAPITALIZATION
                  AND LIABILITIES****Capitalization**Common
                  shareholder’s equity
              
              $
              1,694,587
              
              $
              1,527,468MidAmerican
                  Energy preferred securities
              
              
              30,329
              
              
              30,329Long-term
                  debt, excluding current portion
              
              
              1,171,796
              
              
              1,331,5092,896,712
              
              
              2,889,306**Current
                  Liabilities**Current
                  portion of long-term debt
              
              
              160,135
              
              
              91,018Accounts
                  payable
              
              
              233,690
              
              
              241,836Taxes
                  accrued
              
              
              84,073
              
              
              70,810Interest
                  accrued
              
              
              21,857
              
              
              13,842Other
              
              
              100,538
              
              
              83,949600,293
              
              
              501,455**Other
                  Liabilities**Deferred
                  income taxes
              
              
              478,510
              
              
              486,970Investment
                  tax credits
              
              
              45,007
              
              
              48,143Asset
                  retirement obligations
              
              
              176,603
              
              
              166,845Regulatory
                  liabilities
              
              
              839,922
              
              
              677,489Other
              
              
              408,414
              
              
              341,7431,948,456
              
              
              1,721,190**Total
                  Capitalization and Liabilities**
              
              $
              5,445,461
              
              $
              5,111,951
 
 The
        accompanying notes are an integral part of these financial
        statements.
  5
  **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 (In
        thousands)
 
 **Three
                  Months**
              
              **Nine
                  Months****Ended
                  September 30,**
              
              **Ended
                  September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(Unaudited)****Operating
                  Revenues**Regulated
                  electric
              
              $
              467,586
              
              $
              391,751
              
              $
              1,127,434
              
              $
              1,099,310Regulated
                  gas
              
              
              181,228
              
              
              117,190
              
              
              858,671
              
              
              684,430Nonregulated
              
              
              72,843
              
              
              56,312
              
              
              209,158
              
              
              195,416721,657
              
              
              565,253
              
              
              2,195,263
              
              
              1,979,156**Operating
                  Expenses**Regulated:Cost
                  of fuel, energy and capacity
              
              
              145,600
              
              
              91,474
              
              
              336,950
              
              
              304,387Cost
                  of gas sold
              
              
              145,641
              
              
              82,490
              
              
              699,594
              
              
              526,707Other
                  operating expenses
              
              
              94,060
              
              
              93,656
              
              
              279,844
              
              
              276,209Maintenance
              
              
              32,996
              
              
              36,018
              
              
              104,810
              
              
              110,412Depreciation
                  and amortization
              
              
              77,102
              
              
              71,618
              
              
              214,150
              
              
              221,685Property
                  and other taxes
              
              
              23,555
              
              
              22,220
              
              
              71,237
              
              
              69,999518,954
              
              
              397,476
              
              
              1,706,585
              
              
              1,509,399Nonregulated:Cost
                  of sales
              
              
              67,981
              
              
              48,416
              
              
              188,058
              
              
              170,861Other
              
              
              4,518
              
              
              4,102
              
              
              12,225
              
              
              12,82672,499
              
              
              52,518
              
              
              200,283
              
              
              183,687Total
                  operating expenses
              
              
              591,453
              
              
              449,994
              
              
              1,906,868
              
              
              1,693,086**Operating
                  Income**
              
              
              130,204
              
              
              115,259
              
              
              288,395
              
              
              286,070**Non-Operating
                  Income**Interest
                  and dividend income
              
              
              939
              
              
              1,130
              
              
              3,344
              
              
              2,360Other
                  income
              
              
              9,783
              
              
              6,920
              
              
              22,305
              
              
              16,838Other
                  expense
              
              
              (1,403
              )
              
              (699
              )
              
              (3,155
              )
              
              (2,775
              )9,319
              
              
              7,351
              
              
              22,494
              
              
              16,423**Fixed
                  Charges**Interest
                  on long-term debt
              
              
              18,769
              
              
              16,516
              
              
              58,086
              
              
              51,141Other
                  interest expense
              
              
              2,100
              
              
              1,393
              
              
              5,959
              
              
              4,109Allowance
                  for borrowed funds
              
              
              (3,199
              )
              
              (2,205
              )
              
              (7,771
              )
              
              (5,404
              )17,670
              
              
              15,704
              
              
              56,274
              
              
              49,846**Income
                  Before Income Taxes**
              
              
              121,853
              
              
              106,906
              
              
              254,615
              
              
              252,647**Income
                  Taxes**
              
              
              39,485
              
              
              40,748
              
              
              83,684
              
              
              93,031**Net
                  Income**
              
              
              82,368
              
              
              66,158
              
              
              170,931
              
              
              159,616**Preferred
                  Dividends**
              
              
              312
              
              
              312
              
              
              935
              
              
              933**Earnings
                  on Common Stock**
              
              $
              82,056
              
              $
              65,846
              
              $
              169,996
              
              $
              158,683
 
 The
        accompanying notes are an integral part of these financial
        statements.
  6
  **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 (In
        thousands)
 
 **Nine
                  Months****Ended
                  September 30,****2005**
              
              **2004****(Unaudited)****Net
                  Cash Flows From Operating Activities**Net
                  income
              
              $
              170,931
              
              $
              159,616Adjustments
                  to reconcile net income to net cash provided:Depreciation
                  and amortization
              
              
              215,130
              
              
              222,625Deferred
                  income taxes and investment tax credit, net
              
              
              (13,204
              )
              
              78,782Amortization
                  of other assets and liabilities
              
              
              20,014
              
              
              5,001Impact
                  of changes in working capital:Receivables,
                  net
              
              
              103,701
              
              
              95,717Inventories
              
              
              (2,725
              )
              
              (12,185
              )Accounts
                  payable
              
              
              (10,941
              )
              
              (33,219
              )Taxes
                  accrued
              
              
              13,263
              
              
              (49,374
              )Other
                  current assets and liabilities
              
              
              16,303
              
              
              28,916Other,
                  net
              
              
              (2,890
              )
              
              (753
              )Net
                  cash provided by operating activities
              
              
              509,582
              
              
              495,126**Net
                  Cash Flows From Investing Activities**Utility
                  construction expenditures
              
              
              (497,411
              )
              
              (345,730
              )Quad
                  Cities Station decommissioning trust fund
              
              
              (6,224
              )
              
              (6,224
              )Purchases
                  of available-for-sale securities
              
              
              (133,518
              )
              
              -Proceeds
                  from sales of available-for-sale securities
              
              
              173,018
              
              
              -Other,
                  net
              
              
              1,287
              
              
              17Net
                  cash used in investing activities
              
              
              (462,848
              )
              
              (351,937
              )**Net
                  Cash Flows From Financing Activities**Dividends
                  paid
              
              
              (935
              )
              
              (933
              )Retirement
                  of long-term debt, including reacquisition cost
              
              
              (90,851
              )
              
              (56,021
              )Reacquisition
                  of preferred securities
              
              
              -
              
              
              (1,430
              )Net
                  decrease in notes payable
              
              
              -
              
              
              (48,000
              )Other
              
              
              4,427
              
              
              275Net
                  cash used in financing activities
              
              
              (87,359
              )
              
              (106,109
              )**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              
              (40,625
              )
              
              37,080**Cash
                  and Cash Equivalents at Beginning of Period**
              
              
              88,113
              
              
              3,151**Cash
                  and Cash Equivalents at End of Period**
              
              $
              47,488
              
              $
              40,231**Supplemental
                  Disclosure:**Interest
                  paid, net of amounts capitalized
              
              $
              45,126
              
              $
              41,757Income
                  taxes paid
              
              $
              67,384
              
              $
              45,124
 
 The
        accompanying notes are an integral part of these financial
        statements.
  7
 
 **MIDAMERICAN
        ENERGY COMPANY AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **1.**
              **General**
 
 The
        consolidated financial statements included herein have been prepared by
        MidAmerican Energy Company (“MidAmerican Energy”), without audit, pursuant to
        the rules and regulations of the Securities and Exchange Commission. Certain
        information and disclosures normally included in financial statements prepared
        in accordance with generally accepted accounting principles have been condensed
        or omitted pursuant to such rules and regulations. In the opinion of MidAmerican
        Energy, all adjustments, consisting of normal recurring adjustments, have
        been
        made to present fairly the financial position, the results of operations
        and the
        changes in cash flows for the periods presented. Prior year amounts have
        been
        reclassified to a basis consistent with the current year presentation, including
        the reclassification of auction rate securities. All significant intercompany
        transactions have been eliminated. Although MidAmerican Energy believes that
        the
        disclosures are adequate to make the information presented not misleading,
        it is
        suggested that these financial statements be read in conjunction with the
        consolidated financial statements and the notes thereto included in MidAmerican
        Energy’s latest Annual Report on Form
 10-K.
 
 The
        accompanying Consolidated Balance Sheet as of December 31, 2004, reflects
        a
        $39.5 million reclassification of instruments used in MidAmerican
        Energy’s
        cash management program from Cash and Cash Equivalents to Short-Term
        Investments. This reclassification is to present auction rate securities
        as
        short-term investments rather than as cash equivalents due to the stated
        maturities of these investments. These instruments are classified as
        available-for-sale securities as management does not intend to hold them
        to
        maturity nor are they bought and sold with the objective of generating profits
        on short-term differences in price. The carrying value of these instruments
        approximates their fair value.
 
 MidAmerican
        Energy is a public utility with electric and natural gas operations and is
        the
        principal subsidiary of MHC Inc. (“MHC”). MHC is a direct, wholly owned
        subsidiary of MidAmerican Funding, LLC (“MidAmerican Funding”), whose sole
        member is MidAmerican Energy Holdings Company.
 
 **2.**
              **New
                  Accounting Pronouncements**
 
 In
        March
        2005, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,
        an interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 clarifies
        that the term *conditional
        asset retirement obligation* as used
        in Statement of Financial Accounting Standards No. 143, “Accounting for Asset
        Retirement Obligations,” refers to a legal obligation to perform an asset
        retirement activity in which the timing and/or method of settlement are
        conditional on a future event that may or may not be within the control of
        the
        entity. Accordingly, an entity is required to recognize a liability for the
        fair
        value of a conditional asset retirement obligation if the fair value of the
        liability can be reasonably estimated. Uncertainty about the timing and/or
        method of settlement of a conditional asset retirement obligation should
        be
        factored into the measurement of the liability when sufficient information
        exists. FIN 47 also clarifies when an entity would have sufficient information
        to reasonably estimate the fair value of an asset retirement obligation.
        MidAmerican Energy and MidAmerican Funding are required to adopt the provisions
        of FIN 47 by December 2005. Adoption of FIN 47 is not expected to have a
        material effect on MidAmerican Energy’s or MidAmerican Funding’s financial
        position, results of operations or cash flows.
 
 **3.**
              **Commitments
                  and Contingencies**
 
 (a)
              Air
                  Quality
 
 MidAmerican
        Energy’s generating facilities are subject to applicable provisions of the Clean
        Air Act and related air quality standards promulgated by the United States
        Environmental Protection Agency (“EPA”). The Clean Air Act provides the
        framework for regulation of certain air emissions and permitting and monitoring
        associated with those emissions. MidAmerican Energy believes it is in material
        compliance with current air quality requirements.
 
 The
        EPA
        has in recent years implemented more stringent national ambient air quality
        standards for ozone and new standards for fine particulate matter. These
        standards set the minimum level of air quality that must be met throughout
        the
        United States. Areas that achieve the standards, as determined by ambient
        monitoring, are characterized as being in attainment of the standard. Areas
        that
        fail to meet the standard are designated as being nonattainment areas.
        Generally, once an area has been designated as a nonattainment area, sources
        of
        emissions in the area that contribute to the failure to achieve the ambient
        air
        quality standards are required to make emissions reductions. The EPA has
        concluded that the entire state of Iowa is in attainment of the ozone standards
        and the fine particulate matter standards.
  8
  On
        March 10, 2005, the EPA released the final Clean Air Interstate Rule
        (“CAIR”), calling for reductions of sulfur dioxide (“SO 2 ”)
        and
        nitrogen oxides (“NO x ”)
        in the
        eastern United States through a market-based cap and trade system. While
        the
        state of Iowa has been determined to be in attainment of the ozone and fine
        particulate standards, Iowa has been found to significantly contribute to
        nonattainment of the fine particulate standard in Cook County, Illinois;
        Lake
        County, Indiana; Madison County, Illinois; St. Clair County, Illinois; and
        Marion County, Indiana. The EPA has also concluded that emissions from Iowa
        significantly contribute to ozone nonattainment in Kenosha and Sheboygan
        counties in Wisconsin and Macomb County, Michigan. Under the final CAIR,
        the
        first phase reductions of SO 2 emissions are effective on January 1, 2010, with the second
        phase
        reductions effective January 1, 2015. For NO x ,
        the
        first phase emissions reductions are effective January 1, 2009,
        and
        the second phase reductions are effective January 1, 2015. The CAIR
        calls
        for overall reductions of SO 2 and
        NO x in Iowa
        of 68% and 67%, respectively, by 2015. The CAIR will impact MidAmerican Energy’s
        generating facilities and will require MidAmerican Energy to either reduce
        emissions from those facilities through the installation of emission controls
        or
        purchase additional emission allowances, or some combination
        thereof.
 
 On
        March 15, 2005, the EPA released the final Clean Air Mercury Rule
        (“CAMR”).
        The CAMR utilizes a market-based cap and trade mechanism to reduce mercury
        emissions from coal-burning power plants from the current nationwide level
        of 48
        tons to 15 tons at full implementation. The CAMR’s two-phase reduction program
        requires initial reductions of mercury emission in 2010 and an overall reduction
        in mercury emissions from coal-burning power plants of 70% by 2018. The CAMR
        will impact MidAmerican Energy’s coal-burning generating facilities and will
        require MidAmerican Energy to either reduce emissions from those facilities
        through the installation of emission controls or purchase additional emission
        allowances, or some combination thereof.
 
 The
        CAIR
        or the CAMR could, in whole or in part, be superseded or made more stringent
        by
        one of a number of multi-pollutant emission reduction proposals currently
        under
        consideration at the federal level, including the “Clear Skies Initiative,” and
        other pending legislative proposals that contemplate 70% to 90% reductions
        of
        SO 2 ,
        NO X and
        mercury, as well as possible new federal regulation of carbon dioxide and
        other
        gases that may affect global climate change. In addition to any federal
        legislation that could be enacted by Congress to supersede the CAIR and the
        CAMR, the rules could be changed or overturned as a result of litigation.
        Both
        the CAIR and CAMR have been legally challenged in the United States District
        Court for the District of Columbia. Until the court makes a determination
        regarding the merits of the challenges to the CAIR and CAMR, the full impact
        of
        the rules on MidAmerican Energy cannot be determined.
 
 MidAmerican
        Energy has implemented a planning process that forecasts the site-specific
        controls and actions that may be required to meet emissions reductions as
        promulgated by the EPA. In accordance with an Iowa law passed in 2001,
        MidAmerican Energy has on file with the Iowa Utilities Board (“IUB”) its current
        multi-year plan and budget for managing SO 2 and
        NO X from its
        generating facilities in a cost-effective manner. The plan, which is required
        to
        be updated every two years, provides specific actions to be taken at each
        coal-fired generating facility and the related costs and timing for each
        action.
        On July 17, 2003, the IUB issued an order that affirmed an
        administrative law judge’s approval of the initial plan filed April 1,
        2002, as amended. On October 4, 2004, the IUB issued an order approving
        MidAmerican Energy’s second biennial plan as revised in a settlement MidAmerican
        Energy entered into with the Iowa Office of Consumer Advocate (“OCA”). That plan
        covers the time period from April 1, 2004 through December 31,
        2006.
        Neither IUB order resulted in any changes to electric rates for MidAmerican
        Energy. The effect of the orders is to approve the prudence of expenditures
        made
        consistent with the plans. Pursuant to an unrelated rate settlement agreement
        approved by the IUB on October 17, 2003, if prior to January 1,
        2011, capital and operating expenditures to comply with environmental
        requirements cumulatively exceed $325 million, then MidAmerican Energy
        may
        seek to recover the additional expenditures from customers. Based on a review
        of
        the final CAIR and CAMR, MidAmerican Energy does not expect the qualified
        expenditures to exceed $325 million through January 1,
        2011.
 
