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 September 30, 2003

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 [ ]

Indicate by check mark whether the  registrants  are  accelerated  filers (as
defined in Rule 12b-2 of the Exchange Act).  Yes [ ]    No [X]

As of October 27, 2003, all of the member's equity of MidAmerican  Funding,  LLC
was held by its parent company, MidAmerican Energy Holdings Company.

As of October 27, 2003, 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>


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 Company makes no representation as to
information relating to any other subsidiary of MidAmerican Funding, LLC.


                                TABLE OF CONTENTS
                                -----------------

                       PART I. FINANCIAL INFORMATION                       Page
                                                                           ----

Item 1.  Financial Statements..............................................  3
Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations....................................... 21
Item 3.  Quantitative and Qualitative Disclosures About Market Risk........ 38
Item 4.  Controls and Procedures........................................... 38

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings................................................. 39
Item 2.  Changes in Securities and Use of Proceeds......................... 39
Item 3.  Defaults Upon Senior Securities................................... 39
Item 4.  Submission of Matters to a Vote of Security Holders............... 39
Item 5.  Other Information................................................. 39
Item 6.  Exhibits and Reports on Form 8-K.................................. 39

SIGNATURES................................................................. 40
EXHIBIT INDEX ............................................................. 41

                                      -2-
<PAGE>


                          PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.                                             Page
                                                                           ----

                           MidAmerican Energy Company

  Independent Accountants' Report............................................  4
  Consolidated Balance Sheets................................................  5
  Consolidated Statements of Income..........................................  6
  Consolidated Statements of Comprehensive Income............................  7
  Consolidated Statements of Cash Flows......................................  8
  Notes to Consolidated Financial Statements.................................  9

                            MidAmerican Funding, LLC

  Independent Accountants' Report............................................ 14
  Consolidated Balance Sheets................................................ 15
  Consolidated Statements of Income.......................................... 16
  Consolidated Statements of Comprehensive Income............................ 17
  Consolidated Statements of Cash Flows...................................... 18
  Notes to Consolidated Financial Statements................................. 19

                                      -3-

<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 September 30, 2003, and
the related  consolidated  statements of income and comprehensive income for the
three-month  and  nine-month  periods ended  September 30, 2003 and 2002, and of
cash flows for the nine-month  periods ended September 30, 2003 and 2002.  These
interim financial statements are the responsibility of the Company's management.

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

We have  previously  audited,  in accordance with 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,  2002,  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
24, 2003, 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, 2002 is fairly  stated,  in all
material respects,  in relation to the consolidated  balance sheet from which it
has been derived.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Des Moines, Iowa
November 3, 2003

                                      -4-
<PAGE>


                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                       AS OF
                                                           ----------------------------
                                                           SEPTEMBER 30,   DECEMBER 31,
                                                               2003            2002
                                                           -------------   ------------
                                                            (UNAUDITED)
                                     ASSETS
<S>                                                        <C>             <C>
UTILITY PLANT, NET
Electric ..............................................    $ 5,015,716     $ 4,731,002
Gas ...................................................        909,061         900,209
                                                           -----------     -----------
                                                             5,924,777       5,631,211
Accumulated depreciation and amortization .............     (3,185,004)     (3,011,123)
                                                           -----------     -----------
                                                             2,739,773       2,620,088
Construction work in progress .........................        127,755         205,988
                                                           -----------     -----------
                                                             2,867,528       2,826,076
                                                           -----------     -----------

CURRENT ASSETS
Cash and cash equivalents .............................        106,665          28,500
Receivables, net ......................................        245,014         321,321
Inventories ...........................................         85,044          88,492
Other .................................................         15,870          28,655
                                                           -----------     -----------
                                                               452,593         466,968
                                                           -----------     -----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ............        285,878         273,864
REGULATORY ASSETS .....................................        278,803         192,514
OTHER ASSETS ..........................................         36,966          52,457
                                                           -----------     -----------
TOTAL ASSETS ..........................................    $ 3,921,768     $ 3,811,879
                                                           ===========     ===========

                         CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ...........................    $ 1,284,011     $ 1,307,067
MidAmerican Energy preferred securities ...............         31,759          31,759
Long-term debt, excluding current portion .............      1,085,416         947,691
                                                           -----------     -----------
                                                             2,401,186       2,286,517
                                                           -----------     -----------

CURRENT LIABILITIES
Notes payable .........................................              -          55,000
Current portion of long-term debt .....................         56,771         105,727
Accounts payable ......................................        154,317         239,531
Taxes accrued .........................................        111,211          83,063
Interest accrued ......................................         16,346           9,731
Other .................................................         72,960          55,464
                                                           -----------     -----------
                                                               411,605         548,516
                                                           -----------     -----------

OTHER LIABILITIES
Deferred income taxes .................................        425,271         424,153
Investment tax credits ................................         53,604          56,886
Asset retirement obligations ..........................        287,097         159,757
Regulatory liabilities ................................        131,054         118,011
Other .................................................        211,951         218,039
                                                           -----------     -----------
                                                             1,108,977         976,846
                                                           -----------     -----------
TOTAL CAPITALIZATION AND LIABILITIES ..................    $ 3,921,768     $ 3,811,879
                                                           ===========     ===========
</TABLE>

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

                                      -5-
<PAGE>


                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (In thousands)
<TABLE>
<CAPTION>

                                              THREE MONTHS                   NINE MONTHS
                                            ENDED SEPTEMBER 30,          ENDED SEPTEMBER 30,
                                          ----------------------      --------------------------
                                            2003         2002            2003           2002
                                          ---------    ---------      -----------    -----------
                                                             (UNAUDITED)
<S>                                       <C>          <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ....................   $ 422,565    $ 419,542      $ 1,066,794    $ 1,052,130
Regulated gas .........................     110,882       96,163          679,736        442,290
Nonregulated ..........................      42,554       38,676          180,550        126,933
                                          ---------    ---------      -----------    -----------
                                            576,001      554,381        1,927,080      1,621,353
                                          ---------    ---------      -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity ...     123,261      110,590          294,133        255,907
  Cost of gas sold ....................      76,125       61,907          517,399        297,226
  Other operating expenses ............      91,157       93,810          263,026        300,001
  Maintenance .........................      37,947       30,002          103,676         90,698
  Depreciation and amortization .......      56,260       66,451          202,542        207,120
  Property and other taxes ............      19,693       19,640           59,623         56,229
                                          ---------    ---------      -----------    -----------
                                            404,443      382,400        1,440,399      1,207,181
                                          ---------    ---------      -----------    -----------
Nonregulated:
  Cost of sales .......................      36,056       31,968          156,805        105,777
  Other ...............................       4,311        4,439           12,379         14,665
                                          ---------    ---------      -----------    -----------
                                             40,367       36,407          169,184        120,442
                                          ---------    ---------      -----------    -----------
  Total operating expenses ............     444,810      418,807        1,609,583      1,327,623
                                          ---------    ---------      -----------    -----------

OPERATING INCOME ......................     131,191      135,574          317,497        293,730
                                          ---------    ---------      -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ..........         633        2,377            3,142          7,654
Other income ..........................       3,239        3,342           13,138          8,063
Other expense .........................      (1,044)      (2,502)          (1,916)        (7,245)
                                          ---------    ---------      -----------    -----------
                                              2,828        3,217           14,364          8,472
                                          ---------    ---------      -----------    -----------

FIXED CHARGES
Interest on long-term debt ............      17,871       18,262           54,441         53,150
Other interest expense ................         921          886            2,867          2,594
Preferred dividends of subsidiary trust           -            -                -          1,574
Allowance for borrowed funds ..........        (838)        (895)          (3,521)        (2,160)
                                          ---------    ---------      -----------    -----------
                                             17,954       18,253           53,787         55,158
                                          ---------    ---------      -----------    -----------

INCOME BEFORE INCOME TAXES ............     116,065      120,538          278,074        247,044
INCOME TAXES ..........................      51,760       50,028          121,945        103,899
                                          ---------    ---------      -----------    -----------
NET INCOME ............................      64,305       70,510          156,129        143,145
PREFERRED DIVIDENDS ...................         327          327            1,091          2,605
                                          ---------    ---------      -----------    -----------

EARNINGS ON COMMON STOCK ..............   $  63,978    $  70,183      $   155,038    $   140,540
                                          =========    =========      ===========    ===========
</TABLE>

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

                                      -6-
<PAGE>


                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (In thousands)

<TABLE>
<CAPTION>
                                                    THREE MONTHS             NINE MONTHS
                                                 ENDED SEPTEMBER 30,       ENDED SEPTEMBER 30,
                                                 --------------------    ----------------------
                                                   2003        2002        2003          2002
                                                 --------    --------    ---------    ---------
                                                                 (UNAUDITED)
<S>                                              <C>         <C>         <C>          <C>

EARNINGS ON COMMON STOCK .....................   $ 63,978    $ 70,183    $ 155,038    $ 140,540
                                                 --------    --------    ---------    ---------

OTHER COMPREHENSIVE LOSS
Unrealized gains (losses) on cash flow hedges:
  Unrealized gains (losses) during period-
    Before income taxes ......................     (4,746)     (1,665)       6,889       (3,869)
    Income tax (expense) benefit .............      1,973         692       (2,864)       1,608
                                                 --------    --------    ---------    ---------
                                                   (2,773)       (973)       4,025       (2,261)
                                                 --------    --------    ---------    ---------
  Less realized gains (losses) reflected in
   earnings on common stock during period-
    Before income taxes ......................      3,620       1,197       16,463          817
    Income tax (expense) benefit .............     (1,505)       (498)      (6,844)        (340)
                                                 --------    --------    ---------    ---------
                                                    2,115         699        9,619          477
                                                 --------    --------    ---------    ---------

Other comprehensive loss .....................     (4,888)     (1,672)      (5,594)      (2,738)
                                                 --------    --------    ---------    ---------

COMPREHENSIVE INCOME .........................   $ 59,090    $ 68,511    $ 149,444    $ 137,802
                                                 ========    ========    =========    =========
</TABLE>

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

                                      -7-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                             NINE MONTHS
                                                                          ENDED SEPTEMBER 30,
                                                                        ----------------------
                                                                          2003         2002
                                                                        ---------    ---------
                                                                             (UNAUDITED)
<S>                                                                     <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..........................................................   $ 156,129    $ 143,145
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization .....................................     203,403      207,966
  Deferred income taxes and investment tax credit, net ..............       1,816        2,657
  Amortization of other assets and liabilities ......................      17,508       28,209
  Power purchase contract restructuring receipt .....................           -       39,100
  Cash outflows of accounts receivable securitization ...............           -       (8,000)
  Impact of changes in working capital ..............................      70,317      (30,590)
  Other, net ........................................................     (11,350)      14,953
                                                                        ---------    ---------
    Net cash provided by operating activities .......................     437,823      397,440
                                                                        ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ...................................    (226,726)    (228,771)
Less non-cash and change in accrued utility construction expenditures       5,855        4,146
Quad Cities Station decommissioning trust fund ......................      (6,224)      (6,224)
Nonregulated capital expenditures ...................................      (1,032)        (586)
Other investing activities, net .....................................      12,513        3,932
                                                                        ---------    ---------
  Net cash used in investing activities .............................    (215,614)    (227,503)
                                                                        ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ......................................................    (173,591)     (80,106)
Issuance of long-term debt, net .....................................     272,550      391,147
Retirement of long-term debt, including reacquisition cost ..........    (188,003)    (163,845)
Reacquisition of preferred securities ...............................           -     (126,680)
Net decrease in notes payable .......................................     (55,000)     (89,350)
                                                                        ---------    ---------
  Net cash used in financing activities .............................    (144,044)     (68,834)
                                                                        ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ...........................      78,165      101,103
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................      28,500       20,020
                                                                        ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..........................   $ 106,665    $ 121,123
                                                                        =========    =========

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized ...........................   $  42,777    $  44,681
                                                                        =========    =========
Income taxes paid, net ..............................................   $  74,673    $  67,406
                                                                        =========    =========
</TABLE>

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

                                      -8-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

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

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

2.   NEW ACCOUNTING PRONOUNCEMENTS

In January 2003,  MidAmerican  Energy adopted Statement of Financial  Accounting
Standards ("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.
Concurrent with the recognition of the liability, the estimated cost of an asset
retirement  obligation is capitalized and depreciated over the remaining life of
the asset.

