**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**








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





For
      the
      quarterly period ended June 30, 2005





or





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





For
      the
      transition period from _________to _________








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








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





Indicate
      by check mark whether the registrants are accelerated filers (as defined in
      Rule
      12b-2 of the Exchange Act).


Yes  ̈ No T





As
      of
      July 25, 2005, all of the member’s equity of MidAmerican Funding, LLC was
      held by its parent company, MidAmerican Energy Holdings Company.





As
      of
      July 25, 2005, all 70,980,203 outstanding shares of MidAmerican Energy
      Company’s voting stock were held by its parent company, MHC Inc., a direct,
      wholly owned subsidiary of MidAmerican Funding, LLC.














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





**TABLE
      OF CONTENTS**











**PART
                I - FINANCIAL
                INFORMATION**Item
                1.
            Financial
                Statements
            3Item
                2.
            Management's
                Discussion and Analysis of Financial Condition
                and Results of Operations
            23Item
                3.
            Quantitative
                and Qualitative Disclosures About Market
                Risk
            38Item
                4.
            Controls
                and Procedures
            38**PART
                II - OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            39Item
                2.
            Unregistered
                Sales of Equity Securities and Use of
                Proceeds
            39Item
                3.
            Defaults
                Upon Senior Securities
            39Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            39Item
                5.
            Other
                Information
            39Item
                6.
            Exhibits
            39Signatures
            
            40Exhibit
                Index
            
            41











2





**PART
      I - FINANCIAL INFORMATION**





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








MidAmerican
                Energy Company and SubsidiaryReport
                of Independent Registered Public Accounting
                Firm
            4Consolidated
                Balance Sheets
            5Consolidated
                Statements of
                Operations
            6Consolidated
                Statements of Cash Flows
            7Notes
                to Consolidated Financial
                Statements
            8MidAmerican
                Funding, LLC and SubsidiariesReport
                of Independent Registered Public Accounting
                Firm
            15Consolidated
                Balance Sheets
            16Consolidated
                Statements of
                Operations
            17Consolidated
                Statements of Cash Flows
            18Notes
                to Consolidated Financial
                Statements
            19








3


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Board of Directors and Shareholder


MidAmerican
      Energy Company


Des
      Moines, Iowa





We
      have
      reviewed the accompanying consolidated balance sheet of MidAmerican Energy
      Company and subsidiary (the “Company”) as of June 30, 2005, and the related
      consolidated statements of operations for the three-month and six-month periods
      ended June 30, 2005 and 2004, and of cash flows for the six-month periods
      ended June 30, 2005 and 2004. These interim financial statements are
      the
      responsibility of the Company's management.





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





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





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated balance sheet
      and
      statement of capitalization (not presented herein) of MidAmerican Energy Company
      and subsidiary as of December 31, 2004, and the related consolidated
      statements of operations, comprehensive income, retained earnings, and cash
      flows for the year then ended (not presented herein); and in our report dated
      February 25, 2005, we expressed an unqualified opinion on those
      consolidated financial statements. In our opinion, the information set forth
      in
      the accompanying consolidated balance sheet as of December 31, 2004
      is
      fairly stated, in all material respects, in relation to the consolidated balance
      sheet from which it has been derived.








/s/
      Deloitte & Touche LLP





Des
      Moines, Iowa


August 10,
      2005





4


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEETS**


(In
      thousands)





**As
                of****June 30,**
            
            **December 31,****2005**
            
            **2004****(Unaudited)****ASSETS****Utility
                Plant, Net**Electric
            
            $
            5,609,276
            
            $
            5,498,878Gas
            
            
            974,897
            
            
            957,0116,584,173
            
            
            6,455,889Accumulated
                depreciation and amortization
            
            
            (3,040,039
            )
            
            (2,956,856
            )3,544,134
            
            
            3,499,033Construction
                work in progress
            
            
            581,484
            
            
            369,4064,125,618
            
            
            3,868,439**Current
                Assets**Cash
                and cash equivalents
            
            
            8,655
            
            
            88,113Short-term
                investments
            
            
            -
            
            
            39,500Receivables,
                net
            
            
            264,085
            
            
            332,759Inventories
            
            
            47,070
            
            
            89,646Other
            
            
            27,781
            
            
            22,080347,591
            
            
            572,098**Investments
                and Nonregulated Property, Net**
            
            
            348,079
            
            
            333,360**Regulatory
                Assets**
            
            
            223,832
            
            
            227,997**Other
                Assets**
            
            
            117,035
            
            
            110,057**Total
                Assets**
            
            $
            5,162,155
            
            $
            5,111,951**CAPITALIZATION
                AND LIABILITIES****Capitalization**Common
                shareholder’s equity
            
            $
            1,612,531
            
            $
            1,527,468MidAmerican
                Energy preferred securities
            
            
            30,329
            
            
            30,329Long-term
                debt, excluding current portion
            
            
            1,171,667
            
            
            1,331,5092,814,527
            
            
            2,889,306**Current
                Liabilities**Current
                portion of long-term debt
            
            
            160,265
            
            
            91,018Accounts
                payable
            
            
            174,742
            
            
            241,836Taxes
                accrued
            
            
            98,087
            
            
            70,810Interest
                accrued
            
            
            11,565
            
            
            13,842Other
            
            
            83,369
            
            
            83,949528,028
            
            
            501,455**Other
                Liabilities**Deferred
                income taxes
            
            
            476,669
            
            
            486,970Investment
                tax credits
            
            
            46,052
            
            
            48,143Asset
                retirement obligations
            
            
            171,615
            
            
            166,845Regulatory
                liabilities
            
            
            727,067
            
            
            677,489Other
            
            
            398,197
            
            
            341,7431,819,600
            
            
            1,721,190**Total
                Capitalization and Liabilities**
            
            $
            5,162,155
            
            $
            5,111,951






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


5


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**


(In
      thousands)





**Three
                Months**
            
            **Six
                Months****Ended
                June 30,**
            
            **Ended
                June 30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****(Unaudited)****Operating
                Revenues**Regulated
                electric
            
            $
            347,269
            
            $
            344,375
            
            $
            659,848
            
            $
            707,559Regulated
                gas
            
            
            209,978
            
            
            173,669
            
            
            677,443
            
            
            567,240Nonregulated
            
            
            61,223
            
            
            55,927
            
            
            136,315
            
            
            139,104618,470
            
            
            573,971
            
            
            1,473,606
            
            
            1,413,903**Operating
                Expenses**Regulated:Cost
                of fuel, energy and capacity
            
            
            102,587
            
            
            98,679
            
            
            191,350
            
            
            212,913Cost
                of gas sold
            
            
            166,941
            
            
            133,442
            
            
            553,953
            
            
            444,217Other
                operating expenses
            
            
            95,391
            
            
            93,511
            
            
            185,784
            
            
            182,553Maintenance
            
            
            40,164
            
            
            46,376
            
            
            71,814
            
            
            74,394Depreciation
                and amortization
            
            
            73,646
            
            
            67,539
            
            
            137,048
            
            
            150,067Property
                and other taxes
            
            
            23,236
            
            
            22,852
            
            
            47,682
            
            
            47,779501,965
            
            
            462,399
            
            
            1,187,631
            
            
            1,111,923Nonregulated:Cost
                of sales
            
            
            53,651
            
            
            47,641
            
            
            120,077
            
            
            122,445Other
            
            
            4,124
            
            
            4,569
            
            
            7,707
            
            
            8,72457,775
            
            
            52,210
            
            
            127,784
            
            
            131,169Total
                operating expenses
            
            
            559,740
            
            
            514,609
            
            
            1,315,415
            
            
            1,243,092**Operating
                Income**
            
            
            58,730
            
            
            59,362
            
            
            158,191
            
            
            170,811**Non-Operating
                Income**Interest
                and dividend income
            
            
            1,239
            
            
            631
            
            
            2,405
            
            
            1,230Other
                income
            
            
            7,245
            
            
            5,553
            
            
            12,522
            
            
            9,918Other
                expense
            
            
            (1,152
            )
            
            (1,315
            )
            
            (1,752
            )
            
            (2,076
            )7,332
            
            
            4,869
            
            
            13,175
            
            
            9,072**Fixed
                Charges**Interest
                on long-term debt
            
            
            19,371
            
            
            17,046
            
            
            39,317
            
            
            34,625Other
                interest expense
            
            
            2,037
            
            
            1,479
            
            
            3,859
            
            
            2,716Allowance
                for borrowed funds
            
            
            (2,626
            )
            
            (1,877
            )
            
            (4,572
            )
            
            (3,199
            )18,782
            
            
            16,648
            
            
            38,604
            
            
            34,142**Income
                Before Income Taxes**
            
            
            47,280
            
            
            47,583
            
            
            132,762
            
            
            145,741**Income
                Taxes**
            
            
            15,066
            
            
            19,012
            
            
            44,199
            
            
            52,283**Net
                Income**
            
            
            32,214
            
            
            28,571
            
            
            88,563
            
            
            93,458**Preferred
                Dividends**
            
            
            311
            
            
            312
            
            
            623
            
            
            621**Earnings
                on Common Stock**
            
            $
            31,903
            
            $
            28,259
            
            $
            87,940
            
            $
            92,837







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




6


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)





**Six
                Months****Ended
                June 30,****2005**
            
            **2004****(Unaudited)****Net
                Cash Flows From Operating Activities**Net
                income
            
            $
            88,563
            
            $
            93,458Adjustments
                to reconcile net income to net cash provided:Depreciation
                and amortization
            
            
            137,700
            
            
            150,691Deferred
                income taxes and investment tax credit, net
            
            
            (9,906
            )
            
            52,521Amortization
                of other assets and liabilities
            
            
            13,081
            
            
            3,418Impact
                of changes in working capital:Receivables,
                net
            
            
            83,088
            
            
            46,044Inventories
            
            
            42,576
            
            
            29,964Accounts
                payable
            
            
            (79,571
            )
            
            (53,373
            )Taxes
                accrued
            
            
            27,277
            
            
            (11,064
            )Other
                current assets and liabilities
            
            
            (109
            )
            
            15,789Other,
                net
            
            
            2,791
            
            
            518Net
                cash provided by operating activities
            
            
            305,490
            
            
            327,966**Net
                Cash Flows From Investing Activities**Utility
                construction expenditures
            
            
            (331,306
            )
            
            (225,725
            )Quad
                Cities Station decommissioning trust fund
            
            
            (4,150
            )
            
            (4,150
            )Purchases
                of available-for-sale securities
            
            
            (125,502
            )
            
            -Proceeds
                from sales of available-for-sale securities
            
            
            165,002
            
            
            -Other,
                net
            
            
            (130
            )
            
            127Net
                cash used in investing activities
            
            
            (296,086
            )
            
            (229,748
            )**Net
                Cash Flows From Financing Activities**Dividends
                paid
            
            
            (623
            )
            
            (621
            )Retirement
                of long-term debt, including reacquisition cost
            
            
            (90,766
            )
            
            (55,892
            )Reacquisition
                of preferred securities
            
            
            -
            
            
            (1,430
            )Net
                decrease in notes payable
            
            
            -
            
            
            (39,000
            )Other
            
            
            2,527
            
            
            1,200Net
                cash used in financing activities
            
            
            (88,862
            )
            
            (95,743
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            (79,458
            )
            
            2,475**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            88,113
            
            
            3,151**Cash
                and Cash Equivalents at End of Period**
            
            $
            8,655
            
            $
            5,626**Supplemental
                Disclosure:**Interest
                paid, net of amounts capitalized
            
            $
            38,405
            
            $
            31,988Income
                taxes paid
            
            $
            27,976
            
            $
            12,096






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


7


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**


**(Unaudited)**





**1.**
            **General**





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


10-K.





The
      accompanying Consolidated Balance Sheet as of December 31, 2004, reflects
      a
      $39.5 million reclassification of instruments used in MidAmerican Energy’s
      cash management program from Cash and Cash Equivalents to Short-Term
      Investments. This reclassification is to present auction rate securities as
      short-term investments rather than as cash equivalents due to the stated
      maturities of these investments. These instruments are classified as
      available-for-sale securities as management does not intend to hold them to
      maturity nor are they bought and sold with the objective of generating profits
      on short-term differences in price. The carrying value of these instruments
      approximates their fair value.





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





**2.**
            **New
                Accounting Pronouncements**





In
      March
      2005, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,
      an interpretation of FASB Statement No. 143” (“FIN 47”). FIN 47 clarifies
      that the term *conditional
      asset retirement obligation* as used
      in Statement of Financial Accounting Standards No. 143, “Accounting for Asset
      Retirement Obligations,” refers to a legal obligation to perform an asset
      retirement activity in which the timing and/or method of settlement are
      conditional on a future event that may or may not be within the control of
      the
      entity. Accordingly, an entity is required to recognize a liability for the
      fair
      value of a conditional asset retirement obligation if the fair value of the
      liability can be reasonably estimated. Uncertainty about the timing and/or
      method of settlement of a conditional asset retirement obligation should be
      factored into the measurement of the liability when sufficient information
      exists. FIN 47 also clarifies when an entity would have sufficient information
      to reasonably estimate the fair value of an asset retirement obligation.
      MidAmerican Energy and MidAmerican Funding are required to adopt the provisions
      of FIN 47 by December 2005. Adoption of FIN 47 is not expected to have a
      material effect on MidAmerican Energy’s or MidAmerican Funding’s financial
      position, results of operations or cash flows.