 Under
        the
        existing New Source Review (“NSR”) provisions of the Clean Air Act, a utility is
        required to obtain a permit from the EPA or a state regulatory agency prior
        to
        (1) beginning construction of a new major stationary source of an NSR-regulated
        pollutant or (2) making a physical or operational change to an existing facility
        that potentially increases emissions, unless the changes are exempt under
        the
        regulations (including routine maintenance, repair and replacement of
        equipment). In general, projects subject to NSR regulations are subject to
        pre-construction review and permitting under the Prevention of Significant
        Deterioration (“PSD”) provisions of the Clean Air Act. Under the PSD program, a
        project that emits threshold levels of regulated pollutants must undergo
        a Best
        Available Control Technology analysis and evaluate the most effective emissions
        controls. These controls must be installed in order to receive a permit.
        Violations of NSR regulations, which may be alleged by the EPA, states, and
        environmental groups, among others, potentially subject a utility to material
        expenses for fines and other sanctions and remedies including requiring
        installation of enhanced pollution controls and funding supplemental
        environmental projects.
   9
  In
        recent
        years, the EPA has requested from several utilities information and support
        regarding their capital projects for various generating plants. The requests
        were issued as part of an industry-wide investigation to assess compliance
        with
        the NSR and the New Source Performance Standards of the Clean Air Act. In
        December 2002 and April 2003, MidAmerican Energy received requests from the
        EPA
        to provide documentation related to its capital projects from January 1,
        1980, to April 2003 for a number of its generating plants. MidAmerican Energy
        has submitted information to the EPA in responses to these requests, and
        there
        are currently no outstanding data requests pending from the EPA. MidAmerican
        Energy cannot predict the outcome of these requests at this time.
 
 In
        2002
        and 2003, the EPA proposed various changes to its NSR rules that clarify
        what
        constitutes routine repair, maintenance and replacement for purposes of
        triggering NSR requirements. These changes have been subject to legal challenge
        and, until such time as the legal challenges are resolved and the rules are
        effective, MidAmerican Energy will continue to manage projects at its generating
        plants in accordance with the rules in effect prior to 2002. On October 13,
        2005, the EPA proposed a rule that would change its NSR permitting program
        for
        existing power plants and opened a 60-day public comment period. The impact
        of
        these proposed changes on MidAmerican Energy cannot be determined until after
        the rule is finalized and implemented.
 
 (b)
              Nuclear
                  Decommissioning Costs
 
 Expected
        nuclear decommissioning costs for Quad Cities Station have been developed
        based
        on a site-specific decommissioning study that includes decontamination,
        dismantling, site restoration, dry fuel storage cost and an assumed shutdown
        date. Quad Cities Station nuclear decommissioning costs are included in base
        rates in MidAmerican Energy’s Iowa tariffs.
 
 MidAmerican
        Energy’s share of estimated decommissioning costs for Quad Cities Station as of
        September 30, 2005 and December 31, 2004, was $160.8 million
        and
        $154.2 million, respectively, and is reflected in Asset Retirement Obligations
        on the Consolidated Balance Sheet. Refer to Note (14) of MidAmerican Energy’s
        most recently filed Form 10-K for a discussion of asset retirement obligations.
        MidAmerican Energy has established trusts for the investment of funds for
        decommissioning the Quad Cities Station. The fair value of the assets held
        in
        the trusts as of September 30, 2005 and December 31, 2004,
        was
        $225.3 million and $207.5 million, respectively, and is reflected
        in
        Investments and Nonregulated Property, Net on the Consolidated Balance
        Sheets.
 
 (c)
              Manufactured
                  Gas Plant Facilities
 
 The
        EPA
        and the state environmental agencies have determined that contaminated wastes
        remaining at decommissioned manufactured gas plant facilities may pose a
        threat
        to the public health or the environment if such contaminants are in sufficient
        quantities and at such concentrations as to warrant remedial
        action.
 
 MidAmerican
        Energy has evaluated all known properties that were, at one time, sites of
        gas
        manufacturing plants for which it may be a potentially responsible party.
        The
        purpose of these evaluations was to determine whether waste materials are
        present, whether the materials constitute a health or environmental risk,
        and
        whether MidAmerican Energy has any responsibility for remedial action.
        MidAmerican Energy has actively worked with the regulatory agencies and has
        received regulatory closure on fourteen sites. MidAmerican Energy is continuing
        to work with the agencies to obtain regulatory closure on an additional ten
        sites.
 
 MidAmerican
        Energy estimates the range of possible costs for investigation, remediation
        and
        monitoring for the sites discussed above to be approximately $4 million
        to
        $8 million. As of September 30, 2005 and
        December 31, 2004, MidAmerican Energy had recorded a liability
        of
        $4.8 million and $9.3 million, respectively, for these sites
        and a
        corresponding regulatory asset for future recovery through the regulatory
        process. MidAmerican Energy projects that these amounts will be incurred
        or paid
        within the next two years.
  10
  The
        estimated liability is determined through a site-specific cost evaluation
        process. The estimate includes incremental direct costs of remediation, site
        monitoring costs and costs of compensation to employees for time expected
        to be
        spent directly on the remediation effort. The estimated recorded liabilities
        for
        these properties are based upon preliminary data. Thus, actual costs could
        vary
        significantly from the estimates. The estimate could change materially based
        on
        facts and circumstances derived from site investigations, changes in required
        remedial action and changes in technology relating to remedial alternatives.
        Insurance recoveries have been received for some of the sites under
        investigation. Those recoveries are intended to be used principally for
        accelerated remediation, as specified by the IUB and are recorded as a
        regulatory liability.
 
 Although
        the timing of potential incurred costs and recovery of such costs in rates
        may
        affect the results of operations in individual periods, management believes
        that
        the outcome of these issues will not have a material adverse effect on
        MidAmerican Energy’s financial position, results of operations or cash
        flows.
 
 **4.**
              **Rate
                  Matters**
 
 Under
        three settlement agreements between MidAmerican Energy, the OCA and other
        intervenors approved by the IUB, MidAmerican Energy has agreed not to seek
        a
        general increase in electric rates prior to 2012 unless, beginning in 2006,
        its
        Iowa jurisdictional electric return on equity for any year falls below 10%.
        Prior to filing for a general increase in electric rates, MidAmerican Energy
        is
        required to conduct 30 days of good faith negotiations with the signatories
        to
        the settlement agreements to attempt to avoid a general increase in such
        rates.
        As a party to the settlement agreements, the OCA has agreed not to request
        or
        support any decrease in MidAmerican Energy’s Iowa electric rates prior to
        January 1, 2012. The settlement agreements specifically allow the
        IUB to
        approve or order electric rate design or cost of service rate changes that
        could
        result in changes to rates for specific customers as long as such changes
        do not
        result in an overall increase in revenues for MidAmerican Energy. The settlement
        agreements also each provide that portions of revenues associated with Iowa
        retail electric returns on equity within specified ranges will be recorded
        as a
        regulatory liability.
 
 Under
        the
        first settlement agreement, which was approved by the IUB on December 21,
        2001, and is effective through December 31, 2005, an amount equal
        to 50% of
        revenues associated with returns on equity between 12% and 14%, and 83.33%
        of
        revenues associated with returns on equity above 14%, in each year is recorded
        as a regulatory liability. The second settlement agreement, which was filed
        in
        conjunction with MidAmerican Energy’s application for ratemaking principles on
        its wind power project and was approved by the IUB on October 17,
        2003,
        provides that during the period January 1, 2006 through December 31,
        2010, an amount equal to 40% of revenues associated with returns on equity
        between 11.75% and 13%, 50% of revenues associated with returns on equity
        between 13% and 14%, and 83.3% of revenues associated with returns on equity
        above 14%, in each year will be recorded as a regulatory liability.
 
 The
        third
        settlement agreement was approved by the IUB on January 31, 2005,
        in
        conjunction with MidAmerican Energy’s proposed expansion of its wind power
        project by up to 90 megawatts (“MW”). This settlement extended through 2011
        MidAmerican Energy’s commitment not to seek a general increase in electric rates
        unless its Iowa jurisdictional electric return on equity falls below 10%.
        It
        also extended the revenue sharing mechanism through 2011, and the OCA agreed
        to
        commit not to seek any decrease in Iowa electric base rates to become effective
        before January 1, 2012. The total capacity to be added as the
        result
        of the wind expansion project is currently projected to be 50 MW.
 
 The
        regulatory liabilities created by the three settlement agreements are recorded
        as a regulatory charge in depreciation and amortization expense when the
        liability is accrued. Additionally, interest expense is accrued on the portion
        of the regulatory liability balance recorded in prior years. The regulatory
        liabilities created for the years through 2010 are expected to be reduced
        as
        they are credited against plant in service associated with generating plant
        additions. As a result of the credit applied to generating plant balances
        from
        the reduction of the regulatory liabilities, future depreciation will be
        reduced. As of September 30, 2005 and December 31, 2004, the
        related
        regulatory liability reflected on the Consolidated Balance Sheets was
        $222.1 million and $181.2 million, respectively. The regulatory
        liability accrued for 2011, if any, will be credited to customer bills in
        2012.
 
 Illinois
        bundled electric rates are frozen until 2007, subject to certain exceptions
        allowing for increases, at which time bundled rates may be increased or
        decreased by the ICC. Illinois law provides that, through 2006, Illinois
        earnings above a computed level of return on common equity are to be shared
        equally between regulated retail electric customers and MidAmerican Energy.
        MidAmerican Energy’s computed level of return on common equity is based on a
        rolling two-year average of the Monthly Treasury Long-Term Average Rate,
        as
        published by the Federal Reserve System, plus a premium of 8.5% for 2000
        through
        2004 and a premium of 12.5% for 2005 and 2006. The two-year average above
        which
        sharing must occur for 2005 is 15.41%, which reflects a blend of the premiums
        for 2004 and 2005. The law allows MidAmerican Energy to mitigate the sharing
        of
        earnings above the threshold return on common equity through accelerated
        recovery of electric assets.
  11
  **5.**
              **Retirement
                  Plans**
 
 MidAmerican
        Energy sponsors a noncontributory defined benefit pension plan covering
        substantially all employees of MidAmerican Energy Holdings Company and its
        domestic energy subsidiaries. MidAmerican Energy also sponsors certain
        postretirement health care and life insurance benefits covering substantially
        all retired employees of MidAmerican Energy Holdings Company and its domestic
        energy subsidiaries. Non-union employees hired after June 30, 2004,
        are not
        eligible for postretirement benefits other than pensions. Net periodic benefit
        cost for the pension, including supplemental retirement, and postretirement
        benefit plans of MidAmerican Energy and the aforementioned affiliates included
        the following components for the three months and nine months ended
        September 30, (in thousands):
 
 Three
                  Months
              
              Nine
                  MonthsEnded
                  September 30,
              
              Ended
                  September 30,2005
              
              2004
              
              2005
              
              2004PensionComponents
                  of net periodic benefit cost:Service
                  cost
              
              $
              6,459
              
              $
              6,312
              
              $
              19,817
              
              $
              19,256Interest
                  cost
              
              
              9,539
              
              
              8,696
              
              
              27,942
              
              
              26,463Expected
                  return on plan assets
              
              
              (10,239
              )
              
              (9,444
              )
              
              (29,293
              )
              
              (28,816
              )Amortization
                  of net transition balance
              
              
              -
              
              
              (196
              )
              
              -
              
              
              (597
              )Amortization
                  of prior service cost
              
              
              740
              
              
              690
              
              
              2,089
              
              
              2,070Amortization
                  of prior year loss
              
              
              193
              
              
              392
              
              
              960
              
              
              1,177Net
                  periodic benefit cost
              
              $
              6,692
              
              $
              6,450
              
              $
              21,515
              
              $
              19,553PostretirementComponents
                  of net periodic benefit cost:Service
                  cost
              
              $
              1,786
              
              $
              1,992
              
              $
              5,081
              
              $
              6,057Interest
                  cost
              
              
              3,074
              
              
              3,992
              
              
              10,251
              
              
              12,139Expected
                  return on plan assets
              
              
              (2,680
              )
              
              (2,143
              )
              
              (7,322
              )
              
              (6,517
              )Amortization
                  of net transition balance
              
              
              603
              
              
              834
              
              
              1,831
              
              
              2,536Amortization
                  of prior service cost
              
              
              -
              
              
              75
              
              
              -
              
              
              229Amortization
                  of prior year loss
              
              
              342
              
              
              838
              
              
              1,184
              
              
              2,547Net
                  periodic benefit cost
              
              $
              3,125
              
              $
              5,588
              
              $
              11,025
              
              $
              16,991
 
 MidAmerican
        Energy expects to contribute $6.6 million and $15.8 million
        in 2005 to
        its pension and postretirement plans, respectively. For the nine months ended
        September 30, 2005, $4.3 million and $12.1 million
        of
        contributions were made to the pension and postretirement plans,
        respectively.
 
 **6.**
              **Segment
                  Information**
 
 MidAmerican
        Energy has identified four reportable operating segments based principally
        on
        management structure. The generation segment derives most of its revenue
        from
        the sale of regulated and nonregulated wholesale electricity and natural
        gas.
        The energy delivery segment derives its revenue principally from the sale
        and
        delivery of regulated retail electricity and natural gas, while the transmission
        segment obtains most of its revenue from the sale of electric transmission
        capacity. The unregulated retail services segment receives its revenue
        principally from nonregulated retail sales of natural gas and electricity.
        Common operating costs, interest income, interest expense and income tax
        expense
        are allocated to each segment based on MidAmerican Energy allocators most
        related to the nature of the cost.
 
 The
        energy delivery and transmission segments and substantially all of the
        generation segment are regulated as to rates, and other factors, related
        to
        services to external customers. Regulated electric retail revenues are billed
        to
        external customers by the energy delivery segment based on bundled tariffs
        that
        do not segregate components for the other segments. For internal segment
        reporting purposes, MidAmerican Energy has developed transfer prices to transfer
        the appropriate portion of those revenues to the other segments. The transfer
        prices are based on cost of service or tariffed rates, except for the generation
        segment which receives the residual.
   12
  MidAmerican
        Energy’s external revenues by product and service are displayed on the
        Consolidated Statements of Operations.
 
 The
        following tables provide MidAmerican Energy’s operating revenues, earnings on
        common stock and total assets on a reportable operating segment basis (in
        thousands):
 
 Three
                  Months
              
              Nine
                  MonthsEnded
                  September 30,
              
              Ended
                  September 30,2005
              
              2004
              
              2005
              
              2004Segment
                  Profit InformationOperating
                  revenues:External
                  revenues -Generation
              
              $
              182,185
              
              $
              107,808
              
              $
              494,251
              
              $
              430,046Energy
                  delivery
              
              
              459,561
              
              
              397,853
              
              
              1,476,774
              
              
              1,343,548Transmission
              
              
              10,149
              
              
              7,145
              
              
              26,339
              
              
              20,843Unregulated
                  retail services
              
              
              69,762
              
              
              52,447
              
              
              197,899
              
              
              184,719Total
              
              
              721,657
              
              
              565,253
              
              
              2,195,263
              
              
              1,979,156Intersegment
                  revenues -Generation
              
              
              244,062
              
              
              205,400
              
              
              548,331
              
              
              505,515Energy
                  delivery
              
              
              (258,743
              )
              
              (220,171
              )
              
              (592,374
              )
              
              (549,828
              )Transmission
              
              
              14,681
              
              
              14,771
              
              
              44,043
              
              
              44,313Total
              
              
              -
              
              
              -
              
              
              -
              
              
              -Consolidated
              
              $
              721,657
              
              $
              565,253
              
              $
              2,195,263
              
              $
              1,979,156Earnings
                  on common stock:Generation
              
              $
              63,358
              
              $
              47,553
              
              $
              82,395
              
              $
              80,832Energy
                  delivery
              
              
              9,364
              
              
              9,445
              
              
              59,102
              
              
              52,599Transmission
              
              
              10,223
              
              
              8,303
              
              
              27,960
              
              
              22,783Unregulated
                  retail services
              
              
              (889
              )
              
              545
              
              
              539
              
              
              2,469Consolidated
              
              $
              82,056
              
              $
              65,846
              
              $
              169,996
              
              $
              158,683
 
 As
                  ofSeptember 30,
              
              December 31,2005
              
              2004Segment
                  Asset InformationTotal
                  assets:Generation
              
              $
              2,580,662
              
              $
              2,229,909Energy
                  delivery
              
              
              2,530,135
              
              
              2,625,081Transmission
              
              
              330,229
              
              
              277,771Unregulated
                  retail services
              
              
              64,718
              
              
              42,725Total
              
              
              5,505,744
              
              
              5,175,486Reclassifications
                  and intersegment eliminations (a)
              
              
              (60,283
              )
              
              (63,535
              )Consolidated
              
              $
              5,445,461
              
              $
              5,111,951
 
 (a)
              Reclassifications
                  and intersegment eliminations relate principally to the reclassification
                  of income tax balances in accordance with generally accepted accounting
                  principles and the elimination of intersegment accounts receivables
                  and
                  payables.
 
