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, 1998
                                             -----------------

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


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:

                                                     Name of each Exchange
    Title of Each Class                              On which Registered
    -------------------                              ---------------------   

7.98% MidAmerican Energy Company - Obligated
    Preferred  Securities of Subsidiary Trust        New York Stock Exchange

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
                   Preferred Stock, $5.25 Series, no par value
                   Preferred Stock, $7.80 Series, no par value
_______________________________________________________________________________
                               Title of each Class

Indicate by check mark whether the registrant (1) has 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 registrant's  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].

The aggregate market value of voting stock held by non-affiliates of MidAmerican
Energy  Company was zero as of February  26,  1999,  when  70,980,203  shares of
common stock, without par value, were outstanding.


<PAGE>


                           MIDAMERICAN ENERGY COMPANY

                         1998 Annual Report on Form 10-K

                                TABLE OF CONTENTS

                                   Part I                                 Page
                                   ------                                 ----
Item 1  Business
          General Development of Business..................................  5
          Financial Information About Industry Segments....................  6
          Narrative Description of Business................................  7
            Regulated Electric Operations .................................  9
            Regulated Natural Gas Operations............................... 12
            Nonregulated Operations........................................ 13
            Construction Program........................................... 14
            Regulation..................................................... 14
Item 2   Properties........................................................ 19
Item 3   Legal Proceedings................................................. 21
Item 4   Submission of Matters to a Vote of Security Holders............... 22

                                     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........ 23
Item 8   Financial Statements and Supplementary Data....................... 25
Item 9   Changes in and Disagreements with Accountants
           on Accounting and Financial Disclosure.......................... 25

                                    Part III
                                    --------
Item 10  Directors and Executive Officers of the Registrant................ 25
Item 11  Executive Compensation............................................ 28
Item 12  Security Ownership of Certain Beneficial Owners
           and Management.................................................. 36
Item 13  Certain Relationships and Related Transactions.................... 37

                                     Part IV
                                     -------
Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K... 38
Signatures ................................................................ 96
Exhibits Index............................................................. 97

                                      -2-
<PAGE>


DEFINITIONS

The following terms are used in this document with the following meanings:

TERM                     MEANING

ANR                      ANR Pipeline Company
Btu                      British Thermal Unit, the quantity of heat required to 
                           raise the temperature of one pound of water one 
                           degree Fahrenheit  
CAAA                     Clean Air Act  Amendments of 1990 
CalEnergy                CalEnergy Company, Inc. (Refer to discussion of merger 
                           in Part I, Item 1, of this Form 10-K) 
ComEd                    Commonwealth Edison Company 
Company                  MidAmerican Energy Company 
Cooper                   Cooper Nuclear Station 
DOE                      United States  Department of Energy 
EMFs                     Electric and magnetic fields 
EAC                      Energy Adjustment Clause 
EPA                      United States Environmental Protection Agency 
Exchange Act             Securities Exchange Act of 1934, as amended 
FASB                     Financial Accounting Standards Board 
FERC                     Federal Energy Regulatory Commission 
Holdings                 MidAmerican Energy Holdings Company, the new name of 
                           CalEnergy Company, Inc. following its reincorporation
                           in conjunction with the merger of MHC (see below)
ICC                      Illinois Commerce Commission
IUB                      Iowa Utilities Board
Iowa-Illinois            Iowa-Illinois Gas and Electric Company, a predecessor
                           company
KW                       Kilowatt, a thousand watts
KWh                      Kilowatt-hour, one thousand watts used for one hour
MAPP                     Mid-Continent Area Power Pool
MHC                      MHC Inc., an indirect wholly owned subsidiary of 
                           Holdings.  
Mcf                      One  thousand  cubic  feet  
MD&A                     Management's Discussion and Analysis of Financial 
                           Condition and Results of Operations
MidAmerican              MidAmerican Energy Company, a wholly owned subsidiary 
                           of MHC
MidAmerican Capital      MidAmerican Capital Company, a wholly owned subsidiary 
                           of MHC 
MidAmerican Realty       MidAmerican Realty Services Company, a 95 percent-owned
                           subsidiary of MHC
Midwest                  Midwest Power Systems Inc., a predecessor company
Midwest Capital          Midwest Capital Group, Inc., a wholly owned subsidiary 
                           of MHC
MGP                      Manufactured gas plant
MW                       Megawatts, one million watts
NBPL                     Northern Border Pipeline Company
NGPL                     Natural Gas Pipeline Company of America
NNG                      Northern Natural Gas
NPDES                    National Pollutant Discharge Elimination System
NPPD                     Nebraska Public Power District
NRC                      Nuclear Regulatory Commission
NWPA                     Nuclear Waste Policy Act of 1982

                                      -3-

<PAGE>

OCA                      Iowa Office of Consumer Advocate
Order 636 or Orders      FERC Order 636 and related orders
PCBs                     Polychlorinated biphenyls
PGA                      Purchase gas adjustment clause
PRPs                     Potentially responsible parties
SDPUC                    South Dakota Public Utilities Commission
SFAS                     Statement of Financial Accounting Standards
Quad Cities Station      Quad Cites Nuclear Power Station

                                      -4-
<PAGE>



                                     PART I
ITEM 1. BUSINESS
----------------

(A)  GENERAL DEVELOPMENT OF BUSINESS

     MidAmerican  Energy  Company  (MidAmerican)  is a  public  utility  company
headquartered  in Des Moines,  Iowa, and  incorporated  in the state of Iowa. On
March 12, 1999,  MidAmerican  became a wholly owned  subsidiary  of  MidAmerican
Energy Holdings Company  (Holdings),  the successor by a reincorporation  merger
dated March 12, 1999, to CalEnergy Company, Inc. (CalEnergy).

     MidAmerican  was  formed  on July 1,  1995,  as a result  of the  merger of
Iowa-Illinois Gas and Electric Company, Midwest Resources Inc. and Midwest Power
Systems  Inc.  On  December  1, 1996,  MidAmerican  became,  through a corporate
reorganization  involving the exchange of stock, a wholly owned subsidary of MHC
Inc.,  which,  until March 12, 1999,  was known as MidAmerican  Energy  Holdings
Company (MHC).  Certain  subsidiaries of MidAmerican then became subsidiaries of
MHC.

     MHC is a wholly owned subsidiary of MidAmerican Funding, LLC (MidAmerican
Funding),  a wholly owned  subsidiary  of Holdings.  Holdings is a global energy
company that, in addition to MidAmerican Funding,  manages and owns interests in
power   generation   facilities  in  operation,   construction  and  development
worldwide.  Through  its  Northern  Electric  operations  in the United  Kingdom
(U.K.),  Holdings supplies and distributes  electricity and gas to approximately
2.0 million  customers in the U.K. It also  develops  and  produces  energy from
diversified  fuel  sources.  Holdings  conducts  business  in  the  U.S.,  U.K.,
Philippines, Indonesia, Poland and Australia.

CALENERGY MERGER

     On March 12,  1999,  the parties to an  Agreement  and Plan of Merger dated
August 11, 1998  completed a  transaction  whereby  MidAmerican  became a wholly
owned indirect subsidiary of Holdings. As a part of this transaction, CalEnergy,
a Delaware corporation, merged with and into a wholly owned subsidiary which was
an Iowa corporation  (Reincorporation  Sub), thereby effecting a reincorporation
(Reincorporation  Merger).  Immediately following the Reincorporation  Merger, a
second  wholly  owned  subsidiary  of  CalEnergy  merged  with and into MHC (MHC
Merger). As a part of the MHC Merger, MHC (formerly  MidAmerican Energy Holdings
Company)   changed  its  name  to  MHC  Inc.   Subsequent  to  the  MHC  Merger,
Reincorporation  Sub changed its name to MidAmerican Energy Holdings Company. As
a result of the Reincorporation Merger and the MHC Merger, MidAmerican became an
indirect  subsidiary of Holdings,  all direct and indirect  subsidiaries  of MHC
each became an indirect  subsidiary  of Holdings and each  outstanding  share of
common stock of MHC was converted into the right to receive $27.15 in cash.

CHANGES IN THE UTILITY INDUSTRY AND MIDAMERICAN

     The electric utility industry is in the midst of significant regulatory
change.  Traditionally,  prices charged by electric utility  companies have been
regulated  by  federal  and state  commissions  and have  been  based on cost of
service. In recent years, changes have occurred, and are expected to continue to
occur,  that  move the  electric  utility  industry  toward a more  competitive,
market-based pricing  environment.  These changes will have a significant impact
on the way MidAmerican does business.  Refer to the discussions  under "Industry
Evolution"  and  "Legislative   and  Regulatory   Evolution"  in  the  Operating
Activities  and Other  Matters  section of MD&A in Part IV, Item 14 of this Form
10-K.

                                      -5-
<PAGE>


     A  substantial  majority  of  MidAmerican's  business  still  operates in a
rate-regulated  environment and,  accordingly,  many decisions for obtaining and
using  resources  are  evaluated  from an electric  and gas  regulated  business
perspective.  However,  beginning January 1, 1998,  MidAmerican also manages its
operations as four distinct  business units:  generation,  transmission,  energy
distribution and retail. It is under this framework that MidAmerican believes it
can best prepare for,  and succeed in, the energy  business of the future.  With
these four business  units,  MidAmerican is better able to focus on the specific
needs and anticipated risks and  opportunities of its major businesses.  Certain
administrative  functions  are  handled  by a  corporate  services  group  which
supports all of the business units.

     Although  specific  functions may be moved between business units as future
circumstances   warrant,   the  main  focus  of  each  business  unit  has  been
established.  Presently,  significant  functions of the generation business unit
include the production of  electricity,  the purchase of electricity and natural
gas, and the sale of  wholesale  electricity  and natural gas. The  transmission
business unit  coordinates  all  activities  related to  MidAmerican's  electric
transmission  facilities,  including  monitoring  access  to  and  assuring  the
reliability of the transmission  system. The energy  distribution  business unit
distributes  electricity  and  natural gas to  end-users  and  conducts  related
activities.  Retail includes  marketing,  customer service and related functions
for core and complementary products and services.

     The  Company  expects  that,  as the  industry  moves  toward  competition,
generation and retail functions will not be rate-regulated.  Energy distribution
and  transmission  functions,  though not  unaffected by industry  changes,  are
expected to remain rate-regulated by state and federal commissions.

YEAR 2000 COMPUTER ISSUES

     MidAmerican's businesses and operations,  as well as those of third parties
with   whom   MidAmerican    transacts    business,    utilize   computers   and
computer-controlled  systems,  applications and processes (herein after referred
to as  "Systems").  Because  of the  program  structures  within  some of  these
Systems,  they could fail or create erroneous results when required to recognize
the year 2000. The effect of such failures or errors could result in significant
operational  problems  and/or  costs  material to  MidAmerican.  MidAmerican  is
addressing  the year 2000  issue and taking  steps,  including  remediation  and
contingency  planning,  to assure that any processes that may be  date-sensitive
are ready for the year 2000.  Refer to the  ACTIVITIES  REGARDING YEAR 2000 DATE
ISSUES  section  of MD&A  included  in Part IV,  Item 14 of this Form 10-K for a
discussion of this topic.

