**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





**[X]
      Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act
      of 1934**





For
      the
      quarterly period ended March 31, 2006





or





**[
      ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
      Act of 1934**





For
      the
      transition period from _________to _________




Commission
            
            Exact
                name of registrant as specified in its charter
            
            IRS
                EmployerFile
                Number
            
            State
                or other jurisdiction of incorporation or organization
            
            Identification No.**333-90553**
            
            **MIDAMERICAN
                FUNDING, LLC**
            
            **47-0819200****(An
                Iowa Limited Liability Company)****666
                Grand Avenue, PO Box 657****Des
                Moines, Iowa 50303****333-15387**
            
            **MIDAMERICAN
                ENERGY COMPANY**
            
            **42-1425214****(An
                Iowa Corporation)****666
                Grand Avenue, PO Box 657****Des
                Moines, Iowa 50303**(515)
                242-4300(Registrant’s
                telephone number, including area code)(Former
                name, former address and former fiscal year, if changed since last
                report)





Indicate
      by check mark if either registrant is a well-known seasoned issuer, as defined
      in Rule 405 of the Securities Act. Yes  ̈ No T





Indicate
      by check mark if either registrant is not required to file reports pursuant
      to
      Section 13 or Section 15(d) of the Act.





MidAmerican
                Funding, LLC
            YesTNo ̈
            MidAmerican
                Energy Company
            Yes ̈NoT





Indicate
      by check mark whether the registrants (1) have filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrants were
      required to file such reports), and (2) have been subject to such filing
      requirements for the past 90 days.





MidAmerican
                Funding, LLC
            Yes ̈NoT
            MidAmerican
                Energy Company
            YesTNo ̈


Indicate
        by check mark if disclosure of delinquent filers pursuant to Item 405 of
        Regulation S-K is not contained herein, and will not be contained, to the
        best
        of registrants’ knowledge, in definitive proxy or information statements
        incorporated by reference in Part III of this Form 10-K or any amendment
        to this
        Form 10-K. T









Indicate
      by check mark whether the registrants are large accelerated filers, accelerated
      filers, or non-accelerated filers. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
                accelerated filer ̈
            Accelerated
                filer ̈
            Non-accelerated
                filerT





Indicate
      by check mark whether either registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈  No T





As
      of
      May 1, 2006, all of the member’s equity of MidAmerican Funding, LLC was
      held by its parent company, MidAmerican Energy Holdings Company.





As
      of
      May 1, 2006, all 70,980,203 outstanding shares of MidAmerican Energy
      Company’s voting stock were held by its parent company, MHC Inc., a direct,
      wholly owned subsidiary of MidAmerican Funding, LLC.





2




MidAmerican
      Funding, LLC (“MidAmerican Funding”) and MidAmerican Energy Company
      (“MidAmerican Energy”) separately file this combined Form 10-Q. Information
      relating to each individual registrant is filed by such registrant on its own
      behalf. Except for its subsidiary, MidAmerican Energy makes no representation
      as
      to information relating to any other subsidiary of MidAmerican
      Funding.





**TABLE
      OF CONTENTS**








**PART
      I - FINANCIAL INFORMATION**





Item
                1.
            Financial
                Statements
            4Item
                2.
            Management's
                Discussion and Analysis of Financial
                Condition and Results of Operations
            22Item
                3.
            Quantitative
                and Qualitative Disclosures About
                Market Risk
            32Item
                4.
            Controls
                and Procedures
            33**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            34Item
                1A.
            Risk
                Factors
            35Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            35Item
                3.
            Defaults
                Upon Senior Securities
            35Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            35Item
                5.
            Other
                Information
            35Item
                6.
            Exhibits
            35Signatures
            
            36Exhibit
                Index
            
            37




3





**PART
      I - FINANCIAL INFORMATION**





**Item 1.**
            **Financial
                Statements.**








MidAmerican
                Energy Company and SubsidiaryReport
                of Independent Registered Public Accounting
                Firm
            5Consolidated
                Balance Sheets
            6Consolidated
                Statements of
                Operations
            7Consolidated
                Statements of Cash Flows
            8Notes
                to Consolidated Financial
                Statements
            9MidAmerican
                Funding, LLC and SubsidiariesReport
                of Independent Registered Public Accounting
                Firm
            15Consolidated
                Balance Sheets
            16Consolidated
                Statements of
                Operations
            17Consolidated
                Statements of Cash Flows
            18Notes
                to Consolidated Financial
                Statements
            19








4


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Board of Directors and Shareholder


MidAmerican
      Energy Company


Des
      Moines, Iowa





We
      have
      reviewed the accompanying consolidated balance sheet of MidAmerican Energy
      Company and subsidiary (the “Company”) as of March 31, 2006, and the
      related consolidated statements of operations and cash flows for the three-month
      periods ended March 31, 2006 and 2005. These interim financial statements
      are the responsibility of the Company's management.





We
      conducted our reviews in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures and making
      inquiries of persons responsible for financial and accounting matters. It is
      substantially less in scope than an audit conducted in accordance with the
      standards of the Public Company Accounting Oversight Board (United States),
      the
      objective of which is the expression of an opinion regarding the financial
      statements taken as a whole. Accordingly, we do not express such an
      opinion.





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





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated balance sheet
      and
      statement of capitalization (not presented herein) of MidAmerican Energy Company
      and subsidiary as of December 31, 2005, and the related consolidated
      statements of operations, comprehensive income, retained earnings, and cash
      flows for the year then ended (not presented herein); and in our report dated
      March 3, 2006, we expressed an unqualified opinion on those consolidated
      financial statements. In our opinion, the information set forth in the
      accompanying consolidated balance sheet as of December 31, 2005 is fairly
      stated, in all material respects, in relation to the consolidated balance sheet
      from which it has been derived.








/s/
      Deloitte & Touche LLP





Des
      Moines, Iowa


May
      4,
      2006







5


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEETS**


(In
      thousands)





**As
                of****March 31,**
            
            **December
                31,****2006**
            
            **2005****(Unaudited)****ASSETS****Utility
                Plant, Net**Electric
            
            $
            5,986,787
            
            $
            5,933,387Gas
            
            
            1,001,056
            
            
            992,8346,987,843
            
            
            6,926,221Accumulated
                depreciation and amortization
            
            
            (3,149,555
            )
            
            (3,096,933
            )3,838,288
            
            
            3,829,288Construction
                work in progress
            
            
            643,255
            
            
            596,4584,481,543
            
            
            4,425,746**Current
                Assets**Cash
                and cash equivalents
            
            
            187,434
            
            
            70,914Short-term
                investments
            
            
            24,200
            
            
            25,425Receivables,
                net
            
            
            398,853
            
            
            463,630Inventories
            
            
            36,719
            
            
            84,623Other
            
            
            33,198
            
            
            61,221680,404
            
            
            705,813**Investments
                and Nonregulated Property, Net**
            
            
            367,328
            
            
            359,690**Regulatory
                Assets**
            
            
            215,341
            
            
            237,201**Other
                Assets**
            
            
            125,869
            
            
            135,687**Total
                Assets**
            
            $
            5,870,485
            
            $
            5,864,137**CAPITALIZATION
                AND LIABILITIES****Capitalization**Common
                shareholder’s equity
            
            $
            1,831,549
            
            $
            1,744,882MidAmerican
                Energy preferred securities
            
            
            30,329
            
            
            30,329Long-term
                debt, excluding current portion
            
            
            1,470,263
            
            
            1,471,2513,332,141
            
            
            3,246,462**Current
                Liabilities**Current
                portion of long-term debt
            
            
            161,438
            
            
            160,509Accounts
                payable
            
            
            240,688
            
            
            359,496Taxes
                accrued
            
            
            115,865
            
            
            84,122Interest
                accrued
            
            
            29,090
            
            
            14,488Other
            
            
            83,015
            
            
            94,501630,096
            
            
            713,116**Other
                Liabilities**Deferred
                income taxes
            
            
            471,205
            
            
            471,892Investment
                tax credits
            
            
            43,333
            
            
            43,962Asset
                retirement obligations
            
            
            193,887
            
            
            191,117Regulatory
                liabilities
            
            
            766,209
            
            
            763,155Other
            
            
            433,614
            
            
            434,4331,908,248
            
            
            1,904,559**Total
                Capitalization and Liabilities**
            
            $
            5,870,485
            
            $
            5,864,137





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




6




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**


(In
      thousands)





**Three
                Months****Ended
                March 31,****2006**
            
            **2005****(Unaudited)****Operating
                Revenues**Regulated
                electric
            
            $
            415,189
            
            $
            312,579Regulated
                gas
            
            
            455,852
            
            
            467,465Nonregulated
            
            
            170,141
            
            
            75,0921,041,182
            
            
            855,136**Operating
                Expenses**Regulated:Cost
                of fuel, energy and capacity
            
            
            135,607
            
            
            88,763Cost
                of gas sold
            
            
            379,929
            
            
            387,012Other
                operating expenses
            
            
            96,320
            
            
            90,393Maintenance
            
            
            30,866
            
            
            31,650Depreciation
                and amortization
            
            
            74,647
            
            
            63,402Property
                and other taxes
            
            
            24,670
            
            
            24,446742,039
            
            
            685,666Nonregulated:Cost
                of sales
            
            
            160,746
            
            
            66,426Other
            
            
            3,509
            
            
            3,583164,255
            
            
            70,009Total
                operating expenses
            
            
            906,294
            
            
            755,675**Operating
                Income**
            
            
            134,888
            
            
            99,461**Non-Operating
                Income**Interest
                and dividend income
            
            
            2,423
            
            
            1,166Allowance
                for equity funds
            
            
            7,203
            
            
            4,396Other
                income
            
            
            2,022
            
            
            881Other
                expense
            
            
            (381
            )
            
            (600
            )11,267
            
            
            5,843**Fixed
                Charges**Interest
                on long-term debt
            
            
            23,887
            
            
            19,946Other
                interest expense
            
            
            2,709
            
            
            1,822Allowance
                for borrowed funds
            
            
            (3,181
            )
            
            (1,946
            )23,415
            
            
            19,822**Income
                Before Income Taxes**
            
            
            122,740
            
            
            85,482**Income
                Taxes**
            
            
            35,772
            
            
            29,133**Net
                Income**
            
            
            86,968
            
            
            56,349**Preferred
                Dividends**
            
            
            312
            
            
            312**Earnings
                on Common Stock**
            
            $
            86,656
            
            $
            56,037





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




7


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)





**Three
                Months****Ended
                March 31,****2006**
            
            **2005****(Unaudited)****Net
                Cash Flows From Operating Activities**Net
                income
            
            $
            86,968
            
            $
            56,349Adjustments
                to reconcile net income to net cash provided:Depreciation
                and amortization
            
            
            74,979
            
            
            63,728Deferred
                income taxes and investment tax credit, net
            
            
            (1,709
            )
            
            (4,953
            )Amortization
                of other assets and liabilities
            
            
            6,834
            
            
            6,705Impact
                of changes in working capital:Receivables,
                net
            
            
            58,083
            
            
            10,500Inventories
            
            
            47,904
            
            
            57,167Accounts
                payable
            
            
            (89,359
            )
            
            (41,606
            )Taxes
                accrued
            
            
            31,743
            
            
            23,045Other
                current assets and liabilities
            
            
            22,921
            
            
            5,105Other
            
            
            6,555
            
            
            5,700Net
                cash provided by operating activities
            
            
            244,919
            
            
            181,740**Net
                Cash Flows From Investing Activities**Utility
                construction expenditures
            
            
            (130,484
            )
            
            (142,758
            )Quad
                Cities Station decommissioning trust fund contributions
            
            
            (2,075
            )
            
            (2,075
            )Purchases
                of available-for-sale securities
            
            
            (303,163
            )
            
            (95,215
            )Proceeds
                from sales of available-for-sale securities
            
            
            300,164
            
            
            106,736Other
                investing activities, net
            
            
            6,494
            
            
            2,850Net
                cash used in investing activities
            
            
            (129,064
            )
            
            (130,462
            )**Net
                Cash Flows From Financing Activities**Dividends
                paid
            
            
            (312
            )
            
            (312
            )Retirement
                of long-term debt, including reacquisition cost
            
            
            (145
            )
            
            (90,614
            )Other
            
            
            1,122
            
            
            171Net
                cash provided (used) in financing activities
            
            
            665
            
            
            (90,755
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            116,520
            
            
            (39,477
            )**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            70,914
            
            
            88,113**Cash
                and Cash Equivalents at End of Period**
            
            $
            187,434
            
            $
            48,636




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




8


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**


**(Unaudited)**





**1.**
            **General**





The
      consolidated financial statements included herein have been prepared by
      MidAmerican Energy Company (“MidAmerican Energy”), without audit, pursuant to
      the rules and regulations of the Securities and Exchange Commission. Certain
      information and disclosures normally included in financial statements prepared
      in accordance with generally accepted accounting principles have been condensed
      or omitted pursuant to such rules and regulations. In the opinion of MidAmerican
      Energy, all adjustments, consisting of normal recurring adjustments, have been
      made to present fairly the financial position, the results of operations and
      the
      changes in cash flows for the periods presented. Prior year amounts have been
      reclassified to a basis consistent with the current year presentation. All
      significant intercompany transactions have been eliminated. Although MidAmerican
      Energy believes that the disclosures are adequate to make the information
      presented not misleading, it is suggested that these financial statements be
      read in conjunction with the consolidated financial statements and the notes
      thereto included in MidAmerican Energy’s latest Annual Report on Form
      10-K.





