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

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended JUNE 30, 2002
                                                 -------------

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

333-90553                MIDAMERICAN FUNDING, LLC                 47-0819200
                    (AN IOWA LIMITED LIABILITY COMPANY)
                         666 GRAND AVE. PO BOX 657
                          DES MOINES, IOWA 50303
                               515-242-4300

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

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

As of July 31, 2002, all of the member's equity of MidAmerican  Funding, LLC was
held by MidAmerican Energy Holdings Company.

As of July 31, 2002, all  70,980,203  outstanding  shares of MidAmerican  Energy
Company's  voting  stock were held by its parent  company,  MHC Inc.,  a direct,
wholly owned subsidiary of MidAmerican Funding, LLC.



<PAGE>

                            MIDAMERICAN FUNDING, LLC
                                       AND
                           MIDAMERICAN ENERGY COMPANY
                                    FORM 10-Q


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


                                TABLE OF CONTENTS

                     PART I. FINANCIAL INFORMATION                      PAGE NO.

ITEM 1.  Financial Statements

         Independent Accountants' Reports...............................    3

                           MidAmerican Energy Company

         Consolidated Statements of Income..............................    5
         Consolidated Balance Sheets....................................    6
         Consolidated Statements of Cash Flows..........................    7
         Notes to Consolidated Financial Statements.....................    8

                            MidAmerican Funding, LLC

         Consolidated Statements of Income..............................   15
         Consolidated Balance Sheets....................................   16
         Consolidated Statements of Cash Flows..........................   17
         Notes to Consolidated Financial Statements.....................   18

ITEM 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations................   23

                           PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings .............................................   40

ITEM 6.  Exhibits and Reports on Form 8-K...............................   43

Signatures..............................................................   44

Exhibit Index...........................................................   45

                                      -2-
<PAGE>



INDEPENDENT ACCOUNTANTS' REPORT


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

We have reviewed the  accompanying  consolidated  balance  sheet of  MidAmerican
Energy  Company and  subsidiaries  (the  Company) as of June 30,  2002,  and the
related  consolidated  statements  of income for the  three-month  and six-month
periods ended June 30, 2002 and 2001, and the related consolidated statements of
cash  flows for the  six-month  periods  ended  June 30,  2002 and  2001.  These
financial statements are the responsibility of the Company's management.

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

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

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United  States of America,  the  consolidated  balance sheet and
statement of capitalization (not presented herein) of MidAmerican Energy Company
and  subsidiaries  as  of  December  31,  2001,  and  the  related  consolidated
statements of income,  comprehensive income,  retained earnings,  and cash flows
for the year then ended (not presented herein);  and in our report dated January
17, 2002, 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, 2001 is fairly  stated,  in all
material respects,  in relation to the consolidated  balance sheet from which it
has been derived.




DELOITTE & TOUCHE LLP

Des Moines, Iowa
August 2, 2002

                                      -3-
<PAGE>



INDEPENDENT ACCOUNTANTS' REPORT


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

We have reviewed the  accompanying  consolidated  balance  sheet of  MidAmerican
Funding, LLC and subsidiaries (the Company) as of June 30, 2002, and the related
consolidated  statements of income for the  three-month  and  six-month  periods
ended June 30, 2002 and 2001,  and the related  consolidated  statements of cash
flows for the six-month  periods ended June 30, 2002 and 2001.  These  financial
statements are the responsibility of the Company's management.

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

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

We have  previously  audited,  in accordance with auditing  standards  generally
accepted in the United  States of America,  the  consolidated  balance sheet and
statement of capitalization (not presented herein) of MidAmerican  Funding,  LLC
and  subsidiaries  as  of  December  31,  2001,  and  the  related  consolidated
statements of income,  comprehensive income,  retained earnings,  and cash flows
for the year then ended (not presented herein);  and in our report dated January
17, 2002, 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, 2001 is fairly  stated,  in all
material respects,  in relation to the consolidated  balance sheet from which it
has been derived.


DELOITTE & TOUCHE LLP

Des Moines, Iowa
August 2, 2002

                                      -4-

<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                  THREE MONTHS                 SIX MONTHS
                                                 ENDED JUNE 30,               ENDED JUNE 30,
                                          --------------------------    --------------------------
                                             2002           2001           2002           2001
                                          -----------    -----------    -----------    -----------
<S>                                       <C>            <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ....................   $   325,810    $   316,500    $   632,588    $   634,990
Regulated gas .........................       126,070        161,648        346,127        635,191
Nonregulated ..........................       101,267        171,614        186,858        362,467
                                          -----------    -----------    -----------    -----------
                                              553,147        649,762      1,165,573      1,632,648
                                          -----------    -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity ...        72,868         60,406        145,317        126,206
  Cost of gas sold ....................        86,805        127,086        235,319        526,221
  Other operating expenses ............       107,592        105,433        206,191        201,885
  Maintenance .........................        31,751         31,156         60,696         58,946
  Depreciation and amortization .......        71,345         61,345        140,669        136,255
  Property and other taxes ............        19,295         18,543         36,589         35,817
                                          -----------    -----------    -----------    -----------
                                              389,656        403,969        824,781      1,085,330
                                          -----------    -----------    -----------    -----------
Nonregulated:
  Cost of sales .......................        93,305        164,829        172,410        347,597
  Other ...............................         4,597          4,350         10,226          8,531
                                          -----------    -----------    -----------    -----------
                                               97,902        169,179        182,636        356,128
                                          -----------    -----------    -----------    -----------
Total operating expenses ..............       487,558        573,148      1,007,417      1,441,458
                                          -----------    -----------    -----------    -----------

OPERATING INCOME ......................        65,589         76,614        158,156        191,190
                                          -----------    -----------    -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ..........         2,831          3,763          5,277          8,288
Other, net ............................          (227)        (4,022)           (22)        (7,967)
                                          -----------    -----------    -----------    -----------
                                                2,604           (259)         5,255            321
                                          -----------    -----------    -----------    -----------

FIXED CHARGES
Interest on long-term debt ............        18,302         15,640         34,888         31,668
Other interest expense ................           883          2,570          1,708          3,747
Preferred dividends of subsidiary trust            --          1,995          1,574          4,052
Allowance for borrowed funds ..........          (669)          (261)        (1,265)          (753)
                                          -----------    -----------    -----------    -----------
                                               18,516         19,944         36,905         38,714
                                          -----------    -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ............        49,677         56,411        126,506        152,797
INCOME TAXES ..........................        20,426         23,775         53,871         64,372
                                          -----------    -----------    -----------    -----------
NET INCOME ............................        29,251         32,636         72,635         88,425
PREFERRED DIVIDENDS ...................         1,430          1,268          2,278          2,507
                                          -----------    -----------    -----------    -----------

EARNINGS ON COMMON STOCK ..............   $    27,821    $    31,368    $    70,357    $    85,918
                                          ===========    ===========    ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -5-
<PAGE>


                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                 AS OF
                                                        -------------------------
                                                         JUNE 30,    DECEMBER 31,
                                                           2002          2001
                                                        -----------  ------------
                                                        (UNAUDITED)
<S>                                                      <C>          <C>
ASSETS
UTILITY PLANT
Electric .............................................   $4,665,423   $4,598,372
Gas ..................................................      878,918      867,277
                                                         ----------   ----------
                                                          5,544,341    5,465,649
Less accumulated depreciation and amortization .......    2,935,195    2,847,979
                                                         ----------   ----------
                                                          2,609,146    2,617,670
Construction work in progress ........................      112,837       80,276
                                                         ----------   ----------
                                                          2,721,983    2,697,946
                                                         ----------   ----------

POWER PURCHASE CONTRACT ..............................       44,339       48,185
                                                         ----------   ----------

CURRENT ASSETS
Cash and cash equivalents ............................      240,853       20,020
Receivables ..........................................      165,725      119,740
Inventories ..........................................       71,221       83,339
Prepaid taxes ........................................       23,956       23,956
Other ................................................        7,691       10,962
                                                         ----------   ----------
                                                            509,446      258,017
                                                         ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ...........      280,340      272,230
REGULATORY ASSETS ....................................      211,738      221,120
OTHER ASSETS .........................................       58,828       80,394
                                                         ----------   ----------
TOTAL ASSETS .........................................   $3,826,674   $3,577,892
                                                         ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ..........................   $1,258,575   $1,219,057
MidAmerican Energy preferred securities, not subject
  to mandatory redemption ............................       31,759       31,759
Preferred securities, subject to mandatory redemption:
  MidAmerican Energy preferred securities ............           --       26,680
  MidAmerican Energy-obligated preferred securities
     of subsidiary trust holding solely MidAmerican
     Energy junior subordinated debentures ...........           --      100,000
Long-term debt (excluding current portion) ...........      952,815      656,740
                                                         ----------   ----------
                                                          2,243,149    2,034,236
                                                         ----------   ----------
CURRENT LIABILITIES
Notes payable ........................................           --       89,350
Current portion of long-term debt ....................      261,465      163,854
Current portion of power purchase contract ...........       17,398       17,398
Accounts payable .....................................      133,565      171,535
Taxes accrued ........................................       78,283       54,175
Interest accrued .....................................       22,307       11,709
Other ................................................       41,330       43,814
                                                         ----------   ----------
                                                            554,348      551,835
                                                         ----------   ----------
OTHER LIABILITIES
Power purchase contract ..............................        8,469        8,469
Deferred income taxes ................................      517,194      513,978
Investment tax credit ................................       59,084       61,292
Quad Cities Station decommissioning ..................      160,617      158,349
Regulatory liabilities ...............................       95,554       62,378
Other ................................................      188,259      187,355
                                                         ----------   ----------
                                                          1,029,177      991,821
                                                         ----------   ----------
TOTAL CAPITALIZATION AND LIABILITIES .................   $3,826,674   $3,577,892
                                                         ==========   ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -6-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                   SIX MONTHS
                                                                 ENDED JUNE 30,
                                                             ----------------------
                                                               2002         2001
                                                             ---------    ---------
<S>                                                          <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...............................................   $  72,635    $  88,425
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ..........................     141,229      136,481
  Deferred income taxes and investment tax credit, net ...       1,771       (8,239)
  Amortization of other assets ...........................      19,789       25,893
  Customer rate credits ..................................          --      (21,610)
  Cash outflow of accounts receivable securitization .....      (8,000)          --
  Impact of changes in working capital ...................     (28,343)       7,458
  Other ..................................................      18,416        5,977
                                                             ---------    ---------
    Net cash provided ....................................     217,497      234,385
                                                             ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ........................    (135,911)     (74,247)
Quad Cities Station decommissioning trust fund ...........      (4,150)      (4,150)
Nonregulated capital expenditures ........................        (381)      (1,845)
Other investing activities, net ..........................       3,328       (2,801)
                                                             ---------    ---------
  Net cash used ..........................................    (137,114)     (83,043)
                                                             ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ...........................................     (32,278)     (92,507)
Issuance of long-term debt, net of issuance costs ........     391,236           --
Retirement of long-term debt, including reacquisition cost      (2,478)        (287)
Reacquisition of preferred securities ....................    (126,680)     (13,320)
Net decrease in notes payable ............................     (89,350)     (41,100)
                                                             ---------    ---------
  Net cash provided (used) ...............................     140,450     (147,214)
                                                             ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ................     220,833        4,128
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .........      20,020        9,677
                                                             ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...............   $ 240,853    $  13,805
                                                             =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ................   $  21,390    $  32,694
                                                             =========    =========
Income taxes paid ........................................   $  28,723    $ 107,217
                                                             =========    =========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -7-
<PAGE>


                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.  GENERAL:

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

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

B.  ENVIRONMENTAL MATTERS:

     (1)  MANUFACTURED GAS PLANT FACILITIES -

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

     MidAmerican  Energy has evaluated or is evaluating 27 properties that were,
at one time, sites of gas manufacturing  plants in which it may be a potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste materials are present,  whether the materials  constitute an environmental
or health  risk,  and  whether  MidAmerican  Energy has any  responsibility  for
remedial  action.  Investigations  of the  sites  are  at  various  stages,  and
MidAmerican Energy has conducted ten removal actions to date. MidAmerican Energy
is continuing to evaluate several of the sites to determine the appropriate site
remedies, if any, necessary to obtain site closure from the agencies.

     MidAmerican Energy estimates the range of possible costs for investigation,
remediation  and monitoring for the sites  discussed  above to be $20 million to
$68 million.  MidAmerican Energy's estimate of the probable cost for these sites
as of June 30, 2002 was $20  million.  The  estimate  consists of $2 million for
investigation  costs, $6 million for remediation  costs,  $10 million for ground
water   treatment  and   monitoring   costs  and  $2  million  for  closure  and
administrative  costs.  This  estimate  has been  recorded as a liability  and a
regulatory  asset for future  recovery.  MidAmerican  Energy projects that these
amounts will be paid or incurred over the next 5 years.