(B)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     Financial  information  on  MidAmerican's  segments of business is included
under the Note titled "Segment  Information" in Notes to Consolidated  Financial
Statements included in Part IV, Item 14 of this Form 10-K.

                                      -6-
<PAGE>

(C)  NARRATIVE DESCRIPTION OF BUSINESS

     MidAmerican  is the largest  energy  company  headquartered  in Iowa,  with
assets and 1998 revenues  totaling $3.6 billion and $1.7 billion,  respectively.
Its  strategy  is  to  become  the  leading  regional  provider  of  energy  and
complementary  services.  MidAmerican  is  primarily  engaged in the business of
generating,  transmitting,  distributing  and  selling  electric  energy  and in
distributing,  selling and  transporting  natural gas.  MidAmerican  distributes
electric energy 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,  1998,  MidAmerican  had  652,900  retail  electric
customers and 621,500 retail natural gas customers.

     In addition to retail sales,  MidAmerican delivers electric energy to other
utilities and  municipalities  who distribute it to end-use customers (sales for
resale) and transports natural gas through its distribution  system for a number
of end-use customers who have independently secured their supply of natural gas.

     MidAmerican'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  has a residential,  agricultural,  commercial and  diversified
industrial customer group, in which no single industry or customer accounted for
more than 3% (food and kindred  products  industry)  of its total 1998  electric
operating  revenues or 3% (food and kindred products industry) of its total 1998
gas operating  margin.  Among the primary  industries  served by MidAmerican are
those which are concerned with the manufacturing,  processing and fabrication of
primary  metals,  real  estate,  food  products,  farm and other  non-electrical
machinery, and cement and gypsum products.

     During 1998,  MidAmerican increased its emphasis on wholesale gas marketing
activities,  some of which was previously  managed by one of MHC's  nonregulated
subsidiaries.  (Refer to the NONREGULATED OPERATIONS section later in Part I for
further discussion).

     For the year ended December 31, 1998, MidAmerican derived approximately 69%
of its gross operating revenues from its regulated  electric  business,  and 25%
from  its  regulated  gas  business  and  6%  from  its  nonregulated   business
activities.  For 1997 and 1996, the corresponding percentages were 65% electric,
31% gas and 4%  nonregulated;  and 66%  electric,  32% gas and 2%  nonregulated,
respectively.

                                      -7-
<PAGE>

        
     Historical  electric sales by customer class as a percent of total electric
sales and  retail  electric  sales  data by state as a percent  of total  retail
electric sales are shown below:

                                           Total Electric Sales
                                             By Customer Class

                                      1998         1997         1996
                                      ----         ----         ----
Residential                           22.2%        20.9%        21.1%
Small General Service                 17.5         16.5         16.2
Large General Service                 28.1         27.4         27.6
Other                                  4.4          4.4          4.5
Sales for Resale                      27.8         30.8         30.6
                                     -----        -----        -----

Total                                100.0%       100.0%       100.0%
                                     =====        =====        =====

                                           Retail Electric Sales
                                                 By State

                                      1998         1997         1996
                                      ----         ----         ----
Iowa                                  88.4%        88.6%        88.7%
Illinois                              10.9         10.7         10.6
South Dakota                           0.7          0.7          0.7
                                     -----        -----        -----

Total                                100.0%       100.0%       100.0%
                                     =====        =====        =====

     In Illinois beginning October 1, 1999, larger non-residential customers and
33% of the remaining  non-residential  customers will be allowed to select their
provider of electric supply services.  All other non-residential  customers will
have  supplier  choice  starting  December 31, 2000.  Residential  customers all
receive the opportunity to select their electric supplier on May 1, 2002.

     Historical regulated gas sales,  excluding  transportation  throughput, by
customer  class as a percent  of total  gas  sales and by state as a percent of
total retail gas sales are shown below:

                                         Total Regulated Gas Sales
                                             By Customer Class

                                      1998         1997         1996
                                      ----         ----         ----
Residential                           59.9%        60.8%        61.1%
Small General Service                 32.1         33.1         33.3
Large General Service                  3.7          4.2          4.6
Other                                  4.3          1.9          1.0
                                     -----        -----        -----

Total                                100.0%       100.0%       100.0%
                                     =====        =====        =====


                                      -8-
<PAGE>



                                             Retail Gas Sales
                                                 By State

                                      1998         1997         1996
                                      ----         ----         ----
Iowa                                  79.0%        79.1%        78.0%
Illinois                              10.2         10.4         11.0
South Dakota                          10.1          9.8         10.3
Nebraska                               0.7          0.7          0.7
                                     -----        -----        -----

Total                                100.0%       100.0%       100.0%
                                     =====        =====        =====

     There are seasonal variations in MidAmerican's  electric and gas businesses
which are  principally  related  to the use of energy for air  conditioning  and
heating.  In 1998, 40% of MidAmerican's  electric  revenues were reported in the
months  of June,  July,  August  and  September,  and 54% of  MidAmerican's  gas
revenues were reported in the months of January, February, March and December.

     At December 31, 1998,  MidAmerican had 3,703  full-time  employees of which
1,698 were covered by union contracts.  MidAmerican has eight 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. The contracts covering most union employees are as follows:

                                Employee             Contract
        Union      Local        Members           Expiration Date
        -----      -----        -------           ---------------
        IBEW         109           441                7/31/99
        IBEW         499         1,107              3/01/2000


     The Local 499  members  numbered  above are covered  under  three  separate
contracts based on the location of the Local 499 of which they are a member.

REGULATED ELECTRIC OPERATIONS

     The annual  hourly  peak demand on  MidAmerican's  electric  system  occurs
principally as a result of air  conditioning  use during the cooling season.  In
July 1998,  MidAmerican recorded an hourly peak demand of 3,643 MW, which was 90
MW more than MidAmerican's previous record hourly peak of 3,553 MW set in 1995.

     MidAmerican's  accredited net  generating  capability in the summer of 1998
was 4,425 MW.  Accredited  net  generating  capability  represents the amount of
generation  available to meet the requirements on  MidAmerican's  energy system,
net of the  effect  of  participation  purchases  and  sales,  and  consists  of
Company-owned  generation and power  purchased  under a long-term power purchase
contract.  The  net  generating  capability  at  any  time  may be  less  due to
regulatory   restrictions,   fuel   restrictions   and  generating  units  being
temporarily   out  of  service  for   inspection,   maintenance,   refueling  or
modifications.  Refer to Item 2,  Properties,  for detail of the  accredited net
generating capability for the summer of 1998.

     MidAmerican is interconnected  with certain Iowa and neighboring  utilities
and is involved in an electric power pooling  agreement known as MAPP. MAPP is a
voluntary  association of electric utilities doing business in Iowa,  Minnesota,
Nebraska and North Dakota and portions of  Illinois,  Missouri,  Montana,  South
Dakota and Wisconsin and the Canadian  provinces of  Saskatchewan  and Manitoba.
Its  membership  also  

                                     -9-

<PAGE>
includes power marketers,  regulatory  agencies and independent power producers.
MAPP  facilitates  operation of the transmission  system,  serves as a power and
energy market  clearing house and is responsible  for the safety and reliability
of the bulk electric system.

 
     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 would be contractually  imposed by MAPP.  MidAmerican's reserve margin
for 1998 was approximately 20%.

     MidAmerican'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's  transmission system is unconstrained and has adequate capacity to
deliver  energy to  MidAmerican's  distribution  system and to export and import
energy with other interconnected systems. As energy markets open to competition,
MidAmerican  believes its  interconnections  and central  location  will provide
valuable opportunities to serve other markets. Refer to Item 2, Properties,  for
detail of transmission lines.

Fuel Supply for Electric Operations
-----------------------------------

     MidAmerican's  sources of fuel for electric  generation were as follows for
the periods shown:

                             Year Ended December 31,
                         1998         1997         1996 
                         ----         ----         ---- 

     Coal                79.2%        76.3%        75.6%
     Nuclear*            19.5         23.0         23.9
     Gas                  1.1          0.6          0.4
     Oil                  0.2          0.1          0.1
                        -----        -----        -----
       Total            100.0%       100.0%       100.0%
                        =====        =====        =====

     *Nuclear includes  generation  purchased through a long-term power purchase
agreement  with NPPD.  Refer to Item 2,  Properties,  for  detail of  generating
facilities.

     Prior to July 1997,  MidAmerican  was allowed to recover  its energy  costs
from most of its electric  utility  customers  through  EACs.  Beginning in July
1997,  the Iowa EAC was  eliminated as part of the Iowa pricing plan approved by
the IUB.  Accordingly, fluctuations in energy costs now may affect MidAmerican's
earnings. 

     All of the  coal-fired  generating  stations  operated by  MidAmerican  are
fueled  primarily by low-sulfur,  western coal from the Powder River Basin.  The
use of low-sulfur western coal enables  MidAmerican to comply with the acid rain
provisions of the CAAA without  having to install  additional  costly  emissions
control  equipment  at  its  generating  stations.   MidAmerican's  coal  supply
portfolio includes multiple suppliers and mines under agreements of varying term
and quantity  flexibility.  During 1998  approximately 65% of MidAmerican's coal
purchases were made under spot coal purchase agreements.  MidAmerican  regularly
monitors the western coal market,  looking for opportunities to improve its coal
supply portfolio.  MidAmerican  believes its sources of coal supply are and will
continue to be satisfactory. Additional information regarding MidAmerican's coal
supply  contracts is included in Note (4)(g) of Notes to Consolidated  Financial
Statements in Part IV, Item 14, of this Form 10-K.

                                      -10-
<PAGE>

     MidAmerican  uses both the Union Pacific  Railroad (UP) and the  Burlington
Northern and Santa Fe Railway (BNSF) as originating  carriers of its coal supply
in order to achieve  transportation  diversity and  competitive  rates.  Coal is
delivered directly to MidAmerican's Neal Energy Center and Council Bluffs Energy
Center  (CBEC)  by the UP and the  BNSF,  respectively.  Coal for  MidAmerican's
Louisa and Riverside Energy Centers is delivered to an interchange  point by the
BNSF for  transportation  to its  destination by the I&M Rail Link.  Competitive
rail access is available to CBEC and to the interchange  point for deliveries to
Louisa  and   Riverside   Energy   Centers.   MidAmerican   believes   its  coal
transportation arrangements are adequate to meet its coal delivery needs.

     While coal deliveries to certain of MidAmerican's  generating stations were
adversely affected by the UP's nationwide operational problems in 1997 and early
1998,  MidAmerican  believes its coal inventories are adequate to meet its needs
at expected generation levels.