**3.**
            **Commitments
                and Contingencies**





(a)
            Air
                Quality





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





The
      EPA
      has in recent years implemented more stringent national ambient air quality
      standards for ozone and new standards for fine particulate matter. These
      standards set the minimum level of air quality that must be met throughout
      the
      United States. Areas that achieve the standards, as determined by ambient
      monitoring, are characterized as being in attainment of the standard. Areas
      that
      fail to meet the standard are designated as being nonattainment areas.
      Generally, once an area has been designated as a nonattainment area, sources
      of
      emissions in the area that contribute to the failure to achieve the ambient
      air
      quality standards are required to make emissions reductions. The EPA has
      concluded that the entire state of Iowa is in attainment of the ozone standards
      and the fine particulate matter standards.




8




On
      March 10, 2005, the EPA released the final Clean Air Interstate Rule
      (“CAIR”), calling for reductions of sulfur dioxide (“SO 2 ”)
      and
      nitrogen oxides (“NO x ”)
      in the
      eastern United States through a market-based cap and trade system. While the
      state of Iowa has been determined to be in attainment of the ozone and fine
      particulate standards, Iowa has been found to significantly contribute to
      nonattainment of the fine particulate standard in Cook County, Illinois; Lake
      County, Indiana; Madison County, Illinois; St. Clair County, Illinois; and
      Marion County, Indiana. The EPA has also concluded that emissions from Iowa
      significantly contribute to ozone nonattainment in Kenosha and Sheboygan
      counties in Wisconsin and Macomb County, Michigan. Under the final CAIR, the
      first phase reductions of SO 2 emissions are effective on January 1, 2010, with the second phase
      reductions effective January 1, 2015. For NO x ,
      the
      first phase emissions reductions are effective January 1, 2009,
      and
      the second phase reductions are effective January 1, 2015. The CAIR
      calls
      for overall reductions of SO 2 and
      NO x in Iowa
      of 68% and 67%, respectively, by 2015. The CAIR will impact MidAmerican Energy’s
      generating facilities and will require MidAmerican Energy to either reduce
      emissions from those facilities through the installation of emission controls
      or
      purchase additional emission allowances, or some combination
      thereof.





On
      March 15, 2005, the EPA released the final Clean Air Mercury Rule (“CAMR”).
      The CAMR utilizes a market-based cap and trade mechanism to reduce mercury
      emissions from coal-burning power plants from the current nationwide level
      of 48
      tons to 15 tons at full implementation. The CAMR’s two-phase reduction program
      requires initial reductions of mercury emission in 2010 and an overall reduction
      in mercury emissions from coal-burning power plants of 70% by 2018. The CAMR
      will impact MidAmerican Energy’s coal-burning generating facilities and will
      require MidAmerican Energy to either reduce emissions from those facilities
      through the installation of emission controls or purchase additional emission
      allowances, or some combination thereof.





The
      CAIR
      or the CAMR could, in whole or in part, be superseded or made more stringent
      by
      one of a number of multi-pollutant emission reduction proposals currently under
      consideration at the federal level, including the “Clear Skies Initiative,” and
      other pending legislative proposals that contemplate 70% to 90% reductions
      of
      SO 2 ,
      NO X and
      mercury, as well as possible new federal regulation of carbon dioxide and other
      gases that may affect global climate change. In addition to any federal
      legislation that could be enacted by Congress to supersede the CAIR and the
      CAMR, the rules could be changed or overturned as a result of litigation. Both
      the CAIR and CAMR have been legally challenged in the United States District
      Court for the District of Columbia. In addition, some challengers have
      petitioned for a stay of the mercury delisting rule pending the outcome of
      the
      underlying challenge to the rule, and the EPA has indicated it will reopen
      the
      delisting determination for public comment. Until the court makes a
      determination regarding the merits of the challenges to the CAIR and CAMR,
      the
      full impact of the rules on MidAmerican Energy cannot be determined.





MidAmerican
      Energy has implemented a planning process that forecasts the site-specific
      controls and actions that may be required to meet emissions reductions as
      promulgated by the EPA. In accordance with an Iowa law passed in 2001,
      MidAmerican Energy has on file with the Iowa Utilities Board (“IUB”) its current
      multi-year plan and budget for managing SO 2 and
      NO X from its
      generating facilities in a cost-effective manner. The plan, which is required
      to
      be updated every two years, provides specific actions to be taken at each
      coal-fired generating facility and the related costs and timing for each action.
      On July 17, 2003, the IUB issued an order that affirmed an
      administrative law judge’s approval of the initial plan filed April 1,
      2002, as amended. On October 4, 2004, the IUB issued an order approving
      MidAmerican Energy’s second biennial plan as revised in a settlement MidAmerican
      Energy entered into with the Iowa Office of Consumer Advocate (“OCA”). That plan
      covers the time period from April 1, 2004 through December 31,
      2006.
      Neither IUB order resulted in any changes to electric rates for MidAmerican
      Energy. The effect of the orders is to approve the prudence of expenditures
      made
      consistent with the plans. Pursuant to an unrelated rate settlement agreement
      approved by the IUB on October 17, 2003, if prior to January 1,
      2011, capital and operating expenditures to comply with environmental
      requirements cumulatively exceed $325 million, then MidAmerican Energy
      may
      seek to recover the additional expenditures from customers. Based on a review
      of
      the final CAIR and CAMR, MidAmerican Energy does not expect the qualified
      expenditures to exceed $325 million through January 1,
      2011.




9




Under
      the
      New Source Review (“NSR”) provisions of the Clean Air Act, a utility is required
      to obtain a permit from the EPA or a state regulatory agency prior to (1)
      beginning construction of a new major stationary source of an NSR-regulated
      pollutant or (2) making a physical or operational change to an existing facility
      that potentially increases emissions, unless the changes are exempt under the
      regulations (including routine maintenance, repair and replacement of
      equipment). In general, projects subject to NSR regulations are subject to
      pre-construction review and permitting under the Prevention of Significant
      Deterioration (“PSD”) provisions of the Clean Air Act. Under the PSD program, a
      project that emits threshold levels of regulated pollutants must undergo a
      Best
      Available Control Technology analysis and evaluate the most effective emissions
      controls. These controls must be installed in order to receive a permit.
      Violations of NSR regulations, which may be alleged by the EPA, states, and
      environmental groups, among others, potentially subject a utility to material
      expenses for fines and other sanctions and remedies including requiring
      installation of enhanced pollution controls and funding supplemental
      environmental projects.




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





In
      2002
      and 2003, the EPA proposed various changes to its NSR rules that clarify what
      constitutes routine repair, maintenance and replacement for purposes of
      triggering NSR requirements. These changes have been subject to legal challenge
      and, until such time as the legal challenges are resolved and the rules are
      effective, MidAmerican Energy will continue to manage projects at its generating
      plants in accordance with the rules in effect prior to 2002.





(b)
            Nuclear
                Decommissioning Costs





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





MidAmerican
      Energy’s share of estimated decommissioning costs for Quad Cities Station
      as of June 30, 2005, was $158.6 million and is reflected in Asset
      Retirement Obligations on the  Consolidated Balance Sheet.
      Refer
      to Note (14) of MidAmerican Energy’s most recently filed Form 10-K for a
      discussion of asset retirement obligations. MidAmerican Energy has established
      trusts for the investment of funds for decommissioning the Quad Cities Station.
      The fair value of the assets held in the trusts as of June 30, 2005
      and
      December 31, 2004, was $218.1 million and $207.5 million,
      respectively, and is reflected in Investments and Nonregulated Property, Net
      on
      the Consolidated Balance Sheets.





(c)
            Manufactured
                Gas Plant Facilities





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





MidAmerican
      Energy has evaluated all known properties that were, at one time, sites of
      gas
      manufacturing plants for which it may be a potentially responsible party. The
      purpose of these evaluations was to determine whether waste materials are
      present, whether the materials constitute a health or environmental risk, and
      whether MidAmerican Energy has any responsibility for remedial action.
      MidAmerican Energy has actively worked with the regulatory agencies and has
      received regulatory closure on fourteen sites. MidAmerican Energy is continuing
      to work with the agencies to obtain regulatory closure on an additional ten
      sites.





MidAmerican
      Energy estimates the range of possible costs for investigation, remediation
      and
      monitoring for the sites discussed above to be approximately $4 million
      to
      $11 million. As of June 30, 2005 and December 31, 2004,
      MidAmerican Energy had recorded a liability of $5.4 million and
      $9.3 million, respectively, for these sites and a corresponding regulatory
      asset for future recovery through the regulatory process. MidAmerican Energy
      projects that these amounts will be incurred or paid over the next two
      years.





The
      estimated liability is determined through a site-specific cost evaluation
      process. The estimate includes incremental direct costs of remediation, site
      monitoring costs and costs of compensation to employees for time expected to
      be
      spent directly on the remediation effort. The estimated recorded liabilities
      for
      these properties are based upon preliminary data. Thus, actual costs could
      vary
      significantly from the estimates. The estimate could change materially based
      on
      facts and circumstances derived from site investigations, changes in required
      remedial action and changes in technology relating to remedial alternatives.
      Insurance recoveries have been received for some of the sites under
      investigation. Those recoveries are intended to be used principally for
      accelerated remediation, as specified by the IUB and are recorded as a
      regulatory liability.





10




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





**4.**
            **Rate
                Matters**





Under
      three settlement agreements between MidAmerican Energy, the OCA and other
      intervenors approved by the IUB, MidAmerican Energy has agreed not to seek
      a
      general increase in electric rates prior to 2012 unless, beginning in 2006,
      its
      Iowa jurisdictional electric return on equity for any year falls below 10%.
      Prior to filing for a general increase in electric rates, MidAmerican Energy
      is
      required to conduct 30 days of good faith negotiations with the signatories
      to
      the settlement agreements to attempt to avoid a general increase in such rates.
      As a party to the settlement agreements, the OCA has agreed not to request
      or
      support any decrease in MidAmerican Energy’s Iowa electric rates prior to
      January 1, 2012. The settlement agreements specifically allow the IUB
      to
      approve or order electric rate design or cost of service rate changes that
      could
      result in changes to rates for specific customers as long as such changes do
      not
      result in an overall increase in revenues for MidAmerican Energy. The settlement
      agreements also each provide that portions of revenues associated with Iowa
      retail electric returns on equity within specified ranges will be recorded
      as a
      regulatory liability.





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





The
      third
      settlement agreement was approved by the IUB on January 31, 2005, in
      conjunction with MidAmerican Energy’s proposed expansion of its wind power
      project by up to 90 megawatts (“MW”). This settlement extended through 2011
      MidAmerican Energy’s commitment not to seek a general increase in electric rates
      unless its Iowa jurisdictional electric return on equity falls below 10%. It
      also extended the revenue sharing mechanism through 2011. In addition, the
      OCA
      agreed to commit not to seek any decrease in Iowa electric base rates to become
      effective before January 1, 2012. The total capacity added as
      the
      result of the wind expansion project is currently projected to be 50 MW.





The
      regulatory liabilities created by the three settlement agreements are recorded
      as a regulatory charge in depreciation and amortization expense when the
      liability is accrued. Additionally, interest expense is accrued on the portion
      of the regulatory liability balance recorded in prior years. The regulatory
      liabilities created for the years through 2010 are expected to be reduced as
      they are credited against plant in service associated with generating plant
      additions. As a result of the credit applied to generating plant balances from
      the reduction of the regulatory liabilities, future depreciation will be
      reduced. As of June 30, 2005 and December 31, 2004, the related
      regulatory liability reflected on the Consolidated Balance Sheets was
      $207.2 million and $181.2 million, respectively. The regulatory
      liability accrued for 2011, if any, will be credited to customer bills in
      2012.





Illinois
      bundled electric rates are frozen until 2007, subject to certain exceptions
      allowing for increases, at which time bundled rates may be increased or
      decreased by the ICC. Illinois law provides that, through 2006, Illinois
      earnings above a computed level of return on common equity are to be shared
      equally between regulated retail electric customers and MidAmerican Energy.
      MidAmerican Energy’s computed level of return on common equity is based on a
      rolling two-year average of the Monthly Treasury Long-Term Average Rate, as
      published by the Federal Reserve System, plus a premium of 8.5% for 2000 through
      2004 and a premium of 12.5% for 2005 and 2006. The two-year average above which
      sharing must occur for 2004 was 13.57%. The law allows MidAmerican Energy to
      mitigate the sharing of earnings above the threshold return on common equity
      through accelerated recovery of electric assets.