     The  estimate  of  probable   remediation   costs  is   established   on  a
site-specific  basis.   Initially,   a  determination  is  made  as  to  whether
MidAmerican  Energy has  potential  remedial  liability for the site and whether
information exists to indicate that contaminated wastes remain at the site. When
a potential  remedial  liability  exists,  the best  estimate of projected  site
closure costs are accrued.  The estimates are evaluated and revised quarterly as
appropriate based on additional  information  obtained during

                                      -8-
<PAGE>

investigation and remedial  activities.  The estimated recorded  liabilities for
these properties include  incremental direct costs of the remediation effort and
oversight by the appropriate  regulatory authority,  costs for future monitoring
at sites and costs of  compensation  to employees  for time expected to be spent
directly on the  remediation  effort.  The estimated  recorded  liability  could
change   materially  based  on  facts  and   circumstances   derived  from  site
investigations,  changes in required  remedial  action and changes in technology
relating to remedial  alternatives.  Insurance recoveries have been received for
some of the sites under investigation.  Those recoveries are intended to be used
principally  for  accelerated  remediation,  as specified by the Iowa  Utilities
Board,  and are  recorded as a  regulatory  liability.  Additionally,  as viable
potentially responsible parties are identified,  those parties are evaluated for
potential contributions, and cost recovery is pursued when appropriate.

     The  Illinois  Commerce  Commission  has approved the use of a tariff rider
that  permits  recovery of the actual  costs of  litigation,  investigation  and
remediation relating to decommissioned manufactured gas plant sites. MidAmerican
Energy's  present  rates  in  Iowa  provide  for  a  fixed  annual  recovery  of
manufactured gas plant costs.

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

     (2)  AIR QUALITY -

     In July 1997, the Environmental  Protection Agency adopted revisions to the
National  Ambient Air Quality  Standards  for ozone and a new  standard for fine
particulate  matter.  Based  on  data  to  be  obtained  from  monitors  located
throughout each state, the Environmental  Protection Agency will determine which
states have areas that do not meet the air quality  standards (i.e.,  areas that
are  classified  as  nonattainment).  The  standards  were  subjected  to  legal
proceedings,  and in February  2001,  the United States Supreme Court upheld the
constitutionality of the standards, though remanding the issue of implementation
of the ozone standard to the Environmental  Protection Agency. The Environmental
Protection Agency is moving forward with analyzing  existing  monitored data and
determining attainment status.

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

     The ozone and fine particulate matter standards could, in whole or in part,
be superceded by one of a number of multi-pollutant emission reduction proposals
currently  under  consideration  at the federal level. On February 14, 2002, the
Bush Administration announced its "Clear Skies Initiative" calling for reduction
in  emissions  of  sulfur  dioxide,   nitrogen  oxides  and  mercury  through  a
cap-and-trade  system, with reductions beginning in 2008 and additional emission
reductions being phased in through 2018.

     While  legislative  action is necessary  for the Clear Skies  Initiative or
other  initiatives to become  effective,  MidAmerican  Energy has  implemented a
planning process that forecasts the site-specific  controls and actions required
to meet  emissions  reductions  of this nature.  On April 1, 2002, in accordance
with Iowa law passed in 2001,  MidAmerican  Energy filed with the Iowa Utilities
Board its first  multi-year  plan and budget (the Plan) for  managing  regulated
emissions from its generating facilities in a cost-effective manner. MidAmerican
Energy expects the Iowa  Utilities  Board to rule on the prudence of the Plan in
the fourth quarter of 2002.

                                      -9-
<PAGE>

C.  RATE MATTERS:

     Under a  settlement  agreement  approved  by the  Iowa  Utilities  Board on
December 21, 2001,  MidAmerican Energy's Iowa retail electric rates in effect on
December 31, 2000, are frozen through December 31, 2005. Additionally,  the 2001
settlement  agreement  reinstates,  with  modifications,   the  revenue  sharing
provisions  of the 1997  pricing plan  settlement  agreement,  which  expired on
December 31, 2000. Under the 2001 settlement  agreement,  an amount equal to 50%
of revenues  associated with Iowa retail electric  returns on equity between 12%
and 14%, and 83.33% of revenues  associated with Iowa retail electric returns on
equity above 14%, in each year will be recorded as a regulatory  liability to be
used to  offset a portion  of the cost to Iowa  customers  of future  generating
plant investments.  An amount equal to the regulatory liability will be recorded
as a  regulatory  charge  in  depreciation  and  amortization  expense  when the
liability  is  accrued.  Interest  expense  is  accrued  on the  portion  of the
regulatory liability related to prior years. Beginning in 2002, the liability is
being  relieved  as it is  credited  against  allowance  for funds  used  during
construction,  or capitalized financing costs,  associated with generating plant
additions.  As of June 30, 2002, the related regulatory  liability  reflected on
the Consolidated Balance Sheet totaled $81.8 million.

     On October 19, 2001,  MidAmerican Energy filed a petition with the Illinois
Commerce  Commission to increase its Illinois  natural gas rates by $3.2 million
annually.  A final decision on the petition is required  within eleven months of
the date of filing.

     On March 15, 2002, MidAmerican Energy made a filing with the Iowa Utilities
Board  requesting  an increase in rates of  approximately  $26.6 million for its
Iowa retail natural gas  customers.  As part of the filing,  MidAmerican  Energy
requested an interim rate increase of approximately  $20.4 million annually.  On
June 12, 2002, the Iowa Utilities Board issued an order granting an interim rate
increase of  approximately  $13.8 million  annually,  effective  immediately and
subject to refund with interest.  On July 15, 2002,  MidAmerican  Energy and the
Office of Consumer Advocate filed a proposed settlement  agreement with the Iowa
Utilities Board. The proposed  settlement  agreement provides for an increase in
rates of $17.7 million annually for MidAmerican Energy's Iowa retail natural gas
customers.  The new rates would be effective for usage on and after the date the
Iowa  Utilities  Board approves  tariffs  implementing  the proposed  settlement
agreement  and would be  frozen  for two years  thereafter.  MidAmerican  Energy
expects the Iowa Utilities Board's decision on approving the proposed settlement
agreement in the fourth quarter of 2002.

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

     MidAmerican  Energy's  utility  operations are subject to the regulation of
the Iowa Utilities Board,  the Illinois  Commerce  Commission,  the South Dakota
Public  Utilities  Commission,  and the Federal  Energy  Regulatory  Commission.
MidAmerican  Energy's  accounting  policies  and the  accompanying  Consolidated
Financial  Statements  conform  to  generally  accepted  accounting   principles
applicable  to  rate-regulated  enterprises  and  reflect  the  effects  of  the
ratemaking process.

     A possible  consequence  of  deregulation  in the utility  industry is that
Statement of Financial  Accounting  Standards (SFAS) No. 71 may no longer apply.
SFAS No. 71 sets forth  accounting  principles for operations that are regulated
and meet the stated criteria. For operations that meet the criteria, SFAS No. 71
allows,  among  other  things,  the  deferral  of expense  or income  that would
otherwise be recognized  when incurred.  MidAmerican  Energy's  electric and gas
utility  operations  currently  meet  the  criteria  of  SFAS  No.  71,  but its
applicability is periodically reexamined.  If portions of its utility operations
no longer meet the criteria of SFAS No. 71, MidAmerican Energy could be required
to write off the  related  regulatory  assets and  liabilities  from its balance
sheet and thus, a material adjustment to earnings in that

                                      -10-
<PAGE>

period  could  result if  regulatory  assets  are not  recovered  in  transition
provisions of any deregulation legislation.

E.  DERIVATIVE FINANCIAL INSTRUMENTS:

     MidAmerican  Energy is exposed  to market  risk,  including  changes in the
market  price of certain  commodities  and interest  rates.  To manage the price
volatility  relating to these exposures,  MidAmerican Energy enters into various
financial  derivative  instruments.   Senior  management  provides  the  overall
direction,   structure,   conduct  and  control  of  MidAmerican  Energy's  risk
management  activities,  including the use of financial derivative  instruments,
authorization  and  communication  of risk  management  policies and procedures,
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.

     SFAS Nos.  133/138 require an entity to recognize all of its derivatives as
either assets or liabilities in its statement of financial  position and measure
those  instruments  at fair  value.  If the  conditions  specified  in SFAS Nos.
133/138  are met,  those  instruments  may be  designated  as  hedges.  Only the
ineffectiveness of hedge instruments impacts earnings.

     MidAmerican  Energy  uses  hedge  accounting  for  derivative   instruments
pertaining to its natural gas purchasing,  wholesale electricity  activities and
financing activities.

     Commodity Price Risk -

     Under the current  regulatory  framework,  MidAmerican Energy is allowed to
recover in revenues the cost of gas sold from all of its regulated gas customers
through a purchased gas adjustment  clause.  Because the majority of MidAmerican
Energy's firm natural gas supply contracts contain pricing provisions based on a
daily or monthly  market index,  MidAmerican  Energy's  regulated gas customers,
although ensured of the availability of gas supplies, retain the risk associated
with market price volatility.

     MidAmerican  Energy enters into natural gas futures and swap  agreements to
mitigate a portion of the market risk  retained by its  regulated  gas customers
through the purchased gas adjustment  clause.  These instruments are recorded as
hedge transactions,  with net amounts exchanged or accrued under swap agreements
and realized  gains or losses on futures  contracts  included in the cost of gas
sold and recovered in revenues from regulated gas customers.

     MidAmerican Energy also derives revenues from nonregulated sales of natural
gas. Pricing provisions are individually negotiated with these customers and may
include  fixed  prices  or  prices  based on a daily or  monthly  market  index.
MidAmerican Energy enters into natural gas futures and swap agreements to offset
the financial  impact of variations in natural gas commodity prices for physical
delivery to nonregulated  customers.  These financial derivative  activities are
also recorded as hedge accounting transactions.

     MidAmerican Energy uses natural gas and electric derivative instruments for
trading purposes as defined by Emerging Issues Task Force (EITF) Issue No. 98-10
under  strict  value-at-risk  guidelines  outlined  by  senior  management.  Any
unrealized gains or losses on such trading transactions are reported in earnings
and were not  material  as of June 30,  2002.  Trading  revenues  and  costs are
reported gross on the Consolidated Statements of Income.

     MidAmerican  Energy  is  exposed  to  variations  in the  price of fuel for
generation  and the price of  purchased  power in its Iowa  jurisdiction,  which
accounts for approximately 89% of electric operating  revenues.  Fuel price risk
is mitigated  through forward  contracts.  Under typical  operating  conditions,

                                      -11-
<PAGE>

MidAmerican  Energy has  sufficient  generation  to supply  its retail  electric
needs.  A loss of such  generation at a time of high market prices could subject
MidAmerican  Energy to losses  on its  energy  sales.  MidAmerican  Energy  uses
electricity  forward contracts to hedge anticipated sales of wholesale  electric
power.

     MidAmerican  Energy  and  its  customers  are  exposed  to  the  effect  of
variations  in  weather  conditions  on sales and  purchases,  respectively,  of
electricity  and natural  gas. For the  2001-2002  heating  season,  MidAmerican
Energy  entered  into  several  degree  day  swaps to  offset a  portion  of the
financial impact of those variations on MidAmerican Energy and its customers.

     Unrealized gains and losses on cash flow hedges of future  transactions are
recorded in other comprehensive income. Only hedges that are highly effective in
offsetting  the risk of  variability  in future cash flows are  accounted for in
this  manner.  Future  transactions  include  purchases  of gas  for  resale  to
regulated  and  nonregulated  customers,  purchases  of  gas  for  storage,  and
purchases and sales of wholesale  electric  energy.  When the associated  hedged
future transaction occurs or when a forecasted transaction is no longer probable
of  occurring,   the  unrealized  gains  and  losses  are  reversed  from  other
comprehensive  income and recognized in net income.  Realized gains on cash flow
hedges are  recorded  in Cost of Gas Sold,  Regulated  Cost of Fuel,  Energy and
Capacity or Nonregulated  Operating  Revenues,  depending upon the nature of the
physical transaction being hedged.

     Unrealized  gains and losses on fair value hedges of firm  commitments  are
recognized in income as either  Nonregulated  Operating  Revenues or Cost of Gas
Sold  depending  upon the nature of the item being  hedged.  Purchase  and sales
commitments  hedged by fair value  hedges are  recorded at fair value,  with the
changes in values also  recognized in income and  substantially  offsetting  the
impact of the hedges on earnings.