  13
  **7.**
              **Total
                  Comprehensive Income**
 
 MidAmerican
        Energy’s total comprehensive income for the three months ended
        September 30, 2005 and 2004, was $82.1 million and $65.8 million,
        respectively. MidAmerican Energy’s total comprehensive income for the nine
        months ended September 30, 2005 and 2004, was $167.1 million
        and
        $158.3 million, respectively. The difference from Earnings on Common
        Stock
        for the nine months ended September 30, 2004, was due to the
        effective
        portion of net gains and losses, net of income taxes, on MidAmerican Energy’s
        derivative instruments classified as cash flow hedges. For the nine months
        ended
        September 30, 2005, the difference from Earnings on Common Stock was
        due to
        a minimum pension liability adjustment, net of income taxes. Accumulated
        other
        comprehensive loss, net, was $2.9 million and $- million as
        of
        September 30, 2005, and December 31, 2004, respectively.
  14
  
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 To
        the
        Board of Managers and Member
 MidAmerican
        Funding, LLC
 Des
        Moines, Iowa
 
 We
        have
        reviewed the accompanying consolidated balance sheet of MidAmerican Funding,
        LLC
        and subsidiaries (the “Company”) as of September 30, 2005, and the related
        consolidated statements of operations for the three-month and nine-month
        periods
        ended September 30, 2005 and 2004, and of cash flows for the nine-month
        periods ended September 30, 2005 and 2004. These interim financial
        statements are the responsibility of the Company’s management.
 
 We
        conducted our reviews in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). A review of interim financial
        information consists principally of applying analytical procedures and making
        inquiries of persons responsible for financial and accounting matters. It
        is
        substantially less in scope than an audit conducted in accordance with the
        standards of the Public Company Accounting Oversight Board (United States),
        the
        objective of which is the expression of an opinion regarding the financial
        statements taken as a whole. Accordingly, we do not express such an opinion.
 
 Based
        on
        our reviews, we are not aware of any material modifications that should be
        made
        to such consolidated interim financial statements for them to be in conformity
        with accounting principles generally accepted in the United States of
        America.
 
 We
        have
        previously audited, in accordance with the standards of the Public Company
        Accounting Oversight Board (United States), the consolidated balance sheet
        and
        statement of capitalization (not presented herein) of MidAmerican Funding,
        LLC
        and subsidiaries as of December 31, 2004, and the related consolidated
        statements of operations, comprehensive income, retained earnings, and cash
        flows for the year then ended (not presented herein); and in our report dated
        February 25, 2005, we expressed an unqualified opinion on those
        consolidated financial statements. In our opinion, the information set forth
        in
        the accompanying consolidated balance sheet as of December 31, 2004
        is
        fairly stated, in all material respects, in relation to the consolidated
        balance
        sheet from which it has been derived.
 
 
 /s/
        Deloitte & Touche LLP
 
 Des
        Moines, Iowa
 October
        21, 2005
 
  15
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 (In
        thousands)
 
 **As
                  of****September 30,**
              
              **December 31,****2005**
              
              **2004****(Unaudited)****ASSETS****Utility
                  Plant, Net**Electric
              
              $
              5,827,892
              
              $
              5,498,878Gas
              
              
              985,495
              
              
              957,0116,813,387
              
              
              6,455,889Accumulated
                  depreciation and amortization
              
              
              (3,096,128
              )
              
              (2,956,856
              )3,717,259
              
              
              3,499,033Construction
                  work in progress
              
              
              516,789
              
              
              369,4064,234,048
              
              
              3,868,439**Current
                  Assets**Cash
                  and cash equivalents
              
              
              48,570
              
              
              88,367Short-term
                  investments
              
              
              -
              
              
              39,500Receivables,
                  net
              
              
              245,126
              
              
              337,333Inventories
              
              
              92,371
              
              
              89,646Other
              
              
              127,632
              
              
              22,585513,699
              
              
              577,431**Investments
                  and Nonregulated Property, Net**
              
              
              378,004
              
              
              375,230**Goodwill**
              
              
              1,265,979
              
              
              1,268,082**Regulatory
                  Assets**
              
              
              223,981
              
              
              227,997**Other
                  Assets**
              
              
              123,688
              
              
              110,065**Total
                  Assets**
              
              $
              6,739,399
              
              $
              6,427,244**CAPITALIZATION
                  AND LIABILITIES****Capitalization**Member’s
                  equity
              
              $
              2,188,025
              
              $
              2,042,403MidAmerican
                  Energy preferred securities
              
              
              30,329
              
              
              30,329Long-term
                  debt, excluding current portion
              
              
              1,871,796
              
              
              2,031,5094,090,150
              
              
              4,104,241**Current
                  Liabilities**Note
                  payable to affiliate
              
              
              61,000
              
              
              31,500Current
                  portion of long-term debt
              
              
              160,135
              
              
              91,018Accounts
                  payable
              
              
              234,412
              
              
              242,966Taxes
                  accrued
              
              
              89,384
              
              
              77,388Interest
                  accrued
              
              
              25,995
              
              
              29,612Other
              
              
              100,683
              
              
              84,032671,609
              
              
              556,516**Other
                  Liabilities**Deferred
                  income taxes
              
              
              494,901
              
              
              518,004Investment
                  tax credits
              
              
              45,007
              
              
              48,143Asset
                  retirement obligations
              
              
              176,603
              
              
              166,845Regulatory
                  liabilities
              
              
              839,922
              
              
              677,489Other
              
              
              421,207
              
              
              356,0061,977,640
              
              
              1,766,487**Total
                  Capitalization and Liabilities**
              
              $
              6,739,399
              
              $
              6,427,244
 
 The
        accompanying notes are an integral part of these financial
        statements.
  16
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 (In
        thousands)
 
 **Three
                  Months**
              
              **Nine
                  Months****Ended
                  September 30,**
              
              **Ended
                  September 30,****2005**
              
              **2004**
              
              **2005**
              
              **2004****(Unaudited)****Operating
                  Revenues**Regulated
                  electric
              
              $
              467,586
              
              $
              391,751
              
              $
              1,127,434
              
              $
              1,099,310Regulated
                  gas
              
              
              181,228
              
              
              117,190
              
              
              858,671
              
              
              684,430Nonregulated
              
              
              74,494
              
              
              57,507
              
              
              213,195
              
              
              199,175723,308
              
              
              566,448
              
              
              2,199,300
              
              
              1,982,915**Operating
                  Expenses**Regulated:Cost
                  of fuel, energy and capacity
              
              
              145,600
              
              
              91,474
              
              
              336,950
              
              
              304,387Cost
                  of gas sold
              
              
              145,641
              
              
              82,490
              
              
              699,594
              
              
              526,707Other
                  operating expenses
              
              
              94,060
              
              
              93,656
              
              
              279,844
              
              
              276,209Maintenance
              
              
              32,996
              
              
              36,018
              
              
              104,810
              
              
              110,412Depreciation
                  and amortization
              
              
              77,102
              
              
              71,618
              
              
              214,150
              
              
              221,685Property
                  and other taxes
              
              
              23,555
              
              
              22,220
              
              
              71,237
              
              
              69,999518,954
              
              
              397,476
              
              
              1,706,585
              
              
              1,509,399Nonregulated:Cost
                  of sales
              
              
              68,415
              
              
              48,691
              
              
              189,062
              
              
              171,856Other
              
              
              5,693
              
              
              5,046
              
              
              15,486
              
              
              15,93874,108
              
              
              53,737
              
              
              204,548
              
              
              187,794Total
                  operating expenses
              
              
              593,062
              
              
              451,213
              
              
              1,911,133
              
              
              1,697,193**Operating
                  Income**
              
              
              130,246
              
              
              115,235
              
              
              288,167
              
              
              285,722**Non-Operating
                  Income**Interest
                  and dividend income
              
              
              988
              
              
              1,156
              
              
              3,475
              
              
              2,440Other
                  income
              
              
              10,973
              
              
              7,972
              
              
              34,834
              
              
              20,990Other
                  expense
              
              
              (15,416
              )
              
              (755
              )
              
              (19,118
              )
              
              (3,029
              )(3,455
              )
              
              8,373
              
              
              19,191
              
              
              20,401**Fixed
                  Charges**Interest
                  on long-term debt
              
              
              30,543
              
              
              28,293
              
              
              93,408
              
              
              86,423Other
                  interest expense
              
              
              2,561
              
              
              1,516
              
              
              6,982
              
              
              4,372Preferred
                  dividends of subsidiaries
              
              
              312
              
              
              312
              
              
              935
              
              
              933Allowance
                  for borrowed funds
              
              
              (3,199
              )
              
              (2,205
              )
              
              (7,771
              )
              
              (5,404
              )30,217
              
              
              27,916
              
              
              93,554
              
              
              86,324**Income
                  Before Income Taxes**
              
              
              96,574
              
              
              95,692
              
              
              213,804
              
              
              219,799**Income
                  Taxes**
              
              
              29,653
              
              
              36,069
              
              
              65,317
              
              
              84,065**Net
                  Income**
              
              $
              66,921
              
              $
              59,623
              
              $
              148,487
              
              $
              135,734
 
 The
        accompanying notes are an integral part of these financial
        statements.
  17
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 (In
        thousands)
 
 **Nine
                  Months****Ended
                  September 30**,**2005**
              
              **2004****(Unaudited)****Net
                  Cash Flows From Operating Activities**Net
                  income
              
              $
              148,487
              
              $
              135,734Adjustments
                  to reconcile net income to net cash provided:Depreciation
                  and amortization
              
              
              215,279
              
              
              222,775Deferred
                  income taxes and investment tax credit, net
              
              
              (28,207
              )
              
              77,484Amortization
                  of other assets and liabilities
              
              
              18,576
              
              
              4,093Gain
                  on sale of securities, assets and other investments
              
              
              (10,648
              )
              
              (316
              )Loss
                  from impairment of assets and other investments
              
              
              15,841
              
              
              -Impact
                  of changes in working capital:Receivables,
                  net
              
              
              103,150
              
              
              90,314Inventories
              
              
              (2,725
              )
              
              (12,185
              )Accounts
                  payable
              
              
              (11,349
              )
              
              (33,481
              )Taxes
                  accrued
              
              
              11,996
              
              
              (50,468
              )Other
                  current assets and liabilities
              
              
              4,944
              
              
              16,906Other,
                  net
              
              
              2,544
              
              
              6,577Net
                  cash provided by operating activities
              
              
              467,888
              
              
              457,433**Net
                  Cash Flows From Investing Activities**Utility
                  construction expenditures
              
              
              (497,411
              )
              
              (345,730
              )Quad
                  Cities Station decommissioning trust fund
              
              
              (6,224
              )
              
              (6,224
              )Purchases
                  of available-for-sale securities
              
              
              (133,518
              )
              
              -Proceeds
                  from sales of available-for-sale securities
              
              
              174,631
              
              
              1,511Proceeds
                  from sales of assets and other investments
              
              
              11,100
              
              
              7Other,
                  net
              
              
              661
              
              
              4,294Net
                  cash used in investing activities
              
              
              (450,761
              )
              
              (346,142
              )**Net
                  Cash Flows From Financing Activities**Retirement
                  of long-term debt, including reacquisition cost
              
              
              (90,851
              )
              
              (56,021
              )Reacquisition
                  of preferred securities
              
              
              -
              
              
              (1,430
              )Note
                  payable to affiliate
              
              
              29,500
              
              
              29,800Net
                  decrease in notes payable
              
              
              -
              
              
              (48,000
              )Other
              
              
              4,427
              
              
              275Net
                  cash used in financing activities
              
              
              (56,924
              )
              
              (75,376
              )**Net
                  Increase (Decrease) in Cash and Cash Equivalents**
              
              
              (39,797
              )
              
              35,915**Cash
                  and Cash Equivalents at Beginning of Period**
              
              
              88,367
              
              
              4,558**Cash
                  and Cash Equivalents at End of Period**
              
              $
              48,570
              
              $
              40,473**Supplemental
                  Disclosure:**Interest
                  paid, net of amounts capitalized
              
              $
              93,111
              
              $
              89,081Income
                  taxes paid
              
              $
              63,198
              
              $
              33,884
 
 The
        accompanying notes are an integral part of these financial
        statements.
 18
  **MIDAMERICAN
        FUNDING, LLC AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **1.**
              **General**
 
 The
        consolidated financial statements included herein have been prepared by
        MidAmerican Funding, LLC (“MidAmerican Funding”), without audit, pursuant to the
        rules and regulations of the Securities and Exchange Commission. Certain
        information and disclosures normally included in financial statements prepared
        in accordance with generally accepted accounting principles have been condensed
        or omitted pursuant to such rules and regulations. In the opinion of MidAmerican
        Funding, all adjustments, consisting of normal recurring adjustments, have
        been
        made to present fairly the financial position, the results of operations
        and the
        changes in cash flows for the periods presented. Prior year amounts have
        been
        reclassified to a basis consistent with the current year presentation, including
        the reclassification of auction rate securities. All significant intercompany
        transactions have been eliminated. Although MidAmerican Funding believes
        that
        the disclosures are adequate to make the information presented not misleading,
        it is suggested that these financial statements be read in conjunction with
        the
        consolidated financial statements and the notes thereto included in MidAmerican
        Funding’s latest Annual Report on Form 10-K.
 
 The
        accompanying Consolidated Balance Sheet as of December 31, 2004, reflects
        a
        $39.5 million reclassification of instruments used in MidAmerican
        Energy’s
        cash management program from Cash and Cash Equivalents to Short-Term
        Investments. This reclassification is to present auction rate securities
        as
        short-term investments rather than as cash equivalents due to the stated
        maturities of these investments. These instruments are classified as
        available-for-sale securities as management does not intend to hold them
        to
        maturity nor are they bought and sold with the objective of generating profits
        on short-term differences in price. The carrying value of these instruments
        approximates their fair value.
 
 MidAmerican
        Funding is an Iowa limited liability company with MidAmerican Energy Holdings
        Company as its sole member. MidAmerican Funding’s direct, wholly owned
        subsidiary is MHC Inc. (“MHC”), which constitutes substantially all of
        MidAmerican Funding's assets, liabilities and business activities except
        those
        related to MidAmerican Funding's long-term debt securities. MHC, MidAmerican
        Funding and MidAmerican Energy Holdings Company are exempt public utility
        holding companies headquartered in Des Moines, Iowa. MHC’s principal subsidiary
        is MidAmerican Energy Company, a public utility with electric and natural
        gas
        operations. Other direct, wholly owned subsidiaries of MHC include InterCoast
        Capital Company, Midwest Capital Group, Inc., MidAmerican Services Company
        and
        MEC Construction Services Co.
 
