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

                                    FORM 10-K


                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended DECEMBER 31, 2002

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

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

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

Securities registered pursuant to Section 12(b) of the Act:  None


Securities registered pursuant to Section 12(g) of the Act:

                   Preferred Stock, $3.30 Series, no par value
                   Preferred Stock, $3.75 Series, no par value
                   Preferred Stock, $3.90 Series, no par value
                   Preferred Stock, $4.20 Series, no par value
                   Preferred Stock, $4.35 Series, no par value
                   Preferred Stock, $4.40 Series, no par value
                   Preferred Stock, $4.80 Series, no par value
 _______________________________________________________________________________
                              (Title of each Class)

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

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

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


<PAGE>

All of the member's  equity of  MidAmerican  Funding,  LLC is held by its parent
company, MidAmerican Energy Holdings Company, as of March 20, 2003.

All common stock of MidAmerican  Energy  Company is held by its parent  company,
MHC Inc.,  which is a direct,  wholly owned  subsidiary of MidAmerican  Funding,
LLC. As of March 20, 2003, 70,980,203 shares of MidAmerican Energy common stock,
without par value, were outstanding.

MidAmerican  Funding, LLC and MidAmerican Energy Company meet the conditions set
forth in  General  Instruction  I(1)(a)  and (b) of Form 10-K and are  therefore
filing this Form 10-K with the reduced  disclosure  format  specified in General
Instruction I(2) of Form 10-K.

                                      -2-
<PAGE>


                            MIDAMERICAN FUNDING, LLC
                           MIDAMERICAN ENERGY COMPANY
                         2002 ANNUAL REPORT ON FORM 10-K

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

                                TABLE OF CONTENTS

                                   Part I                                  Page
                                   ------                                  ----
Item 1    Business
              General Overview............................................   4
              Financial Information About Industry Segments...............   4
              Description of Business.....................................   4
                Business of MidAmerican Funding and MHC...................   4
                Business of MidAmerican Energy............................   5
                Regulated Electric Operations ............................   6
                Regulated Natural Gas Operations..........................  10
                Nonregulated Operations...................................  12
                Regulation................................................  14
                Business of MidAmerican Capital...........................  18
                Business of Midwest Capital...............................  18
Item 2    Properties......................................................  19
Item 3    Legal Proceedings...............................................  21
Item 4    Submission of Matters to a Vote of Security Holders.............  21

                                    Part II
                                    -------
Item 5    Market for the Registrant's Common Equity and
            Related Stockholder Matters...................................  22
Item 6    Selected Financial Data.........................................  22
Item 7    Management's Discussion and Analysis of Financial
              Condition and Results of Operations.........................  22
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk......  22
Item 8    Financial Statements and Supplementary Data.....................  22
Item 9    Changes in and Disagreements with Accountants
              on Accounting and Financial Disclosure......................  22

                                   Part III
                                   --------
Item 10   Directors and Executive Officers of the Registrant..............  23
Item 11   Executive Compensation..........................................  26
Item 12   Security Ownership of Certain Beneficial Owners
              and Management and Related Stockholder Matters..............  26
Item 13   Certain Relationships and Related Transactions..................  26
Item 14   Controls and Procedures.........................................  26

                                    Part IV
                                    -------
Item 15   Exhibits, Financial Statement Schedules and Reports on Form 8-K.  27
Signatures ............................................................... 119
Certifications............................................................ 121
Exhibit Index............................................................. 131

                                      -3-
<PAGE>


                                     PART I

ITEM 1. BUSINESS
----------------

(A)  GENERAL OVERVIEW

     MidAmerican  Funding,  LLC,  or  MidAmerican  Funding,  is an Iowa  limited
liability  company that was formed in March 1999. Its sole member is MidAmerican
Energy Holdings Company,  or MidAmerican  Energy Holdings.  MidAmerican  Funding
owns  all of the  outstanding  common  stock  of MHC  Inc.,  formerly  known  as
MidAmerican  Energy  Holdings  Company,  which owns all of the  common  stock of
MidAmerican Energy Company, or MidAmerican Energy;  MidAmerican Capital Company,
or MidAmerican  Capital;  Midwest Capital Group,  Inc., or MidAmerican  Capital;
MidAmerican  Services  Company,  or MidAmerican  Services;  and MEC Construction
Services  Co.,  or MEC  Construction.  MidAmerican  Energy  is a public  utility
company  headquartered  in Des Moines,  Iowa, and  incorporated  in the state of
Iowa.

     On March 12,  1999,  MidAmerican  Funding  acquired  MHC. As a part of this
transaction,  the former CalEnergy Company,  Inc., a Delaware  corporation,  was
reincorporated as an Iowa corporation and changed its name to MidAmerican Energy
Holdings.  As a result, MHC and all direct and indirect subsidiaries of MHC each
became a subsidiary of MidAmerican Funding.

     On March 14, 2000, an investor  group  including  Berkshire  Hathaway Inc.,
Walter Scott,  Jr., David L. Sokol and Gregory E. Abel completed its acquisition
of  MidAmerican  Energy  Holdings  in  accordance  with a  previously  disclosed
agreement and plan of merger,  dated October 24, 1999, among MidAmerican  Energy
Holdings,  Teton Formation  L.L.C. and Teton  Acquisition  Corp. Mr. Scott is an
Omaha,  Nebraska businessman and a director of MidAmerican Energy Holdings,  Mr.
Sokol is Chairman and Chief Executive Officer of MidAmerican Energy Holdings and
Mr.  Abel  is  Chief  Operating  Officer  of  MidAmerican  Energy  Holdings.  In
accordance with the merger agreement, Teton Acquisition was merged with and into
MidAmerican  Energy Holdings,  maintaining the name MidAmerican Energy Holdings.
With the completion of the  transaction,  MidAmerican  Energy  Holdings is now a
privately owned company with publicly traded fixed-income securities.


(B)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     Financial  information  on  MidAmerican  Funding's  segments of business is
included in Note (12) of Notes to Consolidated  Financial Statements included in
Item 15 of this Form 10-K.

(C)  DESCRIPTION OF BUSINESS

                     BUSINESS OF MIDAMERICAN FUNDING AND MHC
                     ---------------------------------------

     MidAmerican  Funding conducts no business other than activities  related to
the issuance of its debt securities and the ownership of MHC.

     MHC  conducts no business  other than the  ownership  of its  subsidiaries.
MHC's  interests  include  100%  of the  common  stock  of  MidAmerican  Energy,
MidAmerican Capital, Midwest Capital, MidAmerican Services and MEC Construction.
MidAmerican   Energy  is  primarily  engaged  in  the  business  of  generating,
transmitting,  distributing  and selling  electric  energy and in  distributing,
selling and  transporting  natural gas. It accounts for the predominant  part of
MHC's assets and earnings.  MidAmerican  Capital  manages  equipment  leases and
other passive  investment  activities.  Midwest

                                      -4-
<PAGE>

Capital  functions as a regional  business  development  company in  MidAmerican
Energy's service territory.  MidAmerican Services provides  comprehensive energy
services to commercial and industrial  companies,  and MEC Construction provides
nonregulated utility construction services.

     For the year  ended  December  31,  2002,  99.8% of  MidAmerican  Funding's
operating revenues were from MidAmerican Energy.

     MidAmerican  Funding and its subsidiaries had 3,735 full-time  employees as
of December 31, 2002.

                         BUSINESS OF MIDAMERICAN ENERGY
                         ------------------------------

     MidAmerican  Energy is the largest  energy company  headquartered  in Iowa,
with $3.8  billion of assets as of December  31,  2002,  and  revenues  for 2002
totaling $2.2 billion. MidAmerican Energy is principally engaged in the business
of generating,  transmitting,  distributing  and selling  electric energy and in
distributing,   selling  and  transporting   natural  gas.   MidAmerican  Energy
distributes  electricity at retail in Council  Bluffs,  Des Moines,  Fort Dodge,
Iowa  City,  Sioux City and  Waterloo,  Iowa;  the Quad  Cities  (Davenport  and
Bettendorf,  Iowa and Rock  Island,  Moline and East  Moline,  Illinois);  and a
number of adjacent  communities  and areas. It also  distributes  natural gas at
retail in Cedar  Rapids,  Des  Moines,  Fort  Dodge,  Iowa City,  Sioux City and
Waterloo,  Iowa;  the Quad Cities;  Sioux Falls,  South Dakota;  and a number of
adjacent communities and areas. As of December 31, 2002,  MidAmerican Energy had
approximately  681,000 retail electric  customers and 660,000 retail natural gas
customers.

     In addition to retail sales,  MidAmerican  Energy sells electric energy and
natural gas to other utilities,  marketers and municipalities inside and outside
of  MidAmerican  Energy's  delivery  system.  These  sales  are  referred  to as
wholesale sales. It also transports natural gas through its distribution  system
for a number of end-use customers who have independently secured their supply of
natural gas.

     MidAmerican  Energy's  regulated  electric and gas operations are conducted
under  franchises,  certificates,  permits and licenses  obtained from state and
local authorities.  The franchises, with various expiration dates, are typically
for 25-year terms.

     MidAmerican  Energy has a diverse  customer base consisting of residential,
agricultural,  and a variety of commercial and industrial customer groups. Among
the primary industries served by MidAmerican Energy are those that are concerned
with food products,  the  manufacturing,  processing and  fabrication of primary
metals, real estate,  farm and other  non-electrical  machinery,  and cement and
gypsum products.

     MidAmerican  Energy  also  conducts  a  number  of  nonregulated   business
activities.  Refer to the "Nonregulated  Operations" section later in Part I for
further discussion.

     For  the  year  ended  December  31,  2002,   MidAmerican   Energy  derived
approximately  61% of its gross operating  revenues from its regulated  electric
business,  31% from its  regulated  gas  business  and 8% from its  nonregulated
business activities.  For 2001 and 2000, the corresponding  percentages were 56%
electric,  37%  gas  and 7%  nonregulated;  and  53%  electric,  41%  gas and 6%
nonregulated, respectively.

     At December 31, 2002,  MidAmerican Energy had 3,718 full-time  employees of
which  1,739  were  covered  by union  contracts.  MidAmerican  Energy  has five
separate  contracts with locals of the  International  Brotherhood of Electrical
Workers  (IBEW),  the United  Association  of Plumbers and  Pipefitters  and the
United Paper Workers  International Union. One contract with IBEW locals 109 and
499 expires February 29, 2004, and covers 1,659 employee members.

                                      -5-
<PAGE>

REGULATED ELECTRIC OPERATIONS

     The following  tables  present  historical  regulated  electric  sales data
related to customer class and  jurisdictions.

                                      Total Regulated Electric Sales
                                            By Customer Class
                                      ------------------------------
                                      2002         2001         2000
                                      ----         ----         ----
Residential......................     19.8%        20.6%        20.7%
Small general service............     14.2         15.3         15.9
Large general service............     24.5         25.8         28.6
Other ...........................      9.1          7.3          5.4
Wholesale........................     32.4%        31.0         29.4
                                     -----        -----        -----
                                     100.0%       100.0%       100.0%
                                     =====        =====        =====

                                      Regulated Retail Electric Sales
                                                By State
                                      ------------------------------
                                      2002         2001         2000
                                      ----         ----         ----
Iowa  ...........................     88.5%        88.6%        89.3%
Illinois.........................     10.7         10.6         10.0
South Dakota.....................      0.8          0.8          0.7
                                     -----        -----        -----
                                     100.0%       100.0%       100.0%
                                     =====        =====        =====

     There are seasonal  variations in MidAmerican  Energy's  electric  business
that are principally related to the use of electricity for air conditioning.  In
2002, 41% of MidAmerican  Energy's  regulated electric revenues were reported in
the months of June, July, August and September.

     The annual  hourly  peak demand on  MidAmerican  Energy's  electric  system
usually occurs as a result of air conditioning use during the cooling season. In
July 2002,  MidAmerican  Energy reached a new record hourly peak demand of 3,889
megawatts,  or MW, which was 56 MW greater than  MidAmerican  Energy's  previous
record hourly peak demand of 3,833 MW set in July 1999.

     MidAmerican Energy's accredited net generating  capability in the summer of
2002 was 4,724 MW. Accredited net generating capability represents the amount of
generation available to meet the requirements on MidAmerican Energy's system and
consists of MidAmerican Energy-owned generation, generation under power purchase
contracts and the net amount of capacity purchases and sales. The net generating
capability at any time may be less than it would  otherwise be due to regulatory
restrictions,  fuel  restrictions and generating units being  temporarily out of
service for inspection, maintenance, refueling or modifications. Refer to Item 2
of this Form 10-K for detail of the accredited net generating capability for the
summer of 2002.

     MidAmerican  Energy plans to develop and construct two electric  generating
plants  in  Iowa.  Both  plants  would  provide  service  to  regulated   retail
electricity  customers and be included in regulated rate base in Iowa,  Illinois
and South Dakota. Wholesale sales may also be made from the plants to the extent
the power is not needed for regulated retail service.

     The first plant will be a 500-MW (based on expected  accreditation) natural
gas-fired,  combined  cycle  plant  with an  estimated  cost  of  $415  million.
MidAmerican  Energy will own 100% of the plant and operate it. The plant will be
operated in simple cycle mode during 2003 and 2004,  resulting in

                                      -6-
<PAGE>

310 MW of accredited  capacity.  The combined  cycle  operation will commence in
2005.  MidAmerican  Energy has received a  certificate  from the Iowa  Utilities
Board,  or IUB,  allowing it to construct the plant. In May 2002, the IUB issued
an order that specified the Iowa  ratemaking  principles  that will apply to the
plant over its life. As a result of that order, MidAmerican Energy is proceeding
with the construction of the plant and has initiated start-up and testing of the
simple cycle phase.

     The second plant is  currently  under  development  and is expected to be a
790-MW (based on expected accreditation) super-critical-temperature,  coal-fired
plant fueled with  low-sulfur  coal.  If  constructed,  MidAmerican  Energy will
operate  the  plant  and  expects  to own  approximately  475  MW of the  plant.
Municipal,  cooperative and public power utilities will own the remainder, which
is a typical  ownership  arrangement  for  large  base-load  plants in Iowa.  On
January  23,  2003,  the IUB  issued  an  order  granting  MidAmerican  Energy a
certificate to construct the plant  conditioned upon retention of other required
governmental  permits.  MidAmerican  Energy  has made a filing  with the IUB for
approval of Iowa ratemaking principles for this second plant. The development of
this plant is subject to obtaining  environmental and other required permits, as
well  as to  receiving  orders  from  the  IUB  approving  construction  of  the
associated  transmission facilities and establishing ratemaking principles which
are satisfactory to MidAmerican Energy.

     MidAmerican  Energy is interconnected  with Iowa utilities and utilities in
neighboring  states and is involved in an electric power pooling agreement known
as  Mid-Continent  Area Power Pool, or MAPP. MAPP is a voluntary  association of
electric utilities doing business in Minnesota,  Nebraska,  North Dakota and the
Canadian  provinces of Saskatchewan and Manitoba and portions of Iowa,  Montana,
South Dakota and  Wisconsin.  Its  membership  also  includes  power  marketers,
regulatory agencies and independent power producers.  MAPP facilitates operation
of the transmission  system and is responsible for the safety and reliability of
the bulk electric system.

     In   November   2001,   MAPPCOR,   the   contractor   to  MAPP,   sold  its
transmission-related  assets  to the  Midwest  Independent  Transmission  System
Operator,  Inc.,  or Midwest  ISO.  The Midwest ISO now has  responsibility  for
administration of MAPP's Open-Access Transmission Tariff.

     Each MAPP participant is required to maintain for emergency  purposes a net
generating capability reserve of at least 15% above its system peak demand. If a
participant's  capability  reserve  falls  below  the 15%  minimum,  significant
penalties could be contractually  imposed by MAPP.  MidAmerican Energy's reserve
margin at peak demand for 2002 was approximately 21%.

     MidAmerican Energy's transmission system connects its generating facilities
with  distribution  substations  and  interconnects  with 14 other  transmission
providers in Iowa and five adjacent states.  Under normal operating  conditions,
MidAmerican  Energy's  transmission  system is  unconstrained  and has  adequate
capacity to deliver energy to MidAmerican  Energy's  distribution  system and to
export and import energy with other interconnected  systems.  Refer to Item 2 of
this Form 10-K for additional information on transmission lines.

     In December 1999, the Federal Energy Regulatory Commission, or FERC, issued
Order No. 2000 establishing,  among other things,  minimum  characteristics  and
functions for regional  transmission  organizations.  Public utilities that were
not a member of an  independent  system  operator  at the time of the order were
required  to  submit  a plan by  which  its  transmission  facilities  would  be
transferred  to a regional  transmission  organization.  On September  28, 2001,
MidAmerican  Energy and five other electric utilities filed with the FERC a plan
to create  TRANSLink  Transmission  Company LLC and to integrate  their electric
transmission systems into a single, coordinated system operating as a for-profit
independent  transmission  company in conjunction with a FERC-approved  regional
transmission organization. On April 25, 2002, the FERC issued an order approving
the transfer of control of MidAmerican Energy and


                                      -7-
<PAGE>

other   utilities'   transmission   assets  to  TRANSLink  in  conjunction  with
TRANSLink's   participation  in  the  Midwest  Independent  Transmission  System
Operator, Inc. regional transmission organization.  MidAmerican Energy has filed
an  application  for state  regulatory  approval with the IUB and  anticipates a
ruling in  mid-2003.  Transferring  the  operations  and control of  MidAmerican
Energy's  transmission  assets  to  other  entities  could  increase  costs  for
MidAmerican  Energy;  however,  the actual  impact of TRANSLink  on  MidAmerican
Energy's future transmission costs is not yet known.  Transfer of control is not
anticipated until the third quarter of 2003 at the earliest.

     On July 31,  2002,  the FERC  issued a notice of proposed  rulemaking  with
respect to Standard Market Design.  The FERC has  characterized  the proposal as
portending  "sweeping  changes"  to the  use  and  expansion  of the  interstate
transmission and wholesale bulk power systems in the United States. The proposal
includes numerous proposed changes in the current regulation of transmission and
generation  facilities designed "to promote economic efficiency" and replace the
"obsolete patchwork we have today," according to the FERC's chairman.  The final
rule,  if adopted as  currently  proposed,  would  require all public  utilities
operating  transmission  facilities  subject  to the FERC  jurisdiction  to file
revised open access transmission tariffs that would require changes to the basic
services these public utilities currently provide.  The proposed rule may impact
the pricing of MidAmerican Energy's electricity and transmission  products.  The
FERC does not envision that a final rule will be fully  implemented  until 2004.
MidAmerican  Energy is still  evaluating  the proposed rule and  recognizes  the
final rule could vary considerably from the initial proposal.  Accordingly,  the
likely  impact of the proposed rule on  MidAmerican  Energy's  transmission  and
generation businesses is unknown.

Energy Supply for Electric Operations
-------------------------------------

     MidAmerican Energy's total energy supplied to retail and wholesale electric
customers was from the following sources:

                                                 2002     2001     2000
                                                -----    -----    -----
    MidAmerican Energy-owned generation........  76.5%    82.6%    83.8%
    Energy purchased under long-term contracts.  14.3     13.5     14.0
    Energy purchased - other...................   9.2      3.9      2.2
                                                -----    -----    -----
                                                100.0%   100.0%   100.0%
                                                =====    =====    =====

     The increase in the percent of other energy  purchased for 2002 compared to
2001 is due to  additional  purchases to supply an increase in  wholesale  sales
volumes  and a portion of the  increase  in retail  sales  volumes.  MidAmerican
Energy-owned generation and energy purchased under long-term contracts increased
to a lesser degree to supply a portion of the increase in retail sales volumes.

                                      -8-
<PAGE>


     MidAmerican  Energy's  sources  of fuel  for  electric  generation  were as
follows for the years ended December 31:

                                  2002         2001         2000
                                 -----        -----        -----

     Coal...................      73.3%        74.4%        75.9%
     Nuclear (a)............      24.4         24.3         23.6
     Gas (b)................       2.2          1.2          0.3
     Oil/Hydro..............       0.1          0.1          0.2
                                 -----        -----        -----
                                 100.0%       100.0%       100.0%
                                 =====        =====        =====

         (a)   Nuclear  includes  energy  purchased  through  a  power  purchase
               contract with Nebraska  Public Power  District.  As a result of a
               contract restructuring effective August 1, 2002, energy purchased
               under that contract is similar to other purchased  energy in that
               it is not restricted to a particular energy source.  However,  it
               is included in Nuclear for all of 2002 for comparison purposes.

         (b)   Gas includes energy purchased  through a power purchase  contract
               with  Cordova  Energy  Company  LLC.  Each of these  contracts is
               discussed below.  Refer to Item 2 of this Form 10-K for detail of
               generating facilities.

     MidAmerican  Energy is no longer allowed to recover a portion of its energy
costs relating to retail sales through energy adjustment  clauses.  Accordingly,
fluctuations in energy costs now affect MidAmerican Energy's earnings.

     All of the coal-fired  generating  stations operated by MidAmerican  Energy
are fueled by  low-sulfur,  western  coal from the Powder  River Basin and Hanna
Basin  mines.  MidAmerican  Energy's  coal supply  portfolio  includes  multiple
suppliers and mines under  agreements of varying term and quantity  flexibility.
MidAmerican  Energy  regularly  monitors the western  coal  market,  looking for
opportunities to improve its coal supply portfolio.  MidAmerican Energy believes
its  sources  of  coal  supply  are,  and  will  continue  to be,  satisfactory.
Additional  information  regarding MidAmerican Energy's coal supply contracts is
included in Note (4)(f) of Notes to Consolidated Financial Statements in Item 15
of this Form 10-K.

     MidAmerican  Energy has agreements with Union Pacific  Railroad  Company to
deliver coal directly to its Neal and Council  Bluffs Energy  Centers.  Coal for
MidAmerican  Energy's  Louisa and  Riverside  Energy  Centers is delivered to an
interchange  point by Union Pacific for  transportation  to its  destination  by
Iowa, Chicago & Eastern Railroad Corporation. MidAmerican Energy has the ability
to use The  Burlington  Northern and Santa Fe Railway  Company for delivery of a
small amount of coal to the Council Bluffs,  Louisa and Riverside Energy Centers
should the need  arise.  MidAmerican  Energy  believes  its coal  transportation
arrangements are adequate to meet its coal delivery needs.

     MidAmerican  Energy uses natural gas and oil as fuel for  intermediate  and
peak demand electric generation,  igniter fuel, transmission support and standby
purposes.  These sources are presently in adequate  supply and available to meet
MidAmerican Energy's needs.

        MidAmerican  Energy has an  agreement  with the  Nebraska  Public  Power
District, or NPPD, to purchase electric capacity and energy through December 31,
2004. Under the contract, as restructured  effective August 1, 2002, MidAmerican
Energy will purchase 380 MW of the accredited capacity of Cooper Nuclear Station
and a minimum of approximately  2.5 million  megawatt-hours in each of the years

                                      -9-
<PAGE>


2003 and 2004.  NPPD is not required to use Cooper  Nuclear  Station to meet the
minimum energy requirement.

     MidAmerican  Energy has an  agreement  with Cordova  Energy  Company LLC, a
subsidiary of MidAmerican  Energy Holdings,  to purchase  electric  capacity and
energy from a gas-fired  combined cycle generation plant that started commercial
operation in June 2001. The agreement,  which  terminates in May 2004,  provides
for  MidAmerican  Energy to purchase up to 50% of the net  capacity of the plant
and to supply the fuel stock required to generate the energy purchased.

     MidAmerican Energy is a 25% joint owner of Quad Cities Generating  Station,
a nuclear power plant. Exelon Generation Company, LLC, the other joint owner and
the operator of Quad Cities Station, is a subsidiary of Exelon Corporation.

     Approximately  one-third of the nuclear fuel assemblies in the core at Quad
Cities Station Units 1 and 2 is replaced every 24 months. MidAmerican Energy has
been advised by Exelon  Generation that the majority of its uranium  concentrate
and uranium conversion  requirements for Quad Cities Station through 2003 can be
met under  existing  supplies  or  commitments.  Exelon  Generation  foresees no
problem  in  obtaining  the  remaining  requirements  now  or  obtaining  future
requirements.   Exelon  Generation  further  advises  that  enrichment  services
contracted  through  2007  provide  flexibility  as to the  quantity  purchased.
Commitments  for fuel  fabrication  have been  obtained at least  through  2007.
Exelon   Generation  does  not  anticipate  that  it  will  have  difficulty  in
contracting for uranium  concentrates for conversion,  enrichment or fabrication
of nuclear fuel needed to operate Quad Cities Station.

REGULATED NATURAL GAS OPERATIONS

     MidAmerican Energy is engaged in the procurement,  transportation,  storage
and distribution of natural gas for customers in the Midwest. MidAmerican Energy
purchases natural gas from various suppliers,  transports it from the production
area to MidAmerican  Energy's service  territory under contracts with interstate
pipelines,  stores it in various  storage  facilities to manage  fluctuations in
system demand and seasonal  pricing,  and  distributes  it to customers  through
MidAmerican Energy's distribution system.

     MidAmerican Energy sells natural gas to end-use,  or retail,  customers and
to other utilities, marketers and municipalities outside of MidAmerican Energy's
delivery  system.  MidAmerican  Energy also transports  through its distribution
system  natural gas purchased  independently  by a number of end-use  customers.
During  2002,  approximately  45% of total  gas  delivered  through  MidAmerican
Energy's system for end-use customers was under gas transportation service.

     There are seasonal variations in MidAmerican Energy's gas business that are
principally  due  to the  use of  natural  gas  for  heating.  In  2002,  47% of
MidAmerican  Energy's  regulated  gas  revenues  were  reported in the months of
January, February, March, and December.

                                      -10-

<PAGE>


     The following tables present historical regulated gas sales data, excluding
transportation throughput, related to customer class and jurisdictions.

                                         Total Regulated Gas Sales
                                             By Customer Class
                                     -------------------------------
                                      2002         2001         2000
                                     -----        -----        -----
Residential.....................      39.0%        34.5%        34.9%
Small general service...........      19.7         18.2         17.4
Large general service...........       1.5          1.5          2.2
Other ..........................       1.2          1.7          1.2
Wholesale.......................      38.6         44.1         44.3
                                     -----        -----        -----
                                     100.0%       100.0%       100.0%
                                     =====        =====        =====

                                        Regulated Retail Gas Sales
                                                 By State
                                     -------------------------------
                                      2002         2001         2000
                                     -----        -----        -----
Iowa  ..........................      78.0%        78.9%        78.0%
Illinois........................      10.0          9.8         10.2
South Dakota....................      11.2         10.5         11.0
Nebraska........................       0.8          0.8          0.8
                                     -----        -----        -----
                                     100.0%       100.0%       100.0%
                                     =====        =====        =====

Fuel Supply and Capacity
------------------------

     MidAmerican  Energy  purchases gas supplies from  producers and third party
marketers.  To  ensure  system  reliability,  a  geographically  diverse  supply
portfolio  with varying  terms and contract  conditions  is utilized for the gas
supplies.

     MidAmerican Energy has rights to firm pipeline capacity to transport gas to
its service  territory  through direct  interconnects to the pipeline systems of
Northern  Natural Gas  Company  (an  affiliate  company),  Natural Gas  Pipeline
Company of America,  Northern Border Pipeline Company and ANR Pipeline  Company.
At times,  the capacity  available  through  MidAmerican  Energy's firm capacity
portfolio may exceed the demand on  MidAmerican  Energy's  distribution  system.
Firm capacity in excess of  MidAmerican  Energy's  system needs can be resold to
other companies to achieve optimum use of the available  capacity.  Past IUB and
South Dakota Public Utilities Commission rulings have allowed MidAmerican Energy
to retain  30% of the  respective  jurisdictional  margins  earned on the resold
capacity,  with the  remaining  70% being  returned  to  customers  through  the
purchased gas adjustment clause.

     MidAmerican  Energy's  cost  of gas is  recovered  from  customers  through
purchased gas  adjustment  clauses.  In 1995,  the IUB gave initial  approval of
MidAmerican Energy's Incentive Gas Supply Procurement  Program,  which currently
has been  extended  through  October 31, 2003.  Under the  program,  as amended,
MidAmerican  Energy  is  required  to file  with  the IUB  every  six  months  a
comparison of its gas procurement  costs to an index-based  reference  price. If
MidAmerican  Energy's  cost of gas for the  period  is less or  greater  than an
established  tolerance band around the reference price, then MidAmerican  Energy
shares a portion of the savings or costs with  customers.  A similar  program is
currently  in  effect  in South  Dakota  through  October  31,  2005.  Since the
implementation of the program,  MidAmerican Energy has successfully achieved and
shared savings with its natural gas customers.

                                      -11-
<PAGE>

     MidAmerican   Energy   utilizes   leased  gas  storage  to  meet  peak  day
requirements  and to  manage  the daily  changes  in demand  due to  changes  in
weather.  The storage gas is typically  replaced  during the summer  months.  In
addition,  MidAmerican  Energy also utilizes three liquefied  natural gas plants
and two propane-air plants to meet peak day demands.

     On February 2, 1996,  MidAmerican  Energy had its highest peak-day delivery
of 1,143,026  million British thermal units, or MMBtus.  This peak-day  delivery
consisted of approximately 88% traditional sales service and 12%  transportation
service of customer-owned  gas.  MidAmerican  Energy's  2002/2003 winter heating
season  peak-day  delivery of 1,083,647  MMBtus was reached on January 22, 2003.
This peak-day delivery included  approximately 70% traditional sales service and
30% transportation service.

     The supply  sources  utilized by  MidAmerican  Energy to meet its 2002/2003
peak-day deliveries to its traditional sales service customers were:

                                                   Thousands         Percent
                                                       of              of
                                                     MMBtus           Total
                                                   ---------         -------

     Leased storage and peak shaving plants.......   352.1             46.1%
     Firm supply..................................   411.7             53.9
                                                     -----            -----
                                                     763.8            100.0%
                                                     =====            =====

     MidAmerican    Energy   has    strategically    built   multiple   pipeline
interconnections  into  several of its larger  communities.  MidAmerican  Energy
operates interconnects with Northern Natural Gas, Natural Gas Pipeline, Northern
Border,  and ANR  Pipeline  into the Quad  Cities;  with  Northern  Natural Gas,
Natural Gas Pipeline,  and Northern Border into Cedar Rapids/Iowa City; and with
Northern Natural Gas and Natural Gas Pipeline into Des Moines. Multiple pipeline
interconnects  create  competition among pipeline  suppliers for  transportation
capacity to serve those communities,  thus reducing costs. In addition, multiple
pipeline  interconnects give MidAmerican Energy the ability to optimize delivery
of the lowest cost supply from the various supply basins into these  communities
and increase  delivery  reliability.  Benefits to  MidAmerican  Energy's  system
customers are shared with all jurisdictions through a consolidated purchased gas
adjustment clause.

     MidAmerican  Energy does not anticipate  difficulties in meeting its future
demands  through the use of its supply  portfolio and pipeline  interconnections
for the foreseeable future.

NONREGULATED OPERATIONS

     MidAmerican   Energy's   nonregulated   operations  include  a  variety  of
activities outside of the traditional regulated electric and gas services.

                                      -12-
<PAGE>

     Historical  gross  margins,  or revenues  less related  cost of sales,  for
MidAmerican Energy's nonregulated operations are shown below (in millions):

                                                    2002      2001      2000
                                                   -----     -----     -----

     Nonregulated retail electric ..........       $11.4     $ 4.6     $ 0.3
     Gas and electric energy trading .......         3.3       6.9       2.1
     Income sharing arrangements under
       regulated gas tariffs ...............         3.1       4.4       5.2
     Incentive gas supply procurement
       program award .......................         3.4       4.1       3.9
     Nonregulated retail gas ...............         2.7       2.0       1.4
     Extended Service Protection Program ...         1.0       1.3       1.3
     Nonregulated energy delivery services .         0.1       0.1       5.7
     Other .................................         3.4       2.2       1.5
                                                   -----     -----     -----
                                                   $28.4     $25.6     $21.4
                                                   =====     =====     =====

     As of May 1, 2002, all retail  electric  customers in Illinois,  except for
those served by electric cooperatives and municipalities,  had been phased in to
allow them to select their  provider of electric  supply  services.  MidAmerican
Energy's nonregulated electric retail revenues include revenues related to these
supply services provided to customers within and outside of MidAmerican Energy's
delivery system who choose their energy supplier. Revenues related to non-supply
services,  such as  distribution  and  transmission,  are reflected in regulated
electric  revenues.  In September 2002,  MidAmerican Energy began serving retail
customers in Ohio.

     MidAmerican   Energy's  gas  and  electric   energy  trading   consists  of
nonregulated  wholesale  electric and natural gas marketing  operations  through
which  it buys  from,  and  sells  to,  other  utilities  and  marketers.  These
operations  qualify as "energy  trading"  activities  under  generally  accepted
accounting principles, and accordingly, related revenues are recorded net of the
related  cost of sales on the  statements  of income.  Refer to the  "Results of
Operations"  section of Management's  Discussion and Analysis in Item 15 of this
Form 10-K for further discussion.

     Nonregulated  operations  also include  earnings from sharing  arrangements
under applicable state  regulations and tariffs filed with the IUB and the South
Dakota Public Utilities Commission, or SDPUC, for MidAmerican Energy's regulated
natural gas operations. Under these arrangements,  MidAmerican Energy is allowed
to keep a portion of the benefits of gas sales for resale and  capacity  release
transactions.  MidAmerican  Energy also has an Incentive Gas Supply  Procurement
Program,  under which it can receive  awards for  successful  performance of gas
supply  procurement.  Refer to the preceding  "Regulated Natural Gas Operations"
section  for  further  discussion  of  the  sharing  arrangements  and  the  gas
procurement program.

     MidAmerican Energy's  nonregulated retail gas marketing services operate in
Iowa,  Illinois and Ohio.  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.

                                      -13-

<PAGE>

REGULATION

General Utility Regulation
--------------------------

     MidAmerican  Energy is a public  utility  within the meaning of the Federal
Power Act and a natural gas  company  within the meaning of the Natural Gas Act.
Therefore,  it is  subject  to  regulation  by the FERC in  regard  to  numerous
activities,  including  the  issuance of  securities,  accounting  policies  and
practices,  electricity sales for resale rates, the establishment and regulation
of electric  interconnections  and  transmission  services  and  replacement  of
certain gas utility property.

     MidAmerican  Energy is regulated by the IUB as to retail  rates,  services,
construction  of utility  property and in other respects as provided by the laws
of Iowa. MidAmerican Energy is regulated by the Illinois Commerce Commission, or
ICC, as to bundled retail rates, unbundled delivery services, services that have
not  been  declared  to  be  competitive,   issuance  of  securities,  affiliate
transactions,   construction,   acquisition   and  sale  of  utility   property,
acquisition and sale of securities and in other respects as provided by the laws
of Illinois. MidAmerican Energy is also subject to regulation by the SDPUC as to
electric  and gas  retail  rates and  service as  provided  by the laws of South
Dakota.

Rate Regulation
---------------

     Under Iowa law, temporary  collection of higher rates can begin, subject to
refund,  90 days after filing with the IUB for that portion of such higher rates
approved by the IUB based on prior ratemaking principles and a rate of return on
common  equity  previously  approved.  If the IUB has not  issued a final  order
within ten months after the filing date, the temporary rates cease to be subject
to refund and any balance of the  requested  rate increase may then be collected
subject to refund. Exceptions to the ten-month limitation provide for extensions
due to a  utility's  lack of due  diligence  in the  rate  proceeding,  judicial
appeals and situations  involving new generating  units being placed in service.
MidAmerican  Energy's cost of gas is reflected in its Iowa gas rates through the
Iowa Uniform Purchased Gas Adjustment Clause.

     In accordance with a 2001 rate settlement, MidAmerican Energy's Iowa retail
electric  rates are  effectively  fixed  through 2005.  Additionally,  under the
incentive regulation aspects of the settlement,  earnings exceeding a 12% return
on equity  are shared  with  customers.  See Note (10) of Notes to  Consolidated
Financial  Statements in Item 15 of this Form 10-K for additional  discussion of
this settlement. In accordance with a 2002 rate settlement, MidAmerican Energy's
Iowa retail gas rates are effectively fixed through November 2004.

     South Dakota law authorizes its Public Utilities  Commission to suspend new
rates for up to six months during the pendency of rate proceedings; however, the
rates are permitted to be implemented after six months subject to refund pending
a final order in the proceeding.

     Under  Illinois  law,  new rates may become  effective 45 days after filing
with the ICC, or on such  earlier  date as the ICC may  approve,  subject to its
authority to suspend the proposed  new rates,  subject to hearing,  for a period
not to exceed  approximately eleven months after filing. Under Illinois electric
tariffs,  MidAmerican  Energy's Fuel Cost Adjustment  Clause reflects changes in
the cost of all fuels  used for  electric  generation,  including  certain  fuel
transportation  costs,  nuclear fuel disposition costs and the effects of energy
transactions  (other than capacity and margins on interchange  sales) with other
utilities.  MidAmerican  Energy's  cost of gas is  reflected in its Illinois gas
rates through the Illinois Uniform Purchased Gas Adjustment Clause.

                                      -14-
<PAGE>

     In December 1997, Illinois enacted a law to restructure  Illinois' electric
utility  industry.  The law changes how and what electric services are regulated
by the ICC and transitions  portions of the traditional  electric  services to a
competitive  environment.  In  general,  the law  limits  the  ICC's  regulatory
authority over a utility's  generation and also relaxes its regulatory authority
over many corporate  transactions,  such as the transfer of generation assets to
affiliates.  Special  authority and  limitations  of authority  apply during the
transition  to a competitive  marketplace.  Also,  the law permits  utilities to
eliminate their fuel  adjustment  clauses and  incorporates  provisions by which
earnings in excess of allowed amounts are either partially refunded to customers
or are used to accelerate a company's  regulatory asset cost recovery.  Electric
rates are frozen,  subject to certain exceptions  allowing for increases,  until
2007.

     The  FERC  regulates   MidAmerican  Energy's  rates  charged  to  wholesale
customers for energy and  transmission  services.  Most of MidAmerican  Energy's
electric  wholesale  sales and purchases take place under  market-based  pricing
allowed by the FERC and are therefore subject to market volatility.