F.  SEGMENT INFORMATION:

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

                                      -12-

<PAGE>

     The following table provides  MidAmerican  Energy's  operating revenues and
income before income taxes on an operating segment basis (in thousands):

<TABLE>
<CAPTION>
                                          Three Months                  Six Months
                                         Ended June 30,                Ended June 30,
                                   --------------------------    --------------------------
                                      2002           2001           2002           2001
                                   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>
Revenues:
  External revenues -
     Generation ................   $   173,645    $   275,331    $   321,525    $   585,548
     Energy delivery ...........       353,178        338,569        779,120        941,556
     Transmission ..............         5,211          5,214         10,136         10,989
     Sales & marketing .........        21,113         30,648         54,792         94,555
                                   -----------    -----------    -----------    -----------
        Total ..................       553,147        649,762      1,165,573      1,632,648
                                   -----------    -----------    -----------    -----------

  Intersegment revenues -
     Generation ................       161,285        139,095        292,327        264,493
     Energy delivery ...........            --             --             --             --
     Transmission ..............        13,801         13,749         27,601         27,438
     Sales & marketing .........           776            572            776            704
                                   -----------    -----------    -----------    -----------
        Total ..................       175,862        153,416        320,704        292,635

  Intersegment eliminations ....      (175,862)      (153,416)      (320,704)      (292,635)
                                   -----------    -----------    -----------    -----------
     Consolidated ..............   $   553,147    $   649,762    $ 1,165,573    $ 1,632,648
                                   ===========    ===========    ===========    ===========


Income before income taxes:
  Generation ...................   $    26,307    $    40,680    $    41,173    $    70,314
  Energy delivery ..............        11,286          7,490         63,432         63,658
  Transmission .................        10,928          9,067         20,844         19,289
  Sales & marketing ............          (274)        (2,094)        (1,221)        (2,971)
                                   -----------    -----------    -----------    -----------
     Total .....................        48,247         55,143        124,228        150,290

  Preferred dividends ..........         1,430          1,268          2,278          2,507
                                   -----------    -----------    -----------    -----------
     Consolidated ..............   $    49,677    $    56,411    $   126,506    $   152,797
                                   ===========    ===========    ===========    ===========
</TABLE>
                                                As of
                                      ---------------------------
                                       June 30,      December 31,
                                         2002           2001
                                      -----------    ------------
Total Assets:
    Generation ....................   $ 1,391,716    $ 1,282,677
    Energy delivery ...............     2,232,938      2,107,598
    Transmission ..................       237,661        226,251
    Sales & marketing .............        50,724         51,164
                                      -----------    -----------
       Total ......................     3,913,039      3,667,690
    Reclassifications and
       intersegment eliminations(a)       (86,365)       (89,798)
                                      -----------    -----------
    Consolidated ..................   $ 3,826,674    $ 3,577,892
                                      ===========    ===========

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

                                      -13-
<PAGE>

G.  TOTAL COMPREHENSIVE INCOME:

     For the six months ended June 30, 2002 and 2001, MidAmerican Energy's total
comprehensive income was $69.3 million and $92.3 million,  respectively. For the
three  months  ended  June  30,  2002  and  2001,   MidAmerican  Energy's  total
comprehensive  income was $27.3  million and $38.4  million,  respectively.  The
differences  from Earnings on Common Stock for the periods  presented are due to
the effective portion of net gains and losses on MidAmerican Energy's derivative
instruments  classified  as cash flow hedges.  Accumulated  other  comprehensive
loss,  net,  which also includes  recognition of the minimum  pension  liability
adjustment,  was $4.8 million and $3.8 million as of June 30, 2002, and December
31, 2001, respectively.

H.  SUBSEQUENT EVENT - POWER PURCHASE CONTRACT:

     On July 31, 2002,  MidAmerican  Energy and Nebraska  Public Power  District
(NPPD) signed an agreement on the  restructuring of the power purchase  contract
for  Cooper  Nuclear  Station  (Cooper).  Under  the  terms of the  restructured
contract,  MidAmerican Energy will pay NPPD through December 31, 2004, scheduled
amounts  per unit for  one-half  of the  accredited  capacity  of Cooper and the
greater of one-half  the energy from  Cooper or a minimum  guaranteed  amount of
energy  representing  380 megawatts at an 85% capacity factor for the respective
hours in each year.  NPPD also paid MidAmerican Energy $39.1 million on
August 1, 2002.

     In December 2000,  MidAmerican Energy ceased  contributing  decommissioning
funds  to  NPPD  and   maintained   a  separate   fund  for   estimated   Cooper
decommissioning costs. Through June 30, 2002, $18.3 million had been accrued and
retained by MidAmerican  Energy in this separate  fund. In conjunction  with the
power purchase contract restructuring, MidAmerican Energy plans to recognize the
$39.1  million  cash  payment  and the  $18.3  million  previously  accrued  for
decommissioning  into  income  based  on the  estimated  energy  expected  to be
received for the remainder of the contract.

     Finally, both parties agreed to release each other from any and all claims,
past or  present,  each might have under the power  purchase  contract  prior to
being restructured and file to dismiss the litigation  currently pending in U.S.
District Court.

     Under the terms of MidAmerican  Energy's power purchase  contract with NPPD
prior to its  restructuring,  MidAmerican Energy paid NPPD one-half of the fixed
and  operating  costs of  Cooper,  excluding  depreciation  but  including  debt
service,  and  MidAmerican  Energy's  share of the nuclear fuel cost,  including
Department of Energy  disposal  fees,  based on energy  delivered.  In addition,
prior to  December  2000,  MidAmerican  Energy  contributed  toward  payment  of
one-half of Cooper's  projected  decommissioning  costs based on an assumed 2004
shutdown of the plant.
                                      -14-

<PAGE>


                            MIDAMERICAN FUNDING, LLC
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (UNAUDITED)
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                      THREE MONTHS                  SIX MONTHS
                                                     ENDED JUNE 30,               ENDED JUNE 30,
                                              --------------------------    --------------------------
                                                   2002          2001            2002           2001
                                              -----------    -----------    -----------    -----------

<S>                                           <C>            <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ........................   $   325,810    $   316,500    $   632,588    $   634,990
Regulated gas .............................       126,070        161,648        346,127        635,191
Nonregulated ..............................       102,435        176,232        188,777        377,416
                                              -----------    -----------    -----------    -----------
                                                  554,315        654,380      1,167,492      1,647,597
                                              -----------    -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity .......        72,868         60,406        145,317        126,206
  Cost of gas sold ........................        86,805        127,086        235,319        526,221
  Other operating expenses ................       107,592        104,201        206,191        200,653
  Maintenance .............................        31,751         31,156         60,696         58,946
  Depreciation and amortization ...........        71,345         61,345        140,669        136,255
  Property and other taxes ................        19,295         18,543         36,589         35,817
                                              -----------    -----------    -----------    -----------
                                                  389,656        402,737        824,781      1,084,098
                                              -----------    -----------    -----------    -----------
Nonregulated:
  Cost of sales ...........................        93,500        167,740        172,736        360,091
  Other ...................................         6,342         15,229         13,779         30,309
                                              -----------    -----------    -----------    -----------
                                                   99,842        182,969        186,515        390,400
                                              -----------    -----------    -----------    -----------
  Total operating expenses ................       489,498        585,706      1,011,296      1,474,498
                                              -----------    -----------    -----------    -----------

OPERATING INCOME ..........................        64,817         68,674        156,196        173,099
                                              -----------    -----------    -----------    -----------

NON-OPERATING INCOME
Interest income ...........................         4,282          6,176          8,260         12,213
Dividend income ...........................           231            685            497          1,423
Marketable securities gains and losses, net          (306)           962         (3,524)        (1,276)
Other, net ................................         1,159            647          7,828         (3,135)
                                              -----------    -----------    -----------    -----------
                                                    5,366          8,470         13,061          9,225
                                              -----------    -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ................        30,269         28,104         58,822         55,415
Other interest expense ....................           884          2,585          1,712          3,768
Preferred dividends of subsidiaries .......         1,430          3,263          3,852          6,558
Allowance for borrowed funds ..............          (669)          (261)        (1,265)          (753)
                                              -----------    -----------    -----------    -----------
                                                   31,914         33,691         63,121         64,988
                                              -----------    -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ................        38,269         43,453        106,136        117,336
INCOME TAXES ..............................        15,564         21,699         45,003         56,270
                                              -----------    -----------    -----------    -----------
NET INCOME ................................   $    22,705    $    21,754    $    61,133    $    61,066
                                              ===========    ===========    ===========    ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -15-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                   AS OF
                                                                         -------------------------
                                                                          JUNE 30,    DECEMBER 31,
                                                                            2002          2001
                                                                         -----------  -----------
                                                                         (UNAUDITED)
<S>                                                                       <C>          <C>
ASSETS
UTILITY PLANT
Electric ..............................................................   $4,665,423   $4,598,372
Gas ...................................................................      878,918      867,277
                                                                          ----------   ----------
                                                                           5,544,341    5,465,649
Less accumulated depreciation and amortization ........................    2,935,195    2,847,979
                                                                          ----------   ----------
                                                                           2,609,146    2,617,670
Construction work in progress .........................................      112,837       80,276
                                                                          ----------   ----------
                                                                           2,721,983    2,697,946
                                                                          ----------   ----------
POWER PURCHASE CONTRACT ...............................................       44,339       48,185
                                                                          ----------   ----------
CURRENT ASSETS
Cash and cash equivalents .............................................      247,915       20,270
Marketable securities, trading ........................................       10,053       20,743
Receivables ...........................................................      224,111      167,969
Inventories ...........................................................       71,221       83,339
Prepaid taxes .........................................................       23,956       23,956
Other .................................................................        8,839       12,640
                                                                          ----------   ----------
                                                                             586,095      328,917
                                                                          ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ............................      497,064      519,680
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, NET ................    1,279,143    1,279,143
REGULATORY ASSETS .....................................................      211,738      221,120
OTHER ASSETS ..........................................................       58,936       80,481
                                                                          ----------   ----------
TOTAL ASSETS ..........................................................   $5,399,298   $5,175,472
                                                                          ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Member's equity .......................................................   $2,000,978   $1,974,605
MidAmerican Energy preferred securities, not subject to
   mandatory redemption ...............................................       31,759       31,759
Preferred securities, subject to mandatory redemption:
  MidAmerican Energy preferred securities .............................           --       26,680
  MidAmerican Energy-obligated preferred securities of subsidiary trust
    holding solely MidAmerican Energy junior subordinated debentures ..           --      100,000
Long-term debt (excluding current portion) ............................    1,653,234    1,357,782
                                                                          ----------   ----------
                                                                           3,685,971    3,490,826
                                                                          ----------   ----------
CURRENT LIABILITIES
Notes payable .........................................................        2,100       91,780
Current portion of long-term debt .....................................      284,798      187,187
Current portion of power purchase contract ............................       17,398       17,398
Accounts payable ......................................................      146,083      185,528
Taxes accrued .........................................................       80,636       61,269
Interest accrued ......................................................       38,412       27,813
Other .................................................................       42,068       44,762
                                                                          ----------   ----------
                                                                             611,495      615,737
                                                                          ----------   ----------
OTHER LIABILITIES
Power purchase contract ...............................................        8,469        8,469
Deferred income taxes .................................................      564,912      564,334
Investment tax credit .................................................       59,084       61,292
Quad Cities Station decommissioning ...................................      160,617      158,349
Regulatory liabilities ................................................       95,554       62,378
Other .................................................................      213,196      214,087
                                                                          ----------   ----------
                                                                           1,101,832    1,068,909
                                                                          ----------   ----------
TOTAL CAPITALIZATION AND LIABILITIES ..................................   $5,399,298   $5,175,472
                                                                          ==========   ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -16-
<PAGE>
                            MIDAMERICAN FUNDING, LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          SIX MONTHS
                                                                        ENDED JUNE 30,
                                                                    ----------------------
                                                                      2002         2001
                                                                    ---------    ---------

<S>                                                                 <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................   $  61,133    $  61,066
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization .................................     141,781      154,243
  Deferred income taxes and investment tax credit, net ..........       1,004       (8,136)
  Amortization of other assets and liabilities ..................      18,288       23,622
  Customer rate credits .........................................          --      (21,610)
  Other-than-temporary declines in value of investments .........       2,913           --
  Income on equity investments ..................................      (6,388)      (2,961)
  (Gain) loss on sale of securities, assets and other investments          19       (1,367)
  Cash outflow of accounts receivable securitization ............      (8,000)          --
  Impact of changes in working capital ..........................     (33,706)       5,266
  Other .........................................................      18,279        8,726
                                                                    ---------    ---------
    Net cash provided ...........................................     195,323      218,849
                                                                    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ...............................    (135,911)     (74,247)
Quad Cities Station decommissioning trust fund ..................      (4,150)      (4,150)
Nonregulated capital expenditures ...............................        (550)      (1,836)
Purchase of assets and long-term investments ....................          --       (2,218)
Proceeds from sale of available-for-sale securities .............       4,288           --
Notes receivable from affiliate .................................      21,532      (74,014)
Other investing activities, net .................................       4,715       (2,067)
                                                                    ---------    ---------
  Net cash used .................................................    (110,076)    (158,532)
                                                                    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid ...........................................     (30,000)          --
Issuance of long-term debt, net of issuance costs ...............     391,236      198,150
Retirement of long-term debt, including reacquisition cost ......      (2,478)    (200,287)
Reacquisition of preferred securities ...........................    (126,680)     (13,320)
Net decrease in notes payable ...................................     (89,680)     (41,100)
                                                                    ---------    ---------
  Net cash provided (used) ......................................     142,398      (56,557)
                                                                    ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS .......................     227,645        3,760
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................      20,270       10,018
                                                                    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................   $ 247,915    $  13,778
                                                                    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .......................   $  45,939    $  57,513
                                                                    =========    =========
Income taxes paid ...............................................   $  23,969    $  96,588
                                                                    =========    =========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -17-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.  GENERAL:

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

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

B.  ENVIRONMENTAL MATTERS:

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

C.  RATE MATTERS:

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

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

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

                                      -18-

<PAGE>


E.  DERIVATIVE FINANCIAL INSTRUMENTS:

     Refer to Note E of  MidAmerican  Energy's Notes to  Consolidated  Financial
Statements, for information regarding MidAmerican Funding's derivative financial
instruments.  The  first  paragraph  of  MidAmerican  Energy's  Note  E is  also
applicable to MidAmerican Funding as a whole.

