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

                                    FORM 10-Q

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

For the quarterly period ended              June 30, 1998
                              --------------------------------------------

                                       or

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

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

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

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

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

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

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

   Registrant         Class                Shares Outstanding at July 31, 1998
------------------  -------------------    -------------------------------------
MidAmerican Energy    Common Stock                        94,104,682 *
  Holdings Company    without par value

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

* MidAmerican Energy Holdings Company common shares outstanding at July 31, 
1998, exclude 437,131 shares which are held by a subsidiary.



<PAGE>


                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                                       AND
                           MIDAMERICAN ENERGY COMPANY


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



                                TABLE OF CONTENTS

                          Part I.  Financial Information                Page No.

ITEM 1.    Financial Statements

                       MidAmerican Energy Holdings Company

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

                           MidAmerican Energy Company

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

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

ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk... 41

                           Part II. Other Information

ITEM 1.    Legal Proceedings ........................................... 41

ITEM 4.    Submission of Matters to a Vote of Security Holders.......... 42

ITEM 6.    Exhibits and Reports on Form 8-K............................. 42

Signatures ............................................................. 43

                                      -2-
<PAGE>
<TABLE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                    (In Thousands, except per share amounts)
<CAPTION>
                                                       Three Months                 Six Months                 Twelve Months
                                                       Ended June 30               Ended June 30               Ended June 30
                                                     1998          1997          1998          1997          1998          1997
                                                  ----------    ----------    ----------    ----------    ----------    ----------
<S>                                               <C>           <C>           <C>           <C>           <C>           <C>
OPERATING REVENUES
Electric utility ..............................   $  287,094    $  261,801    $  543,448    $  516,117    $1,153,631    $1,086,271
Gas utility ...................................       67,288        80,913       240,488       292,478       484,316       547,627
Nonregulated ..................................       39,041        42,549        81,015       156,827       183,863       305,074
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                     393,423       385,263       864,951       965,422     1,821,810     1,938,972
                                                  ----------    ----------    ----------    ----------    ----------    ----------
OPERATING EXPENSES
Utility:
   Cost of fuel, energy and capacity ..........       57,085        52,141       102,284       111,424       226,620       229,243
   Cost of gas sold ...........................       32,648        45,099       137,969       186,932       297,053       360,521
   Other operating expenses ...................      111,746        98,691       218,523       192,298       456,019       364,703
   Maintenance ................................       30,740        22,349        53,323        46,098       105,315        90,844
   Depreciation and amortization ..............       44,191        42,060        88,382        84,068       174,854       166,654
   Property and other taxes ...................       24,295        24,853        49,765        50,343       100,739        93,871
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                     300,705       285,193       650,246       671,163     1,360,600     1,305,836
                                                  ----------    ----------    ----------    ----------    ----------    ----------

Nonregulated:
   Cost of sales ..............................       24,197        37,243        63,233       146,213       157,202       287,219
   Other ......................................       14,180         7,432        20,489        15,418        35,147        34,796
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                      38,377        44,675        83,722       161,631       192,349       322,015
                                                  ----------    ----------    ----------    ----------    ----------    ----------
   Total operating expenses ...................      339,082       329,868       733,968       832,794     1,552,949     1,627,851
                                                  ----------    ----------    ----------    ----------    ----------    ----------

OPERATING INCOME ..............................       54,341        55,395       130,983       132,628       268,861       311,121
                                                  ----------    ----------    ----------    ----------    ----------    ----------

NON-OPERATING INCOME
Interest income ...............................        2,178         1,562         4,630         3,115         6,833         4,603
Dividend income ...............................        2,738         3,707         5,452         7,255        11,989        15,338
Realized gains and losses on securities, net ..          954            98         2,019           616         9,201          (723)
Other, net ....................................          778         3,279         6,435         7,264        21,282        (1,484)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                       6,648         8,646        18,536        18,250        49,305        17,734
                                                  ----------    ----------    ----------    ----------    ----------    ----------
FIXED CHARGES
Interest on long-term debt ....................       20,324        22,829        40,608        46,292        84,214        97,496
Other interest expense ........................        3,416         4,119         6,628         5,448        11,214        10,666
Preferred dividends of subsidiaries ...........        3,233         3,231         6,465         8,000        12,933        14,028
Allowance for borrowed funds ..................         (921)         (603)       (1,675)       (1,312)       (2,960)       (3,068)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                      26,052        29,576        52,026        58,428       105,401       119,122
                                                  ----------    ----------    ----------    ----------    ----------    ----------
INCOME FROM CONTINUING OPERATIONS
   BEFORE INCOME TAXES ........................       34,937        34,465        97,493        92,450       212,765       209,733
INCOME TAXES ..................................       13,937        10,289        37,760        34,100        72,050        81,126
                                                  ----------    ----------    ----------    ----------    ----------    ----------
INCOME FROM CONTINUING OPERATIONS .............       21,000        24,176        59,733        58,350       140,715       128,607
                                                  ----------    ----------    ----------    ----------    ----------    ----------
DISCONTINUED OPERATIONS
Income (loss) from operations 
  (net of income taxes) .......................            -           408             -           698          (816)       (3,723)
Loss on disposal (net of income taxes) ........            -             -             -          (524)       (3,586)      (15,356)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                           -           408             -           174        (4,402)      (19,079)
                                                  ----------    ----------    ----------    ----------    ----------    ----------

NET INCOME ....................................   $   21,000    $   24,584    $   59,733    $   58,524    $  136,313    $  109,528
                                                  ==========    ==========    ==========    ==========    ==========    ==========

AVERAGE COMMON SHARES OUTSTANDING .............       94,473        98,621        94,675        99,534        95,619       100,096

EARNINGS PER COMMON SHARE
  -BASIC AND DILUTED:
Continuing operations .........................   $     0.22    $     0.24    $     0.63    $     0.59    $     1.47    $     1.28
Discontinued operations .......................            -          0.01             -             -         (0.04)        (0.19)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
Earnings per average common share..............   $     0.22    $     0.25    $     0.63    $     0.59    $     1.43    $     1.09
                                                  ==========    ==========    ==========    ==========    ==========    ==========

DIVIDENDS DECLARED PER SHARE ..................   $     0.30    $     0.30    $     0.60    $     0.60    $     1.20    $     1.20
                                                  ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>
The accompanying notes are an integral part of these statements.
                                      -3-
<PAGE>
<TABLE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
                                 (In Thousands)
<CAPTION>
                                                        Three Months                 Six Months                Twelve Months
                                                       Ended June 30               Ended June 30               Ended June 30
                                                     1998          1997          1998          1997          1998          1997
                                                  ----------    ----------    ----------    ----------    ----------    ----------

<S>                                               <C>           <C>           <C>           <C>           <C>           <C>
NET INCOME .....................................  $   21,000    $   24,584    $   59,733    $   58,524    $  136,313    $  109,528
                                                  ----------    ----------    ----------    ----------    ----------    ----------

OTHER COMPREHENSIVE INCOME 
Unrealized (losses) gains on securities:
Unrealized holding gains (losses) during period.     (29,603)       (1,104)       53,253         3,022       274,158         5,810
   Less reclassification adjustment for
     realized gains (losses) reflected
     in net income during period ...............         954            95         2,019           613         9,193          (729)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                     (30,557)       (1,199)       51,234         2,409       264,965         6,539
Income tax (benefit) expense ...................     (10,535)         (429)       18,014           789        92,792         2,234
                                                  ----------    ----------    ----------    ----------    ----------    ----------
  Other comprehensive income, net ..............     (20,022)         (770)       33,220         1,620       172,173         4,305
                                                  ----------    ----------    ----------    ----------    ----------    ----------

COMPREHENSIVE INCOME ...........................  $      978    $   23,814    $   92,953    $   60,144    $  308,486    $  113,833
                                                  ==========    ==========    ==========    ==========    ==========    ==========

</TABLE>

The accompanying notes are an integral part of these statements.

                                      -4-

<PAGE>
<TABLE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
<CAPTION>
                                                                                    As of
                                                                   ---------------------------------------
                                                                            June 30            December 31
                                                                   ------------------------    -----------
                                                                      1998          1997          1997
                                                                   ----------    ----------    ----------
                                                                         (Unaudited)
<S>                                                                <C>            <C>          <C>    
ASSETS
UTILITY PLANT
Electric .......................................................   $4,106,986    $4,050,767    $4,084,920
Gas ............................................................      766,127       731,978       756,874
                                                                   ----------    ----------    ----------
                                                                    4,873,113     4,782,745     4,841,794
Less accumulated depreciation and amortization .................    2,350,265     2,215,077     2,275,099
                                                                   ----------    ----------    ----------
                                                                    2,522,848     2,567,668     2,566,695
Construction work in progress ..................................       82,671        37,880        55,418
                                                                   ----------    ----------    ----------
                                                                    2,605,519     2,605,548     2,622,113
                                                                   ----------    ----------    ----------

POWER PURCHASE CONTRACT ........................................      168,430       190,504       173,107
                                                                   ----------    ----------    ----------

INVESTMENT IN DISCONTINUED OPERATIONS ..........................            -         6,610             -
                                                                   ----------    ----------    ----------

CURRENT ASSETS
Cash and cash equivalents ......................................      121,720        57,297        10,468
Receivables ....................................................      160,212       203,511       207,471
Inventories ....................................................       64,471        69,796        86,091
Other ..........................................................       14,970        10,227        18,452
                                                                   ----------    ----------    ----------
                                                                      361,373       340,831       322,482
                                                                   ----------    ----------    ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET .....................      883,797       605,669       799,524
                                                                   ----------    ----------    ----------

OTHER ASSETS ...................................................      388,378       386,543       360,865
                                                                   ----------    ----------    ----------

TOTAL ASSETS ...................................................   $4,407,497    $4,135,705    $4,278,091
                                                                   ==========    ==========    ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity ....................................   $1,311,583    $1,186,313    $1,301,286
MidAmerican preferred securities, not subject to
  mandatory redemption .........................................       31,760        31,765        31,763
Preferred securities, subject to mandatory redemption:
  MidAmerican preferred securities .............................       50,000        50,000        50,000
  MidAmerican-obligated preferred securities of subsidiary trust
    holding solely MidAmerican junior subordinated debentures ..      100,000       100,000       100,000
Long-term debt (excluding current portion) .....................    1,043,909     1,109,531     1,034,211
                                                                   ----------    ----------    ----------
                                                                    2,537,252     2,477,609     2,517,260
                                                                   ----------    ----------    ----------
CURRENT LIABILITIES
Notes payable ..................................................      167,429       146,185       138,054
Current portion of long-term debt ..............................      219,260       129,756       144,558
Current portion of power purchase contract .....................       14,361        13,717        14,361
Accounts payable ...............................................       90,593        87,515       145,855
Taxes accrued ..................................................      108,916        81,795        92,629
Interest accrued ...............................................       21,637        26,457        22,355
Other ..........................................................       69,475        48,969        38,766
                                                                   ----------    ----------    ----------
                                                                      691,671       534,394       596,578
                                                                   ----------    ----------    ----------
OTHER LIABILITIES
Power purchase contract ........................................       83,143        97,504        83,143
Deferred income taxes ..........................................      772,609       710,431       761,795
Investment tax credit ..........................................       80,274        85,985        83,127
Other ..........................................................      242,548       229,782       236,188
                                                                   ----------    ----------    ----------
                                                                    1,178,574     1,123,702     1,164,253
                                                                   ----------    ----------    ----------
TOTAL CAPITALIZATION AND LIABILITIES ...........................   $4,407,497    $4,135,705    $4,278,091
                                                                   ==========    ==========    ==========
</TABLE>
The accompanying notes are an integral part of these statements.
                                     -5-
<PAGE>
<TABLE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<CAPTION>
                                                                    THREE MONTHS              SIX MONTHS
                                                                    ENDED JUNE 30           ENDED JUNE 30
                                                               ----------------------    ----------------------
                                                                  1998         1997         1998         1997
                                                               ---------    ---------    ---------    ---------