 **2.**
              **New
                  Accounting Pronouncements**
 
 Refer
        to
        Note 2 of MidAmerican Energy’s Notes to Consolidated Financial Statements for
        information regarding MidAmerican Funding’s new accounting
        pronouncements
 
 **3.**
              **Commitments
                  and Contingencies**
 
 Refer
        to
        Note 3 of MidAmerican Energy’s Notes to Consolidated Financial Statements for
        information regarding MidAmerican Funding’s commitments and
        contingencies.
 
 **4.**
              **Rate
                  Matters**
 
 Refer
        to
        Note 4 of MidAmerican Energy’s Notes to Consolidated Financial Statements for
        information regarding MidAmerican Funding’s rate matters.
 
 **5.**
              **Retirement
                  Plans**
 
 Refer
        to
        Note 5 of MidAmerican Energy’s Notes to Consolidated Financial Statements for
        information regarding MidAmerican Funding's retirement plans.
 
  19
  **6.**
              **Segment
                  Information**
 
 MidAmerican
        Funding has identified four reportable operating segments based principally
        on
        management structure. The generation segment derives most of its revenue
        from
        the sale of regulated and nonregulated wholesale electricity and natural
        gas.
        The energy delivery segment derives its revenue principally from the sale
        and
        delivery of regulated retail electricity and natural gas, while the transmission
        segment obtains most of its revenue from the sale of electric transmission
        capacity. The unregulated retail services segment receives its revenue
        principally from nonregulated retail sales of natural gas and electricity.
        Common operating costs, interest income, interest expense and income tax
        expense
        are allocated to each segment based on MidAmerican Energy allocators most
        related to the nature of the cost.
 
 The
        energy delivery and transmission segments and substantially all of the
        generation segment are regulated as to rates, and other factors, related
        to
        services to external customers. Regulated electric retail revenues are billed
        to
        external customers by the energy delivery segment based on bundled tariffs
        that
        do not segregate components for the other segments. For internal segment
        reporting purposes, MidAmerican Energy has developed transfer prices to transfer
        the appropriate portion of those revenues to the other segments. The transfer
        prices are based on cost of service or tariffed rates, except for the generation
        segment which receives the residual.
 
 MidAmerican
        Funding’s external revenues by product and service are displayed on the
        Consolidated Statements of Operations.
 
  20
  The
        following tables provide MidAmerican Funding’s operating revenues, net income
        and total assets on a reportable operating segment basis (in
        thousands):
 
 Three
                  Months
              
              Nine
                  MonthsEnded
                  September 30,
              
              Ended
                  September 30,2005
              
              2004
              
              2005
              
              2004Segment
                  Profit InformationOperating
                  revenues:External
                  revenues -Generation
              
              $
              182,185
              
              $
              107,808
              
              $
              494,251
              
              $
              430,046Energy
                  delivery
              
              
              459,561
              
              
              397,853
              
              
              1,476,774
              
              
              1,343,548Transmission
              
              
              10,149
              
              
              7,145
              
              
              26,339
              
              
              20,843Unregulated
                  retail services
              
              
              69,762
              
              
              52,447
              
              
              197,899
              
              
              184,719Other
              
              
              1,651
              
              
              1,195
              
              
              4,037
              
              
              3,759Total
              
              
              723,308
              
              
              566,448
              
              
              2,199,300
              
              
              1,982,915Intersegment
                  revenues -Generation
              
              
              244,062
              
              
              205,400
              
              
              548,331
              
              
              505,515Energy
                  delivery
              
              
              (258,743
              )
              
              (220,171
              )
              
              (592,374
              )
              
              (549,828
              )Transmission
              
              
              14,681
              
              
              14,771
              
              
              44,043
              
              
              44,313Total
              
              
              -
              
              
              -
              
              
              -
              
              
              -Consolidated
              
              $
              723,308
              
              $
              566,448
              
              $
              2,199,300
              
              $
              1,982,915Net
                  income:Generation
              
              $
              63,358
              
              $
              47,553
              
              $
              82,395
              
              $
              80,832Energy
                  delivery
              
              
              9,364
              
              
              9,445
              
              
              59,102
              
              
              52,599Transmission
              
              
              10,223
              
              
              8,303
              
              
              27,960
              
              
              22,783Unregulated
                  retail services
              
              
              (889
              )
              
              545
              
              
              539
              
              
              2,469Other
              
              
              (15,135
              )
              
              (6,223
              )
              
              (21,509
              )
              
              (22,949
              )Consolidated
              
              $
              66,921
              
              $
              59,623
              
              $
              148,487
              
              $
              135,734
 
 As
                  ofSeptember 30,
              
              December 31,2005
              
              
              2004Segment
                  Asset InformationTotal
                  assets (a):Generation
              
              $
              3,501,995
              
              $
              3,153,106Energy
                  delivery
              
              
              2,791,271
              
              
              2,886,213Transmission
              
              
              413,739
              
              
              361,524Unregulated
                  retail services
              
              
              64,718
              
              
              42,725Other
              
              
              247,876
              
              
              227,258Total
              
              
              7,019,599
              
              
              6,670,826Reclassifications
                  and intersegment eliminations (b)
              
              
              (280,200
              )
              
              (243,582
              )Consolidated
              
              $
              6,739,399
              
              $
              6,427,244
 
 (a)
              Total
                  assets by operating segment reflect the assignment of goodwill
                  to
                  applicable reporting units in accordance with Statement of Financial
                  Accounting Standards No. 142, “Goodwill and Other Intangible
                  Assets.”(b)
              Reclassifications
                  and intersegment eliminations relate principally to the reclassification
                  of income tax balances in accordance with generally accepted accounting
                  principles and the elimination of intersegment accounts receivables
                  and
                  payables.
  21
  **7.**
              **Total
                  Comprehensive Income**
 
 MidAmerican
        Funding’s total comprehensive income for the three months ended
        September 30, 2005 and 2004, was $66.9 million and $59.4 million,
        respectively. MidAmerican Funding’s total comprehensive income for the nine
        months ended September 30, 2005 and 2004, was $145.6 million
        and
        $135.0 million, respectively. The difference from Net Income for the
        nine
        months ended September 30, 2004, was due to the effective portion
        of net
        gains and losses, net of income taxes, on MidAmerican Energy’s derivative
        instruments classified as cash flow hedges. For the nine months ended
        September 30, 2005, the difference from Net Income was substantially
        due to
        a minimum pension liability adjustment, net of income taxes. Accumulated
        other
        comprehensive loss, net, was $2.8 million and $- million as
        of
        September 30, 2005, and December 31, 2004, respectively.
 
 **8.**
              **Goodwill**
 
 For
        the
        nine months ended September 30, 2005, MidAmerican Funding adjusted
        goodwill
        for a change in deferred income taxes due to resolution of a tax matter existing
        at the time of its purchase of MHC. The following table shows the change
        in the
        carrying amount of goodwill by reportable operating segment for the nine
        months
        ended September 30, 2005 (in thousands):
 
 EnergyGeneration
              
              Delivery
              
              Transmission
              
              TotalBalance
                  at January 1, 2005
              
              $
              922,859
              
              $
              261,575
              
              $
              83,648
              
              $
              1,268,082Income
                  tax adjustment
              
              
              (1,526
              )
              
              (439
              )
              
              (138
              )
              
              (2,103
              )Balance
                  at September 30, 2005
              
              $
              921,333
              
              $
              261,136
              
              $
              83,510
              
              $
              1,265,979
 
 **9.**
              **Impairments
                  of Commercial Aircraft**
 
 MidAmerican
        Funding has investments in commercial passenger aircraft leased to
        major
        domestic airlines, which are accounted for as leveraged leases.  During
        the
        third quarter of 2005, two major airline carriers filed for bankruptcy.
        MidAmerican Funding evaluated its investments in commercial passenger
        aircraft and recognized losses totaling $14.0 million, or $8.8 million
        after tax, for other-than-temporary impairments of those investments
        in the third quarter of 2005. During the first quarter of 2005, MidAmerican
        Funding recognized a $1.8 million loss, or a $0.3 million after-tax
        gain,
        for an other-than-temporary impairment of its investment in
        other commercial passenger aircraft as a result of the bankruptcy
        filing of another major carrier. The losses for the impairments are
        reflected in Other Expense on the Consolidated Statements of
        Operations and in Other for segment reporting purposes.
 
  22
  **Item 2.**
              **Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations.**
 
 MidAmerican
        Energy Company (“MidAmerican Energy”) is a public utility with electric and
        natural gas operations and is the principal subsidiary within MidAmerican
        Funding, LLC (“MidAmerican Funding”).
 
 Management’s
        Discussion and Analysis (“MD&A”) addresses the financial statements of
        MidAmerican Funding and its subsidiaries and MidAmerican Energy and its
        subsidiary as presented in this joint filing. Information in MD&A related to
        MidAmerican Energy, whether or not segregated, also relates to MidAmerican
        Funding. Information related to other subsidiaries of MidAmerican Funding
        pertains only to the discussion of the financial condition and results of
        operations of MidAmerican Funding. Where necessary, discussions have been
        segregated under the heading “MidAmerican Funding” to allow the reader to
        identify information applicable to MidAmerican Funding, excluding MidAmerican
        Energy.
 
 MD&A
        should be read in conjunction with the financial statements included in this
        Form 10-Q and the notes to those statements, together with MD&A in
        MidAmerican Energy’s and MidAmerican Funding’s most recently filed Annual Report
        on Form 10-K.
 
 **Forward-Looking
        Statements**
 
 From
        time
        to time, MidAmerican Funding, or one of its subsidiaries individually, including
        MidAmerican Energy, may make forward-looking statements within the meaning
        of
        the federal securities laws that involve judgments, assumptions and other
        uncertainties beyond the control of MidAmerican Funding or any of its
        subsidiaries individually. These forward-looking statements may include,
        among
        others, statements concerning revenue and cost trends, cost recovery, cost
        reduction strategies and anticipated outcomes, pricing strategies, changes
        in
        the utility industry, planned capital expenditures, financing needs and
        availability, statements of MidAmerican Funding’s expectations, beliefs, future
        plans and strategies, anticipated events or trends and similar comments
        concerning matters that are not historical facts. These types of forward-looking
        statements are based on current expectations and involve a number of known
        and
        unknown risks and uncertainties that could cause the actual results and
        performance of MidAmerican Funding to differ materially from any expected
        future
        results or performance, expressed or implied, by the forward-looking statements.
        In connection with the safe harbor provisions of the Private Securities
        Litigation Reform Act of 1995, MidAmerican Funding has identified important
        factors that could cause actual results to differ materially from those
        expectations, including weather effects on sales volumes and revenues, fuel
        prices, fuel transportation and other operating uncertainties, acquisition
        uncertainty, uncertainties relating to economic and political conditions
        and
        uncertainties regarding the impact of regulations, changes in government
        policy,
        utility industry deregulation and competition. Neither MidAmerican Funding,
        nor
        any one of its subsidiaries individually, assumes any responsibility to update
        forward-looking information contained herein.
 
 **Executive
        Summary**
 
 The
        earnings of MidAmerican Energy and MidAmerican Funding increased for both
        the
        three months and nine months ended September 30, 2005, over the comparable
        periods of 2004.  The
        following events and changes, as discussed in more detail herein, highlight
        some
        factors that had an effect on MidAmerican Energy’s and MidAmerican Funding’s
        operating results, liquidity and capital resources:
  ·
                Electric
                    retail gross margin increased $15.0 million in the third quarter
                    of 2005
                    over the third quarter of 2004 due to temperatures that were
                    24.6% higher
                    than normal for the period compared to temperatures that were
                    24.9% lower
                    than normal in the third quarter of 2004. Increased electric
                    retail
                    margins in the third quarter of 2005 offset unfavorable variances
                    in
                    electric wholesale margins in the first quarter of 2005 compared
                    to the
                    comparable periods in 2004 that were due primarily to the unavailability
                    of certain base load generation resources and resulted in lost
                    sale
                    opportunities and more costly replacement power
                    costs.
 
 ·
                During
                    the nine months ended September 30, 2005, MidAmerican
                    Funding
                    recognized pre-tax losses of $15.8 million, or $8.5 million after-tax,
                    on
                    its commercial aircraft leveraged leases, reflecting continued
                    deterioration in the airline industry. These losses more than
                    offset $9.9
                    million of gains, or $6.4 million after-tax, recognized in the
                    first
                    quarter of 2005 on the sale of non-strategic nonregulated investments.
                    The
                    remaining carrying values of MidAmerican Funding’s commercial aircraft
                    leveraged leases are not material.
  23
  ·
                MidAmerican
                    Energy is currently constructing a 790-megawatt (“MW”)(expected
                    accreditation) super-critical-temperature, coal-fired generation
                    project
                    and a 360-MW (nameplate rating) wind power project in Iowa and
                    expects to
                    invest approximately $1.1 billion in the projects through
                    2007.
                    Through September 30, 2005, $622.0 million
                    of the
                    $1.1 billion had been invested. In December 2004, 160.5 MW
                    of
                    the wind power project was completed and placed in service. During
                    the
                    third quarter of 2005, another 150.0 MW of wind power was placed
                    in
                    service. The remaining 50 MW of the wind power project is expected
                    to be
                    completed in the fourth quarter of
                    2005.
  **Results
        of Operations for the Quarter Ended September 30, 2005 and
        2004**
 
 Earnings
        Overview
 
 MidAmerican
        Energy’s earnings on common stock increased $16.3 million to
        $82.1 million for the third quarter of 2005 compared to $65.8 million
        for the third quarter of 2004. MidAmerican Funding’s net income increased
        $7.3 million to $66.9 million for the third quarter of 2005
        compared
        to $59.6 million for the third quarter of 2004.
 
 Following
        is a discussion of various factors that affected earnings. Explanations include
        management's best estimate of the impact of weather, customer growth and
        other
        factors.
 
 Regulated
        Electric Gross Margin
 
 QuarterEnded
                  September 30,2005
              
              2004Gross
                  margin (in millions):Operating
                  revenues
              
              $
              467.6
              
              $
              391.8Less
                  cost of fuel, energy and capacity
              
              
              145.6
              
              
              91.5Electric
                  gross margin
              
              $
              322.0
              
              $
              300.3Sales
                  (gigawatt-hours):Residential
              
              
              1,928
              
              
              1,527Small
                  general service
              
              
              1,157
              
              
              1,063Large
                  general service
              
              
              1,940
              
              
              1,898Other
              
              
              390
              
              
              360Total
                  retail
              
              
              5,415
              
              
              4,848Wholesale
              
              
              2,154
              
              
              1,942Total
              
              
              7,569
              
              
              6,790
 
 Electric
        gross margin for the third quarter of 2005 increased $21.7 million
        compared
        to the third quarter of 2004. Gross margin on electric retail sales increased
        $15.0 million, transmission revenues increased $3.0 million,
        cost of
        sales for electric capacity purchases decreased $1.9 million, and
        gross
        margin on electric wholesale sales increased $2.6 million.
 
 The
        increase in gross margin on electric retail sales is due to an 11.7% increase
        in
        sales volumes compared to the third quarter of 2004. The effect of temperature
        conditions during the third quarter of 2005 compared to the third quarter
        of
        2004 resulted in a $26.8 million increase in electric retail gross
        margin.
        A 1.3% increase in the average number of retail customers improved electric
        retail gross margin by $3.5 million compared to the third quarter
        of 2004,
        while electricity usage factors not dependent on weather, such as changes
        in
        individual customer usage patterns, increased electric margin by $3.4 million.
        An increase in fuel costs related to Iowa retail electric sales decreased
        electric retail gross margin by $18.7 million compared to the third
        quarter
        of 2004 due principally to MidAmerican Energy’s increased use of gas-fired
        generation and higher prices for purchased energy.
 