     In  addition,  MidAmerican  Capital is  exposed  to market  value risk from
changes  in  interest  rates on its  preferred  stock  investments.  MidAmerican
Capital reviews the interest rate  sensitivity of these securities and purchases
put options in order to reduce related interest rate risk. MidAmerican Capital's
intent is to manage  the risk  arising  from  changes  in the  general  level of
interest  rates with a change in market  value of the  hedging  instruments.  As
permitted  by SFAS No.  133,  MidAmerican  Capital  accounts  for these  hedging
instruments as trading securities.

F.  SEGMENT INFORMATION:

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

                                      -19-
<PAGE>

     The following table provides  MidAmerican  Funding's operating revenues and
income before income taxes on an operating segment basis (in thousands):

<TABLE>
<CAPTION>

                                     Three Months                   Six Months
                                    Ended June 30,                Ended June 30,
                              --------------------------    --------------------------
                                 2002           2001           2002           2001
                              -----------    -----------    -----------    -----------
<S>                           <C>            <C>            <C>            <C>
Revenues:
  External revenues -
    Generation ............   $   173,645    $   275,331    $   321,525    $   585,548
    Energy delivery .......       353,178        338,569        779,120        941,556
    Transmission ..........         5,211          5,214         10,136         10,989
    Sales & marketing .....        21,113         30,648         54,792         94,555
    Other (a) .............         1,168          4,618          1,919         14,949
                              -----------    -----------    -----------    -----------
       Total ..............       554,315        654,380      1,167,492      1,647,597
                              -----------    -----------    -----------    -----------

  Intersegment revenues -
    Generation ............       161,285        139,095        292,327        264,493
    Energy delivery .......            --             --             --             --
    Transmission ..........        13,801         13,749         27,601         27,438
    Sales & marketing .....           776            572            776            704
    Other (a) .............            --             30             --             61
                              -----------    -----------    -----------    -----------
       Total ..............       175,862        153,446        320,704        292,696

  Intersegment eliminations      (175,862)      (153,446)      (320,704)      (292,696)
                              -----------    -----------    -----------    -----------
    Consolidated ..........   $   554,315    $   654,380    $ 1,167,492    $ 1,647,597
                              ===========    ===========    ===========    ===========

Income before income taxes:
  Generation ..............   $    26,307    $    40,680    $    41,173    $    70,314
  Energy delivery .........        11,286          7,490         63,432         63,658
  Transmission ............        10,928          9,067         20,844         19,289
  Sales & marketing .......          (274)        (2,094)        (1,221)        (2,971)
  Other (a) ...............        (9,978)       (11,690)       (18,092)       (32,954)
                              -----------    -----------    -----------    -----------
     Total ................   $    38,269    $    43,453    $   106,136    $   117,336
                              ===========    ===========    ===========    ===========
</TABLE>

                                             As of
                                    --------------------------
                                     June 30,     December 31,
                                       2002           2001
                                    -----------   ------------
Total Assets(b):
  Generation ....................   $ 2,319,609    $ 2,210,569
  Energy delivery ...............     2,500,111      2,374,771
  Transmission ..................       321,839        310,429
  Sales & marketing .............        50,724         51,164
  Other (a) .....................       510,626        506,331
                                    -----------    -----------
     Total ......................     5,702,909      5,453,264
  Reclassifications and
     intersegment eliminations(c)      (303,611)      (277,792)
                                    -----------    -----------
  Consolidated ..................   $ 5,399,298    $ 5,175,472
                                    ===========    ===========

     (a)  Other includes the combined  amounts for all segments that do not meet
          the  requirements  for  being  a  reportable   segment.   It  includes
          MidAmerican  Capital,  Midwest  Capital,   MidAmerican  Services,  MEC
          Construction and amounts of the parent companies.

                                      -20-
<PAGE>

     (b)  Total assets by operating  segment  reflect the assignment of goodwill
          to applicable  reporting  units in accordance with SFAS No. 142. Refer
          to Note I for further discussion of SFAS No. 142 and the assignment of
          goodwill.

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

G.  TOTAL COMPREHENSIVE INCOME:

     Total  comprehensive  income for MidAmerican  Funding is shown in the table
below.  The  differences  from Net  Income  to total  comprehensive  income  for
MidAmerican Funding are due to unrealized holding gains and losses of marketable
securities  during the periods and the effective portion of net gains and losses
of  derivative  instruments  classified as cash flow hedges.  Accumulated  other
comprehensive loss, net, which is a component of common equity and also includes
recognition of the minimum pension  liability  adjustment,  was $5.4 million and
$0.6 million as of June 30, 2002, and December 31, 2001, respectively.

                                         Three Months            Six Months
                                        Ended June 30,         Ended June 30,
                                     --------------------   --------------------
                                       2002        2001       2002        2001
                                     --------    --------   --------    --------

Net Income ........................  $ 22,705    $ 21,754   $ 61,133    $ 61,066
Other Comprehensive Income (Loss) -
  Marketable securities ...........    (1,174)      7,004     (3,694)      2,239
  Cash flow hedges ................      (528)      1,110     (1,066)      6,396
                                     --------    --------   --------    --------
Total Comprehensive Income ........  $ 21,003    $ 29,868   $ 56,373    $ 69,701
                                     ========    ========   ========    ========

H.  SUBSEQUENT EVENT - POWER PURCHASE CONTRACT:

     Refer to Note H of  MidAmerican  Energy's Notes to  Consolidated  Financial
Statements for information regarding MidAmerican Funding's subsequent event.

I.  EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, NET:

     On January 1, 2002, MidAmerican Funding adopted SFAS No. 142, "Goodwill and
Other  Intangible  Assets," which dictates the accounting for acquired  goodwill
and other intangible assets. SFAS No. 142 requires that amortization of goodwill
and  indefinite-lived  intangible  assets  be  discontinued  and  that  entities
disclose net income for prior periods adjusted to exclude such  amortization and
related  income tax effects,  as well as a  reconciliation  from the  originally
reported net income to the adjusted net income.  MidAmerican  Funding's  related
amortization consisted solely of goodwill amortization,  which had no income tax
effect.  Following is a reconciliation of net income as originally  reported for
the periods ended June 30, 2001, to adjusted net income (in thousands):

                                          Three      Six
                                          Months    Months
                                         -------   -------
     Net income as originally reported   $21,754   $61,066
     Goodwill amortization ...........     8,604    17,206
                                         -------   -------
     Net income as adjusted ..........   $30,358   $78,272
                                         =======   =======

                                      -21-
<PAGE>

     MidAmerican  Funding has completed the initial goodwill  impairment test as
required by SFAS No. 142,  and no  impairment  was  indicated.  As of January 1,
2002,  and June 30, 2002,  goodwill has been assigned to  MidAmerican  Funding's
reportable segments as follows (in thousands):

     Generation ........   $  927,892
     Energy delivery ...      267,173
     Transmission ......       84,178
     Sales & marketing..           --
                           ----------
                           $1,279,243
                           ==========

                                      -22-
<PAGE>


         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                             RESULTS OF OPERATIONS

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

     MidAmerican  Funding,  LLC is an Iowa limited  liability  company formed in
March  1999.  The sole  member of  MidAmerican  Funding  is  MidAmerican  Energy
Holdings Company.  MidAmerican  Funding owns all of the outstanding common stock
of MHC Inc. MHC's principal  subsidiary is MidAmerican  Energy, a public utility
with electric and gas operations. Other direct, wholly owned subsidiaries of MHC
include   MidAmerican   Capital  Company,   Midwest  Capital  Group,  Inc.,  MEC
Construction Services Co. and MidAmerican Services Company.

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

FORWARD-LOOKING STATEMENTS

     From  time  to  time,  MidAmerican  Funding,  or one  of  its  subsidiaries
individually,  may make  forward-looking  statements  within the  meaning of the
federal   securities  laws  that  involve   judgments,   assumptions  and  other
uncertainties   beyond  the  control  of  MidAmerican  Funding  or  any  of  its
subsidiaries  individually.  These forward-looking statements may include, among
others,  statements  concerning  revenue and cost trends,  cost  recovery,  cost
reduction strategies and anticipated  outcomes,  pricing strategies,  changes in
the  utility  industry,  planned  capital  expenditures,   financing  needs  and
availability,  statements of MidAmerican Funding's expectations, beliefs, future
plans  and  strategies,  anticipated  events  or  trends  and  similar  comments
concerning  matters that are not historical facts. These type of forward-looking
statements are based on current  expectations  and involve a number of known and
unknown  risks and  uncertainties  that  could  cause  the  actual  results  and
performance of MidAmerican Funding to differ materially from any expected future
results or performance, expressed or implied, by the forward-looking statements.
In  connection  with  the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995,  MidAmerican  Funding has  identified  important
factors  that  could  cause  actual  results  to differ  materially  from  those
expectations, including weather effects on sales 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.

                                      -23-

<PAGE>

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

REGULATED GROSS MARGIN

     Regulated Electric Gross Margin -

                                            Three Months       Six Months
                                           Ended June 30,    Ended June 30,
                                           --------------    --------------
                                           2002     2001     2002     2001
                                           ----     ----     ----     ----
                                                    (In millions)
     Operating revenues ..............     $326     $316     $633     $635
     Cost of fuel, energy and capacity       73       60      145      126
                                           ----     ----     ----     ----
       Electric gross margin .........     $253     $256     $488     $509
                                           ====     ====     ====     ====

     Electric  gross margin for the second  quarter of 2002 decreased $3 million
compared to the second  quarter of 2001.  MidAmerican  Energy's  gross margin on
wholesale sales  decreased  $10.6 million due to a decline in prices.  The price
declines were  somewhat  offset by a 14.0%  increase in wholesale  sales volumes
compared to the 2001 quarter.  Wholesale  sales are the sales of energy to other
utilities, municipalities and marketers outside of MidAmerican Energy's delivery
system.

     Temperature  conditions  during the three months ended June 30, 2002,  were
more  extreme  than in the second  quarter of 2001,  resulting  in an $8 million
increase  in electric  margin.  Other usage  factors  not  dependent  on weather
increased  electric  margin by $12.7 million  compared to the second  quarter of
2001,  while a decrease in the average  retail rate reduced  electric  margin by
$0.8 million.  In total,  retail  electric sales volumes  increased 7.5% for the
three months ended June 30, 2002.

     Electric  revenues  from the recovery of energy  efficiency  program  costs
decreased $5.3 million compared to the quarter ended June 30, 2001. The decrease
in the second quarter of 2002 was due to completion in the third quarter of 2001
of the final  recovery  phase for deferred  energy  efficiency  costs.  Deferred
energy  efficiency costs were costs previously  incurred by MidAmerican  Energy,
which,  in  accordance  with rate  treatment,  were not charged to expense until
recovery from customers  began.  Recovery of deferred  energy  efficiency  costs
occurred over a four-year  period from the date collection began for each phase.
Changes in these revenues are substantially  matched with corresponding  changes
in other operating expenses.

     MidAmerican Energy sells and purchases  electric  capacity.  The net margin
from those sales and  purchases  decreased  $3.7 million  compared to the second
quarter of 2001.  Additionally,  a change in the mix of fuel  sources  increased
fuel costs  related  to Iowa  retail  electric  sales by $2.5  million,  further
reducing electric margin relative to the three months ended June 30, 2001.

     For the six months ended June 30, 2002, compared to the first six months of
2001,  electric gross margin decreased $21 million.  MidAmerican  Energy's gross
margin on wholesale  sales  decreased  $17.6  million  compared to the first six
months of 2001 due to price declines. The impact of price declines was partially
offset by a 13.4% increase in wholesale sales volumes.

     Electric  revenues  from the recovery of energy  efficiency  program  costs
decreased  $10.9  million  compared to the six months  ended June 30,  2001.  As
discussed  above,  changes in these  revenues  are  substantially  matched  with
corresponding changes in other operating expenses.

     MidAmerican  Energy's  net margin  from  sales and  purchases  of  electric
capacity  decreased $7.6 million compared to the first six months of 2001. Gains
from sales of emission allowances decreased

                                      -24-
<PAGE>


$3.2  million  due to a gain on a sale in the  six-month  period  ended June 30,
2001.  Transmission  revenues  decreased  $1.2  million  for the 2002  six-month
period.  Additionally,  fuel costs related to Iowa retail sales  increased  $4.1
million,  reducing  electric  margin for the first six months of 2002,  due to a
change in the mix of fuel sources compared to the first six months of 2001.

     Electricity  usage  factors not  dependent  on weather  increased  electric
margin by $18.7  million  compared to the first six months of 2001.  Temperature
conditions had little impact on electric  gross margin due to milder  conditions
in the first quarter of 2002 and more extreme  conditions in the second  quarter
of 2002  compared to the  respective  2001  periods.  An increase in the average
retail rate increased electric margin by $5.4 million. In total, retail electric
sales volumes increased 3.0% for the six months ended June 30, 2002.