On  January  1,  2003,  MidAmerican  Energy  recorded  $275.2  million  of asset
retirement  obligation  ("ARO")  liabilities;  $12.6 million of  associated  ARO
assets,  net of accumulated  depreciation;  $101.8 million of regulatory assets;
and reclassified  $1.0 million of accumulated  depreciation to the ARO liability
in conjunction  with the adoption of SFAS No. 143.  Adoption of SFAS No. 143 did
not impact net income.  The initial ARO  liability  recognized  includes  $266.5
million that pertains to obligations  associated with the decommissioning of the
Quad  Cities  Station.  The $266.5  million  includes a $159.8  million  nuclear
decommissioning  liability that had been recorded as of December 31, 2002. As of
September  30,  2003,  $175.2  million of assets  reflected in  Investments  and
Nonregulated  Property, Net on the Consolidated Balance Sheet are restricted for
satisfying the Quad Cities Station obligation.

The change in the balance of the ARO  liability  during the first nine months of
2003 is summarized as follows (in thousands):

           Balance January 1, 2003.......................... $275,228
           Capitalized accretion............................   11,869
                                                             --------
           Balance September 30, 2003....................... $287,097
                                                             ========

Accretion on the ARO liability is capitalized as a regulatory asset. In addition
to the ARO liabilities  recognized on January 1, MidAmerican  Energy has accrued
for the cost of removing other electric and gas assets through its  depreciation
rates, in accordance  with accepted  regulatory  practices.  As of September 30,
2003, the estimated amount of such accruals included in accumulated depreciation
was approximately $413 million based on the cost of removal component in current
depreciation rates.

                                      -9-
<PAGE>

On April 30, 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 149,  "Amendment  of Statement  133 on  Derivative  Instruments  and Hedging
Activities."  SFAS No.  149  amends  SFAS No.  133 for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging   activities.   SFAS  No.  149  also  amends   certain  other   existing
pronouncements  and requires  contracts with  comparable  characteristics  to be
accounted for similarly.  In particular,  SFAS No. 149 clarifies when a contract
with an initial net investment meets the characteristic of a derivative and when
a derivative that contains a financing  component will require special reporting
in the  statement  of cash flows.  SFAS No. 149 was  effective  for  MidAmerican
Energy and MidAmerican Funding for contracts entered into or modified after June
30, 2003. Adoption of SFAS No. 149 did not have a material effect on the results
of  operations,  financial  position  or cash  flows of  MidAmerican  Energy  or
MidAmerican Funding.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer  classify a financial  instrument that is within
its scope as a liability (or an asset in some  circumstances).  SFAS No. 150 was
effective  for  MidAmerican   Funding  and  MidAmerican   Energy  for  financial
instruments  entered into or modified  after May 31,  2003,  and  otherwise  was
effective at the beginning of the third quarter of 2003. MidAmerican Funding and
MidAmerican Energy do not currently have financial  instruments within the scope
of SFAS No. 150.

3.   ENVIRONMENTAL MATTERS

a.   Manufactured Gas Plant Facilities:

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

MidAmerican  Energy has evaluated 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  a health or
environmental  risk, and whether  MidAmerican  Energy has any responsibility for
remedial  action.  MidAmerican  Energy is actively  working with the  regulatory
agencies and has received  regulatory closure on four sites.  MidAmerican Energy
is  continuing  to  evaluate  several  of the  sites  to  determine  the  future
liability, if any, for conducting site investigations or other site activity.

MidAmerican  Energy  estimates  the range of possible  costs for  investigation,
remediation and monitoring for the sites discussed above to be approximately $15
million  to $54  million.  As of  September  30,  2003,  MidAmerican  Energy has
recorded  a  $15.9  million  liability  for  these  sites  and  a  corresponding
regulatory asset for future recovery through the regulatory process. MidAmerican
Energy  projects  that these amounts will be incurred or paid over the next four
years.

The estimated  liability is determined  through a site-specific  cost evaluation
process.  First, a determination  is made as to whether  MidAmerican  Energy has
potential legal liability for a site and whether  information exists to indicate
that  contaminated  wastes  remain at the site. If so, the costs of performing a
preliminary  investigation and the costs of removing known contaminated soil are
accrued. If it is determined during the preliminary  investigation that remedial
action is required, then the best estimate of the costs is accrued. The estimate
includes  incremental  direct costs of remediation,  site  monitoring  costs and
costs of compensation to employees for time expected to be spent directly on the
remediation effort. The estimated recorded  liabilities for these properties are
based upon preliminary  data. Thus, actual costs could vary  significantly  from
the  estimates.  The  estimate  could  change  materially  based  on  facts  and
circumstances  derived from site  investigations,  changes in required  remedial
action and changes in technology  relating to remedial  alternatives.  Insurance
recoveries have been received for

                                      -10-
<PAGE>

some of the sites under investigation.  Those recoveries are intended to be used
principally  for  accelerated  remediation,  as specified by the Iowa  Utilities
Board ("IUB"), and are recorded as a regulatory liability.

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

b.   Air Quality:

In July 1997,  the EPA 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 EPA 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 EPA.  As a result  of a  decision
rendered  by the United  States  Circuit  Court of Appeals  for the  District of
Columbia,  the EPA is moving  forward  in  implementation  of the ozone and fine
particulate  standards  and is analyzing  existing  monitored  data to determine
attainment status.

The  impact  of the  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 state  implementation  plans 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. In July 2002,  legislation
was  introduced  in Congress to  implement  the  Administration's  "Clear  Skies
Initiative,"  calling for  reduction in emissions  of sulfur  dioxide,  nitrogen
oxides and mercury through a  cap-and-trade  system.  Reductions  would begin in
2008 with additional emission reductions being phased in through 2018.

While  legislative  action is necessary for the Clear Skies  Initiative or other
multi-pollutant emission reduction 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 IUB its first  multi-year plan and budget for managing  regulated
emissions  from  its  generating  facilities  in  a  cost-effective  manner.  An
administrative law judge issued a ruling approving MidAmerican Energy's plan but
disallowing  the proposed  recovery of plan costs  through a tracker  mechanism.
MidAmerican  Energy and the Iowa Office of Consumer  Advocate  each appealed the
administrative  law judge's  ruling.  On July 17, 2003,  the IUB issued an order
affirming the  administrative  law judge's  decision.  Accordingly,  the IUB has
rejected  the future  application  of a tracker  mechanism  to recover  emission
reduction costs.  However,  the approved  expenditures  will not be subject to a
subsequent prudence review in a future electric rate case.

In recent years,  the EPA has requested from several  utilities  information and
support  regarding their capital  projects for various  generating  plants.  The
requests  were  issued  as  part of an  industry-wide  investigation  to  assess
compliance with the New Source Review and the New Source  Performance  Standards
of the Clean  Air Act.  In  December  2002 and April  2003,  MidAmerican  Energy
received requests from the EPA to provide  documentation  related to its capital
projects  from  January 1, 1980,  to the present for a number of its  generating
plants.  MidAmerican Energy has submitted information to the EPA in responses to
these  requests,  and there are currently no outstanding  data requests  pending
from the EPA. MidAmerican Energy cannot predict the outcome of these requests at
this time.

                                      -11-

<PAGE>
4.   RATE MATTERS

Under two settlement  agreements approved by the IUB,  MidAmerican Energy's Iowa
retail  electric  rates in effect on December 31, 2000, are  effectively  frozen
through  December 31, 2010. The  settlement  agreements  specifically  allow the
filing of electric  rate design  and/or cost of service  rate  changes  that are
intended to keep  MidAmerican  Energy's  overall  Iowa retail  electric  revenue
unchanged,  but could result in changes to individual  tariffs.  The  settlement
agreements  also each provide  that  portions of revenues  associated  with Iowa
retail electric  returns on equity within specified ranges will be recorded as a
regulatory  liability  to be  used  to  offset  a  portion  of the  cost to Iowa
customers of future generating plant investment.

Under the first settlement agreement,  which was approved by the IUB on December
21, 2001, and is effective  through December 31, 2005, an amount equal to 50% of
revenues  associated  with returns on equity  between 12% and 14%, and 83.33% of
revenues  associated  with returns on equity above 14%, in each year is recorded
as a regulatory liability.  The second settlement agreement,  which was filed as
part of MidAmerican  Energy's  application  for ratemaking  principles on a wind
power  project and was  approved by the IUB on October 17, 2003,  provides  that
during the period January 1, 2006 through  December 31, 2010, an amount equal to
40% of revenues associated with returns on equity between 11.75% and 13%, 50% of
revenues  associated  with  returns on equity  between 13% and 14%, and 83.3% of
revenues  associated  with  returns on equity  above  14%,  in each year will be
recorded as a regulatory liability.  An amount equal to the regulatory liability
is 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 reduced as it is credited against plant in service in amounts equal to the
allowance for funds used during  construction  associated with generating  plant
additions.  As of  September  30,  2003  and  December  31,  2002,  the  related
regulatory  liability  reflected on the  Consolidated  Balance Sheets was $123.6
million and $102.9 million, respectively.

In addition, the 2003 settlement agreement provides that if Iowa retail electric
returns  on equity  fall  below 10% in any  consecutive  12-month  period  after
January 1, 2006,  MidAmerican  Energy may seek to file for a general increase in
rates.  However,  prior to filing for a general  increase in rates,  MidAmerican
Energy is required by the settlement  agreement to conduct 30 days of good faith
negotiations with all of the signatories to the settlement  agreement to attempt
to avoid a general increase in rates.

Illinois law provides for Illinois  earnings above a computed level of return on
common equity to be shared equally between  regulated retail electric  customers
and MidAmerican Energy.  MidAmerican Energy's computed level of return on common
equity is based on a rolling two-year average of the Monthly Treasury  Long-Term
Average Rate, as published by the Federal Reserve System, plus a premium of 8.5%
for 2000  through  2004 and a premium of 12.5% for 2005 and 2006.  The  two-year
average  above  which  sharing  must  occur for 2003 is  13.73%.  The law allows
MidAmerican  Energy to  mitigate  the sharing of  earnings  above the  threshold
return on common equity through accelerated recovery of electric assets.

On November 8, 2002, the IUB approved a settlement  agreement  previously  filed
with it by  MidAmerican  Energy and the Iowa  Office of Consumer  Advocate.  The
settlement agreement provided for an increase in rates of $17.7 million annually
for MidAmerican Energy's Iowa retail natural gas customers and effectively froze
base rates through  November  2004.  However,  MidAmerican  Energy will continue
collecting  fluctuating  gas costs through its purchased gas adjustment  clause.
The new rates were implemented for usage beginning November 25, 2002.

5.   SEGMENT INFORMATION

MidAmerican  Energy has  identified  four  reportable  operating  segments based
principally on management structure.  The generation segment derives most of its
revenue from the sale of regulated and  nonregulated  wholesale  electricity and
natural gas. The energy delivery  segment derives its revenue  principally  from
the sale and delivery of regulated retail electricity and natural gas, while the
transmission  segment  obtains most of its revenue from the sale of 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 energy  delivery  and  transmission  segments and  substantially  all of the
generation  segment are  regulated as to rates,  and other  factors,  related to
services  to  external  customers.  For  internal  segment  reporting  purposes,
MidAmerican  Energy has developed  transfer prices for services provided between
the segments. MidAmerican Energy's external revenues by product and services are
displayed on the Consolidated Statements of Income.