 Sales
        of
        energy to other utilities, municipalities and marketers inside and outside
        of
        MidAmerican Energy's delivery system are classified as wholesale. The increase
        in gross margin on electric wholesale energy sales is due to a 10.9% increase
        in
        sales volumes compared to the third quarter of 2004, which resulted in a
        $3.2 million increase in electric wholesale gross margin. This increase
        was
        partially offset by a $0.6 million decrease due to a reduction in the average
        margin per megawatt hour sold as a result of a higher cost of
        energy.
   24
  Regulated
        Gas Gross Margin
 
 QuarterEnded
                  September 30,2005
              
              2004Gross
                  margin (in millions)Operating
                  revenues
              
              $
              181.2
              
              $
              117.2Less
                  cost of gas sold
              
              
              145.6
              
              
              82.5Gas
                  gross margin
              
              $
              35.6
              
              $
              34.7Sales
                  (000’s decatherms):Residential
              
              
              3,041
              
              
              2,895Small
                  general service
              
              
              1,809
              
              
              1,718Large
                  general service
              
              
              1,066
              
              
              271Other
              
              
              2
              
              
              62Total
                  retail
              
              
              5,918
              
              
              4,946Wholesale
              
              
              10,170
              
              
              6,897Total
              
              
              16,088
              
              
              11,843
 
 Regulated
        gas revenues include purchased gas adjustment clauses through which MidAmerican
        Energy is allowed to recover the cost of gas sold from its retail gas utility
        customers. Consequently, fluctuations in the cost of gas sold do not affect
        gross margin or net income because revenues reflect comparable fluctuations
        through the purchased gas adjustment clauses. Compared to the third quarter
        of
        2004, MidAmerican Energy’s average per-unit cost of gas sold increased 30.0%,
        resulting in a $33.6 million increase in cost of gas sold for the
        quarter.
        The remainder of the increase in cost of gas sold was due to the increase
        in
        sales volumes.
 
 The
        following table summarizes the variance in gas operating revenues, including
        the
        impact of the fluctuation in the cost of gas sold. The variances in gas
        operating revenues other than the fluctuation in cost of gas sold have the
        same
        impact on gross margin.
 
 Quarter
                  EndedSeptember 30,2005
                  vs. 2004(In
                  millions)Change
                  in cost of gas sold:Cost
                  per unit
              
              $
              33.6Sales
                  volumes
              
              
              29.5Total
              
              
              63.1Weather
              
              
              (0.5
              )Other
                  gas usage factors
              
              
              0.9Customer
                  growth
              
              
              0.4Other
              
              
              0.1Total
                  revenue variance
              
              $
              64.0
 
 Other
        gas
        usage factors, such as changes in individual customer usage patterns, increased
        gas margin, while warmer temperatures decreased gas margin. MidAmerican Energy's
        average number of gas retail customers increased 1.3% compared to the third
        quarter of 2004.
 
  25
  Regulated
        Operating Expenses
 
 Maintenance
        expenses for the third quarter of 2005 decreased $3.0 million compared
        to
        the third quarter of 2004 due to a $4.4 million decrease in fossil
        fuel
        generating maintenance as a result of the timing of preventive maintenance.
        The
        decrease was partially offset by increases in distribution and general plant
        maintenance.
 
 Depreciation
        and amortization expense for the third quarter of 2005 increased
        $5.5 million compared to the third quarter of 2004 in part due to
        a
        $3.5 million increase in regulatory expense related to a revenue sharing
        arrangement in Iowa due to improved Iowa electric equity returns. Refer to
        the
“Utility Regulatory Matters” section for an explanation of the revenue sharing
        arrangement. Additionally, utility plant depreciation and amortization increased
        $2.2 million in part due to phase two of the Greater Des Moines Energy
        Center and the wind power facilities placed in service in December
        2004.
 
 Nonregulated
        Gross Margin
 
 QuarterEnded
                  September 30,2005
              
              2004(In
                  millions)MidAmerican
                  Energy -Nonregulated
                  operating revenues
              
              $
              72.8
              
              $
              56.3Less
                  nonregulated cost of sales
              
              
              68.0
              
              
              48.4Nonregulated
                  gross margin
              
              $
              4.8
              
              $
              7.9MidAmerican
                  Funding Consolidated -Nonregulated
                  operating revenues
              
              $
              74.5
              
              $
              57.5Less
                  nonregulated cost of sales
              
              
              68.4
              
              
              48.7Nonregulated
                  gross margin
              
              $
              6.1
              
              $
              8.8
 
 MidAmerican
        Energy’s nonregulated retail electric marketing services provide electric supply
        services to retail customers in Illinois, Ohio and Michigan. A 37.0% increase
        in
        nonregulated retail electric sales volumes combined with increases in the
        average revenue and cost per megawatt hour sold resulted in increases in
        related
        revenues and cost of sales totaling $16.0 million and $16.1 million,
        respectively.
 
 MidAmerican
        Energy’s nonregulated retail gas marketing services operate in Iowa, Illinois,
        Ohio and South Dakota. MidAmerican Energy purchases gas from producers and
        third
        party marketers and sells it directly to large commercial end-users. In
        addition, MidAmerican Energy manages gas supplies for a number of smaller
        commercial end-users, which includes the sale of gas to these customers to
        meet
        their supply requirements. A 16.3% decrease in nonregulated retail gas sales
        volumes compared to the third quarter of 2004, offset partially by increases
        in
        the average revenue and cost per unit sold, resulted in decreases in related
        revenues and cost of sales of $3.4 million and $3.7 million,
        respectively. The decrease in nonregulated retail gas sales volumes was due
        in
        large part to the non-renewal of sales contracts as a result of a related
        regulatory issue in Illinois. Refer to “Rate Matters” for a discussion of the
        issue.
 
 Gross
        margin on nonregulated wholesale gas sales decreased $3.1 million compared
        to
        the third quarter of 2004 due to the timing of net earnings and losses on
        gas
        transportation contracts.
 
 Other
        Income and Expense
 
 MidAmerican
        Energy -
 
 As
        a
        regulated public utility, MidAmerican Energy is allowed to capitalize, and
        record as income, a cost of construction for equity funds used, based on
        guidelines set forth by the Federal Energy Regulatory Commission (“FERC”). Other
        income for the capitalized allowance on equity funds used during construction
        totaled $7.8 million and $5.2 million in the third quarter
        of 2005 and
        2004, respectively. MidAmerican Energy expects to continue to record
        higher-than-normal income for the allowance on equity funds used during
        construction through 2007 while the announced generating facilities are
        constructed.
 
  26
  MidAmerican
        Funding -
 
 Other
        expense for the third quarter of 2005 includes write-downs of MidAmerican
        Funding’s investments in commercial passenger aircraft, which it accounts for as
        leveraged leases. MidAmerican Funding’s evaluation of its investments in these
        aircraft resulted in write-downs totaling $14.0 million, or $8.8 million
        after-tax, in the third quarter of 2005. The write-downs reflect a continued
        deterioration in the airline industry, including the bankruptcy filings of
        two
        major carriers during the third quarter of 2005.
 
 Fixed
        Charges
 
 The
        increase in interest on long-term debt was due to interest on the
        $350.0 million of MidAmerican Energy long-term debt issued on
        October 1, 2004, offset partially by the maturity of higher
        rate debt
        in 2005. Other interest expense increased due to a higher balance of the
        Iowa
        revenue sharing liability. MidAmerican Energy is allowed to capitalize, and
        record as a reduction to fixed charges, a cost of construction for debt funds
        used, based on guidelines set forth by the FERC. Allowance for borrowed funds
        increased due to increased utility construction expenditures. MidAmerican
        Energy
        expects to continue to record higher-than-normal allowance for borrowed funds
        used during construction through 2007 while the announced generating facilities
        are constructed.
 
 Income
        Taxes
 
 In
        October 2004, federal law was enacted that extends the federal production
        tax
        credit for electricity produced by wind energy facilities placed in service
        prior to January 1, 2006. Accordingly, in 2005, MidAmerican Energy’s income
        taxes for the three months ended September 30, 2005, were reduced
        $4.4 million by the production tax credits related to energy produced
        by
        its wind power facilities.
 
 State
        utility rate regulation in Iowa requires that the tax effect of certain timing
        differences be flowed through immediately to customers. Accordingly, amounts
        that would otherwise have been recognized in income tax expense have been
        included as changes in regulatory assets. This flow-through treatment of
        such
        timing differences impacts the effective tax rates from year to
        year.
 
  27
  **Results
        of Operations for the Nine Months Ended September 30, 2005 and
        2004**
 
 Earnings
        Overview
 
 MidAmerican
        Energy’s earnings on common stock increased $11.3 million to
        $170.0 million for the first nine months of 2005 compared to
        $158.7 million for the first nine months of 2004. MidAmerican Funding’s net
        income increased $12.8 million to $148.5 million for the first
        nine
        months of 2005 compared to $135.7 million for the first nine months
        of
        2004.
 
 Following
        is a discussion of various factors that affected earnings. Explanations include
        management's best estimate of the impact of weather, customer growth and
        other
        factors.
 
 Regulated
        Electric Gross Margin
 
 Nine
                  MonthsEnded
                  September 30,2005
              
              2004Gross
                  margin (in millions):Operating
                  revenues
              
              $
              1,127.4
              
              $
              1,099.3Less
                  cost of fuel, energy and capacity
              
              
              337.0
              
              
              304.4Electric
                  gross margin
              
              $
              790.4
              
              $
              794.9Sales
                  (gigawatt-hours):Residential
              
              
              4,520
              
              
              4,098Small
                  general service
              
              
              3,114
              
              
              2,980Large
                  general service
              
              
              5,624
              
              
              5,445Other
              
              
              1,098
              
              
              1,031Total
                  retail
              
              
              14,356
              
              
              13,554Wholesale
              
              
              5,922
              
              
              7,192Total
              
              
              20,278
              
              
              20,746
 
 Electric
        gross margin for the first nine months of 2005 decreased $4.5 million
        compared to the first nine months of 2004 due to a $39.7 million decrease
        in gross margin on wholesale sales primarily as a result of generation outages
        in the first quarter of 2005. The decrease in wholesale gross margin was
        substantially offset by a $15.2 million decrease in MidAmerican Energy’s
        cost of sales for electric capacity purchases, a $13.7 million increase in
        retail gross margin as a result of warmer weather in the third quarter of
        2005
        and customer growth, and a $5.5 million increase in transmission
        revenues.
 
 Sales
        of
        energy to other utilities, municipalities and marketers inside and outside
        of
        MidAmerican Energy's delivery system are classified as wholesale. A change
        in
        the mix of higher-priced on-peak and lower-priced off-peak sales and a higher
        average cost of energy caused a decrease in the average electric wholesale
        margin per megawatt hour sold, reducing electric wholesale gross margin by
        $22.7 million compared to the first nine months of 2004. Additionally,
        a
        17.7% decrease in wholesale sales volumes reduced electric wholesale gross
        margin by $17.0 million. The timing of planned generation outages,
        mainly
        for the Louisa Generating Station, and the loss of generating capacity at
        the
        OGS Unit No. 1, which experienced a failure of its step-up transformer
        on
        February 20, 2005, resulted in lost wholesale sales opportunities.
        OGS Unit
        No. 1 returned to service on May 3, 2005. An increase in electric
        retail sales also reduced the availability of competitively priced generation,
        contributing to the decrease in wholesale sales volumes.
 
 Gross
        margin on electric retail sales increased $13.7 million, with electric retail
        sales volumes increasing 5.9% compared to the first nine months of 2004.
        The
        effect of temperature conditions during the first nine months of 2005 compared
        to the first nine months of 2004 resulted in a $31.7 million increase
        in
        electric retail gross margin. A 1.3% increase in the average number of retail
        customers improved electric retail gross margin by $9.8 million compared
        to
        the first nine months of 2004, while electricity usage factors not dependent
        on
        weather, such as changes in individual customer usage patterns, increased
        electric margin by $7.3 million. Revenues from the recovery of energy
        efficiency program costs increased $2.9 million compared to the first
        nine
        months of 2004. Changes in these revenues are substantially matched with
        corresponding changes in other operating expenses. An increase in fuel costs
        related to Iowa retail electric sales decreased electric retail gross margin
        by
        $37.1 million compared to the first nine months of 2004 due in part
        to the
        cost of replacement power as a result of the generating station outages
        mentioned above.
   28
  Regulated
        Gas Gross Margin
 
 Nine
                  MonthsEnded
                  September 30,2005
              
              2004Gross
                  margin (in millions)Operating
                  revenues
              
              $
              858.7
              
              $
              684.4Less
                  cost of gas sold
              
              
              699.6
              
              
              526.7Gas
                  gross margin
              
              $
              159.1
              
              $
              157.7Sales
                  (000’s decatherms):Residential
              
              
              31,726
              
              
              33,402Small
                  general service
              
              
              15,547
              
              
              16,013Large
                  general service
              
              
              3,680
              
              
              1,666Other
              
              
              37
              
              
              236Total
                  retail
              
              
              50,990
              
              
              51,317Wholesale
              
              
              41,112
              
              
              32,779Total
              
              
              92,102
              
              
              84,096
 
 Regulated
        gas revenues include purchased gas adjustment clauses through which MidAmerican
        Energy is allowed to recover the cost of gas sold from its retail gas utility
        customers. Consequently, fluctuations in the cost of gas sold do not affect
        gross margin or net income because revenues reflect comparable fluctuations
        through the purchased gas adjustment clauses. Compared to the first nine
        months
        of 2004, MidAmerican Energy’s average per-unit cost of gas sold increased 21.3%,
        resulting in a $122.7 million increase in cost of gas sold for the
        first
        nine months. The remainder of the increase in cost of gas sold was due to
        an
        increase in sales to wholesale customers.
 
 The
        following table summarizes the variance in gas operating revenues, including
        the
        impact of the fluctuation in the cost of gas sold. The variances in gas
        operating revenues other than the fluctuation in cost of gas sold have the
        same
        impact on gross margin.
 
 Nine
                  MonthsEnded
                  September 30,2005
                  vs. 2004(In
                  millions)Change
                  in cost of gas sold:Cost
                  per unit
              
              $
              122.7Sales
                  volumes
              
              
              50.2Total
              
              
              172.9Weather
              
              
              (3.3
              )Other
                  gas usage factors
              
              
              (0.4
              )Energy
                  efficiency cost recoveries
              
              
              2.1Customer
                  growth
              
              
              2.5Other
              
              
              0.5Total
                  revenue variance
              
              $
              174.3
 
 The
        decrease in gas gross margin due to weather was the result of mild temperature
        conditions in the first nine months of 2005 compared to the first nine months
        in
        2004. Other gas usage factors, such as changes in individual customer usage
        patterns and reaction to prices, also decreased gas margin. MidAmerican Energy's
        average number of gas retail customers increased 1.5% compared to the first
        nine
        months of 2004. Changes in energy efficiency revenues are substantially matched
        with corresponding changes in other operating expenses.
 
  29
  Regulated
        Operating Expenses
 
 Other
        operating expenses increased $3.6 million compared to the first nine
        months
        of 2004 due to a $5.1 million increase in costs related to energy
        efficiency programs and a $3.4 million increase in distribution operations
        expense. These increases were partially offset by a $4.8 million decrease
        in postretirement benefit expense compared to the first nine months of 2004
        due
        to the impact of the Medicare Prescription Drug, Improvement and Modernization
        Act of 2003 and a plan amendment effective July 1, 2004. Increases
        in
        energy efficiency programs costs are substantially matched by increases in
        related electric and gas revenues.
 
 Maintenance
        expenses for the first nine months of 2005 decreased $5.6 million
        compared
        to the first nine months of 2004 due principally to an $8.7 million
        decrease in fossil fuel generating maintenance, mostly as a result of additional
        preventive maintenance in 2004, and a $1.7 million increase in distribution
        maintenance.
 
 Depreciation
        and amortization expense for the first nine months of 2005 decreased
        $7.5 million compared to the first nine months of 2004 due to a
        $13.5 million decrease in regulatory expense related to a revenue
        sharing
        arrangement in Iowa due to lower Iowa electric equity returns. Refer to the
        “Utility Regulatory Matters” section for an explanation of the revenue sharing
        arrangement. The decrease in regulatory expense was partially offset by a
        $6.6 million increase in utility plant depreciation due in part to
        phase
        two of the Greater Des Moines Energy Center and the wind power facilities
        placed
        in service in December 2004.
 