     Regulated Gas Gross Margin -

                                Three Months         Six Months
                               Ended June 30,       Ended June 30,
                               --------------       --------------
                               2002      2001       2002      2001
                               ----      ----       ----      ----
                                          (In millions)
     Operating revenues......  $126      $162       $346      $635
     Cost of gas sold........    87       127        235       526
                               ----      ----       ----      ----
       Gas gross margin......  $ 39      $ 35       $111      $109
                               ====      ====       ====      ====

     Regulated gas revenues  include  purchase gas  adjustment  clauses  through
which MidAmerican Energy is allowed to recover the cost of gas sold from most of
its gas utility customers. Consequently, fluctuations in the cost of gas sold do
not  affect  gross  margin or net income  because  revenues  reflect  comparable
fluctuations  through the purchase  gas  adjustment  clauses.  A decrease in the
per-unit cost of gas compared to 2001 decreased revenues and cost of gas sold by
approximately  $33 million for the second  quarter of 2002 and $230  million for
the first six months of 2002.

     Temperature  conditions  during the three months ended June 30, 2002,  were
more extreme than those in the second quarter of 2001, resulting in a $3 million
increase in gas gross margin. Other usage factors increased gross margin by $2.8
million  compared to the second quarter of 2001.  Total retail gas sales volumes
increased 27.8% for the three months ended June 30, 2002.

     A decrease in revenues from the recovery of energy efficiency costs reduced
gas margin by $0.8  million  compared to the three  months  ended June 30, 2001.
Refer to the "Regulated Electric Gross Margin" section above for a discussion of
energy efficiency revenues.

     Gas gross  margin  also  increased  due to an  increase  in rates for South
Dakota  customers.  On  February  20,  2002,  the South  Dakota  Public  Utility
Commission approved a settlement  agreement allowing increased natural gas rates
of $3.1 million  annually,  effective  immediately.  Refer to the "Rate Matters"
discussion in the "Liquidity and Capital Resources" section of MD&A for comments
on the Iowa gas rate proceeding.

     Compared to the first six months of 2001,  gas gross  margin  increased  $2
million.  Milder temperature conditions in the first quarter of 2002 compared to
the first six months of 2001, offset partially by the temperature  conditions of
the second  quarter,  resulted in a $6 million  reduction  in gas gross  margin.
Other  usage  factors not  dependent  on weather  increased  gas margin by $10.3
million.  An  increase  in the  average  retail  rate,  due in part to the  rate
increases discussed above,  increased gas margin by $0.4 million compared to the
first six months of 2001.

                                      -25-
<PAGE>

     A decrease in revenues from the recovery of energy efficiency costs reduced
gas margin by $2.4 million compared to the six months ended June 30, 2001.

REGULATED OPERATING EXPENSES

     Regulated other operating expenses for the second quarter of 2002 increased
$2.2 million for  MidAmerican  Energy and $3.4 million for  MidAmerican  Funding
compared to the second quarter of 2001.  Significant  items  contributing to the
variances  were  increases of $5.1  million in pension and other  postretirement
costs and $3.6 million in Cooper  Nuclear  Station  costs.  The  increases  were
partially offset by a $4.1 million decrease in amortization of energy efficiency
program costs and a $1.5 million  decrease in the  provision  for  uncollectible
accounts receivable.  Refer to the "Regulated Electric Gross Margin" section for
discussion  regarding energy efficiency costs.  MidAmerican  Funding's regulated
other  operating  expenses  for the 2001  quarter  include a  reduction  for the
amortization  of  a  purchase  accounting   adjustment  related  to  MidAmerican
Funding's 1999 merger.

     Regulated other operating  expenses for the six months ended June 30, 2002,
increased $4.3 million for  MidAmerican  Energy and $5.5 million for MidAmerican
Funding  compared to the 2001 period.  The more significant  increases  included
$9.6 million in pension and other  postretirement  costs, $4.2 million in Cooper
Nuclear Station costs,  $3.6 million for health care and other benefit costs and
$2.3 million in property and liability  insurance due to greater premium refunds
in the 2001  period.  The  increase in pension and  postretirement  costs is due
principally  to a change in the assumed  discount  rate  beginning in the fourth
quarter of 2001.  Pension and  postretirement  costs for the twelve months ended
December 31, 2001,  were  adjusted  when the assumed  discount rate was changed.
Accordingly,  the amounts  recorded in the first three  quarters of 2001 are not
representative  of the annual pension and  postretirement  expense for 2001. The
increases in other operating  expenses were partially  offset by a $10.0 million
decrease in  amortization  of energy  efficiency  program  costs, a $2.8 million
decrease in the provision for uncollectible  accounts receivable and a number of
less  substantive  decreases.  MidAmerican  Funding's  regulated other operating
expenses  for the 2001 period include a reduction  for the  amortization  of a
purchase accounting adjustment related to the 1999 merger.

     Maintenance expenses increased $0.6 million for the three months ended June
30, 2002,  and $1.8 million for the six months ended June 30, 2002,  compared to
the respective 2001 periods due primarily to fossil-fuel  generation maintenance
expenses.  Decreases  in electric  distribution  maintenance  expenses  and Quad
Cities Station maintenance costs partially offset the increases.

     Depreciation and amortization  expense  increased $10.0 million compared to
the second  quarter of 2001 due to a $5.8  million  increase  in the  regulatory
charge related to the  establishment of a regulatory  liability for the electric
revenue   sharing   arrangement  in  Iowa  and  an  increase  in  utility  plant
depreciation. The increase in utility plant depreciation includes a $3.4 million
adjustment  for a change in the estimated  useful life of general  utility plant
assets. Depreciation and amortization expense increased $4.4 million compared to
the first six months of 2001 due to an increase in utility  plant  depreciation,
including the adjustment discussed previously.

                                      -26-
<PAGE>

NONREGULATED GROSS MARGIN

                                          Three Months            Six Months
                                         Ended June 30,         Ended June 30,
                                       -------------------   -------------------
                                         2002       2001       2002       2001
                                       --------   --------   --------   --------
                                                   (In millions)
MidAmerican Energy -
  Operating revenues .............     $  101.3   $  171.6   $  186.9   $  362.5
  Cost of sales ..................         93.3      164.8      172.4      347.6
                                       --------   --------   --------   --------
       Gross margin ..............     $    8.0   $    6.8   $   14.5   $   14.9
                                       ========   ========   ========   ========


MidAmerican Funding Consolidated -
  Operating revenues .............     $  102.4   $  176.2   $  188.8   $  377.4
  Cost of sales ..................         93.5      167.7      172.7      360.1
                                       --------   --------   --------   --------
       Gross margin ..............     $    8.9   $    8.5   $   16.1   $   17.3
                                       ========   ========   ========   ========

     MidAmerican Energy -

     Nonregulated   revenues  and  cost  of  sales  consist   substantially   of
nonregulated  natural gas marketing  operations.  The  nonregulated  natural gas
marketing operations include wholesale and retail activities.  Approximately 72%
of the nonregulated natural gas revenues for the six months ended June 30, 2002,
are related to wholesale sales.

     Gross margin for MidAmerican  Energy's  nonregulated natural gas operations
decreased  $1.8  million to $1.0  million  for the second  quarter of 2002.  The
decline in gross  margin was due to a decrease  in the margin per unit and sales
volumes.  Revenues from nonregulated  natural gas marketing operations decreased
$70.4  million  compared to the second  quarter of 2001 to $90.7 million for the
second  quarter  of 2002.  A  decrease  in the  average  price  per  unit  sold,
reflective  of a 26%  decrease in the average  cost of gas,  resulted in a $32.3
million  decrease in revenues.  Sales volumes  decreased 8 million  MMBtus (24%)
resulting in a $38.1 million decrease in revenues. Cost of sales decreased $68.7
million to $89.7  million for the three months  ended June 30, 2002,  due to the
decreases in the per-unit cost of gas sold and sales volumes.

     Gross margin for MidAmerican  Energy's  nonregulated natural gas operations
decreased  $3.7  million to $2.3  million for the first six months of 2002.  The
decline  in gross  margin  reflects  a  decrease  in  margin  per unit and sales
volumes.  Revenues from  nonregulated  natural gas operations  decreased  $171.2
million to $170.2  million  for the first six months of 2002.  A decrease in the
average price per unit sold, reflective of a 46% decrease in the average cost of
gas,  accounted  for $148.9  million of the decrease in revenues.  Sales volumes
decreased  4 million  MMBtus  (7%)  resulting  in a $22.3  million  decrease  in
revenues.  Cost of sales decreased  $167.5 million to $167.9 million for the six
months ended June 30,  2002,  due to the  decreases in the per-unit  cost of gas
sold and sales volumes.

     Nonregulated  revenues for the second  quarter of 2001 include $2.6 million
from MidAmerican Energy's market access service project.  Related costs of sales
totaled $2.1 million.  The pilot project,  which concluded in May 2001,  allowed
larger Iowa  customers  that were  participating  in the project to choose their
electric power supplier. MidAmerican Energy's revenues from project participants
related to non-supply  services,  such as  distribution  and  transmission,  are
reflected  in  regulated  electric  revenues.  For the six months ended June 30,
2001, revenues from the market access service project totaled $6.2 million,  and
related costs of sales totaled $5.4 million.

                                      -27-
<PAGE>

     All retail customers in Illinois are allowed to select their electric power
supplier. For the three months ended June 30, 2002, compared to the three months
ended June 30, 2001, related nonregulated retail revenues decreased $0.7 million
to $2.5  million,  and  related  cost of sales  decreased  $3.2  million to $0.3
million,  resulting  in a $2.4  million  increase in gross  margin.  For the six
months  ended June 30,  2002,  compared to the six months  ended June 30,  2001,
revenues  decreased  $2.4  million to $4.4  million,  and related  cost of sales
decreased $5.0 million to $0.4 million,  resulting in a $2.6 million increase in
gross margin.

     MidAmerican  Energy's  nonregulated  revenues in the second quarter of 2002
include $1.8 million of pre-tax income from an award for successful  performance
under an incentive gas procurement  program. A similar award of $2.1 million was
recorded in the second quarter of 2001.

     Additionally,  revenues  for the first  six  months  of 2002  include  $1.2
million for emergency storm  restoration  work performed  outside of MidAmerican
Energy's service  territory during the first quarter of 2002.  Related costs are
reflected in "Nonregulated Operating Expenses: Other".

     MidAmerican Funding:

     During 2001, a subsidiary of MidAmerican  Capital had nonregulated  natural
gas marketing  operations.  For the second quarter of 2001, those operations had
revenues  and  costs  of  sales   totaling   $2.2  million  and  $1.9   million,
respectively. For the six months ended June 30, 2001, related revenues and costs
of sales totaled $11.1 million and $11.2 million, respectively. All contracts of
that subsidiary have terminated.

NONREGULATED OPERATING EXPENSES:  OTHER

     MidAmerican Energy -

     Nonregulated  other operating  expenses  increased $1.7 million for the six
months ended June 30, 2002,  due largely to $1.0 million of costs related to the
emergency storm restoration work discussed above.

     MidAmerican Funding -

     MidAmerican Funding's  nonregulated other operating expenses,  inclusive of
MidAmerican  Energy amounts,  decreased $8.9 million and $16.5 million for three
months and six months  ended June 30, 2002,  respectively,  compared to the 2001
periods. MidAmerican Funding's goodwill is no longer being amortized as a result
of the adoption of Statement of Financial Accounting Standards (SFAS) No. 142 on
January 1, 2002.  Amortization of MidAmerican  Funding's  goodwill  totaled $8.6
million  for the second  quarter of 2001 and $17.2  million  first six months of
2001.

INTEREST AND DIVIDEND INCOME

     MidAmerican Energy -

     The  decreases in interest  income  compared to the 2001 periods  presented
were due  principally  to  decreases  in  interest  income on a note  receivable
related to MidAmerican  Energy's  accounts  receivable  sold.  Related  interest
income  decreased  $2.2  million for the  quarter  and $4.8  million for the six
months ended June 30, 2002. The decreases  related to the note  receivable  were
partially  offset by  MidAmerican  Energy's  favorable  cash position due to the
issuance of $400 million of medium-term notes in February 2002.

                                     -28-
<PAGE>

     MidAmerican Funding -

     Dividend income decreased due to partial liquidation of the preferred stock
investment portfolio in the past twelve months.

MARKETABLE SECURITIES GAINS AND LOSSES, NET

     MidAmerican Funding -

     Net losses on marketable  securities  increased $1.3 million for the second
quarter of 2002 and $2.2 million for the  six-month  period ended June 30, 2002,
compared to the respective 2001 periods.  The decrease for the second quarter of
2002  includes  a  $0.7  million  decrease  for  unrealized  losses  on  trading
securities.  In the first quarter of 2002,  MidAmerican  Capital recorded a $2.9
million loss related to other-than-temporary declines in two of its common stock
investments.  The first  quarter of 2001  includes a $2.4  million  pre-tax loss
related to the  re-characterization  of  marketable  securities  to "trading" as
allowed by Statement of Financial Accounting Standards No. 133.

OTHER, NET

     MidAmerican Energy -

     MidAmerican  Energy's Other,  Net, which includes a number of non-operating
income and deduction items, reduced Non-Operating Income by $0.2 million for the
three months  ended June 30,  2002,  and $4.0 million for the three months ended
June 30,  2001.  Other,  Net  reduced  Non-Operating  Income by $22,000  for the
six-month  period ended June 30, 2002, and $8.0 million for the six-month period
ended June 30, 2001.