Certain
      classifications of amounts for 2005 are different than originally reported.
      The
      accompanying Consolidated Statement of Cash Flows for the three months ended
      March 31, 2005, reflects Purchases of Available-for-Sale Securities
      totaling $19.7 million and Proceeds from Sales of Available-for-Sale
      Securities totaling $16.7 million related to transactions of securities held
      in
      the Quad Cities Station nuclear decommissioning trusts.





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





**2.**
            **Commitments
                and Contingencies**




(a)
              Environmental
                  Matters
 MidAmerican
          Energy is subject to numerous environmental laws, including the federal
          Clean
          Air Act and various state air quality laws; the Endangered Species Act;
          the
          Comprehensive Environmental Response, Compensation and Liability Act, and
          similar state laws relating to environmental cleanups; the Resource Conservation
          and Recovery Act and similar state laws relating to the storage and handling
          of
          hazardous materials; and the Clean Water Act, and similar state laws relating
          to
          water quality. These laws have the potential for impacting MidAmerican
          Energy’s
          operations. Specifically, the Clean Air Act will likely impact the operation
          of
          MidAmerican Energy’s generating facilities and will likely require MidAmerican
          Energy to either reduce emissions from those facilities through the installation
          of emission controls or the purchase of additional emission allowances,
          or some
          combination thereof.




(b)
            Air
                Quality


MidAmerican
      Energy is subject to applicable provisions of the Clean Air Act and related
      air
      quality standards promulgated by the United States Environmental Protection
      Agency (“EPA”). The Clean Air Act provides the framework for regulation of
      certain air emissions and permitting and monitoring associated with those
      emissions. MidAmerican Energy believes it is in material compliance with current
      air quality requirements.


The
        EPA
        has in recent years implemented more stringent national ambient air quality
        standards for ozone and new standards for fine particulate matter. These
        standards set the minimum level of air quality that must be met throughout
        the
        United States. Areas that achieve the standards, as determined by ambient
        air
        quality monitoring, are characterized as being in attainment of the standard.
        Areas that fail to meet the standard are designated as being nonattainment
        areas. Generally, once an area has been designated as a nonattainment area,
        sources of emissions that contribute to the failure to achieve the ambient
        air
        quality standards are required to make emissions reductions. The EPA has
        concluded that the entire state of Iowa, where MidAmerican Energy’s major
        emission sources are located, is in attainment of the ozone ,  and
        the current fine
        particulate matter , standards.
  9
  In
          December 2005, the EPA proposed a revision of the ambient air quality
          standards for fine particles that would maintain the current annual standard
          and
          set a new, more stringent 24-hour standard for the concentration of fine
          particulate in ambient air. The EPA is scheduled to issue final rules in
          September 2006.
  In
          March 2005, the EPA released the final Clean Air Mercury Rule (“CAMR”). The
          CAMR utilizes a market-based cap and trade mechanism to reduce mercury
          emissions
          from coal-burning power plants from the 1999 nationwide level of 48 tons
          to 15
          tons at full implementation. The CAMR’s two-phase reduction program requires
          initial reductions of mercury emission in 2010 and an overall reduction
          in
          mercury emissions from coal-burning power plants of 70% by 2018. Individual
          states are required to implement the CAMR or alternative requirements to
          achieve
          equivalent or greater mercury emission reductions through their state
          implementation plans.
  In
          March
          2005, the EPA released the final Clean Air Interstate Rule (“CAIR”), calling for
          reductions of sulfur dioxide (“SO 2 ”)
          and
          nitrogen oxides (“NO x ”)
          emissions in the eastern United States through, at each state’s option, a
          market-based cap and trade system, emission reductions, or both. The state
          of
          Iowa is implementing rules that exercise the option of the market-based
          cap and
          trade system. While the state of Iowa has been determined to be in attainment
          of
          the ozone and fine particulate standards, Iowa has been found to significantly
          contribute to nonattainment of the fine particulate standard in Cook County,
          Illinois; Lake County, Indiana; Madison County, Illinois; St. Clair County,
          Illinois; and Marion County, Indiana. The EPA has also concluded that emissions
          from Iowa significantly contribute to ozone nonattainment in Kenosha and
          Sheboygan counties in Wisconsin and Macomb County, Michigan. Under the
          final
          CAIR, the first phase reductions of SO 2 emissions are effective on January 1, 2010, with the second phase
          reductions effective January 1, 2015. For NO x ,
          the
          first phase emissions reductions are effective January 1, 2009, and
          the second phase reductions are effective January 1, 2015. The CAIR calls
          for overall reductions of SO 2 and
          NO x in Iowa
          of 68% and 67%, respectively, from 2003 levels by 2015.
 
 The
          CAMR
          or the CAIR could, in whole or in part, be superseded or made more stringent
          by
          one of a number of multi-pollutant emission reduction proposals currently
          under
          consideration at the federal level, including pending legislative proposals
          that
          contemplate 70% to 90% reductions of SO 2 ,
          NO X and
          mercury, as well as possible new federal regulation of carbon dioxide and
          other
          gases that may affect global climate change. In addition to any federal
          legislation that could be enacted by Congress to supersede the CAMR and
          the
          CAIR, the rules could be changed or overturned as a result of litigation.
          The
          sufficiency of the standards established by both the CAMR and the CAIR
          has been
          legally challenged in the United States District Court for the District
          of
          Columbia.
 
 The
          EPA
          has initiated a regional haze program intended to improve visibility at
          specific
          federally protected areas. Some of MidAmerican Energy’s plants meet the
          threshold applicability criteria under the Clean Air Visibility Rules.
          MidAmerican Energy and other stakeholders are participating in the Central
          States Regional Air Partnership to help develop the technical and policy
          tools
          needed to comply with this program.
 
 MidAmerican
          Energy has implemented a planning process that forecasts the site-specific
          controls and actions that may be required to meet emissions reductions
          as
          promulgated by the EPA. In accordance with an Iowa law passed in 2001,
          MidAmerican Energy has on file with the Iowa Utilities Board (“IUB”) its current
          multi-year plan and budget for managing SO 2 and
          NO X from its
          generating facilities in a cost-effective manner. The plan, which is required
          to
          be updated every two years, provides specific actions to be taken at each
          coal-fired generating facility and the related costs and timing for each
          action.
          Pursuant to an unrelated rate settlement agreement approved by the IUB
          on
          October 17, 2003, if prior to January 1, 2011, capital and
          operating expenditures to comply with environmental requirements cumulatively
          exceed $325 million, then MidAmerican Energy may seek to recover the
          additional expenditures from customers.
 Under
        the
        existing New Source Review (“NSR”) provisions of the Clean Air Act, any
        facility that emits regulated pollutants is
        required to obtain a permit from the EPA or a state regulatory agency prior
        to
        (1) beginning construction of a new major stationary source of an NSR-regulated
        pollutant or (2) making a physical or operational change to an existing stationary
        source of such pollutants that increases certain
        levels of emissions, unless the changes are exempt under the regulations (including
        routine maintenance, repair and replacement of equipment). In general, projects
        subject to NSR regulations are subject to pre-construction review and permitting
        under the Prevention of Significant Deterioration (“PSD”) provisions of the
        Clean Air Act. Under the PSD program, a project that emits threshold levels
        of
        regulated pollutants must undergo a Best Available Control Technology analysis
        and evaluate the most effective emissions controls. These controls must be
        installed in order to receive a permit. Violations of NSR regulations, which
        may
        be alleged by the EPA, states, and environmental groups, among others,
        potentially subject a utility to material expenses for fines and other sanctions
        and remedies including requiring installation of enhanced pollution controls
        and
        funding supplemental environmental projects.
  10
  The
        EPA
        has requested from several utilities information and supporting documentation
        regarding their capital projects for various generating plants. The requests
        were issued as part of an industry-wide investigation to assess compliance
        with
        the NSR and the New Source Performance Standards of the Clean Air Act. In
        December 2002 and April 2003, MidAmerican Energy received requests from the
        EPA
        to provide documentation related to its capital projects from January 1,
        1980, to April 2003 for a number of its generating plants. MidAmerican Energy
        has submitted information to the EPA in responses to these requests, and
        there
        are currently no outstanding data requests pending from the EPA. MidAmerican
        Energy cannot predict the outcome of these requests at this time.
  In
          2002
          and 2003, the EPA proposed various changes to its NSR rules that clarify
          what
          constitutes routine repair, maintenance and replacement for purposes of
          triggering NSR requirements. These changes have been subject to legal challenge
          and, until such time as the legal challenges are resolved and the rules
          are
          effective, MidAmerican Energy will continue to manage projects at its generating
          plants in accordance with the rules in effect prior to 2002. In October
          2005,
          the EPA proposed a rule that would change or clarify how emission increases
          are
          to be calculated for purposes of determining the applicability of the NSR
          permitting program for existing power.
  In
            February 2005, the Kyoto Protocol became effective, requiring 35 developed
            countries to reduce greenhouse gas emissions by approximately 5% between
            2008
            and 2012. While the United States did not ratify the protocol, the ratification
            and implementation of its requirements in other countries has resulted
            in
            increased attention on the climate change issue in the United States.
            In 2005,
            the Senate adopted a “sense of the Senate” resolution that puts the Senate on
            record that Congress should enact a comprehensive and effective national
            program
            of mandatory, market-based limits and incentives on emissions of greenhouse
            gases that slow, stop, and reverse the growth of such emissions at a
            rate and in
            a manner that will not significantly harm the United States economy;
            and will
            encourage comparable action by other nations that are major trading partners
            and
            key contributors to global emissions. It is anticipated that the resolution
            may
            be further addressed by Congress in 2006. While debate continues at the
            national
            level over the direction of domestic climate policy, several states are
            developing state-specific or regional legislative initiatives to reduce
            greenhouse gas emissions. In December 2005, the states of Connecticut, Delaware,
            Maine, New Hampshire, New Jersey, New York and Vermont signed a mandatory
            regional pact to reduce greenhouse gas emissions that would become effective
            in
            2009 and ultimately would require a reduction in greenhouse gas emissions
            of 10
            percent from 1990 levels. An executive order signed by California’s governor in
            June 2005 would reduce greenhouse gas emissions in that state to 2000
            levels by
            2010, to 1990 levels by 2020 and 80 percent below 1990 levels by 2050.
            In
            addition, California is seeking to apply a greenhouse gas emission performance
            standard to all electricity generated within the state or delivered from
            outside
            the state that is no higher than the greenhouse gas emission levels of
            a
            state-of-the-art combined-cycle natural gas generation facility.
 
 Litigation
            was filed in the federal district court for the southern district of
            New York
            seeking to require reductions of carbon dioxide emissions from generating
            facilities of five large electric utilities. The court dismissed the
            public
            nuisance suit, holding that such critical issues affecting the United
            States
            such as greenhouse gas emissions reductions are not the domain of the
            court and
            should be resolved by the Executive Branch and the U.S. Congress. This
            ruling
            has been appealed to the Second Circuit Court of Appeals. The outcome
            of climate
            change litigation and federal and state initiatives cannot be determined
            at this
            time; however, adoption of stringent limits on greenhouse gas emissions
            could
            significantly impact MidAmerican Energy’s fossil-fueled facilities and,
            therefore, its results of operations.
 