     Refer to the "Legislative and Regulatory Evolution" section of Management's
Discussion and Analysis in Item 15 of this Form 10-K for  additional  discussion
of matters affecting utility regulation.

Nuclear Regulation
------------------

     Under the Nuclear Waste Policy Act of 1982,  the U.S.  Department of Energy
is responsible for the selection and  development of  repositories  for, and the
permanent  disposal of, spent nuclear fuel and  high-level  radioactive  wastes.
Exelon Generation,  as required by the Nuclear Waste Act, signed a contract with
the  Department  of Energy to provide for the disposal of spent nuclear fuel and
high-level  radioactive  waste  beginning  not  later  than  January  1998.  The
Department of Energy did not begin receiving spent nuclear fuel on the scheduled
date, and it is expected that the schedule will be  significantly  delayed.  The
costs  incurred by the  Department of Energy for disposal  activities  are being
financed  by  fees  charged  to  owners  and  generators  of the  waste.  Exelon
Generation  has  informed  MidAmerican  Energy  that  existing  on-site  storage
capability at Quad Cities Station is sufficient to permit  interim  storage into
2005. For Quad Cities Station, Exelon Generation has informed MidAmerican Energy
that it plans to develop interim spent fuel storage  installation at Quad Cities
Station to store additional spent nuclear fuel in dry casks.  Exelon  Generation
expects the bulk of the construction work will be done in 2004.

     MidAmerican Energy is subject to the jurisdiction of the Nuclear Regulatory
Commission,  or NRC, with respect to its license and 25%  ownership  interest in
Quad Cities  Station  Units 1 and 2. Exelon  Generation  is the operator of Quad
Cities Station and is under contract with MidAmerican  Energy to secure and keep
in effect all necessary NRC licenses and authorizations.

     The NRC  regulations  control the  granting of permits and licenses for the
construction  and  operation  of nuclear  generating  stations  and subject such
stations to  continuing  review and  regulation.  The NRC review and  regulatory
process covers, among other things, operations,  maintenance,  and environmental
and radiological aspects of such stations. The NRC may modify, suspend or revoke
licenses and impose civil penalties for failure to comply with the Atomic Energy
Act, the regulations under such Act or the terms of such licenses.

     Federal  regulations  provide  that any nuclear  operating  facility may be
required to cease  operation if the NRC  determines  there are  deficiencies  in
state, local or utility emergency  preparedness plans relating to such facility,
and  the  deficiencies  are  not  corrected.   Exelon   Generation  has  advised
MidAmerican  Energy that an emergency  preparedness plan for Quad Cities Station
has been approved by the NRC.  Exelon  Generation  has also advised  MidAmerican
Energy that state and local plans  relating  to Quad  Cities  Station  have been
approved by the Federal Emergency Management Agency.

                                      -15-
<PAGE>

     The  NRC  also  regulates  the  decommissioning  of  nuclear  power  plants
including  the  planning  and funding for the  eventual  decommissioning  of the
plants.  In accordance  with these  regulations,  MidAmerican  Energy  submits a
report to the NRC every two years  providing  "reasonable  assurance" that funds
will be available to pay the costs of  decommissioning  its share of Quad Cities
Station.

     MidAmerican  Energy has  established  external trusts for the investment of
funds collected for nuclear decommissioning associated with Quad Cities Station.
Electric  tariffs   currently  in  effect  include   provisions  for  annualized
collection of estimated  decommissioning  costs at Quad Cities Station. In Iowa,
Quad  Cities  Station   decommissioning  costs  are  reflected  in  base  rates.
MidAmerican  Energy's cost related to  decommissioning  funding in 2002 was $8.3
million.

Environmental Regulations
-------------------------

     MidAmerican  Energy  is  subject  to a number of  federal,  state and local
environmental  laws and  regulations  affecting  many aspects of our present and
future operations.  These requirements  relate to air emissions,  water quality,
waste management,  hazardous chemical use, noise abatement,  land use aesthetics
and atomic radiation.

     Environmental laws and regulations currently have, and future modifications
may have, the effect of (i) increasing the lead time for the construction of new
facilities,  (ii)  significantly  increasing  the total cost of new  facilities,
(iii) requiring  modification of MidAmerican Energy's existing facilities,  (iv)
increasing  the  risk  of  delay  on  construction   projects,   (v)  increasing
MidAmerican Energy's cost of waste disposal and (vi) reducing the reliability of
service  provided by MidAmerican  Energy and the amount of energy available from
MidAmerican  Energy's  facilities.  Any of these items could have a  substantial
impact on amounts required to be expended by MidAmerican Energy in the future.

     Air Quality -

     Essentially all utility  generating  units are subject to the provisions of
the  Clean  Air Act  Amendments  of 1990,  or  CAAA,  which  address  continuous
emissions  monitoring,  permit  requirements  and fees and  emissions of certain
substances.  MidAmerican  Energy has five  jointly  owned and six  wholly  owned
coal-fired  generating units,  which represent  approximately 60% of MidAmerican
Energy's electric net accredited  generating  capability.  MidAmerican  Energy's
generating  units meet all  requirements  under Title IV of the CAAA.  Title IV,
which is also known as the Acid Rain Program,  sets forth  requirements  for the
emission of sulfur dioxide and nitrogen  oxides at electric  utility  generating
stations.

     In accordance  with the  requirements  of Section 112 of the CAAA, the U.S.
Environmental Protection Agency, or EPA, has performed a study of the hazards to
public  health  reasonably  anticipated  to occur as a result  of  emissions  of
hazardous air pollutants by electric utility steam generating units. In December
2000, after research and monitoring of mercury emissions, the EPA concluded that
it is appropriate  and necessary to regulate  mercury  emissions from coal-fired
generating  units.  It is  anticipated  that rules will be developed to regulate
these emissions in 2003 or 2004 with reductions of mercury  emissions  effective
in 2007. The cost to MidAmerican  Energy of reducing its mercury emissions would
depend on available technology at the time, but could be material.

     Refer to Note (4)(b) of Notes to Consolidated  Financial Statements in Item
15  of  this  Form  10-K  for  additional   information  regarding  air  quality
regulation.

                                      -16-
<PAGE>

     Hazardous Materials and Waste Management -

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

     MidAmerican  Energy has evaluated or is evaluating 27 properties that were,
at one time, sites of gas manufacturing  plants in which MidAmerican  Energy may
be a potentially  responsible  party.  MidAmerican Energy estimates the range of
possible costs for investigation,  remediation and monitoring for these sites to
be $16 million to $54 million.  As of December 31, 2002,  MidAmerican Energy has
recorded a  liability  of $17  million  for these  sites.  MidAmerican  Energy's
present rates in Iowa provide for a fixed annual  recovery of  manufactured  gas
plant costs.

     Additional  information relating to MidAmerican  Energy's  manufactured gas
plant  facilities  is  included  under  Note  (4)(a)  of Notes  to  Consolidated
Financial Statements in Item 15 of this Form 10-K.

     Pursuant to the Toxic Substances Control Act, a federal law administered by
the EPA,  MidAmerican  Energy  developed  a  comprehensive  program for the use,
handling,  control  and  disposal  of all  polychlorinated  biphenyls,  or PCBs,
contained in electrical  equipment.  The future use of equipment containing PCBs
will be minimized.  Capacitors,  transformers and other miscellaneous  equipment
are  being  purchased  with a non-PCB  dielectric  fluid.  MidAmerican  Energy's
exposure to PCB liability has been reduced through the orderly  replacement of a
number of such electrical devices with similar non-PCB electrical devices.

                                      -17-

<PAGE>


                         BUSINESS OF MIDAMERICAN CAPITAL
                         -------------------------------

     MidAmerican  Capital  is a  wholly  owned  nonregulated  subsidiary  of MHC
primarily  engaged in  investment  activities.  Investments  include  marketable
securities,  energy-related  venture  capital  interests and  equipment  leases.
MidAmerican Capital manages these activities through its nonregulated investment
companies.  Assets of MidAmerican Capital totaled $56 million as of December 31,
2002.

INVESTMENTS

     MidAmerican Capital's investments totaled $56 million at December 31, 2002,
and $181  million,  including a $73 million  note  receivable  from  MidAmerican
Energy  Holdings,  at December 31, 2001. A majority of the remaining  investment
dollars relate to equipment leases and investment  grade marketable  securities.
As  discussed  below,   MidAmerican  Capital  and  its  subsidiaries  also  have
investments in energy  projects,  technology  development  interests and venture
capital funds.

     MidAmerican  Capital's  marketable  securities portfolio totaled $5 million
and $21 million at  December  31, 2002 and 2001,  respectively.  The  marketable
securities  portfolio  consisted  substantially  of a  managed  preferred  stock
portfolio.  MidAmerican Capital continued to liquidate the portfolio in 2002 and
will complete the liquidation in the second quarter of 2003.

     MidAmerican  Capital  holds  equity   participations  in  equipment  leases
totaling   $33  million  and  $46  million  at  December   31,  2002  and  2001,
respectively.  At December 31, 2002,  approximately  $23 million was invested in
five commercial passenger aircraft. Approximately $9 million of the December 31,
2002,  investment  in  equipment  leases  related to a seven  percent  undivided
interest  in an  electric  generating  station  leased to a utility  located  in
Arizona.   MidAmerican  Capital  also  has  investments  in  safe  harbor  lease
transactions.   Refer  to  Note  (1)(f)  of  MidAmerican   Funding's   Notes  to
Consolidated  Financial  Statements in Item 15 of this Form 10-K for  additional
discussion of equipment leases.

     In  addition,  MidAmerican  Capital  and several of its  subsidiaries  have
indirect   investments,   through   venture  capital  funds,  in  a  variety  of
nonregulated energy production technologies.

                           BUSINESS OF MIDWEST CAPITAL
                           ---------------------------

     Midwest Capital is a wholly owned nonregulated subsidiary of MHC with total
assets of $9 million as of December 31, 2002. Midwest Capital's primary activity
is the  management  of utility  service  area  investments  to support  economic
development. Midwest Capital's principal interest is a 2,000-acre master planned
residential  and business  community in  southeastern  South  Dakota.  The major
construction phase of the planned community is complete, and the marketing phase
to sell developed residential and commercial lots is in progress.

                                      -18-

<PAGE>


ITEM 2. PROPERTIES
------------------

     MidAmerican   Energy's  utility   properties  consist  of  physical  assets
necessary  and  appropriate  to render  electric  and gas service in its service
territories.  Electric property consists  primarily of generation,  transmission
and  distribution  facilities.  Gas property  consists  primarily of natural gas
mains  and  services  pipelines,  meters  and  related  distribution  equipment,
including feeder lines to communities served from natural gas pipelines owned by
others.  It  is  the  opinion  of  management  that  the  principal  depreciable
properties owned by MidAmerican Energy are in good operating  condition and well
maintained.

     Net  utility  plant in  service  by  operating  segment is as follows as of
December 31, 2002 (in thousands):

          Generation......................      $  975,278
          Energy delivery -
             Electric distribution........       1,119,808
             Gas distribution.............         508,948
          Transmission....................         203,941
          Marketing and sales.............          18,101
                                                -----------
                                                $2,826,076
                                                ==========

                                      -19-

<PAGE>


     The net accredited  generating capacity of MidAmerican  Energy,  along with
participation purchases and sales, net, are shown for summer 2002 accreditation.

                                                           Company's Share of
                                        Percent           Accredited Generating
     Plant                              Ownership  Fuel     Capability (MW)
-----------------------------------     ---------  ----   ---------------------
Steam electric generating plants:
  Council Bluffs Energy Center
   Unit No. 1...........................   100.0   Coal             45
   Unit No. 2...........................   100.0   Coal             88
   Unit No. 3...........................    79.1   Coal            546
  George Neal Station
    Unit No. 1..........................   100.0   Coal            135
    Unit No. 2..........................   100.0   Coal            300
    Unit No. 3 .........................    72.0   Coal            371
    Unit No. 4 .........................    40.6   Coal            261
  Louisa Unit...........................    88.0   Coal            616
  Ottumwa Unit .........................    52.0   Coal            368
  Riverside Station
    Unit No. 3..........................   100.0   Coal              5
    Unit No. 5..........................   100.0   Coal            130
                                                                 -----
                                                                 2,865
                                                                 -----
Combustion turbines:
  Coralville - 4 units..................   100.0   Gas/Oil          64
  Electrifarm - 3 units.................   100.0   Gas/Oil         200
  Moline - 4 units......................   100.0   Gas/Oil          64
  Parr - 2 units........................   100.0   Gas/Oil          32
  Pleasant Hill Energy Center - 3 units.   100.0   Oil             157
  River Hills Energy Center - 8 units...   100.0   Gas/Oil         120
  Sycamore Energy Center - 2 units......   100.0   Gas/Oil         148
                                                                 -----
                                                                   785
                                                                 -----
Nuclear:  Quad Cities Station
  Unit No. 1............................    25.0   Nuclear         190
  Unit No. 2............................    25.0   Nuclear         219
                                                                 -----
                                                                   409
                                                                 -----

Hydro:  Moline - 4 units.................  100.0   Water             3

Portable power modules - 28 units........  100.0   Oil              56
                                                                 -----

Accredited generating capacity...........                        4,118

Participation purchases and sales, net:
  Cordova Energy Company, LLC (1).......                           250
  Nebraska Public Power District (2)....                           380
  Other, net............................                           (24)
                                                                 -----
Net accredited generating capability....                         4,724
                                                                 =====

(1)  The amount shown above is MidAmerican  Energy's  entitlement (50%)
     of the Cordova  Energy  Center's net  accredited  capacity under a
     purchase  power  contract  extending to May 2004.  Cordova  Energy
     Company LLC, a subsidiary of  MidAmerican  Energy  Holdings,  owns
     Cordova Energy Center.

(2)  The amount  shown is  capacity  purchased  under a power  purchase
     contract with the NPPD extending to December 2004.

                                      -20-
<PAGE>

     The  electric  transmission  system of  MidAmerican  Energy at December 31,
2002,  included 920 miles of 345  kilovolt  (kV) lines and 1,111 miles of 161-kV
lines.  MidAmerican Energy's electric distribution system included approximately
218,500 transformers and 377 substations at December 31, 2002.

     The gas distribution facilities of MidAmerican Energy at December 31, 2002,
included 20,835 miles of gas mains and services.

     Substantially all the former Iowa-Illinois Gas and Electric Company utility
property and  franchises,  and  substantially  all of the former  Midwest  Power
Systems electric utility property located in Iowa, or approximately 80% of gross
utility plant, is pledged to secure mortgage bonds.

ITEM 3. LEGAL PROCEEDINGS
-------------------------

     MidAmerican  Funding and its subsidiaries  currently have no material legal
proceedings.  Information  on  MidAmerican  Energy's  environmental  matters  is
included  in Item 1 - Business  and in the  "Environmental  Matters"  section of
Management's Discussion and Analysis in Item 15 of this Form 10-K.

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

     None.

                                      -21-

<PAGE>


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------------------
        STOCKHOLDER MATTERS
        -------------------

     MidAmerican  Funding is an Iowa limited  liability company whose membership
interest is held solely by MidAmerican Energy Holdings.

ITEM 6. SELECTED FINANCIAL DATA
-------------------------------

     Reference is made to Item 15 of this Form 10-K.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-------------------------------------------------------------------
        AND RESULTS OF OPERATIONS
        -------------------------

     Reference is made to Item 15 of this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
------------------------------------------------------------------

     Reference is made to Note (8) of Notes to Consolidated Financial Statements
in Item 15 of this Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------

     Reference is made to Item 15 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
-------------------------------------------------------------------
        AND FINANCIAL DISCLOSURE
        ------------------------

     None.

                                      -22-

<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------

MIDAMERICAN ENERGY

     Information  concerning  the current  directors and  executive  officers of
MidAmerican Energy is as follows:

(A)  IDENTIFICATION

                                                       Served in      Served as
                               Present                  Present       Director
     Name                Age   Position              Position Since     Since
     ----                ---   --------              --------------  ----------


     Jack L. Alexander    55   Senior Vice President       1998         2002
                                 and Director

     Keith D. Hartje      53   Senior Vice President       1999

     Todd M. Raba         46   Senior Vice President       2001         2002
                                 and Director

     Brian K. Hankel      40   Vice President, Treasurer   1999         2002
                                 and Director

     Thomas B. Specketer  46   Vice President and          1999
                                 and Controller

     The  Board of  Directors  elects  officers  annually.  There  are no family
relationships  among  these  officers,  nor any  arrangements  or  understanding
between  any  officer  and any other  person  pursuant  to which the officer was
selected.

(B)  BUSINESS EXPERIENCE

     JACK L. ALEXANDER has been Director of MidAmerican  Energy since  September
2002 and Senior Vice  President of  MidAmerican  Energy since November 1998. Mr.
Alexander  served as Vice President of MidAmerican  Energy from November 1996 to
October  1998  and  held  various   executive  and  management   positions  with
MidAmerican Energy and its predecessors for more than five years prior thereto.

     KEITH D. HARTJE has been Senior Vice President of MidAmerican  Energy since
March 1999. Mr. Hartje served as Vice President of MidAmerican  Energy from 1996
to  March  1999  and  held  various  executive  and  management  positions  with
MidAmerican Energy and its predecessors for more than five years prior thereto.

     TODD M. RABA has been Director of MidAmerican  Energy since  September 2002
and Senior Vice President of MidAmerican Energy since July 2001. Mr. Raba joined
MidAmerican  Energy  in 1997 as Vice  President.  Prior to  joining  MidAmerican
Energy, he was employed for 13 years with Rollins Environmental Services.

                                      -23-
<PAGE>


     BRIAN K. HANKEL has been  Director of  MidAmerican  Energy since  September
2002 and Vice  President and Treasurer of  MidAmerican  Energy since March 1999.
Mr. Hankel has been Vice President and Treasurer of MidAmerican  Energy Holdings
since January 1997.

     THOMAS B.  SPECKETER has been Vice  President and Controller of MidAmerican
Energy since September 1999. Mr.  Specketer  served as Manager Tax Compliance of
MidAmerican Energy from March 1999 to August 1999 and held various other tax and
accounting  management positions for MidAmerican Energy and its predecessors for
more than five years prior to that.

                                      -24-

<PAGE>

MIDAMERICAN FUNDING

     Information  concerning  the current  managers  and  executive  officers of
MidAmerican Funding is as follows:

(A)  IDENTIFICATION

                                                           Served in
                                                            Present    Served as
                                Present                     Position    Manager
     Name                 Age   Position                     Since       Since
     ----                 ---   --------                    --------   ---------


     David L. Sokol        46   Chief Executive Officer
                                  and Manager                   1999    1999

     Gregory E. Abel       40   President and Chief Operating
                                  Officer and Manager           1999    2001

     Douglas L. Anderson   45   Vice President and
                                  General Counsel               2002

     Patrick J. Goodman    36   Vice President and Treasurer    1999    1999

     Ronald W. Roskens     70   Independent Manager             2003    2003

     The  Board of  Managers  elects  officers  annually.  There  are no  family
relationships  among  these  officers,  nor any  arrangements  or  understanding
between  any  officer  and any other  person  pursuant  to which the officer was
selected.

(B)  BUSINESS EXPERIENCE

     DAVID L. SOKOL has been MidAmerican  Funding's Chief Executive  Officer and
Chairman of the Board of Managers since MidAmerican Funding's formation in March
1999. Mr. Sokol has been Chief Executive Officer of MidAmerican  Energy Holdings
since April 1993 and served as President of  MidAmerican  Energy  Holdings  from
April 1993 until January 1995. He has been Chairman of the Board of Directors of
MidAmerican  Energy  Holdings  since May 1994 and a director  since  March 1991.
Formerly,  among other  positions held in the independent  power  industry,  Mr.
Sokol served as President and Chief  Executive  Officer of Kiewit Energy Company
and Ogden Projects, Inc.

     GREGORY  E.  ABEL  has  been  MidAmerican  Funding's  President  and  Chief
Operating  Officer  since its  formation in March 1999 and a manager since 2001.
Mr. Abel joined  MidAmerican  Energy  Holdings in 1992.  Mr. Abel is a Chartered
Accountant,  and from 1984 to 1992,  he was  employed by  PriceWaterhouse.  As a
Manager in the San Francisco office of  PriceWaterhouse,  he was responsible for
clients in the energy industry.

     DOUGLAS L.  ANDERSON has been  MidAmerican  Funding's  Vice  President  and
General Counsel since May 2002. Mr. Anderson joined  MidAmerican Energy Holdings
in 1993 and has served in various legal positions  including  General Counsel of
MidAmerican  Energy Holdings'  independent power affiliates.  From 1990 to 1993,
Mr. Anderson was a corporate attorney with Fraser,  Stryker.  Prior to that, Mr.
Anderson was a principal in the firm Anderson and Anderson.

                                      -25-
<PAGE>

     PATRICK J.  GOODMAN  has been  MidAmerican  Funding's  Vice  President  and
Treasurer  since April 1999. Mr. Goodman joined  MidAmerican  Energy Holdings in
June 1995,  and served in various  accounting  positions  including  Senior Vice
President and Chief  Accounting  Officer.  Prior to joining  MidAmerican  Energy
Holdings, Mr. Goodman was a financial manager for National Indemnity Company and
a senior associate at Coopers & Lybrand.

     RONALD W. ROSKENS has been MidAmerican  Funding's Independent Manager since
January  2003.  Dr.  Roskens has served  since 1996 as the  President  of Global
Connections,  Inc. (Omaha, Nebraska), an international business consulting firm.
Dr.  Roskens  has  previously  served as  Administrator  of the U.S.  Agency for
International  Development,  President of the University of Nebraska  System and
Executive  Vice  President  and  professor  at Kent  State  University.  He is a
director of ConAgra Inc.

ITEM 11. EXECUTIVE COMPENSATION
-------------------------------

     Information  required by Item 11 is omitted pursuant to General Instruction
I(2)(c) to Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
---------------------------------------------------------------------------
         RELATED STOCKHOLDER MATTERS
         ---------------------------

     Information  required by Item 12 is omitted pursuant to General Instruction
I(2)(c) to Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------

     Information  required by Item 13 is omitted pursuant to General Instruction
I(2)(c) to Form 10-K.

ITEM 14. CONTROLS AND PROCEDURES
--------------------------------

     MidAmerican  Funding's and MidAmerican  Energy's respective chief executive
officer and chief financial  officer have established  "disclosure  controls and
procedures"  (as defined in Rule  13a-14(c) and Rule 15d-14(c) of the Securities
and Exchange Act of 1934) to ensure that material  information  of the companies
and their  subsidiaries  is made known to them by others  within the  respective
companies. Under their supervision, an evaluation of the disclosure controls and
procedures  was  performed  within 90 days  prior to the  filing of this  annual
report.  Based on that evaluation,  the above-mentioned  officers have concluded
that, as of the date of the evaluation,  the disclosure  controls and procedures
were operating effectively. Additionally, the above-mentioned officers find that
there have been no significant changes in internal controls, or in other factors
that could  significantly  affect internal  controls,  subsequent to the date of
that evaluation.

                                      -26-
<PAGE>


                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
----------------------------------------------------------------
         FORM 8-K
         --------

(A)1. FINANCIAL STATEMENTS (INCLUDED HEREIN)
                                                                       Page
                                                                       ----

      Selected Consolidated Financial Data............................  29
      Management's Discussion and Analysis of Financial Condition
        And Results of Operations.....................................  32

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

      Consolidated Statements of Income
        For the Years Ended December 31, 2002, 2001 and 2000..........  57
      Consolidated Statements of Comprehensive Income
        For the Years Ended December 31, 2002, 2001 and 2000..........  58
      Consolidated Balance Sheets
        As of December 31, 2002 and 2001 .............................  59
      Consolidated Statements of Cash Flows
        For the Years Ended December 31, 2002, 2001 and 2000..........  60
      Consolidated Statements of Capitalization
        As of December 31, 2002 and 2001 .............................  61
      Consolidated Statements of Retained Earnings
        For the Years Ended December 31, 2002, 2001 and 2000..........  62
      Notes to Consolidated Financial Statements......................  63
      Independent Auditors' Report....................................  91

                               MidAmerican Funding
                               -------------------

      Consolidated Statements of Income
        For the Years Ended December 31, 2002, 2001 and 2000..........  92
      Consolidated Statements of Comprehensive Income
        For the Years Ended December 31, 2002, 2001, and 2000.........  93
      Consolidated Balance Sheets
        As of December 31, 2002 and 2001..............................  94
      Consolidated Statements of Cash Flows
        For the Years Ended December 31, 2002, 2001 and 2000..........  95
      Consolidated Statements of Capitalization
        As of December 31, 2002 and 2001..............................  96
      Consolidated Statements of Retained Earnings
        For the Years Ended December 31, 2002, 2001 and 2000..........  97
      Notes to Consolidated Financial Statements......................  98
      Independent Auditors' Report.................................... 116

                                      -27-

<PAGE>

(A)2. FINANCIAL STATEMENT SCHEDULES (INCLUDED HEREIN)

     The  following   schedules   should  be  read  in   conjunction   with  the
aforementioned financial statements.

                                                                          Page
                                                                          ----
     MidAmerican Energy Company Consolidated Valuation and Qualifying
       Accounts (Schedule II) ..........................................  117

     MidAmerican Funding, LLC Consolidated Valuation and Qualifying
       Accounts (Schedule II)...........................................  118

     Other  schedules  are omitted  because of the absence of  conditions  under
which they are  required or because  the  required  information  is given in the
financial statements or notes thereto.

(A)3. EXHIBITS

     See Exhibit Index on page 131.

(B)  REPORTS ON FORM 8-K

     On November 12, 2002,  MidAmerican  Funding and MidAmerican  Energy filed a
joint Current Report on Form 8-K with  certifications  of their respective chief
executive  officer and chief  financial  officer  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 for the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2002.

                                      -28-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                      SELECTED CONSOLIDATED FINANCIAL DATA
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                  DECEMBER 31
                                        --------------------------------------------------------------
                                           2002         2001         2000         1999         1998
                                        ----------   ----------   ----------   ----------   ----------
<S>                                     <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Revenues ............................   $2,236,159   $2,367,249   $2,271,832   $1,762,350   $1,664,953
Operating income ....................      354,997      333,574      338,756      300,064      280,920
Net income ..........................      175,821      152,778      165,456      127,331      115,593
Earnings on common stock ............      172,888      148,234      160,501      122,376      110,641

BALANCE SHEET DATA:
Total assets ........................   $3,811,879   $3,577,892   $3,823,566   $3,609,591   $3,585,530
Long-term debt (a) ..................    1,053,418      820,594      921,682      870,499      930,966
Power purchase obligation (b) .......           --       25,867       52,282       68,049       83,127
Short-term borrowings ...............       55,000       89,350       81,600      204,000      206,221
Preferred stock:
  Not subject to mandatory redemption       31,759       31,759       31,759       31,759       31,759
  Subject to mandatory redemption (c)           --      126,680      150,000      150,000      150,000
Common shareholder's equity .........    1,307,067    1,219,057    1,161,968    1,057,855      972,278
</TABLE>

    (a) Includes amounts due within one year.

    (b) In July 2002, MidAmerican Energy's contract with the Nebraska Public
        Power District regarding Cooper Nuclear Station was restructured. As a
        result, the power purchase obligation and the related asset were written
        off. Refer to Note (1)(h) of Notes to Consolidated Financial Statements
        later in Item 15 of this Form 10-K for further discussion.

    (c) The years 1998-2001 include $100 million of MidAmerican Energy-obligated
        mandatorily redeemable preferred securities of subsidiary trust holding
        solely MidAmerican Energy junior subordinated debentures.

                                      -29-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                      SELECTED CONSOLIDATED FINANCIAL DATA
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                MIDAMERICAN FUNDING                         MHC (PREDECESSOR)
                                    --------------------------------------------------   -----------------------

                                               YEARS ENDED                    MAR. 12     JAN. 1         YEAR
                                              DECEMBER 31,                    THROUGH     THROUGH       ENDED
                                    -------------------------------------     DEC. 31,    MAR. 11,     DEC. 31,
                                       2002          2001        2000          1999         1999         1998
                                    -----------   ----------  -----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Revenues .........................   $2,240,879   $2,388,650   $2,316,343   $1,411,542   $  375,884   $1,733,688
Operating income .................      349,988      300,085      327,560      227,133       58,898      271,412
Income from continuing
    operations (a) ...............      136,716      103,087      126,784      124,077       16,789      127,154
Net income .......................      136,716      103,087      126,784      135,335       17,210      131,318

</TABLE>
<TABLE>
<CAPTION>
                                                  AS OF DECEMBER 31,
                                     -------------------------------------------------                 DEC. 31,
                                        2002         2001         2000         1999                      1998
                                     ----------   ----------   ----------   ----------                ----------
<S>                                  <C>          <C>          <C>          <C>                       <C>
BALANCE SHEET DATA:
Total assets .....................   $5,153,984   $5,175,472   $5,423,009   $5,212,387                $4,244,336
Long-term debt (b) ...............    1,753,418    1,544,969    1,670,636    1,642,476                 1,045,548
Power purchase obligation (c) ....           --       25,867       52,282       68,049                    83,127
Short-term borrowings ............       55,000       91,780       81,600      204,000                   339,826
Preferred securities not subject
    to mandatory redemption ......       31,759       31,759       31,759       31,759                    31,759
Preferred securities subject
    to mandatory redemption (d)  .           --      126,680      150,000      151,598                   150,000
Member's equity (e) ..............    1,867,119    1,974,605    1,874,787    1,800,416                 1,200,950
</TABLE>

(a)  In accordance  with  Statement of Financial  Accounting  Standards No. 142,
     "Goodwill  and  Other  Intangible   Assets,"  beginning  January  1,  2002,
     MidAmerican Funding's goodwill is no longer amortized. Refer to Note (1)(k)
     of MidAmerican  Funding's Notes to Consolidated  Financial Statements later
     in Item 15 of this Form 10-K. In 2002, MidAmerican Funding recorded pre-tax
     expense of $21.9 million of writedowns for impaired assets and investments,
     including a $12.6  pre-tax  million  writedown of airplane  leases.  In May
     1999,  MidAmerican  Funding sold most of its investment in the common stock
     of  McLeodUSA  and  recorded an after-tax  gain of $47.1  million.  For the
     period ended March 11, 1999,  MHC expensed  $18.6  million for  transaction
     costs related to its acquisition by MidAmerican  Energy Holdings.  In 1998,
     MHC recorded  after-tax  gains  totaling $15.7 million for sales of several
     properties  and  investments,  including a portion of its investment in the
     common stock of McLeodUSA,  Inc.  Also, in 1998,  MHC expensed $4.2 million
     for  transaction  costs related to the  acquisition by  MidAmerican  Energy
     Holdings of MHC.

(b)  Includes amounts due within one year.

(c)  In July 2002,  MidAmerican Energy's contract with the Nebraska Public Power
     District  regarding Cooper Nuclear Station was  restructured.  As a result,
     the power purchase obligation and the related asset were written off. Refer
     to Note (1)(h) of Notes to Consolidated  Financial Statements later in Item
     15 of this Form 10-K for further discussion.

                                      -30-

<PAGE>

(d)  The years  1998-2001  include $100 million of MidAmerican  Energy-obligated
     mandatorily  redeemable  preferred  securities of subsidiary  trust holding
     solely MidAmerican Energy junior subordinated debentures.

(e)  For MHC the amounts represent common shareholders' equity.

                                      -31-
<PAGE>

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

                                      INDEX


                                                                     Page
                                                                     ----

Introduction.........................................................  33

Forward-Looking Statements...........................................  33

Results of Operations................................................  34

Liquidity and Capital Resources......................................  45

     -   Investing Activities and Plans..............................  45

     -   Financing Activities, Plans and Availability................  48

     -   Credit Ratings Risks........................................  49

     -   Rate Matters................................................  49

     -   Legislative and Regulatory Evolution........................  50

     -   Environmental Matters.......................................  51

     -   Generating Capability.......................................  53

     -   Critical Accounting Policies and Estimates..................  53

     -   New Accounting Pronouncements...............................  55

     -   Quantitative and Qualitative Disclosures About Market Risk..  56


                                      -32-

<PAGE>

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

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

     MidAmerican  Funding,  LLC is an Iowa  limited  liability  company that was
formed in March 1999.  The sole  member of  MidAmerican  Funding is  MidAmerican
Energy Holdings Company.  MidAmerican Funding owns all of the outstanding common
stock of MHC Inc., formerly known as MidAmerican Energy Holdings Company,  which
owns all of the common stock of MidAmerican Energy Company,  MidAmerican Capital
Company,  Midwest  Capital Group,  Inc.,  MidAmerican  Services  Company and MEC
Construction Services Co.

     On March 12,  1999,  MidAmerican  Funding  acquired  MHC. As a part of this
transaction,  the former  CalEnergy  Company Inc., a Delaware  corporation,  was
reincorporated as an Iowa corporation and changed its name to MidAmerican Energy
Holdings Company.  As a result, MHC and all direct and indirect  subsidiaries of
MHC each became a subsidiary of MidAmerican Funding.

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

                           FORWARD-LOOKING STATEMENTS
                           --------------------------

     This annual report contains  statements that do not directly or exclusively
relate to historical  facts.  Such statements are  "forward-looking  statements"
within the  meaning of the  Private  Securities  Litigation  Reform Act of 1995.
Forward-looking   statements   can   typically  be  identified  by  the  use  of
forward-looking  words,  such as "may," "will," "could,"  "project,"  "believe,"
"anticipate," "expect," "estimate," "continue," "potential," "plan," "forecast,"
and similar terms.  These  statements  represent  MidAmerican  Funding's  and/or
MidAmerican Energy's intentions, plans, expectations and beliefs and are subject
to risks, uncertainties and other factors. Many of these factors are outside the
control of  MidAmerican  Funding or  MidAmerican  Energy and could cause  actual
results to differ materially from such forward-looking statements. These factors
include, among others:

         -   general economic and business  conditions in the United States as a
             whole and in the midwestern United States and MidAmerican  Energy's
             service territory in particular;

         -   governmental, statutory, regulatory or administrative initiatives;

         -   weather effects on sales and revenues;

         -   general industry trends;

         -   increased competition in the power generation industry;

         -   fuel and power costs and availability;

         -   changes  in  business  strategy,   development  plans  or  vendor
             relationships;

                                      -33-
<PAGE>

         -   availability, term and deployment of capital;

         -   availability of qualified personnel;

         -   risks relating to nuclear generation;

         -   financial or regulatory  accounting  principles or policies imposed
             by the Financial  Accounting  Standards  Board,  the Securities and
             Exchange Commission,  the Federal Energy Regulatory  Commission and
             similar entities with regulatory oversight; and

         -   other business or investment  considerations  that may be disclosed
             from time to time in MidAmerican  Funding's or MidAmerican Energy's
             Securities  and Exchange  Commission  filings or in other  publicly
             disseminated written documents.

     MidAmerican  Funding and  MidAmerican  Energy  undertake no  obligation  to
publicly update or revise any forward-looking statements, whether as a result of
new  information,  future events or otherwise.  The foregoing  review of factors
should not be construed as exhaustive.


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

EARNINGS OVERVIEW

     MidAmerican Energy -

     MidAmerican  Energy's  earnings on common stock  improved  $24.7 million to
$172.9 million for 2002 compared to $148.2 million for 2001. Significant factors
contributing to the improvement in earnings were: 1) warmer  temperatures during
the 2002  cooling  season,  2) a reduction  in costs  related to Cooper  Nuclear
Station  due  to a  restructuring  of the  power  purchase  contract,  and 3) an
increase in retail gas rates.

     MidAmerican Funding -

     MidAmerican  Funding's net income for 2002 totaled $136.7 million  compared
to $103.1 million for 2001. In accordance with Statement of Financial Accounting
Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets," MidAmerican
Funding's goodwill ceased being amortized  effective January 1, 2002. Net income
for 2001 was reduced by $34.4 million for goodwill  amortization.  Excluding the
difference  due to  goodwill  amortization,  net income for 2002  declined  $0.8
million  compared  to 2001.  In  addition  to the  factors  discussed  above for
MidAmerican  Energy,  net income for 2002  reflects  $4.9  million of  after-tax
income related to a gain and interest income from the sale of an investment in a
communications  company,  $17.1  million of after-tax  loss for  write-downs  of
impaired  investments  and  $4.0  million  of  additional  income  taxes  for an
adjustment of deferred taxes related to MidAmerican Funding's goodwill.

                                      -34-

<PAGE>

REGULATED GROSS MARGIN

     Regulated Electric Gross Margin -

                                                  2002      2001      2000
                                                 ------    ------    ------
                                                      (In millions)
     Operating revenues .....................    $1,353    $1,318    $1,212
     Cost of fuel, energy and capacity ......       347       276       249
                                                 ------    ------    ------
         Electric gross margin ..............    $1,006    $1,042    $  963
                                                 ======    ======    ======

     2002 vs. 2001

     Electric gross margin for 2002 decreased $36 million compared to 2001.

     Effective August 1, 2002,  MidAmerican Energy and the Nebraska Public Power
District,  or NPPD,  restructured  their  contract for Cooper  Nuclear  Station.
Accordingly,  MidAmerican  Energy's costs for energy and capacity purchased from
Cooper  Nuclear  Station  are now  classified  differently  on the  Consolidated
Statement of Income.  As a result,  electric  gross margin for 2002 decreased by
$33.2  million  compared  to 2001 due to the  change  in  classification  of the
related costs. Prior to August 1, 2002, only the fuel costs for energy purchased
from  Cooper  Nuclear  Station  were  classified  as a cost of fuel,  energy and
capacity.  Other costs under the contract  were  classified  as other  operating
expenses.  Following  the  restructuring,  all costs  for  energy  and  capacity
purchased under that contract are included in MidAmerican Energy's cost of fuel,
energy and capacity,  as with other purchased  power.  Other operating  expenses
decreased  accordingly.  Refer to Note (1)(h) of Notes to Consolidated Financial
Statements  later in Item 15 of this Form 10-K for a discussion  of the contract
restructuring.

     In addition to the effect of restructuring  the contract for Cooper Nuclear
Station, MidAmerican Energy's gross margin on electric wholesale sales decreased
$23.1 million for 2002 due to a decline in prices,  partially  offset by a 21.1%
increase in wholesale  sales volumes  compared to 2001.  Wholesale sales are the
sales of energy to other  utilities,  municipalities  and  marketers  inside and
outside of MidAmerican Energy's delivery system.