     Other,  Net  includes  a discount  on sold  accounts  receivable,  net of a
subservicer fee charged to MidAmerican Energy Funding  Corporation for servicing
the  accounts.  The  discount is designed to cover the  expenses of  MidAmerican
Energy  Funding  Corporation,  including  bad debt  expense,  subservicer  fees,
monthly  administrative  costs and interest.  The discount is recorded in Other,
Net  because it is not  reflected  in utility  cost of  service  for  regulatory
purposes.  The discount,  net of the subservicer fee, reduced Other, Net by $1.6
million and $3.3 million in the second  quarter of 2002 and 2001,  respectively,
and by $2.9 million and $8.8 million for the  six-month  periods  ended June 30,
2002 and 2001, respectively.

     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.  Accordingly,
Other,  Net  includes  income for the  allowance  on equity  funds  used  during
construction  of $2.1  million  and $3.3  million  for the three  months and six
months ended June 30, 2002, respectively.

     Other,  Net for the first six months of 2001 also  reflects a $1.4  million
gain on the sale of MidAmerican Energy rail cars.

     MidAmerican Funding -

     Other, Net for MidAmerican Funding,  including  MidAmerican Energy amounts,
increased  Non-Operating  Income by $1.2 million for the three months ended June
30, 2002, and $0.6 million for the

                                      -29-
<PAGE>

three months ended June 30, 2001. Other, Net increased  Non-Operating  Income by
$7.8  million  for the six months  ended June 30,  2002,  and reduced it by $3.1
million for the comparable period in 2001.

     Income from MidAmerican  Capital's equity investments  totaled $0.7 million
for the second  quarter of 2002 compared to $3.2 million for the second  quarter
of 2001. The 2001 quarter reflects $2.3 million of income related to a gain on a
common stock  distribution by one of MidAmerican  Capital's venture capital fund
investments.  Income from MidAmerican  Capital's equity investments totaled $6.0
million for the six-month  period ended June 30, 2002,  and $3.0 million for six
months  ended  June 30,  2001.  During the first  quarter  of 2002,  MidAmerican
Capital  received a  distribution  of common  stock  held by one of its  venture
capital fund investments and recognized $5.3 million of income.

     Additionally,  MidAmerican  Funding  recorded $0.4 million of income in the
first  quarter  of 2002 for a  distribution  related  to  MidAmerican  Capital's
investments in energy projects.

FIXED CHARGES AND PREFERRED DIVIDENDS

     MidAmerican Energy -

     The  increase  in interest  on  long-term  debt was due to interest on $400
million of MidAmerican  Energy medium-term notes issued in February 2002, net of
the impact of debt maturities in 2001 and lower variable interest rates in 2002.

     Other interest expense decreased for three months and six months ended June
30, 2002, compared to the respective 2001 periods due principally to interest in
the second quarter of 2001 related to an income tax audit payable. Additionally,
other  interest  expense  decreased  due  to  a  reduction  in  short-term  debt
outstanding at MidAmerican Energy. Other interest expense increased for interest
on  a  regulatory   liability  associated  with  the  electric  revenue  sharing
arrangement in Iowa.

     MidAmerican  Energy's preferred dividends of its subsidiary trust decreased
due to the reacquisition of all of the related preferred securities on March 11,
2002.  Dividends  for  MidAmerican  Energy's  preferred  securities,  which  are
reflected  after Net Income for MidAmerican  Energy,  decreased due to preferred
securities reacquired in May and November 2001 and May 2002. Preferred dividends
for the three  months and six months  ended June 30, 2002 reflect a $0.6 million
loss on reacquisition of preferred securities.

     MidAmerican Funding -

     MidAmerican  Funding also retired $200 million of long-term debt and issued
$200 million of  long-term  debt in the first  quarter of 2001,  resulting in an
increase  in  interest  on  long-term  debt for the  first  six  months of 2002.
Interest  expense was reduced in the first  quarter of 2001 due to the period of
time  between the  retirement  of the former debt series and the issuance of the
current debt series.  Interest expense for the first six months of 2002 reflects
a full six months of interest  expense  for the new series of debt,  which has a
higher interest rate than the previous debt.

                                      -30-

<PAGE>


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

     MidAmerican  Funding and  MidAmerican  Energy  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 from  operating  activities was $217 million and $234
million  for  the six  months  ended  June  30,  2002  and  2001,  respectively.
MidAmerican  Funding's  net cash  provided from  operating  activities  was $195
million  and $219  million  for the six  months  ended  June 30,  2002 and 2001,
respectively.

INVESTING ACTIVITIES AND PLANS

     Utility Construction Expenditures -

     MidAmerican  Energy's  primary  need for  capital is  utility  construction
expenditures.   For  the  first  six  months  of  2002,   utility   construction
expenditures  totaled $136  million,  including  allowance for funds used during
construction,  or capitalized  financing  costs, and Quad Cities Station nuclear
fuel purchases.  All such expenditures were met with cash generated from utility
operations, net of dividends.

     Forecasted utility construction expenditures, including allowance for funds
used during  construction  are $382 million for 2002 and $1.614 billion for 2003
through 2006. Capital expenditure needs are reviewed regularly by management and
may change significantly as a result of such reviews.  Through 2007, MidAmerican
Energy plans to develop and  construct two electric  generating  plants in Iowa.
Participation  by others in a portion  of the second  plant is being  discussed.
Excluding amounts related to any others who may participate in the second plant,
MidAmerican  Energy  expects  to invest  approximately  $1.2  billion in the two
plants,  including the cost of related transmission facilities and allowance for
funds used during  construction.  The two plants may provide up to 950 megawatts
of generating capacity for MidAmerican Energy depending on management's on-going
assessment of needs and related factors.

     The first project is a 500-megawatt  natural gas-fired  combined cycle unit
with an  estimated  cost of $415  million.  MidAmerican  Energy  has  received a
certificate from the Iowa Utilities Board allowing it to construct the plant. In
accordance  with an Iowa law  passed in 2001,  MidAmerican  Energy  sought  Iowa
Utilities Board approval for the ratemaking principles that will govern recovery
of costs  related  to  construction  of the  plant.  On May 29,  2002,  the Iowa
Utilities Board issued an order that provides the ratemaking  principles for the
gas-fired  plant.  As a result of that order,  MidAmerican  Energy is proceeding
with the  construction of the plant.  It is anticipated  that the first phase of
the project  will be  completed in 2003 with the  remainder  being  completed in
2005.  MidAmerican Energy expects to make filings for a certificate and approval
of  ratemaking  principles  for the second  project  during the third quarter of
2002.

     MidAmerican   Energy  presently  expects  that  all  utility   construction
expenditures  for the next five years will be met with the issuance of long-term
debt and cash generated from utility  operations,  net of dividends.  The actual
level of cash  generated  from  utility  operations  is affected by, among other
things,  economic  conditions  in the  utility  service  territory,  weather and
federal and state regulatory actions.

                                      -31-

<PAGE>


     Nuclear Decommissioning -

     Each  licensee  of a nuclear  facility  is  required  to provide  financial
assurance for the cost of  decommissioning  its licensed  nuclear  facility.  In
general,  decommissioning  of a  nuclear  facility  means to safely  remove  the
facility  from  service  and  restore  the  property  to  a  condition  allowing
unrestricted  use by the operator.  Based on  information  presently  available,
MidAmerican  Energy expects to contribute  approximately  $41 million during the
period 2002 through 2006 to external  trusts  established  for the investment of
funds for  decommissioning  Quad Cities Station.  Approximately  60% of the fair
value of the trusts' funds is now invested in domestic corporate debt and common
equity  securities.  The remainder is invested in investment grade municipal and
U.S. Treasury bonds. Funding for Quad Cities Station nuclear  decommissioning is
reflected in Depreciation  and  Amortization in the  Consolidated  Statements of
Income.

     Amounts related to Cooper  decommissioning are reflected in Other Operating
Expenses in the  Consolidated  Statements of Income.  In July 1997, the Nebraska
Public Power  District  filed a lawsuit in United States  District Court for the
District of Nebraska  naming  MidAmerican  Energy as the defendant and seeking a
declaration of MidAmerican  Energy's  rights and  obligations in connection with
Cooper nuclear  decommissioning  funding.  As a result of a restructuring of the
power purchase contract between MidAmerican Energy and the Nebraska Public Power
District,  MidAmerican  Energy  will no longer be accruing  for  decommissioning
costs.  Refer to Part II,  Item 1,  "Legal  Proceedings"  of this  Form 10-Q for
further discussion of the litigation and to Note H of MidAmerican Energy's Notes
to Financial Statements for a discussion of the contract restructuring.

     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.

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

     Debt Authorizations and Credit Facilities -

     MidAmerican  Energy  has  authority  from  the  Federal  Energy  Regulatory
Commission  to issue  through  April  14,  2003  short-term  debt in the form of
commercial  paper and bank notes  aggregating $500 million.  MidAmerican  Energy
currently has in place a $370.4 million  revolving credit facility that supports
its $250  million  commercial  paper  program and its  variable  rate  pollution
control revenue obligations. The facility expires January 16, 2003. In addition,
MidAmerican Energy has a $5 million line of credit, which expires July 1, 2003.

     On  February  8, 2002,  MidAmerican  Energy  issued  $400  million of 6.75%
medium-term notes due in 2031. The proceeds are being used to refinance existing
debt and preferred  securities and for other  corporate  purposes.  On March 11,
2002,   MidAmerican   Energy   redeemed   all   $100   million   of  its   7.98%
MidAmerican-obligated  preferred  securities of subsidiary  trust at 100% of the
principal amount plus accrued interest.

     On May 1, 2002,  MidAmerican  Energy  reacquired  all $26.68 million of its
$7.80 series of  preferred  securities.  The first  $13.32  million of preferred
securities were redeemed at 100% of the principal amount plus accrued dividends,
and the remaining  $13.36 million was redeemed at 103.9% of the principal amount
plus accrued dividends.

     MidAmerican Energy has on file with the Securities and Exchange  Commission
a  registration  statement  for $500  million  in  various  forms of senior  and
subordinated, unsecured long-term debt and

                                      -32-
<PAGE>

preferred  securities,  $100 million of which  remains  available  following the
issuance of the $400 million of medium-term notes discussed above.

     MidAmerican  Energy has  authorization  from the Federal Energy  Regulatory
Commission to issue, through November 30, 2002, up to an additional $100 million
in various forms of long-term debt following the issuance of the $400 million of
medium-term   notes  discussed   above.   MidAmerican   Energy  will  also  need
authorization  from  the  Illinois  Commerce  Commission  prior to  issuing  any
securities.  If 90% or more of the proceeds from a securities  issuance are used
for  refinancing  purposes,  MidAmerican  Energy need only  provide the Illinois
Commerce  Commission  with an  "informational  statement"  prior to the issuance
which sets forth the type,  amount and use of the proceeds of the  securities to
be  issued.  If  less  than  90% of  the  proceeds  are  used  for  refinancing,
MidAmerican must file a comprehensive application seeking authorization prior to
issuance.  The Illinois Commerce Commission is required to hold a hearing before
issuing its authorization.

     Accounts Receivable Sold -

     In 1997,  MidAmerican  Energy  entered  into a revolving  agreement,  which
expires on October 29, 2002, to sell all of its right, title and interest in the
majority  of its  billed  accounts  receivable  to  MidAmerican  Energy  Funding
Corporation,   a  special  purpose  entity   established  to  purchase  accounts
receivable from MidAmerican  Energy.  MidAmerican Energy Funding  Corporation in
turn sells receivable  interests to outside investors.  In consideration for the
sale, MidAmerican Energy received cash and a subordinated note, bearing interest
at 8%, from  MidAmerican  Energy Funding  Corporation.  As of June 30, 2002, the
revolving  cash  balance was $36 million  and the amount  outstanding  under the
subordinated note was $55.8 million. The agreement is structured as a true sale,
under which the creditors of  MidAmerican  Energy  Funding  Corporation  will be
entitled  to be  satisfied  out of the  assets  of  MidAmerican  Energy  Funding
Corporation  prior to any value  being  returned  to  MidAmerican  Energy or its
creditors.  Therefore,  the  accounts  receivable  sold  are  not  reflected  on
MidAmerican Energy's or MidAmerican Funding's Consolidated Balance Sheets. As of
June 30, 2002, $93.0 million of accounts receivable,  net of reserves,  was sold
under the agreement.

     Other Information -

     MHC has a $4 million line of credit,  expiring July 1, 2003, to provide for
short-term  financing  needs,  $2.1 million of which was outstanding at June 30,
2002.

     MidAmerican Capital has $23.3 million of long-term debt outstanding at June
30, 2002, which matures in October 2002.

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

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

                                      -33-
<PAGE>

continue for any given period of time. Other than the energy trading  agreements
discussed  below,  neither  MidAmerican  Funding nor MidAmerican  Energy has any
credit  agreements  that require  termination or a material change in collateral
requirements  or  payment  schedule  in the event of a  downgrade  in the credit
ratings of the respective company's securities.  MidAmerican Funding's long-term
debt  agreements  require that no additional  debt can be issued by  MidAmerican
Funding if doing so would  cause a downgrade  in  MidAmerican  Funding's  credit
ratings.