The following tables provide  MidAmerican  Energy's operating  revenues,  income
before  income  taxes  and  total  assets  on an  operating  segment  basis  (in
thousands):
<TABLE>
<CAPTION>

                                               Three Months                  Nine Months
                                           Ended September 30,           Ended September 30,
                                        --------------------------    --------------------------
                                           2003           2002           2003           2002
                                        -----------    -----------    -----------    -----------
     <S>                                <C>            <C>            <C>            <C>
     Operating revenues:
       External revenues -
         Generation .................   $   127,730    $   130,338    $   393,438    $   353,262
         Energy delivery ............       400,954        399,572      1,345,689      1,178,692
         Transmission ...............         6,178          5,553         18,282         15,689
         Marketing & sales ..........        41,139         18,918        169,671         73,710
                                        -----------    -----------    -----------    -----------
           Total ....................       576,001        554,381      1,927,080      1,621,353
                                        -----------    -----------    -----------    -----------

       Intersegment revenues -
         Generation .................       216,625        228,964        495,669        521,291
         Transmission ...............        14,487         13,803         43,460         41,404
         Marketing & sales ..........         1,100          1,276          1,854          2,052
                                        -----------    -----------    -----------    -----------
           Total ....................       232,212        244,043        540,983        564,747

       Intersegment eliminations ....      (232,212)      (244,043)      (540,983)      (564,747)
                                        -----------    -----------    -----------    -----------
         Consolidated ...............   $   576,001    $   554,381    $ 1,927,080    $ 1,621,353
                                        ===========    ===========    ===========    ===========

     Income before income taxes:
       Generation ...................   $    97,299    $   104,454    $   160,259    $   145,627
       Energy delivery ..............         4,566          3,399         78,113         66,831
       Transmission .................        11,393         10,318         34,440         31,162
       Marketing & sales ............         2,480          2,040          4,171            819
                                        -----------    -----------    -----------    -----------
         Total ......................       115,738        120,211        276,983        244,439
       Preferred dividends ..........           327            327          1,091          2,605
                                        -----------    -----------    -----------    -----------
         Consolidated ...............   $   116,065    $   120,538    $   278,074    $   247,044
                                        ===========    ===========    ===========    ===========
</TABLE>
<TABLE>
<CAPTION>

                                                   As of
                                       ----------------------------
                                       September 30,   December 31,
                                            2003           2002
                                       -------------   ------------
     <S>                                <C>            <C>
     Total assets:
       Generation ...................   $ 1,419,142    $ 1,393,271
       Energy delivery ..............     2,306,012      2,224,238
       Transmission .................       228,624        222,051
       Marketing & sales ............        43,395         52,143
                                        -----------    -----------
         Total ......................     3,997,173      3,891,703
       Reclassifications and
         intersegment eliminations(a)       (75,405)       (79,824)
                                        -----------    -----------
       Consolidated .................   $ 3,921,768    $ 3,811,879
                                        ===========    ===========
</TABLE>

(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>

                         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 September 30, 2003, and the
related  consolidated  statements  of income  and  comprehensive  income for the
three-month  and  nine-month  periods ended  September 30, 2003 and 2002, and of
cash flows for the nine-month  periods ended September 30, 2003 and 2002.  These
interim financial statements are the responsibility of the Company's management.

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

We have  previously  audited,  in accordance with 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,  2002,  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
24, 2003, 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, 2002 is fairly  stated,  in all
material respects,  in relation to the consolidated  balance sheet from which it
has been derived.


/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP
Des Moines, Iowa
November 3, 2003

                                      -14-

<PAGE>

                            MIDAMERICAN FUNDING, LLC
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                     AS OF
                                                         ----------------------------
                                                         SEPTEMBER 30,   DECEMBER 31,
                                                             2003           2002
                                                         -------------   ------------
                                                                  (UNAUDITED)

                                     ASSETS
<S>                                                       <C>            <C>
UTILITY PLANT, NET
Electric ..............................................   $ 5,015,716    $ 4,731,002
Gas ...................................................       909,061        900,209
                                                          -----------    -----------
                                                            5,924,777      5,631,211
Accumulated depreciation and amortization .............    (3,185,004)    (3,011,123)
                                                          -----------    -----------
                                                            2,739,773      2,620,088
Construction work in progress .........................       127,755        205,988
                                                          -----------    -----------
                                                            2,867,528      2,826,076
                                                          -----------    -----------

CURRENT ASSETS
Cash and cash equivalents .............................       106,705         28,915
Receivables, net ......................................       246,486        321,698
Inventories ...........................................        85,044         88,492
Other .................................................        16,955         35,009
                                                          -----------    -----------
                                                              455,190        474,114
                                                          -----------    -----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ............       344,386        333,382
GOODWILL ..............................................     1,275,143      1,275,143
REGULATORY ASSETS .....................................       278,803        192,514
OTHER ASSETS ..........................................        37,253         52,755
                                                          -----------    -----------
TOTAL ASSETS ..........................................   $ 5,258,303    $ 5,153,984
                                                          ===========    ===========

                         CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Member's equity .......................................   $ 1,823,314    $ 1,867,119
MidAmerican Energy preferred securities ...............        31,759         31,759
Long-term debt, excluding current portion .............     1,785,417      1,647,691
                                                          -----------    -----------
                                                            3,640,490      3,546,569
                                                          -----------    -----------
CURRENT LIABILITIES
Notes payable .........................................             -         55,000
Note payable to affiliate .............................        31,200              -
Current portion of long-term debt .....................        56,771        105,727
Accounts payable ......................................       156,613        242,733
Taxes accrued .........................................       111,526         85,987
Interest accrued ......................................        20,370         25,487
Other .................................................        73,604         56,291
                                                          -----------    -----------
                                                              450,084        571,225
                                                          -----------    -----------
OTHER LIABILITIES
Deferred income taxes .................................       464,589        461,862
Investment tax credits ................................        53,605         56,886
Asset retirement obligations ..........................       287,097        159,757
Regulatory liabilities ................................       131,054        118,011
Other .................................................       231,384        239,674
                                                          -----------    -----------
                                                            1,167,729      1,036,190
                                                          -----------    -----------
TOTAL CAPITALIZATION AND LIABILITIES ..................   $ 5,258,303    $ 5,153,984
                                                          ===========    ===========
</TABLE>

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

                                      -15-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (In thousands)
<TABLE>
<CAPTION>

                                                     THREE MONTHS                  NINE MONTHS
                                                  ENDED SEPTEMBER 30,          ENDED SEPTEMBER 30,
                                                ------------------------    --------------------------
                                                   2003         2002           2003           2002
                                                ---------    -----------    -----------    -----------
                                                                    (UNAUDITED)
<S>                                             <C>          <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ..........................   $ 422,565    $   419,542    $ 1,066,794    $ 1,052,130
Regulated gas ...............................     110,882         96,163        679,736        442,290
Nonregulated ................................      43,834         40,579        183,107        130,755
                                                ---------    -----------    -----------    -----------
                                                  577,281        556,284      1,929,637      1,625,175
                                                ---------    -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity .........     123,261        110,590        294,133        255,907
  Cost of gas sold ..........................      76,125         61,907        517,399        297,226
  Other operating expenses ..................      91,157         93,810        263,026        300,001
  Maintenance ...............................      37,946         30,002        103,675         90,698
  Depreciation and amortization .............      56,260         66,451        202,542        207,120
  Property and other taxes ..................      19,693         19,640         59,623         56,229
                                                ---------    -----------    -----------    -----------
                                                  404,442        382,400      1,440,398      1,207,181
                                                ---------    -----------    -----------    -----------
Nonregulated:
  Cost of sales .............................      36,381         32,487        157,277        106,622
  Other .....................................       5,752          7,594         15,909         21,373
                                                ---------    -----------    -----------    -----------
                                                   42,133         40,081        173,186        127,995
                                                ---------    -----------    -----------    -----------
  Total operating expenses ..................     446,575        422,481      1,613,584      1,335,176
                                                ---------    -----------    -----------    -----------

OPERATING INCOME ............................     130,706        133,803        316,053        289,999
                                                ---------    -----------    -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ................         667          9,004          3,132         17,761
Marketable securities gains and (losses), net           3         (1,697)           204         (5,221)
Other income ................................       4,294          6,916         16,103         19,758
Other expense ...............................      (1,178)        (9,229)        (4,386)       (14,243)
                                                ---------    -----------    -----------    -----------
                                                    3,786          4,994         15,053         18,055
                                                ---------    -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ..................      29,653         30,230         89,786         89,052
Other interest expense ......................         993            886          3,031          2,598
Preferred dividends of subsidiaries .........         327            327          1,091          4,179
Allowance for borrowed funds ................        (838)          (895)        (3,521)        (2,160)
                                                ---------    -----------    -----------    -----------
                                                   30,135         30,548         90,387         93,669
                                                ---------    -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ..................     104,357        108,249        240,719        214,385
INCOME TAXES ................................      46,913         44,702        106,629         89,705
                                                ---------    -----------    -----------    -----------
NET INCOME ..................................   $  57,444    $    63,547    $   134,090    $   124,680
                                                =========    ===========    ===========    ===========
</TABLE>

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

                                      -16-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                  THREE MONTHS             NINE MONTHS
                                                               ENDED SEPTEMBER 30,      ENDED SEPTEMBER 30,
                                                              --------------------    ----------------------
                                                                2003        2002        2003         2002
                                                              --------    --------    ---------    ---------
                                                                              (UNAUDITED)
<S>                                                           <C>         <C>         <C>          <C>

NET INCOME ................................................   $ 57,444    $ 63,547    $ 134,090    $ 124,680
                                                              --------    --------    ---------    ---------

OTHER COMPREHENSIVE LOSS
Unrealized gains (losses) on available-for-sale securities:
  Unrealized holding gains (losses) during period-
    Before income taxes ...................................        242      (1,009)         378       (9,623)
    Income tax (expense) benefit ..........................        (85)        353         (133)       3,368
                                                              --------    --------    ---------    ---------
                                                                   157        (656)         245       (6,255)
                                                              --------    --------    ---------    ---------
  Less realized gains (losses) reflected in
   net income during period-
    Before income taxes ...................................          -      (1,812)          71       (4,743)
    Income tax (expense) benefit ..........................          -         634          (25)       1,660
                                                              --------    --------    ---------    ---------
                                                                     -      (1,178)          46       (3,083)
                                                              --------    --------    ---------    ---------
      Net unrealized gains (losses) .......................        157         522          199       (3,172)
                                                              --------    --------    ---------    ---------

Unrealized gains (losses) on cash flow hedges:
  Unrealized gains (losses) during period-
    Before income taxes ...................................     (4,746)     (1,665)       6,889       (3,869)
    Income tax (expense) benefit ..........................      1,973         692       (2,864)       1,608
                                                              --------    --------    ---------    ---------
                                                                (2,773)       (973)       4,025       (2,261)
                                                              --------    --------    ---------    ---------
  Less realized gains (losses) reflected in
   net income during period-
    Before income taxes ...................................      3,620       1,197       16,463          817
    Income tax (expense) benefit ..........................     (1,505)       (498)      (6,844)        (340)
                                                              --------    --------    ---------    ---------
                                                                 2,115         699        9,619          477
                                                              --------    --------    ---------    ---------
      Net unrealized losses ...............................     (4,888)     (1,672)      (5,594)      (2,738)
                                                              --------    --------    ---------    ---------

Other comprehensive loss ..................................     (4,731)     (1,150)      (5,395)      (5,910)
                                                              --------    --------    ---------    ---------

COMPREHENSIVE INCOME ......................................   $ 52,713    $ 62,397    $ 128,695    $ 118,770
                                                              ========    ========    =========    =========
</TABLE>


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

                                      -17-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                             NINE MONTHS
                                                                          ENDED SEPTEMBER 30,
                                                                          2003          2002
                                                                        ---------    ---------
                                                                              (UNAUDITED)