     Warmer  temperatures in the 2002 cooling season resulted in approximately a
$16 million  increase in electric  margin  compared to 2001.  Electricity  usage
factors not  dependent on weather  increased  electric  margin by $17.8  million
compared to 2001.  An increase in the  average  retail rate  increased  electric
margin by $7.2 million.  Additionally,  a decrease in fuel costs related to Iowa
retail electric sales,  excluding the impact of restructuring the Cooper Nuclear
Station  contract,  increased  electric margin by $7.9 million relative to 2001.
Related financial derivative instruments used for hedging purposes resulted in a
$1.7 million decrease in electric gross margin. In total,  retail electric sales
volumes increased 3.9% for 2002.

     Electric  revenues  from the recovery of energy  efficiency  program  costs
decreased  $14.9  million  compared  to 2001.  The  decrease  in 2002 was due to
completion in the third quarter of 2001 of the final recovery phase for deferred
energy efficiency costs.  Deferred energy efficiency costs were costs previously
incurred by MidAmerican Energy,  which, in accordance with rate treatment,  were
not charged to expense until recovery from customers began. Recovery of deferred
energy  efficiency  costs  occurred  over  a  four-year  period  from  the  date
collection  began for each phase. The decrease in recovery of deferred costs was
offset  partially  by an increase in the recovery of current  energy  efficiency
costs.  Changes in these revenues are substantially  matched with  corresponding
changes in other operating expenses.  Approximately $13.9 million of MidAmerican
Energy's  2002  electric  revenues  were from the recovery of energy  efficiency
program costs compared to $28.8 million in 2001.

                                      -35-
<PAGE>

     MidAmerican Energy sells and purchases  electric  capacity.  The net margin
from those sales and purchases  decreased $2.3 million  compared to 2001.  Also,
MidAmerican  Energy's  gains from sales of emission  allowances  decreased  $3.2
million  in 2002  due to a gain in 2001.  Revenues  from  transmission  services
decreased  $2.5 million  compared to 2001,  and electric  revenues from recovery
mechanisms  related to Cooper Nuclear Station and  manufactured  gas plant costs
decreased $2.6 million.

     2001 vs. 2000

     Electric gross margin for 2001 increased $79 million compared to 2000.

     MidAmerican  Energy's  gross  margin on  wholesale  sales  increased  $63.5
million  compared to 2000.  The  increase  was due to an increase in the average
margin per unit sold and an 11.7% increase in related sales volumes  compared to
2000.

     Additionally,  electric margin for 2001 increased $21.6 million compared to
2000 due to a refund accrual in 2000 that reduced  electric  margin.  The refund
accrual was for a revenue sharing  arrangement in Iowa that terminated  December
31, 2000.  Refer to the "Rate  Matters"  section of MD&A for a discussion of the
current arrangement.

     The impact of temperatures increased electric gross margin approximately $2
million compared to 2000.  Temperature  conditions  during the cooling season in
2001 were slightly hotter than 2000 while temperatures during the heating season
in 2001 were slightly milder than in 2000.  Other usage factors not dependent on
weather  increased  electric margin by $9.7 million  compared to 2000. In total,
retail sales of electricity increased 3.2% in 2001.

     In 2001,  MidAmerican  Energy  recorded  gains  from the sales of  emission
allowances  which  improved  electric  margin by $3.3 million  compared to 2000.
Revenues from transmission  services increased $4.0 million compared to 2000 due
to additional revenues from the Mid-Continent Area Power Pool.

     An  increase  in the  average  cost of energy per unit sold for Iowa retail
sales  reduced  electric  gross margin by $20.3  million  compared to 2000.  The
increase  in the  average  cost of  energy  per unit  sold was due in part to an
increase in coal costs and  increased  use of  combustion  turbines and combined
cycle plants.

     Electric  revenues  from the recovery of energy  efficiency  program  costs
decreased  $6.0 million  compared to 2000 due to completion in 2001 of the final
recovery  phase.  Approximately  $28.8  million  of  MidAmerican  Energy's  2001
electric  revenues  were from the recovery of energy  efficiency  program  costs
compared to $34.8 million in 2000.

     Regulated Gas Gross Margin -

                                               2002        2001        2000
                                               ----        ----        ----
                                                      (In millions)
     Operating revenues ...............        $696        $869        $930
     Cost of gas sold .................         483         675         721
                                               ----        ----        ----
         Gas gross margin .............        $213        $194        $209
                                               ====        ====        ====

     Regulated gas revenues  include  purchase 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

                                      -36-
<PAGE>

comparable  fluctuations from purchase gas adjustment clauses. A decrease in the
per-unit cost of gas compared to 2001 decreased revenues and cost of gas sold by
approximately $135 million for 2002.

     2002 vs. 2001

     Gas gross margin for 2002 increased $19 million compared to 2001.

     Increases  in retail  rates in 2002  improved  gas margin by $11.5  million
compared to 2001.  On February  20,  2002,  the South  Dakota  Public  Utilities
Commission approved a settlement  agreement allowing increased natural gas rates
of $3.1 million  annually,  effective  immediately.  On June 12, 2002,  the Iowa
Utilities  Board,  or IUB,  issued an order granting an interim rate increase of
approximately  $13.8 million  annually,  effective  immediately.  On November 8,
2002,  the IUB  approved a proposed  settlement  agreement  previously  filed by
MidAmerican Energy and the Office of Consumer Advocate that provides for a final
increase of $17.7 million annually for MidAmerican  Energy's Iowa retail natural
gas customers.  On September 11, 2002, MidAmerican Energy received a final order
from the Illinois Commerce Commission to increase its Illinois natural gas rates
by $2.2  million  annually.  Refer to the  "Rate  Matters"  section  of MD&A for
comments on the Iowa gas rate settlement.

     Colder  temperature  conditions  in the second and fourth  quarters of 2002
compared to the same quarters in 2001,  offset  partially by milder  temperature
conditions  in the  remainder of 2002,  resulted in  approximately  a $1 million
increase  in gas gross  margin.  A $1.3  million  loss on a  weather  derivative
financial  instrument offset the increase due to colder temperature  conditions.
Other  usage  factors  not  dependent  on weather  increased  gas margin by $7.7
million. Total natural gas retail sales volumes increased 1.3%.

     2001 vs. 2000

     Gas margin for 2001 decreased $15 million compared to 2000.

     Warmer  temperature  conditions  in the second and fourth  quarters of 2001
compared  to the same  quarters in 2000 and  conservation  by  customers  due to
higher prices in early 2001 resulted in  approximately a $9 million  decrease in
gas margin  compared to 2000.  Other  usage  factors  not  dependent  on weather
resulted in a $4.7 million  decrease in gas margin  compared to 2000.  In total,
retail sales of natural gas decreased 7.2% compared to 2000. The decrease in gas
margin due to warmer  temperature  conditions was partially  mitigated by a $1.7
million gain on a weather derivative financial instrument.

     Recovery of gas energy  efficiency  costs  decreased  $1.2 million for 2001
compared to 2000 due to the completion of the final  four-year  recovery  phase.
Additionally, margin on gas transported decreased $1.1 million.

                                      -37-

<PAGE>

REGULATED OPERATING EXPENSES

     Other Operating Expenses -

     Regulated  other  operating  expenses for 2002 decreased  $54.9 million for
MidAmerican  Energy and $50.8 million for MidAmerican  Funding compared to 2001.
Effective  August  1,  2002,  MidAmerican  Energy  and NPPD  restructured  their
contract for Cooper Nuclear Station. Accordingly, MidAmerican Energy's costs for
energy and capacity  purchased  from Cooper  Nuclear  Station are now classified
differently  on  the  Consolidated  Statement  of  Income.  As a  result,  other
operating  expenses for 2002 decreased by $46.2 million  compared to 2001. Prior
to August 1, 2002,  costs  under the  contract  other than fuel costs for energy
purchased  were   classified  as  other   operating   expenses.   Following  the
restructuring,  all costs for energy and capacity  purchased under that contract
are included in MidAmerican Energy's cost of fuel, energy and capacity,  as with
other purchased power.  Refer to Note (1)(h) of Notes to Consolidated  Financial
Statements  later in Item 15 of this Form 10-K for a discussion  of the contract
restructuring.

     Other  substantive  decreases  included $10.4 million in energy  efficiency
program  costs,  $6.5  million  in  the  provision  for  uncollectible  accounts
receivable  and $2.5 million  related to information  technology.  Numerous less
substantive  decreases also contributed to the total decrease in other operating
expenses.  Compared to 2001,  pension and other  postretirement  costs increased
$10.8 million; health care costs increased $4.2 million; and Quad Cities Station
(nuclear) costs increased $3.9 million.

     Regulated  other  operating  expenses for 2001 increased  $15.2 million for
MidAmerican  Energy and $30.5 million for MidAmerican  Funding compared to 2000.
Increases  include a $15.9 million increase in pension and other  postretirement
benefits  costs,  a $6.7 million  increase in the  allowance  for  uncollectible
accounts,  a $5.5 million  increase in Cooper  Nuclear  Station costs and a $4.2
million  increase in electric  distribution  expense.  In addition,  MidAmerican
Funding's  other  operating  expenses  increased  $15.3  million due to purchase
accounting  adjustments  relating  principally  to the  Cooper  Nuclear  Station
contract.  The increases  were partially  offset by a $7.3 million  reduction in
Quad Cities  Station  operating  expenses,  a $4.5  million  reduction in energy
efficiency amortization and program costs and decreases in various other costs.

     Maintenance -

     Maintenance  expenses  decreased $2.9 million for 2002 compared to 2001 due
to a $5.6 million decrease in electric  distribution  maintenance  expenses as a
result  of  a  reduction  in  costs  for  tree-trimming  activity.   Fossil-fuel
generation maintenance expenses increased $1.9 million for 2002.

     Maintenance  expenses for 2001 compared to 2000  increased  $11.3  million.
Fossil fuel generating plant maintenance expenses increased $8.6 million,  while
maintenance  costs for Quad Cities  Station  decreased  $5.7  million.  Electric
distribution  system  maintenance  increased  $5.4 million in part due to a more
aggressive   tree-trimming   program.  Gas  distribution   maintenance  expenses
increased $3.0 million.

     Depreciation and Amortization -

     Depreciation  and  amortization  expense for 2002  increased  $16.7 million
compared to 2001 due to a $13.5 million  increase in utility plant  depreciation
due, in part, to a change in the estimated  useful life of general utility plant
assets.  Additionally,  the charge related to the  establishment of a regulatory
liability for the electric  revenue  sharing  arrangement in Iowa increased $7.8
million for 2002 compared to 2001.  Refer to the "Rate Matters"  section of MD&A
for further discussion.

                                     -38-
<PAGE>

     Depreciation   and  amortization   expense   increased  $53.2  million  for
MidAmerican Energy and $57.2 million for MidAmerican Funding in 2001 compared to
2000.  During 2001,  MidAmerican  Energy  recorded  $47.1 million for the charge
related to the establishment of a regulatory  liability for the electric revenue
sharing  arrangement  in Iowa that began in 2001.  The IUB approved a settlement
agreement, which includes the revenue sharing arrangement,  in December 2001. In
addition,  utility  plant  depreciation  expense  increased  as a  result  of an
increase in depreciation rates in 2001 and an increase in utility plant.

     Property and Other Taxes -

     Property  and other  taxes  fluctuated  in 2002 and 2001  compared  to each
preceding  year due primarily to changes in  MidAmerican  Energy's Iowa property
tax assessed values.

NONREGULATED GROSS MARGIN

                                                     2002      2001      2000
                                                    ------    ------    ------
                                                          (In millions)
     MidAmerican Energy -
       Nonregulated operating revenues:
         Energy trading gross revenues .........    $261.8    $290.3    $282.5
         Energy trading cost of sales ..........     258.5     283.4     280.4
                                                    ------    ------    ------
           Energy trading net revenues .........       3.3       6.9       2.1
         Other nonregulated revenues ...........     183.6     173.1     127.8
                                                    ------    ------    ------
           Total nonregulated operating revenues     186.9     180.0     129.9
       Nonregulated cost of sales ..............     158.5     154.4     108.5
                                                    ------    ------    ------
            Nonregulated gross margin ..........    $ 28.4    $ 25.6    $ 21.4
                                                    ======    ======    ======


     MidAmerican Funding Consolidated -
       Nonregulated operating revenues:
         Energy trading gross revenues .........    $261.8    $290.3    $282.5
         Energy trading cost of sales ..........     258.5     283.4     280.4
                                                    ------    ------    ------
           Energy trading net revenues .........       3.3       6.9       2.1
         Other nonregulated revenues ...........     188.4     194.5     172.3
                                                    ------    ------    ------
           Total nonregulated operating revenues     191.7     201.4     174.4
       Nonregulated cost of sales ..............     159.4     170.5     144.6
                                                    ------    ------    ------
            Nonregulated gross margin ..........    $ 32.3    $ 30.9    $ 29.8
                                                    ======    ======    ======

     MidAmerican Energy -

     The  Emerging  Issues Task  Force,  or EITF,  issued  EITF Issue No.  02-3,
"Recognition and Reporting of Gains and Losses on Energy Trading Contracts under
Issues No. 98-10 and 00-17." In accordance  with EITF Issue No. 02-3,  all gains
and losses on MidAmerican Energy's energy trading contracts are now reported net
on the statement of income,  and all prior period amounts have been reclassified
to a consistent  presentation.  MidAmerican Energy's nonregulated  wholesale gas
and electric  marketing  activities  qualify as "energy trading" contracts under
the  guidance of EITF Issue No. 02-3.  The  preceding  tables  provide the gross
revenues and cost of sales for those  activities  for discussion  purposes.  For
2002,  approximately  95% of  MidAmerican  Energy's  gross  revenues from energy
trading activities were from gas trading operations.

                                      -39-
<PAGE>

     2002 vs. 2001

     MidAmerican  Energy's  nonregulated  gross margin for 2002  increased  $2.8
million compared to 2001.

     Energy Trading
     --------------

     Energy  trading net revenues  decreased  from $6.9 million for 2001 to $3.3
million  for 2002 due  principally  to a  reduction  in net  revenues,  or gross
margin, on MidAmerican Energy's gas energy trading operations.  Gross margin for
MidAmerican  Energy's gas energy  trading  operations  decreased $5.0 million to
$1.6 million for 2002 compared to 2001 due primarily to a decrease in the margin
per unit sold.  Additionally,  sales  volumes  decreased  1.1%,  or 0.8  million
MMBtus;  an MMBtu is one million  British  thermal units.  Cost of sales for gas
energy  trading  decreased for 2002 due  principally to an 11.5% decrease in the
average per-unit cost of gas. Related gross revenues reflect the decrease in the
average  cost of gas and a  reduction  in the  per-unit  margin on sales.  Gross
margin for electric trading  operations  increased $1.4 million compared to 2001
to $1.7 million for 2002.

     Other Nonregulated Revenues and Cost of Sales
     ---------------------------------------------

     Other  nonregulated  revenues and cost of sales  consist  substantially  of
nonregulated  retail  natural  gas  marketing   operations.   Gross  margin  for
MidAmerican  Energy's  nonregulated retail natural gas operations increased $0.7
million to $2.7 million for 2002.  The  improvement  in gross margin  reflects a
19.8% increase in margin per unit and a 12.0%  increase in sales volumes.  Sales
volumes increased 2.6 million MMBtus.  Revenues from nonregulated retail natural
gas operations decreased $11.8 million to $106.9 million for 2002. A decrease in
the average price per unit sold,  reflective of a 20.3%  decrease in the average
cost of gas, resulted in a $26.1 million decrease in revenues, but was partially
offset by the increase in sales volumes.

     All  electric  retail  customers  in  Illinois,  except for those served by
electric  cooperatives and municipalities,  are allowed to select their electric
power supplier.  For 2002 compared to 2001, gross margin for nonregulated retail
electric  operations  increased $7.6 million to $11.4 million.  Related revenues
increased  $29.7 million to $63.1 million for 2002 while cost of sales increased
$22.1 million to $51.7  million.  The  improvement in gross margin was due to an
increase  in sales  volumes  as a result of the  addition  of  customers  and an
increase in margin per unit sold as a result of decreases in the related cost of
energy.

     Nonregulated  revenues  include  income  from  sharing  arrangements  under
regulated natural gas tariffs.  Total related income decreased from $4.4 million
for 2001 to $3.1 million for 2002.

     Under  MidAmerican   Energy's   incentive  gas  procurement   program,   if
MidAmerican  Energy's  cost of gas varies from an  established  reference  price
range,  then the savings or cost is shared between  customers and  shareholders.
Nonregulated revenues in 2002 include $3.4 million of pre-tax income from awards
for successful  performance under program.  Similar awards totaling $4.1 million
were recorded in 2001.

     MidAmerican  Energy currently offers an Extended Service Protection Plan to
its customers for appliance and other maintenance related services. Revenues for
2002  totaled  $2.9  million,  down $0.7  million  from 2001,  and cost of sales
totaled $2.0 million, down $0.4 million from 2001.

     Additionally,  nonregulated  revenues  for 2002  include  $1.2  million for
emergency  storm  restoration  work performed  outside of  MidAmerican  Energy's
service territory during the first quarter of

                                      -40-
<PAGE>

2002. Related costs are reflected in the line Nonregulated  Operating Expenses -
Other on the Consolidated Statements of Income.

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

     2001 vs. 2000

     MidAmerican  Energy's  nonregulated  gross margin for 2001  increased  $4.2
million compared to 2000.

     Energy Trading
     --------------

     Energy  trading net revenues  increased  from $2.1 million for 2000 to $6.9
million for 2001 due to an increase in gross margin on MidAmerican  Energy's gas
energy trading operations.  Gross margin for MidAmerican  Energy's  nonregulated
wholesale natural gas operations increased $4.8 million to $6.6 million for 2001
compared to 2000 due  primarily  to an increase in the margin per unit sold.  An
increase of 16.8 million MMBtus,  or 26.3%,  also contributed to the increase in
gross  margin.  Cost  of  sales  for gas  energy  trading  increased  due to the
improvement  in sales volumes,  substantially  offset by a 20.0% decrease in the
per-unit cost of gas. Related revenues  increased  compared to 2000,  reflecting
the increase in sales volumes and the offsetting reduction in the price per-unit
sold.

     Other Nonregulated Revenues and Cost of Sales
     ---------------------------------------------

     Gross  margin for  MidAmerican  Energy's  nonregulated  retail  natural gas
operations  increased $0.6 million to $2.0 million for 2001. The  improvement in
gross margin reflects a 59.8% increase in sales volumes,  offset partially by an
11.2%  reduction in margin per unit sold.  Sales  volumes  increased 8.1 million
MMBtus  compared  to  2001.   Revenues  from  nonregulated  retail  natural  gas
operations  increased  $47.8 million to $118.7 million for 2001. The increase in
sales volumes resulted in a $42.4 million  increase in revenues.  An increase in
the average  price per unit sold,  reflective  of a 5.1% increase in the average
cost of gas, also contributed to the increase in revenues.

     As of December 31, 2000, all non-residential  retail customers in Illinois,
except for those served by electric cooperatives and municipalities, were phased
in to allow them to select their electric power  supplier.  For 2001 compared to
2000, gross margin for these  nonregulated  retail electric sales increased $4.5
million to $3.8  million.  Related  revenues  increased  $13.9  million to $33.4
million for 2001 while cost of sales increased $9.4 million to $29.6 million.

     Nonregulated  revenues from  MidAmerican  Energy's  market  access  service
project totaled $6.2 million and $17.9 million for 2001 and 2000,  respectively;
the related cost of sales  totaled  $5.4 million for 2001 and $16.9  million for
2000. As discussed above, the pilot project concluded in May 2001.

     Income  from  sharing  arrangements  under  regulated  natural  gas tariffs
decreased  from $5.2  million  for 2000 to $4.4  million  for 2001.  MidAmerican
Energy's  nonregulated  revenues  also  include  pre-tax  income from awards for
successful  performance under its incentive gas procurement  program. The awards
totaled $4.1 million and $3.9 million in 2001 and 2000, respectively.

                                      -41-

<PAGE>


     Gross margin for MidAmerican  Energy's Extended Service Protection Plan was
unchanged for 2001 compared to 2000.  Revenues for 2001 totaled $3.6 million and
$3.2 million for 2000, while related cost of sales totaled $2.4 million for 2001
and $2.0 million for 2000.

     Nonregulated  revenues for 2000 include $5.7 million of revenues and margin
for  nonregulated  services  performed  for regulated  customers of  MidAmerican
Energy,  including distribution  maintenance.  Beginning in 2001, these services
are primarily performed by another subsidiary of MidAmerican Funding.

     MidAmerican Funding -

     During 2001 and 2000, a subsidiary of MidAmerican  Capital had nonregulated
retail  natural gas  marketing  operations.  Revenues and costs of sales in 2001
totaled $11.3 million and $11.6 million, respectively. In 2000, revenues totaled
$35.1  million and cost of sales totaled  $34.2  million.  All contracts of that
subsidiary have terminated.

     Nonregulated revenues and cost of sales for 2001 decreased compared to 2000
due to the sale in April 2000 of security system  operations.  The first quarter
of 2000 includes $4.4 million of revenues and $2.6 million of cost of sales from
those operations.

NONREGULATED OPERATING EXPENSES: OTHER

     MidAmerican Energy -

     Nonregulated  other operating  expenses increased $1.5 million for 2002 due
primarily to $1.0 million of costs  related to the emergency  storm  restoration
work discussed  above.  Nonregulated  other  operating  expenses  decreased $2.3
million  for  2001  compared  to  2000  due to a  decrease  in cost  related  to
nonregulated services for MidAmerican Energy regulated customers.

     MidAmerican Funding -

     MidAmerican Funding's  nonregulated other operating expenses,  exclusive of
MidAmerican  Energy amounts,  decreased $34.1 million for 2002 compared to 2001.
MidAmerican  Funding's  goodwill is no longer being amortized as a result of the
adoption  of SFAS No.  142 on  January  1,  2002.  Amortization  of  MidAmerican
Funding's  goodwill  totaled  $34.4  million  for  2001.  MidAmerican  Funding's
nonregulated other operating expenses,  excluding MidAmerican Energy,  decreased
$3.3  million  for 2001  compared to 2000 due to a decrease in sales tax expense
and goodwill  amortization.  Additionally,  2000  includes $1.7 million in costs
related to the security system operations sold in April 2000.

INTEREST AND DIVIDEND INCOME

     MidAmerican Energy -

     Interest and dividend  income  decreased  $4.2 million for 2002 compared to
2001 due to a $5.9  million  reduction in interest  income on a note  receivable
associated  with  MidAmerican  Energy's  accounts  receivable  sold. The related
agreement  terminated  on October  29,  2002.  A more  favorable  cash  position
increased interest income on short-term  investments compared to 2001, partially
offsetting the decrease in interest income on the note receivable.  The improved
cash position was due principally to the issuance of $400 million of notes in
February 2002.

                                      -42-
<PAGE>

     Interest and dividend  income  decreased  $2.4 million for 2001 compared to
2000.  A decrease in interest  from a joint plant  operator for funds held by it
reduced interest income by approximately $2.3 million, while interest related to
income  tax  refunds  decreased  $6.1  million.  Interest  income  on  the  note
receivable for the accounts receivable sold increased $5.4 million in 2001.

     MidAmerican Funding -

     Excluding  MidAmerican  Energy,  interest  income for  MidAmerican  Funding
increased  $2.0  million  for 2002  compared to 2001.  Interest  income for 2002
includes $5.0 million from the  settlement of an investment in a  communications
company but was partially  offset by a $2.6 million  decrease in interest income
related to note receivables with MidAmerican Funding's parent company.  Refer to
Note (1)(f) of Notes to Consolidated  Financial  Statements  later in Item 15 of
this Form 10-K for a discussion of the notes with the parent company.

     Interest income decreased $2.2 million,  excluding  MidAmerican Energy, for
2001  compared to 2000 due  primarily to interest on the notes  receivable  with
MidAmerican Funding's parent company.

     Dividend income  decreased in 2002 and 2001 compared to each preceding year
due to the on-going liquidation of the preferred stock investment portfolio.

MARKETABLE SECURITIES GAINS AND LOSSES, NET

     MidAmerican Funding -

     Net  losses  on  marketable  securities  increased  $4.0  million  for 2002
compared to 2001. In 2002,  MidAmerican  Funding  recorded  losses totaling $4.3
million for other-than-temporary declines in its available-for-sale common stock
investments.  Additionally, other losses on marketable securities increased $2.0
million in 2002. The first quarter of 2001 includes a $2.4 million  pre-tax loss
related to the  re-characterization  of  marketable  securities  to "trading" as
allowed by SFAS No. 133,  "Accounting  for  Derivative  Instruments  and Hedging
Activities", thus increasing 2002 income relative to 2001.

     Net  losses  on  marketable  securities  for 2001  decreased  $2.8  million
compared  to 2000  due to a  decrease  in net  losses  realized  on sales of the
preferred stock investment portfolio in 2001 compared to 2000. The impact of the
decrease in net losses on the sales of the preferred stock investment  portfolio
was partially offset by the comparative  effect of 2000 including a $2.0 million
pre-tax gain on the sale of the remaining  shares of McLeodUSA common stock held
by MidAmerican  Funding.  Additionally,  the  re-characterization  of marketable
securities  discussed  in the  preceding  paragraph  resulted in a $2.4  million
pre-tax loss in 2001. As a result of the  re-characterization of the securities,
the  Consolidated  Statement of Income for 2001  reflects  unrealized  gains and
losses on those securities.  In 2000,  unrealized gains and losses on marketable
securities were recorded in equity.

OTHER INCOME AND EXPENSE

     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,  or FERC.
Accordingly,  other  income for the  capitalized  allowance on equity funds used
during construction  totaled $8.6 million in 2002, $1.6 million in 2001 and zero
in 2000.  MidAmerican Energy  anticipates  recording income for the allowance on
equity  funds used during  construction  over the next  several  years while the
announced generating plants are constructed.

                                      -43-
<PAGE>

     Other income  includes net earnings  related to the cash surrender value of
corporate-owned life insurance policies.  Such income totaled $1.3 million, $5.3
million and $9.3 million for 2002, 2001 and 2000,  respectively.  The income for
2001 includes a gain from common stock  received as a result of an initial stock
offering  by one of the  insurance  providers.  Income  for 2000  includes  $7.4
million related to benefits paid on several policies.

     Other  income  for 2002  reflects  $1.2  million  of gain  from the sale of
utility property. Other Income for 2001 reflects a $1.4 million gain on the sale
of MidAmerican Energy rail cars. Additionally,  income from MidAmerican Energy's
equity method investment totaled $0.3 million in each of the years 2002 and 2001
and a loss of $0.5 million in 2000.

     Other income  includes income from a subservicer fee charged to MidAmerican
Energy  Funding   Corporation  for  servicing   MidAmerican   Energy's  accounts
receivable  sold to them.  Subservicer  fee income  totaled $1.3  million,  $2.9
million and $1.9 million for 2002, 2001 and 2000, respectively.  Likewise, other
expense  includes  a discount  on sold  accounts  receivable.  The  discount  is
designed  to cover the  expenses  of  MidAmerican  Energy  Funding  Corporation,
including bad debt expense,  subservicer fees, monthly  administrative costs and
interest.  The discount is recorded in other expense because it is not reflected
in utility cost of service for regulatory  purposes.  The discount  totaled $6.4
million, $16.0 million and $10.2 million for 2002, 2001 and 2000,  respectively.
The  related  arrangement  terminated  October  29,  2002.  Refer  to  "Accounts
Receivable Securitization" in the "Financing Activities, Plans and Availability"
section later in MD&A for further discussion.

     MidAmerican Funding -

     Other income of MidAmerican Funding includes $7.4 million, $4.8 million and
$2.6 million of income from  MidAmerican  Capital's  equity method  investments.
Equity  income for 2002 includes  $5.3 million of income for a  distribution  of
common  stock  held  by  one  of  MidAmerican  Capital's  venture  capital  fund
investments. In 2001, equity income includes $2.3 million related to a gain on a
common stock  distribution by one of MidAmerican  Capital's venture capital fund
investments.

     Other  income for 2002 also  includes a $2.6 million gain on the sale of an
investment  in a  communications  company and $0.5 million from the sale of rail
cars. In 2000,  MidAmerican  Funding recorded a $4.3 million gain on the sale of
its security  system  companies and gains totaling $2.1 million from the sale of
commercial property, rail cars and other assets.

     Other  expense for  MidAmerican  Funding in 2002 includes  write-downs  for
impaired  assets  and  investments.   MidAmerican  Funding  has  investments  in
commercial  passenger  aircraft,  which it  accounts  for as  leveraged  leases.
Evaluation of these investments  resulted in a $12.6 million pre-tax write-down.
Additionally, MidAmerican Funding recorded a $5.1 million loss for the permanent
impairment  of an equity  method  investment,  a $2.7  million loss related to a
receivable on a special purpose fund investment and losses totaling $1.5 million
from permanent impairments on three venture capital fund investments.

FIXED CHARGES AND PREFERRED DIVIDENDS

     MidAmerican Energy -

     The  increase in interest on long-term  debt for 2002  compared to 2001 was
due to the issuance of $400 million of notes in February 2002, net of the impact
of debt maturities in 2001 and lower variable  interest rates in 2002.  Interest
on  long-term  debt  decreased in 2001  compared to 2000 due to  long-term

                                      -44-
<PAGE>

debt  maturities and a reduction in interest rates on variable rate debt.  These
decreases were partially offset by interest related to medium-term  notes issued
in July 2000.

     Other interest expense  decreased for 2002 compared to 2001 due principally
to  interest  in 2001  related to income tax  assessments.  Additionally,  other
interest  expense  decreased due to a reduction in short-term debt  outstanding.
Other interest expense increased in 2002 for interest on regulatory  liabilities
associated  with  the  electric  revenue  sharing  arrangement  in Iowa  and the
restructuring  of  MidAmerican  Energy's  contract  related  to  Cooper  Nuclear
Station.

     For 2001  compared  to 2000,  other  interest  expense  decreased  due to a
reduction  in the  average  amount  of  short-term  debt  outstanding  and lower
interest rates. Additionally, interest for 2000 includes $0.6 million related to
a gas supplier refund that was refundable to utility customers.  These decreases
were  partially  offset by  interest  related  to state and  federal  income tax
assessments in 2001.

     Preferred  dividends of MidAmerican  Energy's subsidiary trust decreased in
2002 due to the  reacquisition  of all of the related  preferred  securities  on
March 11, 2002. Dividends for MidAmerican Energy's preferred  securities,  which
are reflected after Net Income on MidAmerican Energy's,  Consolidated Statements
of Income,  decreased due to preferred securities reacquired in May and November
2001 and May 2002.  Preferred  dividends for 2002 reflect a $0.7 million loss on
reacquisition  of  preferred  securities  compared to a loss of $0.2  million in
2001.  Preferred dividends decreased in 2001 compared to 2000 as a result of the
reacquisition  of preferred  shares in April and November 2001. The loss of $0.2
million on the 2001 reacquisitions partially offset the decrease in dividends.

     MidAmerican Funding -

     MidAmerican  Funding retired $200 million of long-term debt and issued $200
million of long-term debt in the first quarter of 2001,  resulting in a relative
increase in  interest on  long-term  debt for 2002.  The  increase is due to the
period of time between the retirement of the former debt series and the issuance
of the current debt series,  which reduced  interest  expense in 2001. Also, the
current debt series has a higher interest rate than the previous debt.  Interest
on  long-term  debt was  reduced  in 2002 and 2001  compared  to the  respective
preceding year due to the maturity of MidAmerican  Capital long-term debt in the
fourth quarter of each year.


                         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 $353  million,  $479
million and $360  million  for 2002,  2001 and 2000,  respectively.  MidAmerican
Funding's  net cash  provided by operating  activities  was $366  million,  $461
million and $304 million for 2002, 2001 and 2000, respectively.

INVESTING ACTIVITIES AND PLANS

     Utility Construction Expenditures -

     MidAmerican  Energy's  primary  need for  capital is  utility  construction
expenditures.  For the  year  ended  December  31,  2002,  utility  construction
expenditures  totaled $357  million,  including  allowance for

                                      -45-
<PAGE>

funds used during construction,  or capitalized financing costs, and Quad Cities
Station nuclear fuel purchases.

     Forecasted utility construction expenditures, including allowance for funds
used during  construction,  are $368 million for 2003. Capital expenditure needs
are reviewed regularly by management and may change significantly as a result of
such reviews.

     Through  2010,  MidAmerican  Energy  plans to develop and  construct  three
electric  generating  projects in Iowa.  The projects  would provide  service to
regulated retail electricity customers and, subject to regulatory approvals,  be
included in regulated  rate base in Iowa,  Illinois and South Dakota.  Wholesale
sales may also be made from the plants to the extent the power is not needed for
regulated  retail service.  MidAmerican  Energy expects to invest  approximately
$1.6 billion in the three projects,  including the cost of related  transmission
facilities and allowance for funds used during construction.  The three projects
may provide  approximately  1,285 megawatts,  or MW, of generating  capacity for
MidAmerican Energy depending on management's on-going assessment of energy needs
and related factors.

     The first  project is a 500-MW  (based on expected  accreditation)  natural
gas-fired   combined  cycle  unit  with  an  estimated  cost  of  $415  million.
MidAmerican Energy will own 100% of the plant and operate it. MidAmerican Energy
has received a  certificate  from the IUB  allowing it to  construct  the plant.
Also,  on May 29, 2002,  the IUB issued an order that  provides  the  ratemaking
principles  for the  gas-fired  plant.  As a result of that  order,  MidAmerican
Energy is  proceeding  with the  construction  of the  plant.  The plant will be
operated  in simple  cycle mode  during  2003 and 2004,  resulting  in 310 MW of
accredited  capacity.  The combined  cycle  operation is expected to commence in
2005.

     The second project is currently  under  development and is expected to be a
790-MW (based on expected accreditation) super-critical-temperature,  coal-fired
plant fueled with  low-sulfur  coal.  If  constructed,  MidAmerican  Energy will
operate  the  plant  and  expects  to own  approximately  475  MW of the  plant.
Municipal,  cooperative and public power utilities will own the remainder, which
is a typical  ownership  arrangement  for  large  base-load  plants in Iowa.  On
January 23, 2003, MidAmerican Energy received an order approving the issuance of
a  certificate  from the IUB  allowing it to  construct  the plant.  MidAmerican
Energy has made a filing  with the IUB for  approval  of  ratemaking  principles
pertaining to this second plant.  Continued development of this plant is subject
to obtaining  environmental  and other  required  permits,  as well as receiving
orders  from  the IUB  approving  construction  of the  associated  transmission
facilities and  establishing  ratemaking  principles  which are  satisfactory to
MidAmerican Energy.

     The third project is currently under development and is expected to be wind
power facilities totaling 310 MW (nameplate rating). If constructed, MidAmerican
Energy  will own and  operate  these  facilities,  which  are  expected  to cost
approximately   $323   million,   plus   associated   transmission   facilities.
MidAmerican's  plan to  construct  the wind  project  is in  conjunction  with a
settlement  proposal to extend through  December 31, 2010, a rate freeze that is
currently  scheduled  to  expire  at the end of 2005.  The  proposed  settlement
requires  enactment of Iowa  legislation  and is subject to approval by the IUB.
Refer to the  "Rate  Matters"  section  below  for more  discussion  of the rate
aspects of the proposed settlement.

     Nuclear Decommissioning -

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

                                      -46-
<PAGE>

     Based on information  presently  available,  MidAmerican  Energy expects to
contribute  approximately  $41 million  during the period 2003  through  2007 to
external trusts established for the investment of funds for decommissioning Quad
Cities Station.  Approximately 60% of the fair value of the trusts' funds is now
invested in domestic corporate debt and common equity securities.  The remainder
is invested in investment grade municipal and U.S.  Treasury bonds.  Funding for
Quad Cities Station nuclear decommissioning is reflected as depreciation expense
in the Consolidated  Statements of Income.  Quad Cities Station  decommissioning
costs  charged to Iowa  customers  are  included in base rates,  and recovery of
increases in those amounts must be sought through the normal ratemaking process.

     Contractual Obligations and Commercial Commitments -

     MidAmerican  Energy  and  MidAmerican   Funding  have  various  contractual
obligations and commercial commitments.  Following is a table summarizing, as of
December 31, 2002,  the material  cash  obligations  of  MidAmerican  Energy and
MidAmerican Funding (in millions).
<TABLE>
<CAPTION>

                                                                         Period Payments are Due
                                                                  --------------------------------------
                                                                            2004-     2006-       After
Type of Obligation                                      Total      2003     2005      2007        2007
------------------                                    --------    ------    ------    ------    --------

<S>                                                   <C>         <C>       <C>       <C>       <C>
MidAmerican Energy:
Long-term debt, excluding unamortized
  debt premium and discount, net .................    $1,058.9    $105.7    $147.0    $162.0    $  644.2
Operating leases (1) .............................        20.9       7.5       8.4       4.2         0.8
Coal, electricity and natural gas
  contract commitments (1) .......................       527.0     193.2     238.7      32.9        62.2
                                                      --------    ------    ------    ------    --------
  Total ..........................................     1,606.8     306.4     394.1     199.1       707.2

MidAmerican Funding parent and other subsidiaries:
Long-term debt, excluding unamortized
  debt premium and discount, net .................       700.0        --        --        --       700.0
                                                      --------    ------    ------    ------    --------
  Total ..........................................    $2,306.8    $306.4    $394.1    $199.1    $1,407.2
                                                      ========    ======    ======    ======    ========
</TABLE>

(1)  The operating  leases and fuel and energy  commitments are not reflected on
     the  Consolidated  Balance  Sheets.  Refer  to  Note  (4)(f)  in  Notes  to
     Consolidated  Financial Statements later in Item 15 of this Form 10-K for a
     discussion of these commitments.

     The above table includes  MidAmerican  Energy's and  MidAmerican  Funding's
unconditional  purchase  obligations.  MidAmerican  Energy  has  other  types of
commitments  that are subject to change and relate primarily to the items listed
below. For additional  information,  refer, where applicable,  to the respective
referenced Note in Notes to Consolidated  Financial  Statements later in Item 15
of this Form 10-K.