     In  conjunction  with  its  wholesale  marketing  and  trading  activities,
MidAmerican  Energy must meet credit  quality  standards  as required by counter
parties.  MidAmerican  Energy has energy trading  agreements that, in accordance
with industry practice,  either  specifically  require it to maintain investment
grade  credit  ratings  or  provide  the right  for  counter  parties  to demand
"adequate  assurances" in the event of a material  adverse change in MidAmerican
Energy's creditworthiness. If one or more of MidAmerican Energy's credit ratings
decline below investment grade,  MidAmerican Energy may be required to post cash
collateral,  letters of credit or other  similar  credit  support to  facilitate
ongoing  wholesale  marketing  and  trading  activities.  As of June  30,  2002,
MidAmerican  Energy's  estimated  potential   collateral   requirements  totaled
approximately  $41  million,  of which $6  million  related  to  energy  trading
agreements  with  specific   requirements   that  MidAmerican   Energy  maintain
investment grade credit ratings.  MidAmerican  Energy's collateral  requirements
could fluctuate considerably due to seasonality, market price volatility, a loss
of key MidAmerican Energy generating facilities or other related factors.

RATE MATTERS

     Under a  settlement  agreement  approved  by the  Iowa  Utilities  Board on
December 21, 2001,  MidAmerican Energy's Iowa retail electric rates in effect on
December 31, 2000, are frozen through December 31, 2005. Additionally,  the 2001
settlement  agreement  reinstates,  with  modifications,   the  revenue  sharing
provisions  of the 1997  pricing plan  settlement  agreement,  which  expired on
December 31, 2000. Under the 2001 settlement  agreement,  an amount equal to 50%
of revenues  associated with Iowa retail electric  returns on equity between 12%
and 14%, and 83.33% of revenues  associated with Iowa retail electric returns on
equity above 14%, in each year will be recorded as a regulatory  liability to be
used to  offset a portion  of the cost to Iowa  customers  of future  generating
plant investments.  An amount equal to the regulatory liability will be recorded
as a  regulatory  charge  in  depreciation  and  amortization  expense  when the
liability  is  accrued.  Interest  expense  is  accrued  on the  portion  of the
regulatory liability related to prior years. Beginning in 2002, the liability is
being  relieved  as it is  credited  against  allowance  for funds  used  during
construction,  or capitalized financing costs,  associated with generating plant
additions.  As of June 30, 2002, the related regulatory  liability  reflected on
the Consolidated Balance Sheet totaled $81.8 million.

     On October 19, 2001,  MidAmerican Energy filed a petition with the Illinois
Commerce  Commission to increase its Illinois  natural gas rates by $3.2 million
annually.  A final decision on the petition is required  within eleven months of
the date of filing.

     On March 15, 2002, MidAmerican Energy made a filing with the Iowa Utilities
Board  requesting  an increase in rates of  approximately  $26.6 million for its
Iowa retail natural gas  customers.  As part of the filing,  MidAmerican  Energy
requested an interim rate increase of approximately  $20.4 million annually.  On
June 12, 2002, the Iowa Utilities Board issued an order granting an interim rate
increase of  approximately  $13.8 million  annually,  effective  immediately and
subject to refund with interest.  On July 15, 2002,  MidAmerican  Energy and the
Office of Consumer Advocate filed a proposed settlement  agreement with the Iowa
Utilities Board. The proposed  settlement  agreement provides for an increase in
rates of $17.7 million annually for MidAmerican Energy's Iowa retail natural gas
customers.  The new rates would be effective for usage on and after the date the
Iowa  Utilities  Board approves  tariffs  implementing  the proposed  settlement
agreement  and would be  frozen  for two years  thereafter.

                                      -34-
<PAGE>

MidAmerican  Energy expects the Iowa Utilities  Board's decision on the proposed
settlement agreement in the fourth quarter of 2002.

LEGISLATIVE AND REGULATORY EVOLUTION

     Electric Deregulation -

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

     Illinois law also provides for Illinois  electric earnings above a computed
level of return on common  equity to be shared  equally  between  customers  and
MidAmerican  Energy.  MidAmerican  Energy's  computed  level of return on common
equity is based on a rolling two-year average of the 30-year Treasury Bond rates
plus a premium of 5.5% for 1998 and 1999 and a premium of 8.5% for 2000  through
2006, as recently extended.  The two-year average above which sharing must occur
for 2001 was 14.34%.  The law allows  MidAmerican Energy to mitigate the sharing
of earnings  above the  threshold  return on common equity  through  accelerated
recovery of regulatory assets.

     The energy crisis and related events in California have heightened concerns
nationally about deregulation of the electric utility industry. Accordingly, the
pace of deregulation in Iowa and elsewhere has slowed considerably.

     Regional Transmission Organizations -

     In December 1999, the Federal Energy  Regulatory  Commission  (FERC) issued
Order No. 2000 establishing,  among other things,  minimum  characteristics  and
functions for regional  transmission  organizations.  Public utilities that were
not a member of an  independent  system  operator  at the time of the order were
required  to  submit  a plan by  which  its  transmission  facilities  would  be
transferred  to a regional  transmission  organization.  On September  28, 2001,
MidAmerican  Energy and five other electric utilities filed with the FERC a plan
to create  TRANSLink  Transmission  Company LLC and to integrate  their electric
transmission systems into a single, coordinated system operating as a for-profit
independent  transmission  company in conjunction with a FERC-approved  regional
transmission organization. On April 25, 2002, the FERC issued an order approving
the transfer of control of MidAmerican Energy and other utilities'  transmission
assets to TRANSLink in conjunction with TRANSLink's participation in the Midwest
Independent   Transmission   System   Operator,   Inc.   regional   transmission
organization. Additionally, state regulatory approval is required from states in
which  TRANSLink  will be operating,  and those  applications  have not yet been
filed.   Transferring  the  operations  and  control  of  MidAmerican   Energy's
transmission  assets to other  entities  could  increase  costs for  MidAmerican
Energy;  however,  the actual impact of TRANSLink on MidAmerican Energy's future
transmission costs is not yet known.

     Standard Electricity Market Design -

     On July 31, 2002, the FERC announced  commencement  of a notice of proposed
rulemaking, which the FERC has characterized as portending "sweeping changes" to
the use and expansion of the  interstate  transmission  and wholesale bulk power
systems in the United States. The proposal includes numerous fundamental changes
in the regulation of transmission and generation facilities "to promote economic
efficiency" and replace the "obsolete patchwork we have today," according to the
FERC's  chairman.  The FERC does not  envision  that a final  rule will be fully
implemented  until  September 30, 2004,  and it has asked for industry  input on
several dozen  questions with respect to its 600-plus page preamble and proposed
rule.  MidAmerican  Energy  has not  completed  its  initial  evaluation  of the

                                      -35-
<PAGE>


proposed rule, and  recognizes the final rule could vary  considerably  from the
initial  proposal.  Thus, the likely impact of the new FERC  initiative on MEC's
transmission and generation businesses is unknown.

ENVIRONMENTAL MATTERS

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

     MidAmerican  Energy has evaluated or is evaluating 27 properties that were,
at one time, sites of gas manufacturing  plants in which it may be a potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste materials are present,  whether the materials  constitute an environmental
or health  risk,  and  whether  MidAmerican  Energy has any  responsibility  for
remedial action.  MidAmerican  Energy's estimate of the probable costs for these
sites as of June 30, 2002, was $20 million. This estimate has been recorded as a
liability  and a regulatory  asset for future  recovery  through the  regulatory
process.  Refer to Note B(1) of Notes to Consolidated  Financial  Statements for
further discussion of MidAmerican Energy's  environmental  activities related to
manufactured gas plant sites and cost recovery.

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

     In July 1997, the EPA adopted revisions to the National Ambient Air Quality
Standards for ozone and a new standard for fine particulate  matter. In February
2001,  the United  States  Supreme  Court  upheld the  constitutionality  of the
standards, though remanding the issue of implementation of the ozone standard to
the EPA.  The impact of the new  standards  on  MidAmerican  Energy is currently
unknown. These standards could be superceded,  in whole or in part, by a variety
of multi-pollutant emission reduction proposals.  Refer to Note B(2) of Notes to
Consolidated Financial Statements for further discussion of this issue.

     In 2001,  the state of Iowa  passed  legislation  that,  in part,  requires
rate-regulated  utilities to develop a  multi-year  plan and budget for managing
regulated emissions from their generating facilities in a cost-effective manner.
MidAmerican  Energy's  proposed plan and associated  budget (the Plan) was filed
with the Iowa  Utilities  Board on April 1, 2002, in accordance  with state law.
MidAmerican  Energy expects the Iowa Utilities  Board to rule on the prudence of
the Plan in the fourth quarter of 2002.  MidAmerican  Energy is required to file
Plan updates at least every two years.

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

     The Plan outlines $732.0 million in  environmental  investments to existing
coal-fired  generating  units, some of which are jointly owned, over a nine-year
period from 2002 through 2010.  MidAmerican  Energy's share of these investments
is $546.6 million, $67.9 million of which is projected to be incurred during the
2002-2005 rate freeze  period.  The Plan also  identifies  expenses that will be
incurred at the generating  facilities to operate and maintain the environmental
equipment installed as a result of the Plan.

                                      -36-
<PAGE>


     Following the expiration of the 2001  settlement  agreement on December 31,
2005, the Plan proposes the use of an adjustment  mechanism for recovery of Plan
costs,  similar to the tracker  mechanisms for cost recovery of renewable energy
and  energy  efficiency  expenditures  that are  presently  part of  MidAmerican
Energy's electric regulated rates.

GENERATING CAPABILITY

     In July 2002,  retail  customer  usage of  electricity  caused a new record
hourly peak demand of 3,909 MW on MidAmerican Energy's energy system, surpassing
the  previous  record peak of 3,833 MW set in July 1999.  MidAmerican  Energy is
interconnected  with  Iowa  and  neighboring  utilities  and is  involved  in an
electric power pooling agreement known as Mid-Continent  Area Power Pool (MAPP).
Each MAPP  participant  is  required to maintain  for  emergency  purposes a net
generating capability reserve of at least 15% above its system peak demand.

     MidAmerican  Energy  believes it has  adequate  electric  capacity  reserve
through  2003 and  continues  to manage its  generating  resources  to ensure an
adequate reserve in the future.  MidAmerican Energy has announced plans to add a
500-megawatt  (based on MAPP rating criteria) natural  gas-fired  combined cycle
unit to be completed in two phases  between 2003 and 2005.  Up to an  additional
450 megawatts of  coal-fired  generation  is expected to be  operational  by the
summer of 2007. However,  significantly  higher-than-normal  temperatures during
the cooling season could cause  MidAmerican  Energy's  reserve to fall below the
15% minimum.  If MidAmerican  Energy fails to maintain the appropriate  reserve,
significant penalties could be contractually imposed by MAPP.

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

     MidAmerican   Energy  has  been  able  to  maintain  its  capacity  reserve
requirement and has not been adversely  affected by seasonal price variations in
the wholesale market.

CRITICAL ACCOUNTING POLICIES

     MidAmerican  Energy's  and  MidAmerican  Funding's  significant  accounting
policies are described in Note (1) of Notes to Consolidated Financial Statements
in their respective  Annual Reports on Form 10-K for the year ended December 31,
2001.

     Accounting for Regulated Entities -

     MidAmerican  Funding's and  MidAmerican  Energy's most critical  accounting
policy is the application of SFAS No. 71, "Accounting for the Effects of Certain
Types  of  Regulation,"  at  MidAmerican  Energy.  A  possible   consequence  of
deregulation  in the utility  industry is that SFAS No. 71 may no longer  apply.
SFAS No. 71 sets forth  accounting  principles for operations that are regulated
and meet the stated criteria. For operations that meet the criteria, SFAS No. 71
allows,  among  other  things,  the  deferral  of expense  or income  that would
otherwise be recognized  when incurred.  MidAmerican  Energy's  electric and gas
utility operations  currently meet the criteria required by SFAS No. 71, but its
applicability is periodically reexamined.  If portions of its utility operations
no longer meet the criteria of SFAS No. 71, MidAmerican Energy could be required
to write off the  related  regulatory  assets and

                                      -37-
<PAGE>

liabilities from its balance sheet, and thus, a material  adjustment to earnings
in that period could result if regulatory assets are not recovered in transition
provisions of any deregulation legislation.

     Revenue Recognition -

     Revenues are recorded as services  are rendered to  customers.  MidAmerican
Energy records  unbilled  revenues  representing  the estimated amount customers
will be billed  for  services  rendered  between  the  meter-reading  dates in a
particular  month and the end of that month. The unbilled  revenues  estimate is
reversed in the following month. To the extent the estimated amount differs from
the amount subsequently billed, the timing of revenues will be affected.

     Accounting for Derivatives and Energy Trading Activities -

     MidAmerican Energy accounts for its energy trading activities in accordance
with  Emerging  Issues Task Force  (EITF)  Issue No.  98-10 and SFAS No. 133, as
amended  and  interpreted,  which  require  certain  energy  trading  and energy
derivative contracts to be accounted for at fair value.