<S>                                                                     <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ..........................................................   $ 134,090    $ 124,680
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization .....................................     203,550      208,725
  Deferred income taxes and investment tax credit, net ..............       3,134          333
  Amortization of other assets and liabilities ......................      15,930       26,165
  Loss from impairment of assets and investments ....................       2,069        4,363
  Gain on sale of securities, assets and other investments ..........        (151)      (3,458)
  Income on equity investments ......................................      (1,753)      (1,916)
  Power purchase contract restructuring receipt .....................           -       39,100
  Cash outflows of accounts receivable securitization ...............           -       (8,000)
  Impact of changes in working capital ..............................      59,061      (49,069)
  Other, net ........................................................      (8,221)      19,129
                                                                        ---------    ---------
    Net cash provided by operating activities .......................     407,709      360,052
                                                                        ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ...................................    (226,726)    (228,771)
Less non-cash and change in accrued utility construction expenditures       5,855        4,146
Quad Cities Station decommissioning trust fund ......................      (6,224)      (6,224)
Nonregulated capital expenditures ...................................      (1,806)        (990)
Proceeds from sale of assets and other investments ..................         326       11,520
Notes receivable from affiliate .....................................           -       34,164
Other investing activities, net .....................................      10,409        6,995
                                                                        ---------    ---------
  Net cash used in investing activities .............................    (218,166)    (179,160)
                                                                        ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid ...............................................    (172,500)     (77,500)
Issuance of long-term debt, net .....................................     272,550      391,147
Retirement of long-term debt, including reacquisition cost ..........    (188,003)    (163,845)
Reacquisition of preferred securities ...............................           -     (126,680)
Note payable to affiliate ...........................................      31,200            -
Net decrease in notes payable .......................................     (55,000)     (91,780)
                                                                        ---------    ---------
  Net cash used in financing activities .............................    (111,753)     (68,658)
                                                                        ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ...........................      77,790      112,234
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................      28,915       20,270
                                                                        ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..........................   $ 106,705    $ 132,504
                                                                        =========    =========

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid, net of amounts capitalized ...........................   $  90,003    $  92,784
                                                                        =========    =========
Income taxes paid, net ..............................................   $  60,666    $  57,384
                                                                        =========    =========
</TABLE>

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

                                      -18-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   GENERAL

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

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").  MHC, MidAmerican Funding and MidAmerican Energy
Holdings  Company are exempt public utility holding  companies  headquartered in
Des Moines,  Iowa. MHC's principal  subsidiary is MidAmerican  Energy Company, a
public utility with electric and natural gas  operations.  Other direct,  wholly
owned subsidiaries of MHC include  InterCoast Capital Company  (previously named
MidAmerican Capital Company),  Midwest Capital Group, Inc., MidAmerican Services
Company and MEC Construction Services Co.

2.   NEW ACCOUNTING PRONOUNCEMENTS

Refer  to  Note  2 of  MidAmerican  Energy's  Notes  to  Consolidated  Financial
Statements  for  information  regarding  MidAmerican  Funding's  new  accounting
pronouncements.

3.   ENVIRONMENTAL MATTERS

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

4.   RATE MATTERS

Refer  to  Note  4 of  MidAmerican  Energy's  Notes  to  Consolidated  Financial
Statements for information regarding MidAmerican Funding's rate matters.

5.   SEGMENT INFORMATION

MidAmerican  Funding has identified  four  reportable  operating  segments based
principally on management structure.  The generation segment derives most of its
revenue from the sale of regulated and  nonregulated  wholesale  electricity and
natural gas. The energy delivery  segment derives its revenue  principally  from
the sale and delivery of regulated retail electricity and natural gas, while the
transmission  segment  obtains most of its revenue from the sale of 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,  except for
interest in MidAmerican Funding parent debt.

                                      -19-

<PAGE>

The energy  delivery  and  transmission  segments and  substantially  all of the
generation  segment are  regulated as to rates,  and other  factors,  related to
services  to  external  customers.  For  internal  segment  reporting  purposes,
MidAmerican  Energy has developed  transfer prices for services provided between
the segments.  MidAmerican  Funding's  external revenues by product and services
are displayed on the Consolidated Statements of Income.

The following tables provide MidAmerican  Funding's  operating revenues,  income
before  income  taxes  and  total  assets  on an  operating  segment  basis  (in
thousands):

<TABLE>
<CAPTION>

                                              Three Months                 Nine Months
                                           Ended September 30,         Ended September 30,
                                         ----------------------    --------------------------
                                            2003         2002         2003           2002
                                         ---------    ---------    -----------    -----------
     <S>                                 <C>          <C>          <C>            <C>
     Operating revenues:
       External revenues -
         Generation ..................   $ 127,730    $ 130,338    $   393,438    $   353,262
         Energy delivery .............     400,954      399,572      1,345,689      1,178,692
         Transmission ................       6,178        5,553         18,282         15,689
         Marketing & sales ...........      41,139       18,918        169,671         73,710
         Other .......................       1,280        1,903          2,557          3,822
                                         ---------    ---------    -----------    -----------
           Total .....................     577,281      556,284      1,929,637      1,625,175
                                         ---------    ---------    -----------    -----------

       Intersegment revenues -
         Generation ..................     216,625      228,964        495,669        521,291
         Transmission ................      14,487       13,803         43,460         41,404
         Marketing & sales ...........       1,100        1,276          1,854          2,052
                                         ---------    ---------    -----------    -----------
           Total .....................     232,212      244,043        540,983        564,747

       Intersegment eliminations .....    (232,212)    (244,043)      (540,983)      (564,747)
                                         ---------    ---------    -----------    -----------
         Consolidated ................   $ 577,281    $ 556,284    $ 1,929,637    $ 1,625,175
                                         =========    =========    ===========    ===========

     Income before income taxes:
       Generation ....................   $  97,299    $ 104,454    $   160,259    $   145,627
       Energy delivery ...............       4,566        3,399         78,113         66,831
       Transmission ..................      11,393       10,318         34,440         31,162
       Marketing & sales .............       2,480        2,040          4,171            819
       Other .........................     (11,381)     (11,962)       (36,264)       (30,054)
                                         ---------    ---------    -----------    -----------
         Total .......................   $ 104,357    $ 108,249    $   240,719    $   214,385
                                         =========    =========    ===========    ===========
</TABLE>

                                                    As of
                                        ----------------------------
                                        September 30,   December 31,
                                            2003           2002
                                        -------------   ------------
     Total assets (a):
       Generation ....................   $ 2,346,961    $ 2,321,090
       Energy delivery ...............     2,569,164      2,487,390
       Transmission ..................       312,796        306,223
       Marketing & sales .............        43,395         52,143
       Other .........................       208,554        179,141
                                         -----------    -----------
       Total .........................     5,480,870      5,345,987
       Reclassifications and
         intersegment eliminations(b)       (222,567)      (192,003)
                                         -----------    -----------
       Consolidated ..................   $ 5,258,303    $ 5,153,984
                                         ===========    ===========

       (a)  Total assets by operating segment reflect the assignment of goodwill
            to  applicable  reporting  units in  accordance  with SFAS No.  142,
            "Goodwill and Other Intangible Assets."

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

                                      -20-
<PAGE>

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

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

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

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

FORWARD-LOOKING STATEMENTS

From time to time, MidAmerican Funding, or one of its subsidiaries individually,
including  MidAmerican  Energy, may make  forward-looking  statements within the
meaning of the federal securities laws that involve  judgments,  assumptions and
other  uncertainties  beyond the  control of  MidAmerican  Funding or any of its
subsidiaries  individually.  These forward-looking statements may include, among
others,  statements  concerning  revenue and cost trends,  cost  recovery,  cost
reduction strategies and anticipated  outcomes,  pricing strategies,  changes in
the  utility  industry,  planned  capital  expenditures,   financing  needs  and
availability,  statements of MidAmerican Funding's expectations, beliefs, future
plans  and  strategies,  anticipated  events  or  trends  and  similar  comments
concerning  matters that are not historical facts. These 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 volumes and  revenues,  fuel
prices,  fuel  transportation  and other  operating  uncertainties,  acquisition
uncertainty,  uncertainties  relating to economic and political  conditions  and
uncertainties regarding the impact of regulations, changes in government policy,
utility industry deregulation and competition.  Neither MidAmerican Funding, nor
any one of its subsidiaries  individually,  assumes any responsibility to update
forward-looking information contained herein.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

MidAmerican Energy's and MidAmerican Funding's  significant  accounting policies
are described in their  respective Note (1) of Notes to  Consolidated  Financial
Statements in Item 15 of their most  recently  filed Annual Report on Form 10-K.
For a  discussion  of their  critical  accounting  policies and  estimates,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in their most recently filed Annual Report on Form 10-K.

NEW ACCOUNTING PRONOUNCEMENT

In January 2003,  MidAmerican  Energy adopted Statement of Financial  Accounting
Standards ("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.
Concurrent with the recognition of the liability, the estimated cost of an asset
retirement  obligation is capitalized and depreciated over the remaining life of
the asset.

                                      -21-
<PAGE>

On  January  1,  2003,  MidAmerican  Energy  recorded  $275.2  million  of asset
retirement  obligation  ("ARO")  liabilities;  $12.6 million of  associated  ARO
assets,  net of accumulated  depreciation;  $101.8 million of regulatory assets;
and reclassified  $1.0 million of accumulated  depreciation to the ARO liability
in conjunction  with adoption of SFAS No. 143.  Adoption of SFAS No. 143 did not
impact net income. The initial ARO liability  recognized includes $266.5 million
that pertains to obligations  associated  with the  decommissioning  of the Quad
Cities   Station.   The  $266.5  million   includes  a  $159.8  million  nuclear
decommissioning  liability that had been recorded as of December 31, 2002. As of
September  30,  2003,  $175.2  million of assets  reflected in  Investments  and
Nonregulated  Property, Net on the Consolidated Balance Sheet are restricted for
satisfying the Quad Cities Station obligation.

The change in the balance of the ARO  liability  during the first nine months of
2003 is summarized as follows (in thousands):

           Balance January 1, 2003.......................... $275,228
           Capitalized accretion............................   11,869
                                                             --------
           Balance September 30, 2003....................... $287,097
                                                             ========

Accretion on the ARO liability is capitalized as a regulatory asset. In addition
to the ARO liabilities  recognized on January 1, MidAmerican  Energy has accrued
for the cost of removing other electric and gas assets through its  depreciation
rates, in accordance  with accepted  regulatory  practices.  As of September 30,
2003, the estimated amount of such accruals included in accumulated depreciation
was approximately $413 million based on the cost of removal component in current
depreciation rates.

On April 30, 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 149,  "Amendment  of Statement  133 on  Derivative  Instruments  and Hedging
Activities."  SFAS No.  149  amends  SFAS No.  133 for  derivative  instruments,
including  certain  derivative  instruments  embedded in other contracts and for
hedging   activities.   SFAS  No.  149  also  amends   certain  other   existing
pronouncements  and requires  contracts with  comparable  characteristics  to be
accounted for similarly.  In particular,  SFAS No. 149 clarifies when a contract
with an initial net investment meets the characteristic of a derivative and when
a derivative that contains a financing  component will require special reporting
in the  statement  of cash flows.  SFAS No. 149 was  effective  for  MidAmerican
Energy and MidAmerican Funding for contracts entered into or modified after June
30, 2003. Adoption of SFAS No. 149 did not have a material effect on the results
of  operations,  financial  position  or cash  flows of  MidAmerican  Energy and
MidAmerican Funding.

In May 2003,  the FASB issued SFAS No. 150,  "Accounting  for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity." SFAS No. 150
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires that an issuer  classify a financial  instrument that is within
its scope as a liability (or an asset in some  circumstances).  SFAS No. 150 was
effective  for  MidAmerican   Funding  and  MidAmerican   Energy  for  financial
instruments  entered into or modified  after May 31,  2003,  and  otherwise  was
effective at the beginning of the third quarter of 2003. MidAmerican Funding and
MidAmerican Energy do not currently have financial  instruments within the scope
of SFAS No. 150.

                                      -22-

<PAGE>

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

Regulated Electric Gross Margin
-------------------------------

                                                       Three Months
                                                    Ended September 30,
                                                    -------------------
                                                     2003         2002
                                                    ------       ------
                                                       (In millions)
         Operating revenues .....................   $422.6       $419.5
         Less cost of fuel, energy and capacity..    123.3        110.6
                                                    ------       ------
           Electric gross margin ................   $299.3       $308.9
                                                    ======       ======

Electric  gross  margin for the third  quarter of 2003  decreased  $9.6  million
compared to the third quarter of 2002.