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

     MidAmerican is a 25% joint owner of Quad Cities  Station.  MidAmerican  has
been advised by ComEd, the joint owner and operator of Quad Cities Station, that
the majority of its uranium concentrate and uranium conversion  requirements for
Quad Cities Station for 1999 can be met under existing  supplies or commitments.
ComEd  foresees  no problem  in  obtaining  the  remaining  requirements  now or
obtaining  future  requirements.  ComEd  further  advises  that  all  enrichment
requirements have been contracted through 2004. Commitments for fuel fabrication
have been obtained at least through 2001. ComEd 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.

     MidAmerican  purchases one-half of the power and energy of Cooper through a
long-term power purchase  contract with NPPD.  Approximately  30% of the fuel in
the core at Cooper must be replaced every 18 months. The next refueling cycle is
currently  scheduled to begin in March 2000. NPPD has informed  MidAmerican that
it either has sufficient  materials and services  available to meet  foreseeable
Cooper  requirements  or that such materials and services are readily  available
from suppliers.

     Under the NWPA, the DOE is responsible for the selection and development of
repositories  for,  and the  permanent  disposal  of,  spent  nuclear  fuel  and
high-level  radioactive  wastes.  ComEd and NPPD, as required by the NWPA,  each
signed a contract with the DOE to provide for the disposal of spent nuclear fuel
and high-level  radioactive waste beginning not later than January 1998. The DOE
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 DOE for disposal activities are being financed by fees charged to owners and
generators of the waste.  ComEd has informed  MidAmerican  that there is on-site
storage  capability at the Quad Cities Station sufficient to permit such interim
storage at least  through  2006.  NPPD has  informed  MidAmerican  that there is
on-site storage  capability at Cooper  sufficient to permit such interim storage
at least  through  2004,  the remaining  term of the  long-term  power  purchase
contract. Meeting spent nuclear fuel storage requirements beyond such time could
require  modifications  to the  spent  fuel  storage  pools or new and  separate
storage  facilities.  Industry  activities are underway to utilize dry casks for
the  interim  storage  of  high-level  radioactive  waste.  This may  provide an
alternative for interim on-site storage of such waste.

                                      -11-
<PAGE>

REGULATED NATURAL GAS OPERATIONS

     MidAmerican  is engaged in the  procurement,  transportation,  storage  and
distribution  of natural gas for utility and end-use  customers  in the Midwest.
MidAmerican purchases natural gas from various suppliers, transports it from the
production  area  to  MidAmerican'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's distribution system.

     MidAmerican  also transports  through its  distribution  system natural gas
purchased  independently  by  a  number  of  end-use  customers.   During  1998,
approximately  42% of total gas  delivered on MidAmerican's system was under gas
transportation service.

     On October 30, 1998,  MidAmerican filed a Small Volume  Transportation Plan
with the IUB to unbundle service for its small volume customers. Under the plan,
which is subject to IUB approval,  all of MidAmerican's small volume natural gas
customers in Iowa, including residential  customers,  would be allowed to choose
their own  natural gas  supplier/marketer  beginning  May 1, 2000.  Refer to the
OPERATING  ACTIVITIES  AND OTHER MATTERS  section of MD&A in Part VI, Item 14 of
this Form 10-K for more information.

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

     MidAmerican   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  has rights to firm  pipeline  capacity to transport gas to its
service  territory  through direct  interconnects to the NNG, NGPL, NBPL and ANR
pipeline  systems.  Firm  capacity  in excess  of  MidAmerican's  system  needs,
resulting from  differences  between the capacity  portfolio and seasonal system
demand, can be resold to other companies to achieve optimum use of the available
capacity.  Past IUB  rulings  have  allowed  MidAmerican  to retain  30% of Iowa
margins earned on the resold capacity,  with the remaining 70% being returned to
customers through the purchased gas adjustment clause.

     MidAmerican's cost of gas is recovered from customers through purchased gas
adjustment clauses. In 1995, the IUB approved MidAmerican's Incentive Gas Supply
Procurement Program for a three-year test period which expired in November 1998.
MidAmerican has filed with the IUB to continue this program.  Under the program,
MidAmerican  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's
cost of gas for the period is lessor greater than an established  tolerance band
around the reference price, then MidAmerican  shares a portion of the savings or
cost with customers.  Since the  implementation of the program,  MidAmerican has
successfully achieved and shared in savings for its natural gas customers.

     MidAmerican  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 also
utilizes three liquefied  natural gas plants and two propane-air  plants to meet
peak day demands.

                                      -12-

<PAGE>
     On  February 2, 1996,  MidAmerican  had its  highest  peak-day  delivery of
1,143,026  MMBtus.   This  peak-day  delivery  consisted  of  approximately  88%
traditional sales service and 12% transportation  service of customer-owned gas.
MidAmerican's  1998/99  winter  heating  season  peak-day  delivery of 1,119,838
MMBtus  was  reached  on  January  4,  1999.  This  peak-day  delivery  included
approximately 78% traditional sales service and 22% transportation service.

     The supply sources  utilized by  MidAmerican  to meet its 1998/99 peak-day
deliveries to its sales service customers were:

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

     Leased Storage and Peak Shaving Plants          420.1          48.3%
     Firm Supply                                     449.2          51.7
                                                     -----         -----
     Total                                           869.3         100.0%
                                                     =====         =====

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

     MidAmerican 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's  nonregulated  operations  include  a variety  of  activities
outside of the  traditional  regulated  electric and gas  services.  Some of the
activities included in nonregulated operations have previously been reflected in
Non-Operating Income on the Company's  Consolidated  Statements of Income. Refer
to Note 1(b) of Notes to Consolidated  Financial  Statements in Part IV, Item 14
of this Form 10-K.  Additionally,  MidAmerican  has initiated new  activities in
preparation for a competitive electric utility industry.

     A  majority  of  MidAmerican's  nonregulated  revenue is  generated  by its
nonregulated  natural gas  marketing  services.  MidAmerican  purchases gas from
producers  and  third  party  marketers  and sells it to  wholesalers  and large
end-users.   Beginning  in  May  1998,   contracts   previously  serviced  by  a
nonregulated subsidiary of MHC were renewed as MidAmerican contracts, creating a
significant   increase  in  these   operations  at  MidAmerican.   In  addition,
MidAmerican manages gas supplies for a number of small commercial  end-users and
sells these customers gas to meet their supply  requirements.  Sales volumes for
these nonregulated gas marketing services totaled 39 million MMBtu's, 21 million
MMBtu's and 14 million MMBtu's for 1998, 1997 and 1996, respectively.

                                      -13-
<PAGE>

     Nonregulated  revenues of  MidAmerican  also  include  awards  received for
successful performance under its Incentive Gas Supply Procurement Plan discussed
in the REGULATED NATURAL GAS OPERATIONS section.

     As the  utility  industry  progresses  toward  a  competitive  marketplace,
MidAmerican is researching  and developing  additional  services and products to
offer customers.  Although many of the products and services are not ready to be
marketed,  MidAmerican is now offering several. For example,  MidAmerican offers
an Extended Service Protection  Program that provides  coordination and coverage
of maintenance services for home appliances. It is anticipated that customers in
the competitive  environment  will want more than the traditional  services from
their  energy  provider, and MidAmerican expects to seek ways to satisfy these
customer desires.

CONSTRUCTION PROGRAM

     The table below shows  actual  utility  capital  expenditures  for 1998 and
budgeted utility expenditures for 1999.


                                              1998              1999
                                             Actual            Budgeted
                                            ---------          ---------
                                                   (In thousands)
        Electric Property
          Production                        $ 15,968           $ 30,996
          Transmission                        23,396             30,180
          Distribution                        50,281             47,149
        Gas                                   29,618             29,686
        Information Technology
          and Other                           66,552             47,185
                                            ---------          ---------
          Subtotal                           185,815            185,196
        Quad Cities Fuel                       7,539              9,100
                                            --------           --------
          Total                             $193,354           $194,296
                                            ========           ========

     The  amounts   shown  above   include   allowance  for  funds  used  during
construction.  Of the $31.0 million of budgeted electric production expenditures
for 1999,  $6.5  million is for  expenditures  at the Quad  Cities  Station.  In
addition to the expenditures  shown above,  MidAmerican  contributes to external
trusts for Quad Cities Station nuclear  decommissioning.  Refer to the INVESTING
ACTIVITIES  AND PLANS  section  of MD&A,  under  "Nuclear  Decommissioning"  for
further discussion.

REGULATION

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

     MidAmerican 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 FERC in regard to numerous activities,  including
the issuance of securities,  accounting policies and practices, sales for resale
rates,  the  establishment  and  regulation  of  electric  interconnections  and
transmission services and replacement of certain gas utility property.

     MidAmerican is regulated by the ICC as to retail rates, services, accounts,
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  is regulated by the
IUB as to retail rates, services, accounts, construction of utility property and
in other respects as provided by the laws of Iowa.

  
                                      -14-
<PAGE>


MidAmerican  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.
Information  regarding  MidAmerican's 1997 rate settlement for its Iowa electric
rates is included under the caption "Rate  Matters" in the OPERATING  ACTIVITIES
AND  OTHER  MATTERS  section  of MD&A in Part  IV,  Item 14 of this  Form  10-K.
MidAmerican's  cost of gas is reflected  in its Iowa gas rates  through the Iowa
Uniform Purchased Gas Adjustment Clause.

     South  Dakota law  authorizes  the SDPUC 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 be put into effect by MidAmerican 45 days
after  filing  with the ICC,  or on such  earlier  date as the ICC may  approve,
subject to the power of the ICC to suspend the  proposed  new rates for a period
not to exceed  eleven  months after filing,  pending a hearing.  Under  Illinois
electric tariffs,  MidAmerican'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's  cost of gas is  reflected  in its  Illinois gas rates
through the Illinois Uniform Purchased Gas Adjustment Clause.

     In  December  1997,  Illinois  enacted a new 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 new 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 depreciation cost recovery.

     Refer to the  information  under the caption  "Legislative  and  Regulatory
Evolution" in the OPERATING ACTIVITIES AND OTHER MATTERS section of MD&A in Part
IV, Item 14 of this Form 10-K for  additional  discussion  of matters  affecting
utility regulation.

     Iowa law requires  electric  and gas  utilities to spend a portion of their
annual Iowa  jurisdictional  revenues on energy  efficiency  programs.  Rules no
longer specify mandatory  spending levels;  however,  electric and gas utilities
previously were required to spend approximately 2.0% and 1.5%, respectively,  of
their annual Iowa jurisdictional revenues.  Utilities are allowed to recover the
cost of energy efficiency programs from their customers,  subject to IUB review.
MidAmerican is recovering its historical energy efficiency  program costs, which
were  deferred  until  recovery  in  accordance  with  prior  energy  efficiency
regulations.  MidAmerican  is also  recovering  the current costs of its ongoing
energy efficiency programs. Refer to the 

                                      -15-
<PAGE>
discussion  under  "Energy  Efficiency"  in the OPERATING  ACTIVITIES  AND OTHER
MATTERS section of MD&A in Part IV, Item 14 of this Form 10-K.