     -    Construction    expenditures:    MidAmerican   Energy's   construction
          expenditures for 2003 are estimated to be $368 million, including $122
          million for the Greater Des Moines Energy Center, a 500-MW  accredited
          capacity natural gas-fired combined cycle unit.
     -    Manufactured   gas  plant  facilities  (see  Note  (4)(a))
     -    Nuclear decommissioning costs (see Note (4)(d))
     -    Residual guarantees on operating leases (see Note (1)(j))

                                      -47-

<PAGE>

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

     Debt Authorizations and Credit Facilities -

     MidAmerican  Energy has authority  from the FERC to issue through April 14,
2003, short-term debt in the form of commercial paper and bank notes aggregating
$500  million.  MidAmerican  Energy  currently  has in  place a  $370.4  million
revolving  credit  facility  that  supports  its $250 million  commercial  paper
program  and its  variable  rate  pollution  control  revenue  obligations.  The
facility  expires January 15, 2004. In addition,  MidAmerican  Energy has a $5.0
million line of credit, which expires July 1, 2003.

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

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

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

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

     MidAmerican Energy has on file with the Securities and Exchange  Commission
a  registration  statement  providing for an additional  $425 million in various
forms of  senior  and  subordinated,  unsecured  long-term  debt  and  preferred
securities.  MidAmerican  Energy also has authorization  from the FERC to issue,
through  November  30, 2004,  an  additional  $425  million in various  forms of
long-term debt.

     MidAmerican  Energy is required to obtain  authorization  from the Illinois
Commerce Commission,  or ICC, prior to issuing any securities. If 90% or more of
the proceeds  from a  securities  issuance  are used for  refinancing  purposes,
MidAmerican  Energy need only provide the ICC with an "informational  statement"
prior to the issuance which sets forth the type,  amount and use of the proceeds
of the  securities  to be issued.  If less than 90% of the proceeds are used for
refinancing,   MidAmerican  must  file  a  comprehensive   application   seeking
authorization  prior to issuance.  The ICC is required to hold a hearing  before
issuing its  authorization.  MidAmerican Energy currently has authority from the
ICC  to  issue  up  to  approximately  $15  million  of  medium-term  notes  for
refinancing purposes.

     Accounts Receivable Securitization -

     In 1997,  MidAmerican Energy entered into a revolving agreement to sell all
of its  right,  title  and  interest  in the  majority  of its  billed  accounts
receivable to MidAmerican Energy Funding  Corporation,  a special purpose entity
established to purchase  accounts  receivable from  MidAmerican  Energy and sell
them  to  outside  investors.  The  agreement  was  structured  as a true  sale.
Therefore,  the  accounts  receivable  sold  are not  reflected  on  MidAmerican
Energy's or MidAmerican Funding's  Consolidated Balance Sheet as of December 31,
2001. The agreement expired on October 29, 2002, and MidAmerican  Energy did not
extend or replace it.

                                      -48-
<PAGE>

     Other Information -

     MHC has a $4.0 million line of credit,  expiring  July 1, 2003,  to provide
for short-term  financing  needs,  none of which was outstanding at December 31,
2002.  MidAmerican  Capital has a $6.1 million line of credit  expiring  July 1,
2003, none of which was outstanding at December 31, 2002.

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

CREDIT RATINGS RISKS

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

     In  conjunction  with  its  wholesale  marketing  and  trading  activities,
MidAmerican   Energy  must  meet  credit   quality   standards  as  required  by
counterparties.  MidAmerican  Energy  has energy  trading  agreements  that,  in
accordance with industry practice,  either  specifically  require it to maintain
investment  grade  credit  ratings or provide  the right for  counterparties  to
demand  "adequate  assurances"  in the  event of a  material  adverse  change in
MidAmerican  Energy's  creditworthiness.  If one or more of MidAmerican Energy's
credit  ratings  decline  below  investment  grade,  MidAmerican  Energy  may be
required  to post cash  collateral,  letters of credit or other  similar  credit
support to facilitate ongoing wholesale marketing and trading activities.  As of
December  31,  2002,   MidAmerican   Energy's  estimated  potential   collateral
requirements totaled approximately $83 million.  MidAmerican Energy's collateral
requirements  could  fluctuate  considerably  due to  seasonality,  market price
volatility,  a loss of key  MidAmerican  Energy  generating  facilities or other
related factors.

RATE MATTERS

     Under a  settlement  agreement  approved by the IUB on December  21,  2001,
MidAmerican  Energy's Iowa retail electric rates in effect on December 31, 2000,
are effectively  frozen through December 31, 2005. In approving that settlement,
the IUB  specifically  allows the filing of electric  rate design and/or cost of
service  rate  changes  that  are  intended  to keep  overall  company  revenues
unchanged  but could  result in changes to  individual  tariffs.  Under the 2001
settlement  agreement,  an amount equal to 50% of revenues  associated with Iowa
retail  electric  returns on equity  between 12% and 14%, and 83.33% of revenues
associated with Iowa retail  electric  returns on equity above 14%, in each year
is recorded as a regulatory liability to be used to offset a portion of the cost
to Iowa customers of future generating plant investments. An amount equal to the
regulatory  liability is recorded as a  regulatory  charge in  depreciation  and
amortization expense when the liability is accrued.  Interest expense is accrued

                                      -49-
<PAGE>

on the portion of the regulatory liability related to prior years.  Beginning in
2002,  the liability is being relieved as it is credited  against  allowance for
funds used during construction,  or capitalized financing costs, associated with
generating  plant  additions.  As of December 31, 2002,  the related  regulatory
liability reflected on the Consolidated Balance Sheet totaled $102.9 million.

     On March 20,  2003,  MidAmerican  Energy  and the Iowa  Office of  Consumer
Advocate  agreed upon a settlement  proposal in which the rate freeze  described
above  would be  extended  through  December  31,  2010.  Under  the  settlement
proposal,  for  calendar  years 2006  through  2010,  an amount  equal to 40% of
revenues  associated with Iowa retail electric  returns on equity between 11.75%
and 13.0%;  50% of  revenues  associated  with Iowa retail  electric  returns on
equity  between  13.0% and 14.0%;  and 83.3% of  revenues  associated  with Iowa
retail  electric  returns  on equity  greater  than  14.0%  will be applied as a
reduction  to offset  some of the  capital  costs on the Iowa  portion  of three
generation projects. If Iowa retail electric returns on equity fall below 10% in
any 12-month period after January 1, 2006, MidAmerican Energy has the ability to
file for a general increase in rates under the proposed settlement. The proposed
settlement  requires enactment of Iowa legislation and is subject to approval by
the IUB. The IUB is expected to rule on the  proposal  during the second half of
2003.

     On March 15, 2002, MidAmerican Energy made a filing with the IUB requesting
an  increase in rates for its Iowa retail  natural  gas  customers.  On June 12,
2002, the IUB issued an order granting an interim rate increase of approximately
$13.8  million  annually,  effective  immediately  and  subject  to refund  with
interest.  On  November  8,  2002,  the IUB  approved  the  proposed  settlement
agreement  previously filed with it by MidAmerican Energy and the Iowa Office of
Consumer Advocate. The settlement agreement provides for an increase in rates of
$17.7  million  annually  for  MidAmerican  Energy's  Iowa  retail  natural  gas
customers and effectively freezes such rates through November 2004.  MidAmerican
Energy implemented the new rates for usage beginning November 25, 2002.

LEGISLATIVE AND REGULATORY EVOLUTION

     Electric Deregulation -

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

     Illinois law also provides for Illinois  electric earnings above a computed
level of return on common  equity to be shared  equally  between  customers  and
MidAmerican  Energy.  MidAmerican  Energy's  computed  level of return on common
equity is based on a rolling two-year average of the 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  through  2006.  The
two-year  average  above which  sharing must occur for 2002 was 14.03%.  The law
allows  MidAmerican  Energy  to  mitigate  the  sharing  of  earnings  above the
threshold  return on common equity  through  accelerated  recovery of regulatory
assets.

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

     Regional Transmission Organizations -

     In December 1999, the FERC issued Order No. 2000 establishing,  among other
things,   minimum   characteristics  and  functions  for  regional  transmission
organizations.  Public utilities that were not a

                                      -50-
<PAGE>


member of an independent  system operator at the time of the order were required
to submit a plan by which its transmission  facilities would be transferred to a
regional transmission  organization.  On September 28, 2001,  MidAmerican Energy
and five other electric utilities filed with the FERC a plan to create TRANSLink
Transmission  Company LLC and to integrate their electric  transmission  systems
into  a  single,  coordinated  system  operating  as  a  for-profit  independent
transmission company in conjunction with a FERC-approved  regional  transmission
organization. On April 25, 2002, the FERC issued an order approving the transfer
of control of MidAmerican  Energy and other  utilities'  transmission  assets to
TRANSLink  in  conjunction  with   TRANSLink's   participation  in  the  Midwest
Independent   Transmission   System   Operator,   Inc.   regional   transmission
organization.  MidAmerican  Energy has filed an application for state regulatory
approval  with the IUB and  anticipates a ruling in mid-2003.  Transferring  the
operations  and control of  MidAmerican  Energy's  transmission  assets to other
entities could increase costs for MidAmerican Energy; however, the actual impact
of TRANSLink on MidAmerican Energy's future transmission costs is not yet known.

     Standard Electricity Market Design -

     On July 31,  2002,  the FERC  issued a notice of proposed  rulemaking  with
respect to Standard Market Design.  The FERC has  characterized  the proposal as
portending  "sweeping  changes"  to the  use  and  expansion  of the  interstate
transmission and wholesale bulk power systems in the United States. The proposal
includes numerous proposed changes to the current regulation of transmission and
generation  facilities designed "to promote economic efficiency" and replace the
"obsolete patchwork we have today," according to the FERC's chairman.  The final
rule,  if adopted as  currently  proposed,  would  require all public  utilities
operating  transmission  facilities  subject  to the FERC  jurisdiction  to file
revised open access transmission tariffs that would require changes to the basic
services these public utilities currently provide.  The proposed rule may impact
the pricing of MidAmerican Energy's electricity and transmission  products.  The
FERC does not envision that a final rule will be fully  implemented  until 2004.
MidAmerican  Energy is still  evaluating  the proposed rule and  recognizes  the
final rule could vary considerably from the initial proposal.  Accordingly,  the
likely  impact of the proposed rule on  MidAmerican  Energy's  transmission  and
generation businesses is unknown.

ENVIRONMENTAL MATTERS

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

     MidAmerican  Energy has evaluated or is evaluating 27 properties that were,
at one time, sites of gas manufacturing  plants in which it may be a potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste materials are present,  whether the materials  constitute an environmental
or health  risk,  and  whether  MidAmerican  Energy has any  responsibility  for
remedial action. As of December 31, 2002,  MidAmerican Energy has recorded a $17
million  liability  for these  sites and a  corresponding  regulatory  asset for
future recovery through the regulatory process. Refer to Note (4)(a) of Notes to
Consolidated Financial Statements later in Item 15 of this Form 10-K for further
discussion  of  MidAmerican   Energy's   environmental   activities  related  to
manufactured gas plant sites and cost recovery.

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

                                      -51-
<PAGE>

     In July 1997, the EPA adopted revisions to the National Ambient Air Quality
Standards for ozone and a new standard for fine particulate  matter. In February
2001,  the United  States  Supreme  Court  upheld the  constitutionality  of the
standards, though remanding the issue of implementation of the ozone standard to
the EPA.  The impact of the new  standards  on  MidAmerican  Energy is currently
unknown. These standards could be superceded,  in whole or in part, by a variety
of multi-pollutant emission reduction initiatives. Refer to Note (4)(b) of Notes
to  Consolidated  Financial  Statements  later in Item 15 of this  Form 10-K for
further discussion of this issue.

     In 2001,  the state of Iowa  passed  legislation  that,  in part,  requires
rate-regulated  utilities to develop a  multi-year  plan and budget for managing
regulated emissions from their generating facilities in a cost-effective manner.
MidAmerican  Energy's  proposed plan and  associated  budget,  or "the Plan" was
filed with the IUB on April 1, 2002, in accordance  with state law.  MidAmerican
Energy expects the IUB to rule on the prudence of the Plan in 2003.  MidAmerican
Energy is required to file Plan updates at least every two years.

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

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

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

     Under the New Source  Review,  or NSR,  provisions of the Clean Air Act, or
CAA,  a  utility  is  required  to  obtain  a permit  from the EPA  prior to (1)
beginning  construction  of a new major  stationary  source of an  NSR-regulated
pollutant   or  (2)  making  a  physical   or   operational   change  (a  "major
modification")  to an existing  facility that potentially  increases  emissions,
unless the  changes  are exempt  under the  regulations.  In  general,  projects
subject to NSR regulations are subject to pre-construction review and permitting
under the Prevention of  Significant  Deterioration,  or PSD,  provisions of the
CAA. Under the PSD program,  a project that emits threshold  levels of regulated
pollutants  must  undergo  a Best  Available  Control  Technology  analysis  and
evaluate the most effective emissions controls. These controls must be installed
in order to receive a permit.  Routine  maintenance,  repair and replacement are
not  subject to the NSR  provisions;  however,  these types of  activities  have
historically been subject to changing interpretations under the NSR program. The
EPA  recently  proposed  a change  to the NSR  provisions  relating  to  routine
maintenance,  repair and replacement.  Violation of NSR regulations  potentially
subjects a utility to fines and/or other  sanctions.  The impact on  MidAmerican
Energy of any final rules is not currently known.

     In recent years, the EPA has requested from several  utilities  information
and support regarding their capital projects for various  generating plants. The
requests  were  issued  as  part of an  industry-wide  investigation  to  assess
compliance with the NSR and the New Source Performance  Standards of the CAA.

                                      -52-
<PAGE>

In December 2002,  MidAmerican Energy received a request from the EPA to provide
documentation  related to its  capital  projects  from  January 1, 1980,  to the
present for its Neal,  Council  Bluffs,  Louisa and  Riverside  Energy  Centers.
MidAmerican Energy has responded to this request and at this time cannot predict
the outcome of request.

GENERATING CAPABILITY

     In July 2002,  retail  customer  usage of  electricity  caused a new record
hourly peak demand of 3,889  megawatts on  MidAmerican  Energy's  energy system,
surpassing  the previous  record peak of 3,833 MW set in July 1999.  MidAmerican
Energy is interconnected with Iowa and neighboring  utilities and is involved in
an electric power pooling  agreement known as Mid-Continent  Area Power Pool, or
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 2002 cooling season,  MidAmerican  Energy's  reserve was  approximately  21%
above its system peak demand.

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     MidAmerican  Energy's  and  MidAmerican  Funding's  significant  accounting
policies are described in Note (1) of Notes to Consolidated Financial Statements
later in Item 15 of this Form 10-K.

     Accounting for Regulated Entities -

     MidAmerican  Funding's and  MidAmerican  Energy's most critical  accounting
policy is the application of SFAS No. 71, "Accounting for the Effects of Certain
Types  of  Regulation,"  at  MidAmerican  Energy.  A  possible   consequence  of
deregulation  in the utility  industry is that SFAS No. 71 may no longer  apply.
SFAS No. 71 sets forth  accounting  principles for operations that are regulated
and meet the stated criteria. For operations that meet the criteria, SFAS No. 71
allows,  among  other  things,  the  deferral  of expense  or income  that would
otherwise be recognized when incurred. Predominantly all of MidAmerican Energy's
electric and gas utility operations currently meet the criteria required by SFAS
No. 71, but its  applicability  is periodically  reexamined.  If portions of its
utility  operations  no longer  meet the  criteria  of SFAS No. 71,  MidAmerican
Energy  could be  required  to  write  off the  related  regulatory  assets  and
liabilities from its balance sheet, and thus, a material  adjustment to earnings
in that period could result if regulatory assets are not recovered in transition
provisions of any deregulation legislation.

                                      -53-
<PAGE>

     Revenue Recognition -

     Revenues are recorded as services  are rendered to  customers.  MidAmerican
Energy records  unbilled  revenues  representing  the estimated amount customers
will be billed  for  services  rendered  between  the  meter-reading  dates in a
particular  month and the end of that month. The unbilled  revenues  estimate is
reversed in the following month. To the extent the estimated amount differs from
the amount subsequently billed,  revenues will be affected. At December 31, 2002
and 2001, $55.1 million and $43.2 million,  respectively,  of unbilled  revenues
are included in accounts receivable.

     Excess of Cost Over Fair Value of Assets Acquired -

     MidAmerican Funding's excess of cost over fair value of assets acquired, or
goodwill,  must be  evaluated  annually  in  accordance  with  SFAS  No.  142 to
determine if the carrying  value might be  impaired.  Determination  of the fair
values of the related reporting units involves substantial  estimates,  as ready
markets  are not  available  for all of the  involved  assets  and  liabilities.
Accordingly,   a  change  in  the  assumptions  and/or  estimates  used  in  the
determination  of the fair values of the  reporting  units  could  significantly
affect the outcome, possibly resulting in an impairment of related goodwill.

     Contingent Liabilities -

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

     Accounting for Derivatives and Energy Trading Activities -

     MidAmerican Energy accounts for its energy trading activities in accordance
with EITF Issue No. 02-3 and SFAS No. 133,  as amended  and  interpreted,  which
require certain energy trading and energy  derivative  contracts to be accounted
for at fair value.

     In accordance with EITF Issue No. 02-3, all of MidAmerican Energy's trading
revenues  are  now  reported  net  of the  costs  of the  related  sales  on the
Consolidated  Statements  of Income.  Previously,  the  revenues  and costs were
recorded gross.  All prior periods have been  reclassified to conform to the net
presentation.

     Accounting for derivatives  continues to evolve through  guidance issued by
the Derivatives  Implementation  Group and the EITF of the Financial  Accounting
Standards  Board, or FASB. To the extent that changes by these  standard-setting
groups modify current guidance,  including the normal purchases and normal sales
determination, the accounting treatment for derivatives may change.

                                      -54-

<PAGE>

     See Notes  (1)(i)  and (8) in Notes to  Consolidated  Financial  Statements
later in Item 15 of this Form 10-K for further  discussion related to accounting
for derivatives.

     Accrued Pension and Postretirement Expense -

     Pension and  postretirement  costs are accrued throughout the year based on
results of an annual study performed by external  actuaries.  In addition to the
benefits granted to employees, the timing of the cost of these plans is impacted
by  assumptions  used  by  the  actuaries,  including  assumptions  provided  by
MidAmerican Energy for the discount rate and long-term rate of return on assets.
Both of these factors  require  estimates and  projections by management and can
fluctuate  from  period to period.  Actual  returns on assets are  significantly
affected by stock and bond markets, over which management has little control. If
management  increased the discount rate by 1%, pension and postretirement  costs
for  2002  would  decrease  by $6.2  million.  Refer  to Note  (11) of  Notes to
Consolidated  Financial  Statements  later  in  Item 15 of this  Form  10-K  for
disclosures about MidAmerican Energy retirement plans and costs.

NEW ACCOUNTING PRONOUNCEMENTS

     In January 2003,  MidAmerican Energy implemented SFAS No. 143,  "Accounting
for Asset  Retirement  Obligations."  SFAS No. 143 requires  recognition  on the
balance sheet of legal obligations  associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or normal
operation of such assets.  Concurrent with the recognition of the liability, the
estimated cost of an asset retirement  obligation is capitalized and depreciated
over the remaining life of the asset.

     As of January 1, 2003,  MidAmerican  Energy  recorded $275 million of asset
retirement obligation liabilities, $266 million of which pertains to obligations
associated with the decommissioning of the Quad Cities Station.  Additionally, a
regulatory  asset  of $102  million  was  recognized  in  conjunction  with  the
accounting  change.  As of January 1, 2003,  $160 million of assets are held and
restricted for satisfying  the Quad Cities Station  decommissioning  obligation.
Adoption  of SFAS  No.  143 did not have a  significant  impact  on  MidAmerican
Energy's results of operation.

     MidAmerican  Energy  has  asset  retirement   obligations  related  to  its
transmission  and delivery  assets for which the retirement  date is indefinite,
and  therefore,  a liability  cannot be reasonably  estimated.  Accordingly,  no
liability was recorded for these  obligations with the adoption of SFAS No. 143.
MidAmerican  Energy  does  accrue for the cost of  removing  such  assets in its
depreciation  rates, in accordance with regulatory  precedence.  At December 31,
2002,  approximately $386 million of accrued cost of removal for such assets was
included in accumulated depreciation.

     FASB  Interpretation  No.  45,   "Guarantor's   Accounting  and  Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others,"  or  FIN45,   clarifies  the  accounting  and  disclosure  for  certain
guarantees.  FIN45  directs  that a guarantor  is required to  recognize  at the
inception of a guarantee a liability  for the fair value of the  obligations  it
has  undertaken  under  the  guarantee.  The  new  disclosure  requirements  are
effective for financial  statements of periods  ending after  December 15, 2002.
The  requirement  for  recognition  of a liability is for  guarantees  issued or
modified after December 31, 2002.

     MidAmerican Energy is the lessee on operating leases for coal railcars that
contain  guarantees of the residual value of such equipment  throughout the term
of the leases.  Events triggering the residual guarantees include termination of
the lease,  loss of the equipment or purchase of the equipment.  Lease terms are
for five years with provisions for extensions. At December 31, 2002, the maximum
amount of such guarantees specified in these leases totals $31.5 million.

                                      -55-
<PAGE>

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     MidAmerican  Funding,  including  MidAmerican  Energy, is exposed to market
risk from changes in factors such as the market price of certain commodities and
interest  rates.  To manage the price  volatility  relating to these  exposures,
MidAmerican Funding enters into various financial derivative instruments. Senior
management  provides the overall  direction,  structure,  conduct and control of
MidAmerican Funding's risk management activities, including the use of financial
derivative  instruments,  authorization  and  communication  of risk  management
policies and  procedures,  strategic  hedging  program  guidelines,  appropriate
market and credit risk limits, and appropriate systems for recording, monitoring
and  reporting  the results of  transactional  and risk  management  activities.
MidAmerican Funding regularly performs  sensitivity  analysis of its outstanding
positions and adheres to strict  value-at-risk  parameters.  MidAmerican Funding
uses hedge accounting for derivative  instruments  pertaining to its natural gas
purchasing,  wholesale electricity activities and financing activities. Refer to
Notes (1)(i) and (8) in Notes to Consolidated Financial Statements later in Item
15 of this Form 10-K for further discussion of price risk and the accounting for
derivative instruments.

                                      -56-

<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                  YEARS ENDED DECEMBER 31,
                                          -----------------------------------------
                                             2002           2001           2000
                                          -----------    -----------    -----------
<S>                                       <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ....................   $ 1,353,431    $ 1,318,129    $ 1,212,411
Regulated gas .........................       695,799        869,132        929,555
Nonregulated ..........................       186,929        179,988        129,866
                                          -----------    -----------    -----------
                                            2,236,159      2,367,249      2,271,832
                                          -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity ...       346,685        275,904        249,045
  Cost of gas sold ....................       482,837        674,883        721,395
  Other operating expenses ............       394,436        449,328        434,125
  Maintenance .........................       135,487        138,343        127,076
  Depreciation and amortization .......       266,983        250,315        197,144
  Property and other taxes ............        76,025         71,705         74,778
                                          -----------    -----------    -----------
                                            1,702,453      1,860,478      1,803,563
                                          -----------    -----------    -----------
Nonregulated:
  Cost of sales .......................       158,463        154,448        108,478
  Other ...............................        20,246         18,749         21,035
                                          -----------    -----------    -----------
                                              178,709        173,197        129,513
                                          -----------    -----------    -----------
  Total operating expenses ............     1,881,162      2,033,675      1,933,076
                                          -----------    -----------    -----------

OPERATING INCOME ......................       354,997        333,574        338,756
                                          -----------    -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ..........         8,832         13,069         15,499
Other income ..........................        14,063         12,291         12,060
Other expense .........................        (8,790)       (18,104)       (13,515)
                                          -----------    -----------    -----------
                                               14,105          7,256         14,044
                                          -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ............        71,401         60,880         61,120
Other interest expense ................         3,412          8,401          9,056
Preferred dividends of subsidiary trust         1,574          7,980          7,980
Allowance for borrowed funds ..........        (3,336)        (1,661)        (1,273)
                                          -----------    -----------    -----------
                                               73,051         75,600         76,883
                                          -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ............       296,051        265,230        275,917
INCOME TAXES ..........................       120,230        112,452        110,461
                                          -----------    -----------    -----------

NET INCOME ............................       175,821        152,778        165,456
PREFERRED DIVIDENDS ...................         2,933          4,544          4,955
                                          -----------    -----------    -----------

EARNINGS ON COMMON STOCK ..............   $   172,888    $   148,234    $   160,501
                                          ===========    ===========    ===========
</TABLE>

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

                                      -57-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                             YEARS ENDED DECEMBER 31,
                                                        -----------------------------------
                                                           2002         2001         2000
                                                        ---------    ---------    ---------

<S>                                                     <C>          <C>          <C>
EARNINGS ON COMMON STOCK ............................   $ 172,888    $ 148,234    $ 160,501
                                                        ---------    ---------    ---------

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on cash flow hedges:
  Unrealized gains (losses) during period-
    Before income taxes .............................      (7,013)       7,690           --
    Income tax (expense) benefit ....................       2,915       (3,197)          --
                                                        ---------    ---------    ---------
                                                           (4,098)       4,493           --
                                                        ---------    ---------    ---------
  Less reclassification adjustment for realized gains
    (losses) reflected in net income during period-
    Before income taxes .............................      (2,277)       1,757           --
    Income tax (expense) benefit ....................         946         (731)          --
                                                        ---------    ---------    ---------
                                                           (1,331)       1,026           --
                                                        ---------    ---------    ---------
       Net unrealized gains (losses) ................      (2,767)       3,467           --
                                                        ---------    ---------    ---------

Minimum pension liability adjustment:
  Before income tax benefit .........................      (8,279)      (8,295)      (4,087)
  Income tax benefit ................................       3,442        3,448        1,699
                                                        ---------    ---------    ---------
    Net adjustment ..................................      (4,837)      (4,847)      (2,388)
                                                        ---------    ---------    ---------

  Other comprehensive income (loss) .................      (7,604)      (1,380)      (2,388)
                                                        ---------    ---------    ---------

COMPREHENSIVE INCOME ................................   $ 165,284    $ 146,854    $ 158,113
                                                        =========    =========    =========
</TABLE>

                                      -58-

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

<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                 AS OF DECEMBER 31,
                                                              -----------------------
                                                                 2002         2001
                                                              ----------   ----------
<S>                                                           <C>          <C>
ASSETS
UTILITY PLANT, NET
Electric ..................................................   $4,731,002   $4,598,372
Gas .......................................................      900,209      867,277
                                                              ----------   ----------
                                                               5,631,211    5,465,649
Less accumulated depreciation and amortization ............    3,011,123    2,847,979
                                                              ----------   ----------
                                                               2,620,088    2,617,670
Construction work in progress .............................      205,988       80,276
                                                              ----------   ----------
                                                               2,826,076    2,697,946
                                                              ----------   ----------

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

CURRENT ASSETS
Cash and cash equivalents .................................       28,500       20,020
Receivables, less reserves of $7,615 and $627, respectively      321,321      119,740
Inventories ...............................................       88,492       83,339
Prepaid taxes .............................................           --       23,956
Other .....................................................       28,655       10,962
                                                              ----------   ----------
                                                                 466,968      258,017
                                                              ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ................      273,864      272,230
REGULATORY ASSETS .........................................      192,514      221,120
OTHER ASSETS ..............................................       52,457       80,394
                                                              ----------   ----------

TOTAL ASSETS ..............................................   $3,811,879   $3,577,892
                                                              ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ...............................   $1,307,067   $1,219,057
MidAmerican Energy preferred securities, not subject to
  mandatory redemption ....................................       31,759       31,759
Preferred securities, subject to mandatory redemption:
  MidAmerican Energy preferred securities .................           --       26,680
  MidAmerican Energy-obligated preferred securities of
    subsidiary trust holding solely MidAmerican Energy
    junior subordinated debentures ........................           --      100,000
Long-term debt, excluding current portion .................      947,691      656,740
                                                              ----------   ----------
                                                               2,286,517    2,034,236
                                                              ----------   ----------
CURRENT LIABILITIES
Notes payable .............................................       55,000       89,350
Current portion of long-term debt .........................      105,727      163,854
Current portion of power purchase contract ................           --       17,398
Accounts payable ..........................................      239,531      171,535
Taxes accrued .............................................       83,063       54,175
Interest accrued ..........................................        9,731       11,709
Other .....................................................       55,464       43,814
                                                              ----------   ----------
                                                                 548,516      551,835
                                                              ----------   ----------
OTHER LIABILITIES
Power purchase contract ...................................           --        8,469
Deferred income taxes .....................................      424,153      513,978
Investment tax credit .....................................       56,886       61,292
Quad Cities Station decommissioning .......................      159,757      158,349
Regulatory liabilities ....................................      118,011       62,378
Other .....................................................      218,039      187,355
                                                              ----------   ----------
                                                                 976,846      991,821
                                                              ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES ......................   $3,811,879   $3,577,892
                                                              ==========   ==========
</TABLE>

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

                                      -59-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                      YEARS ENDED DECEMBER 31,
                                                                 -----------------------------------
                                                                    2002         2001         2000
                                                                 ---------    ---------    ---------

<S>                                                              <C>          <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...................................................   $ 175,821    $ 152,778    $ 165,456
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ..............................     268,446      251,099      197,438
  Deferred income taxes and investment tax credit, net .......     (63,335)     (32,550)     (27,743)
  Amortization of other assets and liabilities ...............      32,150       44,963       48,650
  Change in accrued customer rate credits ....................          --      (21,531)       6,724
  Power purchase contract restructuring receipt ..............      39,100           --           --
  Cash inflow (outflow) of accounts receivable securitization      (44,000)     (26,000)      12,877
  Impact of changes in working capital .......................     (66,643)     116,021      (38,847)
  Other ......................................................      11,262       (6,022)      (4,468)
                                                                 ---------    ---------    ---------
    Net cash provided by operating activities ................     352,801      478,758      360,087
                                                                 ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ............................    (356,636)    (250,073)    (215,727)
Non-cash and accrued utility construction expenditures .......      25,349         (705)        (660)
Quad Cities Station decommissioning trust fund ...............      (8,299)      (8,299)      (8,302)
Nonregulated capital expenditures ............................        (822)      (2,221)      (1,075)
Other investing activities, net ..............................      10,362        4,597        1,411
                                                                 ---------    ---------    ---------
  Net cash used in investing activities ......................    (330,046)    (256,701)    (224,353)
                                                                 ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ...............................................     (80,433)     (94,544)     (58,955)
Issuance of long-term debt, net of issuance cost .............     391,145           --      160,992
Retirement of long-term debt, including reacquisition cost ...    (163,957)    (101,600)    (110,861)
Reacquisition of preferred securities ........................    (126,680)     (23,320)          --
Net increase (decrease) in notes payable .....................     (34,350)       7,750     (122,400)
                                                                 ---------    ---------    ---------
  Net cash used in financing activities ......................     (14,275)    (211,714)    (131,224)
                                                                 ---------    ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ....................       8,480       10,343        4,510
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ...............      20,020        9,677        5,167
                                                                 ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR .....................   $  28,500    $  20,020    $   9,677
                                                                 =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ....................   $  67,068    $  61,344    $  63,420
                                                                 =========    =========    =========
Income taxes paid ............................................   $ 133,142    $ 217,140    $ 133,176
                                                                 =========    =========    =========
</TABLE>

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

                                      -60-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                                                AS OF DECEMBER 31,
                                                                     -----------------------------------------
                                                                           2002                     2001
                                                                     -----------------       -----------------
<S>                                                                  <C>         <C>         <C>         <C>
COMMON SHAREHOLDER'S EQUITY
Common shares, no par; 350,000,000 shares authorized;
  70,980,203 shares outstanding....................................  $  561,024              $  560,798
Retained earnings..................................................     757,415                 662,027
Accumulated other comprehensive income (loss) net:
  Unrealized gain on cash flow hedges..............................         700                   3,467
  Minimum pension liability adjustment.............................     (12,072)                 (7,235)
                                                                      ---------              ----------
                                                                      1,307,067  57.2%        1,219,057  59.9%
                                                                      ---------  -----       ----------- -----
PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding; not subject to mandatory redemption:
  $3.30 Series, 49,451 shares......................................      4,945                    4,945
  $3.75 Series, 38,305 shares......................................      3,831                    3,831
  $3.90 Series, 32,630 shares......................................      3,263                    3,263
  $4.20 Series, 47,362 shares......................................      4,736                    4,736
  $4.35 Series, 49,945 shares......................................      4,994                    4,994
  $4.40 Series, 50,000 shares......................................      5,000                    5,000
  $4.80 Series, 49,898 shares......................................      4,990                    4,990
                                                                    ------------              ---------
                                                                        31,759    1.4%           31,759   1.6%
                                                                    ------------  ----        ---------  -----
Cumulative shares outstanding; subject to mandatory redemption:
  $7.80 Series, zero and 266,800 shares, respectively..............            -    -%           26,680   1.3%
                                                                    ------------  ----        ---------  -----

MIDAMERICAN ENERGY-OBLIGATED PREFERRED SECURITIES
MidAmerican Energy-obligated mandatorily redeemable cumulative
  preferred securities of subsidiary trust holding solely
  MidAmerican Energy junior subordinated debentures:
    7.98% series, zero and 4,000,000 shares, respectively.........             -    -%          100,000   4.9%
                                                                    ------------  ----        ---------   -----

LONG-TERM DEBT
Mortgage bonds:
  7.125% Series, due 2003..........................................          -                  100,000
  7.7% Series, due 2004............................................     55,630                   55,630
  7.0% Series, due 2005............................................     90,500                   90,500
  7.375% Series, due 2008..........................................     75,000                   75,000
  7.45% Series, due 2023...........................................      6,940                    6,940
  6.95% Series, due 2025...........................................     12,500                   12,500
Pollution control revenue obligations:
  5.75% Series, due periodically through 2003......................          -                    4,320
  6.7% Series due 2003.............................................          -                    1,000
  6.1% Series due 2007.............................................      1,000                    1,000
  5.95% Series, due 2023 (secured by general mortgage bonds).......     29,030                   29,030


</TABLE>

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

                                      -61-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
              CONSOLIDATED STATEMENTS OF CAPITALIZATION (CONTINUED)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                AS OF DECEMBER 31,
                                                                   ------------------------------------------
                                                                          2002                       2001
                                                                   -------------------      -----------------

<S>                                                                <C>                      <C>
LONG-TERM DEBT (CONTINUED)
  Variable rate series -
    Due 2016 and 2017, 1.64% and 1.77%, respectively...........    $     37,600             $    37,600
    Due 2023 (secured by general mortgage bonds),
      1.64% and 1.77%, respectively............................          28,295                  28,295
    Due 2023, 1.64% and 1.77%, respectively....................           6,850                   6,850
    Due 2024, 1.64% and 1.77%, respectively....................          34,900                  34,900
    Due 2025, 1.64% and 1.77%, respectively....................          12,750                  12,750
Notes:
  6.375% Series, due 2006......................................         160,000                 160,000
  6.75% Series, due 2031.......................................         400,000                       -
Obligation under capital lease.................................           2,161                   1,364
Unamortized debt premium and discount, net.....................          (5,465)                   (939)
                                                                   ------------             -----------
                                                                        947,691  41.4%          656,740  32.3%
                                                                   ------------ -----       ----------- -----

TOTAL CAPITALIZATION...........................................    $  2,286,517 100.0%       $2,034,236 100.0%
                                                                   ============ =====        ========== =====
</TABLE>


                                            MIDAMERICAN ENERGY COMPANY
                                   CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                                  (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                YEARS ENDED DECEMBER 31,
                                            ------------------------------
                                              2002       2001       2000
                                            --------   --------   --------

<S>                                         <C>        <C>        <C>
BEGINNING OF YEAR .......................   $662,027   $603,793   $497,292
                                            --------   --------   --------

NET INCOME ..............................    175,821    152,778    165,456
                                            --------   --------   --------

DEDUCT:
Loss on reacquisition of preferred shares        750        235         --
Dividends declared on preferred shares ..      2,183      4,309      4,955
Dividends declared on common shares .....     77,500     90,000     54,000
                                            --------   --------   --------
                                              80,433     94,544     58,955
                                            --------   --------   --------

END OF YEAR .............................   $757,415   $662,027   $603,793
                                            ========   ========   ========

</TABLE>

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

                                      -62-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX

                                                                           Page
                                                                           ----

(1)      Summary of Significant Accounting Policies .....................   64

(2)      Jointly Owned Utility Plant.....................................   69

(3)      Inventories.....................................................   70

(4)      Commitments and Contingencies...................................   70

(5)      Long-term Debt..................................................   74

(6)      Short-term Borrowing............................................   75

(7)      Preferred Securities............................................   75

(8)      Risk Management and Energy Trading..............................   75

(9)      Concentration of Credit Risk....................................   78

(10)     Rate Matters....................................................   80

(11)     Retirement Plans................................................   81

(12)     Segment Information.............................................   84

(13)     Income Taxes....................................................   87

(14)     Fair Value of Financial Instruments.............................   88

(15)     Non-Operating Other Income and Expense..........................   88

(16)     Affiliated Company Transactions.................................   89

(17)     Sale of Accounts Receivable.....................................   90

(18)     Unaudited Quarterly Operating Results...........................   90

                                      -63-

<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (A)  COMPANY STRUCTURE:

     MidAmerican  Energy  Company is a public  utility with electric and natural
gas operations and is the principal subsidiary of MHC Inc. MHC has the following
nonregulated  subsidiaries:  MidAmerican Capital Company,  MidAmerican  Services
Company,  Midwest Capital Group, Inc. and MEC Construction Services Co. MHC is a
wholly  owned  subsidiary  of  MidAmerican  Funding,  LLC,  whose sole member is
MidAmerican Energy Holdings Company.