Effective  August 1, 2002,  MidAmerican  Energy and the  Nebraska  Public  Power
District  ("NPPD")  restructured  their  contract  for Cooper  Nuclear  Station.
Accordingly,  MidAmerican  Energy's costs for energy and capacity purchased from
Cooper  Nuclear  Station are now  classified  differently  on the  statement  of
income.  As a  result,  electric  gross  margin  for the third  quarter  of 2003
decreased  by $3.5  million  compared  to the third  quarter  of 2002 due to the
change in classification of the related costs. Prior to August 1, 2002, only the
fuel costs for energy purchased from Cooper Nuclear Station were classified as a
cost of  fuel,  energy  and  capacity.  Other  costs  under  the  contract  were
classified as other operating expenses.  Following the restructuring,  all costs
for  energy  and  capacity   purchased  under  that  contract  are  included  in
MidAmerican Energy's cost of fuel, energy and capacity,  as with other purchased
power costs.  Other  operating  expenses  decreased  accordingly.  Refer to Note
(1)(h) of Notes to Consolidated  Financial  Statements in Item 15 of MidAmerican
Energy's most recently  filed Annual Report on Form 10-K for a discussion of the
contract restructuring.

Temperature  conditions during the third quarter of 2003 were milder than in the
third quarter of 2002,  resulting in  approximately  a $4.2 million  decrease in
electric  margin.  Electricity  usage and rate factors not  dependent on weather
decreased electric margin by $3.3 million compared to the third quarter of 2002.
In total,  retail  electric  sales volumes  decreased  0.7% for the three months
ended September 30, 2003.

Higher fuel costs related to Iowa retail electric sales, excluding the impact of
restructuring the Cooper Nuclear Station contract,  decreased electric margin by
$6.9 million relative to the third quarter of 2002.

MidAmerican  Energy  sells and  purchases  electric  capacity  in the  wholesale
market.  The net margin from those sales and  purchases  increased  $5.1 million
compared to the third quarter of 2002. In addition to increased  capacity  sales
margins,  the gross margin on electric  wholesale  energy sales  increased  $2.8
million for the third  quarter of 2003 due to an  increase in prices,  partially
offset by a decrease in sales  volumes,  compared to the third  quarter of 2002.
Wholesale sales are the sales of energy to other utilities,  municipalities  and
marketers inside and outside of MidAmerican Energy's delivery system.

Regulated Gas Gross Margin
--------------------------

                                               Three Months
                                            Ended September 30,
                                            -------------------
                                             2003         2002
                                            ------       ------
                                              (In millions)
            Operating revenues ..........   $110.9       $ 96.2
            Less cost of gas sold........     76.1         61.9
                                            ------       ------
              Gas gross margin ..........   $ 34.8       $ 34.3
                                            ======       ======

Regulated gas revenues  include  purchased gas adjustment  clauses through which
MidAmerican  Energy is allowed  to recover  the cost of gas sold from its retail
gas utility customers. Consequently, fluctuations in the cost of gas

                                      -23-
<PAGE>

sold  do  not  affect  gross  margin  or net  income  because  revenues  reflect
comparable  fluctuations from purchased gas adjustment clauses. A 51.3% increase
in the average  per-unit cost of gas for the three-month  period ended September
30, 2003,  compared to the same period in 2002,  increased  revenues and cost of
gas sold.

Gas margin for the three months ended September 30, 2003, increased $0.5 million
compared to the three months ended  September  30,  2002.  Retail sales  volumes
increased 9.4% compared to the third quarter of 2002.

Increases in retail gas rates that took effect  subsequent  to the third quarter
of 2002  improved  gas margin by $1.3 million  compared to the third  quarter of
2002. On November 8, 2002, the Iowa Utilities Board ("IUB")  approved a proposed
settlement  agreement previously filed by MidAmerican Energy and the Iowa Office
of Consumer Advocate that provided for a final increase, implemented on November
25, 2002, of $17.7 million annually for MidAmerican Energy's Iowa retail natural
gas customers.  On September 11, 2002, MidAmerican Energy received a final order
from the Illinois Commerce Commission to increase its Illinois natural gas rates
by $2.2 million  annually and implemented the rates on September 18, 2002. Refer
to the  "Rate  Matters"  section  of MD&A  for  comments  on the  Iowa  gas rate
settlement.

Additionally,  gas gross margin decreased  compared to the third quarter of 2002
due to a  $1.1  million  decrease  in  revenues  from  the  recovery  of  energy
efficiency  costs.  Changes in these  revenues  are  substantially  matched with
corresponding changes in other operating expenses.

Regulated Operating Expenses
----------------------------

Regulated other operating  expenses for the third quarter of 2003 decreased $2.7
million  compared  to the third  quarter  of 2002.  Effective  August  1,  2002,
MidAmerican  Energy and NPPD  restructured  their  contract  for Cooper  Nuclear
Station. Prior to August 1, 2002, costs under the contract other than fuel costs
for energy purchased were classified as other operating expenses.  Following the
restructuring,  all costs for energy and capacity  purchased under that contract
are included in MidAmerican Energy's cost of fuel, energy and capacity,  as with
other  purchased  power.  As a result,  other  operating  expenses for the third
quarter of 2003 decreased by $9.6 million compared to the third quarter of 2002.

The  decrease in other  operating  expenses  due to Cooper  Nuclear  Station was
partially  offset by increases  totaling $3.6 million  related to employee costs
for compensation and health care and $2.9 million for electric  distribution and
transmission operations.

Maintenance  expenses  increased  $7.9 million  compared to the third quarter of
2002 due  primarily  to a $4.9 million  increase  from the timing of fossil fuel
generation  maintenance compared to the third quarter of 2002, as well as a $1.4
million  increase in general plant  maintenance  and a $1.0 million  increase in
Quad Cities Station maintenance costs.

Depreciation  and amortization  expense  decreased $10.2 million compared to the
three  months  ended  September  30,  2003,  due  principally  to  decreases  in
regulatory expense related to revenue sharing arrangements in Iowa and Illinois.
Refer  to the  "Legislative  and  Utility  Regulatory  Matters"  section  for an
explanation of these revenue sharing arrangements.

Interest and Dividend Income
----------------------------

MidAmerican Energy -

The  decrease in interest  and  dividend  income was due  principally  to a $1.3
million decrease in interest income on a note receivable  related to MidAmerican
Energy's  accounts  receivable  sales  arrangement,  which terminated in October
2002.

                                      -24-

<PAGE>

MidAmerican Funding -

Interest income for  MidAmerican  Funding for the third quarter of 2002 includes
$5.0 million from the settlement of an investment in a  communications  company.
Interest income related to notes  receivable with  MidAmerican  Funding's parent
company  decreased $1.3 million  compared to the third quarter of 2002. The note
receivable balances have been zero throughout 2003.

Marketable Securities Gains and Losses, Net
-------------------------------------------

MidAmerican Funding -

In the third quarter of 2002,  MidAmerican  Funding recorded a $1.4 million loss
for  other-than-temporary   declines  in  its  available-for-sale  common  stock
investments.

Other Income and Other Expense
------------------------------

MidAmerican Energy -

MidAmerican  Energy's  other income  includes  net earnings  related to the cash
surrender  value  of  corporate-owned  life  insurance.   Related  net  earnings
increased $1.5 million to $0.8 million for the third quarter of 2003 compared to
the third quarter of 2002.

As a regulated public utility,  MidAmerican Energy is allowed to capitalize, and
record as  income,  a cost of  construction  for  equity  funds  used,  based on
guidelines set forth by the Federal Energy Regulatory Commission ("FERC"). Other
income for the  capitalized  allowance on equity funds used during  construction
totaled $2.2 million in each of the third quarters of 2003 and 2002. MidAmerican
Energy  anticipates  recording  income for the  allowance  on equity  funds used
during  construction over the next several years while the announced  generating
plants are constructed.

Additionally, other income for the third quarter of 2002 reflects a $0.9 million
gain from the sale of utility property.

Other expense includes a discount on MidAmerican  Energy's  accounts  receivable
sold to  MidAmerican  Energy Funding  Corporation.  The discount was designed to
cover the expenses of MidAmerican Energy Funding Corporation, including bad debt
expense,  subservicer  fees,  monthly  administrative  costs and  interest.  The
discount was recorded in other  expense  because it is not  reflected in utility
cost of service for regulatory  purposes.  The discount totaled $2.2 million for
the third quarter of 2002. The related arrangement terminated in October 2002.

MidAmerican Funding -

Other income for the third  quarter of 2002  includes a $2.6 million gain on the
sale of an investment in a communications company.

Other expense for the third quarter of 2002 reflects a $5.1 million loss for the
impairment of an equity method  investment and losses totaling $1.5 million from
impairments on three venture capital fund investments.

Fixed Charges and Preferred Dividends
-------------------------------------

The  decrease  in  interest  on  long-term  debt was due to the  effect  of debt
maturities  in 2002 and 2003 offset  partially  by  interest on $275  million of
MidAmerican Energy notes issued in January 2003.

                                      -25-
<PAGE>

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002

Regulated Electric Gross Margin
-------------------------------

                                                        Nine Months
                                                    Ended September 30,
                                                   --------------------
                                                     2003        2002
                                                   --------    --------
                                                      (In millions)
        Operating revenues .....................   $1,066.8    $1,052.1
        Less cost of fuel, energy and capacity..      294.1       255.9
                                                   --------    --------
          Electric gross margin ................   $  772.7    $  796.2
                                                   ========    ========

Electric gross margin for the first nine months of 2003 decreased  $23.5 million
compared to the first nine months of 2002.

Electric  gross  margin for the first  nine  months of 2003  decreased  by $21.5
million  compared  to the  first  nine  months  of  2002  due to the  change  in
classification  of costs  related to  MidAmerican  Energy's  contract for Cooper
Nuclear  Station.  Refer to the  "Regulated  Electric  Gross Margin"  section in
three-month  results of operations  discussion above for additional  information
regarding this change.

The  effect of  temperature  conditions  during  the first  nine  months of 2003
compared to the first nine  months of 2002,  resulted  in  approximately  a $6.0
million  decrease in electric  margin.  Electricity  usage and rate  factors not
dependent on weather  decreased  electric margin by $4.1 million compared to the
first  nine  months of 2002.  In  total,  retail  electric  sales  volumes  were
relatively unchanged for the nine months ended September 30, 2003.

Lower  fuel  costs for Iowa  retail  electric  sales,  excluding  the  impact of
restructuring the Cooper Nuclear Station contract,  increased electric margin by
$3.0 million  relative to first nine months of 2002.  The decrease in fuel costs
for Iowa  electric  retail sales  includes the Iowa portion of $10.9  million of
cost recovery  recognized in the second  quarter of 2003 related to  MidAmerican
Energy's coal purchase  contract with Enron Corp.  ("Enron").  In November 2001,
MidAmerican  Energy  received  collateral  from  Enron for costs to  MidAmerican
Energy  related to the coal  purchase  contract  as a result of a  downgrade  in
Enron's credit ratings in 2001.  MidAmerican Energy deferred  recognition of the
value of the collateral at that time,  pending  resolution of related bankruptcy
proceedings.  MidAmerican  Energy  and  Enron  agreed on a  settlement  of their
bankruptcy claims,  including the coal purchase contract, and received the final
required approval in June 2003.  Accordingly,  MidAmerican Energy recognized the
reduced costs  associated  with the  collateral  for the  settlement of the coal
purchase contract.  The decrease in fuel costs due to the coal purchase contract
with Enron was  partially  offset by the Iowa portion of $5.1 million of expense
related  to  the  write-off  of the  remaining  value  of  failed  nuclear  fuel
assemblies at Quad Cities Station.

Electric revenues from the recovery of energy efficiency program costs increased
$1.1  million  compared  to the  first  nine  months of 2002.  Changes  in these
revenues are substantially matched with corresponding changes in other operating
expenses.