 The
            EPA’s
            regulation of certain pollutants under the Clean Air Act, and its failure
            to
            regulate other pollutants, is being challenged by various lawsuits brought
            by
            both individual state attorney generals and environmental groups. To
            the extent
            that these actions may be successful in imposing additional and/or more
            stringent regulation of emissions on fossil-fueled facilities in general
            and
            MidAmerican Energy’s facilities in particular, such actions will likely impact
            MidAmerican Energy’s fossil-fueled facilities and, therefore, its results of
            operations.


(b)
            Nuclear
                Decommissioning Costs





Expected
      nuclear decommissioning costs for Quad Cities Station have been developed based
      on a site-specific decommissioning study that includes decontamination,
      dismantling, site restoration, dry fuel storage cost and an assumed shutdown
      date. Quad Cities Station nuclear decommissioning costs are included in base
      rates in MidAmerican Energy’s Iowa tariffs.





11




MidAmerican
        Energy’s share of estimated decommissioning costs for Quad Cities Station, as
        calculated in accordance with Statement of Financial Accounting Standards
        No.
        143, “Accounting for Asset Retirement Obligations,” was $165.4 million and
        $163.0 million as of March 31, 2006 and December 31, 2005,
        respectively, and is reflected in Asset Retirement Obligations on the
        Consolidated Balance Sheets. Refer to Note (14) of MidAmerican Energy’s most
        recently filed Form 10-K for a discussion of asset retirement obligations.
        MidAmerican Energy has established trusts for the investment of funds for
        decommissioning the Quad Cities Station. The fair value of the assets held
        in
        the trusts as of March 31, 2006 and December 31, 2005, was
        $235.5 million and $228.1 million, respectively, and is reflected in
        Investments and Nonregulated Property, Net on the Consolidated Balance
        Sheets.


MidAmerican
      Energy’s depreciation and amortization includes costs for Quad Cities Station
      decommissioning. The regulatory provision charged to expense is equal to the
      funding that is being collected in Iowa rates.





**3.**
            **Rate
                Matters**





Under
      a
      series of settlement agreements between MidAmerican Energy, the OCA and other
      intervenors approved by the IUB, MidAmerican Energy has agreed not to seek
      a
      general increase in electric rates to become effective prior to January 1,
      2013,
      unless its Iowa jurisdictional electric return on equity for any year falls
      below 10%. Prior to filing for a general increase in electric rates, MidAmerican
      Energy is required to conduct 30 days of good faith negotiations with the
      signatories to the settlement agreements to attempt to avoid a general increase
      in such rates. As a party to the settlement agreements, the OCA has agreed
      not
      to request or support any decrease in MidAmerican Energy’s Iowa electric rates
      prior to January 1, 2013. The settlement agreements specifically allow the
      IUB to approve or order electric rate design or cost of service rate changes
      that could result in changes to rates for specific customers as long as such
      changes do not result in an overall increase in revenues for MidAmerican Energy.
      The settlement agreements also each provide that portions of revenues associated
      with Iowa retail electric returns on equity within specified ranges will be
      recorded as a regulatory liability.





Under
      a
      settlement agreement approved by the IUB on December 21, 2001, which was
      effective through December 31, 2005, an amount equal to 50% of revenues
      associated with returns on equity between 12% and 14%, and 83.33% of revenues
      associated with returns on equity above 14%, in each year was recorded as a
      regulatory liability. A settlement agreement which was filed in conjunction
      with
      MidAmerican Energy’s application for ratemaking principles on its 2004/2005 wind
      power project and approved by the IUB on October 17, 2003, provides that
      during the period January 1, 2006 through December 31, 2010, an amount
      equal to 40% of revenues associated with returns on equity between 11.75% and
      13%, 50% of revenues associated with returns on equity between 13% and 14%,
      and
      83.3% of revenues associated with returns on equity above 14%, in each year
      will
      be recorded as a regulatory liability.




A
      settlement agreement approved by the IUB on January 31, 2005, in
      conjunction with MidAmerican Energy’s 2005 expansion of its wind power project
      extended through 2011 MidAmerican Energy’s commitment not to seek a general
      increase in electric rates unless its Iowa jurisdictional electric return on
      equity falls below 10%. It also extended the revenue sharing mechanism through
      2011, and the OCA agreed not to seek any decrease in Iowa electric base rates
      to
      become effective before January 1, 2012.





On
      December 16, 2005, MidAmerican Energy filed with the IUB a settlement
      agreement between MidAmerican Energy and the OCA regarding ratemaking principles
      for up to 545 MW of additional wind-powered generation capacity in Iowa, based
      on nameplate ratings. The settlement agreement, which was approved by the IUB
      on
      April 18, 2006, extends through 2012 MidAmerican Energy’s commitment not to seek
      a general increase in electric rates unless its Iowa jurisdictional electric
      return on equity for the calendar year 2011 falls below 10%. Additionally,
      the
      revenue sharing mechanism is extended through 2012, and the OCA agrees not
      to
      seek any decrease in Iowa electric base rates to become effective prior to
      January 1, 2013.





The
      regulatory liabilities created by the settlement agreements are recorded as
      a
      regulatory charge in depreciation and amortization expense when the liability
      is
      accrued. Additionally, interest expense is accrued on the portion of the
      regulatory liability balance recorded in prior years. The regulatory liabilities
      created for the years through 2010 are expected to be reduced as they are
      credited against plant in service associated with generating plant additions.
      As
      a result of the credit applied to generating plant balances from the reduction
      of the regulatory liabilities, future depreciation will be reduced. The
      regulatory liability accrued for 2011 and 2012, if any, will be credited to
      customer bills in 2012 and 2013, respectively. The change in the balance of
      the
      regulatory liability is summarized as follows (in thousands):




12





Balance
                January 1, 2006
            
            $
            213,135Revenue
                sharing
            
            
            16,500Interest
                costs
            
            
            2,387Amounts
                applied to utility plant in service
            
            
            (34
            )Balance
                March 31, 2006
            
            $
            231,988




**4.**
            **Retirement
                Plans**





MidAmerican
      Energy sponsors a noncontributory defined benefit pension plan covering
      substantially all employees of MidAmerican Energy Holdings Company and its
      domestic energy subsidiaries other than PacifiCorp. MidAmerican Energy also
      sponsors certain postretirement health care and life insurance benefits covering
      substantially all retired employees of MidAmerican Energy Holdings Company
      and
      its domestic energy subsidiaries other than PacifiCorp. Non-union employees
      hired after June 30, 2004, are not eligible for postretirement benefits
      other than pensions. Net periodic benefit cost for the pension, including
      supplemental retirement, and postretirement benefit plans of MidAmerican Energy
      and the aforementioned affiliates included the following components for the
      three months ended March 31, (in thousands):




Pension
            
            Postretirement2006
            
            2005
            
            2006
            
            2005Components
                of net periodic benefit cost:Service
                cost
            
            $
            6,409
            
            $
            6,687
            
            $
            1,741
            
            $
            1,648Interest
                cost
            
            
            9,489
            
            
            9,172
            
            
            3,471
            
            
            3,589Expected
                return on plan assets
            
            
            (9,727
            )
            
            (9,527
            )
            
            (2,482
            )
            
            (2,321
            )Amortization
                of net transition balance
            
            
            -
            
            
            -
            
            
            601
            
            
            614Amortization
                of prior service cost
            
            
            630
            
            
            671
            
            
            -
            
            
            -Amortization
                of prior year loss
            
            
            280
            
            
            409
            
            
            352
            
            
            421Net
                periodic
                benefit cost
            
            $
            7,081
            
            $
            7,412
            
            $
            3,683
            
            $
            3,951




MidAmerican
      Energy expects to contribute $6.7 million and $14.5 million in 2006 to
      its pension and postretirement plans, respectively. As of
      March 31, 2006, $1.5 million and $3.4 million of
      contributions have been made to the pension and postretirement plans,
      respectively.





**5.**
            **Segment
                Information**





Beginning
      in 2006, MidAmerican Energy changed its reportable operating segments. Prior
      year amounts are reflected on a consistent basis with the 2006 amounts.
      MidAmerican Energy has identified two reportable operating segments: electric
      and gas. The electric segment derives most of its revenue from regulated retail
      sales of electricity to residential, commercial, and industrial customers and
      from wholesale sales to other utilities. The gas segment derives most of its
      revenue from regulated retail sales of natural gas to residential, commercial,
      and industrial customers and also obtains significant revenues by transporting
      gas owned by others through its distribution system. Pricing for regulated
      electric and gas sales are established separately by regulatory agencies;
      therefore, management also reviews each segment separately to make decisions
      regarding allocation of resources and in evaluating performance. Common
      operating costs, interest income, interest expense and income tax expense are
      allocated to each segment based on MidAmerican Energy allocators most related
      to
      the nature of the cost. “Nonregulated and Other” in the tables below consists
      principally of nonregulated gas and nonregulated electric
      activities.




13





The
      following tables provide MidAmerican Energy’s operating revenues, earnings on
      common stock and total assets on a reportable operating segment basis (in
      thousands):





Three
                MonthsEnded
                March 31,2006
            
            2005Segment
                Profit InformationOperating
                revenues:Electric
            
            $
            415,189
            
            $
            312,579Gas
            
            
            455,852
            
            
            467,465Nonregulated
                and Other
            
            
            170,141
            
            
            75,092Total
            
            $
            1,041,182
            
            $
            855,136Earnings
                on common stock:Electric
            
            $
            63,300
            
            $
            32,332Gas
            
            
            19,967
            
            
            21,581Nonregulated
                and Other
            
            
            3,389
            
            
            2,124Total
            
            $
            86,656
            
            $
            56,037





As
                ofMarch 31,
            
            December 31,2006
            
            
            2005Segment
                Asset InformationTotal
                assets:Electric
            
            $
            4,823,691
            
            $
            4,698,923Gas
            
            
            928,518
            
            
            1,052,978Nonregulated
                and Other
            
            
            118,276
            
            
            112,236Total
            
            $
            5,870,485
            
            $
            5,864,137




**6.**
            **Total
                Comprehensive Income**





MidAmerican
      Energy’s total comprehensive income for the three months ended March 31,
      2006 and 2005, was $86.7 million and $53.1 million, respectively. For
      the three months ended March 31, 2005, the difference from Earnings on
      Common Stock was due to a minimum pension liability adjustment. Accumulated
      other comprehensive loss, net, was $2.6 million as of
      March 31, 2006 and December 31, 2005.




**7.**
              **Risk
                  Management**
  In
          2006,
          MidAmerican Energy changed its management strategy with regard to certain
          nonregulated end-use gas contracts. This change resulted in recording
          prospectively the related revenues and cost of sales on a gross, rather
          than
          net, basis in accordance with Emerging Issues Task Force Issue No. 02-3,
          “Recognition and Reporting of Gains and Losses on Energy Trading Contracts
          Under
          Issues No. 98-10 and 00-17.”




14


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Board of Managers and Member


MidAmerican
      Funding, LLC


Des
      Moines, Iowa





We
      have
      reviewed the accompanying consolidated balance sheet of MidAmerican Funding,
      LLC
      and subsidiaries (the “Company”) as of March 31, 2006, and the related
      consolidated statements of operations and cash flows for the three-month periods
      ended March 31, 2006 and 2005. These interim financial statements are the
      responsibility of the Company’s management.





We
      conducted our reviews in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures and making
      inquiries of persons responsible for financial and accounting matters. It is
      substantially less in scope than an audit conducted in accordance with the
      standards of the Public Company Accounting Oversight Board (United States),
      the
      objective of which is the expression of an opinion regarding the financial
      statements taken as a whole. Accordingly, we do not express such an opinion.





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





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated balance sheet
      and
      statement of capitalization (not presented herein) of MidAmerican Funding,
      LLC
      and subsidiaries as of December 31, 2005, and the related consolidated
      statements of operations, comprehensive income, retained earnings, and cash
      flows for the year then ended (not presented herein); and in our report dated
      March 3, 2006, we expressed an unqualified opinion on those consolidated
      financial statements. In our opinion, the information set forth in the
      accompanying consolidated balance sheet as of December 31, 2005 is fairly
      stated, in all material respects, in relation to the consolidated balance sheet
      from which it has been derived.