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

     MidAmerican is subject to the  jurisdiction  of the NRC with respect to its
license and 25% ownership  interest in Quad Cities  Station Units 1 and 2. ComEd
is  the  operator  of  the  Quad  Cities  Station  and is  under  contract  with
MidAmerican  to  secure  and keep in  effect  all  necessary  NRC  licenses  and
authorizations.

     Under  the  terms  of  a  long-term  power  purchase  contract  with  NPPD,
MidAmerican has contracted to purchase through  September 21, 2004,  one-half of
the power and energy from Cooper,  which is located near  Brownville,  Nebraska.
MidAmerican  pays for  one-half  of the  fixed  and  operating  costs of  Cooper
(excluding  depreciation but including debt service) and MidAmerican's  share of
fuel costs (including  disposal costs) based upon energy delivered.  MidAmerican
is not  subject to the  jurisdiction  of the NRC with  respect to Cooper and the
long-term power purchase  contract with NPPD. NPPD, as the sole owner,  licensee
and operator of Cooper,  is thereby the only entity subject to the  jurisdiction
of the NRC with  respect  to  Cooper.  Under  the terms of the  long-term  power
purchase contract,  NPPD is required to assure that Cooper is in compliance with
all of the NRC regulations.

     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.  ComEd and NPPD have advised MidAmerican
that  emergency  preparedness  plans for the Quad  Cities  Station  and  Cooper,
respectively,  have been  approved by the NRC.  ComEd and NPPD have also advised
MidAmerican  that state and local plans  relating to the Quad Cities Station and
Cooper,  respectively,  have been approved by the Federal  Emergency  Management
Agency.

     In January 1998, ComEd was informed by the NRC that the performance of Quad
Cities Station was trending adversely.  During outages to address certain safety
issues  at  Units  1 and 2 in the  first  five  months  of  1998,  ComEd  worked
extensively  with the NRC regarding  its concerns.  In a July 1998 meeting ComEd
was  informed  by the NRC that while the adverse  trend at Quad  Cities  Station
appears  to have been  stopped,  the  operating  time of the units  since  their
restarts  in May and  June 1998 was not yet  sufficient  for the NRC to make a
final  determination of the trend status of Quad Cities Station.  The NRC senior
managers are scheduled to meet again in April 1999 and are scheduled to consider
the performance of nuclear power plants, including Quad Cities Station.

     In  June  1988,   the  NRC  adopted   regulations   with   respect  to  the
decommissioning  of nuclear power plants.  In 1996, the NRC enacted revisions to
provide clarification of these regulations.  Among other things, the regulations
and amendments address the planning and funding for the eventual decommissioning
of nuclear power plants. In response to these regulations, MidAmerican submitted
a report to the NRC in July 1990  indicating  that it will  provide  "reasonable
assurance" that funds will be available to pay the costs of decommissioning  its
share of the Quad Cities  Station.  NPPD has advised  MidAmerican  that a report
addressing decommissioning funding for Cooper has been submitted and approved by
the NRC.

                                      -16-
<PAGE>

     MidAmerican  has  established  external  trusts for the investment of funds
collected for nuclear decommissioning  associated with Quad Cities Station. NPPD
maintains an internal  account and an external trust for  decommissioning  funds
associated  with  Cooper.  MidAmerican  makes  contributions  to NPPD related to
decommissioning and reflects those contributions in MidAmerican's power purchase
costs.  Electric  tariffs  currently  in effect  include  provisions  for annual
decommissioning  costs at Quad Cities Station and Cooper.  In Illinois,  nuclear
decommissioning costs are included in customer billings through a mechanism that
permits  annual  adjustments.  In Iowa,  such costs are reflected in base rates.
MidAmerican's cost related to decommissioning funding in 1998 was $19.3 million.
Refer to "Cooper  Litigation"  under LEGAL PROCEEDINGS in Part I, Item 3 of this
form 10-K for  discussion of a proceeding  related to the Cooper power  purchase
agreement.

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

     MidAmerican is subject to numerous legislative and regulatory environmental
protection  requirements  involving air and water pollution,  waste  management,
hazardous  chemical  use,  noise  abatement,  land  use  aesthetics  and  atomic
radiation.

     State and federal  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 certain of  MidAmerican's
existing facilities, (iv) increasing the risk of delay on construction projects,
(v) increasing  MidAmerican's  cost of waste disposal and (vi) possibly reducing
the  reliability  of service  provided by  MidAmerican  and the amount of energy
available  from  MidAmerican's  facilities.  Any  of  such  items  could  have a
substantial  impact on amounts  required to be expended  by  MidAmerican  in the
future.

     Air Quality -

     The CAAA  was  signed  into law in  November  1990.  MidAmerican  has five
jointly owned and six wholly owned coal-fired  generating units, which represent
approximately 65% of MidAmerican's electric generating  capability.  Essentially
all utility  generating  units are subject to the  provisions  of the CAAA which
address  continuous  emissions  monitoring,  permit  requirements  and  fees and
emissions of certain substances. Under current regulations, MidAmerican does not
anticipate its construction  costs for the installation of emissions  monitoring
system upgrades through 2000 to be material. MidAmerican's generating units meet
all Title IV CAAA requirements through 2007. Title IV of the CAAA, 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.

     Refer to the discussion  under the caption  "Environmental  Matters" in the
OPERATING  ACTIVITIES AND OTHER MATTERS  section of MD&A in Part IV, Item 14, of
this Form 10-K for additional information regarding air quality regulation.

     Water Quality -

     Under the Federal  Water  Pollution  Control  Act  Amendments  of 1972, as
amended,  MidAmerican is required to obtain NPDES permits to discharge effluents
(including thermal  discharges) from its properties into various waterways.  All
NPDES permits are subject to renewal after  specified time periods not to exceed
five  years.  MidAmerican  has  obtained  all  necessary  NPDES  permits for its
generating stations,  and when such permits are expected to expire,  MidAmerican
will file applications for renewal.

                                      -17-
<PAGE>


     Hazardous Materials and Waste Management -

     The EPA and state environmental  agencies have determined that contaminated
wastes remaining at certain  decommissioned  MGP 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 is evaluating 27 properties  which were, at one time,  sites of
MGP facilities in which it may be a potentially responsible party. MidAmerican's
present  estimate of probable  remediation  costs of these sites is $24 million.
The ICC has  approved the use of a tariff  rider which  permits  recovery of the
actual costs of litigation, investigation and remediation relating to former MGP
sites.  MidAmerican's  present rates in Iowa provide for a fixed annual recovery
of MGP costs.

     Additional information relating to the Company's MGP facilities is included
under Note(4)(b) in Notes to Consolidated  Financial Statements in Part IV, Item
14 of this Form 10-K.

     Pursuant to the Toxic Substances Control Act, a federal law administered by
the EPA,  MidAmerican  developed a comprehensive  program for the use, handling,
control and disposal of all 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'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.

     Other -

     A number of studies have examined the possibility of adverse health effects
from EMFs without conclusive results.  EMFs are produced by all devices carrying
or using  electricity,  including  transmission and distribution  lines and home
appliances.  MidAmerican  cannot  predict  the effect on  construction  costs of
electric  utility  facilities or operating costs if EMF  regulations  were to be
adopted.  Although  MidAmerican is not the subject of any suit  involving  EMFs,
litigation  has been  filed in a number of  jurisdictions  against a variety  of
defendants  alleging  that  EMFs  had an  adverse  effect  on  health.  If  such
litigation  were  successful,  the  impact on  MidAmerican  and on the  electric
utility industry in general could be material.

     In  December  1997,  negotiators  from more than 150  nations met in Kyoto,
Japan to negotiate an international agreement designed to address global climate
change impacts by attempting to reduce so-called greenhouse gas emissions.  Some
scientists contend that these gases build up in the Earth's atmosphere and cause
global  temperatures  to rise. The primary  target of these  emissions is carbon
dioxide (CO2) which is formed by, among other things,  the  combustion of fossil
fuels.  The  agreement  currently  calls for the  United  States  to reduce  its
emissions of CO2 and other  greenhouse  gases to 7 percent  below 1990 levels in
the 2008-2012 time frame.  The United States became a signatory to the agreement
on November 12,  1998.  In order for the  agreement  to become  binding upon the
United  States,  ratification  by the  U.S.  Senate  is  necessary.  The cost to
MidAmerican of reducing its CO2 emissions  levels by 7 percent below 1990 levels
would depend on available technology at the time, but could be material.

     In accordance with the requirements of Section 112 of the CAAA, the EPA has
performed  a study of the hazards to public  health  reasonably  anticipated  to
occur as a result of emissions of hazardous  air  pollutants  (HAPs) by electric
utility steam generating units. In February 1998, EPA issued its Final Report to
Congress,  indicating that mercury is the HAP of greatest potential concern from
coal-fired  generating  units and that  additional  research and  monitoring are
necessary.  As such the EPA has issued a request  under  Section 114 of the CAAA
requiring all electric utilities to provide  information that will allow the EPA
to calculate the annual mercury  emissions from each coal-fired  generating unit
for the calendar year 1999. This information  

                                      -18-

<PAGE>

will be used to assist  the EPA in  determining  whether it is  appropriate and
necessary to regulate mercury  emissions from coal-fired  generating  units. The
cost to MidAmerican of reducing its mercury  emissions would depend on available
technology at the time, but could be material.

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

     MidAmerican'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 distribution plant,
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  are in good  operating  condition  and  well
maintained.

                                      -19-
<PAGE>


     The net  accredited  generating  capacity  of  MidAmerican, along with the
participation  purchases and sales,  net, and firm purchases and sales, net, are
shown for summer 1998 accreditation.

                                                                 Company's Share
                                                                 of Accredited 
                                                Percent            Generating
   Plant                                       Ownership  Fuel   Capability (MW)
   ----------------------------------          --------- ------  ---------------
   Steam Electric Generating Plants:
     Council Bluffs Energy Center
        Unit No. 1                                100.0    Coal           43
        Unit No. 2                                100.0    Coal           88
        Unit No. 3                                 79.1    Coal          534
     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          253
     Louisa Unit                                   88.0    Coal          616
     Ottumwa Unit                                  52.0    Coal          372
     Riverside Station
        Unit No. 3                                100.0    Coal            5
        Unit No. 5                                100.0    Coal          130
                                                                       -----
                                                                       2,847
                                                                       -----
   Combustion Turbines:
     Coralville - 4 units                         100.0    Gas/Oil        64
     Electrifarm - 3 units                        100.0    Gas/Oil       191
     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           148
     River Hills Energy Center - 8 units          100.0    Gas/Oil       116
     Sycamore Energy Center - 2 units             100.0    Gas/Oil       149
                                                                       -----
                                                                         764
                                                                       -----
   Nuclear:
     Cooper (1)                                     (1)    Nuclear       385
     Quad-Cities Station
        Unit No. 1                                 25.0    Nuclear       192
        Unit No. 2                                 25.0    Nuclear       190
                                                                       -----
                                                                         767
                                                                       -----
   Hydro:
     Moline - 4 units                             100.0    Water           3
                                                                       -----

   Net Accredited Generating Capacity                                  4,381

   Participation Purchases and Sales, Net                                 44
                                                                       -----
   Total Net Accredited Generating Capability                          4,425

   Firm Purchases and Sales, Net                                         (50)
                                                                       -----
   Adjusted Net Accredited Generating Capability                       4,375
                                                                       =====

(1)  Cooper  is  owned  by NPPD and the  amount  shown is  MidAmerican's
     entitlement  (50%) of Cooper's  accredited  capacity  under a power
     purchase agreement extending to the year 2004.