11


**5.**
            **Retirement
                Plans**





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





Three
                Months
            
            Six
                MonthsEnded
                June 30,
            
            Ended
                June 30,2005
            
            2004
            
            2005
            
            2004PensionComponents
                of net periodic benefit cost:Service
                cost
            
            $
            6,672
            
            $
            6,346
            
            $
            13,358
            
            $
            12,944Interest
                cost
            
            
            9,231
            
            
            9,067
            
            
            18,403
            
            
            17,767Expected
                return on plan assets
            
            
            (9,527
            )
            
            (9,738
            )
            
            (19,054
            )
            
            (19,372
            )Amortization
                of net transition balance
            
            
            -
            
            
            (203
            )
            
            -
            
            
            (401
            )Amortization
                of prior service cost
            
            
            678
            
            
            693
            
            
            1,349
            
            
            1,380Amortization
                of prior year loss
            
            
            358
            
            
            366
            
            
            767
            
            
            785Net
                periodic benefit cost
            
            $
            7,412
            
            $
            6,531
            
            $
            14,823
            
            $
            13,103PostretirementComponents
                of net periodic benefit cost:Service
                cost
            
            $
            1,647
            
            $
            2,103
            
            $
            3,295
            
            $
            4,065Interest
                cost
            
            
            3,588
            
            
            3,964
            
            
            7,177
            
            
            8,147Expected
                return on plan assets
            
            
            (2,321
            )
            
            (2,512
            )
            
            (4,642
            )
            
            (4,373
            )Amortization
                of net transition balance
            
            
            614
            
            
            674
            
            
            1,228
            
            
            1,702Amortization
                of prior service cost
            
            
            -
            
            
            5
            
            
            -
            
            
            153Amortization
                of prior year loss
            
            
            421
            
            
            876
            
            
            842
            
            
            1,710Net
                periodic benefit cost
            
            $
            3,949
            
            $
            5,110
            
            $
            7,900
            
            $
            11,404





MidAmerican
      Energy expects to contribute $6.6 million and $15.8 million in
      2005 to
      its pension and postretirement plans, respectively. For the six months ended
      June 30, 2005, $2.9 million and $8.4 million of
      contributions were made to the pension and postretirement plans,
      respectively.





**6.**
            **Segment
                Information**





MidAmerican
      Energy has identified four reportable operating segments based principally
      on
      management structure. The generation segment derives most of its revenue from
      the sale of regulated and nonregulated wholesale electricity and natural gas.
      The energy delivery segment derives its revenue principally from the sale and
      delivery of regulated retail electricity and natural gas, while the transmission
      segment obtains most of its revenue from the sale of electric transmission
      capacity. The unregulated retail services segment receives its revenue
      principally from nonregulated retail sales of natural gas and electricity.
      Common operating costs, interest income, interest expense and income tax expense
      are allocated to each segment based on MidAmerican Energy allocators most
      related to the nature of the cost.





The
      energy delivery and transmission segments and substantially all of the
      generation segment are regulated as to rates, and other factors, related to
      services to external customers. Regulated electric retail revenues are billed
      to
      external customers by the energy delivery segment based on bundled tariffs
      that
      do not segregate components for the other segments. For internal segment
      reporting purposes, MidAmerican Energy has developed transfer prices to transfer
      the appropriate portion of those revenues to the other segments. The transfer
      prices are based on cost of service or tariffed rates, except for the generation
      segment which receives the residual.





MidAmerican
      Energy’s external revenues by product and service are displayed on the
      Consolidated Statements of Operations.




12




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





Three
                Months
            
            Six
                MonthsEnded
                June 30,
            
            Ended
                June 30,2005
            
            2004
            
            2005
            
            2004Segment
                Profit InformationOperating
                revenues:External
                revenues -Generation
            
            $
            153,169
            
            $
            143,367
            
            $
            312,066
            
            $
            322,238Energy
                delivery
            
            
            399,786
            
            
            371,268
            
            
            1,017,213
            
            
            945,695Transmission
            
            
            8,209
            
            
            7,070
            
            
            16,190
            
            
            13,698Unregulated
                retail services
            
            
            57,306
            
            
            52,266
            
            
            128,137
            
            
            132,272Total
            
            
            618,470
            
            
            573,971
            
            
            1,473,606
            
            
            1,413,903Intersegment
                revenues -Generation
            
            
            165,156
            
            
            156,908
            
            
            304,269
            
            
            300,115Energy
                delivery
            
            
            (179,837
            )
            
            (171,679
            )
            
            (333,631
            )
            
            (329,657
            )Transmission
            
            
            14,681
            
            
            14,771
            
            
            29,362
            
            
            29,542Total
            
            
            -
            
            
            -
            
            
            -
            
            
            -Consolidated
            
            $
            618,470
            
            $
            573,971
            
            $
            1,473,606
            
            $
            1,413,903Earnings
                on common stock:Generation
            
            $
            10,763
            
            $
            11,445
            
            $
            19,037
            
            $
            33,279Energy
                delivery
            
            
            12,023
            
            
            8,826
            
            
            49,738
            
            
            43,154Transmission
            
            
            8,850
            
            
            7,333
            
            
            17,737
            
            
            14,480Unregulated
                retail services
            
            
            267
            
            
            655
            
            
            1,428
            
            
            1,924Consolidated
            
            $
            31,903
            
            $
            28,259
            
            $
            87,940
            
            $
            92,837





As
                ofJune 30,
            
            December 31,2005
            
            2004Segment
                Asset InformationTotal
                assets:Generation
            
            $
            2,401,949
            
            $
            2,229,909Energy
                delivery
            
            
            2,477,169
            
            
            2,625,081Transmission
            
            
            308,692
            
            
            277,771Unregulated
                retail services
            
            
            37,880
            
            
            42,725Total
            
            
            5,225,690
            
            
            5,175,486Reclassifications
                and intersegment eliminations (a)
            
            
            (63,535
            )
            
            (63,535
            )Consolidated
            
            $
            5,162,155
            
            $
            5,111,951





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





13


**7.**
            **Total
                Comprehensive Income**





MidAmerican
      Energy’s total comprehensive income for the three months ended June 30,
      2005 and 2004, was $31.9 million and $28.3 million, respectively.
      MidAmerican Energy’s total comprehensive income for the six months ended
      June 30, 2005 and 2004, was $85.1 million and $92.4 million,
      respectively. The difference from Earnings on Common Stock for the six months
      ended June 30, 2004, was due to the effective portion of net
      gains and
      losses on MidAmerican Energy’s derivative instruments classified as cash flow
      hedges. For the six months ended June 30, 2005, the difference from
      Earnings on Common Stock was due to a minimum pension liability adjustment.
      Accumulated other comprehensive loss, net, was $2.9 million and
      $- million as of June 30, 2005, and December 31,
      2004,
      respectively.




14





**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Board of Managers and Member


MidAmerican
      Funding, LLC


Des
      Moines, Iowa





We
      have
      reviewed the accompanying consolidated balance sheet of MidAmerican Funding,
      LLC
      and subsidiaries (the “Company”) as of June 30, 2005, and the related
      consolidated statements of operations for the three-month and six-month periods
      ended June 30, 2005 and 2004, and of cash flows for the six-month periods
      ended June 30, 2005 and 2004. These interim financial statements are
      the
      responsibility of the Company’s management.





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





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





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated balance sheet
      and
      statement of capitalization (not presented herein) of MidAmerican Funding,
      LLC
      and subsidiaries as of December 31, 2004, and the related consolidated
      statements of operations, comprehensive income, retained earnings, and cash
      flows for the year then ended (not presented herein); and in our report dated
      February 25, 2005, we expressed an unqualified opinion on those
      consolidated financial statements. In our opinion, the information set forth
      in
      the accompanying consolidated balance sheet as of December 31, 2004
      is
      fairly stated, in all material respects, in relation to the consolidated balance
      sheet from which it has been derived.








/s/
      Deloitte & Touche LLP





Des
      Moines, Iowa


August 10,
      2005





15


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


(In
      thousands)





**As
                of****June 30,**
            
            **December 31,****2005**
            
            **2004****(Unaudited)****ASSETS****Utility
                Plant, Net**Electric
            
            $
            5,609,276
            
            $
            5,498,878Gas
            
            
            974,897
            
            
            957,0116,584,173
            
            
            6,455,889Accumulated
                depreciation and amortization
            
            
            (3,040,039
            )
            
            (2,956,856
            )3,544,134
            
            
            3,499,033Construction
                work in progress
            
            
            581,484
            
            
            369,4064,125,618
            
            
            3,868,439**Current
                Assets**Cash
                and cash equivalents
            
            
            9,184
            
            
            88,367Short-term
                investments
            
            
            -
            
            
            39,500Receivables,
                net
            
            
            269,153
            
            
            337,333Inventories
            
            
            47,070
            
            
            89,646Other
            
            
            28,316
            
            
            22,585353,723
            
            
            577,431**Investments
                and Nonregulated Property, Net**
            
            
            384,159
            
            
            375,230**Goodwill**
            
            
            1,265,979
            
            
            1,268,082**Regulatory
                Assets**
            
            
            223,832
            
            
            227,997**Other
                Assets**
            
            
            117,044
            
            
            110,065**Total
                Assets**
            
            $
            6,470,355
            
            $
            6,427,244**CAPITALIZATION
                AND LIABILITIES****Capitalization**Member’s
                equity
            
            $
            2,121,122
            
            $
            2,042,403MidAmerican
                Energy preferred securities
            
            
            30,329
            
            
            30,329Long-term
                debt, excluding current portion
            
            
            1,871,667
            
            
            2,031,5094,023,118
            
            
            4,104,241**Current
                Liabilities**Note
                payable to affiliate
            
            
            39,750
            
            
            31,500Current
                portion of long-term debt
            
            
            160,265
            
            
            91,018Accounts
                payable
            
            
            175,549
            
            
            242,966Taxes
                accrued
            
            
            105,832
            
            
            77,388Interest
                accrued
            
            
            27,384
            
            
            29,612Other
            
            
            83,588
            
            
            84,032592,368
            
            
            556,516**Other
                Liabilities**Deferred
                income taxes
            
            
            498,378
            
            
            518,004Investment
                tax credits
            
            
            46,052
            
            
            48,143Asset
                retirement obligations
            
            
            171,615
            
            
            166,845Regulatory
                liabilities
            
            
            727,067
            
            
            677,489Other
            
            
            411,757
            
            
            356,0061,854,869
            
            
            1,766,487**Total
                Capitalization and Liabilities**
            
            $
            6,470,355
            
            $
            6,427,244






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


16


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**


(In
      thousands)





**Three
                Months**
            
            **Six
                Months****Ended
                June 30,**
            
            **Ended
                June 30,****2005**
            
            **2004**
            
            **2005**
            
            **2004****(Unaudited)****Operating
                Revenues**Regulated
                electric
            
            $
            347,269
            
            $
            344,375
            
            $
            659,848
            
            $
            707,559Regulated
                gas
            
            
            209,978
            
            
            173,669
            
            
            677,443
            
            
            567,240Nonregulated
            
            
            62,467
            
            
            57,477
            
            
            138,701
            
            
            141,668619,714
            
            
            575,521
            
            
            1,475,992
            
            
            1,416,467**Operating
                Expenses**Regulated:Cost
                of fuel, energy and capacity
            
            
            102,587
            
            
            98,679
            
            
            191,350
            
            
            212,913Cost
                of gas sold
            
            
            166,941
            
            
            133,442
            
            
            553,953
            
            
            444,217Other
                operating expenses
            
            
            95,391
            
            
            93,511
            
            
            185,784
            
            
            182,553Maintenance
            
            
            40,164
            
            
            46,376
            
            
            71,814
            
            
            74,394Depreciation
                and amortization
            
            
            73,646
            
            
            67,539
            
            
            137,048
            
            
            150,067Property
                and other taxes
            
            
            23,236
            
            
            22,852
            
            
            47,682
            
            
            47,779501,965
            
            
            462,399
            
            
            1,187,631
            
            
            1,111,923Nonregulated:Cost
                of sales
            
            
            54,057
            
            
            48,092
            
            
            120,647
            
            
            123,165Other
            
            
            5,122
            
            
            5,608
            
            
            9,793
            
            
            10,89259,179
            
            
            53,700
            
            
            130,440
            
            
            134,057Total
                operating expenses
            
            
            561,144
            
            
            516,099
            
            
            1,318,071
            
            
            1,245,980**Operating
                Income**
            
            
            58,570
            
            
            59,422
            
            
            157,921
            
            
            170,487**Non-Operating
                Income**Interest
                and dividend income
            
            
            1,282
            
            
            655
            
            
            2,487
            
            
            1,284Other
                income
            
            
            7,383
            
            
            6,025
            
            
            23,861
            
            
            13,018Other
                expense
            
            
            (1,190
            )
            
            (1,409
            )
            
            (3,702
            )
            