     EITF 98-10 also allows two methods of recognizing  energy trading contracts
in the income  statement.  The  "gross"  method  provides  that  energy  trading
contracts are recorded at their full value in revenues and  expenses.  The other
method is the "net"  method in which  revenues  and expenses are netted and only
the trading margin is reflected in revenues.  MidAmerican  Energy uses the gross
method for those energy trading contracts for which they have a choice.

     Accounting for derivatives  continues to evolve through  guidance issued by
the Derivatives Implementation Group (DIG) of the Financial Accounting Standards
Board  (FASB).  To the extent that changes by the DIG modify  current  guidance,
including the normal  purchases and normal sales  determination,  the accounting
treatment for derivatives may change.

     See  Note E in Notes  to  Consolidated  Financial  Statements  for  further
discussion related to accounting for derivatives.

     Contingent Liabilities -

     MidAmerican Funding  establishes  reserves for estimated loss contingencies
when it is management's assessment that a loss is probable and the amount of the
loss can be  reasonably  estimated.  Revisions  to  contingent  liabilities  are
recorded in the period in which different  facts or information  become known or
circumstances  change that affect the previous  assumptions  with respect to the
likelihood or amount of loss. Reserves for contingent liabilities and subsequent
revisions are reflected in income when the reserves or revisions are recorded or
as regulatory treatment dictates.  Reserves for contingent liabilities are based
upon  management's  assumptions and estimates,  advice of legal counsel or other
third parties regarding the probable outcomes of the matter.  Should the outcome
differ from the assumptions and estimates,  revisions to the estimated  reserves
for contingent liabilities would be required.

NEW ACCOUNTING PRONOUNCEMENTS

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  For Asset
Retirement  Obligations." SFAS No. 143 requires recognition on the balance sheet
of legal  obligations  associated with the retirement of long-lived  assets that
result from the acquisition,  construction,  development and/or normal operation
of such assets.  SFAS No. 143 is effective for fiscal years beginning after June
15, 2002.  MidAmerican Funding is evaluating the impact of this pronouncement on
its balance sheet,  but does not

                                      -38-
<PAGE>


believe adoption will have a material impact on its results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     MidAmerican  Funding,  including  MidAmerican  Energy, is exposed to market
risk from changes in factors such as the market price of certain commodities and
interest  rates.  To manage the price  volatility  relating to these  exposures,
MidAmerican Funding enters into various financial derivative instruments. Senior
management  provides the overall  direction,  structure,  conduct and control of
MidAmerican Funding's risk management activities, including the use of financial
derivative  instruments,  authorization  and  communication  of risk  management
policies and  procedures,  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.
MidAmerican Funding regularly performs  sensitivity  analysis of its outstanding
positions and adheres to strict  value-at-risk  parameters.  MidAmerican Funding
uses hedge accounting for derivative  instruments  pertaining to its natural gas
purchasing,  wholesale electricity activities and financing activities. Refer to
Note E in Notes to Consolidated  Financial  Statements for further discussion of
price risk and the accounting for derivative instruments.

                                      -39-

<PAGE>


PART II - OTHER INFORMATION

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

     MidAmerican Funding and its subsidiaries have no material legal proceedings
except for the following:

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

     For information on MidAmerican Energy's environmental matters, reference is
made to Note B of Notes to Consolidated Financial Statements.

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

     On July 23, 1997, the Nebraska Public Power District filed a complaint,  in
the  United  States  District  Court  for  the  District  of  Nebraska,   naming
MidAmerican Energy as the defendant and seeking declaratory judgment as to three
issues under the parties' long-term power purchase agreement for Cooper capacity
and energy.  More  specifically,  the Nebraska  Public Power  District  sought a
declaratory judgment in the following respects:

     (1)  that  MidAmerican  Energy  is  obligated  to pay 50% of all  costs and
          expenses associated with decommissioning Cooper, and that in the event
          the Nebraska  Public Power District  continues to operate Cooper after
          expiration  of  the  power  purchase   agreement   (September   2004),
          MidAmerican   Energy  is  not   entitled  to   reimbursement   of  any
          decommissioning funds it has paid to date or will pay in the future;

     (2)  that the current  method of allocating  transition  costs as a part of
          the decommissioning cost is proper under the power purchase agreement;
          and

     (3)  that the current method of investing  decommissioning  funds is proper
          under the power purchase agreement.

     In response, MidAmerican Energy filed its answer and counterclaims.  In its
answer,  MidAmerican Energy denied material allegations in the complaint. In its
counterclaims, MidAmerican Energy sought declaratory judgments opposite to those
that  NPPD  sought;  and in  addition,  MidAmerican  Energy  sought  declaratory
judgments on earlier contingent  versions of MidAmerican  Energy's now operative
counterclaims listed below at (1), (2), (4), (5), (6), (7), (8), (10) and (11).

     On October 6, 1999,  the court rendered  summary  judgment for the Nebraska
Public Power  District on the  above-mentioned  issue  concerning  liability for
decommissioning  (issue  (1) in the  first  paragraph,  above)  and the  related
contingent  counterclaims  filed by  MidAmerican  Energy  (earlier  versions  of
counterclaims  identified as (1), (2), (5) and (6),  below).  The court referred
all remaining  issues in the case to mediation,  and cancelled the November 1999
trial date.

     MidAmerican  Energy  appealed  the  court's  summary  judgment  ruling.  On
December 12,  2000,  the United  States Court of Appeals for the Eighth  Circuit
reversed the ruling of the district court and granted summary  judgment in favor
of  MidAmerican   Energy  on  the  earlier  versions  of  MidAmerican   Energy's
counterclaims  identified  as (1) and (2) listed  below;  it remanded  for trial
MidAmerican  Energy's  counterclaims  identified as (5) and (6),  below; it also
remanded for trial the Nebraska Public Power District's issues identified as (2)
and  (3) in the  first  paragraph,  above,  and on  MidAmerican  Energy's  other
undisposed-of counterclaims.

                                      -40-
<PAGE>

     After the remand to the  District  Court from the Eighth  Circuit  Court of
Appeals,  the  Nebraska  Public  Power  District  was granted  permission,  over
MidAmerican Energy's objections,  to file a second amended complaint. The second
amended complaint asserted in the first four "causes of action" that MidAmerican
Energy has  unconditional  liability  for a 50% share of  decommissioning  costs
based on alleged  obligations other than those imposed on MidAmerican  Energy by
the power purchase  agreement as originally  written.  The Nebraska Public Power
District's  post-remand  contentions  in those four  "causes of action"  were in
summary: (i) the parties, without formal written agreement,  either modified the
power purchase agreement or made a separate agreement that imposes unconditional
liability on MidAmerican  Energy for  decommissioning  costs;  (ii)  MidAmerican
Energy has  unconditional  liability  for a 50% share of  decommissioning  costs
based on quantum  meruit and unjust  enrichment;  (iii)  MidAmerican  Energy has
unconditional  liability for a 50% share of decommissioning  based on promissory
estoppel;  or (iv) the Nebraska  Public  Power  District is entitled to have the
power  purchase  agreement  reformed  to  provide  that  MidAmerican  Energy has
unconditional  liability for a 50% share of  decommissioning  costs.  Also,  the
second amended complaint asserted three additional "causes of action" and sought
declaratory judgment(s) that (v) Nebraska Public Power District properly invests
revenues  from the sale of Cooper's  power and energy  under the power  purchase
agreement and amounts it has collected for decommissioning costs of Cooper; (vi)
absent an unconditional  obligation of MidAmerican Energy to pay decommissioning
costs, MidAmerican Energy is barred from receiving a refund of prepaid estimated
decommissioning   costs;  and  (vii)  absent  an  unconditional   obligation  of
MidAmerican  Energy  to  pay  estimated  decommissioning  costs,  a  declaration
defining  decommissioning costs is necessary. In response to the Nebraska Public
Power District's second amended  complaint,  MidAmerican  Energy filed its first
amended  answer and third  amended  counterclaims  containing  denials,  several
affirmative defenses, and the eleven counterclaims summarized below:

     (1)  that MidAmerican Energy has no duty under the power purchase agreement
          to reimburse or pay 50% of the decommissioning costs unless conditions
          to reimbursement occur;

     (2)  that the term "monthly  power costs" as defined in the power  purchase
          agreement  does  not  include  costs  and  expenses   associated  with
          decommissioning the plant;

     (3)  that the Nebraska Public Power District violated  MidAmerican Energy's
          directions for application of payments;

     (4)  that transition  costs are not included in any  decommissioning  costs
          and are not any kind of costs that MidAmerican  Energy is obligated to
          pay;

     (5)  that the  Nebraska  Public  Power  District  has the duty to repay all
          amounts that MidAmerican  Energy has prefunded for  decommissioning in
          the event the Nebraska Public Power District  operates the plant after
          the term of the power purchase agreement;

     (6)  that the Nebraska  Public Power  District is equitably  estopped  from
          continuing  to operate the plant after the term of the power  purchase
          agreement so long as the Nebraska Public Power District does not repay
          all  amounts   MidAmerican   Energy  has   prefunded   for   estimated
          decommissioning costs together with other amounts in certain funds and
          accounts and for so long as the Nebraska  Public Power  District fails
          to provide  MidAmerican Energy with certain requested  accountings and
          information;

                                      -41-
<PAGE>


     (7)  that certain  funds,  accounts,  and reserves  are  excessive  and are
          required to be paid to  MidAmerican  Energy or credited to MidAmerican
          Energy's pre-2004 monthly power costs;

     (8)  that  MidAmerican  Energy  has  no  duty  to  pay  for  nuclear  fuel,
          operations and maintenance  projects or capital improvements that have
          useful lives after the term of the power purchase agreement;

     (9)  that the Nebraska  Public Power  District has  mismanaged the plant in
          numerous  described  transactions  resulting in damage to  MidAmerican
          Energy;

     (10) that the Nebraska  Public Power District has breached its  contractual
          and  other  duties  to  MidAmerican  Energy  by  not  joining  certain
          litigation  and by  failing  to credit or agree to credit  MidAmerican
          Energy with any recovery for low-level radioactive waste; and

     (11) that the  Nebraska  Public  Power  District  has  breached its duty to
          MidAmerican Energy in making investments of decommissioning funds;

     In the  course  of  discovery,  the  Nebraska  Public  Power  District  has
contended  that  MidAmerican  Energy has some  responsibility  for some costs of
storage of spent fuel  resulting from the operation of the plant during the term
of the power purchase agreement. MidAmerican Energy disputes this.

     Subsequent  to the Nebraska  Public Power  District's  filing of its second
amended complaint,  MidAmerican Energy filed a mandamus petition with the Eighth
Circuit Court of Appeals  seeking an order of that court  directing the District
Court not to permit the Nebraska Public Power District to pursue,  at trial, the
first four "causes of action" in the second  amended  complaint.  The grounds of
MidAmerican  Energy's  petition  were that such four  "causes  of  action"  were
foreclosed by the December 12, 2000,  Eighth Circuit Court of Appeals  decision.
On April 3,  2002,  the  Eighth  Circuit  Court of  Appeals  granted  the relief
requested by MidAmerican  Energy.  Accordingly,  Nebraska  Public Power District
would not have been permitted to pursue the first four "causes of action" in the
second amended  complaint had a trial occurred  beginning on October 1, 2002, as
was scheduled.

     The parties have settled the above-mentioned  litigation with the execution
of a Settlement  Agreement and Release which became effective on August 1, 2002.
Under the terms of the Settlement Agreement and Release, MidAmerican Energy will
continue  purchasing  power and energy from the Nebraska  Public Power  District
through December 31, 2004, at prices that are fixed in the Settlement  Agreement
and Release.  In addition,  the Nebraska Public Power District paid  MidAmerican
Energy  a lump  sum  payment  of $39.1  million  on  August  1,  2002.  Further,
MidAmerican  Energy will make no payments for Cooper's  decommissioning  for the
period December 2000 through December 2004;  however,  the Nebraska Public Power
District  will retain the payments for  decommissioning  MidAmerican  Energy had
made prior to December  2000.  Under the terms of the  Settlement  Agreement and
Release, the parties mutually release each other from all claims, pending or not
pending, with respect to Cooper and the power purchase agreement.

                                      -42-

<PAGE>


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

(A)  EXHIBITS

     10.1 Amendment  No. 6, dated July 31,  2002,  to the Power  Sales  Contract
          Between  MidAmerican Energy Company and Nebraska Public Power District
          dated September 22, 1967.

     15   Awareness Letter of Independent Accountants

(B)  REPORTS ON FORM 8-K


     None.

                                      -43-
<PAGE>


                                   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, LLC
                                           MIDAMERICAN ENERGY COMPANY
                                           --------------------------
                                                 (Registrants)







Date  August 13, 2002                     /s/  Patrick J. Goodman
    -----------------                     --------------------------------
                                               Patrick J. Goodman
                                             Vice President and Treasurer
                                             of MidAmerican Funding, LLC
                                             and Senior Vice President and
                                             Chief Financial Officer of
                                             MidAmerican Energy Company


                                      -44-
<PAGE>



                                  EXHIBIT INDEX

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

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

     10.1 Amendment  No. 6, dated July 31,  2002,  to the Power  Sales  Contract
          Between  MidAmerican Energy Company and Nebraska Public Power District
          dated September 22, 1967.

     15   Awareness Letter of Independent Accountants

                                      -45-