<S>                                                            <C>          <C>          <C>          <C>    
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................   $  21,000    $  24,584    $  59,733    $  58,524
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ............................      49,624       47,573       98,060       95,982
  Net decrease in deferred income taxes and
    investment tax credit, net .............................      (4,748)      (6,795)     (10,121)     (11,948)
  Amortization of other assets .............................      10,133        5,596       19,345       12,474
  Capitalized cost of real estate sold .....................         308          506          458          796
  Loss from discontinued operations ........................           -         (408)           -         (174)
  Gain on sale of securities, assets and other investments..      (1,063)        (362)      (8,595)      (1,827)
  Other-than-temporary decline in value of investments .....          72           92          110          252
  Impact of changes in working capital, net of effects
    from discontinued operations ...........................     (31,556)     (77,780)      63,377       71,709
  Other ....................................................      13,826        3,584       15,902         (751)
                                                               ---------    ---------    ---------    ---------
    Net cash provided (used) ...............................      57,596       (3,410)     238,269      225,037
                                                               ---------    ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ..........................     (43,906)     (37,426)     (68,592)     (64,029)
Quad Cities Nuclear Power Station
  decommissioning trust fund ...............................      (2,844)      (2,140)      (5,658)      (4,280)
Deferred energy efficiency expenditures ....................           -       (2,626)           -       (6,349)
Nonregulated capital expenditures ..........................     (17,485)      (4,377)     (38,683)      (7,002)
Purchase of real estate brokerage company...................     (78,985)           -      (78,985)           -
Purchase of securities .....................................     (45,125)     (53,064)     (98,354)    (116,407)
Proceeds from sale of securities ...........................      52,772       53,397      104,817      132,049
Proceeds from sale of assets and other investments .........      20,145          526       28,344       13,670
Investment in discontinued operations ......................           -       (1,822)           -      145,193
Other investing activities, net ............................       2,765         (289)         (13)          52
                                                               ---------    ---------    ---------    ---------
  Net cash (used) provided  ................................    (112,663)     (47,821)    (157,124)      92,897
                                                               ---------    ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid ......................................     (28,310)     (29,544)     (56,686)     (59,723)
Issuance of long-term debt, net of issuance cost ...........     158,440            -      158,440            -
Retirement of long-term debt, including reacquisition cost .        (391)     (34,672)     (75,422)     (61,790)
Reacquisition of preferred shares ..........................          (1)          (1)          (3)          (4)
Reacquisition of common shares .............................     (10,754)     (26,235)     (25,597)     (46,564)
Decrease in MidAmerican Capital Company
  unsecured revolving credit facility ......................      (3,200)           -            -     (174,500)
Net increase(decrease) in notes payable ....................      26,366      105,975       29,375      (15,805)
                                                               ---------    ---------    ---------    ---------
  Net cash provided (used) .................................     142,150       15,523       30,107     (358,386)
                                                               ---------    ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......      87,083      (35,708)     111,252      (40,452)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...........      34,637       93,005       10,468       97,749
                                                               ---------    ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................   $ 121,720    $  57,297    $ 121,720    $  57,297
                                                               =========    =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ..................   $  18,865    $  19,708    $  43,999    $  49,978
                                                               =========    =========    =========    =========
Income taxes paid ..........................................   $  33,927    $  76,690    $  34,651    $  76,753
                                                               =========    =========    =========    =========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -6-
<PAGE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A)   GENERAL:

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

B)   ENVIRONMENTAL MATTERS:

     1)     Manufactured Gas Plant Facilities:

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

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

     MidAmerican's  present estimate of probable remediation costs for the sites
discussed  above as of June 30,  1998 is $25  million.  This  estimate  has been
recorded as a liability and a regulatory asset for future recovery. The Illinois
Commerce  Commission  (ICC) has approved the use of a tariff rider which permits
recovery  of the  actual  costs of  litigation,  investigation  and  remediation
relating to former MGP sites.  MidAmerican's present rates in Iowa provide for a
fixed annual  recovery of MGP costs.  MidAmerican  intends to pursue recovery of
the remediation costs from other PRPs and its insurance carriers.

     The  estimate  of  probable  remediation  costs  is  established  on a site
specific  basis.  The costs are  accumulated in a three-step  process.  First, a
determination  is made as to whether  MidAmerican  has potential legal liability
for the site and whether information exists to indicate that contaminated wastes
remain at the site.  Second, if potential legal liability  exists,  the costs of
performing  a  preliminary   investigation  and  the  costs  of  removing  known
contaminated soil are accrued. Finally, as the investigation is performed and if
it is determined  remedial action is required,  the best estimate of remediation
costs is accrued. If necessary,  the estimate is revised when a consent order is
issued.  The  estimated  recorded   liabilities  for  these  properties  include
incremental direct costs of the remediation effort,  costs for future monitoring
at sites and costs of  compensation  to employees  for time expected to be spent
directly on the remediation effort. The estimated recorded liabilities for these
properties  are based upon  preliminary  data.  Thus,  actual  costs  could vary
significantly from the estimates.  The estimate could change materially based on
facts and circumstances  
                                      -7-
<PAGE>

derived  from site  investigations,  changes  in  required  remedial  action and
changes in technology relating to remedial alternatives.  In addition, insurance
recoveries  for some or all of the costs may be  possible,  but the  liabilities
recorded have not been reduced by any estimate of such recoveries.


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

     2)     Clean Air Act:

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

     The  impact  of  the  new  standards  on  MidAmerican  will  depend  on the
attainment  status  of  the  areas  surrounding   MidAmerican's  operations  and
MidAmerican's  relative contribution to the nonattainment status. The attainment
status of areas in the  state of Iowa will not be known for two to three  years.
However,   if   MidAmerican's   operations   are  determined  to  contribute  to
nonattainment,  the  installation  of  additional  control  equipment,  such  as
scrubbers and/or selective catalytic reduction,  on MidAmerican's units could be
required.  The cost to install such equipment could be significant.  MidAmerican
will continue to follow the attainment  status of the areas in which it operates
and evaluate the  potential  impact of the status of these areas on  MidAmerican
under the new regulations.

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

C)   RATE MATTERS:

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

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

     1) On an annualized  basis,  prices for residential  customers were reduced
$8.5 million,  $10.0 million and $5.0 million  effective  November 1, 1996, July
11, 1997, and June 1, 1998  respectively,  for a total annual  decrease of $23.5
million.
                                      -8-
<PAGE>

     2) Rates for industrial  customers  will be reduced by $6 million  annually
and rates for  commercial  customers  will be reduced  by $4  million  annually.
MidAmerican has been given  permission to implement these  reductions  through a
retail access pilot project and through negotiated individual contracts.  In the
event that these  contracts  in the  aggregate do not reduce rates by $6 million
and $4 million,  respectively,  MidAmerican  is required to apply any  remaining
amount to  across-the-board  rate  reductions to customers who do not enter into
contracts.

        The effective date for these rate reductions was set for June 1, 1998 in
the IUB Order approving the settlement.  However, MidAmerican has pending before
the IUB a request to extend the deadlines until September 1, 1998 for industrial
customers,  and December 31, 1998 for commercial  customers.  That request would
involve an  obligation  to increase  the amount of the  reduction  on a one-time
basis to  reflect  the time  value of  money  between  June 1,  1998 and the new
requested  deadlines.  MidAmerican  estimates  it will  not  have  any  interest
obligation  with  respect to the  industrial  contracts,  and will not incur any
material interest obligation with respect to its commercial contracts.

        The negotiated contracts have differing  terms and conditions as well as
prices.  The  contracts  range in length  from five to ten years,  and some have
price  renegotiation  and early  termination  provisions  exercisable  by either
party.  The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to 10-year contracts.  Prices are set
as fixed prices;  however,  many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes,  and transition costs.  While the contract prices are fixed (except
for the potential adjustment elements),  the costs MidAmerican incurs to fulfill
these  contracts  will vary.  On an aggregate  basis the annual  revenues  under
contract are approximately $125 million.

        The IUB is currently  considering  the   contracting   process  in  two
proceedings.  The outcome of those proceedings could impact further  contracting
efforts,  as well as  determine  whether  any of the  contracts  will need to be
renegotiated,  and the extent to which the  annualized  rate reduction will take
the form of negotiated contracts versus across-the-board rate reductions.

     3) A  tracking  mechanism  (Coooper  Tracker)  is being  used to  currently
recover costs for capital  improvements  required by the Cooper Nuclear  Station
Power Purchase  Contract which will offset  approximately $6 million of the rate
reductions in 1998. Other operating expenses will  correspondingly  increase due
to currently expensing the related costs.

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

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

     6) MidAmerican  will develop a pilot  program for a market  access  service
which allows  customers  with at least 4 MW of load to choose energy  suppliers.
The pilot  program,  which is subject  to  approval  by the

                                      -9-


<PAGE>

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

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

     Statement  of  Financial  Accounting  Standards  (SFAS)  No. 71 sets  forth
accounting  principles  for  operations  that are  regulated  and  meet  certain
criteria.  For operations  that meet the criteria,  SFAS 71 allows,  among other
things, the deferral of costs that would otherwise be expensed when incurred.  A
possible  consequence of the changes in the utility industry is the discontinued
applicability of SFAS 71. The majority of MidAmerican's electric and gas utility
operations  currently  meet the  criteria of SFAS 71, but its  applicability  is
periodically   reexamined.   On  December  16,  1997,  MidAmerican's  generation
operations  serving Illinois were no longer subject to the provisions of SFAS 71
due to passage of restructuring  legislation in Illinois.  Thus, MidAmerican was
required to write off regulatory  assets and liabilities  from its balance sheet
related to its Illinois generation operations. The net amount of such write-offs
were immaterial. If other utility operations no longer meet the criteria of SFAS
71, MidAmerican would be required to write off the related regulatory assets and
liabilities  from its balance sheet and thus, a material  adjustment to earnings
in that period could result. As of June 30, 1998,  MidAmerican had approximately
$312 million of  regulatory  assets in its  Consolidated  Balance  Sheet because
these costs are expected to be recovered in future charges to utility customers.

E)   MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:

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

F)   COMMON SHAREHOLDERS' EQUITY:

     In March 1997, Holdings announced its plan to repurchase up to $200 million
of the  Company's  common  stock.  The Company plans to purchase the shares from
time to time as market conditions warrant.  As of June 30, 1998, the Company had
repurchased  approximately 6.2 million shares for $114.8 million under the plan.
In addition,  a subsidiary has acquired  437,131 shares of Holdings common stock
which are also excluded from shares outstanding.

G)   DETAIL OF OTHER COMPREHENSIVE INCOME - INCOME TAXES

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

                                      -10-
<PAGE>


     The following table shows the income tax expense or benefit related to each
component (in thousands):
<TABLE>
<CAPTION>

                                               Three Months              Six Months             Twelve Months
                                               Ended June 30           Ended June 30            Ended June 30
                                           --------------------    ---------------------    --------------------
                                             1998        1997        1998        1997         1998         1997
                                           --------    --------    --------    ---------    ---------    -------
<S>                                        <C>         <C>         <C>         <C>          <C>          <C>
Unrealized holding (losses)/gains
  during period
    Before income taxes                    $(29,603)   $ (1,104)   $ 53,253    $   3,022    $ 274,158    $ 5,810
    Income tax benefit/(expense)             10,195         392     (18,697)        (949)     (95,903)    (1,954)
                                           --------    --------    --------    ---------    ---------    -------
                                            (19,408)       (712)     34,556        2,073      178,255      3,856
                                           --------    --------    --------    ---------    ---------    -------
Less reclassification adjustment for
  realized gains/(losses) reflected in
  net income during period
    Before income taxes                         954          95       2,019          613        9,193       (729)
    Income tax (expense)/benefit               (340)        (37)       (683)        (160)      (3,111)       280
                                           --------    --------    --------    ---------    ---------    -------
                                                614          58       1,336          453        6,082       (449)
                                           --------    --------    --------    ---------    ---------    -------
    Other Comprehensive Income, Net        $(20,022)   $   (770)   $ 33,220    $   1,620    $ 172,173    $ 4,305
                                           ========    ========    ========    =========    =========    =======
</TABLE>

H)   MCLEODUSA INCORPORATED INVESTMENT:

     Included in investments on the Consolidated Balance Sheets is the Company's
investment  in common stock of  McLeodUSA  Incorporated  (McLeodUSA).  McLeodUSA
common stock has been publicly traded since June 14, 1996.  Investor  agreements
related to  McLeodUSA's  initial  public  offering  and  subsequent  merger with
Consolidated  Communications Inc. prohibit the Company from selling or otherwise
disposing of any of the common stock of McLeodUSA  prior to September  24, 1998,
without  approval  of  McLeodUSA's  board  of  directors.  As a  result  of  the
agreements,  the Company's  investment was considered  restricted  stock and, as
such, was recorded at cost in all periods prior to September 1997.  Beginning in
September 1997, the investment is no longer considered restricted for accounting
purposes  and is  recorded at fair value.  At June 30,  1998,  the cost and fair
value of the  McLeodUSA  investment  were  $45.2  million  and  $313.3  million,
respectively.  The  unrealized  gain  is  recorded,  net  of  income  taxes,  as
accumulated  comprehensive  income in common  shareholders'  equity. At June 30,
1998, the unrealized  gain and deferred  income taxes for this  investment  were
$268.1 million and $93.8 million, respectively.