/s/
      Deloitte & Touche LLP





Des
      Moines, Iowa


May
      4,
      2006





15


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


(In
      thousands)





**As
                of****March 31,**
            
            **December
                31,****2006**
            
            **2005****(Unaudited)****ASSETS****Utility
                Plant, Net**Electric
            
            $
            5,986,787
            
            $
            5,933,387Gas
            
            
            1,001,056
            
            
            992,8346,987,843
            
            
            6,926,221Accumulated
                depreciation and amortization
            
            
            (3,149,555
            )
            
            (3,096,933
            )3,838,288
            
            
            3,829,288Construction
                work in progress
            
            
            643,255
            
            
            596,4584,481,543
            
            
            4,425,746**Current
                Assets**Cash
                and cash equivalents
            
            
            187,675
            
            
            71,207Short-term
                investments
            
            
            24,200
            
            
            25,425Receivables,
                net
            
            
            395,912
            
            
            469,128Inventories
            
            
            36,719
            
            
            84,623Other
            
            
            33,792
            
            
            61,577678,298
            
            
            711,960**Investments
                and Nonregulated Property, Net**
            
            
            386,297
            
            
            380,835**Goodwill**
            
            
            1,267,448
            
            
            1,265,979**Regulatory
                Assets**
            
            
            215,341
            
            
            237,201**Other
                Assets**
            
            
            125,878
            
            
            135,695**Total
                Assets**
            
            $
            7,154,805
            
            $
            7,157,416**CAPITALIZATION
                AND LIABILITIES****Capitalization**Member’s
                equity
            
            $
            2,321,477
            
            $
            2,234,837MidAmerican
                Energy preferred securities
            
            
            30,329
            
            
            30,329Long-term
                debt, excluding current portion
            
            
            2,170,263
            
            
            2,171,2514,522,069
            
            
            4,436,417**Current
                Liabilities**Note
                payable to affiliate
            
            
            63,188
            
            
            54,283Current
                portion of long-term debt
            
            
            161,438
            
            
            160,509Accounts
                payable
            
            
            241,306
            
            
            360,225Taxes
                accrued
            
            
            126,427
            
            
            105,029Interest
                accrued
            
            
            33,302
            
            
            30,401Other
            
            
            83,218
            
            
            94,712708,879
            
            
            805,159**Other
                Liabilities**Deferred
                income taxes
            
            
            476,635
            
            
            468,550Investment
                tax credits
            
            
            43,333
            
            
            43,962Asset
                retirement obligations
            
            
            193,887
            
            
            191,117Regulatory
                liabilities
            
            
            766,209
            
            
            763,155Other
            
            
            443,793
            
            
            449,0561,923,857
            
            
            1,915,840**Total
                Capitalization and Liabilities**
            
            $
            7,154,805
            
            $
            7,157,416





The
      accompanying notes are an integral part of these financial
      statements




16





**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**


(In
      thousands)





**Three
                Months****Ended
                March 31,****2006**
            
            **2005****(Unaudited)****Operating
                Revenues**Regulated
                electric
            
            $
            415,189
            
            $
            312,579Regulated
                gas
            
            
            455,852
            
            
            467,465Nonregulated
            
            
            170,676
            
            
            76,2341,041,717
            
            
            856,278**Operating
                Expenses**Regulated:Cost
                of fuel, energy and capacity
            
            
            135,607
            
            
            88,763Cost
                of gas sold
            
            
            379,929
            
            
            387,012Other
                operating expenses
            
            
            96,320
            
            
            90,393Maintenance
            
            
            30,866
            
            
            31,650Depreciation
                and amortization
            
            
            74,647
            
            
            63,402Property
                and other taxes
            
            
            24,670
            
            
            24,446742,039
            
            
            685,666Nonregulated:Cost
                of sales
            
            
            160,924
            
            
            66,590Other
            
            
            4,281
            
            
            4,671165,205
            
            
            71,261Total
                operating expenses
            
            
            907,244
            
            
            756,927**Operating
                Income**
            
            
            134,473
            
            
            99,351**Non-Operating
                Income**Interest
                and dividend income
            
            
            2,464
            
            
            1,205Allowance
                for equity funds
            
            
            7,203
            
            
            4,396Other
                income
            
            
            15,173
            
            
            12,082Other
                expense
            
            
            (415
            )
            
            (2,512
            )24,425
            
            
            15,171**Fixed
                Charges**Interest
                on long-term debt
            
            
            35,661
            
            
            31,720Other
                interest expense
            
            
            3,394
            
            
            2,056Preferred
                dividends of subsidiaries
            
            
            312
            
            
            312Allowance
                for borrowed funds
            
            
            (3,181
            )
            
            (1,946
            )36,186
            
            
            32,142**Income
                Before Income Taxes**
            
            
            122,712
            
            
            82,380**Income
                Taxes**
            
            
            36,084
            
            
            26,023**Net
                Income**
            
            $
            86,628
            
            $
            56,357


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




17


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)





**Three
                Months****Ended
                March 31,****2006**
            
            **2005****(Unaudited)****Net
                Cash Flows From Operating Activities**Net
                income
            
            $
            86,628
            
            $
            56,357Adjustments
                to reconcile net income to net cash provided:Depreciation
                and amortization
            
            
            75,028
            
            
            63,779Deferred
                income taxes and investment tax credit, net
            
            
            7,062
            
            
            (6,420
            )Amortization
                of other assets and liabilities
            
            
            2,273
            
            
            6,298Gain
                on sale of securities, assets and other investments
            
            
            (7,288
            )
            
            (10,190
            )Loss
                from impairment of assets and investments
            
            
            -
            
            
            1,876Impact
                of changes in working capital:Receivables,
                net
            
            
            66,520
            
            
            15,504Inventories
            
            
            47,904
            
            
            57,167Accounts
                payable
            
            
            (89,470
            )
            
            (41,901
            )Taxes
                accrued
            
            
            19,930
            
            
            20,991Other
                current assets and liabilities
            
            
            10,973
            
            
            (6,695
            )Other
            
            
            7,514
            
            
            7,609Net
                cash provided by operating activities
            
            
            227,074
            
            
            164,375**Net
                Cash Flows From Investing Activities**Utility
                construction expenditures
            
            
            (130,484
            )
            
            (142,758
            )Quad
                Cities Station decommissioning trust fund contributions
            
            
            (2,075
            )
            
            (2,075
            )Purchases
                of available-for-sale securities
            
            
            (303,163
            )
            
            (95,215
            )Proceeds
                from sales of available-for-sale securities
            
            
            300,164
            
            
            107,780Proceeds
                from sales of assets and other investments
            
            
            8,564
            
            
            11,046Other
            
            
            6,506
            
            
            2,796Net
                cash used in investing activities
            
            
            (120,488
            )
            
            (118,426
            )**Net
                Cash Flows From Financing Activities**Retirement
                of long-term debt, including reacquisition cost
            
            
            (145
            )
            
            (90,614
            )Note
                payable to affiliate
            
            
            8,905
            
            
            5,050Other
            
            
            1,122
            
            
            171Net
                cash provided (used) in financing activities
            
            
            9,882
            
            
            (85,393
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            116,468
            
            
            (39,444
            )**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            71,207
            
            
            88,367**Cash
                and Cash Equivalents at End of Period**
            
            $
            187,675
            
            $
            48,923




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





18


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**


**(Unaudited)**





**1.**
            **General**





The
      consolidated financial statements included herein have been prepared by
      MidAmerican Funding, LLC (“MidAmerican Funding”), without audit, pursuant to the
      rules and regulations of the Securities and Exchange Commission. Certain
      information and disclosures normally included in financial statements prepared
      in accordance with generally accepted accounting principles have been condensed
      or omitted pursuant to such rules and regulations. In the opinion of MidAmerican
      Funding, all adjustments, consisting of normal recurring adjustments, have
      been
      made to present fairly the financial position, the results of operations and
      the
      changes in cash flows for the periods presented. Prior year amounts have been
      reclassified to a basis consistent with the current year presentation. All
      significant intercompany transactions have been eliminated. Although MidAmerican
      Funding believes that the disclosures are adequate to make the information
      presented not misleading, it is suggested that these financial statements be
      read in conjunction with the consolidated financial statements and the notes
      thereto included in MidAmerican Funding’s latest Annual Report on Form
      10-K.





Certain
      classifications of amounts for 2005 are different than originally reported.
      The
      accompanying Consolidated Statement of Cash Flows for the three months ended
      March 31, 2005, reflects Purchases of Available-for-Sale Securities
      totaling $19.7 million and Proceeds from Sales of Available-for-Sale
      Securities totaling $16.7 million related to transactions of securities held
      in
      the Quad Cities Station nuclear decommissioning trusts.





MidAmerican
      Funding is an Iowa limited liability company with MidAmerican Energy Holdings
      Company as its sole member. MidAmerican Funding’s direct, wholly owned
      subsidiary is MHC Inc. (“MHC”), which constitutes substantially all of
      MidAmerican Funding’s assets, liabilities and business activities except those
      related to MidAmerican Funding’s long-term debt securities. MHC, MidAmerican
      Funding and MidAmerican Energy Holdings Company are public utility holding
      companies headquartered in Des Moines, Iowa. MHC’s principal subsidiary is
      MidAmerican Energy Company, a public utility with electric and natural gas
      operations. Other direct, wholly owned subsidiaries of MHC include InterCoast
      Capital Company, Midwest Capital Group, Inc., MidAmerican Services Company
      and
      MEC Construction Services Co.





**2.**
            **Commitments
                and Contingencies**





Refer
      to
      Notes 2(a) and 2(b) of MidAmerican Energy’s Notes to Consolidated Financial
      Statements for information regarding MidAmerican Funding’s commitments and
      contingencies.





**3.**
            **Rate
                Matters**





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





**4.**
            **Retirement
                Plans**





Refer
      to
      Note 4 of MidAmerican Energy’s Notes to Consolidated Financial Statements for
      information regarding MidAmerican Funding's retirement plans.





19


**5.**
            **Segment
                Information**





Beginning
      in 2006, MidAmerican Funding changed its reportable operating segments. Prior
      year amounts are reflected on a consistent basis with the 2006 amounts.
      MidAmerican Funding has identified two reportable operating segments: electric
      and gas. The electric segment derives most of its revenue from regulated retail
      sales of electricity to residential, commercial, and industrial customers and
      from wholesale sales to other utilities. The gas segment derives most of its
      revenue from regulated retail sales of natural gas to residential, commercial,
      and industrial customers and also obtains significant revenues by transporting
      gas owned by others through its distribution system. Pricing for regulated
      electric and gas sales are established separately by regulatory agencies;
      therefore, management also reviews each segment separately to make decisions
      regarding allocation of resources and in evaluating performance. Common
      operating costs, interest income, interest expense and income tax expense are
      allocated to each segment based on MidAmerican Funding allocators most related
      to the nature of the cost. “Nonregulated and Other” in the tables below consists
      principally of nonregulated gas and nonregulated electric
      activities.





The
      following tables provide MidAmerican Funding’s operating revenues, net income
      and total assets on a reportable operating segment basis (in
      thousands):





Three
                MonthsEnded
                March 31,2006
            
            
            2005Segment
                Profit InformationOperating
                revenues:Electric
            
            $
            415,189
            
            $
            312,579Gas
            
            
            455,852
            
            
            467,465Nonregulated
                and Other
            
            
            170,676
            
            
            76,234Total
            
            $
            1,041,717
            
            $
            856,278Net
                income:Electric
            
            $
            63,300
            
            $
            32,332Gas
            
            
            19,967
            
            
            21,581Nonregulated
                and Other
            
            
            3,361
            
            
            2,444Total
            
            $
            86,628
            
            $
            56,357





As
                ofMarch 31,
            
            December 31,2006
            
            
            2005Segment
                Asset InformationTotal
                assets (a):Electric
            
            $
            6,012,776
            
            $
            5,886,632Gas
            
            
            1,006,881
            
            
            1,131,247Nonregulated
                and Other
            
            
            135,148
            
            
            139,537Total
            
            $
            7,154,805
            
            $
            7,157,416





(a)
            Total
                assets by operating segment reflect the assignment of goodwill to
                applicable reporting units in accordance with Statement of Financial
                Accounting Standards No. 142, “Goodwill and Other Intangible
                Assets.”





**6.**
            **Total
                Comprehensive Income**





MidAmerican
      Funding’s total comprehensive income for the three months ended March 31,
      2006 and 2005, was $86.6 million and $53.6 million, respectively. For
      the three months ended March 31, 2005, the difference from Net Income was
      substantially due to a minimum pension liability adjustment. Accumulated other
      comprehensive loss, net, was $2.6 million as of March 31, 2006
      and December 31, 2005.