            (2,274
            )7,475
            
            
            5,271
            
            
            22,646
            
            
            12,028**Fixed
                Charges**Interest
                on long-term debt
            
            
            31,145
            
            
            28,827
            
            
            62,865
            
            
            58,130Other
                interest expense
            
            
            2,365
            
            
            1,568
            
            
            4,421
            
            
            2,856Preferred
                dividends of subsidiaries
            
            
            311
            
            
            312
            
            
            623
            
            
            621Allowance
                for borrowed funds
            
            
            (2,626
            )
            
            (1,877
            )
            
            (4,572
            )
            
            (3,199
            )31,195
            
            
            28,830
            
            
            63,337
            
            
            58,408**Income
                Before Income Taxes**
            
            
            34,850
            
            
            35,863
            
            
            117,230
            
            
            124,107**Income
                Taxes**
            
            
            9,641
            
            
            14,109
            
            
            35,664
            
            
            47,996**Net
                Income**
            
            $
            25,209
            
            $
            21,754
            
            $
            81,566
            
            $
            76,111






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


17


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)





**Six
                Months****Ended
                June 30,****2005**
            
            **2004****(Unaudited)****Net
                Cash Flows From Operating Activities**Net
                income
            
            $
            81,566
            
            $
            76,111Adjustments
                to reconcile net income to net cash provided:Depreciation
                and amortization
            
            
            137,801
            
            
            150,792Deferred
                income taxes and investment tax credit, net
            
            
            (19,360
            )
            
            51,690Amortization
                of other assets and liabilities
            
            
            12,674
            
            
            2,658Gain
                on sale of securities, assets and other investments
            
            
            (10,336
            )
            
            (316
            )Loss
                from impairment of assets and investments
            
            
            1,876
            
            
            -Impact
                of changes in working capital:Receivables,
                net
            
            
            82,595
            
            
            45,762Inventories
            
            
            42,576
            
            
            29,964Accounts
                payable
            
            
            (79,894
            )
            
            (53,574
            )Taxes
                accrued
            
            
            28,444
            
            
            (12,403
            )Other
                current assets and liabilities
            
            
            46
            
            
            15,346Other,
                net
            
            
            7,111
            
            
            7,128Net
                cash provided by operating activities
            
            
            285,099
            
            
            313,158**Net
                Cash Flows From Investing Activities**Utility
                construction expenditures
            
            
            (331,306
            )
            
            (225,725
            )Quad
                Cities Station decommissioning trust fund
            
            
            (4,150
            )
            
            (4,150
            )Purchases
                of available-for-sale securities
            
            
            (125,502
            )
            
            -Proceeds
                from sales of available-for-sale securities
            
            
            166,067
            
            
            1,511Proceeds
                from sales of assets and other investments
            
            
            11,100
            
            
            7Other,
                net
            
            
            (502
            )
            
            1,161Net
                cash used in investing activities
            
            
            (284,293
            )
            
            (227,196
            )**Net
                Cash Flows From Financing Activities**Retirement
                of long-term debt, including reacquisition cost
            
            
            (90,766
            )
            
            (55,892
            )Reacquisition
                of preferred securities
            
            
            -
            
            
            (1,430
            )Note
                payable to affiliate
            
            
            8,250
            
            
            10,550Net
                decrease in notes payable
            
            
            -
            
            
            (39,000
            )Other
            
            
            2,527
            
            
            1,200Net
                cash used in financing activities
            
            
            (79,989
            )
            
            (84,572
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            (79,183
            )
            
            1,390**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            88,367
            
            
            4,558**Cash
                and Cash Equivalents at End of Period**
            
            $
            9,184
            
            $
            5,948**Supplemental
                Disclosure:**Interest
                paid, net of amounts capitalized
            
            $
            62,471
            
            $
            55,671Income
                taxes paid
            
            $
            25,594
            
            $
            5,271






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




18


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**


**(Unaudited)**





**1.**
            **General**





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





The
      accompanying Consolidated Balance Sheet as of December 31, 2004, reflects
      a
      $39.5 million reclassification of instruments used in the MidAmerican
      Energy’s cash management program from Cash and Cash Equivalents to Short-Term
      Investments. This reclassification is to present auction rate securities as
      short-term investments rather than as cash equivalents due to the stated
      maturities of these investments. These instruments are classified as
      available-for-sale securities as management does not intend to hold them to
      maturity nor are they bought and sold with the objective of generating profits
      on short-term differences in price. The carrying value of these instruments
      approximates their fair value.





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





**2.**
            **New
                Accounting Pronouncements**





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





**3.**
            **Commitments
                and Contingencies**





Refer
      to
      Note 3 of MidAmerican Energy’s Notes to Consolidated Financial Statements for
      information regarding MidAmerican Funding’s commitments and
      contingencies.





**4.**
            **Rate
                Matters**





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





**5.**
            **Retirement
                Plans**





Refer
      to
      Note 5 of MidAmerican Energy’s Notes to Consolidated Financial Statements for
      information regarding MidAmerican Funding's retirement plans.




19


**6.**
            **Segment
                Information**





MidAmerican
      Funding has identified four reportable operating segments based principally
      on
      management structure. The generation segment derives most of its revenue from
      the sale of regulated and nonregulated wholesale electricity and natural gas.
      The energy delivery segment derives its revenue principally from the sale and
      delivery of regulated retail electricity and natural gas, while the transmission
      segment obtains most of its revenue from the sale of electric transmission
      capacity. The unregulated retail services segment receives its revenue
      principally from nonregulated retail sales of natural gas and electricity.
      Common operating costs, interest income, interest expense and income tax expense
      are allocated to each segment based on MidAmerican Energy allocators most
      related to the nature of the cost.





The
      energy delivery and transmission segments and substantially all of the
      generation segment are regulated as to rates, and other factors, related to
      services to external customers. Regulated electric retail revenues are billed
      to
      external customers by the energy delivery segment based on bundled tariffs
      that
      do not segregate components for the other segments. For internal segment
      reporting purposes, MidAmerican Energy has developed transfer prices to transfer
      the appropriate portion of those revenues to the other segments. The transfer
      prices are based on cost of service or tariffed rates, except for the generation
      segment which receives the residual.





MidAmerican
      Funding’s external revenues by product and service are displayed on the
      Consolidated Statements of Operations.




20


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





Three
                Months
            
            Six
                MonthsEnded
                June 30,
            
            Ended
                June 30,2005
            
            2004
            
            2005
            
            2004Segment
                Profit InformationOperating
                revenues:External
                revenues -Generation
            
            $
            153,169
            
            $
            143,367
            
            $
            312,066
            
            $
            322,238Energy
                delivery
            
            
            399,786
            
            
            371,268
            
            
            1,017,213
            
            
            945,695Transmission
            
            
            8,209
            
            
            7,070
            
            
            16,190
            
            
            13,698Unregulated
                retail services
            
            
            57,306
            
            
            52,266
            
            
            128,137
            
            
            132,272Other
            
            
            1,244
            
            
            1,550
            
            
            2,386
            
            
            2,564Total
            
            
            619,714
            
            
            575,521
            
            
            1,475,992
            
            
            1,416,467Intersegment
                revenues -Generation
            
            
            165,156
            
            
            156,908
            
            
            304,269
            
            
            300,115Energy
                delivery
            
            
            (179,837
            )
            
            (171,679
            )
            
            (333,631
            )
            
            (329,657
            )Transmission
            
            
            14,681
            
            
            14,771
            
            
            29,362
            
            
            29,542Total
            
            
            -
            
            
            -
            
            
            -
            
            
            -Consolidated
            
            $
            619,714
            
            $
            575,521
            
            $
            1,475,992
            
            $
            1,416,467Net
                income:Generation
            
            $
            10,763
            
            $
            11,445
            
            $
            19,037
            
            $
            33,279Energy
                delivery
            
            
            12,023
            
            
            8,826
            
            
            49,738
            
            
            43,154Transmission
            
            
            8,850
            
            
            7,333
            
            
            17,737
            
            
            14,480Unregulated
                retail services
            
            
            267
            
            
            655
            
            
            1,428
            
            
            1,924Other
            
            
            (6,694
            )
            
            (6,505
            )
            
            (6,374
            )
            
            (16,726
            )Consolidated
            
            $
            25,209
            
            $
            21,754
            
            $
            81,566
            
            $
            76,111





As
                ofJune 30,
            
            December 31,2005
            
            2004Segment
                Asset InformationTotal
                assets (a):Generation
            
            $
            3,323,282
            
            $
            3,153,106Energy
                delivery
            
            
            2,738,305
            
            
            2,886,213Transmission
            
            
            392,202
            
            
            361,524Unregulated
                retail services
            
            
            37,880
            
            
            42,725Other
            
            
            244,435
            
            
            227,258Total
            
            
            6,736,104
            
            
            6,670,826Reclassifications
                and intersegment eliminations (b)
            
            
            (265,749
            )
            
            (243,582
            )Consolidated
            
            $
            6,470,355
            
            $
            6,427,244





(a)
            Total
                assets by operating segment reflect the assignment of goodwill to
                applicable reporting units in accordance with Statement of Financial
                Accounting Standards No. 142, “Goodwill and Other Intangible
                Assets.”(b)
            Reclassifications
                and intersegment eliminations relate principally to the reclassification
                of income tax balances in accordance with generally accepted accounting
                principles and the elimination of intersegment accounts receivables
                and
                payables.


21


**7.**
            **Total
                Comprehensive Income**





MidAmerican
      Funding’s total comprehensive income for the three months ended June 30,
      2005 and 2004, was $25.1 million and $21.6 million, respectively.
      MidAmerican Funding’s total comprehensive income for the six months ended
      June 30, 2005 and 2004, was $78.7 million and $75.5 million,
      respectively. The difference from Net Income for the six months ended
      June 30, 2004, was due to the effective portion of net gains and losses
      on
      MidAmerican Energy’s derivative instruments classified as cash flow hedges. For
      the six months ended June 30, 2005, the difference from Net Income was
      substantially due to a minimum pension liability adjustment. Accumulated other
      comprehensive loss, net, was $2.8 million and $- million as of
      June 30, 2005, and December 31, 2004, respectively.





**8.**
            **Goodwill**





For
      the
      six months ended June 30, 2005, MidAmerican Funding adjusted goodwill
      for a
      change in deferred income taxes due to resolution of a tax issue existing at
      the
      time of its purchase of MHC. The following table shows the change in the
      carrying amount of goodwill by reportable operating segment for the six months
      ended June 30, 2005 (in thousands):





EnergyGeneration
            
            Delivery
            
            Transmission
            
            TotalBalance
                at January 1, 2005
            
            $
            922,859
            
            $
            261,575
            
            $
            83,648
            
            $
            1,268,082Income
                tax adjustment
            
            
            (1,526
            )
            
            (439
            )
            
            (138
            )
            
            (2,103
            )Balance
                at June 30, 2005
            
            $
            921,333
            
            $
            261,136
            
            $
            83,510
            
            $
            1,265,979


22





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





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





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





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





**Forward-Looking
      Statements**





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





**Executive
      Summary**





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





·
            During
                the first quarter of 2005, MidAmerican Energy’s regulated electric gross
                margin was impacted by a 43.7% decrease in wholesale sales volumes.
                The
                timing of planned generation outages, mainly for the Louisa Generating
                Station, and the loss of generating capacity at the Ottumwa Generating
                Station Unit No. 1 (“OGS Unit No. 1”), which experienced a failure of its
                step-up transformer on February 20, 2005, resulted in lost
                wholesale
                sales opportunities and required MidAmerican Energy to generate or
                purchase more costly replacement power. OGS Unit No. 1 returned to
                service
                on May 3, 2005. These factors affected the second quarter
                to a lesser
                degree, which reflects a 6.8% decrease in wholesale sales volumes
                compared
                to the second quarter of 2004. For the first six months of 2005 compared
                to the first six months of 2004, the decrease in electric wholesale
                sales
                volumes resulted in a $19.0 million reduction to regulated
                electric
                gross margin. Additionally, a decrease in the average electric wholesale
                margin per megawatt hour sold reduced electric wholesale gross margin,
                principally in the first quarter of 2005. The decrease in margin
                per
                megawatt hour sold was due to a change in the mix of higher-priced
                on-peak
                and lower-priced off-peak sales and a higher cost of energy. As a
                result,
                regulated electric gross margin for the first six months of 2005
                decreased
                $23.3 million, of which $14.3 million relates to the
                first
                quarter.





23




Regulatory
      expense related to the Iowa revenue sharing arrangement decreased by
      $17.0 million for the six months ended June 30, 2005, compared
      to the
      six months ended June 30, 2004. Amounts under the arrangement are
      determined based upon projected Iowa electric returns on equity which were
      unfavorably impacted by the lower wholesale revenues. Iowa revenue sharing
      is
      recorded as depreciation and amortization in the accompanying consolidated
      statement of operations.