I)  SUBSEQUENT EVENT:

     On August 11, 1998, a definitive  merger agreement was entered into between
the Company and CalEnergy, a global provider of energy services. Under the terms
of the agreement,  the  shareholders of the Company will receive $27.15 cash for
each share of their common stock reflecting a 36 percent premium over the August
11, 1998 closing price.  The merger will need to be approved by the shareholders
of both companies,  the Federal Energy  Regulatory  Commission,  and the Nuclear
Energy Regulatory Commission.  Filings will also be made with the Iowa Utilities
Board,  which has the right to review the merger  and to  disapprove  it only if
found  not  in the  public  interest,  the  Federal  Trade  Commission  and  the
Department  of Justice.  State  regulators  in Illinois  will be notified of the
merger.  Management  believes  completion of the merger could occur by the first
quarter of 1999.

                                      -11-
<PAGE>
<TABLE>
                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                                 (In Thousands)
<CAPTION>
                                                       Three Months                  Six Months                Twelve Months
                                                       Ended June 30               Ended June 30               Ended June 30
                                                     1998          1997          1998          1997          1998          1997
                                                  ----------    ----------    ----------    ----------    ----------    ----------
<S>                                               <C>           <C>           <C>           <C>           <C>           <C>
OPERATING REVENUES
Electric utility ..............................   $  287,094    $  261,801    $  543,448    $  516,117    $1,153,631    $1,086,271
Gas utility ...................................       67,288        80,913       240,488       292,478       484,316       547,627
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                     354,382       342,714       783,936       808,595     1,637,947     1,633,898
                                                  ----------    ----------    ----------    ----------    ----------    ----------

OPERATING EXPENSES
Cost of fuel, energy and capacity .............       57,643        52,141       103,400       111,424       227,736       229,243
Cost of gas sold ..............................       32,648        45,099       137,969       186,932       297,053       360,521
Other operating expenses ......................      111,746        98,691       218,523       192,298       456,019       364,703
Maintenance ...................................       30,740        22,349        53,323        46,098       105,315        90,844
Depreciation and amortization .................       44,191        42,060        88,382        84,068       174,854       166,654
Property and other taxes ......................       24,295        24,853        49,765        50,343       100,739        93,871
Income taxes ..................................        9,673        12,917        38,626        36,421        76,767        94,263
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                     310,936       298,110       689,988       707,584     1,438,483     1,400,099
                                                  ----------    ----------    ----------    ----------    ----------    ----------

OPERATING INCOME ..............................       43,446        44,604        93,948       101,011       199,464       233,799
                                                  ----------    ----------    ----------    ----------    ----------    ----------

NON-OPERATING INCOME
Interest and dividend income ..................        1,447           421         3,394         1,327         4,399         2,107
Non-operating income taxes ....................       (3,436)       (1,374)        1,490        (2,293)        2,028        (3,580)
Other, net ....................................         (882)        3,008        (3,116)        4,339         4,912         6,335
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                      (2,871)        2,055         1,768         3,373        11,339         4,862
                                                  ----------    ----------    ----------    ----------    ----------    ----------
FIXED CHARGES
Interest on long-term debt ....................       17,592        19,332        35,145        39,218        74,047        78,884
Other interest expense ........................        3,529         4,113         6,697         5,442        11,282        10,654
Preferred dividends of subsidiary trust .......        1,995         1,995         3,990         3,990         7,980         4,278
Allowance for borrowed funds ..................         (921)         (603)       (1,675)       (1,312)       (2,960)       (3,068)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
                                                      22,195        24,837        44,157        47,338        90,349        90,748
                                                  ----------    ----------    ----------    ----------    ----------    ----------

INCOME FROM CONTINUING OPERATIONS .............       18,380        21,822        51,559        57,046       120,454       147,913

LOSS FROM DISCONTINUED OPERATIONS .............            -             -             -             -             -       (20,599)
                                                  ----------    ----------    ----------    ----------    ----------    ----------
NET INCOME ....................................       18,380        21,822        51,559        57,046       120,454       127,314
PREFERRED DIVIDENDS ...........................        1,238         1,236         2,475         4,010         4,953         9,750
                                                  ----------    ----------    ----------    ----------    ----------    ----------

EARNINGS ON COMMON STOCK ......................   $   17,142    $   20,586    $   49,084    $   53,036    $  115,501    $  117,564
                                                  ==========    ==========    ==========    ==========    ==========    ==========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -12-
<PAGE>
<TABLE>
                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
<CAPTION>
                                                                                   As of
                                                                   -------------------------------------
                                                                           June 30           December 31
                                                                   -----------------------   -----------
                                                                      1998         1997         1997
                                                                   ----------   ----------   ----------
                                                                         (Unaudited)
<S>                                                                <C>          <C>          <C>
ASSETS
Utility Plant
Electric .......................................................   $4,109,989   $4,053,770   $4,087,924
Gas ............................................................      766,127      731,978      756,874
                                                                   ----------   ----------   ----------
                                                                    4,876,116    4,785,748    4,844,798
Less accumulated depreciation and amortization .................    2,352,465    2,216,806    2,277,110
                                                                   ----------   ----------   ----------
                                                                    2,523,651    2,568,942    2,567,688
Construction work in progress ..................................       82,671       37,880       55,418
                                                                   ----------   ----------   ----------
                                                                    2,606,322    2,606,822    2,623,106
                                                                   ----------   ----------   ----------

POWER PURCHASE CONTRACT ........................................      168,430      190,504      173,107
                                                                   ----------   ----------   ----------

CURRENT ASSETS
Cash and cash equivalents ......................................      113,655       15,515        9,318
Receivables ....................................................      109,376      180,386      184,153
Inventories ....................................................       62,641       68,158       84,298
Other ..........................................................        1,799        4,243        6,174
                                                                   ----------   ----------   ----------
                                                                      287,471      268,302      283,943
                                                                   ----------   ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET .....................      126,195       98,808      115,029
                                                                   ----------   ----------   ----------

OTHER ASSETS ...................................................      319,570      371,253      347,122
                                                                   ----------   ----------   ----------

TOTAL ASSETS ...................................................   $3,507,988   $3,535,689   $3,542,307
                                                                   ==========   ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ....................................   $  977,627   $  968,569   $  985,744
MidAmerican preferred securities, not subject to
  mandatory redemption .........................................       31,760       31,765       31,763
Preferred securities, subject to mandatory redemption:
  MidAmerican preferred securities .............................       50,000       50,000       50,000
  MidAmerican-obligated preferred securities of subsidiary trust
    holding solely MidAmerican junior subordinated debentures ..      100,000      100,000      100,000
Long-term debt (excluding current portion) .....................      929,327      975,047      920,203
                                                                   ----------   ----------   ----------
                                                                    2,088,714    2,125,381    2,087,710
                                                                   ----------   ----------   ----------
CURRENT LIABILITIES
Notes payable ..................................................       41,500      144,300      122,500
Current portion of long-term debt ..............................      199,351       99,900      124,460
Current portion of power purchase contract .....................       14,361       13,717       14,361
Accounts payable ...............................................       85,542       73,677      128,390
Taxes accrued ..................................................      103,801       62,435       91,449
Interest accrued ...............................................       18,977       22,424       20,616
Other ..........................................................       26,942       24,153       22,598
                                                                   ----------   ----------   ----------
                                                                      490,474      440,606      524,374
                                                                   ----------   ----------   ----------
OTHER LIABILITIES
Power purchase contract ........................................       83,143       97,504       83,143
Deferred income taxes ..........................................      589,808      615,846      592,840
Investment tax credit ..........................................       80,274       85,985       83,127
Other ..........................................................      175,575      170,367      171,113
                                                                   ----------   ----------   ----------
                                                                      928,800      969,702      930,223
                                                                   ----------   ----------   ----------
TOTAL CAPITALIZATION AND LIABILITIES ...........................   $3,507,988   $3,535,689   $3,542,307
                                                                   ==========   ==========   ==========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -13-
<PAGE>


<TABLE>
                           MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In Thousands)
<CAPTION>
                                                                    Three Months               Six Months
                                                                    Ended June 30             Ended June 30
                                                                ---------------------    ----------------------
                                                                  1998         1997         1998         1997
                                                               ---------    ---------    ---------    ---------

<S>                                                            <C>         <C>          <C>         <C>   
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................   $ 18,380    $  21,822    $ 51,559    $ 57,046
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ............................     48,642       46,784      96,415      94,428
  Net decrease in deferred income taxes and
    investment tax credit, net .............................     (2,960)      (1,789)     (5,885)     (3,578)
  Amortization of other assets .............................      9,868        5,472      19,033      12,092
  Impact of changes in working capital .....................    (20,212)     (59,177)     73,018      28,477
  Other ....................................................      2,487       (7,694)      1,559     (25,162)
                                                               --------    ---------    --------    --------
    Net cash provided ......................................     56,205        5,418     235,699     163,303
                                                               --------    ---------    --------    --------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ..........................    (43,906)     (37,426)    (68,592)    (64,029)
Quad Cities Nuclear Power Station
  decommissioning trust fund ...............................     (2,844)      (2,140)     (5,658)     (4,280)
Deferred energy efficiency expenditures ....................          -       (2,626)          -      (6,349)
Nonregulated capital expenditures ..........................       (188)      (1,602)    (20,154)     (3,306)
Proceeds from sale of assets and other investments .........     19,854            -      19,854           -
Other investing activities, net ............................        371          829       1,038         927
                                                               --------    ---------    --------    --------
  Net cash used ............................................    (26,713)     (42,965)    (73,512)    (77,037)
                                                               --------    ---------    --------    --------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid .............................................    (29,838)     (41,236)    (59,676)    (75,510)
Issuance of long-term debt, net of issuance cost ...........    158,440            -     158,440           -
Retirement of long-term debt, including reacquisition cost .       (486)     (32,896)    (75,611)    (62,052)
Reacquisition of preferred shares ..........................         (1)          (1)         (3)         (4)
Net (decrease) increase in notes payable ...................    (73,602)     104,275     (81,000)    (17,400)
                                                               --------    ---------    --------    --------
  Net cash provided (used)  ................................     54,513       30,142     (57,850)   (154,966)
                                                               --------    ---------    --------    --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......     84,005       (7,405)    104,337     (68,700)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...........     29,650       22,920       9,318      84,215
                                                               --------    ---------    --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................   $113,655    $  15,515    $113,655    $ 15,515
                                                               ========    =========    ========    ========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ..................   $ 12,223    $  12,215    $ 39,526    $ 42,663
                                                               ========    =========    ========    ========
Income taxes paid ..........................................   $ 33,352    $  54,247    $ 33,436    $ 67,465
                                                               ========    =========    ========    ========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -14-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A)   GENERAL:

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

B)   ENVIRONMENTAL MATTERS:

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

C)   RATE MATTERS:

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

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

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

E)   MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:

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

F)   STATEMENT OF COMPREHENSIVE INCOME:

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

G)   SUBSEQUENT EVENT:

     Refer to Note I of Holdings' Notes to Consolidated Financial Statements for
information regarding subsequent events.

                                      -15-
<PAGE>

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

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


COMPANY STRUCTURE

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

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

     On May 27, 1998, the Company completed its purchase of AmerUs Home Services
Inc.  The  companies  acquired  in  that  transaction  are now  subsidiaries  of
MidAmerican  Realty and include  real estate  operations  in five  states:  Iowa
Realty, the state's largest,  and First Realty/Better Homes and Gardens in Iowa;
Edina  Realty in  Minnesota,  North  Dakota  and  Wisconsin;  and  Carol  Jones,
Realtors,  in Missouri. On a consolidated basis, the new MidAmerican real estate
companies  have more than 800  employees and 3,400 sales agents and comprise the
nation's third largest  residential real estate brokerage  organization based on
over 46,000  buyer/seller  transactions  in 1997.  In  addition  to  residential
brokerage, the MidAmerican Realty companies offer relocation, title and abstract
services.

DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS

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

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

FORWARD-LOOKING STATEMENTS

     From time to time, the Company or one of its subsidiaries individually
may make forward-looking statements within the meaning of the federal securities
laws that involve  judgments,  assumptions  and other  uncertainties  beyond the
control  of  the  Company  or  any  of  its  subsidiaries  individually.   These
forward-looking  statements  may include,  among others,  statements  concerning
revenue  and  cost  trends,  cost  recovery,   cost  

                                      -16-
<PAGE>


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

MERGER ANNOUNCEMENT

     On August 11, 1998, a definitive  merger agreement was entered into between
the Company and CalEnergy, a global provider of energy services. Under the terms
of the agreement,  the  shareholders of the Company will receive $27.15 cash for
each share of their common stock reflecting a 36 percent premium over the August
11, 1998 closing price.  The merger will need to be approved by the shareholders
of both companies,  the Federal Energy  Regulatory  Commission,  and the Nuclear
Energy Regulatory Commission.  Filings will also be made with the Iowa Utilities
Board,  which has the right to review the merger  and to  disapprove  it only if
found  not  in the  public  interest,  the  Federal  Trade  Commission  and  the
Department  of Justice.  State  regulators  in Illinois  will be notified of the
merger.  Management  believes  completion of the merger could occur by the first
quarter of 1999.

                              RESULTS OF OPERATION
                              --------------------

Holdings:
---------

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

                                                          Periods Ended June 30
                                      ------------------------------------------------------------
                                         Three Months            Six Months         Twelve Months
                                      ------------------    ----------------      ----------------
                                        1998     1997          1998     1997       1998       1997
                                      ------     -------    ------    ------      ------    ------
     <S>                              <C>        <C>        <C>       <C>         <C>       <C>
     Net Income (in millions)
         Continuing operations
           Utility                    $ 17.1     $ 20.6     $ 49.1    $ 53.0      $115.5    $138.2
           Nonregulated operations       3.9        3.6       10.6       5.3        25.2      (9.6)
         Discontinued operations           -        0.4          -       0.2        (4.4)    (19.1)
                                      ------     ------     ------    ------      ------    ------
           Consolidated earnings      $ 21.0     $ 24.6     $ 59.7    $ 58.5      $136.3    $109.5
                                      ======     ======     ======    ======      ======    ======

     Earnings Per Common Share -
     Basic and Diluted
         Continuing operations
           Utility                    $ 0.18     $ 0.21     $ 0.52    $ 0.53      $ 1.21    $ 1.38
           Nonregulated operations      0.04       0.03       0.11      0.06        0.26     (0.10)
         Discontinued operations           -       0.01          -         -       (0.04)    (0.19)
                                      ------     ------     ------    ------      ------    ------
           Consolidated earnings      $ 0.22     $ 0.25     $ 0.63    $ 0.59      $ 1.43    $ 1.09
                                      ======     ======     ======    ======      ======    ======
</TABLE>



                                      -17-
<PAGE>



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

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

                                                   Periods Ended June 30
                                  ----------------------------------------------------------
                                    Three Months         Six Months         Twelve Months
                                  ----------------   -----------------   -------------------
                                    1998     1997      1998      1997       1998      1997
                                  -------   ------   -------   -------   --------   --------
                                                       (in millions)
     <S>                          <C>       <C>      <C>       <C>       <C>        <C>
     Earnings on Common Stock
       Continuing operations      $  17.1   $ 20.6   $  49.1   $  53.0   $  115.5   $  138.2
       Discontinued operations*         -        -         -         -        -        (20.6)
                                  -------   ------   -------   -------   --------   --------
       Consolidated earnings      $  17.1   $ 20.6   $  49.1   $  53.0   $  115.5   $  117.6
                                  =======   =======  =======   =======   ========   ========
</TABLE>

     * Discontinued operations for twelve months ended June 30, 1997, includes
the loss of MidAmerican  Capital and Midwest  Capital prior to their transfer to
Holdings on December 1, 1996.

EARNINGS DISCUSSION

     Below is a list of some of the significant factors resulting in the
variances in earnings.  The amounts  represent the variance between the 1998 and
1997 periods. Therefore, a factor that had a negative impact on earnings in both
periods,  but which had less of a negative impact in the 1998 period than in the
1997 period,  would be displayed as a positive  factor for comparison  purposes.
The  discussion  that  follows  addresses  these  factors as well as other items
affecting the Company's results of operations.

     In  the  second  half  of  1997,  MidAmerican  began  charging  to  expense
additional  amortization of deferred  energy  efficiency  costs,  ongoing energy
efficiency  costs and certain  Cooper  Nuclear  Station  costs  consistent  with
ratemaking  treatment.  These  items  have  had a  significant  impact  on other
operating expenses. In conjunction with expensing these items, MidAmerican began
recovery of these costs from its customers,  which is reflected in revenues.  In
order to present more  appropriately the effect of gross margin and O&M expenses
on the comparison of earnings shown below,  the expenses  related to these items
are netted against the related revenues.


                                      -18-
<PAGE>


<TABLE>
<CAPTION>

                                             Approximate Net Income Variances:  1998 vs 1997
                                             -----------------------------------------------
                                                        For Periods Ended June 30
                                                 ---------------------------------------
                                                 Three Months  Six Months  Twelve Months
                                                 ------------  ----------  -------------
                                                           ($ In Millions)
MidAmerican:
------------
  <S>                                                <C>          <C>           <C>
  Net reduction in electric and gas
    gross margin due to -
      Variation in the effect of weather             $  -         $(6.5)        $(3.5)
      Customer growth                                  1.3          2.9           7.7
      Electric retail rates and accruals              (1.2)        (2.4)         (6.4)
      Off-system sales                                 2.7          2.1           5.1
      Improvements due to other factors                3.0         11.7          18.1
  Nuclear O&M expenses                                (1.6)         1.3           0.7
  1996 inventory adjustment                            -             -           (3.7)
  Other O&M expenses                                  (5.6)        (9.0)        (38.9)
  Property taxes                                        -            -           (4.0)
  Recognition of deferred energy
    efficiency income                                 (0.8)        (1.9)         (1.9)
  1996 gain on sale of storage gas                      -            -           (2.4)
  1996 merger proposal costs                            -            -            5.1

  Nonregulated subsidiaries:
    Write-downs of certain assets                       -            -            7.4
    Realized gain on sale of McLeodUSA
      Incorporated common stock                         -            -            5.2
    Donation of appreciated stock                     (2.4)        (2.4)         (2.4)
    Gains on sales of certain assets                    -           3.2           8.0
    Income from a venture capital investment            -           1.2           1.2
    Realty operations                                  1.7          1.7           1.7
    Reduction of interest on long-term debt             -           0.7           5.0

Discontinued operations                               (0.4)        (0.2)         14.7

Average shares outstanding for 1997 period          98,621       99,534       100,096
</TABLE>

     During  the  second  quarter  of  1998,  one  of  MidAmerican's  coal-fired
generating  stations was shut down when a generation step-up  transformer failed
and two intense storms struck  MidAmerican's  service territory.  Also, the Quad
Cities Nuclear Power Station (Quad Cities Station) remained out of service until
June 1. These events  reduced  utility  earnings for the second quarter of 1998.
Third  quarter  earnings  will reflect most of the expenses for the storms since
much of the repair work occurred in July.  The impact on third quarter  earnings
is not expected to be material.  Expenses for continued  efforts in  preparation
for a competitive  utility  environment also reduced earnings.  Improved margins
helped to offset some of the increases in expenses.

     In the past two years,  the Company's  strategic  realignment of operations
has significantly  affected earnings of nonregulated  subsidiaries.  During 1997
and the first quarter of 1998, the Company divested a number of its interests in
nonregulated  assets which did not align with the  corporate  vision of becoming
the leading regional provider of energy and complementary services. Earnings for
the twelve  months ended June 30, 1998,  include 6 cents per share from the sale
of assets of railcar  leasing  and repair  businesses  in the fourth  quarter of
1997.  Earnings  for the first six months of 1998  reflect 3 cents per share for
the sale of the  

                                      -19-
<PAGE>

Company's  interest in a financial  management  company and the liquidation of a
partnership that owned commercial  office  buildings.  Losses from  discontinued
operations reduced earnings in each twelve-month period shown above, though to a
lesser degree in the 1997 period.  Cash  proceeds from the sale of  discontinued
operations  in  early  1997  allowed  the  Company  to pay off  long-term  debt,
significantly  reducing its interest expense compared to the twelve months ended
June 30, 1997.

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

     The Company's  evaluation of its  nonregulated  investments has resulted in
write-downs of certain  assets,  primarily  investments  in  alternative  energy
projects, in the past two years. The write-downs,  which reflect declines in the
value of those nonregulated investments,  reduced earnings by approximately $2.0
million,  or 2 cents per share,  and $9.4 million,  or 9 cents per share, in the
twelve months ended June 30, 1998 and 1997, respectively.

Discontinued Operations -

Holdings:
---------

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

     In the fourth  quarter of 1996,  the  Company and KCS  Energy,  Inc.  (KCS)
signed a definitive  agreement to sell a portion of the  Company's  nonregulated
operations  to KCS for $210 million in cash plus warrants to purchase KCS common
stock.  The sale,  which  included the  Company's  oil and gas  exploration  and
development  operations,  was completed in January 1997. The twelve months ended
June 30, 1997,  reflects a $7.6 million  after-tax loss for the transaction.  An
additional  $0.4 million  after-tax  loss is included in the twelve months ended
June 30, 1998.

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

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

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


                                      -20-
<PAGE>


UTILITY GROSS MARGIN

     Electric Gross Margin:
     ----------------------
<TABLE>
<CAPTION>
                                                        Periods Ended June 30
                                           ------------------------------------------------
                                            Three Months      Six Months     Twelve Months
                                            ------------      ----------     -------------
                                            1998    1997     1998    1997    1998     1997
                                           ------  ------   ------  ------  ------   ------
                                                            (In millions)

     <S>                                    <C>     <C>      <C>    <C>     <C>      <C>
     Operating revenues                     $287    $262     $543   $ 516   $1,154   $1,086
     Cost of fuel, energy and capacity        58      52      103     111      228      229
                                            ----    ----     ----   -----   ------   ------
       Electric gross margin                $229    $210     $440   $ 405   $  926   $  857
                                            ====    ====     ====   =====   ======   ======
</TABLE>

     A variety of factors contributed to the increase in MidAmerican's  electric
gross margin for the 1998 periods  compared to the 1997 periods.  An increase in
revenues from energy efficiency cost recovery accounted for $9.1 million,  $18.0
million and $26.9  million of the  increase  in margin for the three-,  six- and
twelve-month  comparisons,   respectively.  Revenues  from  the  Cooper  Tracker
(discussed below) contributed $1.6 million, $3.2 million and $7.3 million to the
increases   for  the  three,   six  and  twelve  months  ended  June  30,  1998,
respectively.  Revenues from these factors are substantially offset by increases
in other operating expenses.

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

     The Cooper  Tracker allows  MidAmerican to collect on a current basis,  the
Iowa portion of expenses for Cooper capital improvement advances.

     The effect of temperatures contributed $4 million to the increase in margin
for the second quarter of 1998 compared to 1997. Compared to normal, 1998 second
quarter  temperatures  resulted in an  increase  in gross  margin of $2 million,
while the 1997 second quarter was cooler than normal, resulting in a decrease in
margin of $2 million.  An increase in sales not  dependent  on weather  improved
electric  margin for the quarter.  Moderate  customer  growth resulted in a $1.9
million  increase in electric gross margin  compared to the 1997 second quarter.
Total retail sales of electricity increased 4.7%.

     Energy costs per unit in the second quarter of 1998 were above the per-unit
amount  recovered  in rates under the new Iowa  pricing  plan and  resulted in a
decrease to gross margin  compared to the second quarter of 1997.  Prior to July
11, 1997,  MidAmerican  was allowed to recover its energy costs from most of its
electric utility customers through Energy Adjustment  Clauses (EACs) included in
revenues.  Effective July 11, 1997, the EAC was eliminated for Iowa customers as
part of a new Iowa pricing plan. Previously,  variations in energy costs did not
affect  gross  margin or net income  due to  corresponding  changes in  revenues
collected  through the EACs. With the elimination of the Iowa EAC,  fluctuations
in energy costs now have an impact on gross margin and net income.

     Reductions  of  electric  retail  rates,  including  the  effect of related
accruals,  resulted in a $2.0  million  decrease in  revenues  and gross  margin
compared to the second quarter of 1997.