20


**7.**
            **Risk
                Management**


Refer
          to
          Note 7 of MidAmerican Energy’s Notes to Consolidated Financial Statements for
          information regarding MidAmerican Funding’s risk management.
  **8.**
                  **Goodwill**
 
 In
            January 2006, MidAmerican Energy changed its reportable operating segments.
            Accordingly, goodwill has been reclassified to match the new segment
            presentation. For the three months ended March 31, 2006, MidAmerican
            Funding
            adjusted goodwill for a change in deferred income taxes due to tax matters
            existing at the time of its purchase of MHC. The following table shows
            the
            change in the carrying amount of goodwill by reportable operating segment
            for
            the three months ended March 31, 2006 (in thousands):


Electric
            
            Gas
            
            TotalBalance
                at January 1, 2006
            
            $
            1,187,710
            
            $
            78,269
            
            $
            1,265,979Income
                tax adjustment
            
            
            1,374
            
            
            95
            
            
            1,469Balance
                at March 31, 2006
            
            $
            1,189,084
            
            $
            78,364
            
            $
            1,267,448





21


**Item 2.**
            **Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations.**





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





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





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





**Forward-Looking
      Statements**





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





**Executive
      Summary**





MidAmerican
      Energy’s earnings on common stock improved $30.7 million to
      $86.7 million for the first quarter of 2006 compared to $56.0 million
      for the first quarter of 2005. Operating income increased $35.4 million due
      primarily to improved electric margins. MidAmerican Funding’s net income
      increased $30.2 million to $86.6 million for the first quarter of 2006
      compared to $56.4 million for the first quarter of 2005.





The
      following events and changes, as discussed in more detail herein, highlight
      some
      factors that had an effect on MidAmerican Energy’s and MidAmerican Funding’s
      operating results, liquidity and capital resources:





·
            MidAmerican
                Energy’s regulated electric gross margin improved due principally to an
                increase in gross margin for electric wholesale sales compared to
                the
                first quarter of 2005. An increase in the average electric wholesale
                margins per megawatt hour sold increased electric wholesale gross
                margin
                by $36.5 million. A 45.6% increase in wholesale sales volumes
                resulted in a $4.7 million increase in electric wholesale gross
                margin.





·
            The
                regulatory expense related to the Iowa revenue sharing arrangement
                increased by $9.0 million. Amounts under the arrangement are
                determined based upon Iowa electric returns on equity which were
                favorably
                impacted by the higher wholesale revenues in the 2006 quarter. Iowa
                revenue sharing is recorded as depreciation and amortization in the
                accompanying consolidated statement of
                operations.




22





·
            MidAmerican
                Energy is currently constructing a 790-megawatt (“MW”)(expected
                accreditation) super-critical-temperature, coal-fired generation
                project
                and expects to invest approximately $737 million in the project
                through 2007. Through March 31, 2006, $542.1 million had
                been invested, including $121.3 million for MidAmerican Energy’s share of
                deferred payments allowed by contract.





·
            In
                the last half of 2005, MidAmerican Energy placed 200 MW (nameplate
                ratings) of wind-powered generation into service. On April 18, 2006,
                MidAmerican Energy received Iowa Utilities Board (“IUB”) approval of the
                ratemaking principles for up to 545 MW (nameplate ratings) of additional
                wind-powered generation capacity in Iowa.





**Results
      of Operations for the Quarter Ended March 31, 2006 and
      2005**





Following
      is a discussion of various factors that affected earnings for the periods
      presented on the Consolidated Statements of Operations. Explanations include
      management's best estimate of the impact of weather, customer growth and other
      factors.





Regulated
      Electric Gross Margin





QuarterEnded
                March 31,2006
            
            2005Gross
                margin (in millions):Operating
                revenues
            
            $
            415.2
            
            $
            312.6Less
                cost of fuel, energy and capacity
            
            
            135.6
            
            
            88.8Electric
                gross margin
            
            $
            279.6
            
            $
            223.8Sales
                (gigawatt-hours):Residential
            
            
            1,375
            
            
            1,369Small
                general service
            
            
            967
            
            
            960Large
                general service
            
            
            2,093
            
            
            1,730Other
            
            
            358
            
            
            353Total
                retail
            
            
            4,793
            
            
            4,412Wholesale
            
            
            2,503
            
            
            1,719Total
            
            
            7,296
            
            
            6,131





Electric
      gross margin for the first quarter of 2006 increased $55.8 million compared
      to the first quarter of 2005 due to a $41.2 million increase in gross
      margin on wholesale sales due primarily to a higher margin per megawatt hour
      sold. Gross margin on retail sales increased $9.7 million due principally
      to usage factors not related to weather. Additionally, transmission revenues
      increased $4.1 million due to the increase in wholesale sales.





Sales
      of
      energy to other utilities, municipalities and marketers inside and outside
      of
      MidAmerican Energy's delivery system are classified as wholesale. An increase
      in
      the average electric wholesale margins per megawatt hour sold due to higher
      market prices and a greater availability of low cost, MidAmerican Energy-owned
      generation improved electric wholesale gross margin by $36.5 million
      compared to the first quarter of 2005. Additionally, a 45.6% increase in
      wholesale sales volumes, due in part to outages at the Louisa Generating Station
      and the Ottumwa Generating Station during the first quarter of 2005, increased
      wholesale gross margin by $4.7 million.





Gross
      margin on electric retail sales increased $9.7 million, with electric retail
      sales volumes increasing 8.6% compared to the first quarter of 2005. The
      increase in large general service sales was substantially due to the addition
      of
      a large steel manufacturer. An increase in the average number of retail
      customers improved electric retail gross margin by $8.6 million compared to
      the first quarter of 2005, while electricity usage factors not dependent on
      weather, such as changes in individual customer usage patterns, increased
      electric margin by $6.1 million. The effect of temperature conditions
      during the first quarter of 2006 compared to the first quarter of 2005 resulted
      in a $2.5 million decrease in electric retail gross margin. An increase in
      fuel costs related to Iowa retail electric sales decreased electric retail
      gross
      margin by $2.9 million compared to the first quarter of 2005 due in part to
      an increase in the portion of energy requirements met with higher cost purchased
      power.




23




Regulated
      Gas Gross Margin





QuarterEnded
                March 31,2006
            
            2005Gross
                margin (in millions)Operating
                revenues
            
            $
            455.9
            
            $
            467.5Less
                cost of gas sold
            
            
            379.9
            
            
            387.0Gas
                gross margin
            
            $
            76.0
            
            $
            80.5Sales
                (000’s decatherms):Residential
            
            
            20,227
            
            
            22,893Small
                general service
            
            
            9,654
            
            
            10,880Large
                general service
            
            
            1,489
            
            
            1,595Other
            
            
            26
            
            
            27Total
                retail
            
            
            31,396
            
            
            35,395Wholesale
            
            
            13,012
            
            
            17,255Total
            
            
            44,408
            
            
            52,650





Regulated
      gas revenues include purchased gas adjustment clauses through which MidAmerican
      Energy is allowed to recover the cost of gas sold from its retail gas utility
      customers. Consequently, fluctuations in the cost of gas sold do not affect
      gross margin or net income because revenues reflect comparable fluctuations
      through the purchased gas adjustment clauses. Compared to the first quarter
      of
      2005, MidAmerican Energy’s average per-unit cost of gas sold increased 16.4%,
      resulting in a $53.5 million increase in cost of gas sold for the first
      quarter of 2006. The increase in cost of gas sold and gas revenues as a result
      of the per-unit cost of gas sold was more than offset by the effect of the
      decrease in sales volumes.





The
      following table summarizes the variance in gas operating revenues allocated
      between the cost of gas sold and margin components.





Quarter
                EndedMarch 31,2006
                vs. 2005(In
                millions)Change
                in cost of gas sold:Average
                cost per unit
            $
            53.5Sales
                volumes
            
            (60.6
            )Total
                change in cost of gas sold
            
            (7.1
            )Change
                in margin:Weather
            
            (3.6
            )Customer
                growth
            
            0.8Other
                usage factors
            
            (2.3
            )Other
            
            0.6Total
                change in margin
            
            (4.5
            )Total
                revenue variance
            $
            (11.6
            )





The
      decrease in gas gross margin due to weather was the result of mild temperature
      conditions in the first quarter of 2006 compared to the same quarter in 2005.
      Other gas usage factors, such as changes in individual customer usage patterns
      and reaction to the increase in natural gas prices, also decreased gas margin.
      MidAmerican Energy's average number of gas retail customers increased 1.2%
      compared to the first quarter of 2005.






24




Regulated
      Operating Expenses





Other
      operating expenses increased $5.9 million for the first quarter of 2006 compared
      to the first quarter of 2005 due to a $6.0 million increase in transmission
      expense related to the increase in purchased power and wholesale
      sales.





Maintenance
      expenses for the first quarter of 2006 decreased $0.8 million compared to
      the first quarter of 2005 due to a $1.2 million decrease in steam
      generating maintenance as a result of planned outages in 2005.





Depreciation
      and amortization expense for the first quarter of 2006 increased
      $11.2 million compared to the first quarter of 2005 due to a
      $9.0 million increase in regulatory expense related to a revenue sharing
      arrangement in Iowa as a result of higher Iowa electric returns on equity
      primarily from improved electric margins. Additionally, utility plant
      depreciation increased due primarily to wind power facilities placed in service
      in the third quarter of 2005. Refer to the “Utility Regulatory Matters” section
      for an explanation of the revenue sharing arrangement.





Nonregulated
      Gross Margin





QuarterEnded
                March 31,2006
            
            2005(In
                millions)MidAmerican
                Energy -Nonregulated
                operating revenues
            
            $
            170.1
            
            $
            75.1Less
                nonregulated cost of sales
            
            
            160.7
            
            
            66.4Nonregulated
                gross margin
            
            $
            9.4
            
            $
            8.7MidAmerican
                Funding Consolidated -Nonregulated
                operating revenues
            
            $
            170.7
            
            $
            76.2Less
                nonregulated cost of sales
            
            
            160.9
            
            
            66.6Nonregulated
                gross margin
            
            $
            9.8
            
            $
            9.6





Nonregulated
      revenues and cost of sales for the first quarter of 2006 increased in part
      due
      to a change in the management strategy related to certain end-use gas
      contracts that resulted in recording prospectively the related revenues and
      cost
      of sales on a gross, rather than net, basis in accordance with Emerging Issues
      Task Force Issue No. 02-3, “Recognition and Reporting of Gains and Losses on
      Energy Trading Contracts Under Issues No. 98-10 and 00-17.” Additionally, an
      increase in the per-unit cost of gas contributed $23.6 million to the increase
      in nonregulated revenues and cost of sales compared to the first quarter of
      2005.





Allowance
      for Equity Funds





As
      a
      regulated public utility, MidAmerican Energy is allowed to capitalize, and
      record as income, a cost of construction for equity funds used, based on
      guidelines set forth by the Federal Energy Regulatory Commission (“FERC”). The
      $2.8 million increase in income for the capitalized allowance on equity funds
      used during construction in the first quarter of 2006 was due to the increase
      in
      construction work in progress compared to the first quarter of 2005. MidAmerican
      Energy expects to continue to record higher-than-normal income for the allowance
      on equity funds used during construction through 2007 while the announced
      generating facilities are constructed.





Other
      Income and Expense





MidAmerican
      Funding -





Other
      income for the first quarter of 2006 includes $7.3 million for a gain on the
      sale of MidAmerican Funding’s non-controlling interest in a non-utility
      gas-fired cogeneration facility. Additionally, other income reflects $5.2
      million of income resulting from changes in a financing arrangement related
      to a
      non-strategic investment in a hydroelectric generating facility. Other income
      for the first quarter of 2005 includes $9.9 million of gains from the sale
      of two non-strategic, passive investments.




25




Other
      expense for the first quarter of 2005 includes the write-downs of some of
      MidAmerican Funding’s investments in commercial passenger aircraft, which it
      accounts for as leveraged leases. The write-downs were the result of actions
      related to a previous bankruptcy filing by the airline carrier.