 Nonregulated
        Gross Margin
 
 Nine
                  MonthsEnded
                  September 30,2005
              
              2004(In
                  millions)MidAmerican
                  Energy -Nonregulated
                  operating revenues
              
              $
              209.2
              
              $
              195.4Less
                  nonregulated cost of sales
              
              
              188.1
              
              
              170.9Nonregulated
                  gross margin
              
              $
              21.1
              
              $
              24.5MidAmerican
                  Funding Consolidated -Nonregulated
                  operating revenues
              
              $
              213.2
              
              $
              199.2Less
                  nonregulated cost of sales
              
              
              189.1
              
              
              171.9Nonregulated
                  gross margin
              
              $
              24.1
              
              $
              27.3
 
 MidAmerican
        Energy’s nonregulated retail electric marketing services provide electric supply
        services to retail customers in Illinois, Ohio and Michigan. Increases in
        the
        average revenue and cost per megawatt hour sold combined with a 14.1% increase
        in nonregulated retail electric sales volumes resulted in increases in related
        revenues and cost of sales totaling $28.2 million and $29.1 million,
        respectively.
 
 MidAmerican
        Energy’s nonregulated gas retail marketing services operate in Iowa, Illinois,
        Ohio and South Dakota. MidAmerican Energy purchases gas from producers and
        third
        party marketers and sells it directly to large commercial end-users. In
        addition, MidAmerican Energy manages gas supplies for a number of smaller
        commercial end-users, which includes the sale of gas to these customers to
        meet
        their supply requirements. A 26.8% decrease in nonregulated retail gas sales
        volumes compared to the first nine months of 2004, offset partially by increases
        in the revenue and cost per unit sold, resulted in decreases in related revenues
        and cost of sales of $12.8 million and $11.5 million, respectively.
        The decrease in nonregulated retail gas sales volumes was due in large part
        to
        the non-renewal of sales contracts as a result of a related regulatory issue
        in
        Illinois. Refer to “Rate Matters” for a discussion of the issue.
 
 Gross
        margin on nonregulated wholesale gas sales decreased $2.3 million compared
        to
        the first nine months of 2004 due to the timing of net earnings and losses
        on
        gas transportation contracts.
 
 These
        decreases in nonregulated gross margin were partially offset by increases
        in
        earnings from sharing arrangements related to MidAmerican Energy’s regulated
        natural gas operations.
 
  30
  Other
        Income and Expense
 
 MidAmerican
        Energy -
 
 As
        a
        regulated public utility, MidAmerican Energy is allowed to capitalize, and
        record as income, a cost of construction for equity funds used, based on
        guidelines set forth by the FERC. Other income for the capitalized allowance
        on
        equity funds used during construction totaled $17.7 million and
        $13.0 million in the first nine months of 2005 and 2004, respectively.
        MidAmerican Energy expects to continue to record higher-than-normal income
        for
        the allowance on equity funds used during construction through 2007 while
        the
        announced generating facilities are constructed.
 
 MidAmerican
        Funding -
 
 Other
        income for the first nine months of 2005 includes $9.9 million of
        gains
        from the sale of two non-strategic, passive investments. These gains were
        partially offset by a decrease in income from other alternative energy capital
        investments.
 
 Other
        expense for the first nine months of 2005 includes write-downs of MidAmerican
        Funding’s investments in commercial passenger aircraft, which it accounts for as
        leveraged leases. MidAmerican Funding’s evaluation of its investments in these
        aircraft resulted in $15.8 million of pre-tax write-downs in the first nine
        months of 2005. The write-downs reflect a continued deterioration in the
        airline
        industry, including the bankruptcy filings of two major carriers during the
        third quarter of 2005.
 
 Fixed
        Charges
 
 The
        increase in interest on long-term debt was due to interest on the
        $350.0 million of MidAmerican Energy long-term debt issued on
        October 1, 2004, offset partially by maturities of higher rate
        debt in
        2004 and 2005. Other interest expense increased due to a higher balance of
        the
        Iowa revenue sharing liability. MidAmerican Energy is allowed to capitalize,
        and
        record as a reduction to fixed charges, a cost of construction for debt funds
        used, based on guidelines set forth by the FERC. Allowance for borrowed funds
        increased due to increased utility construction expenditures. MidAmerican
        Energy
        expects to continue to record higher-than-normal allowance for borrowed funds
        used during construction through 2007 while the announced generating facilities
        are constructed.
 
 Income
        Taxes
 
 MidAmerican
        Energy -
 
 In
        October 2004, federal law was enacted that extends the federal production
        tax
        credit for electricity produced by wind energy facilities placed in service
        prior to January 1, 2006. Accordingly, in 2005, MidAmerican Energy’s income
        taxes for the nine months ended September 30, 2005, were reduced
        $9.0 million by the production tax credits related to energy produced
        by
        its wind power facilities.
 
 State
        utility rate regulation in Iowa requires that the tax effect of certain timing
        differences be flowed through immediately to customers. Accordingly, amounts
        that would otherwise have been recognized in income tax expense have been
        included as changes in regulatory assets. This flow-through treatment of
        such
        timing differences impacts the effective tax rates from year to
        year.
 
 During
        the first quarter of 2004, MidAmerican Energy settled an income tax audit
        with
        the Internal Revenue Service and recorded as income a tax liability previously
        established for the settled issue, resulting in an $8.5 million reduction
        to MidAmerican Energy’s income tax expense for the first nine months of
        2004.
 
 MidAmerican
        Funding -
 
 A
        significant portion of MidAmerican Energy’s tax liability for the settled issue
        above was originally established in 1999 when MidAmerican Energy's parent
        company, MHC Inc., was acquired by MidAmerican Funding. This change in estimate
        of an income tax uncertainty that resulted from a purchase business combination
        was accounted for as an adjustment to the remaining balance of goodwill
        attributable to the acquisition. Accordingly, in the first quarter of 2004,
        MidAmerican Funding decreased goodwill and increased income tax expense by
        $4.7 million to reflect the settlement of that portion of the income
        tax
        liability recognized at the time of the acquisition of MHC.
   31
  **Liquidity
        and Capital Resources**
 
 MidAmerican
        Energy and MidAmerican Funding have available a variety of sources of liquidity
        and capital resources, both internal and external. These resources provide
        funds
        required for current operations, construction expenditures, dividends, debt
        retirement and other capital requirements.
 
 As
        reflected on the Consolidated Statements of Cash Flows, MidAmerican Energy’s net
        cash provided by operating activities was $509.6 million and
        $495.1 million for the first nine months of 2005 and 2004, respectively.
        MidAmerican Funding’s net cash provided by operating activities was
        $467.9 million and $457.4 million for the first nine months
        of 2005
        and 2004, respectively.
 
 Utility
        Construction Expenditures
 
 MidAmerican
        Energy’s primary need for capital is utility construction expenditures. For the
        first nine months of 2005, utility construction expenditures incurred totaled
        $535.9 million, including allowance for funds used during construction
        and
        Quad Cities Station nuclear fuel purchases. Utility construction expenditures
        include non-cash and accrued amounts, which include $29.0 million
        in the
        first nine months of 2005 for MidAmerican Energy’s share of deferred payments
        related to the Council Bluffs Energy Center Unit No. 4 (“CBEC Unit 4”)
        generation project. Under a contract with the general contractor on that
        project, MidAmerican Energy is allowed to defer payments, including the other
        owners’ shares, for up to $200.0 million of billed construction costs
        through the end of the project. Another non-cash expenditure included in
        utility
        construction expenditures relates to a computed cost of equity funds. As
        a
        regulated public utility, MidAmerican Energy is allowed to capitalize, and
        record as income, a cost of construction for equity funds used, based on
        guidelines set forth by the FERC.
 
 Forecasted
        utility construction expenditures, including allowance for funds used during
        construction and completion of the wind power project discussed below, are
        $797 million for 2005. Capital expenditure needs are reviewed regularly
        by
        management and may change significantly as a result of such reviews. MidAmerican
        Energy expects to meet these capital expenditures with cash flows from
        operations and the issuance of long-term debt.
 
 MidAmerican
        Energy anticipates a continuing increase in demand for electricity from its
        regulated customers. To meet anticipated demand and ensure adequate electric
        generation in its service territory, MidAmerican Energy is currently
        constructing CBEC Unit 4, a 790-MW (expected accreditation)
        super-critical-temperature, coal-fired facility, and a 360-MW (nameplate
        rating)
        wind power project in Iowa, of which 310 MW was in service as of
        September 30, 2005. The projects will provide service to regulated
        retail
        electricity customers. MidAmerican Energy has obtained regulatory approval
        to
        include the Iowa portion of the actual costs of the generation projects in
        its
        Iowa rate base as long as actual costs do not exceed the agreed caps that
        MidAmerican Energy has deemed to be reasonable. If the caps are exceeded,
        MidAmerican Energy has the right to demonstrate the prudence of the expenditures
        above the caps, subject to regulatory review. Wholesale sales may also be
        made
        from the projects to the extent the power is not immediately needed for
        regulated retail service. MidAmerican Energy expects to invest approximately
        $1.1 billion in the CBEC Unit 4 and wind generation projects, of which
        $622.0 million has been invested through September 30,
        2005.
 
 MidAmerican
        Energy will operate CBEC Unit 4 and hold an undivided ownership interest
        as a
        tenant in common with the other owners of the plant. MidAmerican Energy's
        ownership interest is 60.67%, equating to 479 MW of output. MidAmerican Energy
        expects its share of the estimated cost of the project, including transmission
        facilities, to be approximately $737 million, excluding allowance
        for funds
        used during construction. Municipal, cooperative and public power utilities
        will
        own the remainder, which is a typical ownership arrangement for large base-load
        plants in Iowa. On February 12, 2003, MidAmerican Energy executed
        a
        contract with Mitsui & Co. Energy Development, Inc. for engineering,
        procurement and construction of the plant. On September 9, 2003,
        MidAmerican Energy began construction of the plant, which it expects to be
        completed in the summer of 2007. On December 29, 2004, MidAmerican
        Energy
        received an order from the IUB approving construction of the associated
        transmission facilities and is proceeding with construction.
 
 The
        wind
        power project currently under construction consists of wind power facilities
        located at two sites in north central Iowa totaling 360 MW (nameplate rating),
        including a 50-MW expansion of the original project. In December 2004, wind
        turbines totaling 160.5 MW were completed and in service, and in August
        and
        September 2005, wind turbines totaling 150.0 MW were placed in service. The
        remaining turbines are expected to be completed by the end of 2005. Generally
        speaking, accredited capacity ratings for wind power facilities are considerably
        less than the nameplate ratings due to the varying nature of wind. The current
        projected accredited capacity for the 360 MW of wind power facilities is
        approximately 61 MW. MidAmerican Energy will own and operate these
        facilities, which, including transmission facilities, are expected to cost
        approximately $386 million, excluding allowance for funds used during
        construction. On January 31, 2005, the IUB approved ratemaking principles
        related to the expansion of the wind power project. Refer to the “Rate Matters”
        discussion below for information regarding the rate aspects of related
        settlement agreements.
   32
  Nuclear
        Decommissioning
 
 Each
        licensee of a nuclear facility is required to provide financial assurance
        for
        the cost of decommissioning its licensed nuclear facility. In general,
        decommissioning of a nuclear facility means to safely remove the facility
        from
        service and restore the property to a condition allowing unrestricted use
        by the
        operator.
 
 MidAmerican
        Energy currently contributes $8.3 million annually to trusts established
        for the investment of funds for decommissioning Quad Cities Station.
        Approximately 70% of the fair value of the trusts’ funds is now invested in
        domestic corporate debt and common equity securities. The remainder is invested
        in investment grade municipal and U.S. Treasury bonds. Funding for Quad Cities
        Station nuclear decommissioning is reflected as depreciation expense in the
        Consolidated Statements of Operations. Quad Cities Station decommissioning
        costs
        charged to Iowa customers are included in base rates, and recovery of increases
        in those amounts must be sought through the normal ratemaking process.
 
 Contractual
        Obligations and Commercial Commitments
 
 MidAmerican
        Energy and MidAmerican Funding have various contractual obligations and
        commercial commitments. There have been no material changes in the amount
        of
        such obligations and commitments from what was disclosed in the “Liquidity and
        Capital Resources” section of MD&A in MidAmerican Energy’s and MidAmerican
        Funding’s most recently filed Form 10-K.
 
 Debt
        Redemption and Issuance
 
 MidAmerican
        Energy’s 7% series of mortgage bonds, totaling $90.5 million, matured on
        February 15, 2005. MidAmerican Energy expects to issue long-term debt
        in
        2005 to support construction of its electric generation projects and for
        general
        corporate purposes.
 
 Debt
        Authorizations and Credit Facilities
 
 MidAmerican
        Energy has authority from the FERC to issue through April 14, 2007,
        short-term debt in the form of commercial paper and bank notes aggregating
        $500.0 million. MidAmerican Energy currently has in place a
        $425.0 million revolving credit facility that supports its
        $304.6 million commercial paper program and its variable rate pollution
        control revenue obligations. The facility expires November 18, 2009.
 
 MidAmerican
        Energy currently has the following authorizations to issue additional long-term
        securities. MidAmerican Energy has on file with the Securities and Exchange
        Commission registration statements providing for the issuance of
        $530.0 million in various forms of senior and subordinated long-term
        debt
        and preferred securities. MidAmerican Energy has authorization from the FERC
        to
        issue various forms of long-term debt in the amount of $880.0 million
        through November 30, 2005, and $425.0 million for
        December 1, 2005 through November 30, 2006. Under the FERC
        authorization, such funds would be used to refinance maturing debt and to
        finance a portion of the cost of the generation projects noted above.
        MidAmerican Energy has authority from the Illinois Commerce Commission (“ICC”)
        to issue up to $546.4 million of long-term debt for refinancing purposes
        and capital expenditures.
 
 In
        conjunction with the March 1999 merger, MidAmerican Energy committed to the
        IUB
        to use commercially reasonable efforts to maintain an investment grade rating
        on
        its long-term debt and to maintain its common equity level above 42% of total
        capitalization unless circumstances beyond its control result in the common
        equity level decreasing to below 39% of total capitalization. MidAmerican
        Energy
        must seek the approval of the IUB of a reasonable utility capital structure
        if
        MidAmerican Energy's common equity level decreases below 42% of total
        capitalization, unless the decrease is beyond the control of MidAmerican
        Energy.
        MidAmerican Energy is also required to seek the approval of the IUB if
        MidAmerican Energy's equity level decreases to below 39%, even if the decrease
        is due to circumstances beyond the control of MidAmerican Energy. If MidAmerican
        Energy's common equity level were to drop below the required thresholds,
        MidAmerican Energy's ability to issue debt could be restricted.
 
 33
  Other
        Financing Information
 
 MidAmerican
        Funding or one of its subsidiaries, including MidAmerican Energy, may from
        time
        to time seek to retire its outstanding debt through cash purchases and/or
        exchanges for other securities, in open market purchases, privately negotiated
        transactions or otherwise. The repurchases or exchanges, if any, will depend
        on
        prevailing market conditions, the issuing company’s liquidity requirements,
        contractual restrictions and other factors. The amounts involved may be
        material.
 
 **Credit
        Ratings Risks**
 
 Debt
        and
        preferred securities of MidAmerican Funding and MidAmerican Energy are rated
        by
        nationally recognized credit rating agencies. Assigned credit ratings are
        based
        on each rating agency’s assessment of MidAmerican Funding’s or MidAmerican
        Energy’s ability to, in general, meet the obligations of the debt or preferred
        securities issued by the rated company. The credit ratings are not a
        recommendation to buy, sell or hold securities, and there is no assurance
        that a
        particular credit rating will continue for any given period of time. Other
        than
        the energy trading agreements discussed below, neither MidAmerican Funding
        nor
        MidAmerican Energy has any credit agreements that require termination or
        a
        material change in collateral requirements or payment schedule in the event
        of a
        downgrade in the credit ratings of the respective company’s
        securities.
 