·
            MidAmerican
                Energy is currently constructing a 790-megawatt (“MW”)(expected
                accreditation) super-critical-temperature, coal-fired generation
                project
                and a 360-MW (nameplate rating) wind power project in Iowa and expects
                to
                invest approximately $1.1 billion in the projects through
                2007.
                Through June 30, 2005, $525.3 million of the
                $1.1 billion had been invested. In December 2004, 160.5 MW
                of
                the wind power project was completed and placed in service. The remainder
                of the wind power project is expected to be completed in
                2005.





**Results
      of Operations for the Quarter Ended June 30, 2005 and
      2004**





Earnings
      Overview





MidAmerican
      Energy’s earnings on common stock increased $3.6 million to
      $31.9 million for the second quarter of 2005 compared to $28.3 million
      for the second quarter of 2004. MidAmerican Funding’s net income increased
      $3.4 million to $25.2 million for the second quarter of 2005
      compared
      to $21.8 million for the second quarter of 2004.





Following
      is a discussion of various factors that affected earnings. Explanations include
      management's best estimate of the impact of weather, customer growth and other
      factors.





Regulated
      Electric Gross Margin





QuarterEnded
                June 30,2005
            
            2004Gross
                margin (in millions):Operating
                revenues
            
            $
            347.3
            
            $
            344.4Less
                cost of fuel, energy and capacity
            
            
            102.6
            
            
            98.7Electric
                gross margin
            
            $
            244.7
            
            $
            245.7Sales
                (gigawatt-hours):Residential
            
            
            1,223
            
            
            1,178Small
                general service
            
            
            997
            
            
            954Large
                general service
            
            
            1,954
            
            
            1,852Other
            
            
            355
            
            
            331Total
                retail
            
            
            4,529
            
            
            4,315Wholesale
            
            
            2,049
            
            
            2,198Total
            
            
            6,578
            
            
            6,513





Electric
      gross margin for the second quarter of 2005 decreased $1.0 million compared
      to the second quarter of 2004. Gross margin on electric wholesale sales
      decreased $8.8 million, while transmission revenues increased
      $1.1 million, MidAmerican Energy’s cost of sales for electric capacity
      purchases decreased $5.1 million, and gross margin on electric retail
      sales
      was unchanged.





In
      total,
      electric retail sales volumes increased 5.0% compared to the second quarter
      of
      2004. The effect of temperature conditions during the second quarter of 2005
      compared to the second quarter of 2004 resulted in a $7.7 million increase
      in electric retail gross margin. An increase in the average number of retail
      customers improved electric retail gross margin by $3.2 million compared
      to
      the second quarter of 2004. An increase in fuel costs related to Iowa retail
      electric sales, due in part to increased coal and related transportation costs,
      decreased electric retail gross margin by $11.8 million compared to
      the
      second quarter of 2004. Revenues from the recovery of energy efficiency program
      costs increased $1.1 million compared to the second quarter of 2004.
      Changes in energy efficiency revenues are substantially matched with
      corresponding changes in other operating expenses. Additionally, gains from
      the
      sales of emissions allowances increased $0.5 million.





24




Sales
      of
      energy to other utilities, municipalities and marketers inside and outside
      of
      MidAmerican Energy's delivery system are classified as wholesale. The decrease
      in gross margin on electric wholesale energy sales is due principally to a
      reduction in the average margin per megawatt hour sold as a result of a change
      in the mix of higher-priced on-peak and lower-priced off-peak sales, which
      lowered gross margin by $7.2 million. Additionally, a 6.8% decrease
      in
      wholesale sales volumes compared to the second quarter of 2004 resulted in
      a
      $1.6 million decrease in electric wholesale gross margin. The decrease
      in
      wholesale sales volumes was in part due to a reduction in the availability
      of
      competitively priced generation as a result of an increased demand for
      MidAmerican Energy’s retail sales.





Regulated
      Gas Gross Margin





QuarterEnded
                June 30,2005
            
            2004Gross
                margin (in millions)Operating
                revenues
            
            $
            210.0
            
            $
            173.7Less
                cost of gas sold
            
            
            166.9
            
            
            133.4Gas
                gross margin
            
            $
            43.1
            
            $
            40.3Sales
                (000’s decatherms):Residential
            
            
            5,792
            
            
            5,361Small
                general service
            
            
            2,858
            
            
            2,623Large
                general service
            
            
            1,019
            
            
            377Other
            
            
            8
            
            
            84Total
                retail
            
            
            9,677
            
            
            8,445Wholesale
            
            
            13,687
            
            
            12,194Total
            
            
            23,364
            
            
            20,639





Regulated
      gas revenues include purchased gas adjustment clauses through which MidAmerican
      Energy is allowed to recover the cost of gas sold from its retail gas utility
      customers. Consequently, fluctuations in the cost of gas sold do not affect
      gross margin or net income because revenues reflect comparable fluctuations
      through the purchased gas adjustment clauses. Compared to the second quarter
      of
      2004, MidAmerican Energy’s average per-unit cost of gas sold increased 10.5%,
      resulting in a $15.9 million increase in cost of gas sold for the quarter.
      The remainder of the increase in cost of gas sold was due to an increase in
      sales volumes.





The
      following table summarizes the variance in gas operating revenues, including
      the
      impact of the fluctuation in the cost of gas sold. The variances in gas
      operating revenues other than the fluctuation in cost of gas sold have the
      same
      impact on gross margin.


25




Quarter
                EndedJune 30,2005
                vs. 2004(In
                millions)Change
                in cost of gas sold:Cost
                per unit
            
            $
            15.9Sales
                volumes
            
            
            17.6Total
            
            
            33.5Other
                gas usage factors
            
            
            1.4Energy
                efficiency cost recovery
            
            
            0.8Customer
                growth
            
            
            0.6Total
                revenue variance
            
            $
            36.3





Other
      gas
      usage factors, such as changes in individual customer usage patterns and
      reaction to prices, increased gas margin. MidAmerican Energy's average number
      of
      gas retail customers increased 1.5% compared to the second quarter of 2004.
      Changes in energy efficiency revenues are substantially matched with
      corresponding changes in other operating expenses.





Regulated
      Operating Expenses





Other
      operating expenses increased $1.9 million compared to the second quarter
      of
      2004 due to a $1.9 million increase in costs related to energy efficiency
      programs, which was substantially matched by increases in related electric
      and
      gas revenues.





Maintenance
      expenses for the second quarter of 2005 decreased $6.2 million compared
      to
      the second quarter of 2004 due to a $6.2 million decrease in fossil
      fuel
      generating maintenance as a result of the timing of preventive
      maintenance.





Depreciation
      and amortization expense for the second quarter of 2005 increased
      $6.1 million compared to the second quarter of 2004 in part due to a
      $3.5 million increase in regulatory expense related to a revenue sharing
      arrangement in Iowa due to higher Iowa electric returns on equity. Refer to
      the
“Utility Regulatory Matters” section for an explanation of the revenue sharing
      arrangement. Additionally, utility plant depreciation and amortization increased
      $2.3 million in part due to phase two of the Greater Des Moines Energy
      Center and a portion of the wind power facilities being placed in service in
      December 2004.





Nonregulated
      Gross Margin





QuarterEnded
                June 30,2005
            
            2004(In
                millions)MidAmerican
                Energy -Nonregulated
                operating revenues
            
            $
            61.2
            
            $
            55.9Less
                nonregulated cost of sales
            
            
            53.7
            
            
            47.6Nonregulated
                gross margin
            
            $
            7.5
            
            $
            8.3MidAmerican
                Funding Consolidated -Nonregulated
                operating revenues
            
            $
            62.5
            
            $
            57.5Less
                nonregulated cost of sales
            
            
            54.1
            
            
            48.1Nonregulated
                gross margin
            
            $
            8.4
            
            $
            9.4





MidAmerican
      Energy’s nonregulated retail electric marketing services provide electric supply
      services to retail customers in Illinois, Ohio and Michigan. An 11.7% increase
      in nonregulated retail electric sales volumes combined with increases in the
      average revenue and cost per megawatt hour sold resulted in increases in related
      revenues and cost of sales totaling $6.9 million and $7.6 million,
      respectively.





MidAmerican
      Energy’s nonregulated retail gas marketing services operate in Iowa, Illinois,
      Ohio and South Dakota. MidAmerican Energy purchases gas from producers and
      third
      party marketers and sells it directly to large commercial end-users. In
      addition, MidAmerican Energy manages gas supplies for a number of smaller
      commercial end-users, which includes the sale of gas to these customers to
      meet
      their supply requirements. An 18.7% decrease in nonregulated retail gas sales
      volumes compared to the second quarter of 2004, offset partially by increases
      in
      the revenue and cost per unit sold, resulted in decreases in related revenues
      and cost of sales of $1.9 million and $1.5 million, respectively.
      The
      decrease in nonregulated retail gas sales volumes was due in large part to
      the
      non-renewal of sales contracts as a result of a related regulatory issue in
      Illinois. Refer to “Rate Matters” for a discussion of the issue.





26




Other
      Income





MidAmerican
      Energy -





As
      a
      regulated public utility, MidAmerican Energy is allowed to capitalize, and
      record as income, a cost of construction for equity funds used, based on
      guidelines set forth by the Federal Energy Regulatory Commission (“FERC”). Other
      income for the capitalized allowance on equity funds used during construction
      totaled $5.5 million and $4.4 million in the second quarter of
      2005
      and 2004, respectively. MidAmerican Energy expects to continue to record income
      for the allowance on equity funds used during construction through 2007 while
      the announced generating facilities are constructed.





Fixed
      Charges





The
      increase in interest on long-term debt was due to the effect of
      $350.0 million of MidAmerican Energy long-term debt issued on
      October 1, 2004, offset partially by maturities of higher rate
      debt in
      2004 and 2005. Other interest expense increased due to a higher balance of
      the
      Iowa revenue sharing liability. MidAmerican Energy is allowed to capitalize,
      and
      record as a reduction to fixed charges, a cost of construction for debt funds
      used, based on guidelines set forth by the FERC. Allowance for borrowed funds
      increased due to increased utility construction expenditures. MidAmerican Energy
      expects to continue to record allowance for borrowed funds used during
      construction through 2007 while the announced generating facilities are
      constructed.





Income
      Taxes





In
      October 2004, the President signed into law legislation that extends the federal
      production tax credit for electricity produced by wind energy facilities placed
      in service prior to January 1, 2006. Accordingly, in 2005, MidAmerican
      Energy’s income taxes for the three months ended June 30, 2005, were
      reduced $1.8 million by the production tax credits related to energy
      produced by its wind power facilities.





State
      utility rate regulation in Iowa requires that the tax effect of certain timing
      differences be flowed through immediately to customers. Accordingly, amounts
      that would otherwise have been recognized in income tax expense have been
      included as changes in regulatory assets. This flow-through treatment of such
      timing differences impacts the effective tax rates from year to year,
      particularly as it related to the federal bonus depreciation deductions
      associated with the significant generation plant additions in 2004.





**Results
      of Operations for the Six Months Ended June 30, 2005 and
      2004**





Earnings
      Overview





MidAmerican
      Energy’s earnings on common stock decreased $4.9 million to
      $87.9 million for the first six months of 2005 compared to
      $92.8 million for the first six months of 2004. MidAmerican Funding’s net
      income increased $5.5 million to $81.6 million for the first
      six
      months of 2005 compared to $76.1 million for the first six months of
      2004.
      The decreased earnings on common stock at MidAmerican Energy was more than
      offset by gains on the sales of interests in non-strategic, passive investments
      at MidAmerican Funding.




Following
      is a discussion of various factors that affected earnings. Explanations include
      management's best estimate of the impact of weather, customer growth and other
      factors.




27


Regulated
      Electric Gross Margin





Six
                MonthsEnded
                June 30,2005
            
            2004Gross
                margin (in millions):Operating
                revenues
            
            $
            659.8
            
            $
            707.6Less
                cost of fuel, energy and capacity
            
            
            191.3
            
            
            212.9Electric
                gross margin
            
            $
            468.5
            
            $
            494.7Sales
                (gigawatt-hours):Residential
            
            
            2,592
            
            
            2,571Small
                general service
            
            
            1,957
            
            
            1,917Large
                general service
            
            
            3,684
            
            
            3,547Other
            
            
            708
            
            
            671Total
                retail
            
            
            8,941
            
            
            8,706Wholesale
            
            
            3,768
            
            
            5,250Total
            
            
            12,709
            
            
            13,956





Electric
      gross margin for the first six months of 2005 decreased $26.2 million
      compared to the first six months of 2004 due primarily to a $25.2 million
      decrease in the first quarter of 2005. For the first six months of 2005, gross
      margin on wholesale sales decreased $42.3 million, and gross margin
      on
      retail sales decreased $1.3 million. These decreases were partially
      offset
      by a $2.5 million increase in transmission revenues and a
      $13.4 million decrease in MidAmerican Energy’s cost of sales for electric
      capacity purchases.