Fixed
      Charges





The
      increase in interest on long-term debt was due to the effect of
      $300.0 million of MidAmerican Energy long-term debt issued on
      November 1, 2005, offset partially by maturities of higher rate debt
      in 2005. Other interest expense increased due to interest on the Iowa revenue
      sharing liability. MidAmerican Energy is allowed to capitalize, and record
      as a
      reduction to fixed charges, a cost of construction for debt funds used, based
      on
      guidelines set forth by the FERC. Allowance for borrowed funds increased due
      to
      increased utility construction expenditures. MidAmerican Energy expects to
      continue to record higher-than-normal allowance for borrowed funds used during
      construction through 2007 while the announced generating facilities are
      constructed.





Income
      Taxes





MidAmerican
      Energy -





Federal
      law currently provides for federal production tax credits for energy produced
      by
      renewable electricity generation projects, including wind power facilities.
      MidAmerican Energy’s income taxes for the first quarter of 2006 were reduced
      $4.7 million more by the production tax credits compared to the first
      quarter of 2005 due to wind power facilities placed in service in the second
      half of 2005.





State
      utility rate regulation in Iowa requires that the tax effect of certain timing
      differences be flowed through immediately to customers. Therefore, amounts
      that
      would otherwise have been recognized in income tax expense have been included
      as
      changes in regulatory assets. This flow-through treatment of such timing
      differences impacts the effective tax rates from year to year.





26




**Liquidity
      and Capital Resources**





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





As
      reflected on the Consolidated Statements of Cash Flows, MidAmerican Energy’s net
      cash provided by operating activities was $244.9 million and
      $181.7 million for the first quarter of 2006 and 2005, respectively.
      MidAmerican Funding’s net cash provided by operating activities was
      $227.1 million and $164.4 million for the first quarter of 2006 and
      2005, respectively.





Utility
      Construction Expenditures





MidAmerican
      Energy’s primary need for capital is utility construction expenditures. For the
      first quarter of 2006, utility construction expenditures incurred totaled
      $130.5 million, including allowance for funds used during construction and
      Quad Cities Station nuclear fuel purchases. Utility construction expenditures
      include accrued amounts and a non-cash computed cost of equity funds. As a
      regulated public utility, MidAmerican Energy is allowed to capitalize, and
      record as income, a cost of equity funds used for construction, based on
      guidelines set forth by the FERC.





Forecasted
      utility construction expenditures, including allowance for funds used during
      construction, total $797 million for 2006. Of that amount, $422 million is
      for the coal-fired and wind-powered generation projects discussed below, $61
      million is for environmental capital expenditures to comply with current and
      anticipated air quality requirements, and the remaining $314 million is for
      ongoing operational projects including connections for new customers, facilities
      to accommodate load growth, infrastructure replacement and information
      technology systems. Capital expenditure needs are reviewed regularly by
      management and may change significantly as a result of such reviews. MidAmerican
      Energy expects to meet these capital expenditures with cash flows from
      operations and the issuance of long-term debt.





MidAmerican
      Energy anticipates a continuing increase in demand for electricity from its
      regulated customers. To meet anticipated demand and ensure adequate electric
      generation in its service territory, MidAmerican Energy is currently
      constructing Council Bluffs Energy Center Unit No. 4 (“CBEC Unit 4”) a 790-MW
      (expected accreditation) super-critical-temperature, coal-fired generating
      plant. MidAmerican Energy will operate the plant and hold an undivided ownership
      interest as a tenant in common with the other owners of the plant. MidAmerican
      Energy's current ownership interest is 60.67%, equating to 479 MW of output.
      Municipal, cooperative and public power utilities will own the remainder, which
      is a typical ownership arrangement for large base-load plants in Iowa. The
      facility will provide service to regulated retail electricity customers.
      Wholesale sales may also be made from the facility to the extent the power
      is
      not immediately needed for regulated retail service. MidAmerican Energy has
      obtained regulatory approval to include the Iowa portion of the actual cost
      of
      the generation project in its Iowa rate base as long as the actual cost does
      not
      exceed the agreed cap that MidAmerican Energy has deemed to be reasonable.
      If
      the cap is exceeded, MidAmerican Energy has the right to demonstrate the
      prudence of the expenditures above the cap, subject to regulatory review.
      MidAmerican Energy expects to invest approximately $737 million in CBEC
      Unit 4, including transmission facilities and excluding allowance for funds
      used
      during construction. Through March 31, 2006, MidAmerican Energy has
      invested $542.1 million in the project, including $121.3 million for
      MidAmerican Energy’s share of deferred payments allowed by the construction
      contract.





On
      December 16, 2005, MidAmerican Energy filed with the IUB a settlement
      agreement between MidAmerican Energy and the Iowa Office of Consumer Advocate
      (“OCA”) regarding ratemaking principles for up to 545 MW (nameplate ratings) of
      additional wind-powered generation capacity in Iowa (“2006-07 Wind Expansion
      Project”). Generally speaking, accredited capacity ratings for wind power
      facilities are considerably less than the nameplate ratings due to the varying
      nature of wind. The settlement agreement was approved by the IUB on April 18,
      2006. Refer to “Utility Regulatory Matters” below for more information regarding
      the rate aspects of the settlement agreement.





In
      February 2006, MidAmerican Energy executed an agreement with Invenergy Wind
      Development Iowa LLC for the development of 99 MW (nameplate rating) of the
      2006-07 Wind Expansion Project in west central Iowa, scheduled to be completed
      in 2006.




27


Nuclear
      Decommissioning





Each
      licensee of a nuclear facility is required to provide financial assurance for
      the cost of decommissioning its licensed nuclear facility. In general,
      decommissioning of a nuclear facility means to safely remove the facility from
      service and restore the property to a condition allowing unrestricted use by
      the
      operator.





MidAmerican
      Energy currently contributes $8.3 million annually to trusts established
      for the investment of funds for decommissioning Quad Cities Station. As of
      March 31, 2006, approximately 55.4% of the fair value of the trusts’ funds
      was invested in domestic common equity securities, 11.7% in domestic corporate
      debt and the remainder in investment grade municipal and U.S. Treasury bonds.
      Funding for Quad Cities Station nuclear decommissioning is reflected as
      depreciation expense in the Consolidated Statements of Operations. Quad Cities
      Station decommissioning costs charged to Iowa customers are included in base
      rates, and recovery of increases in those amounts must be sought through the
      normal ratemaking process.





Contractual
      Obligations and Commercial Commitments





MidAmerican
      Energy and MidAmerican Funding have various contractual obligations and
      commercial commitments. There have been no material changes in the amount of
      such obligations and commitments from what was disclosed in the “Liquidity and
      Capital Resources” section of MD&A in MidAmerican Energy’s and MidAmerican
      Funding’s most recently filed Form 10-K.





Debt
      Authorizations and Credit Facilities





MidAmerican
      Energy has authority from the FERC to issue through April 14, 2007,
      short-term debt in the form of commercial paper and bank notes aggregating
      $500.0 million. MidAmerican Energy currently has in place a
      $425.0 million revolving credit facility that supports its
      $304.6 million commercial paper program and its variable rate pollution
      control revenue obligations. The facility expires November 18, 2009.





MidAmerican
      Energy currently has the necessary authorizations from the Securities and
      Exchange Commission and the Illinois Commerce Commission (“ICC”) to issue up to
      $230.0 million of additional long-term securities and authorization through
      November 30, 2006, from the FERC to issue up to $425.0 million of
      additional long-term securities. MidAmerican Energy has filed a request with
      the
      ICC for authority to issue up to $600 million of additional long-term
      debt.





In
      conjunction with the March 1999 merger, MidAmerican Energy committed to the
      IUB
      to use commercially reasonable efforts to maintain an investment grade rating
      on
      its long-term debt and to maintain its common equity level above 42% of total
      capitalization unless circumstances beyond its control result in the common
      equity level decreasing to below 39% of total capitalization. MidAmerican Energy
      must seek the approval of the IUB of a reasonable utility capital structure
      if
      MidAmerican Energy’s common equity level decreases below 42% of total
      capitalization, unless the decrease is beyond the control of MidAmerican Energy.
      MidAmerican Energy is also required to seek the approval of the IUB if
      MidAmerican Energy’s equity level decreases to below 39%, even if the decrease
      is due to circumstances beyond the control of MidAmerican Energy. If 
MidAmerican Energy’s common equity level were to drop below the required
      thresholds, MidAmerican Energy’s ability to issue debt could be
      restricted.





Other
      Financing Information





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





**Credit
      Ratings Risks**





Debt
      and
      preferred securities of MidAmerican Funding and MidAmerican Energy are rated
      by
      nationally recognized credit rating agencies. Assigned credit ratings are based
      on each rating agency’s assessment of MidAmerican Funding’s or MidAmerican
      Energy’s ability to, in general, meet the obligations of the debt or preferred
      securities issued by the rated company. The credit ratings are not a
      recommendation to buy, sell or hold securities, and there is no assurance that
      a
      particular credit rating will continue for any given period of time. As of
April 28,
      2006, MidAmerican Energy’s senior unsecured debt credit ratings were as
      follows: Fitch Ratings, “A/stable;” Moody’s Investor Service, “A2/stable;” and
      Standard and Poor’s, “A-/stable.” Other than the energy supply and marketing
      agreements discussed below, neither MidAmerican Funding nor MidAmerican Energy
      has any credit agreements that require termination or a material change in
      collateral requirements or payment schedule in the event of a downgrade in
      the
      credit ratings of the respective company’s securities.




28




In
      conjunction with its risk management activities, MidAmerican Energy must meet
      credit quality standards as required by counterparties. In accordance with
      industry practice, master agreements that govern MidAmerican Energy’s energy
      supply and marketing activities either specifically require it to maintain
      investment grade credit ratings or provide the right for counterparties to
      demand “adequate assurances” in the event of a material adverse change in
      MidAmerican Energy’s creditworthiness. If one or more of MidAmerican Energy’s
      credit ratings decline below investment grade, MidAmerican Energy may be
      required to post cash collateral, letters of credit or other similar credit
      support to facilitate ongoing wholesale energy supply and marketing activities.
      As of March 31, 2006, MidAmerican Energy’s estimated potential collateral
      requirements totaled approximately $156 million. MidAmerican Energy’s
      potential collateral requirements could fluctuate considerably due to
      seasonality, market price volatility, and a loss of key MidAmerican Energy
      generating facilities or other related factors.





**Utility
      Regulatory Matters**





Rate
      Matters





Under
      a
      series of settlement agreements between MidAmerican Energy, the Iowa Office
      of
      Consumer Advocate (“OCA”) and other intervenors approved by the IUB, MidAmerican
      Energy has agreed not to seek a general increase in electric rates to become
      effective prior to January 1, 2013, unless its Iowa jurisdictional electric
      return on equity for any year falls below 10%. As a party to the settlement
      agreements, the OCA has agreed not to seek any decrease in MidAmerican Energy’s
      Iowa electric rates prior to January 1, 2013. Illinois bundled
      electric rates are frozen until 2007, subject to certain exceptions allowing
      for
      increases, at which time bundled rates may be increased or decreased by the
      ICC.
      Refer to Note (3) of MidAmerican Energy’s Notes to Consolidated Financial
      Statements for further discussion of these rate matters.





In
      an
      order issued September 27, 2004, the IUB requires MidAmerican Energy to
      file various plans to fully equalize and consolidate its class zonal electric
      rates by the end of each of the years 2007 through 2010. On
      October 18, 2004, MidAmerican Energy filed a motion for
      reconsideration opposing full rate equalization and proposing a series of rate
      reductions. On March 21, 2005, the IUB required MidAmerican Energy to file
      additional information about potential rate changes concerning phased
      equalization or consolidation of existing zonal rate differences that could
      have
      the effect of bringing rates together on a basis designed to have no impact
      on
      the overall revenues MidAmerican Energy receives from its Iowa electric
      customers. MidAmerican Energy filed the requested information on April 11,
      2005. In the same proceeding, MidAmerican Energy has a pending request to reduce
      rates for some residential customers by approximately $4.0 million in 2008
      and $3.0 million in 2009 for a total annualized reduction of
      $7.0 million in addition to the reductions to be offset by cost decreases
      related to existing contracts. The $7.0 million reduction in revenues may
      begin to be offset by a rate increase for other residential customers starting
      in 2011. The IUB has not taken any action subsequent to MidAmerican Energy’s
      April 11, 2005 filing.