 In
        conjunction with its risk management activities, MidAmerican Energy must
        meet
        credit quality standards as required by counterparties. MidAmerican Energy
        has
        energy trading agreements that, in accordance with industry practice, either
        specifically require it to maintain investment grade credit ratings or provide
        the right for counterparties to demand “adequate assurances” in the event of a
        material adverse change in MidAmerican Energy’s creditworthiness. If one or more
        of MidAmerican Energy’s credit ratings decline below investment grade,
        MidAmerican Energy may be required to post cash collateral, letters of credit
        or
        other similar credit support to facilitate ongoing wholesale marketing and
        trading activities. As of September 30, 2005, MidAmerican Energy’s
        estimated potential collateral requirements totaled approximately
        $165 million. MidAmerican Energy’s collateral requirements could fluctuate
        considerably due to seasonality, market price volatility, and a loss of key
        MidAmerican Energy generating facilities or other related factors.
 
 **Utility
        Regulatory Matters**
 
 Rate
        Matters
 
 Under
        three settlement agreements between MidAmerican Energy, the Iowa Office of
        Consumer Advocate (“OCA”) and other intervenors approved by the IUB, MidAmerican
        Energy has agreed not to seek a general increase in electric rates prior
        to 2012
        unless, beginning in 2006, its Iowa jurisdictional electric return on equity
        for
        any year falls below 10%. Prior to filing for a general increase in electric
        rates, MidAmerican Energy is required to conduct 30 days of good faith
        negotiations with the signatories to the settlement agreements to attempt
        to
        avoid a general increase in such rates. As a party to the settlement agreements,
        the OCA has agreed not to request or support any decrease in MidAmerican
        Energy’s Iowa electric rates prior to January 1, 2012. The settlement
        agreements specifically allow the IUB to approve or order electric rate design
        or cost of service rate changes that could result in changes to rates for
        specific customers as long as such changes do not result in an overall increase
        in revenues for MidAmerican Energy. The settlement agreements also each provide
        that portions of revenues associated with Iowa retail electric returns on
        equity
        within specified ranges will be recorded as a regulatory liability.
 
 Under
        the
        first settlement agreement, which was approved by the IUB on December 21,
        2001, and is effective through December 31, 2005, an amount equal
        to 50% of
        revenues associated with returns on equity between 12% and 14%, and 83.33%
        of
        revenues associated with returns on equity above 14%, in each year is recorded
        as a regulatory liability. The second settlement agreement, which was filed
        in
        conjunction with MidAmerican Energy’s application for ratemaking principles on
        its wind power project and was approved by the IUB on October 17,
        2003,
        provides that during the period January 1, 2006 through December 31,
        2010, an amount equal to 40% of revenues associated with returns on equity
        between 11.75% and 13%, 50% of revenues associated with returns on equity
        between 13% and 14%, and 83.3% of revenues associated with returns on equity
        above 14%, in each year will be recorded as a regulatory liability.
 
 The
        third
        settlement agreement was approved by the IUB on January 31, 2005,
        in
        conjunction with MidAmerican Energy’s proposed expansion of its wind power
        project by up to 90 MW. This settlement extended through 2011 MidAmerican
        Energy’s commitment not to seek a general increase in electric rates unless its
        Iowa jurisdictional electric return on equity falls below 10%. It also extended
        the revenue sharing mechanism through 2011, and the OCA agreed to commit
        not to
        seek any decrease in Iowa electric base rates to become effective before
        January 1, 2012. The total capacity to be added as the result of the
        wind
        expansion project is currently projected to be 50 MW.
  34
 The
        regulatory liabilities created by the three settlement agreements are recorded
        as a regulatory charge in depreciation and amortization expense when the
        liability is accrued. Additionally, interest expense is accrued on the portion
        of the regulatory liability balance recorded in prior years. The regulatory
        liabilities created for the years through 2010 are expected to be reduced
        as
        they are credited against plant in service associated with generating plant
        additions. As a result of the credit applied to generating plant balances
        from
        the reduction of the regulatory liabilities, future depreciation will be
        reduced. As of September 30, 2005 and December 31, 2004, the
        related
        regulatory liability reflected on the Consolidated Balance Sheets was
        $222.1 million and $181.2 million, respectively. The regulatory
        liability accrued for 2011, if any, will be credited to customer bills in
        2012.
 
 In
        an
        order issued September 27, 2004, the IUB requires MidAmerican Energy
        to
        file various plans to fully equalize and consolidate its class zonal electric
        rates by the end of each of the years 2007 through 2010. On
        October 18, 2004, MidAmerican Energy filed a motion for
        reconsideration opposing full rate equalization and proposing a series of
        rate
        reductions. On March 21, 2005, the IUB required MidAmerican Energy
        to file
        additional information about potential rate changes concerning phased
        equalization or consolidation of existing zonal rate differences that could
        have
        the effect of bringing rates together on a basis designed to have no impact
        on
        the overall revenues MidAmerican Energy receives from its Iowa electric
        customers. MidAmerican Energy filed the requested information on April 11,
        2005. In the same proceeding, MidAmerican Energy has a pending request to
        reduce
        rates for some residential customers by approximately $4.0 million
        in 2008
        and $3.0 million in 2009 for a total annualized reduction of
        $7.0 million in addition to the reductions to be offset by cost decreases
        related to existing contracts. The $7.0 million reduction in revenues
        may
        begin to be offset by a rate increase for other residential customers starting
        in 2011. The IUB has not taken any action subsequent to MidAmerican Energy’s
        April 11, 2005 filing.
 
 Illinois
        bundled electric rates are frozen until 2007, subject to certain exceptions
        allowing for increases, at which time bundled rates may be increased or
        decreased by the ICC. Illinois law provides that, through 2006, Illinois
        earnings above a computed level of return on common equity are to be shared
        equally between regulated retail electric customers and MidAmerican Energy.
        MidAmerican Energy’s computed level of return on common equity is based on a
        rolling two-year average of the Monthly Treasury Long-Term Average Rate,
        as
        published by the Federal Reserve System, plus a premium of 8.5% for 2000
        through
        2004 and a premium of 12.5% for 2005 and 2006. The two-year average above
        which
        sharing must occur for 2005 is 15.41%, which reflects a blend of the premiums
        for 2004 and 2005. The law allows MidAmerican Energy to mitigate the sharing
        of
        earnings above the threshold return on common equity through accelerated
        recovery of electric assets.
 
 In
        2004,
        the ICC issued a declaratory ruling finding that MidAmerican Energy’s
        competitive sales of gas to retail customers within the state of Illinois
        were
        not authorized under the Illinois Public Utilities Act. In its ruling, the
        ICC
        left for subsequent proceedings issues related to the financial implications
        of
        these sales. To date, these issues have been addressed by ICC staff in its
        testimony in the purchased gas adjustment reconciliation proceedings covering
        2001 and 2002. In that testimony, the ICC staff expressed its position that
        MidAmerican Energy must reduce gas costs recovered from Illinois regulated
        gas
        customers through the purchased gas adjustment by the gross margins earned
        from
        MidAmerican Energy’s Illinois nonregulated retail customers since 1996. Gross
        margin is the difference between the revenue and the related cost of gas
        for
        MidAmerican Energy’s nonregulated sales of gas to retail customers in the entire
        state of Illinois. The ICC has not yet ruled in either case. In addition,
        MidAmerican Energy believes it is possible that the gross margins earned
        in
        earlier periods in final purchased gas adjustment reconciliation proceedings
        back to 1996 may be subject to challenge. If the ICC accepts the adjustments
        proposed by its staff and makes the same adjustment for the years 2003 -
        2004,
        the total cumulative adjustment through November 30, 2004, including
        the
        adjustments since 1996, would be $7.8 million. In its declaratory
        ruling,
        the ICC decided to open a separate proceeding, in addition to the purchased
        gas
        adjustment reconciliation proceedings, to determine an appropriate remedy
        to
        impose upon MidAmerican Energy for making competitive sales throughout the
        state
        of Illinois without statutory or regulatory authorization. In its order
        initiating this separate proceeding, the ICC stated there would not be any
        further litigation of the ICC conclusions arrived at in the declaratory ruling
        proceeding, despite the lack of an evidentiary hearing in that proceeding.
        The
        ruling of the ICC in the declaratory ruling proceeding, including its
        determination not to conduct an evidentiary hearing, is now on appeal in
        the
        Illinois Appellate Court. Additional grounds of appeal are whether the ICC
        misinterpreted its authority in ruling that the Illinois Public Utilities
        Act
        does not authorize competitive sales of gas, whether MidAmerican Energy was
        retroactively authorized to make these sales as a result of passage of SB
        2525,
        and whether the ruling interferes with MidAmerican Energy’s rights to use
        nonpublic utility assets.
   35
  In
        November 2004, the Illinois legislature overrode the Governor’s veto of SB 2525.
        That law allows MidAmerican Energy to continue its competitive gas sales
        in
        Illinois subject to ICC regulation. The ICC still must resolve the historical
        issues in the on-going purchase gas adjustment and related proceedings noted
        above.
 
 The
        Governor and Attorney General of Illinois have objected to proposals put
        forth
        by certain Illinois utilities regarding the use of a "reverse auction" process
        for procuring the wholesale electric power needed to serve their Illinois
        retail
        electric customers starting in 2007. The utilities impacted do not own
        generation assets. MidAmerican Energy presently owns sufficient generation
        resources to serve its Illinois customers and has a fuel adjustment clause
        mechanism to recover the cost of fuel and purchased energy. While the final
        outcome of the reverse auction issue cannot be predicted at this time, it
        is not
        expected to materially affect MidAmerican Energy's financial
        results.
 
 Transmission
        Developments
 
 The
        FERC
        has undertaken several measures to increase competition in the markets for
        wholesale electric energy, including efforts to foster the development of
        regional transmission organizations (“RTO”) in its Order No. 2000 issued
        December 1999 and its July 2002 proposed rulemaking that would implement
        a
        standard market design (“SMD”) for wholesale electric markets.
 
 If
        implemented, the FERC’s July 2002 proposed rule for SMD would have required
        sweeping changes to the use and expansion of the interstate transmission
        and
        wholesale bulk power systems in the United States. On July 19, 2005,
        the
        FERC issued an order terminating the rulemaking. Nevertheless, it is likely
        that
        there will be further regulatory actions by the FERC impacting the provision
        of
        transmission services. Any FERC action could impact the costs of MidAmerican
        Energy’s electricity and transmission products. Such FERC action could directly
        or indirectly influence how transmission services are priced, the availability
        of transmission services, how transmission services are obtained, and market
        prices for electricity in markets in which MidAmerican Energy buys and sells
        electricity. Although MidAmerican Energy is not presently a member of an
        RTO,
        three RTO’s - Midwest Independent Transmission System Operator, Inc., PJM
        Interconnection L.L.C. and Southwest Power Pool, Inc. - are directly
        interconnected with MidAmerican Energy’s transmission facilities. MidAmerican
        Energy cannot predict what impact, if any, the evolution of these RTO’s, or
        others, may have on how transmission services and wholesale electricity is
        bought and sold, as well as the geographic scope of the marketplace in which
        MidAmerican Energy buys and sells transmission services and wholesale
        electricity.
 
 On
        June 3, 2004, the FERC’s Division of Operational Investigations of the
        Office of Market Oversight and Investigations informed MidAmerican Energy
        that
        it was commencing an audit to determine whether and how MidAmerican Energy
        and
        its subsidiaries and affiliates are complying with (1) requirements of the
        standards of conduct and open access same-time information system of the
        FERC’s
        regulations, (2) codes of conduct, and (3) transmission practices. The FERC
        commenced several such audits of utilities in 2003 and 2004 and recently
        completed its audit of MidAmerican Energy. MidAmerican Energy has agreed
        to
        implement the recommendations of the FERC relative to its audit. Accordingly,
        MidAmerican Energy will build $9.2 million in previously unscheduled
        transmission system upgrades. That capital expenditure will be excluded from
        MidAmerican Energy’s rate base for six years during which time MidAmerican
        Energy will not earn a return on the transmission upgrades. In addition,
        MidAmerican Energy has agreed to accelerate $14.7 million of scheduled
        transmission system upgrades.
 
 On
        June 22, 2005, MidAmerican Energy made a filing with the FERC requesting
        its approval to establish a transmission service coordinator (“TSC”). The TSC
        would be an outsource administrator of various MidAmerican Energy Open Access
        Transmission Tariff-related functions for transmission service. If approved,
        MidAmerican Energy will enter into a contract with a to-be-determined
        independent contractor that would become responsible for many day-to-day
        transmission operation services. In addition, the TSC would assume some
        oversight responsibilities and participate in the transmission planning process.
        MidAmerican Energy envisions entering into a three-year contract with a TSC.
        While the costs of entering into a contract with the TSC are unknown, at
        this
        time, MidAmerican Energy does not believe that the incremental costs will
        have a
        material impact on its results of operations, financial position or cash
        flows.
        Any TSC selected would not likely commence service until the latter half
        of
        2006.
 
 Electric
        Trading Developments
 
 On
        July 13, 2004, the FERC issued an order requiring MidAmerican Energy
        to
        conduct a study to determine whether MidAmerican Energy or its affiliates
        possess generation market power. MidAmerican Energy is being required to
        show
        the absence of generation market power in order to be allowed to continue
        to
        sell wholesale electric power at market-based rates. The FERC order is intended
        to have MidAmerican Energy conform to what has become the FERC’s general
        practice for utilities given authorization to make wholesale market-based
        sales.
        Under this general practice, utilities authorized to make market-based electric
        sales must submit a new market power study to the FERC every three years.
        MidAmerican Energy filed the required study on October 29, 2004. On
        June 1, 2005, the FERC issued an order setting for investigation the
        reasonableness of MidAmerican Energy’s market-based rates within its control
        area. The order also terminated the previously established November 1,
        2004, refund date and required market-based sales made by MidAmerican Energy
        within its control area beginning August 7, 2005, be subject to refund
        until the matter is resolved. The FERC also required MidAmerican Energy to
        file
        additional information by July 1, 2005, and August 1, 2005. In its
        August
        1, 2005 filing, MidAmerican Energy filed a proposed cost-based sales tariff
        applicable to sales made within its control area to replace its market-based
        sales tariff. The FERC is currently reviewing the proposed tariff. MidAmerican
        Energy does not expect the outcome of this issue to have a material effect
        on
        its results of operations, financial position or cash flows.
  36
  The
        Energy Policy Act of 2005
 
 On
        August
        8, 2005, the Energy Policy Act of 2005 (“Energy Policy Act”) was signed into
        law. That law potentially impacts many segments of the energy industry. The
        law
        will result in the FERC issuing new regulations and regulatory decisions
        in
        areas such as electric system reliability, electric transmission expansion
        and
        pricing, regulation of utility holding companies, and enforcement authority.
        While most key decisions have yet to be issued, MidAmerican Energy currently
        does not believe that the Energy Policy Act will have a material impact on
        its
        results of operations, financial conditions or cash flows.
 
 **Environmental
        Matters**
 
 MidAmerican
        Energy’s generating facilities are subject to applicable provisions of the Clean
        Air Act and related air quality standards promulgated by the United States
        Environmental Protection Agency (“EPA”). The Clean Air Act provides the
        framework for regulation of certain air emissions and permitting and monitoring
        associated with those emissions. MidAmerican Energy believes it is in material
        compliance with current air quality requirements. Refer to Note (3)(a) of
        Notes
        to Consolidated Financial Statements in this Form 10-Q for further discussion
        of
        air quality standards affecting MidAmerican Energy.
 
 On
        February 16, 2005, the Kyoto Protocol became effective, requiring
        35
        developed countries to reduce greenhouse gas emissions by approximately 5%
        between 2008 and 2012. While the United States did not ratify the protocol,
        the
        ratification and implementation of its requirements in other countries has
        resulted in increased attention on the climate change issue in the United
        States. The Senate has adopted a “sense of the Senate” resolution that puts the
        Senate on record that Congress should enact a comprehensive and effective
        national program of mandatory, market-based limits and incentives on emissions
        of greenhouse gases that slow, stop, and reverse the growth of such emissions
        at
        a rate and in a manner that will not significantly harm the United States
        economy; and will encourage comparable action by other nations that are major
        trading partners and key contributors to global emissions. It is anticipated
        that the resolution may be further addressed in 2005.
 