                                      -21-
<PAGE>

     Sales for resale  increased  16.7% for the quarter  comparison.  Margins on
those sales  contributed  $4.6  million more to gross margin in the 1998 quarter
than the sales in the second  quarter of 1997.  Refer to the  discussion  of the
energy market under "Competition" in the Operating  Activities and Other Matters
section of MD&A.

     For the comparison of the six-month  periods ended June 30, the variance in
temperatures  resulted  in a $1  million  decrease  in  electric  gross  margin.
Compared to normal, the 1998 temperatures resulted in a decrease in gross margin
of $6 million,  while the 1997 period reflects a $5 million  decrease in margin.
An increase in sales not  dependent  on weather more than offset the decrease in
margin due to weather for the 1998 period compared to 1997.  Moderate but steady
customer  growth  improved  gross  margin by $4.0  million  compared to the 1997
six-month period.  Total retail sales of electricity  increased 2.3% compared to
six months ended June 30, 1997.

     Reductions  of  electric  retail  rates,  including  the  effect of related
accruals,  resulted in a $4.1  million  decrease in  revenues  and gross  margin
compared to the first six months of 1997.

     Year-to-date  sales for resale  decreased  10.0% compared to the six months
ended June 30, 1997.  However,  margins on those sales  contributed $3.6 million
more to gross  margin in the 1998  period  than the sales in the same  period of
1997.

     For the  twelve  months  ended  June 30  comparison,  temperatures  reduced
revenues and gross margin less in the 1998 period than in the 1997 period.  When
compared  to  normal,  the  impact of  temperatures  resulted  in a $14  million
reduction in electric gross margin for the 1998 twelve-month  period compared to
a $23 million  reduction  in gross  margin for the twelve  months ended June 30,
1997.  Moderate  but steady  growth in the number of customers  increased  gross
margin $10.5 million compared to the 1997 period.  An increase in sales that are
not  dependent on weather  also  contributed  to the  increase in gross  margin.
Electric retail sales increased 2.7% for the 1998  twelve-month  period compared
to the twelve months ended June 30, 1997.

     Retail rate reductions,  including the effect of related accruals,  reduced
electric  gross margin by  approximately  $10.9  million  compared to the twelve
months ended June 30,  1997.  Refer to "Rate  Matters" in Liquidity  and Capital
Resources  later in this discussion for further  information  regarding the Iowa
proceeding.

     Sales  for  resale  increased  1% for  the  twelve  months  ended  June  30
comparison,  while margins on those sales increased  approximately $8.6 million.
Transmission  revenues  increased $3.1 million compared to the 1997 twelve-month
period.

     Energy  costs per unit in the twelve  months ended June 30, 1998 were below
the  per-unit  amount  recovered  in rates under the new Iowa  pricing  plan and
resulted in an increase to gross margin.


                                      -22-
<PAGE>

Gas Gross Margin:
-----------------
                                             Periods Ended June 30
                                ------------------------------------------------
                                 Three Months     Six Months       Twelve Months
                                -------------   --------------    --------------
                                 1998    1997    1998     1997     1998    1997
                                -----   -----   -----    -----    -----   ------
                                                (In millions)
     Operating revenues          $67     $81     $240     $292     $484     $548
     Cost of gas sold             33      45      138      187      297      361
                                 ---     ---     ----     ----     ----     ----
     Gas gross margin            $34     $36     $102     $105     $187     $187
                                 ===     ===     ====     ====     ====     ====


     Revenues  include  purchase gas  adjustment  clauses  (PGAs)  through which
MidAmerican  has been  allowed to recover  the cost of gas sold from most of its
gas utility customers. Consequently, fluctuations in the cost of gas sold do not
affect  gross  margin  or  net  income  because  revenues   reflect   comparable
fluctuations in revenues from PGAs.

     Temperatures  in the  second  quarter  of 1998  were  warmer  than  normal,
resulting  in a $2 million  decrease in gas gross  margin for the period,  while
temperatures in the second quarter of 1997 were colder than normal, resulting in
a $2 million  increase in margin.  Total retail  sales of natural gas  decreased
25.0% compared to the second quarter of 1997.

     Increased  recovery  of gas  energy  efficiency  costs  resulted  in a $3.2
million  positive  impact on the comparison of revenues and gross margin for the
quarter.  As discussed in the electric  gross margin  section,  on September 29,
1997,  MidAmerican  began recovery of its energy  efficiency costs which had not
previously  been approved for recovery.  Including an allowed return on deferred
costs,  the annual  increase  in gas  revenues is $12.8  million.  The effect on
earnings of this  increase is partially  offset by a  corresponding  increase in
other operating  expenses of  approximately  $11.1 million annually for deferred
and ongoing gas energy efficiency costs.

     For the six months ended June 30, 1998, temperatures were 14.4% warmer than
normal   resulting   in  a  $10   million   decrease   in  gas   gross   margin.
Colder-than-normal  temperatures in the comparable 1997 period  increased margin
by approximately  $1 million.  Retail sales decreased 15.6% compared to the 1997
six-month period.  Customer growth  contributed $0.9 million to gas margin,  and
the mix of sales  helped to offset the effect of a small  decrease  in usage not
related to weather.  Energy efficiency  revenues  increased $6.2 million for the
six months ended June 30, 1998, compared to the same period in 1997.

     Mild  temperatures  resulted in a $15 million  decrease in gas gross margin
for the twelve  months ended June 30, 1998,  compared to the twelve months ended
June 30, 1997. When compared to normal,  the impact of temperatures  resulted in
an $11 million  reduction  in gas gross margin in the 1998  twelve-month  period
compared  to a $4 million  increase  in gas gross  margin for the twelve  months
ended June 30, 1997.

     The  increase  in  recovery  of  gas  energy   efficiency   costs  for  the
twelve-month period recovered approximately $9.4 million of the loss in revenues
and  margin  resulting  from  milder  temperatures.  Moderate  customer  growth,
contributing  $2.6  million to gross  margin,  and an increase  from other usage
factors also helped offset decreases in gross margin for the 1998 period.

                                      -23-
<PAGE>

UTILITY OPERATING EXPENSES

     Other Operating Expenses -

     Utility other operating expenses increased $13.1 million, $26.2 million and
$91.3  million  for the  three,  six and  twelve  months  ended  June 30,  1998,
respectively, compared to the same periods in 1997.

     As  mentioned  in the gross  margin  discussions,  on  September  29, 1997,
MidAmerican  began additional  recovery of deferred energy  efficiency costs and
current  recovery of ongoing  costs.  As the  deferred  costs are  recovered  in
revenues, they are amortized to expense. In addition,  ongoing energy efficiency
costs, which historically were deferred until future periods, are now charged to
expense  currently.  The increase in energy efficiency costs accounted for $10.7
million,  $21.5  million and $32.8  million of the  increase in other  operating
expenses for the three, six and twelve months ended June 30, 1998, respectively,
compared to the same periods in 1997.

     In addition to the energy efficiency  expense increase,  operating expenses
related to Cooper  increased due in part to the ratemaking  treatment for Cooper
capital  improvements.  As a result  of 1996 and 1997 rate  settlements,  Cooper
capital   improvements  are  now  expensed  when  incurred,   instead  of  being
capitalized.  As mentioned in the Electric Gross Margin section,  MidAmerican is
recovering  on a current  basis the Iowa  portion  of these  costs from its Iowa
electric customers through the Cooper Tracker.  Recovery in Illinois is included
in base rates.  This change  accounted  for  increases  of $0.7 million and $4.7
million for the  six-month and  twelve-month  comparisons,  respectively,  and a
decrease of $0.5 million for the  three-month  period due to an adjustment for a
prior  estimate.  Excluding  these Cooper  costs,  nuclear  operations  expenses
decreased $2.9 million and $5.9 million,  respectively,  for the three-month and
six-month comparisons and were unchanged for the twelve-month periods.

     Continued  restructuring  of the Company in  preparation  for a competitive
industry  has  required  additional  expenses.  MidAmerican  has  increased  its
emphasis on  marketing-related  efforts, as well as customer service operations,
resulting in increases in  consulting  costs,  advertising,  employee  incentive
compensation and other related  expenses.  Increases in such expenses  accounted
for  the  remainder  of the  increases  for the  quarter  and  six-month  period
comparisons.  In addition,  the 1998 twelve-month  period reflects  increases in
certain employee benefits  expenses,  customer  assistance and energy efficiency
administrative   costs,   manufactured   gas  plant  site  clean-up   costs  and
transmission wheeling expense due in part to changes required by FERC Order Nos.
888 and 889.

     Maintenance -

     Maintenance  expenses  increased $8.4 million and $7.2 million for the 1998
three-month  and  six-month  periods  ended June 30 compared to the same periods
ended June 30,  1997.  Increased  maintenance  costs at the Quad Cities  Station
accounted  for $5.6 million and $3.7 million of the  three-month  and  six-month
increases,   respectively.   Additionally,   generating  plant  maintenance  and
distribution  system  maintenance  increased due in part to the outage at Louisa
Energy Center  (Louisa) and storms in June 1998.  Refer to Liquidity and Capital
Resources for a discussion of the shutdown at Louisa.

     Maintenance  expenses for the twelve months ended June 30, 1998, were $14.5
million  greater than in the  comparable  1997 period.  In the fourth quarter of
1996,  MidAmerican made an adjustment to align power plant inventory  accounting
of predecessor  companies.  That adjustment reduced expenses by $6.2 million for
the twelve-month  period ended June 30, 1997. In addition,  the Company incurred
$2.0 million in maintenance  expenses for  restoration  following a snowstorm in
October  1997.  Costs related to the June 1998 storms,  increased  tree-trimming
costs and costs of the  shutdown at Louisa  also  contributed  to the  increase.

                                      -24-
<PAGE>

Maintenance  expenses at the Quad Cities  Station  decreased $1.3 million in the
twelve-month  period  ended June 30, 1998,  compared to the twelve  months ended
June 30, 1997.  Refer to the  discussion of Quad Cities  Nuclear  Station in the
Liquidity and Capital  Resources  section of MD&A for information  regarding the
status of Quad Cities Station.

     Property and Other Taxes -

     Property  taxes  increased  for the  twelve  months  ended  June 30,  1998,
relative  to the  comparable  1997  period due  primarily  to an increase in the
assessed value for Iowa property taxes.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

Holdings:
---------

     Revenues of  nonregulated  subsidiaries  decreased a total of $3.5 million,
$75.8 million and $121.2 million for the three-month, six-month and twelve-month
periods ended June 30, 1998, compared to their respective 1997 periods. Revenues
from the natural gas  marketing  subsidiaries  decreased  $20.0  million,  $89.1
million and $134.6 million for the 1998 three-month,  six-month and twelve-month
periods, respectively.  Related sales volumes decreased 9 million MMBtu's (58%),
27 million  MMBtu's  (53%) and 53 million  MMBtu's  (49%)  compared to the sales
volumes in the 1997  periods.  The decrease in sales volumes is due primarily to
the  expiration  of contracts  which have not been  replaced.  A decrease in the
average price per unit,  reflective of a decrease in the cost of gas sold,  also
reduced  revenues  in the six months  ended June 30,  1998,  for the natural gas
marketing subsidiaries.

     Cost of sales includes  expenses  directly related to sales of natural gas.
The decrease in cost of sales related to natural gas marketing for the first six
months of 1998  reflects a 20%  decrease  in the  average  cost of gas per unit.
Total gross margin  (total price less cost of gas) on  nonregulated  natural gas
sales decreased $1.3 million,  $1.4 million and $0.4 million for the 1998 three,
six,  and  twelve  months  ended  June 30,  respectively,  compared  to the 1997
periods.

     Nonregulated  revenues for each of the 1998 periods  reflect  $18.3 million
from the real estate  brokerage  operations  acquired in May 1998.  Nonregulated
cost of sales and  nonregulated  other  operating  expenses for each 1998 period
presented  include $6.5 million and $8.4 million,  respectively,  related to the
real estate brokerage companies.

     Nonregulated  other  operating  expenses for the 1998  twelve-month  period
include a decrease of approximately $8.1 million due primarily to administrative
costs in the 1997 period which are no longer incurred  because of the absence of
operations the Company sold in early 1997.