     The current  corporate  structure  is the result of the merger  transaction
completed on March 12, 1999, involving MHC (formerly MidAmerican Energy Holdings
Company) and CalEnergy  Company,  Inc.  CalEnergy was  reincorporated as an Iowa
corporation and changed its name to MidAmerican  Energy Holdings  Company.  MHC,
MidAmerican  Funding and  MidAmerican  Energy Holdings are exempt public utility
holding companies headquartered in Des Moines, Iowa.

     (B)  CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

     The accompanying  consolidated  financial  statements  include  MidAmerican
Energy  and  subsidiaries  under  its  control.  All  significant   intercompany
transactions  have been eliminated.  The preparation of financial  statements in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and  disclosure  of  contingent  liabilities  at  the  date  of the
financial  statements and the reported  amounts of revenues and expenses  during
the reporting  period.  Actual results may differ from those estimates.  Certain
classifications  of amounts  for 2002 are  different  than that of prior  years.
Accordingly, historical amounts have been reclassified.

     (C)  REGULATION:

     MidAmerican  Energy's  utility  operations are subject to the regulation of
the Iowa Utilities Board, or IUB; the Illinois Commerce Commission,  or ICC; the
South Dakota Public  Utilities  Commission,  and the Federal  Energy  Regulatory
Commission,   or  FERC.   MidAmerican   Energy's  accounting  policies  and  the
accompanying  consolidated  financial  statements  conform to generally accepted
accounting principles  applicable to rate-regulated  enterprises and reflect the
effects of the ratemaking process.

     A possible  consequence  of  deregulation  in the utility  industry is that
Statement of Financial  Accounting  Standards,  or SFAS, No. 71, "Accounting for
the Effects of Certain Types of  Regulation,"  may no longer apply.  SFAS No. 71
sets forth accounting  principles for operations that are regulated and meet the
stated  criteria.  For  operations  that meet the criteria,  SFAS No. 71 allows,
among other  things,  the deferral of expense or income that would  otherwise be
recognized when incurred. Predominantly all of MidAmerican Energy's electric and
gas  utility  operations  currently  meet the  criteria  of SFAS No. 71, but its
applicability is periodically reexamined.  If portions of its utility operations
no longer meet the criteria of SFAS No. 71, MidAmerican Energy could be required
to write off the  related  regulatory  assets and  liabilities  from its balance
sheet,  and thus, a material  adjustment to earnings in that period could result
if  regulatory  assets  are  not  recovered  in  transition  provisions  of  any
deregulation  legislation.  The following regulatory assets represent costs that
are  expected  to be  recovered  in future  charges  to utility  customers.  The
regulatory  liabilities  represent  income  to  be  recognized  or  returned  to
customers in future periods.

                                      -64-
<PAGE>
<TABLE>
<CAPTION>


                                          Weighted Average
                                          Future Recovery       As of December 31,
                                               Period          2002          2001
                                          ----------------   --------      --------
                                                                  (In thousands)
     <S>                                       <C>           <C>           <C>
     Regulatory assets:
       Deferred income taxes, net ..........   21 years      $122,301      $145,271
       Debt refinancing costs ..............    6 years        22,187        24,252
       Cooper Nuclear Station capital
         improvement costs .................    2 years        16,841            --
       Environmental costs .................    5 years        16,588        21,878
       Nuclear generation assets ...........   10 years         8,573        10,284
       Enrichment facilities
         decommissioning....................    4 years         1,459         1,687
       Other ...............................    Various         4,565        17,748
                                                             --------      --------
         Total .............................                 $192,514      $221,120
                                                             ========      ========

     Regulatory liabilities:
       Iowa electric settlement reserve ....    4 years      $102,871      $ 47,125
       Environmental insurance recovery ....    4 years         8,678         8,850
       Energy efficiency ...................    2 years         6,462         3,883
       Coal contracts ......................         --            --         2,520
                                                             --------      --------
         Total..............................                 $118,011      $ 62,378
                                                             ========      ========
</TABLE>

     A return is generally not earned on the regulatory  assets in setting rates
due to the fact that a cash outlay was not required for amounts listed as income
taxes,  environmental  costs  and  enrichment  facilities  decommissioning.  The
amortization of the assets is recoverable over periods shown above.

     As a result  of the  restructuring  of the  Cooper  Nuclear  Station  power
purchase  contract,  Cooper Nuclear  Station capital  improvement  costs are now
considered  regulatory assets and classified as such on the Consolidated Balance
Sheet as of December 31, 2002.  Refer to Note (1)(h) for additional  information
regarding the power purchase contract for Cooper.

     For a discussion of the Iowa  electric  settlement  reserve,  refer to Note
(10).

     (D)  REVENUE RECOGNITION:

     Revenues are recorded as services  are rendered to  customers.  MidAmerican
Energy records  unbilled  revenues  representing  the estimated amount customers
will be billed  for  services  rendered  between  the  meter-reading  dates in a
particular month and the end of that month. Accrued unbilled revenues were $55.1
million and $43.2 million at December 31, 2002 and 2001,  respectively,  and are
included in Receivables on the Consolidated Balance Sheets.

     Electric  operating  revenues for 2000 include  provisions for rate refunds
related to a revenue sharing  arrangement in Iowa that  terminated  December 31,
2000.  The  provisions  reduced  revenues for 2000 by $21.6  million.  Under the
current  revenue sharing  arrangement in Iowa, the provision  related to revenue
sharing is  charged  to  depreciation  expense.  Refer to Note (10) for  further
discussion.

                                      -65-
<PAGE>

     MidAmerican  Energy's  Illinois and South Dakota  jurisdictional  sales, or
approximately  11% of total  retail  electric  sales,  and all of its retail gas
sales are subject to adjustment clauses.  MidAmerican Energy also has costs that
are  recovered,  at  least  in  part,  through  bill  riders,  including  energy
efficiency costs. The clauses and riders allow MidAmerican  Energy to adjust the
amounts  charged for electric and gas service as the related costs  change.  The
costs  recovered  in  revenues  through use of the  adjustment  clauses and bill
riders are charged to expense in the same period. At any given time, these costs
may be over or under collected from customers. The total (over)/under collection
included in Accounts Receivable at December 31, 2002 and 2001, was $48.3 million
and $(17.6) million, respectively.

     (E) DEPRECIATION AND AMORTIZATION:

     MidAmerican  Energy's  provisions for depreciation and amortization for its
utility  operations  are based on  straight-line  composite  rates.  The average
depreciation and amortization rates applied to depreciable utility plant for the
years ended December 31 were as follows:

                        2002       2001       2000
                        ----       ----       ----

     Electric......     4.4%       4.2%       4.0%
     Gas...........     3.5%       3.5%       3.5%

     Utility plant is stated at original  cost which  includes  overhead  costs,
administrative costs and an allowance for funds used during construction.

     The cost of  repairs  and minor  replacements  is  charged  to  maintenance
expense. Property additions and major property replacements are charged to plant
accounts.  The cost of depreciable units of utility plant retired or disposed of
in the normal course of business are eliminated  from the utility plant accounts
and such cost, plus net removal cost, is charged to accumulated depreciation.

     Additionally,  depreciation  and  amortization  expense  for  2002 and 2001
includes $55.0 million and $47.1 million,  respectively, for a regulatory charge
pursuant to the terms of an electric rate settlement in Iowa. Refer to Note (10)
for a discussion of the settlement.

     An allowance for the  estimated  annual  decommissioning  costs of the Quad
Cities  Generating  Station  equal to the level of funding is also  included  in
depreciation  expense.  See Note  (4)(d) for  additional  information  regarding
decommissioning costs.

     (F)  INVESTMENTS AND NONREGULATED PROPERTY, NET:

     Investments and Nonregulated  Property,  Net includes the following amounts
as of December 31 (in thousands):

                                                            2002        2001
                                                          --------    --------

     Nuclear decommissioning trust fund ..............    $159,757    $158,349
     Rabbi trusts ....................................      90,501      85,958
     Coal transportation property, net of accumulated
       depreciation of $1,705 and $1,396, respectively      10,215      10,523
     Other, net of accumulated depreciation of $1,293
       and $1,087, respectively ......................      13,391      17,400
                                                          --------    --------
         Total .......................................    $273,864    $272,230
                                                          ========    ========

                                      -66-
<PAGE>

     Investments  held by the  nuclear  decommissioning  trust fund for the Quad
Cities  Station units are classified as  available-for-sale  and are reported at
fair value with net unrealized  gains and losses  reported as adjustments to the
accumulated  provision  for nuclear  decommissioning,  which is reflected in the
line Quad Cities Station  Decommissioning  on the  Consolidated  Balance Sheets.
Funds are invested in accordance with applicable federal  investment  guidelines
and are  restricted  for  use as  reimbursement  for  costs  of  decommissioning
MidAmerican  Energy's  Quad  Cities  Station.  The  investment  in Rabbi  trusts
represents the cash value of life  insurance  policies on certain key executives
and the  fair  value  of  other  related  investments.  The  Rabbi  trusts  were
established   to  administer   various   nonqualified   executive  and  director
compensation  plans,  and  investments  in each trust are  restricted for use in
meeting the costs and obligations of the trust and related compensation plans.

     (G)  CONSOLIDATED STATEMENTS OF CASH FLOWS:

     MidAmerican  Energy  considers all cash and highly liquid debt  instruments
purchased with a remaining  maturity of three months or less to be cash and cash
equivalents for purposes of the Consolidated Statements of Cash Flows.

     Net cash provided (used) from changes in working capital for the years
ended December 31 was as follows (in thousands):

                                    2002          2001          2000
                                  ---------     ---------     ---------

     Receivables, net ........    $(157,581)    $ 328,921     $(244,552)
     Inventories .............       (5,153)      (14,209)       11,519
     Prepaid taxes ...........       23,956        (1,067)           --
     Other current assets ....      (17,693)       (1,173)          566
     Accounts payable ........       51,268      (134,973)      178,258
     Taxes accrued ...........       28,888       (70,318)       11,830
     Interest accrued ........       (1,978)         (307)         (909)
     Other current liabilities       11,650         9,147         4,441
                                  ---------     ---------     ---------
       Total .................    $ (66,643)    $ 116,021     $ (38,847)
                                  =========     =========     =========

     (H)  ACCOUNTING FOR POWER PURCHASE CONTRACT:

     MidAmerican  Energy has a power purchase  contract with the Nebraska Public
Power District for the purchase of capacity and energy,  which expires  December
31,  2004.  The current  terms of the  contract  are the result of an  agreement
signed by the parties that restructured the contract, effective August 1, 2002.

     Under the terms of the  contract  prior to its  restructuring,  MidAmerican
Energy purchased  one-half of the output of the Cooper Nuclear Station and had a
fixed  obligation  to pay 50% of the Nebraska  Public Power  District's  Nuclear
Facility   Revenue  Bonds  and  other  fixed   liabilities.   Accordingly,   the
Consolidated  Balance  Sheet as of  December  31,  2001,  reflects  current  and
long-term  liabilities  representing  those  fixed  obligations.  A like  amount
representing  MidAmerican  Energy's  right to  purchase  power is included as an
asset in the Power  Purchase  Contract  asset line on the  Consolidated  Balance
Sheet for December 31, 2001. Under the restructured terms of the contract, these
fixed  obligations  and the right to purchase power from Cooper no longer exist.
Accordingly,  the  liabilities  and the related  asset are not  reflected on the
Consolidated Balance Sheet as of December 31, 2002.

     Cooper capital  improvement costs prior to 1997,  including carrying costs,
were deferred in accordance with then applicable rate regulation. Prior to 2002,
these costs were included in the Power  Purchase  Contract asset line along with
the  asset  representing   MidAmerican  Energy's  right  to  receive  power,  in
accordance with Securities and Exchange Commission  regulations.  As a result of
the

                                      -67-
<PAGE>


restructuring of the Cooper power purchase contract, the deferred Cooper capital
improvement costs are now considered  regulatory  assets.  These costs are being
amortized  and  recovered in rates over either a five-year  period from the time
the related  assets were put in service or the  remaining  term of the  original
power purchase  contract,  namely through  September  2004.  From July 11, 1997,
through  July 31,  2002,  the Iowa  portion  of  capital  improvement  costs was
recovered  currently from customers and expensed as incurred.  For jurisdictions
other than Iowa,  MidAmerican  Energy began charging Cooper capital  improvement
costs  to  expense,  as  incurred  in  January  1997.  Under  the  terms  of the
restructured power purchase contract, MidAmerican Energy does not pay for Cooper
capital improvements.

     The fuel cost portion of the original power purchase  contract was included
in Cost of Fuel,  Energy and Capacity on the Consolidated  Statements of Income.
All other costs MidAmerican  Energy incurred in relation to this long-term power
purchase  contract prior to its  restructuring  were included in Other Operating
Expenses on the  Consolidated  Statements of Income.  Beginning August 2002, all
costs related to this power purchase  contract,  excluding the  amortization  of
Cooper  capital  improvement  discussed  above,  are  reflected in Cost of Fuel,
Energy and Capacity on the Consolidated Statements of Income.

     See Note (4)(c) for  additional  information  regarding the power  purchase
contract.

     (I) ACCOUNTING FOR DERIVATIVES:

     On  January 1,  2001,  MidAmerican  Energy  adopted  SFAS Nos.  133 and 138
pertaining to the accounting for derivative  instruments and hedging activities.
SFAS Nos.  133/138  requires an entity to recognize  all of its  derivatives  as
either assets or liabilities in its statement of financial  position and measure
those  instruments  at fair  value.  If the  conditions  specified  in SFAS Nos.
133/138 are met, those  instruments may be designated as hedges.  Changes in the
value of hedge instruments would not impact earnings,  except to the extent that
the  instrument  is not  perfectly  effective  as a hedge.  At  January 1, 2001,
MidAmerican  Energy  recognized $21.8 million and $4.9 million of energy-related
assets and liabilities,  respectively, as being subject to fair value accounting
pursuant to SFAS Nos. 133/138,  all of which were accounted for as hedges,  with
minimal impact to earnings. Due to the relative immateriality of the adoption of
SFAS Nos.  133/138,  a  cumulative-effect  presentation  is not reflected in the
Consolidated  Statement of Income or the Consolidated Statement of Comprehensive
Income for 2001.

     Pursuant to Emerging  Issues Task Force Issue No. 02-3,  effective  July 1,
2002,  revenue and cost of sales from  derivative  instruments  used for trading
purposes are  presented  as net  nonregulated  revenue on the income  statement.
Prior  to that  time,  such  amounts  were  presented  gross.  Accordingly,  all
historical amounts have been reclassified to conform to the net presentation.

     See Note  (8) for  further  discussion  on risk  management  and the use of
derivative instruments to manage such risk.

     (J)  NEW ACCOUNTING PRONOUNCEMENTS:

     In January 2003,  MidAmerican Energy implemented SFAS No. 143,  "Accounting
for Asset  Retirement  Obligations."  SFAS No. 143 requires  recognition  on the
balance sheet of legal obligations  associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or normal
operation of such assets.  Concurrent with the recognition of the liability, the
estimated cost of an asset retirement  obligation is capitalized and depreciated
over the remaining life of the asset.

     As of January 1, 2003,  MidAmerican  Energy  recorded $275 million of asset
retirement obligation

                                      -68-
<PAGE>

liabilities,  $266 million of which pertains to obligations  associated with the
decommissioning of the Quad Cities Station.  Additionally, a regulatory asset of
$102 million was recognized in conjunction  with the  accounting  change.  As of
January 1, 2003,  $160 million of assets are held and  restricted for satisfying
the Quad Cities Station decommissioning obligation. Adoption of SFAS No. 143 did
not have a significant impact on MidAmerican Energy's results of operation.

     MidAmerican  Energy  has  asset  retirement   obligations  related  to  its
transmission  and delivery  assets for which the retirement  date is indefinite,
and  therefore,  a liability  cannot be reasonably  estimated.  Accordingly,  no
liability was recorded for these  obligations with the adoption of SFAS No. 143.
MidAmerican  Energy  does  accrue  for  cost  of  removing  such  assets  in its
depreciation  rates, in accordance with regulatory  precedence.  At December 31,
2002,  approximately $386 million of accrued cost of removal for such assets was
included in accumulated depreciation.

     FASB  Interpretation  No.  45,   "Guarantor's   Accounting  and  Disclosure
Requirements for Guarantees,  Including  Indirect  Guarantees of Indebtedness of
Others,"  or  FIN45,   clarifies  the  accounting  and  disclosure  for  certain
guarantees.  FIN45  directs  that a guarantor  is required to  recognize  at the
inception of a guarantee a liability  for the fair value of the  obligations  it
has  undertaken  under  the  guarantee.  The  new  disclosure  requirements  are
effective for financial  statements of periods  ending after  December 15, 2002.
The  requirement  for  recognition  of a liability is for  guarantees  issued or
modified after December 31, 2002.

     MidAmerican Energy is the lessee on operating leases for coal railcars that
contain  guarantees of the residual value of such equipment  throughout the term
of the leases.  Events triggering the residual guarantees include termination of
the lease,  loss of the equipment or purchase of the equipment.  Lease terms are
for five years with provisions for extensions. At December 31, 2002, the maximum
amount of such guarantees specified in these leases totals $31.5 million.

(2)  JOINTLY OWNED UTILITY PLANT:

     Under joint plant ownership  agreements with other  utilities,  MidAmerican
Energy had undivided interests at December 31, 2002, in jointly owned generating
plants as shown in the table below.

     The dollar  amounts  below  represent  MidAmerican  Energy's  share in each
jointly owned unit.  Each  participant  has provided  financing for its share of
each unit.  Operating Expenses on the Consolidated  Statements of Income include
MidAmerican Energy's share of the expenses of these units (dollars in millions).
<TABLE>
<CAPTION>

                                  Nuclear                        Coal-fired
                                -----------    -----------------------------------------------
                                                         Council
                                Quad Cities    Neal      Bluffs      Neal     Ottumwa   Louisa
                                   Units       Unit       Unit       Unit      Unit      Unit
                                 No. 1 & 2     No. 3      No. 3      No. 4     No. 1     No. 1
                                -----------    -----     -------     -----    -------   ------
     <S>                           <C>          <C>        <C>        <C>       <C>       <C>
     In service date ........        1972       1975       1978       1979      1981      1983
     Utility plant in service      $  236       $148       $301       $174      $213      $540
     Accumulated depreciation      $  113       $ 99       $208       $117      $134      $322
     Unit capacity in
       megawatts (100%) .....       1,541        515        675        644       715       700
     Percent ownership ......        25.0%      72.0%      79.1%      40.6%     52.0%     88.0%
</TABLE>

                                      -69-
<PAGE>


(3)  INVENTORIES:

     Inventories include the following amounts as of December 31 (in thousands):

                                                 2002       2001
                                                -------    -------
     Materials and supplies, at average cost    $30,265    $24,886
     Coal stocks, at average cost ..........     27,863     27,855
     Gas in storage, at LIFO cost ..........     27,405     27,609
     Fuel oil, at average cost .............      1,865      1,892
     Other .................................      1,094      1,097
                                                -------    -------
       Total ...............................    $88,492    $83,339
                                                =======    =======

     At December 31, 2002  prices,  the current cost of gas in storage was $68.5
million.

(4)  COMMITMENTS AND CONTINGENCIES:

     (A)  MANUFACTURED GAS PLANT FACILITIES:

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

     MidAmerican  Energy has evaluated or is evaluating 27 properties that were,
at one time, sites of gas manufacturing  plants in which it may be a potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste materials are present,  whether the materials  constitute an environmental
or health  risk,  and  whether  MidAmerican  Energy has any  responsibility  for
remedial action. MidAmerican Energy is currently conducting field investigations
at 21 sites, has conducted  interim removal actions at 14 sites and has received
regulatory  closure on two sites.  MidAmerican  Energy is continuing to evaluate
several of the sites to determine the future  liability,  if any, for conducting
site investigations or other site activity.

     MidAmerican Energy estimates the range of possible costs for investigation,
remediation  and monitoring for the sites  discussed  above to be $16 million to
$54  million.  As of December 31,  2002,  MidAmerican  Energy has recorded a $17
million  liability  for these  sites and a  corresponding  regulatory  asset for
future recovery through the regulatory process. MidAmerican Energy projects that
these amounts will be paid or incurred over the next 4 years.

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

                                      -70-
<PAGE>


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.

     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 or results of operations.

     (B)  AIR QUALITY:

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

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

     The ozone and fine particulate matter standards could, in whole or in part,
be superceded by one of a number of multi-pollutant emission reduction proposals
currently under  consideration  at the federal level. In July 2002,  legislation
was  introduced  in Congress to  implement  the  Administration's  "Clear  Skies
Initiative,"  calling for  reduction in emissions  of sulfur  dioxide,  nitrogen
oxides and mercury through a  cap-and-trade  system.  Reductions  would begin in
2008 with additional emission reductions being phased in through 2018.

     While  legislative  action is necessary  for the Clear Skies  Initiative or
other  multi-pollutant  emission  reduction  initiatives  to  become  effective,
MidAmerican  Energy  has  implemented  a planning  process  that  forecasts  the
site-specific controls and actions required to meet emissions reductions of this
nature.  On  April  1,  2002,  in  accordance  with  Iowa  law  passed  in 2001,
MidAmerican  Energy filed with the IUB its first  multi-year plan and budget for
managing regulated emissions from its generating  facilities in a cost-effective
manner.  MidAmerican  Energy  expects  the IUB to rule  on the  prudence  of the
multi-year plan and budget in 2003.

     (C)  POWER PURCHASE CONTRACT:

     Effective August 1, 2002,  MidAmerican Energy and the Nebraska Public Power
District, or NPPD, restructured their power purchase contract for Cooper Nuclear
Station.  Under the terms of the  restructured  contract,  NPPD is  required  to
provide/deliver  to MidAmerican Energy from August 1, 2002, through December 31,
2004,  380  megawatts  of the  accredited  capacity  of Cooper  and a minimum of
approximately  2.5  million  megawatt-hours  in each of the years 2003 and 2004.
MidAmerican  Energy is likewise  required to purchase at the contract prices the
capacity and minimum  megawatt-hours  delivered.  MidAmerican  Energy's  minimum
payments  under the  contract are $68.6  million and $63.8  million for 2003 and
2004, respectively. NPPD also paid MidAmerican Energy $39.1 million on August 1,
2002.

                                      -71-
<PAGE>

     In December 2000,  MidAmerican Energy ceased  contributing  decommissioning
funds  to  NPPD  and   maintained   a  separate   fund  for   estimated   Cooper
decommissioning costs. Through July 31, 2002, MidAmerican Energy had accrued and
retained  $18.3 million in this separate  fund.  In  conjunction  with the power
purchase  contract  restructuring,  MidAmerican  Energy is recognizing the $39.1
million   cash   payment   and  the  $18.3   million   previously   accrued  for
decommissioning  into  income  based  on the  estimated  energy  expected  to be
received for the remainder of the contract.

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

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

     (D)  NUCLEAR DECOMMISSIONING COSTS:

     Expected  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  decommissioning  costs are included in base rates in
Iowa tariffs.

     MidAmerican  Energy's  share of  expected  decommissioning  costs  for Quad
Cities  Station,  in 2002  dollars,  is $266  million.  MidAmerican  Energy  has
established  external trusts for the investment of funds for decommissioning the
Quad Cities  Station.  The total  accrued  balance as of December 31, 2002,  was
$159.8  million and is included in Quad Cities  Station  Decommissioning  on the
Consolidated  Balance  Sheet.  A like amount is  reflected  in  Investments  and
Nonregulated  Property,  Net and represents the fair value of the assets held in
the trusts.

     MidAmerican  Energy's  depreciation  expense included costs for Quad Cities
Station nuclear decommissioning of $8.3 million for each of the years 2002, 2001
and 2000. The provision charged to depreciation  expense is equal to the funding
that is being collected in Iowa rates. The decommissioning  funding component of
MidAmerican Energy's Iowa tariff assumes  decommissioning  costs, related to the
Quad  Cities  Station,  will  escalate at an annual rate of 5.0% and the assumed
annual return on funds in the trust is 6.9%.  Income  (loss),  net of investment
fees,  on the assets in the trust fund was $(6.9)  million,  $(3.1)  million and
$3.2 million for 2002, 2001 and 2000, respectively.

     (E)  NUCLEAR INSURANCE:

     MidAmerican Energy maintains financial protection against catastrophic loss
associated  with its interest in Quad Cities  Station  through a combination  of
insurance  purchased by Exelon Generation  Company,  LLC (the operator and joint
owner of Quad Cities  Station),  insurance  purchased  directly  by  MidAmerican
Energy,  and the mandatory  industry-wide  loss funding mechanism afforded under
the  Price-Anderson  Amendments  Act of 1988. The general types of coverage are:
nuclear liability, property coverage and nuclear worker liability.

     Exelon Generation  purchases  nuclear  liability  insurance for Quad Cities
Station in the maximum available amount of $200 million.  In accordance with the
Price-Anderson  Amendments Act of 1988,

                                      -72-
<PAGE>

excess  liability  protection  above  that  amount is  provided  by a  mandatory
industry-wide  Secondary Financial  Protection program under which the licensees
of nuclear generating facilities could be assessed for liability incurred due to
a serious  nuclear  incident  at any  commercial  nuclear  reactor in the United
States. Currently,  MidAmerican Energy's aggregate maximum potential share of an
assessment  for Quad Cities Station is  approximately  $44 million per incident,
payable in installments not to exceed $5 million annually.

     The  property   insurance   covers  property  damage,   stabilization   and
decontamination  of the facility,  disposal of the  decontaminated  material and
premature  decommissioning  arising  out of a  covered  loss.  For  Quad  Cities
Station,  Exelon  Generation  purchased  primary and excess  property  insurance
protection  for the combined  interests in Quad Cities  Station,  with  coverage
limits totaling $2.1 billion.  MidAmerican  Energy also directly purchased extra
expense/business interruption coverage for its share of replacement power and/or
other extra expenses in the event of a covered  accidental outage at Quad Cities
Station.  The property and related coverages  purchased  directly by MidAmerican
Energy and by Exelon  Generation,  which  includes the interests of  MidAmerican
Energy,  are  underwritten by an industry mutual  insurance  company and contain
provisions  for  retrospective  premium  assessments  should  two or  more  full
policy-limit   losses  occur  in  one  policy  year.   Currently,   the  maximum
retrospective  amounts that could be assessed  against  MidAmerican  Energy from
industry mutual policies for its obligations associated with Quad Cities Station
total $6.3 million.

     The master nuclear worker liability coverage,  which is purchased by Exelon
Generation for Quad Cities Station, is an industry-wide  guaranteed-cost  policy
with an  aggregate  limit of $200  million for the nuclear  industry as a whole,
which is in effect to cover tort claims in nuclear-related industries.

     The current  Price-Anderson  Act  expired in August  2002.  Its  contingent
financial obligations still apply to reactors licensed by the Nuclear Regulatory
Commission as of its expiration date. It is anticipated that the  Price-Anderson
Act will be renewed with increased third party financial protection requirements
for nuclear incidents.

     (F)  FUEL, ENERGY AND OPERATING LEASE COMMITMENTS:

     MidAmerican Energy has supply and related transportation  contracts for its
fossil fueled generating stations. The contracts,  with expiration dates ranging
from 2003 to 2007,  require  minimum  payments of $76.4 million,  $61.2 million,
$43.6  million,  $2.6 million and $2.6 million for the years 2003 through  2007,
respectively. MidAmerican Energy expects to supplement these coal contracts with
additional contracts and spot market purchases to fulfill its future fossil fuel
needs.

     MidAmerican  Energy has a contract  with  Cordova  Energy  Company,  LLC, a
subsidiary of MidAmerican  Energy Holdings,  to purchase  electric  capacity and
energy from a gas-fired  combined cycle  generation  plant. The minimum payments
under the contract,  which  terminates  in May 2004,  are $24.7 million and $9.2
million  for 2003 and 2004,  respectively.  The  minimum  payments  are based on
MidAmerican  Energy's 50% of the projected  monthly net capacity  ratings of the
plant.

     MidAmerican  Energy also has  contracts  with  non-affiliated  companies to
purchase electric  capacity.  The contracts,  with expiration dates ranging from
2003 to 2028,  require minimum  payments of $40.2 million,  $37.8 million,  $2.9
million,  $2.2  million  and $2.2  million  for the  years  2003  through  2007,
respectively, and $45.6 million for the total of the years thereafter.

     MidAmerican  Energy has  various  natural  gas  supply  and  transportation
contracts for its gas operations.  The minimum commitments under these contracts
are $51.9 million, $46.8 million, $37.2

                                      -73-
<PAGE>


million,  $13.1  million  and $10.2  million  for the years 2003  through  2007,
respectively, and $16.6 million for the total of the years thereafter.

     MidAmerican  Energy  has  non-cancelable  operating  leases  primarily  for
computer equipment, office space and rail cars. The minimum payments under these
leases are $7.5  million,  $5.0  million,  $3.4  million,  $2.1 million and $2.1
million for the years 2003 through 2007, respectively,  and $0.8 million for the
total of the years thereafter.

     (G)  OTHER COMMITMENTS AND CONTINGENCIES:

     MidAmerican  Energy is involved in a number of other legal  proceedings and
claims.  While  management  is unable to predict the  ultimate  outcome of these
matters,  it is not expected that their  resolution will have a material adverse
effect on the results of operations and financial condition.

(5)  LONG-TERM DEBT:

     MidAmerican  Energy's sinking fund requirements and maturities of long-term
debt for 2003 through 2007 are $106  million,  $56  million,  $91 million,  $160
million and $1 million, respectively.

     MidAmerican  Energy's Variable Rate Pollution  Control Revenue  Obligations
bear interest at rates that are periodically  established through remarketing of
the  bonds in the  short-term  tax-exempt  market.  MidAmerican  Energy,  at its
option, may change the mode of interest calculation for these bonds by selecting
from among several alternative  floating or fixed rate modes. The interest rates
shown in the Consolidated  Statements of Capitalization are the weighted average
interest rates as of December 31, 2002 and 2001.  MidAmerican  Energy  maintains
revolving  credit  facility  agreements or renewable  lines of credit to provide
liquidity for holders of these issues.

     Substantially all of the former  Iowa-Illinois Gas and Electric Company,  a
predecessor  company,  utility property and franchises and  substantially all of
the former Midwest Power Systems Inc., a predecessor  company,  electric utility
property in Iowa, or approximately 80% of gross utility property,  is pledged to
secure mortgage bonds.

                                      -74-

<PAGE>


(6)  SHORT-TERM BORROWING:

     Interim financing of working capital needs and the construction program may
be obtained  from the sale of  commercial  paper or  short-term  borrowing  from
banks. Information regarding short-term debt follows (dollars in thousands):

                                                             2002        2001
                                                           -------     -------

     Balance at year-end ..............................    $55,000     $89,350
     Weighted average interest rate on year-end balance        1.3%        1.9%
     Average daily amount outstanding during the year .    $ 8,934     $25,921
     Weighted average interest rate on average
       daily amount outstanding during the year .......        1.8%        4.7%

     MidAmerican  Energy has authority  from the FERC to issue through April 14,
2003, short-term debt in the form of commercial paper and bank notes aggregating
$500 million.  MidAmerican Energy has in place a $370.4 million revolving credit
facility  which  supports  its $250  million  commercial  paper  program and its
variable  rate  pollution  control  revenue  obligations.  The facility  expires
January 15,  2004.  In addition,  MidAmerican  Energy has a $5.0 million line of
credit, which expires July 1, 2003.

(7)  PREFERRED SECURITIES:

     On March 11,  2002,  MidAmerican  Energy  redeemed  all $100 million of its
7.98% MidAmerican-obligated  preferred securities of subsidiary trust at 100% of
the principal amount plus accrued interest.

     During 2002,  MidAmerican  Energy  redeemed all $26.68 million of its $7.80
Series Preferred Shares.  The first $13.32 million of preferred  securities were
redeemed  at  100% of the  principal  amount  plus  accrued  dividends,  and the
remaining  $13.36  million was redeemed at 103.9% of the  principal  amount plus
accrued dividends. A combined loss of $0.8 million,  including the premium paid,
on the  redemptions  is  reflected in  Preferred  Dividends on the  Consolidated
Statement of Income.

     The total outstanding cumulative preferred securities of MidAmerican Energy
not subject to mandatory  redemption  requirements may be redeemed at the option
of MidAmerican  Energy at prices which,  in the aggregate,  total $32.6 million.
The  aggregate  total the holders of all  preferred  securities  outstanding  at
December 31, 2002, are entitled to upon involuntary  bankruptcy is $31.8 million
plus  accrued  dividends.   Annual  dividend   requirements  for  all  preferred
securities outstanding at December 31, 2002, total $1.3 million.

(8)  RISK MANAGEMENT AND ENERGY TRADING

     MidAmerican  Energy is exposed to loss of net income,  cash flows and asset
values due to market  risk,  including  changes  in the market  price of gas and
electricity  used  in its  regulated  business,  changes  in the  value  of open
positions in its nonregulated trading operations,  variations in the severity of
weather  conditions from normal and changes in interest rates. See also Note (9)
for a discussion  of  MidAmerican  Energy's  exposure to credit risk.  To manage
these exposures,  MidAmerican  Energy enters into various  financial  derivative
instruments.  Senior  management  provides  the  overall  direction,  structure,
conduct  and  control  of  MidAmerican  Energy's  risk  management   activities,
including  the  use  of  financial  derivative  instruments,  authorization  and
communication  of risk  management  policies and procedures,  strategic  hedging
program  guidelines,  appropriate market and credit risk limits, and appropriate
systems for recording, monitoring and reporting the results of transactional and
risk management activities.

                                      -75-
<PAGE>

     Commodity Price Risk -

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

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

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

     MidAmerican  Energy  is  exposed  to  variations  in the  price of fuel for
generation  and the price of  purchased  power in its Iowa  jurisdiction,  which
comprises approximately 89% of 2002 electric operating revenues. Fuel price risk
is mitigated  through forward  contracts.  Under typical  operating  conditions,
MidAmerican  Energy has  sufficient  generation to supply its  regulated  retail
electric  needs. A loss of such generation at a time of high market prices could
subject  MidAmerican  Energy to losses on its energy sales.  MidAmerican  Energy
uses  electricity  forward  contracts  to  hedge  anticipated  sales  of  excess
wholesale electric power.

     Derivative instruments are used for two types of hedges. Hedges that offset
the  variability  in earnings  and cash flows  related to firm  commitments  are
referred  to as fair value  hedges.  Gains and  losses on fair value  hedges are
recognized in income as either nonregulated  operating revenues; a cost of fuel,
energy and  capacity;  or a cost of gas sold,  depending  upon the nature of the
item being hedged.  Purchase and sales  commitments  hedged by fair value hedges
are  recorded at fair value,  with  changes in their fair values  recognized  in
income and  substantially  offsetting the impact of the hedges on earnings.  For
2002,  net  pre-tax   unrealized  gains  (losses)  of  $37,000  and  $(167,000),
representing  the   ineffectiveness  of  fair  value  hedges,  are  included  in
Nonregulated   Operating  Revenues  and  Cost  of  Fuel,  Energy  and  Capacity,
respectively, on the Consolidated Statements of Income.

     Hedges that offset the  variability  in earnings and cash flows  related to
forecasted  transactions  are  referred to as cash flow  hedges.  The  effective
portion of unrealized  gains and losses on cash flow hedges is recorded in other
comprehensive  income, net of associated  deferred income taxes. Any ineffective
portion of  unrealized  gains and losses on cash flow  hedges is  recognized  in
income as nonregulated  operating revenues; a cost of fuel, energy and capacity;
or a cost of gas sold,  depending upon the nature of the item being hedged. Only
hedges that are highly effective in offsetting the risk of variability in future
cash flows are accounted  for in this manner.  Forecasted  transactions  include
purchases of gas for resale to regulated and nonregulated  customers,  purchases
of gas for storage,  and purchases and sales of wholesale electric energy.  When
the associated hedged forecasted transaction occurs or if a hedging relationship
is no longer  appropriate,  the  unrealized  gains and losses are reversed  from
other comprehensive income and recognized in net income.  Realized gains on cash
flow hedges are recognized

                                      -76-
<PAGE>

in income as either nonregulated  operating revenues; a cost of fuel, energy and
capacity;  or a cost of gas sold,  depending  upon the  nature  of the  physical
transaction being hedged.

     For 2002, net pre-tax  unrealized  gains (losses) of $13,000,  $537,000 and
$(35,000),  representing the  ineffectiveness of cash flow hedges, are reflected
in Nonregulated Operating Revenues;  Cost of Fuel, Energy and Capacity; and Cost
of Gas Sold, respectively,  on the Consolidated Statements of Income. During the
twelve  months  beginning  January 1, 2003,  it is  anticipated  that all of the
after-tax,  net  unrealized  gains on cash flow  hedges  presently  recorded  as
accumulated  other  comprehensive  income  will  be  realized  and  recorded  in
earnings.  MidAmerican  Energy  has  hedged a  portion  of its  exposure  to the
variability of cash flows for forecasted transactions through December 2003.

     At December 31, 2002,  MidAmerican Energy held derivative  instruments used
for  the  following   hedging  purposes  with  the  following  fair  values  (in
thousands):

                                 Maturity in    Maturity in
     Type                           2003          2004-06        Total
     ----                        -----------    -----------     -------
     Regulated electric .....       $1,018        $   112        $1,130
     Regulated gas ..........        1,150             --         1,150
     Nonregulated gas .......        2,027            (41)        1,986
                                    ------        -------        ------
       Total.................       $4,195        $    71        $4,266
                                    ======        =======        ======

     A $5.00  per  megawatt  hour  increase  in the price of  electricity  would
decrease the fair value of electric hedge  instruments by $316,000.  A $1.00 per
million  British  thermal  units  increase  in the  price of  natural  gas would
increase the fair value of gas hedge instruments by $2.3 million.

     Trading Risk -

     MidAmerican Energy uses natural gas and electricity  derivative instruments
and forward  contracts for proprietary  trading purposes under strict guidelines
outlined by senior management.  Derivative instruments held for trading purposes
are  recorded at fair value and any  unrealized  gains or losses are reported in
earnings.