Sales
      of
      energy to other utilities, municipalities and marketers inside and outside
      of
      MidAmerican Energy's delivery system are classified as wholesale. A change
      in
      the mix of higher-priced on-peak and lower-priced off-peak sales and a higher
      average cost of energy caused a decrease in the average electric wholesale
      margin per megawatt hour sold, reducing electric wholesale gross margin by
      $23.3 million compared to the first six months of 2004. Additionally,
      a
      28.2% decrease in wholesale sales volumes reduced electric wholesale gross
      margin by $19.0 million. The timing of planned generation outages, mainly
      for the Louisa Generating Station, and the loss of generating capacity at the
      OGS Unit No. 1, which experienced a failure of its step-up transformer
      on
      February 20, 2005, resulted in lost wholesale sales opportunities. OGS
      Unit
      No. 1 returned to service on May 3, 2005. An increase in electric
      retail sales also reduced the availability of competitively priced generation,
      contributing to the decrease in wholesale sales volumes.





In
      total,
      electric retail sales volumes increased 2.7% compared to the first six months
      of
      2004. The effect of temperature conditions during the first six months of 2005
      compared to the first six months of 2004 resulted in a $5.0 million
      increase in electric retail gross margin. An increase in the average number
      of
      retail customers improved electric retail gross margin by $6.3 million
      compared to the first six months of 2004, while electricity usage factors not
      dependent on weather, such as changes in individual customer usage patterns,
      increased electric margin by $3.9 million. An increase in fuel costs
      related to Iowa retail electric sales decreased electric retail gross margin
      by
      $18.4 million compared to the first six months of 2004 due in part to
      the
      cost of replacement power as a result of the generating station outages
      mentioned above. Revenues from the recovery of energy efficiency program costs
      increased $2.5 million compared to the first six months of 2004. Changes
      in
      these revenues are substantially matched with corresponding changes in other
      operating expenses.





28


Regulated
      Gas Gross Margin





Six
                MonthsEnded
                June 30,2005
            
            2004Gross
                margin (in millions)Operating
                revenues
            
            $
            677.4
            
            $
            567.2Less
                cost of gas sold
            
            
            554.0
            
            
            444.2Gas
                gross margin
            
            $
            123.4
            
            $
            123.0Sales
                (000’s decatherms):Residential
            
            
            28,685
            
            
            30,507Small
                general service
            
            
            13,738
            
            
            14,295Large
                general service
            
            
            2,614
            
            
            1,395Other
            
            
            35
            
            
            174Total
                retail
            
            
            45,072
            
            
            46,371Wholesale
            
            
            30,942
            
            
            25,882Total
            
            
            76,014
            
            
            72,253





Regulated
      gas revenues include purchased gas adjustment clauses through which MidAmerican
      Energy is allowed to recover the cost of gas sold from its retail gas utility
      customers. Consequently, fluctuations in the cost of gas sold do not affect
      gross margin or net income because revenues reflect comparable fluctuations
      through the purchased gas adjustment clauses. Compared to the first six months
      of 2004, MidAmerican Energy’s average per-unit cost of gas sold increased 18.5%,
      resulting in a $86.6 million increase in cost of gas sold for the first
      six
      months. The remainder of the increase in cost of gas sold was due to an increase
      in sales volumes.





The
      following table summarizes the variance in gas operating revenues, including
      the
      impact of the fluctuation in the cost of gas sold. The variances in gas
      operating revenues other than the fluctuation in cost of gas sold have the
      same
      impact on gross margin.





Six
                MonthsEnded
                June 30,2005
                vs. 2004(In
                millions)Change
                in cost of gas sold:Cost
                per unit
            
            $
            86.6Sales
                volumes
            
            
            23.2Total
            
            
            109.8Weather
            
            
            (2.8
            )Other
                gas usage factors
            
            
            (1.4
            )Energy
                efficiency cost recoveries
            
            
            1.7Customer
                growth
            
            
            2.1Other
            
            
            0.8Total
                revenue variance
            
            $
            110.2





The
      decrease in gas gross margin due to weather was the result of mild temperature
      conditions in the first six months of 2005 compared to the first six months
      in
      2004. Other gas usage factors, such as changes in individual customer usage
      patterns and reaction to prices, also decreased gas margin. MidAmerican Energy's
      average number of gas retail customers increased 1.6% compared to the first
      six
      months of 2004. Changes in energy efficiency revenues are substantially matched
      with corresponding changes in other operating expenses.





29


Regulated
      Operating Expenses





Other
      operating expenses increased $3.2 million compared to the first six
      months
      of 2004 due to a $4.2 million increase in costs related to energy
      efficiency programs and a $2.0 million increase in manufactured gas
      plant
      cleanup costs. These increases were partially offset by a $3.5 million
      decrease in postretirement benefit expense compared to the first six months
      of
      2004 due to the impact of the Medicare Prescription Drug, Improvement and
      Modernization Act of 2003 and a plan amendment effective July 1, 2004.
      Increases in energy efficiency programs costs are substantially matched by
      increases in related electric and gas revenues.





Maintenance
      expenses for the first six months of 2005 decreased $2.6 million compared
      to the first six months of 2004 due principally to a $4.3 million decrease
      in fossil fuel generating maintenance, mostly as a result of the timing of
      preventive maintenance, and a $1.1 million increase in distribution
      maintenance.





Depreciation
      and amortization expense for the first six months of 2005 decreased
      $13.0 million compared to the first six months of 2004 due to a
      $17.0 million decrease in regulatory expense related to a revenue sharing
      arrangement in Iowa due to lower Iowa electric returns on equity primarily
      due
      to lower electric margins. Refer to the “Utility Regulatory Matters” section for
      an explanation of the revenue sharing arrangement. The decrease in regulatory
      expense was partially offset by a $4.4 million increase in utility plant
      depreciation due in part to phase two of the Greater Des Moines Energy Center
      and a portion of the wind power facilities being placed in service in December
      2004.





Nonregulated
      Gross Margin





Six
                MonthsEnded
                June 30,2005
            
            2004(In
                millions)MidAmerican
                Energy -Nonregulated
                operating revenues
            
            $
            136.3
            
            $
            139.1Less
                nonregulated cost of sales
            
            
            120.1
            
            
            122.4Nonregulated
                gross margin
            
            $
            16.2
            
            $
            16.7MidAmerican
                Funding Consolidated -Nonregulated
                operating revenues
            
            $
            138.7
            
            $
            141.7Less
                nonregulated cost of sales
            
            
            120.6
            
            
            123.2Nonregulated
                gross margin
            
            $
            18.1
            
            $
            18.5





MidAmerican
      Energy’s nonregulated retail electric marketing services provide electric supply
      services to retail customers in Illinois, Ohio and Michigan. Increases in the
      average revenue and cost per megawatt hour sold combined with a 2.6% increase
      in
      nonregulated retail electric sales volumes resulted in increases in related
      revenues and cost of sales totaling $12.2 million and $13.0 million,
      respectively.





MidAmerican
      Energy’s nonregulated gas retail marketing services operate in Iowa, Illinois,
      Ohio and South Dakota. MidAmerican Energy purchases gas from producers and
      third
      party marketers and sells it directly to large commercial end-users. In
      addition, MidAmerican Energy manages gas supplies for a number of smaller
      commercial end-users, which includes the sale of gas to these customers to
      meet
      their supply requirements. A 29.6% decrease in nonregulated retail gas sales
      volumes compared to the first six months of 2004, offset partially by increases
      in the revenue and cost per unit sold, resulted in decreases in related revenues
      and cost of sales of $16.2 million and $15.2 million, respectively.
      The decrease in nonregulated retail gas sales volumes was due in large part
      to
      the non-renewal of sales contracts as a result of a related regulatory issue
      in
      Illinois. Refer to “Rate Matters” for a discussion of the issue.





The
      decreases in nonregulated gross margin due to nonregulated retail electric
      and
      gas sales operations were partially offset by an increase in the gross margin
      on
      nonregulated wholesale gas sales and increases in earnings from sharing
      arrangements related to MidAmerican Energy’s regulated natural gas operations.




30


Other
      Income





MidAmerican
      Energy -





As
      a
      regulated public utility, MidAmerican Energy is allowed to capitalize, and
      record as income, a cost of construction for equity funds used, based on
      guidelines set forth by the FERC. Other income for the capitalized allowance
      on
      equity funds used during construction totaled $9.9 million and
      $7.7 million in the first six months of 2005 and 2004, respectively.
      MidAmerican Energy expects to continue to record income for the allowance on
      equity funds used during construction through 2007 while the announced
      generating facilities are constructed.





MidAmerican
      Funding -





Other
      income for the first six months of 2005 includes $9.9 million of gains
      from
      the sale of two non-strategic, passive investments. These gains were partially
      offset by a decrease in income from other alternative energy capital
      investments.





Fixed
      Charges





The
      increase in interest on long-term debt was due to the effect of
      $350.0 million of MidAmerican Energy long-term debt issued on
      October 1, 2004, offset partially by maturities of higher rate
      debt in
      2004 and 2005. Other interest expense increased due to a higher balance of
      the
      Iowa revenue sharing liability. MidAmerican Energy is allowed to capitalize,
      and
      record as a reduction to fixed charges, a cost of construction for debt funds
      used, based on guidelines set forth by the FERC. Allowance for borrowed funds
      increased due to increased utility construction expenditures. MidAmerican Energy
      expects to continue to record allowance for borrowed funds used during
      construction through 2007 while the announced generating facilities are
      constructed.





Income
      Taxes





MidAmerican
      Energy -





In
      October 2004, the President signed into law legislation that extends the federal
      production tax credit for electricity produced by wind energy facilities placed
      in service prior to January 1, 2006. Accordingly, in 2005, MidAmerican
      Energy’s income taxes for the six months ended June 30, 2005, were reduced
      $4.6 million by the production tax credits related to energy produced
      by
      its wind power facilities.





State
      utility rate regulation in Iowa requires that the tax effect of certain timing
      differences be flowed through immediately to customers. Accordingly, amounts
      that would otherwise have been recognized in income tax expense have been
      included as changes in regulatory assets. This flow-through treatment of such
      timing differences impacts the effective tax rates from year to year,
      particularly as it related to the federal bonus depreciation deductions
      associated with the significant generation plant additions in 2004.





During
      the first quarter of 2004, MidAmerican Energy settled an income tax audit with
      the Internal Revenue Service and recorded as income a tax liability previously
      established for the settled issue, resulting in an $8.5 million reduction
      to MidAmerican Energy’s income tax expense for the first six months of
      2004.





MidAmerican
      Funding -





A
      significant portion of MidAmerican Energy’s tax liability for the settled issue
      above was originally established in 1999 when MidAmerican Energy's parent
      company, MHC Inc., was acquired by MidAmerican Funding. This change in estimate
      of an income tax uncertainty that resulted from a purchase business combination
      was accounted for as an adjustment to the remaining balance of goodwill
      attributable to the acquisition. Accordingly, in the first quarter of 2004,
      MidAmerican Funding decreased goodwill and increased income tax expense by
      $4.7 million to reflect the settlement of that portion of the income
      tax
      liability recognized at the time of the acquisition of MHC.




31


**Liquidity
      and Capital Resources**





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





As
      reflected on the Consolidated Statements of Cash Flows, MidAmerican Energy’s net
      cash provided by operating activities was $305.5 million and
      $328.0 million for the first six months of 2005 and 2004, respectively.
      MidAmerican Funding’s net cash provided by operating activities was
      $285.1 million and $313.2 million for the first quarter of 2005
      and
      2004, respectively. The decrease in cash provided by operating activities for
      the first six months of 2005 compared to the first six months of 2004 is
      principally due to an increase in income taxes paid as benefits from bonus
      depreciation in 2004 were greater than benefits from production tax credits
      in
      2005.





Utility
      Construction Expenditures





MidAmerican
      Energy’s primary need for capital is utility construction expenditures. For the
      first six months of 2005, utility construction expenditures incurred totaled
      $331.3 million, including allowance for funds used during construction
      and
      Quad Cities Station nuclear fuel purchases. Utility construction expenditures
      include non-cash and accrued amounts, which include $27.3 million in
      the
      first six months of 2005 for MidAmerican Energy’s share of deferred payments
      related to the Council Bluffs Energy Center Unit No. 4 (“CBEC Unit 4”)
      generation project. Under a contract with the general contractor on that
      project, MidAmerican Energy is allowed to defer payments, including the other
      owners’ shares, for up to $200.0 million of billed construction costs
      through the end of the project. Another non-cash expenditure included in utility
      construction expenditures relates to a computed cost of equity funds. As a
      regulated public utility, MidAmerican Energy is allowed to capitalize, and
      record as income, a cost of construction for equity funds used, based on
      guidelines set forth by the FERC.





Forecasted
      utility construction expenditures, including allowance for funds used during
      construction and completion of the wind power project discussed below, are
      $856 million for 2005. Capital expenditure needs are reviewed regularly
      by
      management and may change significantly as a result of such reviews. MidAmerican
      Energy expects to meet these capital expenditures with cash flows from
      operations and the issuance of long-term debt.