                                      -20-
<PAGE>


     The  electric  transmission  system of  MidAmerican  at December 31, 1998,
included 896 miles of 345-kV lines,  1,294 miles of 161-kV lines, 1,796 miles of
69-kV lines and 219 miles of 34.5-kV lines.

     The gas  distribution  facilities  of  MidAmerican  at December  31,  1998,
included 19,428 miles of gas mains and services.

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

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

     The Company and its subsidiaries have no material legal proceedings except
for the following:

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

     Information on the Company's  environmental matters is included in Item 1 -
Business  and under the Note  "Environmental  Matters" in Notes to  Consolidated
Financial Statements in Part IV, Item 14 of this Form 10-K.

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

     On July 23, 1997,  NPPD filed a Complaint,  in the United  States  District
Court for the District of Nebraska,  naming  MidAmerican  as the  defendant  and
seeking  declaratory  judgment as to three issues  under the parties'  long-term
power purchase agreement for Cooper capacity and energy. More specifically, NPPD
seeks a declaratory judgment in the following respects:  (1) that MidAmerican is
obligated to pay 50% of all costs and expenses  associated with  decommissioning
Cooper,  and that in the event NPPD continues to operate Cooper after expiration
of the power purchase agreement (September 2004), MidAmerican is not entitled to
reimbursement  of any  decommissioning  funds it has paid to date or will pay in
the future; (2) that the current method of allocating transition costs as a part
of the decommissioning  cost is proper under the power purchase  agreement;  and
(3) that the current method of investing  decommissioning  funds is proper under
the power purchase agreement.

     MidAmerican filed its answer and contingent  counterclaims.  The contingent
counterclaims   filed  by  MidAmerican  are  generally  as  follows:   (1)  that
MidAmerican  has no duty under the power purchase  agreement to reimburse or pay
50% of the decommissioning  costs unless certain conditions occur; (2) that NPPD
has  the  duty  to  repay  all  amounts  that   MidAmerican  has  prefunded  for
decommissioning in the event NPPD operates the plant after the term of the power
purchase  agreement;  (3) that NPPD is equitably  estopped  from  continuing  to
operate the plant after the term of the power purchase agreement;  (4) that NPPD
has granted  MidAmerican an option to continue  taking 50% of the power from the
plant;  (5) that the term "monthly power costs" as defined in the power purchase
agreement does not include costs and expenses  associated  with  decommissioning
the  plant;  (6)  that  MidAmerican  has no duty to pay for  nuclear  fuel,  O&M
projects or capital  improvements  that have useful  lives after the term of the
power  purchase  agreement;  (7) that  transition  costs are not included in any
decommissioning  costs  and  expenses;  (8) that NPPD has  breached  its duty to
MidAmerican in making investments of certain funds; (9) that reserves in certain
accounts are excessive and should be refunded to MidAmerican; and (10) that NPPD
must credit  MidAmerican  for  certain  payments by  MidAmerican  for  low-level
radioactive waste disposal.

                                      -21-
<PAGE>

     MidAmerican and NPPD are currently involved in discovery. The trial in this
case is  presently  scheduled  for  November  1999.  MidAmerican  is  vigorously
defending and pursuing its interest in this proceeding.

North Star Steel Company
------------------------

     On December 8, 1997,  North Star Steel Company (NSS), a retail  MidAmerican
electric customer, filed a Complaint in the United States District Court for the
Southern  District  of  Iowa  naming  MHC and  MidAmerican  as  defendants.  The
Complaint  alleges  that  MidAmerican's  refusal  to allow NSS to obtain  retail
electric  service from an unspecified  alternative  energy company  amounts to a
violation of federal  antitrust laws. NSS sought to recover an unspecified level
of damages,  and to require  MidAmerican to provide retail  wheeling  service so
that NSS could obtain  electricity from an unnamed  supplier.  On June 23, 1998,
the  District  Court  issued  an Order  Granting  Summary  Judgment  in favor of
MidAmerican.  On July 20, 1998,  NSS appealed that decision to the United States
Court of Appeals for the Eighth Circuit. That appeal is currently pending.

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

None.

                                     PART II

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

     MidAmerican's  outstanding  common stock is held entirely by MHC and is not
publicly  traded.  Cash dividends  declared on common stock of  MidAmerican  are
shown in the table below (in thousands).


                                      1998              1997  
                                    --------          --------

           4th Quarter               $33,500           $29,000
           3rd Quarter                33,500            20,000
           2nd Quarter                28,600            40,000
           1st Quarter                28,600            31,500

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

     Reference is made to Part IV of this report.

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

         Reference is made to Part IV of this report.

                                     -22-

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

     MidAmerican  is exposed  to market  risk,  including  changes in the market
price of certain  commodities.  To manage the price volatility relating to these
exposures,  MidAmerican enters into various financial derivative instruments.  A
Risk  Management  Committee of senior  officers  governs the overall  direction,
structure,  conduct and control of the  Company's  risk  management  activities,
including the use of financial derivative  instruments.  Responsibilities of the
Risk  Management  Committee  include  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  uses  hedge  accounting  for   commodity-related   instruments
pertaining to its natural gas  purchasing  operations.  MidAmerican  changed the
method of reporting  market risk from the tabular  presentation  in the previous
year to the sensitivity analysis method in the current period to provide readers
with an estimate of impacts on net income or fair value where appropriate.

COMMODITY PRICE RISK

     Regulated Natural Gas Operations-

     Under the current regulatory  framework,  MidAmerican is allowed to recover
in  revenues  the cost of gas sold  from  most of its  regulated  gas  customers
through  a  purchased  gas   adjustment   clause  (PGA).   MidAmerican   derived
approximately  94% of its regulated  gas revenues  from such  customers in 1998.
Since the majority of MidAmerican's  firm natural gas supply  contracts  contain
pricing  provisions  based on a daily or  monthly  market  index,  MidAmerican's
regulated gas customers,  although  ensured of the availability of gas supplies,
retain the risk associated with market price volatility.

     MidAmerican enters into natural gas futures and swap agreements to mitigate
a portion of the market risk retained by its regulated gas customers through the
PGA. These  financial  derivative  activities  are recorded as hedge  accounting
transactions,  with net amounts  exchanged or accrued under swap  agreements and
realized gains or losses on futures  contracts  included in the cost of gas sold
and recovered in revenues from  regulated gas  customers.  At December 31, 1998,
MidAmerican had entered into the following financial derivative  instruments for
regulated operations:

Futures Contracts:

     Net Contract Volumes- Long (Short)                      (240,000) MMBtu
     Unrealized Gain (Loss) at 12/31/98 (in thousands)        ($1,843)

Swap Contracts:
     Contract Volumes                                       7,200,000 MMBtu
     Unrealized Gain (Loss) at 12/31/98 (in thousands)           $225

     A $0.05 increase in underlying natural gas prices would increase unrealized
losses  on the  above  futures  contracts  by  approximately  $12,000  and would
increase unrealized gains on the above swap contracts by approximately $360,000.

                                      -23-
<PAGE>


     Nonregulated Natural Gas Operations-

     MidAmerican also derives revenues from  nonregulated  sales of natural gas.
Pricing  provisions are  individually  negotiated  with these  customers and may
include  fixed  prices  or  prices  based on a daily or  monthly  market  index.
MidAmerican  enters into natural gas futures and swap  agreements  to offset the
financial  impact of  variations  in natural gas  commodity  prices for physical
delivery to nonregulated  customers.  These financial derivative  activities are
recorded as hedge accounting transactions, with net amounts exchanged or accrued
under swap agreements and realized gains or losses on futures contracts included
in the cost of gas sold. At December 31, 1998,  MidAmerican had entered into the
following financial derivative instruments for nonregulated operations:

Futures Contracts:
     Net Contract Volumes- Long (Short)                      (110,000) MMBtu
     Unrealized Gain (Loss) at 12/31/98 (in thousands)            $28

Swap Contracts:
     Contract Volumes                                        9,122,181 MMBtu
     Unrealized Gain (Loss) at 12/31/98 (in thousands)         $(3,121)

     A $0.05 increase in underlying natural gas prices would decrease unrealized
gains on the above futures contracts by approximately  $6,000 and would decrease
unrealized  losses  on the  above  swap  contracts  by  approximately  $456,000.
Unrealized  gains  and  losses  on  financial   derivatives   entered  into  for
nonregulated  operations have little ultimate impact on  MidAmerican's  earnings
and cash flow as these  amounts  are  offset  by  corresponding  changes  in the
theoretical  value of underlying  contracts for physical delivery of natural gas
to nonregulated customers.

    1997 Total Natural Gas Operations-

     At December 31, 1997,  MidAmerican had entered into the following financial
derivative instruments for natural gas operations:

Futures Contracts:
     Net Contract Volumes- Long(Short)                       2,000,000 MMBtu
     Unrealized Gain (Loss) at 12/31/97 (in thousands)           $(386)

Swap Contracts:
     Contract Volumes                                        6,968,807 MMBtu
     Unrealized Gain (Loss) at 12/31/97 (in thousands)           $(885)


                                      -24-
<PAGE>

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

         Reference is made to Part IV of this report.

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

     As a result of the merger  transaction  with  CalEnergy  on March 12, 1999,
Deloitte & Touche LLP will be  MidAmerican's  new  independent  accountants  for
accounting  periods  subsequent to the fiscal year ended  December 31, 1998. For
further details, refer to MidAmerican's Form 8-K filed on March 12, 1999.

                                    PART III

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

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

(A)  IDENTIFICATION
                                                       Served in      Served as
                             Present                    Present        Director
Name                   Age   Position                Position Since     Since
----                   ---   --------                --------------   ---------


David L. Sokol          42   Chairman and Director         1999         1999

Gregory E. Abel         36   Chief Executive Officer
                               and Director                1999         1999

Ronald W. Stepien       52   President and Director        1999         1996

Wayne O. Smith          55   Executive Vice President
                               and Director                1997         1997

Jack L. Alexander       51   Senior Vice President         1998

David J. Levy           44   Senior Vice President         1996

John A. Rasmussen, Jr.  53   Senior Vice President
                                and General Counsel        1996

Alan L. Wells           39   Senior Vice President and
                               Chief Financial Officer     1997

Beverly A. Wharton      45   Senior Vice President         1996

     Officers  are  elected  annually  by the Board of  Directors.  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.