     MidAmerican  Energy uses value at risk, or VaR  calculations to measure and
control its exposure to market risk sensitive instruments. VaR is an estimate of
the potential  loss on a portfolio  over a specified  holding  period,  based on
normal market  conditions and within a given  statistical  confidence  interval.
MidAmerican   Energy   calculates  VaR  separately  for  its  electric  and  gas
proprietary  trading  activities  based on a  variance-covariance  method  using
historical prices to estimate  volatilities and correlations,  a one-day holding
period  and  a  95%  level  of  confidence.  MidAmerican  Energy  initiated  its
nonregulated proprietary electric trading activities in early 2002. Accordingly,
the  following  summary of  MidAmerican  Energy's  trading  VaR profile for 2001
includes only gas trading data.

                               VaR (in $millions)
                               2002         2001
                               ----         ----
     At December 31.........   $0.3         $0.2
     High during year.......    0.5          0.3
     Low during year........    0.1          -
     Average during year....    0.2          0.1

                                      -77-

<PAGE>


     The fair value of MidAmerican  Energy's  proprietary  trading activities at
December  31,  2002 and the  periods  in which  unrealized  gains and losses are
expected to be realized are as follows (in thousands):

                                   Maturity in     Maturity in
     Type                             2003           2004-06       Total
     ----                          ------------    -----------    -------
     Exchange prices.............     $4,683          $  71       $4,754
     Prices actively quoted......     (4,259)          (159)      (4,418)
     Prices based on models......        207            (14)         193
                                      ------          -----       ------
       Total.....................     $  631          $(102)      $  529
                                      ======          =====       ======


     Weather Risk -

     MidAmerican  Energy  and  its  customers  are  exposed  to  the  effect  of
variations  in  weather  conditions  on sales and  purchases,  respectively,  of
electricity and natural gas.  MidAmerican Energy enters into degree day swaps to
offset a portion of the  financial  impact of those  variations  on  MidAmerican
Energy and its customers for the winter heating season.  Realized and unrealized
gains and losses on these  instruments  are included in Regulated  Gas Operating
Revenues and Cost of Gas Sold on the Consolidated Statements of Income.

     Interest Rate Risk -

     At December 31, 2002,  MidAmerican  Energy had  fixed-rate  long-term  debt
totaling $936 million with a fair value of $996 million.  These  instruments are
fixed-rate  and  therefore  do not  expose  MidAmerican  Energy  to the  risk of
earnings loss due to changes in market interest rates.  However,  the fair value
of these  instruments  would decrease by  approximately  $41 million if interest
rates were to  increase  by 10% from  their  levels at  December  31,  2002.  In
general, such a decrease in fair value would impact earnings and cash flows only
if  MidAmerican  Energy were to reacquire all or a portion of these  instruments
prior to their maturity.

     At December  31,  2002,  MidAmerican  Energy had  long-term  floating  rate
obligations  totaling  $120 million and  short-term  floating  rate  obligations
totaling  $55  million  which  expose  MidAmerican  Energy to risk of  increased
interest  expense in the event of increases in short-term  interest rates.  This
market risk is not hedged.  The carrying  value of the long-term and  short-term
floating rate obligations at December 31, 2002,  approximated fair value. If the
floating interest rates were to increase by 10% from December 31, 2002,  levels,
MidAmerican  Energy's  interest expense for the floating rate obligations  would
increase by  approximately  $0.3  million  annually  based on December 31, 2002,
principal balances.

(9)  CONCENTRATION OF CREDIT RISK:

     Regulated Utility Operations -

     MidAmerican   Energy's   regulated   electric   utility   operations  serve
approximately  594,000  customers in Iowa,  84,000 customers in western Illinois
and 3,000 customers in southeastern South Dakota. MidAmerican Energy's regulated
gas utility  operations  serve 518,000  customers in Iowa,  65,000  customers in
western  Illinois,  73,000  customers  in  southeastern  South  Dakota and 4,000
customers  in  northeastern   Nebraska.   The  largest   communities  served  by
MidAmerican  Energy are the Iowa and  Illinois  Quad-Cities;  Des Moines,  Sioux
City,  Cedar Rapids,  Waterloo,  Iowa City and Council  Bluffs,  Iowa; and Sioux
Falls,  South Dakota.  MidAmerican  Energy's utility  operations grant unsecured
credit  to  customers,  substantially  all of  whom  are  local  businesses  and
residents. As of December 31, 2002, billed receivables from MidAmerican Energy's
utility customers, totaled $130.0 million.

                                      -78-
<PAGE>

     Unregulated Retail Operations -

     MidAmerican  Energy's unregulated retail operations provide energy services
to approximately 4,700 gas and electric customers in Iowa,  Illinois,  and Ohio.
In the ordinary  course of business,  MidAmerican  Energy's  unregulated  retail
operations  grant unsecured  credit to customers,  substantially  all of who are
commercial,  industrial,  non-profit,  or other business  concerns.  MidAmerican
Energy analyzes each  counterparty's  financial condition prior to entering into
any  agreement to provide  energy  services.  As of December  31,  2002,  billed
receivables from MidAmerican Energy's unregulated retail customers totaled $15.1
million.  Billed  receivables from any one customer did not exceed 4.0% of total
billed receivables.

     Wholesale Operations -

     MidAmerican  Energy  extends  unsecured  credit to high  volume  industrial
end-users,  other utilities,  energy  marketers,  and financial  institutions in
conjunction with wholesale energy marketing and trading activities.  MidAmerican
Energy analyzes the financial  condition of each wholesale  counterparty  before
entering into any  transactions,  establishes  limits on the amount of unsecured
credit to be extended to each counterparty, and evaluates the appropriateness of
unsecured  credit  limits on an ongoing  basis.  Credit  exposures  relative  to
approved  limits are monitored  daily,  with all  exceptions to approved  limits
reported to senior management. MidAmerican Energy defines credit exposure as the
potential  loss in value in the event of  non-payment  or  non-performance  by a
counterparty,  which  includes  not  only  accounts  receivable,  but  also  the
replacement,  or  mark-to-market  value of  contracts  for  future  performance.
MidAmerican  Energy seeks to negotiate  contractual  arrangements with wholesale
counterparties to provide for net settlement of monthly accounts  receivable and
accounts  payable and net settlement of contracts for future  performance in the
event of default.  Accounts  payable are deducted  from  calculations  of credit
exposure  for  counterparties  with whom such  contractual  arrangements  exist.
MidAmerican Energy also seeks to negotiate contractual arrangements that provide
for the exchange of collateral in the event that credit exposure to a particular
counterparty (1) exceeds a specified threshold or (2) in the event of a material
adverse change in such  counterparty's  financial  condition or downgrade in its
credit  ratings  to  below  "investment   grade"  by  a  nationally   recognized
statistical   rating   organization  such  as  Moody's  or  Standard  &  Poor's.
MidAmerican Energy periodically  requests and receives collateral,  typically in
the form of cash or letters of credit,  from counterparties with credit exposure
in excess of  established  limits.  As of December 31, 2002,  86% of MidAmerican
Energy's credit exposure, net of collateral,  from wholesale operations was with
counterparties  having  "investment grade" credit ratings and credit exposure to
any single  counterparty,  net of  collateral,  did not exceed 10% of  aggregate
credit exposure, net of collateral, to all wholesale counterparties.

     MidAmerican Energy's credit exposure with respect to wholesale natural gas,
electricity, and derivatives transactions is summarized below as of December 31,
2002 (dollars in thousands).
<TABLE>
<CAPTION>

                                                          Credit        % of Credit
  Credit Rating Equivalent       Credit    Collateral   Exposure, Net   Exposure, Net
(Standard & Poor's / Moody's)   Exposure     Held       of Collateral   of Collateral
-----------------------------   --------   ----------   -------------   -------------

<S>                             <C>           <C>           <C>            <C>
AA-/Aa3 and above.............  $ 6,190       $    -        $ 6,190          9.3%
A-/A3 to A+/A1................   25,828            -         25,828         39.0
BBB-/Baa3 to BBB+/Baa1........   25,093            -         25,093         37.8
BB+/Ba1 or lower..............    1,780           21          1,759          2.7
Unrated.......................    9,208        1,753          7,455         11.2
                                -------       ------        -------        -----
     Total credit exposure....  $68,099       $1,774        $66,325        100.0%
                                =======       ======        =======        =====
</TABLE>

                                      -79-
<PAGE>

(10) RATE MATTERS:

     Under a  settlement  agreement  approved by the IUB on December  21,  2001,
MidAmerican  Energy's Iowa retail electric rates in effect on December 31, 2000,
are effectively  frozen through December 31, 2005. In approving that settlement,
the IUB  specifically  allows the filing of electric  rate design and/or cost of
service  rate  changes  that  are  intended  to keep  overall  company  revenues
unchanged,  but could result in changes to  individual  tariffs.  Under the 2001
settlement  agreement,  an amount equal to 50% of revenues  associated with Iowa
retail  electric  returns on equity  between 12% and 14%, and 83.33% of revenues
associated with Iowa retail  electric  returns on equity above 14%, in each year
is recorded as a regulatory liability to be used to offset a portion of the cost
to Iowa customers of future generating plant investments. An amount equal to the
regulatory  liability is recorded as a  regulatory  charge in  depreciation  and
amortization expense when the liability is accrued.  Interest expense is accrued
on the portion of the regulatory liability related to prior years.  Beginning in
2002,  the liability is being relieved as it is credited  against  allowance for
funds used during construction,  or capitalized financing costs, associated with
generating  plant  additions.  As of December 31, 2002,  the related  regulatory
liability reflected on the Consolidated Balance Sheet totaled $102.9 million.

     Illinois law provides for Illinois electric earnings above a computed level
of  return  on  common  equity  to  be  shared  equally  between  customers  and
MidAmerican  Energy.  MidAmerican  Energy's  computed  level of return on common
equity is based on a rolling two-year average of the 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 2002 was  14.03%.  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 March 2002,  MidAmerican Energy made a filing with the IUB requesting an
increase in rates for its Iowa retail natural gas  customers.  On June 12, 2002,
the IUB  granted  an  interim  rate  increase  of  approximately  $13.8  million
annually,  effective  immediately.  On November 8, 2002,  the IUB  approved  the
proposed settlement agreement previously filed with it by MidAmerican Energy and
the Office of  Consumer  Advocate.  The  settlement  agreement  provides  for an
increase in rates of $17.7 million annually for MidAmerican Energy's Iowa retail
natural gas customers and effectively  freezes such rates through November 2004.
The new rates were implemented for usage beginning November 25, 2002.

                                      -80-
<PAGE>


(11) RETIREMENT PLANS:

     MidAmerican  Energy has  primarily  noncontributory  cash  balance  defined
benefit pension plans covering substantially all employees of MidAmerican Energy
Holdings and its domestic subsidiaries.  Benefit obligations under the plans are
based on  participants'  compensation,  years of service and age at  retirement.
Funding  is based  upon the  actuarially  determined  costs of the plans and the
requirements  of the Internal  Revenue Code and the Employee  Retirement  Income
Security Act.  MidAmerican  Energy has been allowed to recover  accrued  pension
costs  related to its  employees  in rates.  MidAmerican  Energy also  maintains
noncontributory, nonqualified supplemental executive retirement plans for active
and retired participants.

     MidAmerican  Energy currently provides certain  postretirement  health care
and life insurance benefits for retired employees of MidAmerican Energy Holdings
and its domestic subsidiaries. Under the plans, substantially all of MidAmerican
Energy's  employees  may  become  eligible  for  these  benefits  if they  reach
retirement age while working for MidAmerican Energy. However, MidAmerican Energy
retains  the  right  to  change  these  benefits   anytime  at  its  discretion.
MidAmerican Energy expenses postretirement benefit costs on an accrual basis and
includes provisions for such costs in rates.

     Net periodic pension,  supplemental  retirement and postretirement  benefit
costs  included  the  following   components  for  MidAmerican  Energy  and  the
aforementioned affiliates for the years ended December 31 (in thousands).
<TABLE>
<CAPTION>

                                                        Pension Cost                       Postretirement Cost
                                             ----------------------------------     ---------------------------------
                                               2002         2001         2000         2002         2001         2000
                                             --------     --------     --------     --------     --------     -------

<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
Service cost ............................    $ 20,235     $ 18,114     $ 16,256     $  5,918     $  4,357     $ 2,609
Interest cost ...........................      34,177       33,027       35,387       12,688       10,418       8,354
Expected return on plan assets ..........     (38,213)     (36,326)     (48,132)      (4,440)      (4,032)     (4,931)
Amortization of net transition obligation      (2,591)      (2,591)      (2,591)       4,110        4,110       4,110
Amortization of prior service cost ......       2,729        2,729        2,885          425          425         425
Amortization of prior year (gain) loss ..      (2,482)      (3,894)      (4,119)       2,385          332        (873)
Regulatory expense ......................       6,639           --           --           --           --          --
                                             --------     --------     --------     --------     --------     -------
  Net periodic (benefit) cost ...........    $ 20,494     $ 11,059     $   (314)    $ 21,086     $ 15,610     $ 9,694
                                             ========     ========     ========     ========     ========     =======
</TABLE>

     In 2002 and 2001,  MidAmerican  Energy was allocated  pension cost of $12.4
million  and  $5.8  million,  respectively.  In  2000,  MidAmerican  Energy  was
allocated a $5.3  million  pension  credit.  Postretirement  cost  allocated  to
MidAmerican  Energy in 2002, 2001 and 2000 totaled $19.6 million,  $14.6 million
and  $9.0  million,   respectively.   Amounts  assigned  to  MidAmerican  Energy
affiliates  are  reimbursed   currently  in  accordance  with  its  intercompany
affiliate services agreements.

     The qualified  pension plan assets are in external trusts and are comprised
of corporate equity securities,  United States government debt, corporate bonds,
and insurance contracts. The postretirement benefit plans assets are in external
trusts and are comprised  primarily of corporate  equity  securities,  corporate
bonds, money market investment accounts and municipal bonds.

                                      -81-

<PAGE>

     Although the  supplemental  executive  retirement  plan had no assets as of
December 31, 2002, MidAmerican Energy has Rabbi trusts that hold corporate-owned
life  insurance  and other  investments  to provide  funding for the future cash
requirements.  Because this plan is nonqualified, the fair value of these assets
is not  included  in the  following  table.  The fair  value of the Rabbi  trust
investments  was $52.8  million and $50.4 million at December 31, 2002 and 2001,
respectively.

     The projected benefit obligation and accumulated benefit obligation for the
supplemental  executive  retirement plans were $103.4 million and $99.1 million,
respectively,  as of December 31,  2002,  and $91.2  million and $88.2  million,
respectively, as of December 31, 2001.

                                      -82-

<PAGE>


     The following table presents a  reconciliation  of the beginning and ending
balances  of the  benefit  obligation,  fair value of plan assets and the funded
status  of  the  aforementioned  plans  to the  net  amounts  recognized  in the
Consolidated Balance Sheets as of December 31 (dollars in thousands):
<TABLE>
<CAPTION>

                                                             Pension Benefits        Postretirement Benefits
                                                         -----------------------     -----------------------
                                                            2002          2001          2002          2001
                                                         ---------     ---------     ---------     ---------
     <S>                                                 <C>           <C>           <C>           <C>
     Reconciliation of benefit obligation:
     Benefit obligation at beginning of year ........    $ 518,208     $ 472,349     $ 194,917     $ 131,822
     Service cost ...................................       20,235        18,114         5,918         4,357
     Interest cost ..................................       34,177        33,027        12,688        10,418
     Participant contributions ......................           --            --         3,656         3,059
     Plan amendments ................................           --           652            --            --
     Actuarial loss .................................       45,461        17,333        27,411        57,101
     Acquisition ....................................          520            --         2,205            --
     Benefits paid ..................................      (25,422)      (23,267)      (12,521)      (11,840)
                                                         ---------     ---------     ---------     ---------
     Benefit obligation at end of year ..............    $ 593,179     $ 518,208     $ 234,274     $ 194,917
                                                         ---------     ---------     ---------     ---------

     Reconciliation of the fair value of plan assets:
     Fair value of plan assets at beginning of year .    $ 515,890     $ 555,208     $  81,129     $  75,090
     Employer contributions .........................        4,681         4,576        21,887        16,022
     Participant contributions ......................           --            --         3,656         3,059
     Actual return on plan assets ...................      (27,376)      (20,627)       (4,662)       (1,202)
     Benefits paid ..................................      (25,422)      (23,267)      (12,522)      (11,840)
                                                         ---------     ---------     ---------     ---------
     Fair value of plan assets at end of year .......    $ 467,773     $ 515,890     $  89,488     $  81,129
                                                         ---------     ---------     ---------     ---------

     Funded status ..................................    $(125,406)    $  (2,318)    $(144,786)    $(113,788)
     Unrecognized net (gain) loss ...................       61,289       (52,244)       97,458        63,328
     Unrecognized prior service cost ................       20,156        22,885         3,838         4,264
     Unrecognized net transition obligation (asset) .       (3,383)       (5,974)       41,102        45,212
                                                         ---------     ---------     ---------     ---------
     Net amount recognized in the
       Consolidated Balance Sheets ..................    $ (47,344)    $ (37,651)    $  (2,388)    $    (984)
                                                         =========     =========     =========     =========

     Amounts recognized in the Consolidated
       Balance Sheets consist of:
     Prepaid benefit cost ...........................    $  11,305     $  15,381     $   1,493     $   1,493
     Accrued benefit liability ......................      (99,392)      (88,210)       (3,881)       (2,477)
     Intangible assets ..............................       20,082        22,796            --            --
     Accumulated other comprehensive income .........       20,661        12,382            --            --
                                                         ---------     ---------     ---------     ---------
     Net amount recognized ..........................    $ (47,344)    $ (37,651)    $  (2,388)    $    (984)
                                                         =========     =========     =========     =========
</TABLE>

                                                     Pension and Postretirement
                                                            Assumptions
                                                     --------------------------
                                                       2002     2001     2000
                                                       ----     ----     ----
     Assumptions used were:
     Discount rate ............................        5.75%    6.50%    7.00%
     Rate of increase in compensation levels...        5.00%    5.00%    5.00%
     Weighted average expected long-term
       rate of return on assets ...............        7.00%    7.00%    9.00%

                                      -83-
<PAGE>

     For purposes of calculating the postretirement  benefit  obligation,  it is
assumed health care costs for covered individuals will increase by 9.75% in 2003
and that the rate of increase  thereafter  will  decrease to an ultimate rate of
5.25% by the year 2007.

     If the assumed health care trend rates used to measure the expected cost of
benefits  covered by the plans were  increased  by 1.0%,  the total  service and
interest  cost for 2002 would  increase by $4.1  million and the  postretirement
benefit obligation at December 31, 2002, would increase by $47.5 million. If the
assumed  health care trend rates were to decrease by 1.0%, the total service and
interest  cost for 2002 would  decrease by $3.1  million and the  postretirement
benefit obligation at December 31, 2002, would decrease by $37.0 million.

     MidAmerican  Energy  sponsors  defined  contribution  pension plans (401(k)
plans) covering substantially all employees.  MidAmerican Energy's contributions
vary depending on the plan but are based primarily on each  participant's  level
of contribution and cannot exceed the maximum allowable for tax purposes.  Total
contributions  were $8.1 million,  $7.2 million and $7.4 million for 2002,  2001
and 2000, respectively.

(12) SEGMENT INFORMATION:

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

     The energy delivery and transmission  segments and substantially all of the
generation  segment are  regulated as to rates,  and other  factors,  related to
services  to  external  customers.  For  internal  segment  reporting  purposes,
MidAmerican  Energy has developed  transfer prices for services provided between
the segments.

     MidAmerican   Energy's  external  revenues  by  product  and  services  are
displayed on the Consolidated Statements of Income.

                                      -84-
<PAGE>


     The following tables provide  information on an operating  segment basis as
of and for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>

                                                 2002            2001            2000
                                              -----------     -----------     -----------
<S>                                           <C>             <C>             <C>
SEGMENT PROFIT INFORMATION
--------------------------
Revenues:
  External revenues -
    Generation ...........................    $   415,921     $   516,915     $   444,109
    Energy delivery ......................      1,625,600       1,664,462       1,694,942
    Transmission .........................         20,721          22,852          17,276
    Marketing & sales ....................        173,917         163,020         115,505
                                              -----------     -----------     -----------
      Total ..............................      2,236,159       2,367,249       2,271,832
                                              -----------     -----------     -----------

  Intersegment revenues -
    Generation ...........................        651,342         606,164         588,862
    Energy delivery ......................             --              --              --
    Transmission .........................         55,207          55,086          58,220
    Marketing & sales ....................          2,404           2,727           2,564
                                              -----------     -----------     -----------
      Total ..............................        708,953         663,977         649,646

  Intersegment eliminations ..............       (708,953)       (663,977)       (649,646)
                                              -----------     -----------     -----------
    Consolidated .........................    $ 2,236,159     $ 2,367,249     $ 2,271,832
                                              ===========     ===========     ===========

Depreciation and amortization expense (a):
  Generation .............................    $   139,054     $   133,681     $    87,480
  Energy delivery ........................        117,893         106,496         101,295
  Transmission ...........................          8,972           8,900           8,663
  Marketing & sales ......................          2,527           2,022              --
                                              -----------     -----------     -----------
    Total ................................    $   268,446     $   251,099     $   197,438
                                              ===========     ===========     ===========

Interest and dividend income:
  Generation .............................    $     3,783     $     5,450     $     7,935
  Energy delivery ........................          4,468           6,727           6,695
  Transmission ...........................            530             822             855
  Marketing & sales ......................             51              70              14
                                              -----------     -----------     -----------
    Total ................................    $     8,832     $    13,069     $    15,499
                                              ===========     ===========     ===========

Fixed charges:
  Generation .............................    $    29,989     $    31,726     $    31,799
  Energy delivery ........................         40,737          42,654          44,395
  Transmission ...........................          4,892           5,401           5,630
  Marketing & sales ......................            366             363              14
                                              -----------     -----------     -----------
    Total ................................         75,984          80,144          81,838
  Preferred dividends ....................         (2,933)         (4,544)         (4,955)
                                              -----------     -----------     -----------
    Consolidated .........................    $    73,051     $    75,600     $    76,883
                                              ===========     ===========     ===========
</TABLE>

                                      -85-
<PAGE>

<TABLE>
<CAPTION>
                                             2002            2001            2000
                                          -----------     -----------     -----------
<S>                                       <C>             <C>             <C>
SEGMENT PROFIT INFORMATION (CONTINUED)
Income before income taxes:
  Generation .........................    $   150,040     $   142,637     $   120,993
  Energy delivery ....................        101,176          84,334         124,680
  Transmission .......................         40,403          39,514          32,470
  Marketing & sales ..................          1,499          (5,799)         (7,181)
                                          -----------     -----------     -----------
    Total ............................        293,118         260,686         270,962
  Preferred dividends ................          2,933           4,544           4,955
                                          -----------     -----------     -----------
    Consolidated .....................    $   296,051     $   265,230     $   275,917
                                          ===========     ===========     ===========

SEGMENT ASSET INFORMATION
Capital expenditures:
  Generation .........................    $   197,666     $    87,296     $    48,386
  Energy delivery ....................        151,178         159,302         120,919
  Transmission .......................          7,504           3,733          22,189
  Marketing & sales ..................          1,110           1,963          25,308
                                          -----------     -----------     -----------
    Total ............................    $   357,458     $   252,294     $   216,802
                                          ===========     ===========     ===========

Total assets:
  Generation .........................    $ 1,393,271     $ 1,282,677     $ 1,333,253
  Energy delivery ....................      2,224,238       2,107,598       2,226,445
  Transmission .......................        222,051         226,251         247,641
  Marketing & sales ..................         52,143          51,164         113,347
                                          -----------     -----------     -----------
    Total ............................      3,891,703       3,667,690       3,920,686
  Reclassifications and
    intersegment eliminations (b) ....        (79,824)        (89,798)        (97,120)
                                          -----------     -----------     -----------
    Consolidated .....................    $ 3,811,879     $ 3,577,892     $ 3,823,566
                                          ===========     ===========     ===========
</TABLE>

     (a)  Depreciation  and  amortization  expense above  includes  depreciation
          related to nonregulated operations,  which is included in Nonregulated
          Operating Expense - Other on the Consolidated Statements of Income.

     (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.

                                      -86-
<PAGE>

(13) INCOME TAXES:

     MidAmerican  Energy's  income tax expense  includes the  following  for the
years ended December 31 (in thousands):

                                      2002          2001          2000
                                   ---------     ---------     ---------
     Current:
       Federal ................    $ 135,657     $ 111,674     $ 105,754
       State ..................       47,908        33,327        32,450
                                   ---------     ---------     ---------
                                     183,565       145,001       138,204
                                   ---------     ---------     ---------
     Deferred:
       Federal ................      (44,179)      (23,199)      (18,174)
       State ..................      (14,750)       (4,433)       (4,021)
                                   ---------     ---------     ---------
                                     (58,929)      (27,632)      (22,195)
                                   ---------     ---------     ---------

     Investment tax credit, net       (4,406)       (4,917)       (5,548)
                                   ---------     ---------     ---------
       Total ..................    $ 120,230     $ 112,452     $ 110,461
                                   =========     =========     =========

     Included in Deferred Income Taxes on the Consolidated  Balance Sheets as of
December 31 are deferred tax assets and deferred tax  liabilities as follows (in
thousands):

                                                          2002        2001
                                                        --------    --------
     Deferred tax assets related to:
       Investment tax credits ......................    $ 38,296    $ 41,275
       Pensions ....................................      32,004      27,955
       Nuclear reserves and decommissioning ........      28,411      17,898
       Revenue sharing .............................      46,428      24,769
       Accrued liabilities .........................       1,094       2,413
       Fuel cost recoveries ........................       9,558          --
       Other .......................................       3,190          10
                                                        --------    --------
                                                         158,981     114,320
                                                        --------    --------

     Deferred tax liabilities related to:
       Depreciable property ........................     418,809     412,773
       Income taxes recoverable through future rates     159,411     185,222
       Reacquired debt .............................       4,914       7,544
       Fuel cost recoveries ........................          --      20,272
       Other .......................................          --       2,487
                                                        --------    --------
                                                         583,134     628,298
                                                        --------    --------

     Net deferred income tax liability .............    $424,153    $513,978
                                                        ========    ========

                                      -87-

<PAGE>


     The following table is a  reconciliation of the statutory federal income
tax rate and the effective income tax rate indicated by the Consolidated
Statements of Income for the years ended December 31:

                                                    2002     2001     2000
                                                    ----     ----     ----

     Statutory federal income tax rate .........     35%      35%      35%
     Amortization of investment tax credit .....     (1)      (2)      (2)
     State income tax, net of federal income
       tax benefit .............................      8        7        7
     Other .....................................     (1)       2       --
                                                    ---      ---      ---
     Effective federal and state income tax rate     41%      42%      40%
                                                    ===      ===      ===

(14) FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The following  table presents the carrying  amount and estimated fair value
of certain financial instruments as of December 31 (in thousands):
<TABLE>
<CAPTION>

                                                             2002                      2001
                                                  -------------------------    -------------------
                                                   Carrying        Fair        Carrying     Fair
                                                    Amount         Value        Amount      Value
                                                  -----------    ----------    --------    --------

<S>                                                <C>           <C>           <C>         <C>
Financial instruments issued
  by MidAmerican Energy:
  MidAmerican Energy preferred securities;
    subject to mandatory redemption ...........    $       --    $       --    $ 26,680    $ 27,747
  MidAmerican Energy-obligated preferred
    securities; subject to mandatory redemption            --            --     100,000      99,640
  Long-term debt, including current portion ...     1,053,418     1,113,366     820,594     843,930
</TABLE>

     Investments in the Quad Cities Station  decommissioning  trust are reported
at  market  value in  accordance  with SFAS No.  115,  "Accounting  for  Certain
Investments in Debt and Equity  Securities."  As of December 31, 2002, the total
fair value of the investments was $159.8 million and the related total amortized
cost was $143.0  million.  As of December 31, 2001,  the total fair value of the
investments  was $158.3 million and the related total  amortized cost was $130.3
million.  Refer to Notes  (1)(f) and (4)(d) for further  discussion  of the Quad
Cities Station decommissioning trust.

(15) NON-OPERATING OTHER INCOME AND EXPENSE:

     Non-Operating  Income - Other  Income  and Other  Expense,  as shown on the
Consolidated  Statements  of Income  include the  following  for the years ended
December 31 (in thousands):
<TABLE>
<CAPTION>

                                                         2002       2001       2000
                                                       -------    -------    -------
<S>                                                    <C>        <C>        <C>
Other income:
Allowance for equity funds used during construction    $ 8,621    $ 1,571    $    --
Corporate-owned life insurance income .............      1,333      5,258      9,299
Subservicer fee for sold receivables ..............      1,340      2,864      1,905
Gain on sale of assets ............................      1,164      1,387         --
Other .............................................      1,605      1,211        856
                                                       -------    -------    -------
  Total ...........................................    $14,063    $12,291    $12,060
                                                       =======    =======    =======
</TABLE>

                                      -88-
<PAGE>

     Other  Expense  consisted  principally  of a discount  on sold  receivables
totaling  $6.4  million,  $16.0  million  and $10.2  million for the years ended
December 31, 2002, 2001 and 2000, respectively.

(16) AFFILIATED COMPANY TRANSACTIONS:

     The companies  identified as affiliates are MidAmerican Energy Holdings and
its  subsidiaries.  The basis for  these  charges  is  provided  for in  service
agreements between MidAmerican Energy and its affiliates.

     MHC  incurred   charges  which  are  of  general  benefit  to  all  of  its
subsidiaries.  These  costs were for  administrative  and general  salaries  and
expenses, outside services,  director fees, pension, deferred compensation,  and
retirement costs, some of which originated at MidAmerican Energy. MHC reimbursed
MidAmerican  Energy for charges  originating at MidAmerican Energy in the amount
of $0.5  million,  $0.4  million  and $1.9  million  for  2002,  2001 and  2000,
respectively.  MidAmerican  Energy, in turn, was allocated a share of costs from
MHC totaling $0.9 million,  $1.0 million and $(0.3)  million for 2002,  2001 and
2000, respectively.

     MidAmerican  Energy was also  reimbursed for charges  incurred on behalf of
its affiliates. The majority of these reimbursed expenses was for employee wages
and benefits, insurance, building rent, computer costs, administrative services,
travel expense,  and general and  administrative  expense;  including  treasury,
legal,  shareholder  relations  and  accounting  functions.  The  amount of such
expenses was $34.5 million,  $27.0 million and $25.8 million for 2002,  2001 and
2000, respectively.

     In 2001,  MidAmerican  Energy  acquired a gas  turbine  equipment  purchase
contract from MidAmerican Energy Holdings for $22.0 million.  MidAmerican Energy
also reimbursed MidAmerican Energy Holdings in the amount of $10.4 million, $8.8
million and $9.5 million in 2002, 2001 and 2000, respectively, for its allocated
share of corporate expenses.

     MidAmerican   Energy   leases  unit  trains  from  an  affiliate   for  the
transportation of coal to MidAmerican Energy's generating  stations.  Unit train
costs, including maintenance,  were approximately $0.1 million, $0.1 million and
$0.4 million for 2002, 2001 and 2000, respectively. MidAmerican Energy purchased
the remaining  leased railcars from  MidAmerican  Rail, Inc. for $0.6 million in
October 2002.

     MidAmerican  Energy sold natural gas to AmGas, an affiliate,  in the amount
of $11.6  million and $32.0  million for 2001 and 2000,  respectively.  In 2000,
MidAmerican Energy also purchased natural gas from AmGas.  MidAmerican  Energy's
cost of gas related to these purchases was $1.3 million.

     MidAmerican  Energy has an agreement  with Cordova Energy  Company,  LLC, a
subsidiary of MidAmerican  Energy Holdings,  to purchase  electric  capacity and
energy from a gas-fired combined cycle generation plant which started commercial
operation in June 2001. The agreement,  which  terminates in May 2004,  provides
for  MidAmerican  Energy to purchase up to 50% of the net  capacity of the plant
and to  supply  the fuel  stock  required  to  generate  the  energy  purchased.
MidAmerican Energy's payments for monthly capacity charges totaled $21.2 million
for 2002 and $18.1 million for 2001.

     In August 2002,  Northern Natural Gas Company,  or NNG, became an affiliate
of MidAmerican Energy when NNG was purchased by MidAmerican Energy Holdings. NNG
has  been  and  is  one  of  MidAmerican   Energy's  suppliers  of  natural  gas
transportation  capacity.  MidAmerican Energy purchased $17.9 million of natural
gas transportation capacity from NNG in August through December 2002.

     MidAmerican Energy had accounts  receivable from affiliates of $9.4 million
and $5.0  million  as of  December  31,  2002 and 2001,  respectively,  that are
included in Receivables on the Consolidated

                                      -89-
<PAGE>

Balance Sheets.  MidAmerican  Energy also had accounts  payable to affiliates of
$2.8 million and $1.9  million as of December  31, 2002 and 2001,  respectively,
that are included in Accounts Payable on the Consolidated Balance Sheets.

(17) SALE OF ACCOUNTS RECEIVABLE:

     In 1997,  MidAmerican Energy entered into a revolving agreement to sell all
of its  right,  title  and  interest  in the  majority  of its  billed  accounts
receivable to MidAmerican Energy Funding  Corporation,  a special purpose entity
established to purchase  accounts  receivable from  MidAmerican  Energy and sell
them  to  outside  investors.  The  agreement  was  structured  as a true  sale.
Therefore,  the  accounts  receivable  sold  are not  reflected  on  MidAmerican
Energy's or MidAmerican Funding's  Consolidated Balance Sheet as of December 31,
2001. The agreement expired on October 29, 2002, and MidAmerican  Energy did not
extend or replace it.

(18) UNAUDITED QUARTERLY OPERATING RESULTS:
<TABLE>
<CAPTION>

                                                       2002
                                  -----------------------------------------------
                                  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
                                  ----------- ----------- ----------- -----------
                                                  (In thousands)

<S>                                <C>         <C>         <C>         <C>
Operating revenues ..............  $574,284    $492,688    $554,381    $614,806
Operating income ................    92,567      65,589     135,574      61,267
Income from continuing operations    43,384      29,251      70,510      32,676
Earnings on common stock ........    42,536      27,821      70,183      32,348
</TABLE>

<TABLE>
<CAPTION>

                                                      2001
                                  -----------------------------------------------
                                  1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
                                  ----------- ----------- ----------- -----------
                                                  (In thousands)

<S>                                <C>         <C>         <C>         <C>
Operating revenues ..............  $868,667    $520,561    $513,816    $464,205
Operating income ................   114,576      76,614     113,340      29,044
Income from continuing operations    55,789      32,636      56,564       7,789
Earnings on common stock ........    54,550      31,368      55,588       6,728
</TABLE>

     Quarterly data reflect seasonal  variations common in the utility industry.
The increase in earnings for the fourth quarter of 2002 compared to 2001 was due
to colder weather in the fourth quarter of 2002, greater earnings from wholesale
sales of  electricity,  and a decrease  in  expenses  related to Cooper  Nuclear
Station as a result of the restructuring of the related contract.

                                      -90-

<PAGE>


INDEPENDENT AUDITORS' REPORT


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

We have audited the  accompanying  consolidated  balance sheets and consolidated
statements of  capitalization  of MidAmerican  Energy  Company and  subsidiaries
(Company)  as of  December  31,  2002 and  2001,  and the  related  consolidated
statements of income,  comprehensive income,  retained earnings,  and cash flows
for each of the three years in the period ended  December  31, 2002.  Our audits
also included the consolidated  financial statement schedule listed in the Index
at Item 15. These financial  statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial  statements and financial  statement  schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of  MidAmerican  Energy Company and
subsidiaries  as of  December  31,  2002  and  2001,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting  principles  generally accepted
in the  United  States of  America.  Also,  in our  opinion,  such  consolidated
financial  statement  schedule,   when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.