MidAmerican
      Energy anticipates a continuing increase in demand for electricity from its
      regulated customers. To meet anticipated demand and ensure adequate electric
      generation in its service territory, MidAmerican Energy is currently
      constructing CBEC Unit 4, a 790-MW (expected accreditation)
      super-critical-temperature, coal-fired facility, and a 360-MW (nameplate rating)
      wind power project in Iowa. The projects will provide service to regulated
      retail electricity customers. MidAmerican Energy has obtained regulatory
      approval to include the Iowa portion of the actual costs of the generation
      projects in its Iowa rate base as long as actual costs do not exceed the agreed
      caps that MidAmerican Energy has deemed to be reasonable. If the caps are
      exceeded, MidAmerican Energy has the right to demonstrate the prudence of the
      expenditures above the caps, subject to regulatory review. Wholesale sales
      may
      also be made from the projects to the extent the power is not immediately needed
      for regulated retail service. MidAmerican Energy expects to invest approximately
      $1.1 billion in the CBEC Unit 4 and wind generation projects, of which
      $525.3 million has been invested through June 30, 2005.





MidAmerican
      Energy will operate CBEC Unit 4 and hold an undivided ownership interest as
      a
      tenant in common with the other owners of the plant. MidAmerican Energy's
      ownership interest is 60.67%, equating to 479 MW of output. MidAmerican Energy
      expects its share of the estimated cost of the project, including transmission
      facilities, to be approximately $737 million, excluding allowance for
      funds
      used during construction. Municipal, cooperative and public power utilities
      will
      own the remainder, which is a typical ownership arrangement for large base-load
      plants in Iowa. On February 12, 2003, MidAmerican Energy executed a
      contract with Mitsui & Co. Energy Development, Inc. for engineering,
      procurement and construction of the plant. On September 9, 2003,
      MidAmerican Energy began construction of the plant, which it expects to be
      completed in the summer of 2007. On December 29, 2004, MidAmerican Energy
      received an order from the IUB approving construction of the associated
      transmission facilities and is proceeding with construction.





The
      wind
      power project currently under construction consists of wind power facilities
      located at two sites in north central Iowa totaling 360 MW (nameplate rating),
      including an expected 50-MW expansion of the original project. As of
      December 31, 2004, wind turbines totaling 160.5 MW at one of
      the sites
      were completed and in service. The remaining turbines are expected to be
      completed in the second half of 2005. Generally speaking, accredited capacity
      ratings for wind power facilities are considerably less than the nameplate
      ratings due to the varying nature of wind. The current projected accredited
      capacity for the 360 MW of wind power facilities is approximately 61 MW.
      MidAmerican Energy will own and operate these facilities, which, including
      transmission facilities, are expected to cost approximately $386 million,
      excluding allowance for funds used during construction. On January 31,
      2005, the IUB approved ratemaking principles related to the expansion of the
      wind power project. Refer to the “Rate Matters” discussion below for information
      regarding the rate aspects of related settlement agreements.




32


Nuclear
      Decommissioning





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





MidAmerican
      Energy currently contributes $8.3 million annually to trusts established
      for the investment of funds for decommissioning Quad Cities Station.
      Approximately 70% of the fair value of the trusts’ funds is now invested in
      domestic corporate debt and common equity securities. The remainder is invested
      in investment grade municipal and U.S. Treasury bonds. Funding for Quad Cities
      Station nuclear decommissioning is reflected as depreciation expense in the
      Consolidated Statements of Operations. Quad Cities Station decommissioning
      costs
      charged to Iowa customers are included in base rates, and recovery of increases
      in those amounts must be sought through the normal ratemaking process.





Contractual
      Obligations and Commercial Commitments





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





Debt
      Redemption and Issuance





MidAmerican
      Energy’s 7% series of mortgage bonds, totaling $90.5 million, matured on
      February 15, 2005. MidAmerican Energy expects to issue long-term debt
      in
      2005 to support construction of its electric generation projects and for general
      corporate purposes.





Debt
      Authorizations and Credit Facilities





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





MidAmerican
      Energy currently has the following authorizations to issue additional long-term
      securities. MidAmerican Energy has on file with the Securities and Exchange
      Commission registration statements providing for the issuance of
      $530.0 million in various forms of senior and subordinated long-term
      debt
      and preferred securities. MidAmerican Energy has authorization from the FERC
      to
      issue various forms of long-term debt in the amount of $880.0 million
      through November 30, 2005, and $425.0 million for
      December 1, 2005 through November 30, 2006. Under the FERC
      authorization, such funds would be used to refinance maturing debt and to
      finance a portion of the cost of the generation projects noted above.
      MidAmerican Energy has authority from the Illinois Commerce Commission (“ICC”)
      to issue up to $546.4 million of long-term debt for refinancing purposes
      and capital expenditures.





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




33




Other
      Financing Information





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





**Credit
      Ratings Risks**





Debt
      and
      preferred securities of MidAmerican Funding and MidAmerican Energy are rated
      by
      nationally recognized credit rating agencies. Assigned credit ratings are based
      on each rating agency’s assessment of MidAmerican Funding’s or MidAmerican
      Energy’s ability to, in general, meet the obligations of the debt or preferred
      securities issued by the rated company. The credit ratings are not a
      recommendation to buy, sell or hold securities, and there is no assurance that
      a
      particular credit rating will continue for any given period of time. Other
      than
      the energy trading agreements discussed below, neither MidAmerican Funding
      nor
      MidAmerican Energy has any credit agreements that require termination or a
      material change in collateral requirements or payment schedule in the event
      of a
      downgrade in the credit ratings of the respective company’s
      securities.





In
      conjunction with its 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 June 30, 2005,
      MidAmerican Energy’s estimated potential collateral requirements totaled
      approximately $104 million. MidAmerican Energy’s collateral requirements
      could fluctuate considerably due to seasonality, market price volatility, and
      a
      loss of key MidAmerican Energy generating facilities or other related factors.





**Utility
      Regulatory Matters**





Rate
      Matters





Under
      three settlement agreements between MidAmerican Energy, the Iowa Office of
      Consumer Advocate (“OCA”) and other intervenors approved by the IUB, MidAmerican
      Energy has agreed not to seek a general increase in electric rates prior to
      2012
      unless, beginning in 2006, its Iowa jurisdictional electric return on equity
      for
      any year falls below 10%. Prior to filing for a general increase in electric
      rates, MidAmerican Energy is required to conduct 30 days of good faith
      negotiations with the signatories to the settlement agreements to attempt to
      avoid a general increase in such rates. As a party to the settlement agreements,
      the OCA has agreed not to request or support any decrease in MidAmerican
      Energy’s Iowa electric rates prior to January 1, 2012. The settlement
      agreements specifically allow the IUB to approve or order electric rate design
      or cost of service rate changes that could result in changes to rates for
      specific customers as long as such changes do not result in an overall increase
      in revenues for MidAmerican Energy. The settlement agreements also each provide
      that portions of revenues associated with Iowa retail electric returns on equity
      within specified ranges will be recorded as a regulatory liability.





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





The
      third
      settlement agreement was approved by the IUB on January 31, 2005, in
      conjunction with MidAmerican Energy’s proposed expansion of its wind power
      project by up to 90 MW. This settlement extended through 2011 MidAmerican
      Energy’s commitment not to seek a general increase in electric rates unless its
      Iowa jurisdictional electric return on equity falls below 10%. It also extended
      the revenue sharing mechanism through 2011. In addition, the OCA agreed to
      commit not to seek any decrease in Iowa electric base rates to become effective
      before January 1, 2012. The total capacity added as the result of the
      wind
      expansion project is currently projected to be 50 MW.




34




The
      regulatory liabilities created by the three settlement agreements are recorded
      as a regulatory charge in depreciation and amortization expense when the
      liability is accrued. Additionally, interest expense is accrued on the portion
      of the regulatory liability balance recorded in prior years. The regulatory
      liabilities created for the years through 2010 are expected to be reduced as
      they are credited against plant in service associated with generating plant
      additions. As a result of the credit applied to generating plant balances from
      the reduction of the regulatory liabilities, future depreciation will be
      reduced. As of June 30, 2005 and December 31, 2004, the related
      regulatory liability reflected on the Consolidated Balance Sheets was
      $207.2 million and $181.2 million, respectively. The regulatory
      liability accrued for 2011, if any, will be credited to customer bills in
      2012.





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





Illinois
      bundled electric rates are frozen until 2007, subject to certain exceptions
      allowing for increases, at which time bundled rates may be increased or
      decreased by the ICC. Illinois law provides that, through 2006, Illinois
      earnings above a computed level of return on common equity are to be shared
      equally between regulated retail electric customers and MidAmerican Energy.
      MidAmerican Energy’s computed level of return on common equity is based on a
      rolling two-year average of the Monthly Treasury Long-Term Average Rate, as
      published by the Federal Reserve System, plus a premium of 8.5% for 2000 through
      2004 and a premium of 12.5% for 2005 and 2006. The two-year average above which
      sharing must occur for 2004 was 13.57%. The law allows MidAmerican Energy to
      mitigate the sharing of earnings above the threshold return on common equity
      through accelerated recovery of electric assets.





In
      2004,
      the ICC issued a declaratory ruling finding that MidAmerican Energy’s
      competitive sales of gas to retail customers within the state of Illinois were
      not authorized under the Illinois Public Utilities Act. In its ruling, the
      ICC
      left for subsequent proceedings issues related to the financial implications
      of
      these sales. To date, these issues have been addressed by ICC staff in its
      testimony in the purchased gas adjustment reconciliation proceedings covering
      2001 and 2002. In that testimony, the ICC staff expressed its position that
      MidAmerican Energy must reduce gas costs recovered from Illinois regulated
      gas
      customers through the purchased gas adjustment by the gross margins earned
      from
      MidAmerican Energy’s Illinois nonregulated retail customers since 1996. Gross
      margin is the difference between the revenue and the related cost of gas for
      MidAmerican Energy’s nonregulated sales of gas to retail customers in the entire
      state of Illinois. The ICC has not yet ruled in either case. In addition,
      MidAmerican Energy believes it is possible that the gross margins earned in
      earlier periods in final purchased gas adjustment reconciliation proceedings
      back to 1996 may be subject to challenge. If the ICC accepts the adjustments
      proposed by its staff and makes the same adjustment for the years 2003 - 2004,
      the total cumulative adjustment through November 30, 2004, including
      the
      adjustments since 1996, would be $7.8 million. In its declaratory ruling,
      the ICC decided to open a separate proceeding, in addition to the purchased
      gas
      adjustment reconciliation proceedings, to determine an appropriate remedy to
      impose upon MidAmerican Energy for making competitive sales throughout the
      state
      of Illinois without statutory or regulatory authorization. In its order
      initiating this separate proceeding, the ICC stated there would not be any
      further litigation of the ICC conclusions arrived at in the declaratory ruling
      proceeding, despite the lack of an evidentiary hearing in that proceeding.
      The
      ruling of the ICC in the declaratory ruling proceeding, including its
      determination not to conduct an evidentiary hearing, is now on appeal in the
      Illinois Appellate Court. Additional grounds of appeal are whether the ICC
      misinterpreted its authority in ruling that the Illinois Public Utilities Act
      does not authorize competitive sales of gas, whether MidAmerican Energy was
      retroactively authorized to make these sales as a result of passage of SB 2525,
      and whether the ruling interferes with MidAmerican Energy’s rights to use
      nonpublic utility assets.




35




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





Transmission
      Developments





The
      FERC
      has undertaken several measures to increase competition in the markets for
      wholesale electric energy, including efforts to foster the development of
      regional transmission organizations (“RTO”) in its Order No. 2000 issued
      December 1999 and its July 2002 proposed rulemaking that would implement a
      standard market design (“SMD”) for wholesale electric markets.





If
      implemented, the FERC’s July 2002 proposed rule for SMD would have required
      sweeping changes to the use and expansion of the interstate transmission and
      wholesale bulk power systems in the United States. On July 19, 2005,
      the
      FERC issued an order terminating the rulemaking. Nevertheless, it is likely
      that
      there will be further regulatory actions by the FERC impacting the provision
      of
      transmission services. Any FERC action could impact the costs of MidAmerican
      Energy’s electricity and transmission products. Such FERC action could directly
      or indirectly influence how transmission services are priced, the availability
      of transmission services, how transmission services are obtained, and market
      prices for electricity in markets in which MidAmerican Energy buys and sells
      electricity. Although MidAmerican Energy is not presently a member of an RTO,
      three RTO’s - Midwest Independent Transmission System Operator, Inc., PJM
      Interconnection L.L.C. and Southwest Power Pool, Inc. - are directly
      interconnected with MidAmerican Energy’s transmission facilities. MidAmerican
      Energy cannot predict what impact, if any, the evolution of these RTO’s, or
      others, may have on how transmission services and wholesale electricity is
      bought and sold, as well as the geographic scope of the marketplace in which
      MidAmerican Energy buys and sells transmission services and wholesale
      electricity.