                                      -25-
<PAGE>


(B) BUSINESS EXPERIENCE

DAVID L. SOKOL

     Chairman  of  MidAmerican  since  March  1999.  Mr.  Sokol was  Chairman of
CalEnergy from May 1994 to March 1999 and Chief Executive  Officer of CalEnergy
from April 1993 to March 1999.

GREGORY E. ABEL

     Chief  Executive  Officer of MidAmerican  since March 1999. Mr. Abel joined
CalEnergy in 1992. At CalEnergy he held various  executive  positions  including
responsibility   for   engineering,   construction,   accounting   and   various
administrative functions.

RONALD W. STEPIEN

     President of MidAmerican  since November 1, 1998.  Executive Vice President
of  MidAmerican  from  November  1, 1996,  to October 31,  1998,  and Group Vice
President from 1995 to November 1, 1996. Vice President of Iowa-Illinois from
1990 to 1995.

WAYNE O. SMITH

     Executive Vice President of MidAmerican since September 1, 1997.  Executive
Vice President and President and Chief Operating  Officer - Specialty  Chemicals
at B. F. Goodrich Company from 1994 to 1997.

JACK L. ALEXANDER

     Senior Vice President of MidAmerican since November 1, 1998. Vice President
of MidAmerican from November 1, 1996, to October 31, 1998, and various executive
and management positions with MidAmerican and Midwest for more than five years 
prior thereto.

DAVID J. LEVY

     Senior Vice  President  of  MidAmerican  since  November 1, 1996,  and Vice
President from 1995 to November 1, 1996.  Vice President of  Iowa-Illinois  from
1993 to 1995.

                                      -26-

<PAGE>


JOHN A. RASMUSSEN, JR.

     Senior Vice President and General Counsel of MidAmerican  since November 1,
1996,  and Group Vice  President  and  General  Counsel  from July 1,  1995,  to
November 1, 1996.  Vice  President  and General  Counsel of Midwest from 1993 to
1995.

ALAN L. WELLS

     Senior Vice  President and Chief  Financial  Officer of  MidAmerican  since
November 1, 1997,  Vice  President  of  MidAmerican  from  November 1, 1996,  to
November  1,  1997,  and  various   executive  and  management   positions  with
MidAmerican  from  July 1, 1995 to  November  1,  1996.  Various  executive  and
management positions with Iowa-Illinois from 1993 to 1995.

BEVERLY A. WHARTON

     Senior Vice President of MidAmerican since November 1, 1996, and President,
Gas Division from 1995 to October 31, 1996. Group Vice President of Midwest from
1992 to 1995. Director of The Security National Bank of Sioux City.

                                      -27-
<PAGE>


 ITEM 11.  EXECUTIVE COMPENSATION

     The  following  table  sets  forth the  compensation  for  services  in all
capacities to MidAmerican and its parent and other  subsidiaries  for the fiscal
years  ended  December  31,  1998,  1997 and 1996 of those  persons who were (i)
during the year ended December 31, 1998, the chief  executive  officer and (ii)
at December 31, 1998, the other four most highly compensated  executive officers
of MidAmerican ("named executive officers").

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                 Annual Compensation                      Long-Term Compensation (4)
                                 -------------------                      --------------------------

                                                                         Awards:
                                                            Other      Securities   Payouts:     All
                                                           Annual      Underlying    LTIP       Other
Name and                            Salary     Bonus    Compensation    Options     Payouts   Compensation
  Principal Position          Year   ($)       ($)(1)       ($)        (#)(2)        ($)        ($)(3)    
--------------------          ----  --------  --------  ------------   ---------    -------   ------------ 

<S>                           <C>    <C>       <C>                        <C>                   <C>   
Stanley J. Bright             1998   562,000   396,875            -       87,500        -       44,622
 Chairman and                 1997   487,000   399,000            -           -         -       35,690
 Chief Executive Officer      1996   443,750         -            -           -         -       28,845

Ronald W. Stepien             1998   318,416   240,233            -       37,700        -       17,240
 President                    1997   260,417   158,859            -            -        -       14,240
                              1996   198,333         -            -       20,000        -       11,136

Wayne O. Smith (5)            1998   270,000   135,093            -       37,700        -       20,191
  Executive Vice              1997   250,000    50,783            -       20,000        -            -
  President

David J. Levy                 1998   220,000   178,685            -       15,000        -       10,127
  Senior Vice President       1997   185,000    88,800            -            -        -        9,305
                              1996   161,667         -            -       40,000        -        8,048

Beverly A. Wharton            1998   262,000   227,154            -       15,000        -        9,405
  Senior Vice President       1997   240,000   129,600            -            -        -        8,990
                              1996   218,333         -            -            -        -        8,050

</TABLE>

                                      -28-

<PAGE>


(1)  Includes retention bonus paid to Messrs.  Stepien and Levy and Mrs. Wharton
     as discussed under the caption "Employment Agreements."

(2)  Consists of options granted pursuant to the 1995 Long-Term Incentive Plan.

(3)  Amounts for 1998 consist of (i)  contributions  by  MidAmerican  to defined
     contribution plans of $6,240 for each of Messrs.  Bright,  Stepien and Levy
     and Mrs.  Wharton,  and $6,143 for Mr. Smith,  and (ii)  $38,382,  $11,000,
     $14,048,  $3,887, and $3,165 for Messrs.  Bright,  Stepien, Smith and Levy,
     and Mrs. Wharton, respectively, for supplemental life insurance.

(4)  As of December 31, 1998, Messrs.  Bright,  Stepien, Smith and Levy and Mrs.
     Wharton held 48,634, 18,210, 13,841, 11,119 and 16,637 restricted shares of
     the pre-merger MHC Common Stock  (Pre-merger  Common Stock),  respectively,
     having a value of $1,307,039,  $489,394,  $371,977, $298,823, and $447,119,
     respectively,  based on the closing  price of  Pre-merger  Common  Stock at
     December 31, 1998. The restricted  stock was granted as performance  shares
     pursuant to the 1995 Long-Term Incentive Plan. At the effective time of the
     merger  transaction  between MHC and CalEnergy,  each outstanding  grant of
     performance  shares  whether or not vested was converted  into the right to
     receive $27.15 in cash, payable to the grantee without interest. Restricted
     stock grantees have the right to vote such shares and receive the dividends
     thereon. See the table of "Long-Term Incentive  Plans-Awards in Last Fiscal
     Year."

(5)  Mr. Smith joined MidAmerican on September 1, 1997.


                        OPTION GRANTS IN LAST FISCAL YEAR

                             Individual Grants(1)
                             --------------------

                   Number of      Percent of
                   Securities    Total Options   Exercise             Grant Date
                   Underlying     Granted to       Price               Present
                   Options         Employees     ($/Share) Expiration   Value
Name              Granted(#)(2)  in Fiscal Year   (2)(3)      Date     ($)(4)
----              -------------  --------------  --------- ---------- ----------

Stanley J. Bright     87,500         31%          25.25    8/13/08      280,875

Ronald W. Stepien     37,700         13%          25.25    8/13/08      121,017

Wayne O. Smith        37,700         13%          25.25    8/13/08      121,017

David J. Levy         15,000          5%          25.25    8/13/08       48,150

Beverly A. Wharton    15,000          5%          25.25    8/13/08       48,150


(1)  The options shown in the foregoing table were granted  pursuant to the 1995
     Long-Term  Incentive Plan. The aggregate  number of shares  attributable to
     the 1998 grants is 289,000.

(2)  On the effective date of the merger transaction  between MHC and CalEnergy,
     each  outstanding   option  ("Original   Option")  to  purchase  shares  of
     Pre-merger Common Stock,  whether or not exercisable or vested, was assumed
     by  Holdings  and  became  an option to  purchase  the  number of shares of
     Holdings Common Stock (a"Substitute  Option") equal to the number of shares
     of Pre-merger  Common Stock 
                                      -29-

<PAGE>

     subject  to such  Original  Option  multiplied  by a  conversion  factor of
     0.9603.  Accordingly,  Messrs.  Bright,  Stepien,  Smith  and Levy and Mrs.
     Wharton hold 84,026, 36,203, 36,203, 14,405, and 14,405 Substitute Options,
     respectively,  granted  in 1998.  The per  share  exercise  price  for each
     Substitute  Option  granted in 1998 is $26.29.  Each  Substitute  Option is
     subject, in all material respects, to the other terms and conditions of the
     Original Option to which it related.

(3)  The exercise price (the price the recipient must pay to purchase each share
     of common  stock that is the  subject  of the  option) is equal to the fair
     market  value of the  Pre-merger  Common  Stock on the date of grant of the
     option.  All options  shown were granted on August 13, 1998 and reflect the
     closing price of Pre-merger  Common Stock on that date.  The exercise price
     to purchase each share of Holdings Common Stock that is the subject of each
     Substitute  Option  is  equal  to what  was the  fair  market  value of the
     Pre-merger  Common  Stock on the date of grant of the  option  divided by a
     conversion factor of 0.9603.  Options may be exercised during a period that
     begins one year  after the date of grant and ends ten years  after the date
     of the grant.  During the exercise  period the  recipient of the option may
     exercise 33% of the total  options  granted after one year from the date of
     the  grant,  67% after two years  from the date of the grant and all of the
     options after three years from the date of the grant.  Options become fully
     exercisable in the event of  termination of employment  with the Company by
     reason of disability,  retirement at age 55 and after five years of service
     with the Company or death.

(4)  The Black-Scholes Option Pricing Model was used to determine the grant date
     present  value of the  stock  options  granted  in 1998 by MHC to the named
     executive officers. Under the Black-Scholes Option Pricing Model, the grant
     date present value of the stock options referred to in the table was $3.21
     per share.

     The ultimate  values of the options will depend on the future  market price
     of  Holdings  Common  Stock,  which  cannot  be  forecast  with  reasonable
     accuracy.  The actual  value,  if any, an option  holder will  realize upon
     exercise  of an option  will  depend on the excess of the  market  price of
     Holdings  Common  Stock over the  exercise  price on the date the option is
     exercised.

     The  material  assumptions  and  adjustments  incorporated  in the model in
     estimating the value of the options include the following:

     o    An  exercise  price of the option of $25.25,  equal to the fair market
          value of the  underlying  Pre-merger  Common  Stock on the date of the
          grant.
     o    An option term of ten years.
     o    An interest rate of 5.27% that  represents the interest rate on a U.S.
          Treasury  security  on the  date of the  grant  with a  maturity  date
          corresponding to that of the option term.
     o    Volatility of 17.52% which  represents  the  historical  volatility of
          Pre-merger  Common Stock over a period  commensurate with the option's
          expected life. 
     o    Dividends at the rate of $1.20 per share  representing  the annualized
          quarterly  dividends paid with respect to a share of Pre-merger Common
          Stock at the date of the grant.