In
      2004,
      the ICC issued a declaratory ruling finding that MidAmerican Energy’s
      competitive sales of gas to retail customers within the state of Illinois were
      not authorized under the Illinois Public Utilities Act. In its ruling, the
      ICC
      left for subsequent proceedings issues related to the financial implications
      of
      these sales. To date, these issues have been addressed by ICC staff in its
      testimony in the purchased gas adjustment reconciliation proceedings covering
      2001 and 2002. In that testimony, the ICC staff expressed its position that
      MidAmerican Energy must reduce gas costs recovered from Illinois regulated
      gas
      customers through the purchased gas adjustment by the gross margins earned
      from
      MidAmerican Energy’s Illinois nonregulated retail customers since 1996. Gross
      margin is the difference between the revenue and the related cost of gas for
      MidAmerican Energy’s nonregulated sales of gas to retail customers in the entire
      state of Illinois. The ICC has not yet ruled in either case. There can be no
      assurance that the gross margins earned in earlier periods in final purchased
      gas adjustment reconciliation proceedings back to 1996 will not be subject
      to
      challenge. If the ICC accepts the adjustments proposed by its staff and makes
      the same adjustment for the years 2003 - 2004, the total cumulative adjustment
      through November 30, 2004, including the adjustments since 1996, would be
      $7.8 million. In its declaratory ruling, the ICC decided to open a separate
      proceeding, in addition to the purchased gas adjustment reconciliation
      proceedings, to determine an appropriate remedy to impose upon MidAmerican
      Energy for making competitive sales throughout the state of Illinois without
      statutory or regulatory authorization. In its order initiating this separate
      proceeding, the ICC stated there would not be any further litigation of the
      ICC
      conclusions arrived at in the declaratory ruling proceeding, despite the lack
      of
      an evidentiary hearing in that proceeding. The order from the ICC in the
      declaratory ruling proceeding is now on appeal in the Illinois Appellate Court.




29




In
      November 2004, the Illinois legislature overrode the Governor’s veto and SB 2525
      became law. That law allows MidAmerican Energy to continue its competitive
      gas
      sales in Illinois subject to ICC regulation. The ICC still must resolve the
      historical issues in the on-going purchase gas adjustment and related
      proceedings noted above.





On
      April
      18, 2006, MidAmerican Energy filed with the ICC an offer to
      eliminate its monthly adjustment clause for recovery of fuel for
      electric generation and purchased power costs in Illinois beginning January
      1,
      2007, pending satisfactory resolution of fuel adjustment clause reconciliation
      issues. Under this proposal, which will not be formally filed until the
      conclusion of the current 2005 fuel adjustment clause reconciliation
      proceeding, base rates would be adjusted to include recoveries at average
      2004/2005 cost levels.  If approved by the ICC, the proposal would expose
      MidAmerican Energy to monthly market price changes for fuel and purchased
      power costs in Illinois, with rate case approval required for any base
      rate changes.  Once the fuel adjustment clause is eliminated, MidAmerican
      Energy may not petition for its reinstatement for five
      years.





Transmission
      Developments





On
      July 22, 2005, MidAmerican Energy made a filing with the FERC requesting
      its approval to establish a transmission service coordinator (“TSC”). The TSC
      would be a third party administrator of various MidAmerican Energy OATT
      functions for transmission service. On December 16, 2005, the FERC issued
      an order conditionally accepting MidAmerican Energy’s request to establish a
      TSC. The order requires MidAmerican Energy to make modifications to the draft
      TSC agreement filed with the FERC as part of the request and to file a final
      executed TSC agreement with the FERC for its review prior to the agreement
      becoming effective. MidAmerican Energy has entered into a contract with a third
      party vendor to administer MidAmerican Energy’s OATT. MidAmerican Energy does
      not believe that the incremental costs will have a material impact on its
      results of operations, financial position or cash flows. Subject to FERC
      approval, the TSC is scheduled to commence operations September 1, 2006. Under
      the contract, the vendor would provide its tariff administration and planning
      services into the fall of 2009.





Electric Market
      Developments





On
      July 13, 2004, the FERC issued an order requiring MidAmerican Energy to
      conduct a study to determine whether MidAmerican Energy or its affiliates
      possess generation market power. MidAmerican Energy is being required to show
      the absence of generation market power in order to be allowed to continue to
      sell wholesale electric power at market-based rates. The FERC order is intended
      to have MidAmerican Energy conform to what has become the FERC’s general
      practice for utilities given authorization to make wholesale market-based sales.
      Under this general practice, utilities authorized to make market-based electric
      sales must submit a new market power study to the FERC every three years.
      MidAmerican Energy filed the required study on October 29, 2004. On
      June 1, 2005, the FERC issued an order setting for investigation the
      reasonableness of MidAmerican Energy’s market-based rates within its control
      area. The order also terminated the previously established November 1,
      2004, refund date and instead required that market-based sales made by
      MidAmerican Energy within its control area beginning August 7, 2005, be
      subject to refund until the matter is resolved. The FERC also required
      MidAmerican Energy to file additional information by July 1, 2005, and
      August 1, 2005. In its August 1, 2005 filing, MidAmerican Energy filed
      a proposed cost-based sales tariff (“CBST”) applicable to sales made within its
      control area to replace its market-based sales tariff. On March 17, 2006, the
      FERC issued an order (“March 17 Order”) accepting MidAmerican Energy’s
      commitment not to make sales using market-based rates in its control area but
      rejected the proposed applicable tariff language. The FERC directed MidAmerican
      Energy to file revised tariff language by April 17, 2006. MidAmerican Energy
      made such filing together with a request for clarification, or in the
      alternative, rehearing (“Request for Clarification”) of the March 17 Order.
      MidAmerican Energy estimates that its maximum potential refund obligation is
      $17
      million and its minimum potential refund obligation is $50,000 for the period
      August 7, 2005 through March 31, 2006. The actual refund will depend upon the
      FERC’s ruling on the Request for Clarification and the applicability of the CBST
      to certain sales made within the control area for delivery outside the control
      area. MidAmerican Energy does not believe at this time that the ultimate outcome
      of this issue will have a material impact on its results of operations,
      financial position or cash flows.




30


The
      Energy Policy Act of 2005





On
      August 8, 2005, the Energy Policy Act of 2005 (“Energy Policy Act”) was
      signed into law. That law potentially impacts many segments of the energy
      industry. A tax provision extended the federal production tax credit for new
      renewable electricity generation projects through December 31, 2007. In
      part as a result of that portion of the law, MidAmerican Energy began
      development efforts to add additional wind generation, as previously discussed
      under “Utility Construction Expenditures” above. The law also results in
      expanding FERC regulatory authority in areas such as electric system
      reliability, electric transmission expansion and pricing, regulation of utility
      holding companies, and enforcement authority to issue substantial civil
      penalties. The Energy Policy Act also repealed the Public Utility Holding
      Company Act of 1935 effective February 8, 2006. As a result of the repeal
      and a stock conversion, effective February 9, 2006, Berkshire Hathaway Inc.
      became the majority owner of MidAmerican Energy Holdings.





**Environmental
      Matters**





MidAmerican
      Energy’s generating facilities are subject to applicable provisions of the Clean
      Air Act and related air quality standards promulgated by the United States
      Environmental Protection Agency (“EPA”). The Clean Air Act provides the
      framework for regulation of certain air emissions and permitting and monitoring
      associated with those emissions. MidAmerican Energy believes it is in material
      compliance with current air quality requirements.




The
        EPA
        has in recent years implemented and proposed more stringent national ambient
        air
        quality standards. Additionally, legislation is pending, and could be proposed
        in the future, that may impact MidAmerican Energy if enacted. MidAmerican
        Energy
        has implemented a planning process that forecasts the site-specific controls
        and
        actions that may be required to meet emissions reductions as promulgated
        by the
        EPA. The plan allows MidAmerican Energy to more effectively manage its
        expenditures required to comply with emissions standards. On April 1, 2006,
        MidAmerican Energy submitted to the IUB an updated plan, as required every
        two
        years by Iowa law, which increased its estimate of required expenditures.
        MidAmerican Energy currently estimates that the incremental capital expenditures for
        emission control equipment to
        comply
        with air quality requirements will total approximately $540 million for
        January 1, 2006, through December 31,
        2015. Additionally, MidAmerican Energy expects to incur significant
        incremental operating costs in
        conjunction with the utilization of the emissions control equipment. E stimates of the
        environmental capital and operating requirements may
        change significantly at any time as a result of, among other factors, changes
        in
        related regulations, prices of products used to meet the requirements and
        management’s strategies for achieving compliance with the
        regulations.


Refer
      to
      Note (2)(a) of Notes to Consolidated Financial Statements for further discussion
      of air quality standards affecting MidAmerican Energy.





**Generating
      Capability**





On
      July 20, 2005, retail customer usage of electricity caused a new record
      hourly peak demand of 4,040 MW on MidAmerican Energy’s electric system, 105 MW
      greater than the previous record set in August 2003. MidAmerican Energy is
      interconnected with Iowa utilities and utilities in neighboring states.
      MidAmerican Energy is also a party to an electric generation reserve sharing
      pool and regional transmission group administered by the Mid-Continent Area
      Power Pool (“MAPP”). Each MAPP generation reserve participant is required to
      maintain for emergency purposes a net generating capability reserve of at least
      15% above its system peak demand on a 12-month rolling basis. MidAmerican
      Energy’s reserve margin at peak demand for 2005 was approximately
      26%.





MidAmerican
      Energy believes it has adequate electric capacity reserve through 2009,
      including capacity provided by the generating projects discussed above. However,
      significantly higher-than-normal temperatures during the cooling season could
      cause MidAmerican Energy’s reserve to fall below the 15% minimum. If MidAmerican
      Energy fails to maintain the required minimum reserve, significant penalties
      could be contractually imposed by the MAPP.





MidAmerican
      Energy is financially exposed to movements in energy prices since it does not
      recover its energy costs through an energy adjustment clause in Iowa. Although
      MidAmerican Energy believes it has sufficient generation under typical operating
      conditions for its retail electric needs, a loss of adequate generation by
      MidAmerican Energy requiring the purchase of replacement power at a time of
      high
      market prices could subject MidAmerican Energy to losses on its energy sales.





31


The
      transmission developments may also impact MidAmerican Energy’s wholesale
      electric purchases and sales. The FERC has proceedings underway which may
      influence the wholesale electric marketplace. Because of the uncertainties
      as to
      future regulatory policy governing transmission service and pricing, and
      regulation of wholesale electric sales, MidAmerican Energy is uncertain whether
      past wholesale costs and revenues will be representative of future wholesale
      costs and revenues.





All
      of
      the coal-fired generating stations operated by MidAmerican Energy are fueled
      by
      low-sulfur, western coal from the Powder River Basin. MidAmerican Energy’s coal
      supply portfolio includes multiple suppliers and mines under agreements of
      varying terms and quantities. MidAmerican Energy typically has one to two years
      of coal supply under contracts with fixed prices and regularly monitors the
      western coal market, looking for opportunities to enhance its coal supply
      portfolio. Operational delays in rail transportation out of the Powder River
      Basin during 2005 has resulted in the reduction of coal inventories to
      suboptimum levels. MidAmerican Energy believes the transportation issues are
      temporary and that its coal inventories will be restored to preferred levels
      by
      late-2007. Additional information regarding MidAmerican Energy’s coal supply
      contracts is included in Note (4)(e) of Notes to Consolidated Financial
      Statements in Item 8 of its most recently filed Annual Report on Form
      10-K.





**Other
      Matters**





On
      April
      28, 2006, MidAmerican Energy reached a tentative contract settlement with
      the leadership of the International Brotherhood of Electrical Workers locals
      109
      and 499, comprising greater than 90% of MidAmerican Energy’s represented
      workforce, for a term extending through April 30,
      2009. The tentative contract is subject to a ratification vote by
      the membership of both locals. Provisions of the existing contract have
      been extended through June 14, 2006.





**Critical
      Accounting Policies and Estimates**





MidAmerican
      Energy’s and MidAmerican Funding’s significant accounting policies are described
      in their respective Note (1) of Notes to Consolidated Financial Statements
      in
      Item 8 of their most recently filed Annual Report on Form 10-K. For a discussion
      of their critical accounting policies and estimates, see “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations” in
      their most recently filed Annual Report on Form 10-K. MidAmerican Energy’s and
      MidAmerican Funding’s critical accounting policies have not changed materially
      since December 31, 2005.