NON-OPERATING INCOME AND INTEREST EXPENSE

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

     Interest and Dividend Income -

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


                                      -25-
<PAGE>

     Other, Net -

     In the fourth quarter of 1997,  MidAmerican  sold a portion of its accounts
receivable.  Other, Net for the 1998 quarter, six months and twelve months ended
June 30 includes  deductions  for  discounts on  receivables  sold totaling $1.8
million,  $4.0 million and $4.0  million,  respectively.  Refer to the Financing
Activities  section  of  Liquidity  and  Capital  Resources  later in MD&A for a
discussion of the receivables sale.

     Recognition  of deferred  income from energy  efficiency  programs  totaled
zero,  $0.1 million and $1.8  million for the 1998  three-month,  six-month  and
twelve-month  periods ended June 30,  respectively.  The comparable 1997 periods
reflect income of $1.3 million, $3.3 million and $5.0 million, respectively.

     Other, Net for the six-month and twelve-month  periods ended June 30, 1997,
includes a reduction for net losses on reacquired long-term debt of $0.9 million
and $0.2 million, respectively.

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

     MidAmerican was awarded pre-tax income in each of the periods presented for
performance under its incentive gas procurement  program.  In the second quarter
of  1998  and  1997,   MidAmerican  received  $2.0  million  and  $1.7  million,
respectively.  Twelve  months ended June 30, 1998 and 1997,  reflect  amounts of
$5.3 million and $4.4 million, respectively.

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

     In the fourth quarter of 1996, MidAmerican recorded an initial pre-tax gain
of $3.2 million on its sale of certain  storage gas supplies  which is reflected
in the twelve  months ended June 30, 1997.  MidAmerican  recorded an  additional
$0.8 million gain in the second quarter of 1997,  which is also reflected in the
twelve months ended June 30, 1997,  after receiving  favorable  treatment on the
transaction from the Iowa Utilities Board (IUB).

     The twelve months ended June 30, 1997, also includes $2.2 million of income
from the reversal of a reserve after  successful  resolution of a dispute with a
vendor.

     Fixed Charges -

     Interest on long-term  debt  decreased due to long-term  debt reduction and
refinancing  activities in 1996 and 1997.  Preferred  securities of a subsidiary
trust were issued in December 1996 resulting in the twelve months ended June 30,
1997, including only a partial year of dividends.  MidAmerican  preferred shares
were reacquired at the same time, resulting in a decrease in preferred dividends
deducted after net income in MidAmerican's Consolidated Statements of Income.

                                      -26-
<PAGE>

Holdings:
---------

     Dividend Income -

     Dividend  income  decreased  for each of the periods  ended June 30,  1998,
compared to the  respective  1997 periods due to MidAmerican  Capital's  reduced
holdings of preferred stock portfolios,  a portion of which MidAmerican  Capital
liquidated in 1996.

     Realized Gains and Losses on Securities, Net -

     Net realized  gains on  securities  for twelve  months ended June 30, 1998,
includes an $8.0 million pre-tax gain on the sale of shares of McLeodUSA  common
stock.

Other, Net -

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

         In addition to the above items, the twelve months ended June 30 periods
were also affected by the factors discussed in the next paragraph.

         During the twelve  months ended June 30, 1998,  the Company sold all of
the assets of its railcar repair  services  subsidiary and most of the assets of
its railcar  leasing  subsidiary  and  recorded  pre-tax  gains  totaling  $10.0
million.  Write-downs of nonregulated investments,  as discussed in the Earnings
Discussion  section at the beginning of Results of Operations,  decreased Other,
Net by $3.4 million and $15.6  million for the 1998 and 1997 twelve months ended
June 30,  respectively.  Excluding the investment  mentioned above,  income from
equity  investments  decreased  for  the  1998  twelve-month  period  due to the
liquidation of such investments during 1996 and early 1997.

     Interest Charges -

     Interest on long-term  debt of  nonregulated  subsidiaries  decreased  $8.5
million for the  twelve-month  comparison  due  primarily  to the  reduction  in
MidAmerican Capital's long-term debt in early 1997.

INCOME TAXES

Holdings:
---------

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


                                      -27-
<PAGE>

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

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

     As of June 30, 1998, common equity represented 51.7% of the Company's total
capitalization compared to 51.7% and 47.9% as of December 31, 1997, and June 30,
1997, respectively. Several factors other than earnings, dividends and scheduled
maturities  of debt  affected  the  change  in the  percent  of  common  equity.
Recording  accumulated  comprehensive  income for an  investment in McLeodUSA to
reflect its market value,  and  repurchases  and retirement of debt prior to its
scheduled maturity were major contributors to the move to a higher percentage of
common equity since June 30, 1997. The Company's common stock repurchase program
has reduced common equity during that period.

     MidAmerican's  common equity as of June 30, 1998,  represented 46.8% of its
capitalization  compared to 45.6% as of June 30,  1997. A reduction of long-term
debt was the primary cause of the change.

     As reflected on the Consolidated Statements of Cash Flows, Holdings had net
cash provided from operating activities of $238 million for the first six months
of 1998 compared to $225 million for the same period in 1997.  MidAmerican's net
cash  provided  from  operating  activities  was $236  million for the first six
months of 1998 and $163 million for the first six months of 1997.

INVESTING ACTIVITIES AND PLANS

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

     Utility Construction Expenditures -

     MidAmerican's   primary   need  for   capital   is   utility   construction
expenditures.   For  the  first  six  months  of  1998,   utility   construction
expenditures  totaled $69  million,  including  allowance  for funds used during
construction  (AFUDC)  and  Quad  Cities  Station  nuclear  fuel  purchases.  In
addition,  MidAmerican's  nonregulated  railway  subsidiary  had $20  million of
construction  expenditures in the same period.  All such  expenditures  were met
with cash generated from utility operations, net of dividends.

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

     Forecasted utility construction expenditures, including AFUDC, for 1998 are
$201 million and $609 million for 1999 through 2002.  Capital  expenditure needs
are reviewed regularly by MidAmerican's  management and may change significantly
as a result of such  reviews.  MidAmerican  presently  expects  that all utility
construction  expenditures  for  the  next  five  years  will be met  with  cash
generated from utility  operations,  net of dividends.  The actual level of cash
generated from utility  operations is affected by, among other things,  economic
conditions  in the  utility  service  territory,  weather  and federal and state
regulatory actions.


                                      -28-
<PAGE>

     Deferred Energy Efficiency Expenditures -

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

     Nuclear Decommissioning -

     Operators of a nuclear  facility are required to set aside funds to provide
for costs of future  decommissioning  of their  nuclear  facility.  In  general,
decommissioning  of a nuclear  facility means to safely remove the facility from
service and restore the property to a condition allowing unrestricted use by the
operator.  Based on  information  presently  available,  MidAmerican  expects to
contribute  approximately  $50 million during the period 1998 through 2002 to an
external trust established for the investment of funds for  decommissioning  the
Quad Cities Station.  Historically,  the funds were invested in investment grade
municipal and U.S.  Treasury bonds;  however,  in 1997 MidAmerican  directed the
trust to begin  investing a portion of the funds in domestic  corporate debt and
common  equity  securities.  Approximately  50% of the  trust's  funds  are  now
invested in domestic corporate debt and common equity securities.

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

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

Holdings:
---------

     Nonregulated Capital Expenditures -

     Capital   expenditures   of  MidAmerican   Capital,   Midwest  Capital  and
MidAmerican Realty totaled $19 million for the first six months of 1998. Capital
expenditures of these  subsidiaries  depend  primarily upon the  availability of
suitable  investment  opportunities  which meet the  Company's  objectives.  The
Company continues to evaluate nonregulated  investments and may redeploy certain
assets  in the  future.  External  financing  may  also be used to  provide  for
nonregulated capital expenditures.

     As discussed in the  Introduction  section of MD&A,  the Company  purchased
AmerUs  Home  Services  Inc.  in May 1998 for  approximately  $80  million.  The
acquired companies are now the subsidiaries of MidAmerican Realty.  Total assets
of  MidAmerican  Realty as of June 30, 1998,  were $120 million.  The line items
significantly  affected on the Company's  Consolidated  Balance Sheet as of June
30, 1998,  are as follows ($ in  millions):  Receivables  ($40.4);  Other Assets
($56.1); Notes Payable ($50.5); and Other Current Liabilities ($30.6).


                                      -29-
<PAGE>

     During the second  quarter of 1998, the Company also acquired the assets of
two security services companies in the Midwest.

     Investments -

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

     Included in investments on the Consolidated Balance Sheets is the Company's
investment  in  common  stock of  McLeodUSA.  McLeodUSA  common  stock  has been
publicly traded since June 14, 1996.  Investor agreements related to McLeodUSA's
initial public offering and subsequent merger with  Consolidated  Communications
Inc.  prohibit the Company  from  selling or  otherwise  disposing of any of the
common stock of McLeodUSA  prior to September 24, 1998,  without the approval of
McLeodUSA's  board of directors.  As a result of the  agreements,  the Company's
investment was considered restricted stock and, as such, was recorded at cost in
all periods prior to September 1997. Beginning in September 1997, the investment
is no longer  considered  restricted for accounting  purposes and is recorded at
fair  value.  As of June 30,  1998,  the cost  and fair  value of the  McLeodUSA
investment were $45.2 million and $313.3 million,  respectively.  The unrealized
gain is recorded,  net of income taxes, as accumulated  comprehensive  income in
common  shareholders'  equity.  As of June 30,  1998,  the  unrealized  gain and
deferred income taxes for this investment were $268.1 million and $93.8 million,
respectively.

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

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

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

     MidAmerican  currently has  authority  from the Federal  Energy  Regulatory
Commission  (FERC) to issue  short-term debt in the form of commercial paper and
bank notes aggregating $400 million. As of June 30, 1998, MidAmerican had a $250
million  revolving credit facility  agreement and a $5 million line of credit to
provide short-term  financing for utility operations.  MidAmerican's  commercial
paper borrowings, which totaled $41.5 million at June 30, 1998, are supported by
the revolving  credit  facility and the line of credit.  MidAmerican  also has a
revolving  credit  facility  which is  dedicated  to provide  liquidity  for its
obligations  under   outstanding   pollution  control  revenue  bonds  that  are
periodically remarketed.

     In 1997,  MidAmerican entered into a revolving agreement,  which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican.  Funding  Corp.  in  turn  sold  receivable  interests  to  outside
investors.  In consideration for the sale,  MidAmerican  received $70 million in
cash and the remaining  balance in the form of a subordinated  note from Funding
Corp.  The agreement is structured as a true sale, as determined by Statement of
Financial  Accounting  Standards  (SFAS) No. 125,  under which the  creditors of
Funding  Corp.  will be  entitled to be  satisfied  out of the assets of Funding
Corp.  prior to any  value  being  returned  to  MidAmerican  or its  creditors.


                                      -30-
<PAGE>

Therefore,  the  accounts  receivable  sold are not  reflected  on  Holdings' or
MidAmerican's  Consolidated Balance Sheets. As of June 30, 1998, $106.3 million,
net of reserves, was sold under the agreement.

     On June 16, 1998,  MidAmerican  issued $160  million of 8-year  Medium Term
Notes (MTN's) at a 6.38% coupon rate. Proceeds from the sale were used to refund
$50 million of the 8% Series  General  Mortgage Bonds due February 15, 2022, and
$100 million of the 8.125% Series  General  Mortgage Bonds due February 1, 2023.
The refund  occurred on the July 15, 1998  redemption  date.  Consequently,  the
Consolidated Balance Sheets as of June 30, 1998, reflect these series in current
maturities  and the  proceeds  in  cash,  to the  extent  they  were not used to
temporarily reduce short-term borrowings.

     As of July  31,  1998,  MidAmerican  had $325  million  of  long-term  debt
maturities and sinking fund requirements for 1998 through 2002.

     Credit Ratings -

     MidAmerican's  access  to  external  capital  and its cost of  capital  are
influenced by the credit ratings of its securities. MidAmerican's credit ratings
as of July 31, 1998, are shown in the table below.  The ratings reflect only the
views of such rating agencies, and each rating should be evaluated independently
of  any  other  rating.  Generally,   rating  agencies  base  their  ratings  on
information  furnished  to them by the  issuing  company  and on  investigation,
studies and assumptions by the rating  agencies.  There is no assurance that any
particular rating will continue for any given period of time or that it will not
be  changed or  withdrawn  entirely  if in the  judgment  of the  rating  agency
circumstances so warrant.  Such ratings are not a recommendation to buy, sell or
hold securities.