                                      -30-
<PAGE>



                        FISCAL YEAR END OPTION VALUES

                                  Number of
                                  Securities                  Value of
                                  Underlying                Unexercised
                                  Unexercised               In-The-Money
                                  Options at                 Options at
                                Fiscal Year End            Fiscal Year End
                                   (#)(1)(2)                  ($)(3)(4)
                                ---------------         ---------------------
                                  Exercisable/               Exercisable/
Name                             Unexercisable              Unexercisable
------------------              ----------------        ---------------------

Stanley J. Bright               87,500 / 125,000        2,351,563 / 3,359,375
Ronald W. Stepien               15,000 /  62,700          403,125 / 1,685,063
Wayne O. Smith                   6,667 /  51,033          179,176 / 1,371,512
David J. Levy                   10,000 /  35,000          268,750 /   940,625
Beverly A. Wharton              30,000 /  30,000          806,250 /   806,250

(1)  The options shown in the foregoing table were granted  pursuant to the 1995
     Long-Term  Incentive  Plan.  Under  the  provisions  of such  plan,  unless
     provided  otherwise in an individual's  award agreement,  in the event of a
     change of control (which  included the merger  transaction  between MHC and
     CalEnergy), all outstanding stock options became immediately exercisable in
     full.  Stock options  awarded in 1998 as disclosed under the table entitled
     "Option Grants in Last Fiscal Year" did not vest or become exercisable as a
     result of the merger, however.

(2)  On March 12, 1999,  Original Options were converted into Substitute Options
     as disclosed in footnote (2) to the table  entitled  "Option Grants in Last
     Fiscal Year."

(3)  Represents the difference between the option exercise price and the closing
     market  price  for  Pre-merger  Common  Stock on  December  31,  1998.  The
     in-the-money  options at December  31, 1998,  pertain to the  market-priced
     option  grants in July of 1995 with an  exercise  price of $14.50,  the
     market-priced  option  grant in October of 1996 with an exercise  price of
     $15.75 and the  market-priced  option  grant in  September  of 1997 with an
     exercise price of $17.0625.  The closing market price for Pre-merger Common
     Stock at the end of the 1998  fiscal  year was  $26.875.  Options  shown as
     unexercisable were conditionally granted.

(4)  As disclosed in footnote (3) to the table  entitled  "Option Grants in Last
     Fiscal Year," the exercise price to purchase each share of Holdings  Common
     Stock that is the  subject of each  Substitute  Option is equal to what was
     the fair market value of the  Pre-merger  Common Stock on the date of grant
     of  the  Original  Option  divided  by  a  conversion   factor  of  0.9603.
     Accordingly,  the in-the-money options at December 31, 1998, pertain to the
     market-priced  option  grants  in July of 1995  with an  exercise  price of
     $15.10,  the  market-priced  option grants in October 1996 with an exercise
     price of $16.40 and the  market-priced  option  grant in  September of 1997
     with an exercise price of $17.77.

                                      -31-
<PAGE>

              LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR

                        Number of Shares,           Performance or
                         Units or Other            Other Period until
Name                      Rights(#)(1)           Maturation or Payout(2)
------------------      -----------------        -----------------------

Stanley J. Bright             18,697                     6/30/01
Ronald W. Stepien              8,512                     6/30/01
Wayne O. Smith                 7,343                     6/30/01
David J. Levy                  5,152                     6/30/01
Beverly A. Wharton             6,235                     6/30/01

(1)  The restricted stock awards shown in the foregoing table were made pursuant
     to the 1995  Long-Term  Incentive  Plan and are subject to  achievement  of
     specific performance measures during a three-year performance period ending
     June  30,  2001.  During  this  performance  period,  the  holders  of  the
     restricted  stock were entitled to receive the dividends on the  restricted
     stock and vote the  stock;  however,  the stock  was not  vested  until the
     achievement of the performance measures.  The restricted stock shown in the
     foregoing table would be granted if total  shareholder  return (as measured
     by growth in stock price and dividends) by the Company for this performance
     period is in the 68th to 74th  percentiles of electric and  combination gas
     and electric  utilities  included in the Value Line Investment  Survey. The
     awards shown in the table represent  grants at target,  which is 75% of the
     maximum  100%  award that would be paid if  performance  achieved  the 75th
     percentile or higher.  Minimum  awards of 50% would be made if  performance
     achieved  was  in  the  60th  to  67th  percentiles.  A  participant  whose
     employment  was  terminated  due to  retirement  would  receive  a pro rata
     portion  of such  participant's  total  award  based  on the  participant's
     service  as an  employee  during  the  performance  period or as  otherwise
     determined  by  the  Board  of  Directors  in  its  sole  discretion.   The
     performance shares vest, however, in the event of termination of employment
     with MHC by reason of  disability,  death or a change in control as defined
     in the plan.

(2)  Pursuant to the terms of the 1995 Long-Term Incentive Plan, in the event of
     a change of control (which included the merger transaction  between MHC and
     CalEnergy),  the restriction  periods applicable to restricted stock awards
     under  the  plan  lapsed,  and  the  performance   measures  applicable  to
     outstanding  restricted  stock  awards and to any  outstanding  performance
     share  awards  were  deemed to have been  satisfied  at the  target  level.
     Accordingly,  at the effective time of the merger  transaction  between MHC
     and CalEnergy,  each outstanding grant of performance shares whether or not
     vested was converted into the right to receive  $27.15 in cash,  payable to
     the grantee without interest.

RETIREMENT PLANS

     MidAmerican  maintains  a  Supplemental   Retirement  Plan  for  Designated
Officers  ("Supplemental  Plan") to provide  additional  retirement  benefits to
designated  participants,  as  determined  by the  Board of  Directors.  Messrs.
Bright,  Stepien,  Smith  and Levy  and Mrs.  Wharton  are  participants  in the
Supplemental Plan. The Supplemental Plan provides  retirement benefits up to 65%
of a  participant's  Total  Cash  Compensation  in effect  immediately  prior to
retirement.  "Total Cash  Compensation"  means the highest  amount  payable to a
participant  as annual base salary  during the five years  immediately  prior to
retirement plus the average of the participant's  last three years' awards under
an annual incentive bonus program. Participants must be credited with five years
service in order to be eligible to receive benefits under the Supplemental Plan.
Each of the named  executive  officers  has or will have five years of  credited
service with MidAmerican as of

                                      -32-
<PAGE>

their respective  normal retirement age and will be eligible to receive benefits
under the  Supplemental  Plan.  A  participant  who elects early  retirement  is
entitled to reduced benefits under the Supplemental  Plan. A survivor benefit is
payable to a surviving  spouse under the  Supplemental  Plan.  Benefits from the
Supplemental  Plan  will  be  paid  out of  general  corporate  funds;  however,
MidAmerican, through a rabbi trust, maintains life insurance on the participants
in amounts expected to be sufficient to fund the after-tax cost of the projected
benefits.  The  Supplemental  Plan  provides  that in the  event of a change  of
control (which, as defined therein,  includes the merger transaction between MHC
and CalEnergy),  the rabbi trust shall become  irrevocable and all  participants
were deemed to have at least five years of  service.  Deferred  compensation  is
considered part of the salary covered by the Supplemental Plan.

     The  supplemental  retirement  benefit will be reduced by the amount of the
participant's  regular  retirement  benefit under the MidAmerican Energy Company
Cash  Balance  Retirement  Plan  ("MidAmerican  Retirement  Plan")  which became
effective  January 1, 1997,  and by  benefits  under the  Iowa-Illinois  Gas and
Electric  Company  Supplemental  Retirement  Plan  ("Iowa-Illinois  Supplemental
Plan") or the Midwest  Resources Inc.  Supplemental  Executive  Retirement  Plan
("MWR Supplemental Plan"), as applicable.

     The MidAmerican  Retirement Plan replaced  retirement  plans of predecessor
companies,  which were structured as traditional,  defined benefit plans.  Under
the MidAmerican  Retirement  Plan, each  participant has an account,  for record
keeping  purposes only, to which credits are allocated each payroll period based
upon a percentage of the participant's salary paid in the current pay period. In
addition,  all  balances in the  accounts of  participants  earn a fixed rate of
interest which is credited annually.  The interest rate for a particular year is
based on the  one-year  U. S.  Treasury  Bill  plus  one  percentage  point.  At
retirement or other  termination  of  employment,  an amount equal to the vested
balance then credited to the account is payable to the  participant  in the form
of a lump sum or a form of annuity for the entire benefit under the  MidAmerican
Retirement Plan.

     The Iowa-Illinois  Supplemental Plan provides for retirement benefits equal
to 65% of a  participant's  highest  annual total cash  compensation  during the
three  years  prior  to  retirement  reduced  by the  participant's  MidAmerican
Retirement Plan benefit.  A participant who elects early  retirement is entitled
to reduced benefits under the plan. A survivor benefit is payable to a surviving
spouse.  Deferred  compensation  is  considered a part of salary  covered by the
Iowa-Illinois Supplemental Plan.

     The MWR Supplemental Plan provides a participant, upon retirement at age 65
with thirty or more years of service,  an annual retirement benefit equal to 60%
of final average annual  earnings which is defined as the average of salary plus
bonus for the five highest consecutive years during the participant's employment
with the  Company.  A  participant  who elects early  retirement  is entitled to
reduced  benefits  under the plan. A survivor  benefit is payable to a surviving
spouse.  Deferred compensation is considered a part of salary covered by the MWR
Supplemental Plan.

     The table below shows the estimated aggregate annual benefits payable under
the Supplemental  Plan and the MidAmerican  Retirement Plan. The amounts exclude
Social  Security and are based on a straight life annuity and retirement at ages
55,  60 and 65.  Federal  law  limits  the  amount  of  benefits  payable  to an
individual through the tax qualified defined benefit and contribution plans, and
benefits exceeding such limitation are payable under the Supplemental Plan.

                                      -33-

<PAGE>

                               PENSION PLAN TABLE

                            Estimated Annual Benefit
 Total Cash
Compensation                    Age at Retirement                    
                     ----------------------------------------------
at Retirement           55                 60                 65   
-------------        --------           --------           --------
   $350,000          $192,500           $210,000           $227,500
    400,000           220,000            240,000            260,000
    450,000           247,500            270,000            292,500
    500,000           275,000            300,000            325,000
    550,000           302,500            330,000            357,500
    600,000           330,000            360,000            390,000
    650,000           357,500            390,000            422,500
    700,000           385,000            420,000            455,000
    750,000           412,500            450,000            487,500
    800,000           440,000            480,000            520,000
    850,000           467,500            510,000            552,500
    900,000           495,000            540,000            585,000
    950,000           522,500            570,000            617,500
  1,000,000           550,000            600,000            650,000

EMPLOYMENT AGREEMENTS

     Mr. Bright's employment  agreement  terminated on the effective date of the
merger transaction between MHC and CalEnergy.