/s/  Deloitte & Touche LLP

Des Moines, Iowa
January 24, 2003

                                      -91-


<PAGE>
                            MIDAMERICAN FUNDING, LLC
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                      YEARS ENDED DECEMBER 31,
                                              -----------------------------------------
                                                 2002           2001           2000
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ........................   $ 1,353,431    $ 1,318,129    $ 1,212,411
Regulated gas .............................       695,799        869,132        929,555
Nonregulated ..............................       191,649        201,389        174,377
                                              -----------    -----------    -----------
                                                2,240,879      2,388,650      2,316,343
                                              -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity .......       346,685        275,904        245,926
  Cost of gas sold ........................       482,837        674,883        721,395
  Other operating expenses ................       394,436        445,192        414,643
  Maintenance .............................       135,487        138,343        127,077
  Depreciation and amortization ...........       266,983        250,315        193,092
  Property and other taxes ................        76,025         71,705         74,778
                                              -----------    -----------    -----------
                                                1,702,453      1,856,342      1,776,911
                                              -----------    -----------    -----------
Nonregulated:
  Cost of sales ...........................       159,391        170,541        144,616
  Other ...................................        29,047         61,682         67,256
                                              -----------    -----------    -----------
                                                  188,438        232,223        211,872
                                              -----------    -----------    -----------
  Total operating expenses ................     1,890,891      2,088,565      1,988,783
                                              -----------    -----------    -----------

OPERATING INCOME ..........................       349,988        300,085        327,560
                                              -----------    -----------    -----------
NON-OPERATING INCOME
Interest income ...........................        18,905         21,102         25,767
Dividend income ...........................           731          2,242          3,848
Marketable securities gains and losses, net        (5,094)        (1,124)        (3,958)
Other income ..............................        26,972         21,711         25,395
Other expense .............................       (31,273)       (18,737)       (14,496)
                                              -----------    -----------    -----------
                                                   10,241         25,194         36,556
                                              -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ................       119,129        109,224        110,033
Other interest expense ....................         3,431          6,417         10,244
Preferred dividends of subsidiaries .......         4,507         12,524         12,935
Allowance for borrowed funds ..............        (3,336)        (1,661)        (1,273)
                                              -----------    -----------    -----------
                                                  123,731        126,504        131,939
                                              -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ................       236,498        198,775        232,177
INCOME TAXES ..............................        99,782         95,688        105,393
                                              -----------    -----------    -----------

NET INCOME ................................   $   136,716    $   103,087    $   126,784
                                              ===========    ===========    ===========
</TABLE>

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

                                      -92-
<PAGE>
                            MIDAMERICAN FUNDING, LLC
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                              YEARS ENDED DECEMBER 31,
                                                         -----------------------------------
                                                            2002         2001         2000
                                                         ---------    ---------    ---------

<S>                                                      <C>          <C>          <C>
NET INCOME ...........................................   $ 136,716    $ 103,087    $ 126,784
                                                         ---------    ---------    ---------

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gains (losses) on available-for-sale
  securities:
  Unrealized holding gains (losses) during period-
    Before income taxes ..............................      (9,512)      (5,315)       3,870
    Income tax (expense) benefit .....................       3,329        1,860       (1,355)
                                                         ---------    ---------    ---------
                                                            (6,183)      (3,455)       2,515
                                                         ---------    ---------    ---------
  Less reclassification adjustment for realized gains
    (losses) reflected in net income during period-
    Before income taxes ..............................      (4,735)      (2,410)      (3,958)
    Income tax benefit ...............................       1,657          844        1,385
                                                         ---------    ---------    ---------
                                                            (3,078)      (1,566)      (2,573)
                                                         ---------    ---------    ---------
      Net unrealized gains (losses) ..................      (3,105)      (1,889)       5,088
                                                         ---------    ---------    ---------

Unrealized gains (losses) on cash flow hedges:
  Unrealized gains (losses) during period-
    Before income taxes ..............................      (7,013)       7,690           --
    Income tax (expense) benefit .....................       2,915       (3,197)          --
                                                         ---------    ---------    ---------
                                                            (4,098)       4,493           --
                                                         ---------    ---------    ---------
   Less reclassification adjustment for realized gains
     (losses) reflected in net income during period-
     Before income taxes .............................      (2,277)       1,757           --
     Income tax (expense) benefit ....................         946         (731)          --
                                                         ---------    ---------    ---------
                                                            (1,331)       1,026           --
                                                         ---------    ---------    ---------
       Net unrealized gains (losses) .................      (2,767)       3,467           --
                                                         ---------    ---------    ---------

Minimum pension liability adjustment:
  Before income taxes ................................      (8,279)      (8,295)      (4,087)
  Income tax benefit .................................       3,442        3,448        1,699
                                                         ---------    ---------    ---------
    Net adjustment ...................................      (4,837)      (4,847)      (2,388)
                                                         ---------    ---------    ---------

  Other comprehensive income (loss) ..................     (10,709)      (3,269)       2,700
                                                         ---------    ---------    ---------

COMPREHENSIVE INCOME .................................   $ 126,007    $  99,818    $ 129,484
                                                         =========    =========    =========
</TABLE>

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

                                      -93-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                             AS OF DECEMBER 31,
                                                                          -----------------------
                                                                             2002         2001
                                                                          ----------   ----------
<S>                                                                       <C>          <C>
ASSETS
UTILITY PLANT, NET
Electric ..............................................................   $4,731,002   $4,598,372
Gas ...................................................................      900,209      867,277
                                                                          ----------   ----------
                                                                           5,631,211    5,465,649
Less accumulated depreciation and amortization ........................    3,011,123    2,847,979
                                                                          ----------   ----------
                                                                           2,620,088    2,617,670
Construction work in progress .........................................      205,988       80,276
                                                                          ----------   ----------
                                                                           2,826,076    2,697,946
                                                                          ----------   ----------

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

CURRENT ASSETS
Cash and cash equivalents .............................................       28,915       20,270
Marketable securities, trading ........................................        4,939       20,743
Receivables, less reserves of $7,685 and $733, respectively ...........      321,698      167,969
Inventories ...........................................................       88,492       83,339
Prepaid taxes .........................................................           --       23,956
Other .................................................................       30,070       12,640
                                                                          ----------   ----------
                                                                             474,114      328,917
                                                                          ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ............................      333,382      519,680
EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, NET ................    1,275,143    1,279,143
REGULATORY ASSETS .....................................................      192,514      221,120
OTHER ASSETS ..........................................................       52,755       80,481
                                                                          ----------   ----------

TOTAL ASSETS ..........................................................   $5,153,984   $5,175,472
                                                                          ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Member's equity .......................................................   $1,867,119   $1,974,605
MidAmerican Energy preferred securities, not subject to
  mandatory redemption ................................................       31,759       31,759
Preferred securities, subject to mandatory redemption:
  MidAmerican Energy preferred securities .............................           --       26,680
  MidAmerican Energy-obligated preferred securities of subsidiary trust
    holding solely MidAmerican Energy junior subordinated debentures ..           --      100,000
Long-term debt, excluding current portion .............................    1,647,691    1,357,782
                                                                          ----------   ----------
                                                                           3,546,569    3,490,826
                                                                          ----------   ----------
CURRENT LIABILITIES
Notes payable .........................................................       55,000       91,780
Current portion of long-term debt .....................................      105,727      187,187
Current portion of power purchase contract ............................           --       17,398
Accounts payable ......................................................      242,733      185,528
Taxes accrued .........................................................       85,987       61,269
Interest accrued ......................................................       25,487       27,813
Other .................................................................       56,291       44,762
                                                                          ----------   ----------
                                                                             571,225      615,737
                                                                          ----------   ----------
OTHER LIABILITIES
Power purchase contract ...............................................           --        8,469
Deferred income taxes .................................................      461,862      564,334
Investment tax credit .................................................       56,886       61,292
Quad Cities Station decommissioning ...................................      159,757      158,349
Regulatory liabilities ................................................      118,011       62,378
Other .................................................................      239,674      214,087
                                                                          ----------   ----------
                                                                           1,036,190    1,068,909
                                                                          ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES ..................................   $5,153,984   $5,175,472
                                                                          ==========   ==========
</TABLE>

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

                                      -94-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                   YEARS ENDED DECEMBER 31,
                                                             -----------------------------------
                                                                2002         2001         2000
                                                             ---------    ---------    ---------

<S>                                                          <C>          <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...............................................   $ 136,716    $ 103,087    $ 126,784
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ..........................     269,412      286,590      230,140
  Deferred income taxes and investment tax credit, net ...     (74,561)     (32,543)     (18,547)
  Amortization of other assets and liabilities ...........      29,827       38,750       19,595
  Gain on sale of securities, assets and other investments      (3,840)      (1,358)      (2,124)
  Other-than-temporary declines in value of investments ..       4,363           --           --
  Loss from impairment of assets and investments .........      19,221           --           --
  Income on equity investments ...........................      (7,919)      (5,118)      (2,123)
  Net changes in accrued customer rate credits ...........          --      (21,531)       6,724
  Power purchase contract restructuring receipt ..........      39,100           --           --
  Cash inflow (outflow) of accounts receivable
    securitization .......................................     (44,000)     (26,000)      12,877
  Impact of changes in working capital ...................     (18,154)     120,780      (57,539)
  Other ..................................................      15,450       (1,702)     (11,528)
                                                             ---------    ---------    ---------
    Net cash provided by operating activities ............     365,615      460,955      304,259
                                                             ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ........................    (356,636)    (250,073)    (215,727)
Non-cash and accrued utility construction expenditures ...      25,349         (705)        (660)
Quad Cities Station decommissioning trust fund ...........      (8,299)      (8,299)      (8,302)
Nonregulated capital expenditures ........................      (1,558)      (2,541)      (3,229)
Purchase of assets and long-term investments .............      (1,500)      (2,274)      (6,345)
Purchase of available-for-sale securities ................          --           --      (52,937)
Proceeds from sale of available-for-sale securities ......       4,555           --       81,840
Proceeds from sale of assets and other investments .......      12,138          358       24,041
Note receivable from affiliate ...........................     151,888      (53,800)      24,477
Other investing activities, net ..........................       9,984        6,555        6,067
                                                             ---------    ---------    ---------
  Net cash used in investing activities ..................    (164,079)    (310,779)    (150,775)
                                                             ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid ....................................    (233,493)          --      (54,000)
Issuance of long-term debt, net of issuance costs ........     391,352      198,150      160,992
Retirement of long-term debt, including reacquisition cost    (187,290)    (324,933)    (134,293)
Reacquisition of preferred securities ....................    (126,680)     (23,320)          --
Net increase (decrease) in notes payable .................     (36,780)      10,179     (122,400)
                                                             ---------    ---------    ---------
  Net cash used in financing activities ..................    (192,891)    (139,924)    (149,701)
                                                             ---------    ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ................       8,645       10,252        3,783
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .........      20,270       10,018        6,235
                                                             ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ...............   $  28,915    $  20,270    $  10,018
                                                             =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ................   $ 116,185    $ 109,026    $ 116,747
                                                             =========    =========    =========
Income taxes paid ........................................   $ 124,002    $ 200,098    $ 117,593
                                                             =========    =========    =========
</TABLE>

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

                                      -95-
<PAGE>
                            MIDAMERICAN FUNDING, LLC
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                                                   AS OF DECEMBER 31,
                                                                         ---------------------------------------
                                                                                 2002                2001
                                                                         -----------------    ------------------
<S>                                                                      <C>         <C>      <C>         <C>
MEMBER'S EQUITY
Paid in capital.......................................................   $1,669,753           $1,669,753
Retained earnings.....................................................      208,671              305,448
Accumulated other comprehensive income (loss), net:
  Unrealized gain on securities......................................            67                3,172
  Unrealized gain on cash flow hedges................................           700                3,467
  Minimum pension liability adjustments..............................       (12,072)              (7,235)
                                                                        -----------           ----------
                                                                          1,867,119  52.6%     1,974,605  56.5%
                                                                        -----------  -----    ----------  -----
MIDAMERICAN ENERGY PREFERRED SECURITIES
  (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding; not subject to mandatory redemption:
  $3.30 Series, 49,451 shares........................................         4,945                4,945
  $3.75 Series, 38,305 shares........................................         3,831                3,831
  $3.90 Series, 32,630 shares........................................         3,263                3,263
  $4.20 Series, 47,362 shares........................................         4,736                4,736
  $4.35 Series, 49,945 shares........................................         4,994                4,994
  $4.40 Series, 50,000 shares........................................         5,000                5,000
  $4.80 Series, 49,898 shares........................................         4,990                4,990
                                                                       ------------           ----------
                                                                             31,759   0.9%        31,759   0.9%
                                                                       ------------  ----     ----------  ----
Cumulative shares outstanding; subject to mandatory redemption:
  $7.80 Series, zero and 266,800 shares, respectively................             -               26,680
                                                                       ------------           ----------
                                                                                  -     -%        26,680   0.8%
                                                                       ------------  ----     ----------  ----
MIDAMERICAN ENERGY-OBLIGATED PREFERRED SECURITIES
MidAmerican Energy-obligated mandatorily redeemable cumulative
  preferred securities of subsidiary trust holding solely
  MidAmerican Energy junior subordinated debentures:
    7.98% Series, zero and 4,000,000 shares, respectively............             -     -%       100,000   2.9%
                                                                       ------------  ----      ---------  ----

LONG-TERM DEBT
MidAmerican Energy mortgage bonds:
  7.125% Series, due 2003............................................             -              100,000
  7.7% Series, due 2004..............................................        55,630               55,630
  7.0% Series, due 2005..............................................        90,500               90,500
  7.375% Series, due 2008............................................        75,000               75,000
  7.45% Series, due 2023.............................................         6,940                6,940
  6.95% Series, due 2025.............................................        12,500               12,500
MidAmerican Energy pollution control revenue obligations:
  5.75% Series, due periodically through 2003........................             -                4,320
  6.7% Series, due 2003..............................................             -                1,000
  6.1% Series, due 2007..............................................         1,000                1,000
  5.95% Series, due 2023 (secured by general mortgage bonds).........        29,030               29,030
  Variable rate series -
    Due 2016 and 2017, 1.64% and 1.77%, respectively................         37,600               37,600
    Due 2023 (secured by general mortgage bonds)
      1.64% and 1.77%, respectively................................          28,295               28,295
    Due 2023, 1.64% and 1.77%, respectively.........................          6,850                6,850
    Due 2024, 1.64% and 1.77%, respectively.........................         34,900               34,900
    Due 2025, 1.64% and 1.77%, respectively.........................         12,750               12,750

</TABLE>

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

                                      -96-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
              CONSOLIDATED STATEMENTS OF CAPITALIZATION (CONTINUED)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>

                                                                                     AS OF DECEMBER 31,
                                                                        ----------------------------------------
                                                                                 2002                2001
                                                                        -------------------    -----------------
<S>                                                                     <C>         <C>        <C>         <C>
LONG-TERM DEBT (CONTINUED)
MidAmerican Energy notes:
  6.375% Series, due 2006............................................   $  160,000             $  160,000
  6.75% Series, due 2031.............................................      400,000                      -
Obligation under capital lease.......................................        2,161                  1,364
Unamortized debt premium and discount, net...........................       (5,465)                  (939)
                                                                        ----------             ----------
    Total utility....................................................      947,691   26.7%        656,740   18.8%
                                                                        ----------  ------     ----------  ------

MidAmerican Funding parent debt:
  6.339% Senior Secured Notes Due 2009...............................      175,000                175,000
  6.75% Senior Secured Notes Due 2011................................      200,000                200,000
  6.927% Senior Secured Notes Due 2029...............................      325,000                325,000
  Other..............................................................            -                  1,042
                                                                        ----------             ----------
    Total MidAmerican Funding parent.................................      700,000   19.8%        701,042   20.1%
                                                                        ----------  ------     ----------  ------
                                                                         1,647,691   46.5%      1,357,782   38.9%
                                                                        ----------  ------     ----------  ------

TOTAL CAPITALIZATION.................................................   $3,546,569  100.0%     $3,490,826  100.0%
                                                                        ==========  ======     ==========  ======
</TABLE>


                            MIDAMERICAN FUNDING, LLC
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            YEARS ENDED DECEMBER 31,
                                                                   ------------------------------------------
                                                                       2002           2001            2000
                                                                   -----------     -----------    -----------

<S>                                                                   <C>             <C>            <C>
BEGINNING OF PERIOD.............................................      $305,448        $202,361       $129,577

NET INCOME......................................................       136,716         103,087        126,784

DEDUCT DIVIDENDS DECLARED.......................................       233,493               -         54,000
                                                                      --------        --------       --------

END OF PERIOD...................................................      $208,671        $305,448       $202,361
                                                                      ========        ========       ========
</TABLE>

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

                                      -97-
<PAGE>

                            MIDAMERICAN FUNDING, LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      INDEX

                                                             Page
                                                             ----

(1)      Summary of Significant Accounting Policies ......     99

(2)      Jointly Owned Utility Plant......................    103

(3)      Inventories......................................    103

(4)      Commitments and Contingencies....................    103

(5)      Long-term Debt...................................    103

(6)      Short-term Borrowing.............................    105

(7)      Preferred Securities.............................    105

(8)      Risk Management and Energy Trading...............    105

(9)      Concentration of Credit Risk.....................    106

(10)     Rate Matters.....................................    106

(11)     Retirement Plans.................................    106

(12)     Segment Information..............................    107

(13)     Income Taxes.....................................    110

(14)     Fair Value of Financial Instruments..............    111

(15)     Non-Operating Other Income and Expense...........    113

(16)     Affiliated Company Transactions..................    114

(17)     Sale of Accounts Receivable......................    115

(18)     Unaudited Quarterly Operating Results............    115

                                      -98-

<PAGE>

                            MIDAMERICAN FUNDING, LLC
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (A)  COMPANY STRUCTURE:

     MidAmerican  Funding,  LLC  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., 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 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 are  MidAmerican
Capital Company,  Midwest Capital Group, Inc.,  MidAmerican Services Company and
MEC Construction Services Co.

     The  current  corporate  structure  is the  result of a merger  transaction
completed on March 12, 1999, involving MHC (formerly MidAmerican Energy Holdings
Company) and CalEnergy Company,  Inc.  CalEnergy,  was reincorporated as an Iowa
corporation and changed its name to MidAmerican  Energy Holdings  Company.  As a
result,  MHC and all  direct  and  indirect  subsidiaries  of MHC each  became a
subsidiary of MidAmerican Funding.

     (B)  CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

     The accompanying  Consolidated  Financial  Statements  include  MidAmerican
Funding and its  subsidiaries.  All significant  intercompany  transactions have
been  eliminated.  The  preparation of financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual  results  may differ  from those  estimates.  Certain  classification  of
amounts for 2002 are different than that of prior years. Accordingly, historical
amounts have been reclassified.

     (C)  REGULATION:

     Refer  to  Note  (1)(c)  of  MidAmerican  Energy's  Notes  to  Consolidated
Financial Statements.

     (D)  REVENUE RECOGNITION:

     Refer  to  Note  (1)(d)  of  MidAmerican  Energy's  Notes  to  Consolidated
Financial Statements.

     (E)  DEPRECIATION AND AMORTIZATION:

     Refer  to  Note  (1)(e)  of  MidAmerican  Energy's  Notes  to  Consolidated
Financial Statements.

                                      -99-

<PAGE>


     (F)  INVESTMENTS AND NONREGULATED PROPERTY, NET:

     Investments and Nonregulated  Property,  Net includes the following amounts
as of December 31 (in thousands):

                                                            2002        2001
                                                          --------    --------

     Nuclear decommissioning trust fund ..............    $159,757    $158,349
     Notes with parent ...............................          --     151,888
     Rabbi trusts ....................................      94,026      89,610
     Equipment leases ................................      32,625      46,432
     Special-purpose funds ...........................       7,272      22,740
     Coal transportation property, net of accumulated
       depreciation of $1,705 and $3,910, respectively      10,215      10,655
     Energy projects, net of accumulated depreciation
       of zero and $497, respectively ................      11,162       9,625
     Communications ..................................          --       7,431
     Real estate, net of accumulated depreciation of
       $477 and $501, respectively ...................       5,244       5,584
     Marketable securities ...........................         258         594
     Other, net of accumulated depreciation of
       $1,499 and $1,194, respectively ...............      12,823      16,772
                                                          --------    --------
        Total ........................................    $333,382    $519,680
                                                          ========    ========

     Investments  held by the  nuclear  decommissioning  trust fund for the Quad
Cities  Station units are classified as  available-for-sale  and are reported at
fair value with net unrealized  gains and losses  reported as adjustments to the
accumulated provision for nuclear  decommissioning,  which is reflected in Other
Liabilities - Quad Cities Station  Decommissioning  on the Consolidated  Balance
Sheets.  Funds are invested in accordance  with  applicable  federal  investment
guidelines  and  are  restricted   for  use  as   reimbursement   for  costs  of
decommissioning MidAmerican Energy's Quad Cities Station.

     MidAmerican  Funding's  notes with its parent  consist of a note  between a
subsidiary of MHC and  MidAmerican  Energy Holdings  carrying  interest of 5.75%
annually  and a $100  million  revolving  credit  arrangement  between  MHC  and
MidAmerican  Energy Holdings  carrying interest at the 30-day LIBOR rate plus 25
basis points. Outstanding balances are unsecured and due on demand.

     The investment in Rabbi trusts  represents the cash value of life insurance
policies  on  certain  key  executives  and the  fair  value  of  other  related
investments.   The  Rabbi  trusts  were   established   to  administer   various
nonqualified  executive and director compensation plans, and investments in each
trust are restricted  for use in meeting the costs and  obligations of the trust
and related compensation plans.

     Marketable securities consist generally of preferred and common stocks held
by  MidAmerican  Capital.  Investments  in marketable  securities  classified as
available-for-sale  are  reported  at  fair  value  (see  Note  (14))  with  net
unrealized  gains and losses  reported as a net of tax amount in Member's Equity
until  realized.  An  other-than-temporary  decline in the value of a marketable
security is recognized through a write-down of the investment to earnings.

     Equipment  leases,  which are accounted for as leveraged leases and held by
MidAmerican  Capital,  are comprised  primarily of equity financing provided for
five commercial passenger aircraft leased to major domestic airlines and a seven
percent undivided interest in an electric generating station, which is leased to
a utility located in Arizona. MidAmerican Capital's initial equity investment in
the aircraft  represented 20% - 34% of the purchase price;  the remaining amount
was furnished by third-party non-

                                     -100-
<PAGE>


recourse  lenders.  MidAmerican  Capital has also  invested in safe harbor lease
transactions  involving  ferryboats  leased to  entities  engaged  in  providing
recreational  boat tours.  The investments are exposed to the credit risk of the
lessees.  The carrying  pre-tax  values as of December 31 (in thousands) and the
years of termination for the equipment leases are as follows:

                                                              Year of
                                        2002       2001     Termination
                                      -------    -------    -----------

    Aircraft.......................   $23,321    $36,948    2008/2009
    Electric generation station....     8,811      8,929       2015
    Safe harbor....................       493        555    periodically
                                                            through 2015
                                      -------    -------
      Total........................   $32,625    $46,432
                                      =======    =======

     Energy  projects  consist  of  investments  in  solar  electric  generating
facilities,  a hydroelectric  development company, energy marketing assets and a
gas-fired  cogeneration  plant. The investments are supported by long-term sales
contracts to electric utilities primarily based on market price.

     Investment  in real estate is  comprised  primarily of a 1,920 acre planned
residential and commercial development community located in the southeast corner
of South Dakota. As of December 31, 2002, 37.9% of the development available for
sale had been sold.

     (G)  CONSOLIDATED STATEMENTS OF CASH FLOWS:

     MidAmerican  Funding  considers all cash and highly liquid debt instruments
purchased with a remaining  maturity of three months or less to be cash and cash
equivalents for purposes of the Consolidated Statements of Cash Flows.

     Net cash provided (used) from changes in working capital for the years
ended December 31 was as follows (in thousands):

                                           2002          2001          2000
                                         ---------     ---------     ---------

     Marketable securities, trading .    $  15,804     $  30,794     $      --
     Receivables, net ...............     (109,729)      315,397      (254,882)
     Inventories ....................       (5,153)      (14,209)       13,693
     Prepaid taxes ..................       23,956        (1,067)           --
     Other current assets ...........      (17,430)        1,578        (1,917)
     Accounts payable ...............       40,477      (148,371)      170,920
     Taxes accrued ..................       24,718       (70,109)       20,786
     Interest accrued ...............       (2,326)         (142)       (1,600)
     Other current liabilities ......       11,529         6,909        (4,539)
                                         ---------     ---------     ---------
       Total ........................    $ (18,154)    $ 120,780     $ (57,539)
                                         =========     =========     =========

                                     -101-
<PAGE>


     (H)  ACCOUNTING FOR POWER PURCHASE CONTRACT:

     Refer  to  Note  (1)(h)  of  MidAmerican  Energy's  Notes  to  Consolidated
Financial Statements.

     (I)  ACCOUNTING FOR DERIVATIVES:

     Refer  to  Note  (1)(i)  of  MidAmerican  Energy's  Notes  to  Consolidated
Financial Statements.

     (J)  NEW ACCOUNTING PRONOUNCEMENTS:

     Refer  to  Note  (1)(j)  of  MidAmerican  Energy's  Notes  to  Consolidated
Financial Statements.

     (K)  EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, NET:

     On January 1, 2002, MidAmerican Funding adopted SFAS No. 142, "Goodwill and
Other  Intangible  Assets," which dictates the accounting for acquired  goodwill
and other intangible assets. SFAS No. 142 requires that amortization of goodwill
and  indefinite-lived  intangible  assets  be  discontinued  and  that  entities
disclose net income for prior periods adjusted to exclude such  amortization and
related  income tax effects,  as well as a  reconciliation  from the  originally
reported net income to the adjusted net income.  MidAmerican  Funding's  related
amortization consisted solely of goodwill amortization,  which had no income tax
effect.  Amortization expense was included in Nonregulated  Operating Expenses -
Other in the Consolidated Statements of Income. Following is a reconciliation of
net income as originally reported to adjusted net income for the years ended
December 31 (in thousands):

                                           2002       2001        2000
                                         --------   --------   --------
     Net income as originally reported   $136,716   $103,087   $126,784
     Goodwill amortization ...........         --     34,415     35,406
                                         --------   --------   --------
     Net income as adjusted ..........   $136,716   $137,502   $162,190
                                         ========   ========   ========

     Based on MidAmerican  Funding's  initial  goodwill  impairment test and the
subsequent  annual  impairment  test  completed  as  of  October  31,  2002,  no
impairment  was  indicated  for  goodwill.   In  the  fourth  quarter  of  2002,
MidAmerican  Funding  adjusted  goodwill for a change in related deferred income
taxes due to  resolution  of tax issues  existing at the time of  purchase.  The
following  table  shows  the  change  in the  carrying  amount  of  goodwill  by
reportable segment for the year ended December 31, 2002 (in thousands):
<TABLE>
<CAPTION>

                                             Energy      Trans-    Marketing
                               Generation   Delivery     mission    & Sales       Total
                               ----------   ---------    -------   ---------    ----------
<S>                             <C>         <C>          <C>        <C>         <C>
Balance at January 1, 2002 .    $927,819    $267,152     $84,172    $     --    $1,279,143
Income tax adjustment ......          --      (4,000)         --          --        (4,000)
                                --------    --------     -------    --------    ----------
Balance at December 31, 2002    $927,819    $263,152     $84,172    $     --    $1,275,143
                                ========    ========     =======    ========    ==========
</TABLE>

                                     -102-
<PAGE>


(2)  JOINTLY OWNED UTILITY PLANT:

     Refer to Note (2) of MidAmerican  Energy's Notes to Consolidated  Financial
Statements.

(3)  INVENTORIES:

     Refer to Note (3) of MidAmerican  Energy's Notes to Consolidated  Financial
Statements.

(4)  COMMITMENTS AND CONTINGENCIES:

     (A)  MANUFACTURED GAS PLANT FACILITIES:

          Refer to Note (4)(a) of  MidAmerican  Energy's  Notes to  Consolidated
          Financial Statements.

     (B)  AIR QUALITY:

          Refer to Note (4)(b) of  MidAmerican  Energy's  Notes to  Consolidated
          Financial Statements.

     (C)  LONG-TERM POWER PURCHASE CONTRACT:

          Refer to Note (4)(c) of  MidAmerican  Energy's  Notes to  Consolidated
          Financial Statements.

     (D)  NUCLEAR DECOMMISSIONING COSTS:

          Refer to Note (4)(d) of  MidAmerican  Energy's  Notes to  Consolidated
          Financial Statements.

     (E)  NUCLEAR INSURANCE:

          Refer to Note  (4)(e) of  MidAmerican Energy's Notes to Consolidated
          Financial Statements.

     (F)  FUEL, ENERGY AND OPERATING LEASE COMMITMENTS:

          Refer to Note  (4)(f) of  MidAmerican  Energy's  Notes to Consolidated
          Financial Statements.

     (G)  OTHER COMMITMENTS AND CONTINGENCIES:

     MidAmerican  Capital has issued a letter of credit totaling $6.0 million in
conjunction with an energy project  investment,  $0.1 million of which was drawn
as  of  December  31,  2002.   The  letter  of  credit  is  reflected  in  Other
Liabilities-Other on MidAmerican Funding`s Consolidated Balance Sheets.

     MidAmerican  Funding is involved in a number of other legal proceedings and
claims.  While  management  is unable to predict the  ultimate  outcome of these
matters,  it is not expected that their  resolution will have a material adverse
effect on the results of operations and financial condition.

(5)  LONG-TERM DEBT:

     MidAmerican Funding's sinking fund requirements and maturities of long-term
debt for 2003 through 2007 are $106  million,  $56  million,  $91 million,  $160
million and $1 million, respectively.

     MidAmerican  Energy's Variable Rate Pollution  Control Revenue  Obligations
bear interest at rates that are periodically  established through remarketing of
the  bonds in the  short-term  tax-exempt  market.

                                     -103-
<PAGE>

MidAmerican  Energy, at its option, may change the mode of interest  calculation
for these bonds by selecting  from among several  alternative  floating or fixed
rate  modes.  The  interest  rate  shown  in  the  Consolidated   Statements  of
Capitalization is the weighted average interest rate as of December 31, 2002 and
2001.  MidAmerican  Energy  maintains  revolving  credit facility  agreements or
renewable lines of credit to provide liquidity for holders of these issues.

     MidAmerican Funding parent company long-term debt is secured by a pledge of
the common stock of MHC. The notes and bonds:

     o    are the direct senior secured obligations of MidAmerican Funding;
     o    rank  on an  equal  basis  with  all of  MidAmerican  Funding's  other
          existing and future senior obligations;
     o    rank  senior  to all of  MidAmerican  Funding's  existing  and  future
          subordinated indebtedness; and
     o    effectively  rank junior to all  indebtedness  and other  liabilities,
          including preferred stock, of the direct and indirect  subsidiaries of
          MidAmerican   Funding,   to  the   extent  of  the   assets  of  these
          subsidiaries.

     MidAmerican  Funding  may redeem any series of the notes and bonds in whole
or in part at any time at a redemption price equal to the sum of:

     o    the greater of the following:
          (1)  100% of the principal amount of the series being redeemed, and
          (2)  the sum of the present values of the remaining scheduled payments
               of  principal  and  interest  on the  series  of being  redeemed,
               discounted to the date of redemption on a semiannual basis at the
               treasury  yield plus (x) 15 basis  points in the case of the 2009
               notes (y) 20 basis  points in the case of the 2011 notes , or (z)
               25 basis points in the case of the 2029 Bonds, plus
     o    accrued and unpaid  interest on the  securities  being redeemed to the
          date of redemption.

     MidAmerican   Funding  uses   distributions   that  it  receives  from  its
subsidiaries to make payments on the Notes and Bonds.  These  subsidiaries  must
make  payments  on  their  own  indebtedness  before  making   distributions  to
MidAmerican  Funding.  The distributions are also subject to utility  regulatory
restrictions  agreed to by MidAmerican Energy in March 1999 whereby it committed
to the Iowa Utilities Board 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  Funding  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 Funding. MidAmerican Funding 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
Funding.

     Each of MidAmerican  Funding's direct or indirect subsidiaries is organized
as a legal  entity  separate  and apart from  MidAmerican  Funding and its other
subsidiaries.  It should  not be  assumed  that any asset of any  subsidiary  of
MidAmerican  Funding will be available to satisfy the obligations of MidAmerican
Funding or any of its other subsidiaries;  provided,  however, that unrestricted
cash or other  assets  which are  available  for  distribution  may,  subject to
applicable  law and the terms of  financing  arrangements  of such  parties,  be
advanced,  loaned, paid as dividends or otherwise  distributed or contributed to
MidAmerican   Funding,   one  of  its   subsidiaries   or  affiliates   thereof.
Substantially  all of the  former  Iowa-Illinois  Gas and  Electric  Company,  a
predecessor company,  utility property and franchises,  and substantially all of
the former Midwest Power Systems Inc., a predecessor  company,  electric utility
property in Iowa, or  approximately  80% of  MidAmerican  Energy's gross utility
plant, is pledged to secure mortgage bonds.

                                     -104-
<PAGE>

(6)  SHORT-TERM BORROWING:

     Interim financing of working capital needs and the construction program may
be obtained  from the sale of  commercial  paper or  short-term  borrowing  from
banks. Information regarding short-term debt follows (dollars in thousands):

                                                             2002        2001
                                                           -------     -------


     Balance at year-end ..............................    $55,000     $91,780
     Weighted average interest rate on year-end balance        1.3%        1.9%
     Average daily amount outstanding during the year .    $ 9,068     $26,299
     Weighted average interest rate on average daily
       amount outstanding during the year .............        1.8%        4.7%


     MidAmerican  Energy has authority  from the FERC to issue through April 14,
2003, short-term debt in the form of commercial paper and bank notes aggregating
$500 million.  MidAmerican Energy has in place a $370.4 million revolving credit
facility  expiring January 15, 2004, which supports its $250 million  commercial
paper program and its variable rate pollution  control revenue  obligations.  In
addition,  MidAmerican  Energy has a $5.0 million line of credit,  which expires
July 1, 2003. As of December 31, 2002,  commercial  paper and bank notes totaled
$55.0  million for  MidAmerican  Energy.  MHC has a $4.0 million line of credit,
expiring July 1, 2003,  under which zero was  outstanding  at December 31, 2002.
MidAmerican  Capital has a $6.1 million line of credit expiring July 1, 2003, to
support a $6.0 million  letter of credit  provided to an energy project in which
it has invested. A liability is reflected on MidAmerican Funding's  Consolidated
Balance Sheets for the letter of credit.

(7)  PREFERRED SECURITIES:

     Refer to Note (7) of MidAmerican  Energy's Notes to Consolidated  Financial
Statements.

(8)  RISK MANAGEMENT AND ENERGY TRADING

     MidAmerican  Funding is exposed to loss of net income, cash flows and asset
values due to market  risk,  including  changes  in the market  price of gas and
electricity  used  in its  regulated  business,  changes  in the  value  of open
positions in its nonregulated trading operations,  variations in the severity of
weather  conditions from normal and changes in interest rates. See also Note (9)
for a discussion  of  MidAmerican  Funding's  exposure to credit risk. To manage
these exposures,  MidAmerican  Funding enters into various financial  derivative
instruments.  Senior  management  provides  the  overall  direction,  structure,
conduct  and  control  of  MidAmerican  Funding's  risk  management  activities,
including  the  use  of  financial  derivative  instruments,  authorization  and
communication  of risk  management  policies and procedures,  strategic  hedging
program  guidelines,  appropriate market and credit risk limits, and appropriate
systems for recording, monitoring and reporting the results of transactional and
risk management activities.

     Refer to Note (8) of MidAmerican  Energy's Notes to Consolidated  Financial
Statements for a discussion of MidAmerican  Funding's  commodity  price,  energy
trading and weather risks.

                                     -105-

<PAGE>


     Interest Rate Risk -

     At December 31, 2002,  MidAmerican  Funding had  fixed-rate  long-term debt
totaling $1.6 billion with a fair value of $1.7 billion.  These  instruments are
fixed-rate  and  therefore  do not  expose  MidAmerican  Funding  to the risk of
earnings loss due to changes in market interest rates.  However,  the fair value
of these  instruments  would decrease by  approximately  $78 million if interest
rates were to  increase  by 10% from  their  levels at  December  31,  2002.  In
general, such a decrease in fair value would impact earnings and cash flows only
if MidAmerican  Funding were to reacquire all or a portion of these  instruments
prior to their maturity.

     At December 31,  2002,  MidAmerican  Funding had  long-term  floating  rate
obligations  totaling  $120 million and  short-term  floating  rate  obligations
totaling  $55 million  which  expose  MidAmerican  Funding to risk of  increased
interest  expense in the event of increases in short-term  interest rates.  This
market risk is not hedged.  The carrying  value of the long-term and  short-term
floating rate obligations at December 31, 2002,  approximated fair value. If the
floating interest rates were to increase by 10% from December 31, 2002,  levels,
MidAmerican  Funding's  interest expense for the floating rate obligations would
increase by  approximately  $0.3  million  annually  based on December 31, 2002,
principal balances.

(9)  CONCENTRATION OF CREDIT RISK:

     Refer to Note (9) of MidAmerican  Energy's Notes to Consolidated  Financial
Statements  for  information   regarding   concentration   of  credit  risk  for
MidAmerican Energy.

     As  disclosed  in Note  (1)(f),  MidAmerican  Capital has  provided  equity
capital for five commercial  aircraft leased to major domestic  airlines.  As of
December 31, 2002,  the net  receivables  under these  agreements  totaled $23.3
million.

(10) RATE MATTERS:

     Refer to Note (10) of MidAmerican Energy's Notes to Consolidated  Financial
Statements.

(11) RETIREMENT PLANS:

     MidAmerican  Funding has  primarily  noncontributory  cash balance  defined
benefit pension plans covering substantially all employees of MidAmerican Energy
Holdings and its domestic subsidiaries.  Benefit obligations under the plans are
based on  participants'  compensation,  years of service and age at  retirement.
Funding  is based  upon the  actuarially  determined  costs of the plans and the
requirements  of the Internal  Revenue Code and the Employee  Retirement  Income
Security  Act.  MidAmerican  Energy has been  allowed to recover  pension  costs
related  to  its  employees  in  rates.   MidAmerican   Funding  also  maintains
noncontributory, nonqualified supplemental executive retirement plans for active
and retired participants.

     MidAmerican Funding currently provides certain  postretirement  health care
and life insurance benefits for retired employees of MidAmerican Energy Holdings
and its domestic subsidiaries. Under the plans, substantially all of MidAmerican
Funding's  employees  may  become  eligible  for these  benefits  if they  reach
retirement  age while  working for  MidAmerican  Funding.  However,  MidAmerican
Funding  retains the right to change these benefits  anytime at its  discretion.
MidAmerican  Funding expenses  postretirement  benefit costs on an accrual basis
and includes provisions for these costs in rates.

                                     -106-

<PAGE>

     Refer to Note (11) of MidAmerican Energy's Notes to Consolidated  Financial
Statements for additional  information  regarding MidAmerican Funding's pension,
supplemental retirement and postretirement benefit plans.

     MidAmerican  Funding  allocated  pension  and  postretirement  costs to its
parent and other  affiliates in each of the years ended  December 31, as follows
(in millions):

                                    2002     2001     2000
                                    ----     ----     ----
     Pension costs..............    $8.1     $5.2     $5.0
     Postretirement costs.......     1.5      1.0      0.7

(12) SEGMENT INFORMATION:

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

     The energy delivery and transmission  segments and substantially all of the
generation  segment are  regulated as to rates,  and other  factors,  related to
services  to  external  customers.  For  internal  segment  reporting  purposes,
MidAmerican  Energy has developed  transfer prices for services provided between
the segments.

     MidAmerican  Funding's  external  revenues  by  product  and  services  are
displayed on the Consolidated Statements of Income.