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

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


     Preferred Dividends -

     Preferred  dividends  include net gains or losses on the  reacquisition  of
MidAmerican preferred shares. Net losses on reacquisitions  totaled $1.4 million
and $2.8 million for the six-month and twelve-month periods ended June 30, 1997,
respectively.

Holdings:

     As of June 30,  1998,  Holdings had lines of credit  totaling  $130 million
available to provide for short-term financing needs.

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

                                      -31-
<PAGE>

     In March 1997, Holdings announced its plan to repurchase up to $200 million
of the  Company's  common  stock.  The Company plans to purchase the shares from
time to time as market  conditions  warrant.  As of June 30, 1998, the Company
had repurchased approximately 6.2 million shares for $114.8 million. The Company
believes  repurchasing  Holding's common stock is the best investment of Company
funds at this time.  Repurchasing  the common  stock will  reduce  total  common
dividend  requirements and aid in improving the Company's dividend payout ratio.
In addition,  a subsidiary of the Company holds approximately  437,000 shares of
Holdings common stock which are also excluded from shares outstanding.

     On July  28,  1998,  Holdings'  board of  directors  declared  a  quarterly
dividend  on  common  shares  of $0.30 per share  payable  August 1,  1998.  The
dividend represents an annual rate of $1.20 per share.

     Nonregulated Subsidiaries -

     As of June 30, 1998,  MidAmerican  Capital had unsecured  revolving  credit
facilities in the amount of $114 million,  under which no debt was  outstanding.
MidAmerican  Capital has $135 million of long-term  debt  maturities and sinking
fund requirements, including $20 million of current maturities, for 1998 through
2002 related to debt outstanding at June 30, 1998.

     Midwest   Capital   currently  has  a  $25  million  line  of  credit  with
MidAmerican, of which $5 million was outstanding at June 30, 1998.

OPERATING ACTIVITIES AND OTHER MATTERS

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

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

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

     As  evidence  of this,  in late June 1998,  utility  energy  markets in the
Midwest experienced substantial price volatility due to a number of factors. The
market volatility did not have a material impact on MidAmerican's  energy costs.
As the  industry  moves into a  competitive  utility  environment,  the  Company
expects such  volatility to continue.  MidAmerican  cannot predict the effect of
that volatility on its future revenues, energy costs or net income.

     MidAmerican  has been active in promoting and  monitoring  legislative  and
regulatory changes that affect the jurisdictions in which it operates.  In order
to successfully  compete in the new  environment,  the Company  believes it must
become the leading regional provider of energy and complementary services. The

                                      -32-
<PAGE>

Company is evaluating all aspects of its business to determine what  adjustments
are necessary to align them with this strategy. Aligning nonregulated businesses
with the Company's strategy has resulted, and may continue to result in the next
year, in negative  impacts on Holdings'  earnings in the form of write-downs for
the  sale,   revaluation  or  discontinuance  of  nonregulated   operations  and
investments. (Refer to the Results of Operations section of MD&A for comments on
the earnings impact of such actions.) The following discussion further addresses
changes  affecting  the  industry and actions the Company is taking to implement
its strategy.

     Competition -

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

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

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

     Legislative and Regulatory Evolution -

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

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

                                      -33-
<PAGE>

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

     Beginning October 1, 1999, larger non-residential  customers and 33% of the
remaining  non-residential customers will be allowed to select their provider of
electric supply services. All other non-residential customers will have supplier
choice  starting  December  31,  2000.  Residential  customers  all  receive the
opportunity to select their electric  supplier on May 1, 2002.  Customer  choice
will create  opportunities  for  MidAmerican  to add customers who are currently
served by other  utilities.  At the same  time,  it will  introduce  the risk of
losing current MidAmerican customers to other energy providers.

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

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

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

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

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

                                      -34-
<PAGE>

     Accounting Effects of Industry Restructuring -

     A possible  consequence of competition in the utility industry is that SFAS
71 may no longer apply. SFAS 71 sets forth accounting  principles for operations
that are  regulated  and meet certain  criteria.  For  operations  that meet the
criteria,  SFAS 71 allows,  among other things, the deferral of costs that would
otherwise be expensed when incurred.  A majority of  MidAmerican's  electric and
gas utility operations  currently meet the criteria required by SFAS 71, but its
applicability is periodically  reexamined.  On December 16, 1997,  MidAmerican's
generation  operations serving Illinois were no longer subject to the provisions
of SFAS 71 due to  passage  of  restructuring  legislation  in  Illinois.  Thus,
MidAmerican  was required to write off those  amounts of  regulatory  assets and
liabilities   from  its  balance  sheet  related  to  its  Illinois   generation
operations. These write-offs were not material. If other portions of its utility
operations no longer meet the criteria of SFAS 71, MidAmerican would be required
to write off the  related  regulatory  assets and  liabilities  from its balance
sheet, and thus, a material  adjustment to earnings in that period could result.
As of June 30, 1998,  MidAmerican  had $312 million of regulatory  assets in its
Consolidated Balance Sheet.

     Energy Efficiency -

     MidAmerican's regulatory assets as of June 30, 1998, included $87.5 million
of deferred energy efficiency costs. On September 29, 1997, MidAmerican received
approval  from the IUB,  effective  immediately,  to begin  recovery of deferred
energy  efficiency  costs not  previously  approved for  recovery.  Based on the
current  level of recovery,  MidAmerican  expects to recover  approximately  $35
million  of the  deferred  energy  efficiency  costs in 1998.  MidAmerican  also
received approval to recover ongoing energy efficiency costs.  Recovery of these
costs is currently  being  collected  from customers  based on projected  annual
costs of $16.8 million.  Amortization  of deferred energy  efficiency  costs and
current  expenditures  for energy  efficiency  costs will be  reflected in other
operating expenses over the related periods of recovery. The total of such costs
for the years 1998,  1999,  2000 and 2001,  is estimated to be $52 million,  $43
million, $41 million and $35 million, respectively.

     Rate Matters -

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

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

     1) On an annualized  basis,  prices for residential  customers were reduced
$8.5 million,  $10.0 million and $5.0 million  effective  November 1, 1996, July
11, 1997, and June 1, 1998  respectively,  for a total annual  decrease of $23.5
million.

     2) Rates for industrial  customers  will be reduced by $6 million  annually
and rates for  commercial  customers  will be reduced  by $4  million  annually.
MidAmerican has been given  permission to implement these  reductions  through a
retail access pilot project and through negotiated individual contracts.  In the
event that these  contracts  in the  aggregate do not reduce rates by $6 million
and $4 million,  respectively,  MidAmerican  is required to apply any  remaining
amount to  across-the-board  rate  reductions to customers who do not enter into
contracts.

                                      -35-
<PAGE>

     The effective  date for these rate  reductions  was set for June 1, 1998 in
the IUB Order approving the settlement.  However, MidAmerican has pending before
the IUB a request to extend the deadlines until September 1, 1998 for industrial
customers,  and December 31, 1998 for commercial  customers.  That request would
involve an  obligation  to increase  the amount of the  reduction  on a one-time
basis to  reflect  the time  value of  money  between  June 1,  1998 and the new
requested  deadlines.  MidAmerican  estimates  it will  not  have  any  interest
obligation  with  respect to the  industrial  contracts,  and will not incur any
material interest obligation with respect to its commercial contracts.

     The negotiated  contracts  have  differing  terms and conditions as well as
prices.  The  contracts  range in length  from five to ten years,  and some have
price  renegotiation  and early  termination  provisions  exercisable  by either
party.  The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to 10-year contracts.  Prices are set
as fixed prices;  however,  many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes,  and transition costs.  While the contract prices are fixed (except
for the potential adjustment elements),  the costs MidAmerican incurs to fulfill
these  contracts  will vary.  On an aggregate  basis the annual  revenues  under
contract are approximately $125 million.

     The  IUB  is  currently   considering  the   contracting   process  in  two
proceedings.  The outcome of those proceedings could impact further  contracting
efforts,  as well as  determine  whether  any of the  contracts  will need to be
renegotiated,  and the extent to which the  annualized  rate reduction will take
the form of negotiated contracts versus across-the-board rate reductions.

     3) A tracking mechanism (Cooper Tracker) is being used to currently recover
costs for capital  improvements  required by the Cooper  Nuclear  Station  Power
Purchase  Contract  which  will  offset  approximately  $6  million  of the rate
reductions in 1998. Other operating expenses will  correspondingly  increase due
to currently expensing the related costs.

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

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

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


                                      -36-
<PAGE>

     Environmental Matters -

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

     The Company is evaluating 27 properties  which were, at one time,  sites of
gas  manufacturing  plants in which it may be a  potentially  responsible  party
(PRP). The purpose of these  evaluations is to determine whether waste materials
are present,  whether such materials constitute an environmental or health risk,
and  whether  the  Company  has any  responsibility  for  remedial  action.  The
Company's present estimate of probable  remediation costs for these sites is $25
million.  This estimate has been recorded as a liability and a regulatory  asset
for future recovery through the regulatory process. Refer to Note B of Notes for
further  discussion  of  the  Company's  environmental   activities  related  to
manufactured gas plant sites and cost recovery.

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

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

     The  impact  of  the  new  standards  on  MidAmerican  will  depend  on the
attainment  status  of  the  areas  surrounding   MidAmerican's  operations  and
MidAmerican's  relative contribution to the nonattainment status. The attainment
status of areas in the  state of Iowa will not be known for two to three  years.
However,   if   MidAmerican's   operations   are  determined  to  contribute  to
nonattainment,  the  installation  of  additional  control  equipment,  such  as
scrubbers and/or selective catalytic reduction,  on MidAmerican's units could be
required.  The cost to install such equipment could be significant.  MidAmerican
will continue to follow the attainment  status of the areas in which it operates
and evaluate the  potential  impact of the status of these areas on  MidAmerican
under the new regulations.

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

     In  December  1997,  negotiators  from more than 150  nations met in Kyoto,
Japan to negotiate an international agreement designed to address global climate
change impacts by attempting to reduce so-called greenhouse gas emissions.  Some
scientists contend that these gases build up in the Earth's atmosphere and cause
global  temperatures  to rise. The primary  target of these  emissions is carbon
dioxide (CO2) which is formed by, among other things,  the  combustion of fossil
fuels.  The  agreement  currently  calls for the  United  States  to reduce  its
emissions of CO2 and other  greenhouse  gases to 7 percent  below 1990 levels in
the 2008-

                                      -37-
<PAGE>

2012 time frame.  In order for the  agreement to become  binding upon the United
States,  ratification by the U.S.  Senate is necessary.  The cost to the utility
industry in general, and to MidAmerican, of reducing its CO2 emissions levels by
7 percent  below 1990 levels would depend on available  technology  at the time,
but could be material.

     Coal Inventories -

     Coal  inventory  levels at  MidAmerican's  coal-fired  generating  stations
declined approximately 40% (in terms of tons of coal) in the twelve months ended
June 30,  1998.  A major factor  contributing  to the  decrease  was  nationwide
operational   problems   experienced  by  a  rail  transportation   provider  of
MidAmerican.  Inadequate  delivery service to  MidAmerican's  Neal Energy Center
(Neal Center) in the fourth  quarter of 1997 resulted in reduced coal  inventory
at that site.

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

     Deliveries  to the Neal Center  have  improved  in 1998.  Also,  during the
second  quarter,  MidAmerican  made progress in rebuilding its coal  inventories
with the use of an  additional  train set and  deliveries  from other  carriers.
Although MidAmerican's total coal inventory remains below the desired level, the
situation has been stabilized and is being managed. Coal delivery is affected by
factors  MidAmerican does not control in its ability to manage coal inventories,
including but not limited to, weather,  derailments and operational  problems of
rail transportation  providers.  MidAmerican will be working throughout the year
to build its coal inventory to higher than the current level.

     Quad Cities Nuclear Power Station Outage -

     Quad Cities  Station,  which is  operated by and 75% owned by  Commonwealth
Edison Company (ComEd), began 1998 with Unit 1 and Unit 2 out of service under a
Confirmatory  Action Letter (CAL) addressing safety system concerns in the event
of certain postulated fires. Also, in January, ComEd was informed by the Nuclear
Regulatory  Commission  (NRC) that the  performance  of Quad  Cities  Station is
trending  adversely.  The NRC  lifted  the CAL in May,  and Unit 2  returned  to
service on May 26,  1998.  On June 1, 1998,  Unit 1 returned to service.  During
discussions  with the  NRC,  ComEd  made  numerous  commitments  to the NRC with
respect to  additional  long-term  analysis  and  improvements  related to those
safety  systems.  ComEd  has  made  significant  changes  in  senior  management
positions in its nuclear  program and at the Quad Cities  Station since November
1997 in an effort to improve its nuclear operations.