MidAmerican  Energy's gross margin on electric  wholesale  sales  increased $3.1
million for the first nine  months of 2003  compared to the first nine months of
2002 due to an  increase  in prices,  partially  offset by a  decrease  in sales
volumes.

                                      -26-
<PAGE>

Regulated Gas Gross Margin
--------------------------

                                               Nine Months
                                           Ended September 30,
                                           -------------------
                                            2003         2002
                                           ------       ------
                                              (In millions)
            Operating revenues .........   $679.7       $442.3
            Less cost of gas sold.......    517.4        297.2
                                           ------       ------
              Gas gross margin .........   $162.3       $145.1
                                           ======       ======

Regulated gas revenues  include  purchased gas adjustment  clauses through which
MidAmerican  Energy is allowed  to recover  the cost of gas sold from its retail
gas utility customers. An 83.9% increase in the average per-unit cost of gas for
the nine-month  period ended September 30, 2003,  compared to the same period in
2002, increased revenues and cost of gas sold.

Gas gross margin for the nine months ended  September 30, 2003,  increased $17.2
million compared to the nine months ended September 30, 2002.

Increases in retail gas rates that largely took effect  subsequent to the second
quarter of 2002 improved gas margin by $12.6 million  compared to the first nine
months of 2002. In addition to the rate increases  discussed in the  three-month
"Regulated Gas Gross Margin" section,  on June 12, 2002, the IUB issued an order
granting an interim  rate  increase of  approximately  $13.8  million  annually,
effective  immediately.  Also,  on February  20, 2002,  the South Dakota  Public
Utilities  Commission approved a settlement agreement allowing increased natural
gas rates of $3.1 million annually, effective immediately.

The effect of colder  temperature  conditions  during the first  quarter of 2003
compared  to the same  quarter  in 2002 was  partially  offset by the  effect of
milder  temperature  conditions  in the second  quarter of 2003  compared to the
second quarter of 2002. Accordingly,  gas gross margin for the first nine months
of 2003 increased  approximately  $6.8 million compared to the first nine months
of 2002. A $2.2 million loss on a weather  hedge  partially  offset the increase
due to  temperature  conditions.  Other usage  factors not  dependent on weather
decreased gas margin by $5.2 million  compared to the first nine months of 2002.
Total natural gas retail sales volumes increased 8.9%.

Gas gross  margin  increased  compared to the first nine months of 2002 due to a
$2.0 million  increase in revenues from the recovery of energy  efficiency costs
and a $2.7 million increase in revenues from gas transported.

Regulated Operating Expenses
----------------------------

Regulated other  operating  expenses for the first nine months of 2003 decreased
$37.0  million  compared to the first nine months of 2002 due to a $57.8 million
decrease in costs related to Cooper  Nuclear  Station.  Cooper  Nuclear  Station
costs are now  classified  differently on the statement of income as a result of
the restructuring of the related contract.  Refer to the three-month  discussion
of regulated  operating expenses for additional comments on the restructuring of
the contract.

The decrease in other operating expenses due to Cooper Nuclear Station costs was
partially  offset by increases  totaling $14.3 million related to employee costs
for compensation, health care costs, and pension and other postretirement costs;
and by a $3.4 million increase in electric distribution costs and a $3.0 million
increase in energy efficiency program costs.

Maintenance  expenses  increased $13.0 million compared to the first nine months
of 2002 due  principally  to a $6.1 million  increase in fossil fuel  generation
maintenance  and a $3.2  million  increase in  maintenance  costs at Quad Cities
Station.

Depreciation  and  amortization  expense  decreased $4.6 million compared to the
first nine months of 2002 due to a $14.0 million decrease in regulatory  expense
related to the Iowa revenue  sharing  arrangement.  The  decrease was

                                      -27-
<PAGE>

partially offset by increases in utility plant  depreciation and in amortization
related to an Illinois revenue sharing arrangement.  Additionally,  amortization
for the first nine months of 2002  includes a gain related to the  restructuring
of the Cooper Nuclear Station  contract in 2002.  Refer to the  "Legislative and
Utility Regulatory  Matters" section for an explanation of these revenue sharing
arrangements.

Property and other taxes  increased $3.4 million due primarily to an increase in
property  taxes as a result  of  higher  levels  of  electricity  generated  and
delivered  during the measurement  period.  Iowa law provides for property taxes
for electric and gas utilities to be based predominantly on energy consumption.

Nonregulated Operating Revenues and Operating Expenses
------------------------------------------------------

                                                        Nine Months
                                                    Ended September 30,
                                                    -------------------
                                                      2003      2002
                                                     ------    ------
                                                        (In millions)
           MidAmerican Energy -
             Nonregulated operating revenues ....    $180.6    $126.9
             Less nonregulated cost of sales ....     156.8     105.8
                                                     ------    ------
             Nonregulated gross margin ..........    $ 23.8    $ 21.1
                                                     ======    ======

           MidAmerican Funding Consolidated -
             Nonregulated operating revenues ....    $183.1    $130.8
             Less nonregulated cost of sales ....     157.3     106.6
                                                     ------    ------
             Nonregulated gross margin ..........    $ 25.8    $ 24.2
                                                     ======    ======

MidAmerican Energy -

All gains and losses on MidAmerican  Energy's  energy trading  contracts are now
reported net on the statement of income in accordance  with Emerging Issues Task
Force ("EITF") Issue No. 02-3.  MidAmerican Energy's nonregulated  wholesale gas
and electric  marketing  activities  qualify as "energy trading" contracts under
the guidance of EITF Issue No. 02-3.

MidAmerican Energy's nonregulated gross margin for the first nine months of 2003
increased $2.7 million compared to the first nine months of 2002.

Nonregulated  revenues and cost of sales consist  substantially  of nonregulated
retail natural gas marketing  operations.  Gross margin for MidAmerican Energy's
nonregulated retail natural gas operations  increased $1.6 million for the first
nine months of 2003.  The  improvement  in gross  margin  reflects  increases in
margin per unit sold and in sales volumes.  An increase in related  revenues was
due  principally  to an  increase  in the  average  price per unit  sold,  which
reflects a 57.5%  increase in the  average  cost of gas and  accounts  for $43.7
million of the increase in nonregulated retail natural gas revenues.

Electric  retail  customers  in  Illinois,  except for those  served by electric
cooperatives  and  municipalities,  are allowed to select their  electric  power
supplier. Related revenues increased $4.9 million to $48.4 million for the first
nine months of 2003 while cost of sales increased $3.8 million to $39.7 million.

Additionally,  nonregulated  revenues  include income from sharing  arrangements
under regulated natural gas tariffs. Related income totaled $4.4 million for the
first nine months of 2003 and $2.6 million for the first nine months of 2002.

                                      -28-

<PAGE>

Interest and Dividend Income
----------------------------

MidAmerican Energy -

The  decrease in interest  and  dividend  income was due  principally  to a $3.5
million decrease in interest income on a note receivable  related to MidAmerican
Energy's  accounts  receivable  sales  arrangement,  which terminated in October
2002.

MidAmerican Funding -

Interest income related to notes  receivable with  MidAmerican  Funding's parent
company  decreased  $4.1 million  compared to the first nine months of 2002. The
related note receivable  balances have been zero throughout 2003.  Additionally,
the first nine months of 2002 include $5.0  million  from the  settlement  of an
investment in a communications company.

Marketable Securities Gains and Losses, Net
-------------------------------------------

MidAmerican Funding -

Net losses on marketable  securities decreased compared to the first nine months
of 2002 due  primarily  to $4.4  million of losses  recorded  in the 2002 period
related   to    other-than-temporary    declines   in   MidAmerican    Funding's
available-for-sale common stock investments.

Other Income and Other Expense
------------------------------

MidAmerican Energy -

Other  income  from  net  earnings  related  to  the  cash  surrender  value  of
corporate-owned life insurance totaled $3.7 million for the first nine months of
2003 compared to a loss of $0.6 million for the first nine months of 2002. Other
income for the  capitalized  allowance on equity funds used during  construction
totaled $8.7  million in the first nine months of 2003  compared to $5.4 million
in the first nine months of 2002.

Other  income  for the  first  nine  months of 2002  reflects  $1.2  million  of
subservicer fee income related to accounts receivable sold to MidAmerican Energy
Funding   Company.   The  related   arrangement   terminated  in  October  2002.
Additionally,  the 2002  nine-month  period  includes a $0.9 million gain on the
sale of utility property.

Other expense includes a discount on MidAmerican  Energy's  accounts  receivable
sold to  MidAmerican  Energy  Funding  Corporation.  The  discount  totaled $5.8
million for the first nine months of 2002.

MidAmerican Funding -

Other  income for the first nine months of 2003 and 2002  includes  $1.8 million
and $6.5 million, respectively, of income from equity method investments. Equity
income for 2002  includes  $5.3 million of income for a  distribution  of common
stock held by a venture capital fund investment.

Other  income for the first nine months of 2002  reflects a $2.6 million gain on
the sale of an investment in a communications company.

Other  expense  for the  first  nine  months  of 2003  includes  a $2.1  million
write-down for the impairment of a special  purpose fund  investment.  The first
nine months of 2002 includes a $5.1 million loss for the impairment of an equity
method  investment  and losses  totaling $1.5 million for  impairments  on three
venture capital investments.

                                      -29-
<PAGE>

Fixed Charges and Preferred Dividends
-------------------------------------

The increase in interest on  long-term  debt was due to interest on $400 million
of  MidAmerican  Energy notes  issued in February  2002 and another $275 million
issued in January 2003. The increase was partially  offset by the effect of debt
maturities in 2002 and 2003.

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. In addition,  preferred  dividends  decreased due to the  reacquisition of
preferred securities in May 2002.

                                      -30-

<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

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

As reflected on the Consolidated Statements of Cash Flows,  MidAmerican Energy's
net cash provided by operating  activities was $437.8 million and $397.4 million
for the nine months ended September 30, 2003 and 2002, respectively. MidAmerican
Funding's  net cash  provided by  operating  activities  was $407.7  million and
$360.1  million  for  the  nine  months  ended  September  30,  2003  and  2002,
respectively.

Investing Activities and Plans
------------------------------

Utility Construction Expenditures -

MidAmerican   Energy's   primary  need  for  capital  is  utility   construction
expenditures.   For  the  first  nine  months  of  2003,  utility   construction
expenditures  totaled $226.7 million,  including allowance for funds used during
construction and Quad Cities Station nuclear fuel purchases.

Forecasted utility construction expenditures, including allowance for funds used
during  construction,  are $366 million for 2003. 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 three electric
generating  projects in Iowa.  The projects  would provide  service to regulated
retail electricity customers and, subject to regulatory  approvals,  be included
in regulated rate base in Iowa,  Illinois and South Dakota.  Wholesale sales may
also be made  from the  projects  to the  extent  the  power is not  needed  for
regulated  retail service.  MidAmerican  Energy expects to invest  approximately
$1.44 billion in the three projects.

The first project is a natural  gas-fired  combined cycle unit with an estimated
cost of $357  million,  plus  allowance  for  funds  used  during  construction.
MidAmerican  Energy  will own  100% of the  plant  and  operate  it.  Commercial
operation  of the simple  cycle  mode  began on May 5,  2003.  The plant will be
operated in simple cycle mode during 2003 and 2004,  resulting in 327  megawatts
("MW") of  accredited  capacity.  The  combined  cycle  operation is expected to
commence  in  December  2004,  resulting  in an  expected  additional  190 MW of
accredited capacity.

The second project is currently under  construction  and will be a 790-MW (based
on expected  accreditation)  super-critical-temperature,  low-sulfur  coal-fired
plant. MidAmerican Energy will operate the plant and own approximately 475 MW of
the plant.  MidAmerican  Energy expects to invest  approximately $759 million in
the  project,  plus  allowance  for funds used during  construction.  Municipal,
cooperative  and  public  power  utilities  will own the  remainder,  which is a
typical  ownership  arrangement for large  base-load  plants in Iowa. On May 29,
2003,  the IUB issued an order that approves the  ratemaking  principles for the
plant, and on June 27, 2003,  MidAmerican Energy received a certificate from the
IUB allowing  MidAmerican  Energy to construct the plant.  On February 12, 2003,
MidAmerican  Energy  executed a contract with Mitsui & Co.  Energy  Development,
Inc.  for  the  engineering,  procurement  and  construction  of the  plant.  On
September 9, 2003,  MidAmerican Energy began construction of the plant, which it
expects  to be  completed  in the  summer  of 2007.  MidAmerican  Energy is also
seeking  an  order  from  the  IUB  approving  construction  of  the  associated
transmission facilities.