                                     -107-

<PAGE>


     The following tables provide  information on an operating  segment basis as
of and for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>

                                                    2002            2001            2000
                                                 -----------     -----------     -----------
SEGMENT PROFIT INFORMATION
--------------------------

<S>                                              <C>             <C>             <C>
Revenues:
  External revenues -
    Generation ..............................    $   415,921     $   516,915     $   444,109
    Energy delivery .........................      1,625,600       1,664,462       1,694,942
    Transmission ............................         20,721          22,852          17,276
    Marketing & sales .......................        173,917         163,020         115,505
    Other (a) ...............................          4,720          21,401          44,511
                                                 -----------     -----------     -----------
      Total .................................      2,240,879       2,388,650       2,316,343
                                                 -----------     -----------     -----------

  Intersegment revenues -
    Generation ..............................        651,342         606,164         588,862
    Energy delivery .........................             --              --              --
    Transmission ............................         55,207          55,086          58,220
    Marketing & sales .......................          2,404           2,727           2,564
    Other (a) ...............................             --             122           1,701
                                                 -----------     -----------     -----------
      Total .................................        708,953         664,099         651,347

  Intersegment eliminations .................       (708,953)       (664,099)       (651,347)
                                                 -----------     -----------     -----------
    Consolidated ............................    $ 2,240,879     $ 2,388,650     $ 2,316,343
                                                 ===========     ===========     ===========

Depreciation and amortization expense(b):
  Generation ................................    $   139,054     $   133,681     $    87,480
  Energy delivery ...........................        117,893         106,496         101,295
  Transmission ..............................          8,972           8,900           8,663
  Marketing & sales .........................          2,527           2,022              --
  Other (a) .................................            966          35,491          32,702
                                                 -----------     -----------     -----------
    Total ...................................    $   269,412     $   286,590     $   230,140
                                                 ===========     ===========     ===========

Interest income:
  Generation ................................    $     3,783     $     5,450     $     7,935
  Energy delivery ...........................          4,468           6,727           6,695
  Transmission ..............................            530             822             855
  Marketing & sales .........................             51              70              14
  Other (a) .................................         11,552          13,140          14,305
                                                 -----------     -----------     -----------
    Total ...................................         20,384          26,209          29,804
  Intersegment eliminations .................         (1,479)         (5,107)         (4,037)
                                                 -----------     -----------     -----------
    Consolidated ............................    $    18,905     $    21,102     $    25,767
                                                 ===========     ===========     ===========

Fixed charges:
  Generation ................................    $    29,989     $    31,726     $    31,799
  Energy delivery ...........................         40,737          42,654          44,395
  Transmission ..............................          4,892           5,401           5,630
  Marketing & sales .........................            366             363              14
  Other (a) .................................         49,226          51,467          54,138
                                                 -----------     -----------     -----------
    Total ...................................        125,210         131,611         135,976
  Intersegment eliminations .................         (1,479)         (5,107)         (4,037)
                                                 -----------     -----------     -----------
    Consolidated ............................    $   123,731     $   126,504     $   131,939
                                                 ===========     ===========     ===========
</TABLE>

                                     -108-
<PAGE>

<TABLE>
<CAPTION>


                                                    2002            2001            2000
                                                 -----------     -----------     -----------
SEGMENT PROFIT INFORMATION (CONTINUED)
--------------------------------------
<S>                                              <C>             <C>             <C>
Income before income taxes:
  Generation ................................    $   150,040     $   142,637     $   120,993
  Energy delivery ...........................        101,176          84,334         124,680
  Transmission ..............................         40,403          39,514          32,470
  Marketing & sales .........................          1,499          (5,799)         (7,181)
  Other (a) .................................        (56,620)        (61,911)        (38,785)
                                                 -----------     -----------     -----------
    Total ...................................    $   236,498     $   198,775     $   232,177
                                                 ===========     ===========     ===========

SEGMENT ASSET INFORMATION

Capital expenditures:
  Generation ................................    $   197,666     $    87,296     $    48,370
  Energy delivery ...........................        151,178         159,302         120,919
  Transmission ..............................          7,504           3,733          22,189
  Marketing & sales .........................          1,110           1,963          25,324
  Other (a) .................................            736             320           2,154
                                                 -----------     -----------     -----------
    Total ...................................    $   358,194     $   252,614     $   218,956
                                                 ===========     ===========     ===========

Total assets (c):
  Generation ................................    $ 2,321,090     $ 2,210,569     $ 2,286,035
  Energy delivery ...........................      2,487,390       2,374,771       2,312,881
  Transmission ..............................        306,223         310,429         521,981
  Marketing & sales .........................         52,143          51,164         113,347
  Other (a) .................................        179,141         506,331         428,287
                                                 -----------     -----------     -----------
    Total ...................................      5,345,987       5,453,264       5,662,531
  Reclassifications and
    intersegment eliminations (d) ...........       (192,003)       (277,792)       (239,522)
                                                 -----------     -----------     -----------
  Consolidated ..............................    $ 5,153,984     $ 5,175,472     $ 5,423,009
                                                 ===========     ===========     ===========
</TABLE>

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

     (b)  Depreciation  and  amortization  expense above  includes  depreciation
          related to nonregulated  operations  and, for 2001 and 2000,  goodwill
          amortization,  which are included in Nonregulated Operating Expenses -
          Other on the Consolidated Statements of Income.

     (c)  Total assets by operating  segment  reflect the assignment of goodwill
          to applicable reporting units in accordance with SFAS No. 142.

     (d)  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.

                                     -109-

<PAGE>


(13) INCOME TAXES:

     MidAmerican  Funding's  income tax expense  includes the  following for the
years ended December 31 (in thousands):

                                      2002          2001          2000
                                   ---------     ---------     ---------

     Current:
       Federal ................    $ 129,922     $  99,662     $  97,205
       State ..................       44,421        28,569        26,735
                                   ---------     ---------     ---------
                                     174,343       128,231       123,940
                                   ---------     ---------     ---------
     Deferred:
       Federal ................      (54,193)      (23,373)      (12,358)
       State ..................      (15,962)       (4,253)         (641)
                                   ---------     ---------     ---------
                                     (70,155)      (27,626)      (12,999)

     Investment tax credit, net       (4,406)       (4,917)       (5,548)
                                   ---------     ---------     ---------
       Total ..................    $  99,782     $  95,688     $ 105,393
                                   =========     =========     =========

     Included in Deferred Income Taxes in the Consolidated  Balance Sheets as of
December 31 are deferred tax assets and deferred tax  liabilities as follows (in
thousands):

                                                          2002        2001
                                                        --------    --------
     Deferred tax assets related to:
       Investment tax credits ......................    $ 38,296    $ 41,275
       Unrealized losses, net ......................         718         151
       Pensions ....................................      31,985      27,936
       Nuclear reserves and decommissioning ........      28,411      17,898
       Revenue sharing .............................      46,428      24,769
       Accrued liabilities .........................       1,094       2,413
       Fuel cost recoveries ........................       9,558          --
       Other .......................................       6,859       1,749
                                                        --------    --------
                                                         163,349     116,191
                                                        --------    --------

     Deferred tax liabilities related to:
       Depreciable property ........................     460,886     465,141
       Income taxes recoverable through future rates     159,411     185,222
       Reacquired debt .............................       4,914       7,544
       Fuel cost recoveries ........................          --      20,272
       Other .......................................          --       2,346
                                                        --------    --------
                                                         625,211     680,525
                                                        --------    --------

     Net deferred income tax liability .............    $461,862    $564,334
                                                        ========    ========
                                     -110-
<PAGE>

     The following table is a reconciliation of the statutory federal income tax
rate and the effective income tax rate indicated by the Consolidated  Statements
of Income for the years ended December 31:

                                                      2002      2001     2000
                                                      ----      ----     ----

Statutory federal income tax rate .................    35%       35%      35%
Amortization of investment tax credit .............    (2)       (2)      (2)
State income tax, net of federal income tax benefit     8         8        7
Dividends received deduction ......................    --        --       (1)
Goodwill amortization .............................    --         6        5
Other .............................................     1         1        1
                                                      ----      ----     ----
Effective Federal and state income tax rate .......    42%       48%      45%
                                                      ====      ====     ====

(14) FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The following  table presents the carrying  amount and estimated fair value
of the named financial instruments as of December 31 (in thousands):
<TABLE>
<CAPTION>

                                                            2002                        2001
                                                  ------------------------    ------------------------
                                                   Carrying       Fair         Carrying       Fair
                                                    Amount        Value         Amount        Value
                                                  ----------    ----------    ----------    ----------

     <S>                                          <C>           <C>           <C>           <C>
     Financial instruments owned:
     Equity investments carried at cost ......    $    6,072    $    9,288    $   14,967    $   21,360

     Financial instruments issued:
     MidAmerican Energy preferred securities;
       subject to mandatory redemption .......            --            --        26,680        27,747
     MidAmerican Energy-obligated preferred
       securities; subject to mandatory
       redemption ............................            --            --       100,000        99,640
     Long-term debt, including current portion     1,753,418     1,849,314     1,544,969     1,536,223
</TABLE>

     Substantially all of MidAmerican  Funding's  investments in debt and equity
securities as of December 31, 2002 and 2001,  relate to its Quad Cities  Station
decommissioning  trust.  Refer to Note  (14) in  MidAmerican  Energy's  Notes to
Consolidated  Financial  Statements  for additional  information.  The amortized

                                     -111-
<PAGE>

cost,  gross  unrealized gain and losses and estimated fair value of investments
in debt and equity securities at December 31 are as follows (in thousands):

                                                       2002
                                   --------------------------------------------
                                   Amortized  Unrealized  Unrealized    Fair
                                     Cost        Gains      Losses      Value
                                   ---------  ----------  ----------   --------

     Available for sale:
       Equity securities ........   $ 56,265    $16,373    $(1,313)    $ 71,325
       Municipal bonds ..........     30,915        918       (263)      31,570
       U.S. Government securities     18,511        183       (119)      18,575
       Corporate securities .....     24,752      1,135        (60)      25,827
       Cash equivalents .........     12,718         --         --       12,718
                                    --------    -------    -------     --------
         Total ..................   $143,161    $18,609    $(1,755)    $160,015
                                    ========    =======    =======     ========
     Held-to-maturity:
       Debt securities ..........   $  2,070    $    --    $    --     $  2,070
                                    ========    =======    =======     ========

                                                      2001
                                   --------------------------------------------
                                   Amortized  Unrealized  Unrealized   Fair
                                      Cost      Gains       Losses     Value
                                   ---------  ----------  ----------   --------

     Available-for-sale:
       Equity securities .........  $ 53,663    $24,444    $(3,144)    $ 74,963
       Municipal bonds ...........    27,842      1,315        (92)      29,065
       U. S. Government securities    26,725      1,910        (19)      28,616
       Corporate securities ......    18,394        808        (23)      19,179
       Cash equivalents ..........     7,120         --         --        7,120
                                    --------    -------    -------     --------
         Total ...................  $133,744    $28,477    $(3,278)    $158,943
                                    ========    =======    =======     ========
     Held-to-maturity:
       Debt securities ...........  $  2,074    $    --    $    --     $  2,074
                                    ========    =======    =======     ========

     At December 31, 2002, the debt securities  held by MidAmerican  Funding had
the following maturities (in thousands):

                                Available For Sale    Held To Maturity
                                -------------------  ------------------
                                Amortized    Fair    Amortized   Fair
                                  Cost       Value     Cost      Value
                                ---------   -------  ---------  -------

     Within 1 year ..........    $ 7,224    $ 7,384    $2,070    $2,070
     1 through 5 years ......     25,143     25,994        --        --
     5 through 10 years .....     14,190     14,574        --        --
     Over 10 years ..........     27,621     28,020        --        --

                                     -112-
<PAGE>

     The  proceeds and gross  realized  gains and losses on the  disposition  of
available-for-sale and held-to-maturity investments for the years ended December
31 are shown in the following table (in  thousands).  Realized gains and losses
are determined by specific identification.

                                   2002         2001         2000
                                 --------     --------     --------

     Proceeds from sales.......  $151,394      $68,333     $116,119
     Gross realized gains......     7,099        2,676        8,024
     Gross realized losses.....    (7,792)      (7,314)     (13,141)

     On January 1, 2001,  MidAmerican  Capital's  portfolio of  preferred  stock
investments was transferred from the available-for-sale  category to the trading
category,  as permitted by SFAS No. 133. For trading securities held at December
31, 2002, unrealized gains and losses reflected in the Consolidated Statement of
Income  totaled a net gain of $0.1 million for the year ended December 31, 2002.
Earnings  for the year ended  December  31,  2001,  include  gross gains of $3.4
million and gross  losses of $5.8 million as a result of the transfer in January
2001.  Unrealized  gains and losses on trading  securities  held at December 31,
2001,  including  the effect of the transfer of those  securities to the trading
category,  totaled a net loss of $1.6  million for the year ended  December  31,
2001.

(15) NON-OPERATING OTHER INCOME AND EXPENSE:

     Non-Operating  Income - Other  Income  and  Other  Expense  as shown on the
Consolidated Statements of Income include the following for the years ended
December 31 (in thousands):

                                                       2002      2001      2000
                                                     -------   -------   -------
Other income:
Allowance for equity funds used during
  construction ...................................   $ 8,621   $ 1,571   $    --
Income from equity method investments ............     7,919     5,118     2,123
Gain on sale of assets, net ......................     4,212     1,358     6,355
Subservicer fee for sold receivables .............     1,340     2,864     1,905
Corporate-owned life insurance income ............     1,330     5,265     9,351
Gross-up of contributions for construction .......       969       885       993
Energy project distribution ......................       408       857        --
Special purpose fund income ......................       358     1,783     1,253
Other ............................................     1,815     2,010     3,415
                                                     -------   -------   -------
     Total .......................................   $26,972   $21,711   $25,395
                                                     =======   =======   =======

Other expense:
Discount on sold receivables .....................   $ 6,397   $16,010   $10,212
Write down of impaired airplane leases ...........    12,634        --        --
Write down of an equity method investment ........     5,118        --        --
Write down of special purpose funds ..............     1,468        --        --
Write off interest receivable related to a special
  purpose fund ...................................     2,718        --        --
Other - primarily items not recoverable from
  MidAmerican Energy's regulated utility customers     2,938     2,727     4,284
                                                     -------   -------   -------
     Total .......................................   $31,273   $18,737   $14,496
                                                     =======   =======   =======

                                    -113-

<PAGE>

     The impairment of airplane  leases was the result of the financial  decline
of United Air Lines, Inc. Fair values for the leases were determined as a result
of lease  restructuring  negotiations and by obtaining values for similar planes
in the market at the time.

(16) AFFILIATED COMPANY TRANSACTIONS:

     The companies  identified as affiliates are MidAmerican Energy Holdings and
its  subsidiaries.  The basis for  these  charges  is  provided  for in  service
agreements between MidAmerican  Funding and its affiliates.  MidAmerican Funding
reimbursed  MidAmerican  Energy  Holdings in the amount of $10.4 million,  $13.8
million and $9.5 million in 2002, 2001 and 2000, respectively, for its allocated
share of corporate expenses. In 2001,  MidAmerican Energy acquired a gas turbine
equipment purchase contract from MidAmerican Energy Holdings for $22.0 million.

     MidAmerican  Funding was reimbursed  for charges  incurred on behalf of its
affiliates. The majority of these reimbursed expenses was for allocated employee
wages and benefits,  insurance,  computer costs, administrative services, travel
expenses and general and administrative expenses:  including treasury, legal and
accounting  functions.  The amount of such  expenses  was $29.8  million,  $20.1
million and $21.1 million for 2002, 2001 and 2000, respectively.

     MidAmerican  Energy has an agreement  with Cordova Energy  Company,  LLC, a
subsidiary of MidAmerican  Energy Holdings,  to purchase  electric  capacity and
energy from a gas-fired combined cycle generation plant which started commercial
operational in June 2001. The agreement,  which terminates in May 2004, provides
for  MidAmerican  Energy to purchase up to 50% of the net  capacity of the plant
and to  supply  the fuel  stock  required  to  generate  the  energy  purchased.
MidAmerican  Energy's payment for monthly capacity charges totaled $21.2 million
for 2002 and $18.1 million for 2001.

     In August 2002,  Northern Natural Gas Company,  or NNG, became an affiliate
of MidAmerican Energy when NNG was purchased by MidAmerican Energy Holdings. NNG
has  been  and  is  one  of  MidAmerican  Energy's  suppliers  of  natural  gas.
MidAmerican  Energy  purchased  $17.9  million of natural gas from NNG in August
through December 2002.

     As of December  31, 2001,  MidAmerican  Funding had notes  receivable  from
MidAmerican  Energy Holdings totaling $151.9 million included in Investments and
Nonregulated  Property,  Net on the Consolidated  Balance Sheets.  Additionally,
MidAmerican  Funding had accounts receivable from affiliates of $8.8 million and
$49.2  million as of  December  31,  2002 and 2001,  respectively,  included  in
Receivables on the  Consolidated  Balance Sheets.  MidAmerican  Funding also had
accounts  payable to  affiliates of $2.7 million and $6.9 million as of December
31, 2002 and 2001,  respectively,  which is included in Accounts  Payable on the
Consolidated Balance Sheets.

                                     -114-
<PAGE>

(17) SALE OF ACCOUNTS RECEIVABLE:

     Refer to Note (17) of MidAmerican Energy's Notes to Consolidated  Financial
Statements.

(18) UNAUDITED QUARTERLY OPERATING RESULTS:

                                                  2002
                          -----------------------------------------------------
                          1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
                          -----------   -----------   -----------   -----------
                                              (In thousands)

Operating revenues ....     $575,035      $493,856      $556,284      $615,704
Operating income ......       91,379        64,817       133,803        59,989
Net income ............       38,428        22,705        63,547        12,036

                                                  2001
                          -----------------------------------------------------
                          1st Quarter   2nd Quarter   3rd Quarter   4th Quarter
                          -----------   -----------   -----------   -----------
Operating revenues.....     $878,997      $525,180      $515,681      $468,792
Operating income.......      104,425        68,674       103,389        23,597
Net income.............       39,312        21,754        41,403           618

     Quarterly data reflect seasonal  variations common in the utility industry.
The increase in earnings for the fourth quarter of 2002 compared to 2001 was due
to colder weather in the fourth quarter of 2002, greater earnings from wholesale
sales of  electricity,  and a decrease  in  expenses  related to Cooper  Nuclear
Station  as a  result  of the  restructuring  of  the  related  contract.  These
increases were partially  offset by write-downs of impaired  airplane leases and
an interest receivable related to a special purpose fund.

                                     -115-

<PAGE>



INDEPENDENT AUDITORS' REPORT


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

We have audited the  accompanying  consolidated  balance sheets and consolidated
statements  of  capitalization  of  MidAmerican  Funding,  LLC and  subsidiaries
(Company)  as of  December  31,  2002 and  2001,  and the  related  consolidated
statements of income,  comprehensive income,  retained earnings,  and cash flows
for each of the three years in the period ended  December  31, 2002.  Our audits
also included the consolidated  financial statement schedule listed in the Index
at Item 15. These financial  statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial  statements and financial  statement  schedule based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position of  MidAmerican  Funding,  LLC and
subsidiaries  as of  December  31,  2002  and  2001,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting  principles  generally accepted
in the  United  States of  America.  Also,  in our  opinion,  such  consolidated
financial  statement  schedule,   when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  presents  fairly  in all
material respects the information set forth therein.

As discussed in Note (1)(k) to the consolidated  financial  statements,  in 2002
the Company  changed its  accounting  policy for goodwill  and other  intangible
assets.



/s/  Deloitte & Touche LLP

Des Moines, Iowa
January 24, 2003

                                     -116-


<PAGE>
                                                                  SCHEDULE II


                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                                 (IN THOUSANDS)


   Column A                       Column B    Column C    Column D      Column E

                                 Balance at   Additions                 Balance
                                 Beginning     Charged                  at End
         Description               of Year    to Income   Deductions    of Year
         -----------             ----------   ---------   ----------    --------

Reserves Deducted From Assets
  To Which They Apply:

  Reserve for uncollectible
  accounts receivable:

    Year ended 2002 ...........    $    627    $  8,982    $ (1,994)    $  7,615
                                   ========    ========    ========     ========

    Year ended 2001 ...........    $    102    $ 15,266    $(14,741)    $    627
                                   ========    ========    ========     ========

    Year ended 2000 ...........    $     --    $  8,498    $ (8,396)    $    102
                                   ========    ========    ========     ========


Reserves Not Deducted From Assets (1):

    Year ended 2002 ...........    $  7,802    $  2,798    $ (2,402)    $  8,198
                                   ========    ========    ========     ========

    Year ended 2001 ...........    $  8,146    $  2,766    $ (3,110)    $  7,802
                                   ========    ========    ========     ========

    Year ended 2000 ...........    $  8,051    $  3,316    $ (3,221)    $  8,146
                                   ========    ========    ========     ========



(1)  Reserves not deducted from assets include estimated  liabilities for losses
     retained by MidAmerican Energy for workers  compensation,  public liability
     and property damage claims.

                                     -117-
<PAGE>


                                                                SCHEDULE II


                            MIDAMERICAN FUNDING, LLC
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2002
                                 (IN THOUSANDS)


   Column A                       Column B    Column C    Column D     Column E

                                 Balance at   Additions                 Balance
                                 Beginning     Charged                  at End
         Description              of Year     to Income   Deductions    of Year
         -----------             ----------   ---------   ----------   --------

Reserves Deducted From Assets
  To Which They Apply:

   Reserve for uncollectible
   accounts receivable:

     Year ended 2002 ..........    $    733    $  8,946    $ (1,994)    $  7,685
                                   ========    ========    ========     ========

     Year ended 2001 ..........    $    300    $ 15,314    $(14,881)    $    733
                                   ========    ========    ========     ========

     Year ended 2000 ..........    $    469    $  8,514    $ (8,683)    $    300
                                   ========    ========    ========     ========





Reserves Not Deducted From Assets (1):

     Year ended 2002 ..........    $  8,770    $  2,798    $ (2,402)    $  9,166
                                   ========    ========    ========     ========

     Year ended 2001 ..........    $  9,867    $  2,612    $ (3,709)    $  8,770
                                   ========    ========    ========     ========

     Year ended 2000 ..........    $  8,982    $  4,079    $ (3,194)    $  9,867
                                   ========    ========    ========     ========



     (1)  Reserves not deducted from assets include  estimated  liabilities  for
          losses retained by MHC for workers compensation,  public liability and
          property damage claims.

                                     -118-

<PAGE>

                                   SIGNATURES

MIDAMERICAN ENERGY

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                   MIDAMERICAN ENERGY COMPANY
                                   --------------------------
                                           Registrant


Date: March 25, 2003               By  /s/ Jack L. Alexander
                                     -------------------------------
                                          (Jack L. Alexander)
                                           Senior Vice President

                                   By  /s/ Todd M. Raba
                                     -------------------------------
                                          (Todd M. Raba)
                                           Senior Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the date indicated:

    Signature                    Title                            Date
    ---------                    -----                            ----




  /s/  Thomas B. Specketer       Vice President and Controller    March 25, 2003
-----------------------------
    (Thomas B. Specketer)        (principal financial and
                                 accounting officer)




  /s/  Jack L. Alexander         Senior Vice President            March 25, 2003
-----------------------------
    (Jack L. Alexander)            and Director




  /s/  Brian K. Hankel           Vice President and               March 25, 2003
  ---------------------------
    (Brian K. Hankel)              Director




 /s/  Todd M. Raba               Senior Vice President            March 25, 2003
-----------------------------
     (Todd M. Raba)                and Director


                                     -119-
<PAGE>


MIDAMERICAN FUNDING, LLC

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                      MIDAMERICAN FUNDING, LLC
                                                  Registrant


Date: March 25, 2003                  By  /s/  David L. Sokol
                                        ------------------------------
                                              (David L. Sokol)
                                               Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the date indicated:

     Signature                   Title                            Date
     ---------                   -----                            ----


/s/  David L. Sokol              Chief Executive Officer          March 25, 2003
-----------------------
   (David L. Sokol)




/s/  Patrick J. Goodman          Vice President and Treasurer     March 25, 2003
-----------------------
   (Patrick J. Goodman)          (principal financial and
                                 accounting officer)




/s/  Gregory E. Abel             Manager                          March 25, 2003
-----------------------
   (Gregory E. Abel)




/s/ Ronald W. Roskens            Manager                          March 25, 2003
-----------------------
   (Ronald W. Roskens)


                                     -120-
<PAGE>


                     SECTION 302 CERTIFICATION FOR FORM 10-K
CERTIFICATIONS
--------------
I, David L. Sokol, certify that:

1. I have reviewed this annual report on Form 10-K of MidAmerican Funding, LLC;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

                                     -121-
<PAGE>

6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003

                           /s/ David L. Sokol
                           -----------------------
                               David L. Sokol
                           Chief Executive Officer

                                     -122-

<PAGE>


                     SECTION 302 CERTIFICATION FOR FORM 10-K
CERTIFICATIONS
--------------

I, Patrick J. Goodman, certify that:

1. I have reviewed this annual report on Form 10-K of MidAmerican Funding, LLC;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

                                     -123-
<PAGE>


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  March 25, 2003
                          /s/ Patrick J. Goodman
                          ----------------------------
                              Patrick J. Goodman
                          Vice President and Treasurer
                            (chief financial officer)

                                     -124-
<PAGE>


                     SECTION 302 CERTIFICATION FOR FORM 10-K
CERTIFICATIONS

I, Jack L. Alexander, certify that:

1. I have  reviewed  this  annual  report  on Form  10-K of  MidAmerican  Energy
Company;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's  other certifying  officers and I have
   disclosed,  based  on our  most  recent  evaluation,  to  the  registrant's
   auditors and the audit  committee of  registrant's  board of directors  (or
   persons   performing  the  equivalent   functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

                                     -125-

<PAGE>


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.


Date:  March 25, 2003
                          /s/ Jack L. Alexander
                          ---------------------
                              Jack L. Alexander
                              Senior Vice President
                          (co-chief executive officer)


                                     -126-
<PAGE>


                     SECTION 302 CERTIFICATION FOR FORM 10-K
CERTIFICATIONS
--------------

I, Todd M. Raba, certify that:

1. I have  reviewed  this  annual  report  on Form  10-K of  MidAmerican  Energy
Company;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officers  and  I are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and

     c) presented in this annual report our conclusions  about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

                                     -127-

<PAGE>


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003

                             /s/ Todd M. Raba
                          ----------------------------
                                 Todd M. Raba
                              Senior Vice President
                          (co-chief executive officer)


                                     -128-

<PAGE>


                     SECTION 302 CERTIFICATION FOR FORM 10-K
CERTIFICATIONS
--------------
I, Thomas B. Specketer, certify that:

1. I have  reviewed  this  annual  report  on Form  10-K of  MidAmerican  Energy
Company;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods  presented in this annual report;  4. The
registrant's  other  certifying  officers and I are responsible for establishing
and maintaining  disclosure  controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual  report (the  "Evaluation  Date");  and c)  presented in this annual
     report our conclusions about the  effectiveness of the disclosure  controls
     and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation,  to the registrant's auditors and the audit committee of
registrant's   board  of  directors  (or  persons   performing   the  equivalent
functions):

     a) all  significant  deficiencies  in the design or  operation  of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud,  whether or not material,  that involves  management or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and

                                     -129-
<PAGE>


6. The  registrant's  other  certifying  officers  and I have  indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:  March 25, 2003
                          /s/ Thomas B. Specketer
                          -----------------------------
                              Thomas B. Specketer
                          Vice President and Controller
                            (chief financial officer)

                                     -130-


<PAGE>

                                  EXHIBIT INDEX

EXHIBITS FILED HEREWITH
-----------------------

MidAmerican Energy

23       Consent of Deloitte & Touche LLP

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

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

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

MidAmerican Funding

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

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

EXHIBITS INCORPORATED BY REFERENCE
----------------------------------

MidAmerican Energy

3.1       Restated Articles of Incorporation of MidAmerican  Energy Company,  as
          amended October 27, 1998. (Filed as Exhibit 3.3 to MidAmerican
          Energy's Quarterly  Report on Form 10-Q for the period ended
          September 30, 1998, Commission File No. 1-11505.)

3.2       Restated  Bylaws of MidAmerican  Energy  Company,  as amended July 24,
          1996. (Filed as Exhibit 3.1 to MidAmerican  Energy's  Quarterly Report
          on Form 10-Q for the period ended June 30, 1996,  Commission  File No.
          1-11505.)

MidAmerican Funding

3.1       Articles of Organization of MidAmerican Funding, LLC

3.2       Operating Agreement of MidAmerican Funding, LLC

4.1       Indenture,  dated as of March 11,  1999,  by and  between  MidAmerican
          Funding, LLC and IBJ Whitehall Bank & Trust Company, as Trustee

4.2       First  Supplemental  Indenture,  dated as of March  11,  1999,  by and
          between  MidAmerican  Funding,  LLC  and  IBJ  Whitehall  Bank & Trust
          Company, as Trustee

4.3       Second  Supplemental  Indenture,  dated as of March  1,  2001,  by and
          between MidAmerican  Funding, LLC and The Bank of New York, as Trustee
          (Filed as Exhibit 4.4 to MidAmerican Funding's  Registration Statement
          No. 333-56624)

                                     -131-
<PAGE>

4.4       Registration  Rights  Agreement,  dated  March 9,  1999,  by and among
          MidAmerican  Funding,  LLC,  Credit  Suisse First Boston  Corporation,
          Lehman Brothers, Inc., Goldman Sachs & Co. and Merrill Lynch & Co.

MidAmerican Energy and MidAmerican Funding

4.1       General  Mortgage  Indenture  and Deed of Trust dated as of January 1,
          1993,  between  Midwest Power Systems Inc. and Morgan  Guaranty  Trust
          Company  of New York,  Trustee.  (Filed as  Exhibit  4(b)-1 to Midwest
          Resources  Inc.'s  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 1992, Commission File No. 1-10654.)

4.2       First  Supplemental  Indenture  dated as of January  1, 1993,  between
          Midwest  Power Systems Inc. and Morgan  Guaranty  Trust Company of New
          York,  Trustee.  (Filed as Exhibit 4(b)-2 to Midwest Resources' Annual
          Report on Form 10-K for the year ended  December 31, 1992,  Commission
          File No. 1-10654.)

4.3       Second  Supplemental  Indenture dated as of January 15, 1993,  between
          Midwest  Power Systems Inc. and Morgan  Guaranty  Trust Company of New
          York,  Trustee.  (Filed as Exhibit 4(b)-3 to Midwest Resources' Annual
          Report on Form 10-K for the year ended  December 31, 1992,  Commission
          File No. 1-10654.)

4.4       Third Supplemental  Indenture dated as of May 1, 1993, between Midwest
          Power  Systems Inc.  and Morgan  Guaranty  Trust  Company of New York,
          Trustee.  (Filed as Exhibit 4.4 to Midwest Resources' Annual Report on
          Form 10-K for the year ended  December 31, 1993,  Commission  File No.
          1-10654.)

4.5       Fourth  Supplemental  Indenture  dated as of October 1, 1994,  between
          Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee.
          (Filed as Exhibit 4.5 to Midwest Resources' Annual Report on Form 10-K
          for the year ended December 31, 1994, Commission File No. 1-10654.)

4.6       Fifth  Supplemental  Indenture  dated as of November 1, 1994,  between
          Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee.
          (Filed as Exhibit 4.6 to Midwest Resources' Annual Report on Form 10-K
          for the year ended December 31, 1994, Commission File No. 1-10654.)

4.7       Indenture  of Mortgage  and Deed of Trust,  dated as of March 1, 1947.
          (Filed by Iowa-Illinois  Gas and Electric Company  (Iowa-Illinois)  as
          Exhibit 7B to Commission File No. 2-6922.)

4.8       Sixth  Supplemental  Indenture  dated as of July 1,  1967.  (Filed  by
          Iowa-Illinois  Gas and Electric  Company as Exhibit 2.08 to Commission
          File No. 2-28806.)

4.9       Twentieth  Supplemental  Indenture dated as of May 1, 1982.  (Filed as
          Exhibit 4.B.23 to Iowa-Illinois' Quarterly Report on Form 10-Q for the
          period ended June 30, 1982, Commission File No. 1-3573.)

4.10      Resignation and Appointment of successor Individual Trustee. (Filed by
          Iowa-Illinois  Gas and  Electric  Company  (Iowa-Illinois)  as Exhibit
          4.B.30 to Commission File No. 33-39211.)

4.11      Twenty-Eighth  Supplemental Indenture dated as of May 15, 1992. (Filed
          as Exhibit 4.31.B to  Iowa-Illinois'  Current Report on Form 8-K dated
          May 21, 1992, Commission File No. 1-3573.)

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4.12      Thirtieth  Supplemental  Indenture dated as of October 1, 1993. (Filed
          as Exhibit 4.34.A to  Iowa-Illinois'  Current Report on Form 8-K dated
          October 7, 1993, Commission File No. 1-3573.)

4.13      Sixth Supplemental Indenture dated as of July 1, 1995, between Midwest
          Power Systems Inc. and Harris Trust and Savings Bank, Trustee.  (Filed
          as Exhibit 4.15 to  MidAmerican  Energy's  Annual  Report on Form 10-K
          dated December 31, 1995, Commission File No. 1-11505.)

4.14      Thirty-First  Supplemental Indenture dated as of July 1, 1995, between
          Iowa-Illinois  Gas and  Electric  Company and Harris Trust and Savings
          Bank, Trustee.  (Filed as Exhibit 4.16 to MidAmerican  Energy's Annual
          Report on Form 10-K  dated  December  31,  1995,  Commission  File No.
          1-11505.)

10.1      MidAmerican Energy Company Restated  Executive  Deferred  Compensation
          Plan. (Filed as Exhibit 10.2 to MidAmerican  Energy's Quarterly Report
          on Form 10-Q dated March 31, 1999, Commission File No. 1-11505.)

10.2      MidAmerican Energy Company Combined Midwest  Resources/Iowa  Resources
          Restated Deferred  Compensation  Plan - Board of Directors.  (Filed as
          Exhibit 10.1 to  MidAmerican  Energy's  Quarterly  Report on Form 10-Q
          dated March 31, 1999, Commission File No. 1-11505.)

10.3      MidAmerican  Energy  Company First  Amended and Restated  Supplemental
          Retirement  Plan for Designated  Officers.  (Filed as Exhibit 10.52 to
          MidAmerican  Energy  Holding  Company's   Registration  Statement  No.
          333-101699.)

10.4      Midwest  Resources  Inc.  Supplemental  Retirement  Plan (formerly the
          Midwest  Energy  Company  Supplemental  Retirement  Plan).  (Filed  as
          Exhibit 10.10 to Midwest Resources' Annual Report on Form 10-K for the
          year ended December 31, 1993, Commission File No. 1-10654.)

10.5      Power Sales Contract between Iowa Power Inc. and Nebraska Public Power
          District,  dated  September 22, 1967.  (Filed as Exhibit 4-C-2 to Iowa
          Power Inc.'s (IPR) Registration Statement, Registration No. 2-27681.)

10.6      Amendments  Nos. 1 and 2 to Power Sales  Contract  between  Iowa Power
          Inc. and Nebraska Public Power  District.  (Filed as Exhibit 4-C-2a to
          IPR's Registration Statement, Registration No. 2-35624.)

10.7      Amendment  No. 3 dated  August 31, 1970,  to the Power Sales  Contract
          between  Iowa Power Inc. and Nebraska  Public  Power  District,  dated
          September 22, 1967.  (Filed as Exhibit  5-C-2-b to IPR's  Registration
          Statement, Registration No. 2-42191.)

10.8      Amendment  No. 4 dated March 28,  1974,  to the Power  Sales  Contract
          between  Iowa Power Inc. and Nebraska  Public  Power  District,  dated
          September 22, 1967.  (Filed as Exhibit  5-C-2-c to IPR's  Registration
          Statement, Registration No. 2-51540.)

10.9      Iowa-Illinois  Gas and Electric Company  Supplemental  Retirement Plan
          for Principal  Officers,  as amended as of July 28, 1994. (Filed as an
          Exhibit  to  Iowa-Illinois'  Annual  Report  on Form 10-K for the year
          ended December 31, 1994, Commission File No. 1-3573.)

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<PAGE>

10.10     Iowa-Illinois Gas and Electric Company Compensation  Deferral Plan for
          Principal  Officers,  as amended as of July 1, 1993. (Filed as Exhibit
          10.K.2 to Iowa-Illinois' Annual Report on Form 10-K for the year ended
          December 31, 1993, Commission File No. 1-3573.)

10.11     Iowa-Illinois   Gas  and   Electric   Company   Board  of   Directors'
          Compensation Deferral Plan. (Filed as Exhibit 10.K.4 to Iowa-Illinois'
          Annual  Report  on Form 10-K for the year  ended  December  31,  1992,
          Commission File No. 1-3573.)

10.12     Amendment No. 1 to the Midwest Resources Inc. Supplemental  Retirement
          Plan.  (Filed as Exhibit 10.24 to Midwest  Resources' Annual Report on
          Form 10-K for the year ended  December 31, 1994,  Commission  File No.
          1-10654.)

10.13     Form of Indemnity  Agreement  between  MidAmerican  Energy Company and
          its  directors and  officers.  (Filed as Exhibit 10.37 to  MidAmerican
          Energy's   Annual  Report  on  Form  10-K  dated  December  31,  1995,
          Commission File No. 1-11505.)

10.14     Amendment No. 5 dated  September 2, 1997, to the Power Sales  contract
          between MidAmerican Energy Company and Nebraska Public Power District,
          dated  September  22, 1967.  (Filed as Exhibit  10.2 to Holdings'  and
          MidAmerican Energy's respective Quarterly Reports on the combined Form
          10-Q for the quarter ended  September 30, 1997,  Commission  File Nos.
          1-12459 and 1-11505, respectively.)

10.15     Amendment  No. 6, dated July 31,  2002,  to the Power  Sales  Contract
          Between  MidAmerican Energy Company and Nebraska Public Power District
          dated  September 22, 1967.  (Filed as Exhibit No. 10.1 to  MidAmerican
          Funding and  MidAmerican  Energy's  Quarterly  Reports on the combined
          Form 10-Q for the quarter  ended June 30, 2002;  Commission  File Nos.
          333-90553 and 1-11505, respectively.)

10.16     Iowa Utilities  Board Order Approving  Settlement With  Modifications,
          issued  December 21, 2001, in regards to  MidAmerican  Energy  Company
          (Filed as Exhibit 10.7 to MidAmerican  Energy's  Annual Report on Form
          10-K dated December 31, 2001, Commission File No. 1-11505.)

Note:     Pursuant to  (b)(4)(iii)(A) of Item 601 of Regulation S-K, the Company
          has not filed as an exhibit to this Form 10-K certain instruments with
          respect to long-term  debt not registered in which the total amount of
          securities  authorized  thereunder does not exceed 10% of total assets
          of the  Company,  but hereby  agrees to furnish to the  Commission  on
          request any such instruments.

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