**Item 3.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk.**





MidAmerican
      Energy is exposed to loss of net income, cash flows and asset values due to
      market risk, including: 1) changes in the market price of gas, electricity
      and
      fuel used in its regulated and nonregulated businesses, 2) variations in the
      severity of weather conditions from normal, and 3) changes in interest rates.
      To
      manage these exposures, MidAmerican Energy enters into various financial
      derivative instruments, including futures, swaps, options and forward physical
      contracts. Through the functioning of a risk oversight committee, senior
      management provides the overall direction, structure, conduct and control of
      MidAmerican Energy's risk management activities, including authorization and
      communication of risk management policies and procedures, the use of financial
      derivative instruments, strategic hedging program guidelines, appropriate market
      and credit risk limits, and appropriate systems for recording, monitoring and
      reporting the results of transactional and risk management activities.




32


As
      of
      March 31, 2006, MidAmerican Energy held derivative instruments used for
      non-trading and trading purposes with the following fair values (in
      thousands):





MaturityContract
                Type
            
            
            Within
                1
            
            
            1
                to 3
            
            
            AfterYear
            
            
            Years
            
            
            3
                Years
            
            
            TotalNon-trading:Regulated
                electric assets
            
            $
            5,756
            
            $
            672
            
            $
            -
            
            $
            6,428Regulated
                electric (liabilities)
            
            
            (17,751
            )
            
            (4,106
            )
            
            -
            
            
            (21,857
            )Regulated
                gas assets
            
            
            2,878
            
            
            -
            
            
            -
            
            
            2,878Regulated
                gas (liabilities)
            
            
            (2,265
            )
            
            -
            
            
            -
            
            
            (2,265
            )Regulated
                weather (liabilities)
            
            
            (9,138
            )
            
            -
            
            
            -
            
            
            (9,138
            )Nonregulated
                electric assets
            
            
            428
            
            
            -
            
            
            -
            
            
            428Nonregulated
                electric (liabilities)
            
            
            (303
            )
            
            -
            
            
            -
            
            
            (303
            )Nonregulated
                gas assets
            
            
            10,398
            
            
            3,173
            
            
            9
            
            
            13,580Nonregulated
                gas (liabilities)
            
            
            (8,688
            )
            
            (3,577
            )
            
            -
            
            
            (12,265
            )Nonregulated
                weather (liabilities)
            
            
            (378
            )
            
            -
            
            
            -
            
            
            (378
            )Total
            
            
            (19,063
            )
            
            (3,838
            )
            
            9
            
            
            (22,892
            )Trading:Nonregulated
                electric assets
            
            
            1,087
            
            
            431
            
            
            -
            
            
            1,518Nonregulated
                electric (liabilities)
            
            
            (992
            )
            
            (438
            )
            
            -
            
            
            (1,430
            )Total
            
            
            95
            
            
            (7
            )
            
            -
            
            
            88Total
                MidAmerican Energy assets
            
            $
            20,547
            
            $
            4,276
            
            $
            9
            
            $
            24,832Total
                MidAmerican Energy (liabilities)
            
            $
            (39,515
            )
            $
            (8,121
            )
            $
            -
            
            $
            (47,636
            )





Derivative
      instruments maturing within one year are reflected in Current Assets-Other
      or
      Current Liabilities-Other on the Consolidated Balance Sheets as appropriate.
      Derivative instruments with maturities greater than one year are reflected
      in
      either Other Assets or Other Liabilities-Other.





Reference
      is made to MidAmerican Energy’s and MidAmerican Funding’s most recently filed
      Form 10-K, and in particular, Item 7A. Quantitative and Qualitative Disclosures
      About Market Risk, and Notes (1)(i) and (12) in Notes to Consolidated Financial
      Statements in Item 8 of that report.





**Item
                4.**
            **Controls
                and Procedures.**





With
      the
      supervision and participation of MidAmerican Funding’s and MidAmerican Energy’s
      management, including the respective persons acting as chief executive officer
      and chief financial officer, each company performed an evaluation regarding
      the
      effectiveness of the design and operation of its disclosure controls and
      procedures (as defined in Rule 13a-15(e) promulgated under the Securities and
      Exchange Act of 1934, as amended) as of March 31, 2006. Based on that
      evaluation, MidAmerican Funding’s and MidAmerican Energy’s management, including
      the respective persons acting as chief executive officer and chief financial
      officer, concluded that their respective disclosure controls and procedures
      were
      effective. There have been no changes during the quarter covered by this report
      in MidAmerican Funding’s or MidAmerican Energy’s internal control over financial
      reporting that has materially affected, or is reasonably likely to material
      affect, its internal control over financial reporting.




33




**PART
      II- OTHER INFORMATION**





**Item
                1.**
            **Legal
                Proceedings.**





MidAmerican
      Energy is one of dozens of companies named as defendants in a January 20,
      2004 consolidated class action lawsuit filed in the United States District
      Court
      for the Southern District of New York. The suit alleges that the defendants
      have
      engaged in unlawful manipulation of the prices of natural gas futures and
      options contracts traded on the New York Mercantile Exchange (“NYMEX”) during
      the period of January 1, 2000 to December 31, 2002. MidAmerican Energy
      is mentioned as a company that has engaged in wash trades on Enron Online (an
      electronic trading platform) that had the effect of distorting prices for gas
      trades on the NYMEX. The plaintiffs to the class action do not specify the
      amount of alleged damages. As discussed below, MidAmerican Energy has executed
      a
      settlement agreement with the plaintiffs.





The
      original complaint in this matter, *Cornerstone
      Propane Partners, L.P. v. Reliant, et al. (“Cornerstone”),* was
      filed
      on August 18, 2003 in the United States District Court, Southern District
      of New York naming MidAmerican Energy. On October 1, 2003, a second
      complaint, *Roberto,
      E. Calle Gracey, et al. (“Calle Gracey”),* was
      filed
      in the same court but did not name MidAmerican Energy. On November 14,
      2003, a third complaint, *Dominick
      Viola (“Viola”), et al.,* was
      filed
      in the same court and named MidAmerican Energy as a defendant. On
      December 5, 2003, the court entered Pretrial Order No. 1, which among
      other procedural matters, ordered the consolidation of the *Cornerstone,
      Calle Gracey* and *Viola* complaints and permitted plaintiffs to file an amended complaint in this matter.
      On January 20, 2004, plaintiffs filed *In
      Re: Natural Gas Commodity Litigation* as the
      amended complaint reasserting their previous allegations. On February 19,
      2004, MidAmerican Energy filed a Motion to Dismiss and joined with several
      other
      defendants to file a joint Motion to Dismiss. The plaintiffs filed a response
      on
      May 19, 2004, contesting both Motions to Dismiss. On September 24,
      2004, the pending motions to dismiss were denied. On October 14, 2004,
      plaintiffs filed an amended complaint to add certain defendants’ affiliates as
      defendants and reasserted their previous allegations. MidAmerican Energy and
      the
      other defendants filed their respective answers to the complaint on
      October 28, 2004. The court issued an order on September 29, 2005,
      granting the plaintiffs’ motion for class certification.





On
      September 9, 2005, MidAmerican Energy and counsel for the plaintiffs
      executed a stipulation and agreement of settlement, which upon final approval
      by
      the court following notice to all class members, MidAmerican Energy will be
      dismissed from the lawsuit. MidAmerican Energy agreed to the settlement, which
      was filed with the court on February 2, 2006, in order to avoid the expense
      and uncertainty associated with the ongoing litigation. The court approved
      the
      settlement on a preliminary basis on February 8, 2006. If finally accepted
      by
      the court at a hearing currently scheduled for May 19, 2006, MidAmerican
      Energy’s obligation to the plaintiffs will be an immaterial amount.





On
      December 28, 2004, an apparent gas explosion and fire resulted in three
      fatalities, one serious injury and property damage at a commercial building
      in
      Ramsey, Minnesota. According to the Minnesota Office of Pipeline Safety, an
      improper installation of a pipeline connection may have been a cause of the
      explosion and fire. A predecessor company to MidAmerican Energy provided gas
      service in Ramsey, Minnesota, at the time of the original installation in 1980.
      In 1993, a predecessor of CenterPoint Energy, Inc. (“CenterPoint”) acquired all
      of the Minnesota gas properties owned by the MidAmerican Energy predecessor
      company.





A s
      a
      result of the explosion and fire, MidAmerican Energy and CenterPoint have
      received settlement demands which total $15.5 million. MidAmerican Energy’s
      exposure, if any, to these demands are covered under its liability insurance
      coverage to which a $2.0 million retention applies. In addition, counsel
      for CenterPoint stated that a replacement program has been initiated for the
      purpose of locating and replacing all mechanical couplings in the former North
      Central Public Service Company properties located in Minnesota. Counsel for
      CenterPoint has represented that the value of the replacement claim may be
      in
      the range of $35-45 million.





Three
      lawsuits are currently on file related to this incident. On February 8,
      2006, MidAmerican Energy was served with a Third Party Complaint filed in U.S.
      District Court, District of Minnesota by CenterPoint Resources Corp. d/b/a
      CenterPoint Energy. The Third Party Complaint seeks contribution and indemnity
      on a wrongful death claim filed by the estate of Lorraine Melton, one of the
      decedents, and all sums associated with CenterPoint’s replacement program.
      CenterPoint Energy Resources Corp. has settled the wrongful death claim with
      the
      trustee for the estate in the Melton case, however, the Third Party action
      by
      CenterPoint Energy Resources Corp. against MidAmerican Energy remains.
      MidAmerican Energy was served with a second Third Party Complaint filed in
      U.S.
      District Court, District of Minnesota by CenterPoint seeking contribution and
      indemnity on a property damage and business interruption claim filed by Ramsey
      Premier Partners, LLC, and all sums associated with CenterPoint’s replacement
      program. MidAmerican Energy filed a motion for summary judgment in both of
      these
      cases on April 27, 2006. An additional complaint filed in Anoka County District
      Court, State of Minnesota, by the estate of Ann Talle seeking damages from
      MidAmerican Energy Holdings and other defendants, including CenterPoint, on
      a
      wrongful death claim arising from this incident was settled by CenterPoint
      during mediation in March 2006; however, the complaint remains on file with
      the
      court until the appropriate documents relating to the estate are filed.
      MidAmerican Energy intends to vigorously defend its position in these claims
      and
      believes their ultimate outcome will not have a material impact on its results
      of operations, financial position or cash flows.




34




Other
      than the litigation described above, MidAmerican Funding and its subsidiaries
      currently have no material legal proceedings. Information on MidAmerican
      Energy’s environmental matters is included in the “Environmental Matters”
section of MD&A in Item 2 of this Form 10-Q. Information regarding
      MidAmerican Energy’s regulatory matters is included in the “Utility Regulatory
      Matters” section of MD&A in Item 2 of this Form 10-Q.





**Item
                1A.**
            **Risk
                Factors**





For
      a
      discussion of MidAmerican Funding’s and MidAmerican Energy’s risk factors, refer
      to Item 1A. Risk Factors in Part I of their latest Annual Report on Form 10-K.
      No material changes in MidAmerican Funding’s or MidAmerican Energy’s risk
      factors have occurred since the filing of the Form 10-K.





**Item
                2.**
            **Unregistered
                Sales of Equity Securities and Use of
                Proceeds.**





Not
      applicable.





**Item
                3.**
            **Defaults
                Upon Senior
                Securities**





Not
      applicable.





**Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders.**





Not
      applicable.





**Item
                5.**
            **Other
                Information.**





Not
      applicable.





**Item
                6.**
            **Exhibits.**





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





35


**SIGNATURES**





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








MIDAMERICAN
                FUNDING, LLCMIDAMERICAN
                ENERGY COMPANY(Registrants)Date:
                May 5, 2006
            
            /s/
                Thomas B. SpecketerThomas
                B. SpecketerVice
                President and Controllerof
                MidAmerican Funding, LLCand
                MidAmerican Energy Company(principal
                financial and accounting officer)





36





**EXHIBIT
      INDEX**





**Exhibit
      No.**





MidAmerican
      Energy





15
            Awareness
                Letter of Independent Registered Public Accounting Firm31.1
            Chief
                executive officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            Chief
                financial officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            Chief
                executive officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.2
            Chief
                financial officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002





MidAmerican
      Funding





31.3
            Chief
                executive officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.4
            Chief
                financial officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.3
            Chief
                executive officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.4
            Chief
                financial officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002





37