The third  project is  currently  under  development  and is expected to be wind
power  facilities  totaling  310 MW based  on the  nameplate  rating.  Generally
speaking, accredited capacity ratings for wind power facilities are considerably
less than the nameplate  ratings due to the varying  nature of wind. The current
projected  accredited  capacity for these wind power facilities is approximately
53 MW. If constructed, MidAmerican Energy will own and operate these facilities,
which are expected to cost approximately $323 million. MidAmerican Energy's plan
to construct the wind project is in conjunction with a settlement agreement that
extends through  December 31,

                                      -31-
<PAGE>

2010,  an Iowa retail  electric  rate freeze that was  previously  scheduled  to
expire at the end of 2005.  The settlement  agreement,  which was filed with the
IUB as part of MidAmerican  Energy's  application for ratemaking  principles for
the wind project, was approved by the IUB on October 17, 2003. The obligation of
MidAmerican   Energy  to  construct  the  wind  project  may  be  terminated  by
MidAmerican  Energy if the Federal  production tax credit applicable to the wind
energy  facilities  is not available at a rate of 1.8 cents per kWh for a period
of at least  ten  years  after  the  facilities  begin  generating  electricity.
MidAmerican Energy has also received authorization from the IUB to construct the
wind  power  project.  Refer  to the  "Rate  Matters"  section  below  for  more
discussion of the rate aspects of the settlement.

Nuclear Decommissioning -

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

MidAmerican  Energy  currently  contributes  $8.3  million  annually to external
trusts established for the investment of funds for  decommissioning  Quad Cities
Station.  Approximately  65% of the  fair  value  of the  trusts'  funds  is now
invested in domestic corporate debt and common equity securities.  The remainder
is invested in investment grade municipal and U.S.  Treasury bonds.  Funding for
Quad Cities Station nuclear decommissioning is reflected as depreciation expense
in the Consolidated  Statements of Income.  Quad Cities Station  decommissioning
costs  charged to Iowa  customers  are  included in base rates,  and recovery of
increases in those amounts must be sought through the normal ratemaking process.

Contractual Obligations and Commercial Commitments -

MidAmerican Energy and MidAmerican Funding have various contractual  obligations
and commercial  commitments.  The following  table,  which has been updated from
December 31, 2002, to reflect  issuances and  retirements  of long-term debt and
on-going  changes in commitments due to operating  lease and fuel  transactions,
summarizes  as  of  September  30,  2003,  the  material  cash   obligations  of
MidAmerican Energy and MidAmerican Funding (in millions).
<TABLE>
<CAPTION>

                                                               Period Payments are Due
                                                        ----------------------------------------
                                                        Oct. 1 to
                                                         Dec. 31,   2004 -    2006 -      After
Type of Obligation                             Total      2003      2005      2007        2007
------------------                           --------   ---------   ------    ------    --------
<S>                                          <C>          <C>       <C>       <C>       <C>
MidAmerican Energy:
Long-term debt, excluding unamortized
  debt premium and discount, net ........    $1,147.3     $ 1.0     $147.0    $162.0    $  837.3
Operating leases (1) ....................        26.0       1.9       11.9       7.5         4.7
Coal, electricity and natural gas
  contract commitments (1) ..............       621.7      47.8      294.9     142.6       136.4
                                             --------     -----     ------    ------    --------
  Total .................................     1,795.0      50.7      453.8     312.1       978.4

MidAmerican Funding parent and
  other subsidiaries:
Long-term debt, excluding unamortized
  debt premium and discount, net ........       700.0         -          -         -       700.0
                                             --------     -----     ------    ------    --------
  Total .................................    $2,495.0     $50.7     $453.8    $312.1    $1,678.4
                                             ========     =====     ======    ======    ========
</TABLE>

(1)  The operating  leases and fuel and energy  commitments are not reflected on
     the  Consolidated  Balance  Sheets.  Refer  to  Note  (4)(f)  in  Notes  to
     Consolidated  Financial  Statements in Item 15 of MidAmerican  Energy's and
     MidAmerican  Funding's most recently filed Annual Report on Form 10-K for a
     discussion of the nature of these commitments.

                                      -32-
<PAGE>

MidAmerican Energy has other types of commitments that are subject to change and
relate primarily to the items listed below. For additional  information,  refer,
where  applicable,  to the respective  referenced  note in Notes to Consolidated
Financial  Statements of  MidAmerican  Energy's and  MidAmerican  Funding's most
recently filed Annual Report on Form 10-K.

     -    Construction   expenditures:   Refer  to  the  "Utility   Construction
          Expenditures"  section above. - Manufactured gas plant facilities (see
          Note 3a. of this Form 10-Q) - Nuclear  decommissioning costs (see Note
          (4)(d) of MidAmerican Energy's and MidAmerican Funding's most recently
          filed Annual Report on Form 10-K)

     -    Residual   guarantees   on  operating   leases  (see  Note  (1)(j)  of
          MidAmerican  Energy's and  MidAmerican  Funding's  most recently filed
          Annual Report on Form 10-K)

Financing Activities, Plans and Availability
--------------------------------------------

Debt Authorizations and Credit Facilities -

MidAmerican  Energy has authority from the FERC to issue through April 14, 2005,
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 15, 2004.

On  January  14,  2003,   MidAmerican  Energy  issued  $275  million  of  5.125%
medium-term notes due in 2013. The proceeds were used to refinance existing debt
and for other corporate purposes.

On February 10, 2003,  MidAmerican Energy redeemed all $75 million of its 7.375%
series of mortgage  bonds,  and on March 17, 2003, it redeemed all $6.94 million
of its 7.45% series of mortgage bonds. Additionally, MidAmerican Energy's 7.125%
series of mortgage bonds  totaling $100 million  matured on February 3, 2003. On
October 17, 2003,  MidAmerican  Energy  redeemed all $12.5  million of its 6.95%
series of mortgage bonds at 103.48% of the principal amount.

MidAmerican  Energy has on file with the  Securities  and Exchange  Commission a
registration  statement  providing  for the  issuance of $425 million in various
forms of  senior  and  subordinated,  unsecured  long-term  debt  and  preferred
securities.  MidAmerican Energy intends to file a registration  statement in the
fourth quarter of 2003 providing for the issuance of an additional  $455 million
of such securities.

MidAmerican  Energy has authorization  from the FERC to issue,  through November
30,  2004,  $425  million in  various  forms of  long-term  debt and has filed a
request for  authorization  to issue an additional $455 million in various forms
of long-term debt for the two-year period beginning December 1, 2003. Such funds
would be used to refinance maturing debt and to finance a portion of the cost of
the generation projects noted above.

MidAmerican  Energy  is  required  to  obtain  authorization  from the  Illinois
Commerce  Commission ("ICC") 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 ICC 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 Energy must file a comprehensive  application  seeking
authorization  prior to issuance.  The ICC is required to hold a hearing  before
issuing  its  authorization.  In  addition  to an  existing  $15  million of ICC
long-term  debt  authority,  on  October  22,  2003,  the ICC  issued  its order
providing  authorization  for MidAmerican  Energy to issue up to $880 million of
long-term debt for refinancing purposes and capital expenditures.

                                      -33-

<PAGE>

Other Information -

MidAmerican  Funding or one of its subsidiaries,  including  MidAmerican Energy,
may from time to time seek to retire its outstanding debt through cash purchases
and/or  exchanges for 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 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 provide 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  counterparties.
MidAmerican  Energy has energy  trading  agreements  that,  in  accordance  with
industry practice,  either specifically  require it to maintain investment grade
credit  ratings  or provide  the right for  counterparties  to demand  "adequate
assurances" in the event of a material  adverse  change in MidAmerican  Energy's
creditworthiness.  If one or more of MidAmerican Energy's credit ratings decline
below  investment  grade,  MidAmerican  Energy  may be  required  to  post  cash
collateral,  letters of credit or other  similar  credit  support to  facilitate
ongoing wholesale  marketing and trading  activities.  As of September 30, 2003,
MidAmerican  Energy's  estimated  potential   collateral   requirements  totaled
approximately $76 million.  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.

LEGISLATIVE AND UTILITY REGULATORY MATTERS

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.

In Iowa and elsewhere,  the pace of  deregulation  has slowed  considerably as a
result of the energy crisis and related  events in California  beginning in 2000
that have  heightened  concerns  nationally  about  deregulation of the electric
utility industry.

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

Under two settlement  agreements approved by the IUB,  MidAmerican Energy's Iowa
retail  electric  rates in effect on December 31, 2000, are  effectively  frozen
through  December 31, 2010. The  settlement  agreements  specifically  allow the
filing of electric  rate design  and/or cost of service  rate  changes  that are
intended to keep  MidAmerican  Energy's  overall  Iowa retail  electric  revenue
unchanged,  but could result in changes to individual  tariffs.  The  settlement
agreements  also each provide  that  portions of revenues  associated  with Iowa
retail electric  returns on equity within specified ranges will be recorded as a
regulatory  liability  to be  used  to  offset  a  portion  of the  cost to Iowa
customers of future generating plant investment.

                                      -34-
<PAGE>

Under the first settlement agreement,  which was approved by the IUB on December
21, 2001, and is effective  through December 31, 2005, an amount equal to 50% of
revenues  associated  with returns on equity  between 12% and 14%, and 83.33% of
revenues  associated  with returns on equity above 14%, in each year is recorded
as a regulatory liability.  The second settlement agreement,  which was filed as
part of MidAmerican  Energy's  application  for ratemaking  principles on a wind
power  project and was  approved by the IUB on October 17, 2003,  provides  that
during the period January 1, 2006 through  December 31, 2010, an amount equal to
40% of revenues associated with returns on equity between 11.75% and 13%, 50% of
revenues  associated  with  returns on equity  between 13% and 14%, and 83.3% of
revenues  associated  with  returns on equity  above  14%,  in each year will be
recorded as a regulatory liability.  An amount equal to the regulatory liability
is 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 reduced as it is credited against plant in service in amounts equal to the
allowance for funds used during  construction  associated with generating  plant
additions.  As of  September  30,  2003  and  December  31,  2002,  the  related
regulatory  liability  reflected on the  Consolidated  Balance Sheets was $123.6
million and $102.9 million, respectively.

In addition, the 2003 settlement agreement provides that if Iowa retail electric
returns  on equity  fall  below 10% in any  consecutive  12-month  period  after
January 1, 2006,  MidAmerican  Energy may seek to file for a general increase in
rates.  However,  prior to filing for a general  increase in rates,  MidAmerican
Energy is required by the settlement  agreement to conduct 30 days of good faith
negotiations with all of the signatories to the settlement  agreement to attempt
to avoid a general increase in rates.

Illinois law provides for Illinois  earnings above a computed level of return on
common equity to be shared equally between  regulated retail electric  customers
and MidAmerican Energy.  MidAmerican Energy's computed level of return on common
equity is based on a rolling two-year average of the Monthly Treasury  Long-Term
Average Rate, as published by the Federal Reserve System, plus a premium of 8.5%
for 2000  through  2004 and a premium of 12.5% for 2005 and 2006.  The  two-year
average  above  which  sharing  must  occur for 2003 is  13.73%.  The law allows
MidAmerican  Energy to  mitigate  the sharing of  earnings  above the  threshold
return on common equity through accelerated recovery of electric assets.