     A refueling outage is scheduled for Quad Cities Unit 1 in November 1998. No
refueling outage is scheduled for either unit in 1999.

     Louisa Energy Center -

     On May 27, 1998, MidAmerican shut down its Louisa Energy Center (Louisa), a
700  MW  coal-fired   electric   generating  plant,  when  a  generator  step-up
transformer  failed.  In June,  MidAmerican  installed  an  interim  replacement
transformer  and  restarted  the  Louisa  plant on June 26.  A  repaired  or new
transformer  will be  installed in the spring of 1999.  The interim  replacement
transformer,  which can be recalled by the owner,  is smaller  than the original
transformer  resulting in a slightly lower maximum output.  MidAmerican does not
expect the lower maximum output to affect electric service to its customers.


                                      -38-
<PAGE>

     Generating Capability -

     In July, 1998,  customer usage of electricity  caused an hourly peak demand
of over 3,600  megawatts  (MW) on  MidAmerican's  energy  system.  MidAmerican's
previous  record  peak  demand  was  3,553  MW  set  in  1995.   MidAmerican  is
interconnected with certain Iowa and neighboring utilities and is involved in an
electric power pooling agreement known as Mid-Continent  Area Power Pool (MAPP).
Each MAPP  participant  is  required to maintain  for  emergency  purposes a net
generating  capability  reserve  of at least 15% above its system  peak  demand.
MidAmerican's accredited net generating capability under the MAPP rules is 4,425
MW. Accordingly,  its maximum peak demand would be 3,798 MW in order to maintain
the required reserve.

     If  MidAmerican  fails to maintain  the  appropriate  reserve,  significant
penalties would be contractually imposed by MAPP. MidAmerican believes it has an
adequate reserve; however, significantly  higher-than-normal  temperatures could
cause MidAmerican's reserve to fall below the 15% minimum.

YEAR 2000

     The Company has  undertaken  an extensive  ongoing  project to identify and
assess its information  technology (IT) and non-IT systems potentially  affected
by the year 2000 date change and to repair or replace  those  systems  which are
not year 2000  compliant.  Currently,  the Company is conducting an inventory of
its non-IT  systems and  equipment  to identify  potential  year 2000  problems,
including  components  of  its  generation  and  delivery  infrastructure.   The
Company's   operations   utilize   systems  and  equipment   provided  by  other
organizations.  As a result, year 2000 efforts of suppliers,  vendors or service
providers  could impact the Company's  operations.  The Company is assessing the
efforts of such constituent entities and the impacts on those entities that rely
upon  the  Company's  services,  including  utilities  interconnected  with  the
Company's  electrical  system.  However,  there is no assurance that the Company
will not be  affected  by year 2000  problems  of those  organizations  or their
failure to repair or replace  systems or equipment  which is  incompatible  with
year 2000 dates.

     In  support  of its year 2000  effort,  a  project  team has  designed  and
developed a database  that allows the year 2000  readiness  status of each item,
component,  system and  project  to be  monitored  throughout  the course of the
project.  In addition,  the database  provides a repository for all  information
obtained about vendors and their products, business partners' services, customer
inquiries,   test  results,  and  MidAmerican  project  contacts.   The  Company
classifies  all  systems  ranging  from  low-  to  high-priority  based  on  its
importance   to  carrying  out  the  business   mission.   For  most  high-  and
medium-priority  system components or items that must be replaced or upgraded in
order to achieve year 2000 readiness,  the project schedule calls for completion
of  all  work  by  June  30,  1999.  In  the  case  of   low-priority   systems,
implementation dates may be delayed until as late as September 30, 1999.

     To date,  approximately $4 million in operating expenses have been incurred
to carry out year 2000  activities that include  assessment of system  readiness
and  bringing  IT  systems  into  compliance.  An  additional  $2.25  million in
operating  expenses will need to be incurred to complete the  assessment  and IT
system compliance efforts, although additional unforeseen costs may be incurred.
By year-end the Company  will have  replaced two major IT systems with ones that
are year 2000 compliant.

     The Company  expects to complete the  inventory  of its non-IT  systems and
equipment, and the systems and equipment of third parties with which the Company
has a material relationship,  with regard to potential year 2000 exposure by the
end of the third quarter.  By that time, an estimate of the actions  required to
be  undertaken,  the schedule of when those actions must be  completed,  and the
cost of resolving the year 2000 problems, including possible replacement of such
systems and equipment, will be determined. At this stage 

                                      -39-
<PAGE>


of the assessment, the Company has not become aware of any material costs needed
to be  incurred  to  bring  non-IT  systems  into  compliance,  although  future
assessments could change this outlook.

     Despite  testing and remedial  work  preparing for the advent of year 2000,
the Company may experience random,  widespread and simultaneous  failures in its
generation,   distribution   and   information   systems  during  January  2000.
Contingency  plans for any known or reasonably  anticipated risk of interruption
to the  generation  or  distribution  of energy  are being  developed  to either
eliminate the risk or plan for resources needed to be put in place to reduce the
potential outage period to a minimum.  Although the impact on future  operations
and  revenues  is unknown,  failure of the  Company's  IT and non-IT  systems to
perform because of year 2000 implications could result in operating problems and
costs material to the Company.

     Although management believes the project will be completed  sufficiently in
advance of January 1, 2000,  unforeseen and other factors,  including failure of
contractors to perform,  could cause delays in the project, the results of which
could  likely have a material  effect on the  Company's  results of  operations,
liquidity and financial condition.

ACCOUNTING ISSUES

     In June 1998,  the Financial  Accounting  Standards  Board issued SFAS 133,
"Accounting  for Derivative  Instruments and Hedging  Activities"  effective for
fiscal  years  beginning  after June 15,  1999.  SFAS 133  requires an entity to
recognize  all of  its  derivatives  as  either  assets  or  liabilities  in its
statement of financial  position and measure those instruments at fair value. If
certain  conditions  are met,  such  instruments  may be  designated  as hedges.
Changes in the value of hedge instruments  would not impact earnings,  except to
the extent that the instrument is not perfectly  effective as a hedge. An entity
that elects to apply hedge  accounting is required to establish at the inception
of the  hedge the  method  it will use in  assessing  the  effectiveness  of the
derivative.  If the pronouncement was currently in effect, the Company believes
it would not have a material impact on its results of operations or financial
condition.  The Company continues to analyze the pronouncement.

                                      -40-
<PAGE>
PART I. (continued)

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------   ----------------------------------------------------------

     As of June 30, 1998, the Company's and  MidAmerican's  financial  positions
related to  financial  instruments  and assets that are  sensitive to changes in
interest  rates or commodity  price  changes have not changed  materially  since
December 31, 1997.  Refer to the Company's 1997 Annual Report on Form 10-K under
Item 7A for the applicable information as of December 31, 1997.

PART II - OTHER INFORMATION

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

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

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

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

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

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

     MidAmerican filed its answer and contingent  counterclaims.  The contingent
counterclaims   filed  by  MidAmerican  are  generally  as  follows:   (1)  that
MidAmerican  has no duty  under  the  contract  to  reimburse  or pay 50% of the
decommissioning  costs unless certain  conditions  occur;  (2) that NPPD has the
equitable  duty  to  repay  all  amounts  that  MidAmerican  has  prefunded  for
decommissioning  in the event  NPPD  operates  the  plant  after the term of the
contract;  (3) that NPPD is equitably  estopped  from  continuing to operate the
plant after the term of the contract;  (4) that NPPD has granted  MidAmerican an
option to  continue  taking 50% of the power  from the plant;  (5) that the term
"monthly  power  costs" as defined in the  contract  does not include  costs and
expenses associated with  decommissioning the plant; (6) that MidAmerican has no
duty to pay for nuclear  fuel,  O&M projects or capital  improvements  that have
useful lives after the term of the contract;  (7) that transition  costs are not
included in any decommissioning  costs and expenses;  (8) that NPPD has breached
its duty to  MidAmerican  in  making  investments  of  certain  funds;  (9) that
reserves  in  certain   accounts  are   excessive  and  should  be  refunded  to
MidAmerican; and (10) that NPPD must credit MidAmerican for certain payments by
MidAmerican for low-level radioactive waste disposal.

     MidAmerican and NPPD are currently involved in discovery. The trial in this
case is presently scheduled for March 1999.  MidAmerican is vigorously defending
and pursuing its interest in this proceeding.

                                      -41-


<PAGE>

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

     On December 8, 1997,  North Star Steel Company (NSS), a retail  MidAmerican
electric customer, filed a Complaint in the United States District Court for the
Southern  District of Iowa naming  Holdings and  MidAmerican as defendants.  The
Complaint  alleges  that  MidAmerican's  refusal  to allow NSS to obtain  retail
electric  service from an unspecified  alternative  energy company  amounts to a
violation of federal  antitrust laws. NSS sought to recover an unspecified level
of damages,  and to require  MidAmerican to provide retail  wheeling  service so
that NSS could obtain  electricity from an unnamed  supplier.  On June 23, 1998,
the  District  Court  issued  an Order  Granting  Summary  Judgment  in favor of
MidAmerican.  On July 20, 1998,  NSS appealed that decision to the United States
Court of Appeals for the Eighth Circuit. That appeal is currently pending.

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

     The Company held its 1998 Annual Meeting of Shareholders on April 29, 1998.
At the annual meeting,  shareholders elected the thirteen persons nominated. The
results of the votes are as follows:

Election of Directors:

            Name                        For                       Against
     -------------------             ----------                  ---------
     J. W. Aalfs                     76,832,303                  1,319,294
     S. J. Bright                    76,852,902                  1,298,695
     R. D. Christensen               76,811,208                  1,340,389
     R. E. Christiansen              76,296,769                  1,854,828
     J. W. Colloton                  76,681,295                  1,470,302
     F. S. Cottrell                  76,875,238                  1,276,359
     J. W. Eugster                   76,845,938                  1,305,659
     N. Gentry                       76,882,315                  1,269,282
     R. L. Lawson                    76,789,137                  1,362,460
     R. L. Peterson                  76,689,607                  1,461,990
     N. L. Seifert                   76,754,895                  1,396,702
     W. S. Tinsman                   76,875,213                  1,276,384
     L. L. Woodruff                  76,788,312                  1,363,285

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

(A)      EXHIBITS

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

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

Holdings

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

                                      -42-

<PAGE>

MidAmerican

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

Holdings and MidAmerican

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

(B)      REPORTS ON FORM 8-K

     On May 29, 1998, Holdings and MidAmerican filed a joint report on Form 8-K,
dated May 28, 1998. The report included an announcement of Holdings' acquisition
of AmerUs Home  Services  Inc. on May 27, 1998,  and a copy of the related press
release.

     On June 1, 1998, Holdings and MidAmerican filed a joint report on Form 8-K,
dated May 29, 1998,  stating  MidAmerican  shut down its Louisa Energy Center on
May 27, 1998, due to the failure of a generator step-up transformer.  The report
included a copy of the related press release.

     On June 9, 1998,  Holdings & MidAmerican  filed a joint report on Form 8-K,
dated June 9, 1998.  The report  updated the Louisa Energy Center status stating
arrangements for an interim  replacement  transformer were made with an expected
return to  service  in early  July.  A copy of the  related  press  release  was
attached.

     On June 17, 1998,  Holdings & MidAmerican filed a joint report on Form 8-K,
dated June 17, 1998, to include exhibits in  MidAmerican's  previously filed and
effective  registration  statement on Form S-3, Registration No. 333-15387.  The
report included the opinion of legal counsel related to the stated  registration
statement.

     On June 18, 1998,  MidAmerican filed a report on Form 8-K/A, dated June 16,
1998. The report  included the opinion of legal counsel  relating to tax matters
concerning   Medium-Term  Notes,  dated  June  16,  1998,  and  the  consent  of
independent  accountants of their report dated January 23, 1998, in their audits
of the financial  statements and financial statement schedule of MidAmerican and
its subsidiaries.

                                      -43-

<PAGE>



                                   SIGNATURES


     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.





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








Date    August 13, 1998                    /s/  A. L. Wells           
-----------------------        -------------------------------------------------
                                               A. L. Wells
                               Senior Vice President and Chief Financial Officer
                                                     
                                      -44-