 The
        United States Circuit Court of Appeals for the District of Columbia dismissed
        a
        lawsuit on July 15, 2005, that sought to force the EPA to issue mandatory
        controls for carbon dioxide and other greenhouse gas emissions from new cars
        and
        trucks. While
        litigation was filed in the federal district court for the southern district
        of
        New York seeking to require reductions of carbon dioxide emissions from
        generating facilities of five large electric utilities, the court dismissed
        the
        public nuisance suit, holding that such critical issues affecting the United
        States such as greenhouse gas emissions reductions are not the domain of
        the
        court and should be resolved by the Executive Branch and the U.S. Congress.
        The
        judge’s ruling has been appealed to the Second Circuit Court of Appeals. While
        debate continues at the national level over the direction of domestic climate
        policy, several states are developing state-specific or regional legislative
        initiatives to reduce greenhouse gas emissions. The outcome of climate change
        litigation and federal and state initiatives cannot be determined at this
        time;
        however, adoption of stringent limits on greenhouse gas emissions could
        significantly impact MidAmerican Energy’s facilities and, therefore, its results
        of operations.
 
 The
        EPA
        and the state environmental agencies have determined that contaminated wastes
        remaining at decommissioned manufactured gas plant facilities may pose a
        threat
        to the public health or the environment if such contaminants are in sufficient
        quantities and at such concentrations as to warrant remedial
        action.
 
 MidAmerican
        Energy has evaluated all known properties that were, at one time, sites of
        gas
        manufacturing plants for which it may be a potentially responsible party.
        The
        purpose of these evaluations was to determine whether waste materials are
        present, whether the materials constitute an environmental or health risk,
        and
        whether MidAmerican Energy has any responsibility for remedial action. As
        of
        September 30, 2005, MidAmerican Energy has recorded a $4.8 million
        liability for these sites and a corresponding regulatory asset for future
        recovery through the regulatory process. Refer to Note (3)(c) of Notes to
        Consolidated Financial Statements in this Form 10-Q for further discussion
        of
        MidAmerican Energy’s environmental activities related to manufactured gas plant
        sites and cost recovery.
  37
  Although
        the timing of potential incurred costs and recovery of such costs in rates
        may
        affect the results of operations in individual periods, management believes
        that
        the outcome of these issues will not have a material adverse effect on
        MidAmerican Energy’s financial position, results of operations or cash
        flows.
 
 **Generating
        Capability**
 
 On
        July
        20, 2005, retail customer usage of electricity caused a new record hourly
        peak
        demand of 4,040 MW on MidAmerican Energy’s electric system, 105 MW greater than
        the previous record set in August 2003. MidAmerican Energy is interconnected
        with Iowa and neighboring utilities and is party to an electric generation
        and
        transmission pooling agreement administered by the Mid-Continent Area Power
        Pool
        (“MAPP”). Each MAPP participant is required to maintain for emergency purposes a
        net generating capability reserve of at least 15% above its system peak demand.
        For the 2005 cooling season, MidAmerican Energy’s reserve was approximately 26%
        above its system peak demand.
 
 MidAmerican
        Energy believes it has adequate electric capacity reserve through 2009,
        including capacity provided by the generating projects discussed above. However,
        significantly higher-than-normal temperatures during the cooling season could
        cause MidAmerican Energy’s reserve to fall below the 15% minimum. If MidAmerican
        Energy fails to maintain the appropriate reserve, significant penalties could
        be
        contractually imposed by the MAPP.
 
 MidAmerican
        Energy is financially exposed to movements in energy prices since it does
        not
        recover its energy costs through an energy adjustment clause in Iowa. Although
        MidAmerican Energy believes it has sufficient generation under typical operating
        conditions for its retail electric needs, a loss of adequate generation by
        MidAmerican Energy requiring the purchase of replacement power at a time
        of high
        market prices could subject MidAmerican Energy to losses on its energy sales.
 
 The
        transmission developments addressed under “Utility Regulatory Matters” above
        also can impact MidAmerican Energy's wholesale electric purchases and sales.
        In
        addition, organized markets for the sale of energy may impact the price
        MidAmerican Energy pays for wholesale electricity as well as the prices it
        receives for wholesale sales. The FERC has other proceedings underway which
        may
        influence the wholesale electric marketplace. Because of the uncertainties
        as to
        future regulatory policy governing transmission service and pricing, and
        regulation of wholesale electric sales, MidAmerican Energy is uncertain whether
        past wholesale costs and revenues will be representative of future wholesale
        costs and revenues.
 
 **New
        Accounting Pronouncements**
 
 In
        March
        2005, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 47, “Accounting for Conditional Asset Retirement
        Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”). FIN
        47 clarifies
        that the term *conditional
        asset retirement obligation* as used
        in Statement of Financial Accounting Standards No. 143, “Accounting for
        Asset Retirement Obligations,” refers to a legal obligation to perform an asset
        retirement activity in which the timing and/or method of settlement are
        conditional on a future event that may or may not be within the control of
        the
        entity. Accordingly, an entity is required to recognize a liability for the
        fair
        value of a conditional asset retirement obligation if the fair value of the
        liability can be reasonably estimated. Uncertainty about the timing and/or
        method of settlement of a conditional asset retirement obligation should
        be
        factored into the measurement of the liability when sufficient information
        exists. FIN 47 also clarifies when an entity would have sufficient information
        to reasonably estimate the fair value of an asset retirement obligation.
        MidAmerican Energy and MidAmerican Funding are required to adopt the provisions
        of FIN 47 by December 2005. Adoption of FIN 47 is not expected to have a
        material effect on MidAmerican Energy’s or MidAmerican Funding’s financial
        position, results of operations or cash flows.
 
 **Critical
        Accounting Policies and Estimates**
 
 MidAmerican
        Energy’s and MidAmerican Funding’s significant accounting policies are described
        in their respective Note (1) of Notes to Consolidated Financial Statements
        in
        Item 8 of their most recently filed Annual Report on Form 10-K. For a discussion
        of their critical accounting policies and estimates, see “Management’s
        Discussion and Analysis of Financial Condition and Results of Operations” in
        their most recently filed Annual Report on Form 10-K. MidAmerican Energy’s and
        MidAmerican Funding’s critical accounting policies have not changed materially
        since December 31, 2004.
  38
  **Item 3.**
              **Quantitative
                  and Qualitative Disclosures About Market
                  Risk.**
 
 MidAmerican
        Energy’s management of its exposure to market risk has not changed materially
        from December 31, 2004. The scope of its use of financial instruments
        for
        both hedging and proprietary trading purposes has also not changed materially
        from December 31, 2004. During the first nine months of 2005, market
        prices
        for natural gas have increased significantly. Accordingly, MidAmerican Energy
        has updated the fair values of its derivative instruments in the table below.
        Reference is made to MidAmerican Energy’s and MidAmerican Funding’s most
        recently filed Form 10-K, and in particular, Item 7A. Quantitative and
        Qualitative Disclosures About Market Risk.
 
 As
        of
        September 30, 2005, MidAmerican Energy held derivative instruments
        used for
        non-trading and trading purposes with the following fair values (in
        thousands):
 
 MaturityBy
              
              October 1,
                  2006-
              
              AfterSeptember 30,
              
              September 30,
              
              September 30,Contract
                  Type
              
              2006
              
              2008
              
              2008
              
              TotalNon-trading:Regulated
                  electric assets
              
              $
              473
              
              $
              158
              
              $
              -
              
              $
              631Regulated
                  electric (liabilities)
              
              
              (26,524
              )
              
              (5,376
              )
              
              -
              
              
              (31,900
              )Regulated
                  gas assets
              
              
              97,062
              
              
              -
              
              
              -
              
              
              97,062Regulated
                  gas (liabilities)
              
              
              (589
              )
              
              -
              
              
              -
              
              
              (589
              )Interest
                  rate (liabilities)
              
              
              (2,839
              )
              
              -
              
              
              -
              
              
              (2,839
              )Nonregulated
                  electric assets
              
              
              3,869
              
              
              -
              
              
              -
              
              
              3,869Nonregulated
                  electric (liabilities)
              
              
              (1,817
              )
              
              -
              
              
              -
              
              
              (1,817
              )Nonregulated
                  gas assets
              
              
              15,235
              
              
              5,954
              
              
              163
              
              
              21,352Nonregulated
                  gas (liabilities)
              
              
              (18,389
              )
              
              (5,970
              )
              
              (58
              )
              
              (24,417
              )Total
              
              
              66,481
              
              
              (5,234
              )
              
              105
              
              
              61,352Trading:Nonregulated
                  gas assets
              
              
              1,508
              
              
              -
              
              
              -
              
              
              1,508Nonregulated
                  gas (liabilities)
              
              
              (1,602
              )
              
              -
              
              
              -
              
              
              (1,602
              )Nonregulated
                  electric assets
              
              
              747
              
              
              -
              
              
              -
              
              
              747Nonregulated
                  electric (liabilities)
              
              
              (723
              )
              
              -
              
              
              -
              
              
              (723
              )Total
              
              
              (70
              )
              
              -
              
              
              -
              
              
              (70
              )Total
                  MidAmerican Energy assets
              
              $
              118,894
              
              $
              6,112
              
              $
              163
              
              $
              125,169Total
                  MidAmerican Energy (liabilities)
              
              $
              (52,483
              )
              $
              (11,346
              )
              $
              (58
              )
              $
              (63,887
              )
 
 **Item
                  4.**
              **Controls
                  and Procedures.**
 
 With
        the
        supervision and participation of MidAmerican Funding’s and MidAmerican Energy’s
        management, including the respective persons acting as chief executive officer
        and chief financial officer, each company performed an evaluation regarding
        the
        effectiveness of the design and operation of its disclosure controls and
        procedures (as defined in Rule 13a-15(e) promulgated under the Securities
        and
        Exchange Act of 1934, as amended) as of September 30, 2005. Based
        on that
        evaluation, MidAmerican Funding’s and MidAmerican Energy’s management, including
        the respective persons acting as chief executive officer and chief financial
        officer, concluded that their respective disclosure controls and procedures
        were
        effective. There have been no changes during the quarter covered by this
        report
        in MidAmerican Funding’s or MidAmerican Energy’s internal control over financial
        reporting that has materially affected, or is reasonably likely to materially
        affect, its internal control over financial reporting.
  39
  **PART
        II - OTHER INFORMATION**
 
 **Item 1.**
              **Legal
                  Proceedings.**
 
 MidAmerican
        Energy is one of dozens of companies named as defendants in a January 20,
        2004 consolidated class action lawsuit filed in the United States District
        Court
        for the Southern District of New York. The suit alleges that the defendants
        have
        engaged in unlawful manipulation of the prices of natural gas futures and
        options contracts traded on the New York Mercantile Exchange (“NYMEX”) during
        the period of January 1, 2000 to December 31, 2002. MidAmerican
        Energy
        is mentioned as a company that has engaged in wash trades on Enron Online
        (an
        electronic trading platform) that had the effect of distorting prices for
        gas
        trades on the NYMEX. The plaintiffs to the class action do not specify the
        amount of alleged damages. As discussed below, MidAmerican Energy has executed
        a
        settlement agreement with the plaintiffs.
 
 The
        original complaint in this matter, *Cornerstone
        Propane Partners, L.P. v. Reliant, et al. (“Cornerstone”),* was
        filed
        on August 18, 2003 in the United States District Court, Southern District
        of New York naming MidAmerican Energy. On October 1, 2003, a second
        complaint, *Roberto,
        E. Calle Gracey, et al. (“Calle Gracey”),* was
        filed
        in the same court but did not name MidAmerican Energy. On November 14,
        2003, a third complaint, *Dominick
        Viola (“Viola”), et al.,* was
        filed
        in the same court and named MidAmerican Energy as a defendant. On
        December 5, 2003, the court entered Pretrial Order No. 1, which
        among
        other procedural matters, ordered the consolidation of the *Cornerstone,
        Calle Gracey* and *Viola* complaints and permitted plaintiffs to file an amended complaint in this
        matter.
        On January 20, 2004, plaintiffs filed *In
        Re: Natural Gas Commodity Litigation* as the
        amended complaint reasserting their previous allegations. On February 19,
        2004, MidAmerican Energy filed a Motion to Dismiss and joined with several
        other
        defendants to file a joint Motion to Dismiss. The plaintiffs filed a response
        on
        May 19, 2004, contesting both Motions to Dismiss. On September 24,
        2004, the pending motions to dismiss were denied. On October 14, 2004,
        plaintiffs filed an amended complaint to add certain defendants’ affiliates as
        defendants and reasserted their previous allegations. MidAmerican Energy
        and the
        other defendants filed their respective answers to the complaint on
        October 28, 2004.
 
 On
        September 6, 2005, MidAmerican Energy and counsel for the plaintiffs executed
        a
        stipulation and agreement of settlement, which upon final approval by the
        court
        following notice to all class members, MidAmerican Energy will be dismissed
        from
        the lawsuit. MidAmerican Energy agreed to the settlement in order to avoid
        the
        expense and uncertainty associated with the ongoing litigation. If accepted
        by
        the court, the settlement will not have a material impact upon MidAmerican
        Energy.
 
 Other
        than the litigation described above, MidAmerican Funding and its subsidiaries
        currently have no material legal proceedings. Information on MidAmerican
        Energy’s environmental matters is included in the “Environmental Matters”
        section of MD&A in Item 2 of this Form 10-Q. Information regarding
        MidAmerican Energy's regulatory matters is included in the “Legislation and
        Utility Regulatory Matters” section of MD&A in Item 2 of this Form
        10-Q.
 
 **Item 2.**
              **Unregistered
                  Sales of Equity Securities and Use of
                  Proceeds.**
 
 Not
        applicable.
 
 **Item 3.**
              **Defaults
                  Upon Senior Securities.**
 
 Not
        applicable.
 
 **Item 4.**
              **Submission
                  of Matters to a Vote of Security
                  Holders.**
 
 Not
        applicable.
 
 **Item 5.**
              **Other
                  Information.**
 
 Not
        applicable.
 
 **Item
                6.**
              **Exhibits.**
 
 Reference
        is made to the accompanying Exhibit Index for a list of exhibits filed as
        a part
        of this Quarterly Report.
  40
  
 **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, each registrant
        has
        duly caused this report to be signed on its behalf by the undersigned, thereunto
        duly authorized.
 
 MIDAMERICAN
                  FUNDING, LLCMIDAMERICAN
                  ENERGY COMPANY(Registrants)Date:
                  October 21, 2005
              /s/
                  Patrick J. GoodmanPatrick
                  J. GoodmanVice
                  President and Treasurerof
                  MidAmerican Funding, LLC(principal
                  financial and accounting officer)/s/
                  Thomas B. SpecketerThomas
                  B. SpecketerVice
                  President and Controllerof
                  MidAmerican Energy Company(principal
                  financial and accounting officer)
 
  41
  
 **EXHIBIT
        INDEX**
 
 
 Exhibit
                  No.
              DescriptionMidAmerican
                  Energy12
              Computation
                  of Ratios of Earnings to Fixed Charges and Computation of Ratios
                  of
                  Earnings to Fixed Charges Plus Preferred Stock Dividend
                  Requirements15
              Awareness
                  Letter of Independent Registered Pubic Accounting Firm31.1
              Chief
                  executive officer certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.2
              Chief
                  financial officer certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200232.1
              Chief
                  executive officer certification pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 200232.2
              Chief
                  financial officer certification pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002MidAmerican
                  Funding31.3
              Chief
                  executive officer certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.4
              Chief
                  financial officer certification pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200232.3
              Chief
                  executive officer certification pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 200232.4
              Chief
                  financial officer certification pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
    42