TRANSLink
---------

In December  1999,  the 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 either a plan by which
its  transmission  facilities  would be transferred  to a regional  transmission
organization  or an  alternate  filing  providing  a detailed  explanation  of a
utility's plans with respect to the future operation of its transmission assets.
MidAmerican Energy's filing was an alternative compliance filing indicating that
MidAmerican   Energy  expects  to   participate   in  a  regional   transmission
organization  and that  MidAmerican  Energy is actively engaged in developing an
independent   transmission  company  that  would  be  a  member  of  a  regional
transmission organization.

In September 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. In December 2002, MidAmerican
Energy filed an application for state regulatory  approval with the IUB. On June
13, 2003, the IUB issued an order  disapproving the application  based primarily
on the  uncertainty  of related  issues at the  federal  level  with  respect to
requirements for the independent  operation of transmission assets on a regional
basis.  In  the  Order,  the  IUB  invites  MidAmerican  Energy  to  refile  its
application  after some of the  questions  at the  federal  level are  answered.
MidAmerican  Energy is  currently  evaluating  its options in light of the IUB's
decision. In addition,  applications by other TRANSLink  participants are either
pending before, or will be filed with, the state public utility commissions. The
outcomes  of  these  proceedings  could  impact  the  future  viability  of,  or
MidAmerican Energy's participation in, TRANSLink.

                                      -35-

<PAGE>

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,  or alternate  strategies that might be employed
to comply with FERC requirements,  on MidAmerican  Energy's future  transmission
costs is not yet known.

Standard Electricity Market Design
----------------------------------

On July 31, 2002, the FERC issued a notice of proposed  rulemaking  with respect
to  "Standard  Market  Design" for the  electric  industry.  The FERC  initially
characterized  the  proposal  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 proposed changes to the current
regulation  of  transmission  and  generation  facilities  designed  "to promote
economic  efficiency"  and to replace the  "obsolete  patchwork  we have today,"
according to the FERC's  chairman.  On April 28, 2003,  the FERC issued a "White
Paper"  describing how it intends to change the proposed  rulemaking.  The White
Paper,  which  uses the term  "Wholesale  Market  Platform"  in lieu of the term
"Standard Market Design," indicates that a final rule may focus on the formation
of regional transmission organizations and allow for regional differences.

Any final rule may  impact the costs of  MidAmerican  Energy's  electricity  and
transmission products. A final rule is unlikely to be fully implemented until at
least  2004.  MidAmerican  Energy  is still  evaluating  the  proposed  rule and
recognizes there is uncertainty as to the timing and outcome of this rulemaking.
Accordingly,  the likely  impact of the proposed  rule on  MidAmerican  Energy's
transmission and generation businesses is unknown.

ENVIRONMENTAL MATTERS

The  U.S.  Environmental  Protection  Agency  ("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.  As of September 30, 2003,  MidAmerican  Energy has recorded a
$15.9 million liability for these sites and a corresponding regulatory asset for
future  recovery  through the regulatory  process.  Refer to Note 3a of Notes to
Consolidated  Financial  Statements  in Item 1 of this  Form  10-Q  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 initiatives.  Refer to Note 3b of Notes to
Consolidated  Financial  Statements  in Item 1 of this  Form  10-Q  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,  including the associated budget, was filed
with the IUB on April 1, 2002, in accordance  with state law. An  administrative
law judge issued a ruling  approving  MidAmerican  Energy's plan

                                      -36-
<PAGE>

but disallowing the proposed recovery of plan costs through a tracker mechanism.
MidAmerican  Energy and the Iowa Office of Consumer  Advocate  each appealed the
administrative  law judge's  ruling.  On July 17, 2003,  the IUB issued an order
affirming the  administrative  law judge's  decision.  Accordingly,  the IUB has
rejected  the future  application  of a tracker  mechanism  to recover  emission
reduction costs.  However,  the approved  expenditures  will not be subject to a
subsequent prudence review in a future electric rate case. MidAmerican Energy is
required to file updates to the plan 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
also  identifies  expenses  that are  expected to be incurred at the  generating
facilities to operate and maintain the environmental equipment.

Since  the  filing  of the  plan  with the IUB,  MidAmerican  Energy's  on-going
assessment of the cost of complying with anticipated environmental  requirements
has resulted in estimated  capital  costs that are lower than those  included in
the plan. As discussed in the "Rate Matters" section above, MidAmerican Energy's
Iowa retail  electric rates are  effectively  frozen through  December 31, 2010.
However,  pursuant to a rate settlement agreement approved by the IUB on October
17, 2003, if capital and  operating  expenditures  to comply with  environmental
requirements  cumulatively  exceed  $325  million  prior  to  January  1,  2011,
MidAmerican  Energy may seek to recover  such amounts  from  customers.  At this
time, MidAmerican Energy does not expect to exceed such amount.

Under the New Source  Review  ("NSR")  provisions of the Clean Air Act ("CAA") a
utility  is  required  to obtain a permit  from the EPA  prior to (1)  beginning
construction of a new major stationary  source of an NSR-regulated  pollutant or
(2) making a  physical  or  operational  change (a "major  modification")  to an
existing facility that potentially  increases emissions,  unless the changes are
exempt under the  regulations.  In general,  projects subject to NSR regulations
are subject to  pre-construction  review and permitting  under the Prevention of
Significant  Deterioration ("PSD") provisions of the CAA. Under the PSD program,
a project that emits  threshold  levels of regulated  pollutants  must undergo a
Best  Available  Control  Technology  analysis and  evaluate the most  effective
emissions  controls.  These  controls  must be  installed  in order to receive a
permit.  Violation of NSR  regulations  potentially  subjects a utility to fines
and/or other sanctions.

Routine  maintenance,  repair  and  replacement  are  not  subject  to  the  NSR
provisions; however, these types of activities have historically been subject to
changing  interpretations  under the NSR program.  On August 27,  2003,  the EPA
promulgated final changes to the NSR provisions relating to routine maintenance,
repair  and  replacement.   These  changes  exempt  from  NSR  review  equipment
replacement  projects if the facility  replaces any existing  component(s)  of a
process unit with an identical or functionally equivalent component(s),  as long
as the  replacement  activity is less than 20% of the value of a new unit,  does
not affect the unit design parameters, and does not cause the unit to exceed any
legally  enforceable  emission  limitation or other operational  limitation that
effectively  limits  emissions.  To date,  twelve states and local air districts
have  challenged  the  rule.  The  resolution  of the  issue  and its  impact on
MidAmerican Energy cannot be predicted at this time.

In recent years, the EPA has requested, from several utilities,  information and
support  regarding their capital  projects for various  generating  plants.  The
requests  were  issued  as  part of an  industry-wide  investigation  to  assess
compliance with the NSR and the New Source Performance  Standards of the CAA. In
December 2002 and April 2003,  MidAmerican Energy received requests from the EPA
to provide  documentation  related to its capital projects from January 1, 1980,
to the present for a number of its  generating  plants.  MidAmerican  Energy has
submitted  information  to the EPA in responses to these  requests and there are
currently no outstanding data requests pending from the EPA.  MidAmerican Energy
cannot predict the outcome of these requests at this time.

On December 20, 2000, the EPA issued a regulatory  finding that it is "necessary
and appropriate" to regulate  emissions of mercury from coal-fired power plants.
As a result,  coal-fired plants have been added to the list of source categories
for which  National  Emissions  Standards for Hazardous Air  Pollutants  will be
required and,  therefore,  subject to "maximum  achievable  control  technology"
standards.  Set to go into effect in December

                                      -37-
<PAGE>

2007, EPA is under a deadline of December 15, 2003 to propose, and December 2004
to finalize,  a regulation  limiting  mercury  emissions from  coal-fired  power
plants. Until the standards are promulgated, the potential cost of these control
technologies  cannot be estimated and  MidAmerican  Energy  cannot  evaluate the
potential impact on its facilities.

GENERATING CAPABILITY

In August 2003, retail customer usage of electricity  caused a new record hourly
peak demand of 3,935 MW on MidAmerican Energy's electric system,  surpassing the
previous  record  of  3,889  MW  set  in  July  2002.   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.
For the 2003 cooling season,  MidAmerican Energy's reserve was approximately 22%
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 is in the process of  constructing a
natural gas-fired  combined cycle unit to be completed in two phases.  The first
phase,  totaling 327 MW, began commercial operation on May 5, 2003.  MidAmerican
Energy expects the second phase to begin  commercial  operation in December 2004
and  to  provide   approximately  190  MW  of  additional  accredited  capacity.
MidAmerican  Energy  is  also  in  the  process  of  constructing  a  coal-fired
generating plant that will provide an additional 475 MW of owned generation that
is expected to be operational by the summer of 2007. MidAmerican Energy has also
received  approval  from the IUB to construct  wind power  facilities.  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 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

MidAmerican Energy's exposure to market risk has not changed materially from its
risk as of December 31, 2002. The scope of its use of financial  instruments for
both hedging and proprietary  trading  purposes has also not changed  materially
from  December 31, 2002.  As of  September  30, 2003,  the net fair value of its
proprietary  trading  assets  totaled $1.4 million,  substantially  all of which
matures within one year.  MidAmerican  Energy trades financial  instruments that
are almost  entirely  exchange-traded  or have prices that are actively  quoted.
Reference  is  made to  MidAmerican  Energy's  and  MidAmerican  Funding's  most
recently filed Annual Report on Form 10-K, and in particular,  Notes (1)(i), (8)
and (9) in Notes to Consolidated Financial Statements in Item 15 of that report.

ITEM 4. CONTROLS AND PROCEDURES.

With the supervision and participation of MidAmerican  Funding's and MidAmerican
Energy's management,  including the respective persons acting as chief executive
officer and chief  financial  officer,  each  company  performed  an  evaluation
regarding  the  effectiveness  of the design  and  operation  of its  disclosure
controls and  procedures  (as defined in Rule  13a-15(e)  promulgated  under the
Securities and Exchange Act of 1934, as amended) as of September 30, 2003. Based
on that evaluation,  MidAmerican  Funding's and MidAmerican Energy's management,
including the  respective  persons acting as chief  executive  officer and chief
financial  officer,  concluded  that their  respective  disclosure  controls and
procedures were effective. There have been no

                                     -38-

<PAGE>


significant  changes in MidAmerican  Funding's or MidAmerican  Energy's internal
controls or in other factors that could significantly affect internal controls.

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

MidAmerican  Funding  and its  subsidiaries  currently  have no  material  legal
proceedings.

Information on  MidAmerican  Energy's  environmental  matters is included in the
"Environmental  Matters" section of Management's Discussion and Analysis in Item
2 of this Form 10-Q.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

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

Not applicable.

ITEM 5.  OTHER INFORMATION.

Not applicable.

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

(A)      EXHIBITS

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

(B)      REPORTS ON FORM 8-K

None.

                                      -39-
<PAGE>


                                   SIGNATURES

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




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







Date: November 5, 2003                 /s/  Patrick J. Goodman
                                    --------------------------------------------
                                            Patrick J. Goodman
                                          Vice President and Treasurer
                                            of MidAmerican Funding, LLC
                                    (principal financial and accounting officer)



                                       /s/  Thomas B. Specketer
                                    --------------------------------------------
                                            Thomas B. Specketer
                                          Vice President and Controller
                                            of MidAmerican Energy Company
                                    (principal financial and accounting officer)

                                      -40-

<PAGE>


                                  EXHIBIT INDEX

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

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

10        Stipulation  and  Agreement in Regard to  MidAmerican  Energy  Company
          Ratemaking Principles for Wind Energy Investment, approved by the Iowa
          Utilities Board on October 17, 2003.

15        Awareness Letter of Independent Accountants

31.1      Section 302 Certification for Form 10-Q (co-chief executive officer)

31.2      Section 302 Certification for Form 10-Q (co-chief executive officer)

31.3      Section 302 Certification for Form 10-Q (chief financial officer)

32.1      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002 (co-chief executive officer)

32.2      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002 (co-chief executive officer)

32.3      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002 (chief financial officer)

MidAmerican Funding

31.4      Section 302 Certification for Form 10-Q (chief executive officer)

31.5      Section 302 Certification for Form 10-Q (chief financial officer)

32.4      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002 (chief executive officer)

32.5      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
          2002 (chief financial officer)

                                      -41-