On
      June 3, 2004, the FERC’s Division of Operational Investigations of the
      Office of Market Oversight and Investigations informed MidAmerican Energy that
      it was commencing an audit to determine whether and how MidAmerican Energy
      and
      its subsidiaries and affiliates are complying with (1) requirements of the
      standards of conduct and open access same-time information system of the FERC’s
      regulations, (2) codes of conduct, and (3) transmission practices. The FERC
      has
      commenced several such audits of utilities in 2003 and 2004. The audit is
      on-going, and MidAmerican Energy expects it to be completed during the third
      quarter of 2005. MidAmerican Energy does not expect the outcome of this issue
      to
      have a material effect on its results of operations, financial position or
      cash
      flows.





On
      June 22, 2005, MidAmerican Energy made a filing with the FERC requesting
      its approval to establish a transmission service coordinator (“TSC”). The TSC
      would be an outsource administrator of various MidAmerican Energy Open Access
      Transmission Tariff-related functions for transmission service. If approved,
      MidAmerican Energy will enter into a contract with a to-be-determined
      independent contractor that would become responsible for many day-to-day
      transmission operation services. In addition, the TSC would assume some
      oversight responsibilities and participate in the transmission planning process.
      MidAmerican Energy envisions entering into a three-year contract with a TSC.
      While the costs of entering into a contract with the TSC are unknown, at this
      time, MidAmerican Energy does not believe that the incremental costs will have
      a
      material impact on its results of operations, financial position or cash flows.
      Any TSC selected would not likely commence service until the latter half of
      2006.





Electric
      Trading Developments





On
      July 13, 2004, the FERC issued an order requiring MidAmerican Energy
      to
      conduct a study to determine whether MidAmerican Energy or its affiliates
      possess generation market power. MidAmerican Energy is being required to show
      the absence of generation market power in order to be allowed to continue to
      sell wholesale electric power at market-based rates. The FERC order is intended
      to have MidAmerican Energy conform to what has become the FERC’s general
      practice for utilities given authorization to make wholesale market-based sales.
      Under this general practice, utilities authorized to make market-based electric
      sales must submit a new market power study to the FERC every three years.
      MidAmerican Energy filed the required study on October 29, 2004. On
      June 1, 2005, the FERC issued an order setting for investigation the
      reasonableness of MidAmerican Energy’s market-based rates within its control
      area. The order also terminated the previously established November 1,
      2004, refund date and required market-based sales made by MidAmerican Energy
      within its control area beginning August 7, 2005, be subject to refund
      until the matter is resolved. The FERC also required MidAmerican Energy to
      file
      additional information by August 1, 2005. MidAmerican Energy does not
      expect the outcome of this issue to have a material effect on its results of
      operations, financial position or cash flows.




36




**Environmental
      Matters**





MidAmerican
      Energy’s generating facilities are subject to applicable provisions of the Clean
      Air Act and related air quality standards promulgated by the United States
      Environmental Protection Agency (“EPA”). The Clean Air Act provides the
      framework for regulation of certain air emissions and permitting and monitoring
      associated with those emissions. MidAmerican Energy believes it is in material
      compliance with current air quality requirements. Refer to Note (3)(a) of Notes
      to Consolidated Financial Statements in this Form 10-Q for further discussion
      of
      air quality standards affecting MidAmerican Energy.





On
      February 16, 2005, the Kyoto Protocol became effective, requiring 35
      developed countries to reduce greenhouse gas emissions by approximately 5%
      between 2008 and 2012. While the United States did not ratify the protocol,
      the
      ratification and implementation of its requirements in other countries has
      resulted in increased attention on the climate change issue in the United
      States. Several amendments were introduced to the Senate energy bill relating
      to
      climate change. A proposed amendment to include the Climate Stewardship Act
      was
      defeated in the Senate that would have mandated reductions in greenhouse
      emissions. The Senate did, however, adopt a “sense of the Senate” resolution
      that puts the Senate on record that Congress should enact a comprehensive and
      effective national program of mandatory, market-based limits and incentives
      on
      emissions of greenhouse gases that slow, stop, and reverse the growth of such
      emissions at a rate and in a manner that will not significantly harm the United
      States economy; and will encourage comparable action by other nations that
      are
      major trading partners and key contributors to global emissions. It is
      anticipated that the resolution will be further addressed in the fall of 2005.





The
      United States Circuit Court of Appeals for the District of Columbia dismissed
      a
      lawsuit on July 15, 2005, that sought to force the EPA to issue mandatory
      controls for carbon dioxide and other greenhouse gas emissions from new cars
      and
      trucks. Litigation
      is currently pending before the federal district court for the southern district
      of New York seeking to require reductions of carbon dioxide emissions from
      generating facilities of five large electric utilities. While debate continues
      at the national level over the direction of domestic climate policy, several
      states are developing state-specific or regional legislative initiatives to
      reduce greenhouse gas emissions. The outcome of climate change litigation and
      federal and state initiatives cannot be determined at this time; however,
      adoption of stringent limits on greenhouse gas emissions could significantly
      impact MidAmerican Energy’s facilities and, therefore, its results of
      operations.





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





MidAmerican
      Energy has evaluated all known properties that were, at one time, sites of
      gas
      manufacturing plants for which it may be a potentially responsible party. The
      purpose of these evaluations was to determine whether waste materials are
      present, whether the materials constitute an environmental or health risk,
      and
      whether MidAmerican Energy has any responsibility for remedial action. As of
      June 30, 2005, MidAmerican Energy has recorded a $5.4 million
      liability for these sites and a corresponding regulatory asset for future
      recovery through the regulatory process. Refer to Note (3)(c) of Notes to
      Consolidated Financial Statements in this Form 10-Q for further discussion
      of
      MidAmerican Energy’s environmental activities related to manufactured gas plant
      sites and cost recovery.





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





**Generating
      Capability**





In
      August
      2003, retail customer usage of electricity caused a record hourly peak demand
      of
      3,935 MW on MidAmerican Energy’s electric system. For the 2004 cooling season,
      MidAmerican Energy’s hourly peak demand was 3,894 MW on July 20, 2004.
      MidAmerican Energy is interconnected with Iowa and neighboring utilities and
      is
      party to an electric generation and transmission pooling agreement administered
      by the Mid-Continent Area Power Pool (“MAPP”). Each MAPP participant is required
      to maintain for emergency purposes a net generating capability reserve of at
      least 15% above its system peak demand. For the 2004 cooling season, MidAmerican
      Energy’s reserve was approximately 26% above its system peak
      demand.




37




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





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





The
      transmission developments addressed under “Utility Regulatory Matters” above
      also can impact MidAmerican Energy's wholesale electric purchases and sales.
      In
      addition, organized markets for the sale of energy may impact the price
      MidAmerican Energy pays for wholesale electricity as well as the prices it
      receives for wholesale sales. The FERC has other proceedings underway which
      may
      influence the wholesale electric marketplace. Because of the uncertainties
      as to
      future regulatory policy governing transmission service and pricing, and
      regulation of wholesale electric sales, MidAmerican Energy is uncertain whether
      past wholesale costs and revenues will be representative of future wholesale
      costs and revenues.





**New
      Accounting Pronouncements**





In
      March
      2005, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation No. 47, “Accounting for Conditional Asset Retirement
      Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”). FIN
      47 clarifies
      that the term *conditional
      asset retirement obligation* as used
      in Statement of Financial Accounting Standards No. 143, “Accounting for
      Asset Retirement Obligations,” refers to a legal obligation to perform an asset
      retirement activity in which the timing and/or method of settlement are
      conditional on a future event that may or may not be within the control of
      the
      entity. Accordingly, an entity is required to recognize a liability for the
      fair
      value of a conditional asset retirement obligation if the fair value of the
      liability can be reasonably estimated. Uncertainty about the timing and/or
      method of settlement of a conditional asset retirement obligation should be
      factored into the measurement of the liability when sufficient information
      exists. FIN 47 also clarifies when an entity would have sufficient information
      to reasonably estimate the fair value of an asset retirement obligation.
      MidAmerican Energy and MidAmerican Funding are required to adopt the provisions
      of FIN 47 by December 2005. Adoption of FIN 47 is not expected to have a
      material effect on MidAmerican Energy’s or MidAmerican Funding’s financial
      position, results of operations or cash flows.





**Critical
      Accounting Policies and Estimates**





MidAmerican
      Energy’s and MidAmerican Funding’s significant accounting policies are described
      in their respective Note (1) of Notes to Consolidated Financial Statements
      in
      Item 8 of their most recently filed Annual Report on Form 10-K. For a discussion
      of their critical accounting policies and estimates, see “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations” in
      their most recently filed Annual Report on Form 10-K. MidAmerican Energy’s and
      MidAmerican Funding’s critical accounting policies have not changed materially
      since December 31, 2004.





**Item3.**
            **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, 2004. The scope of its use of financial instruments for
      both
      hedging and proprietary trading purposes has also not changed materially from
      December 31, 2004. 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 Form 10-K, and in particular, Item 7A. Quantitative and
      Qualitative Disclosures About Market Risk, and Notes (1)(i) and (12) in Notes
      to
      Consolidated Financial Statements in Item 8 of that report.





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





With
      the
      supervision and participation of MidAmerican Funding’s and MidAmerican Energy’s
      management, including the respective persons acting as chief executive officer
      and chief financial officer, each company performed an evaluation regarding
      the
      effectiveness of the design and operation of its disclosure controls and
      procedures (as defined in Rule 13a-15(e) promulgated under the Securities and
      Exchange Act of 1934, as amended) as of June 30, 2005. Based on that
      evaluation, MidAmerican Funding’s and MidAmerican Energy’s management, including
      the respective persons acting as chief executive officer and chief financial
      officer, concluded that their respective disclosure controls and procedures
      were
      effective. There have been no changes during the quarter covered by this report
      in MidAmerican Funding’s or MidAmerican Energy’s internal control over financial
      reporting that has materially affected, or is reasonably likely to material
      affect, its internal control over financial reporting.




38




**PART
      II - OTHER INFORMATION**





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





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





The
      original complaint in this matter, *Cornerstone
      Propane Partners, L.P. v. Reliant, et al. (“Cornerstone”),* was
      filed
      on August 18, 2003 in the United States District Court, Southern District
      of New York naming MidAmerican Energy. On October 1, 2003, a second
      complaint, *Roberto,
      E. Calle Gracey, et al. (“Calle Gracey”),* was
      filed
      in the same court but did not name MidAmerican Energy. On November 14,
      2003, a third complaint, *Dominick
      Viola (“Viola”), et al.,* was
      filed
      in the same court and named MidAmerican Energy as a defendant. On
      December 5, 2003, the court entered Pretrial Order No. 1, which
      among
      other procedural matters, ordered the consolidation of the *Cornerstone,
      Calle Gracey* and *Viola* complaints and permitted plaintiffs to file an amended complaint in this matter.
      On January 20, 2004, plaintiffs filed *In
      Re: Natural Gas Commodity Litigation* as the
      amended complaint reasserting their previous allegations. On February 19,
      2004, MidAmerican Energy filed a Motion to Dismiss and joined with several
      other
      defendants to file a joint Motion to Dismiss. The plaintiffs filed a response
      on
      May 19, 2004, contesting both Motions to Dismiss. On September 24,
      2004, the pending motions to dismiss were denied. On October 14, 2004,
      plaintiffs filed an amended complaint to add certain defendants’ affiliates as
      defendants and reasserted their previous allegations. MidAmerican Energy and
      the
      other defendants filed their respective answers to the complaint on
      October 28, 2004. Plaintiffs filed a motion for class actions certification
      on January 25, 2005, and defendants filed their opposition on April 8,
      2005. MidAmerican Energy will continue to coordinate with the other defendants
      and vigorously defend the allegations against it.





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





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





Not
      applicable.





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





Not
      applicable.





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





Not
      applicable.





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





Not
      applicable.





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





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




39





**SIGNATURES**





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





MIDAMERICAN
                FUNDING, LLCMIDAMERICAN
                ENERGY COMPANY(Registrants)Date:
                August 10, 2005
            /s/
                Patrick J. GoodmanPatrick
                J. GoodmanVice
                President and Treasurerof
                MidAmerican Funding, LLC(principal
                financial and accounting officer)/s/
                Thomas B. SpecketerThomas
                B. SpecketerVice
                President and Controllerof
                MidAmerican Energy Company(principal
                financial and accounting officer)





40





**EXHIBIT
      INDEX**








Exhibit
                No.
            DescriptionMidAmerican
                Energy15
            Awareness
                Letter of Independent Registered Pubic Accounting Firm31.1
            Chief
                executive officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            Chief
                financial officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            Chief
                executive officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.2
            Chief
                financial officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002MidAmerican
                Funding31.3
            Chief
                executive officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.4
            Chief
                financial officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.3
            Chief
                executive officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.4
            Chief
                financial officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002







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