     The MidAmerican  Energy Company Severance Plan for Specified  Officers (the
"Severance  Plan")  became  effective  on November  1, 1996,  and was amended on
August 11, 1998. The Severance Plan provides for Severance  Benefits (as defined
hereinafter) to eligible participants in the event of a Qualifying  Termination.
Under the  Severance  Plan,  a Qualifying  Termination  means a  termination  of
employment  of a  Specified  Officer  either  (i)  involuntarily  for any reason
(except in the instance of a felony) (ii)  voluntarily  within 24 months after a
Change in Control (defined  hereinafter),  should a Specified  Officer's (a) job
reporting location be changed by more than 30 miles, (b) total cash compensation
opportunity  be  reduced or (c) duties  and  responsibilities  be  substantially
reduced;  or (iii) if a Change in Control occurs on or before December 31, 1999,
voluntarily  for any reason (other than to avoid an involuntary  termination due
to the  commission of a felony) in the thirteenth  calendar month  following the
date of a Change in Control.

     Termination of employment  due, in whole or in part, to the commission of a
felony by a Specified Officer will not constitute a Qualifying Termination under
the Severance Plan. All Severance  Benefits for a Specified Officer charged with
a felony  will be  suspended  until  such  time as a felony  charge  is  finally
disposed.  Conviction of a felony will be sufficient to disqualify the Specified
Officer  for  Severance  Benefits.  A plea of no contest to a felony will not be
sufficient to disqualify the Specified Officer for Severance Benefits.

                                      -34-

<PAGE>
     A  "Change  in  Control"   means   either  (i)  the  closing  date  of  the
restructuring  of  MHC as a  result  of a  merger,  consolidation,  takeover  or
reorganization  unless at least 60% of the members of the board of  directors of
the   company   resulting   from  such   merger,   consolidation,   takeover  or
reorganization  were members of the incumbent Board of Directors of MHC; or (ii)
any  occurrence  or any other  event  that is  designated  as being a "Change in
Control" by a majority vote of the  incumbent  Board of Directors of MHC who are
not also  employees of MHC.  The merger  transaction  between MHC and  CalEnergy
constituted a Change in Control for purposes of the Severance Plan.

     "Severance  Benefits" under the Severance Plan include: (i) an amount equal
to two times the Specified Officer's highest Total Cash Compensation (defined as
annual  salary plus bonus)  payable in a lump sum on the  effective  date of the
Qualifying Termination;  (ii) with the exception of MHC Pre-merger stock options
granted in 1998,  accelerated  vesting of the Specified Officer's MHC Pre-merger
stock options;  (iii) payment of the Specified  Officer's  accrued  vacation pay
through the effective date of the Qualifying Termination,  payable in a lump sum
on such date; (iv) for certain  Specified  Officers,  an additional 24 months of
age or service  credit under the  Supplemental  Plan;  (v)  continuation  of the
welfare benefits of health insurance,  disability  insurance and group term life
insurance  for a period of 24 full calendar  months after the effective  date of
the Qualifying Termination; and (vi) standard outplacement services for a period
of  24  full  calendar  months  after  the  effective  date  of  the  Qualifying
Termination  (the  cost of such  services  not to  exceed  20% of the  Specified
Officer's Total Cash Compensation).

     The Severance Plan also contains a restrictive  covenant which prevents the
Specified Officers from disclosing confidential  information through the term of
the Plan or for a period of one year following termination of employment,  which
ever occurs  first.  In addition,  Specified  Officers are eligible to receive a
cash  "gross-up"  payment  equal to the federal  excise tax, if any,  due on the
total severance package.

     In  consideration  of the  waiver and  release of the right to receive  any
prior severance benefits under any prior severance plans,  MidAmerican agreed to
an irrevocable grant of three years additional service or age for the purpose of
determining  benefits under the Supplemental  Plan and a phantom stock retention
bonus  equal to one year's  annual  base salary in effect on November 1, 1996 to
vest in three  equal  installments  on each  January  1  commencing  in 1998 and
conditioned  upon the continued  employment of the eligible  participant on such
dates. Of the eligible  participants who are named executive  officers,  Messrs.
Stepien and Levy and Mrs. Wharton have agreed to the waiver and release.

                                      -35-
<PAGE>


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

(A)  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     MHC owns 100 percent of the outstanding common stock of MidAmerican.

(B)  SECURITY OWNERSHIP OF MANAGEMENT

     The following table shows the beneficial ownership, reported to MidAmerican
as of February 24, 1999, of MHC Common Stock  (Pre-merger  Common Stock) of each
director, the chief executive officer and the four other most highly compensated
executive officers and, as a group,  directors and executive officers. No member
of the group owned any of the preferred stock of MidAmerican.  To  MidAmerican's
knowledge,  at such date no single entity owned of record or  beneficially  more
than five percent of any class of the outstanding voting securities of MHC.

                                               Amount and 
                                                Nature of      Precent 
                                                Beneficial       of
     Name of Beneficial Owner                Ownership (1)(8)   Class    
     ------------------------                ----------------  -------

     Stanley J. Bright......................    145,077(2)         *
     Ronald W. Stepien......................     30,453(3)         *
     Wayne O. Smith.........................     21,276(4)         *
     David J. Levy..........................     22,528(5)         *
     Beverly A. Wharton.....................     54,228(6)         *
     Directors and executive officers as a
       group (8) persons....................    329,935(7)         *

*    Less than one percent of the shares of Pre-merger  Common Stock outstanding
     on February 24, 1999.

(1)  Beneficial  ownership  of each of the  shares of  Pre-merger  Common  Stock
     listed in the  foregoing  table is  comprised of sole voting power and sole
     investment power, unless otherwise noted.

(2)  Includes  87,500 shares which Mr. Bright has the right to acquire within 60
     days upon the  exercise of stock  options,  7,246  shares held in a Section
     401(k) defined  contribution plan as of December 31, 1998, and 1,697 shares
     beneficially owned by Mr. Bright and his spouse.

(3)  Includes 15,000 shares which Mr. Stepien has the right to acquire within 60
     days upon the exercise of stock  options and 2,243 shares held in a Section
     401(k) defined contribution plan as of December 31, 1998.

(4)  Includes  6,667 shares  which Mr. Smith has the right to acquire  within 60
     days upon the  exercise  of stock  options and 768 shares held in a Section
     401(k) defined contribution plan as of December 31, 1998.

(5)  Includes  10,000  shares which Mr. Levy has the right to acquire  within 60
     days upon the  exercise  of stock  options  and 50 shares held in a Section
     401(k) defined contribution plan as of December 31, 1998.

                                      -36-
<PAGE>


(6)  Includes  30,000 shares which Mrs.  Wharton has the right to acquire within
     60 days upon the exercise of stock options,  1,496 shares held in a Section
     401(k)  defined  contribution  plan as of  December  31,  1998,  767 shares
     beneficially  owned  by  Mrs.  Wharton  and her  spouse  and  1,027  shares
     beneficially owned in a custodial account for a minor child.

(7)  Includes  shares  which the  executive  officers  have the right to acquire
     within 60 days upon the exercise of stock  options,  shares held in defined
     contribution  plans as of December 31, 1998, and shares  beneficially owned
     jointly with and  individually by family members of directors and executive
     officers.

(8)  At the effective time of the merger transaction  between MHC and CalEnergy,
     each  outstanding  share of Pre-merger  Common Stock was converted into the
     right to receive $27.15 in cash, payable without interest.  In addition, at
     such time each unexercised option ("Original Option") to purchase shares of
     Pre-merger  Common  Stock became an option to purchase the number of shares
     of Holdings Common Stock equal to the number of shares of Pre-merger Common
     Stock subject to such Original Option  multiplied by a conversion factor of
     0.9603, and became immediately exercisable in full.

(C)  CHANGES IN CONTROL

     Refer to the discussion under the caption  CALENERGY MERGER in Part I, Item
     1(a).

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

     None.

                                      -37-

<PAGE>
                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------

(A)1.FINANCIAL STATEMENTS (INCLUDED HEREIN)
                                                                        Page No.
                                                                        --------

     Selected Consolidated Financial Data.................................  39
     Management's Discussion and Analysis of Financial Condition
       And Results of Operations..........................................  40
     Consolidated Statements of Income
       For the Year Ended December 31, 1998, 1997 and 1996................  62
     Consolidated Balance Sheets
       As of December 31, 1998 and 1997 ..................................  63
     Consolidated Statements of Cash Flows
       For the Year Ended December 31, 1998, 1997 and 1996................  64
     Consolidated Statements of Capitalization
       As of December 31, 1998 and 1997 ..................................  65
     Consolidated Statements of Retained Earnings
       For the Year Ended December 31, 1998, 1997 and 1996................  66
     Notes to Consolidated Financial Statements...........................  67
     Report of Independent Accountants....................................  92

     Supplemental Information
     ------------------------

        Unaudited Regulated Electric Statistics...........................  93
        Unaudited Regulated Gas Statistics................................  94

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

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

                                                                        Page No.
                                                                        --------
     MidAmerican Energy Company Consolidated Valuation
       and Qualifying Accounts (Schedule II) .............................  95

     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 97.

(B)    REPORTS ON FORM 8-K

       None.

                                      -38-

<PAGE>

SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>

                                                                    DECEMBER 31                         
                                              1998         1997         1996          1995         1994
                                           ----------   ----------   ----------    ----------   ----------

<S>                                        <C>          <C>          <C>           <C>          <C>    
INCOME STATEMENT DATA: (e)
Revenues.................................  $1,707,189   $1,727,855   $1,674,353    $1,554,235   $1,513,675
Operating income (a).....................     280,920      287,309      366,174       304,638      268,222
Net income from continuing operations....     115,593      125,941      165,132       132,489      121,145
Earnings on common from
    continuing operations................     110,641      119,453      154,731       124,430      110,594

BALANCE SHEET DATA:
Total assets.............................  $3,585,530   $3,542,307   $3,774,653    $3,976,201   $3,879,847
Long-term debt (b).......................     930,966    1,044,663    1,136,515     1,110,525    1,109,617
Power purchase obligation (b)............      83,127       97,504      111,222       125,729      137,809
Short-term borrowings....................     206,221      122,500      161,700       184,800      124,500
Preferred stock:
    Not subject to mandatory redemption..      31,759       31,763       31,769        89,945       89,955
    Subject to mandatory redemption (c)..     150,000      150,000      150,000        50,000       50,000
Common stock equity (d)..................     972,278      985,744      986,825     1,225,715    1,204,112

</TABLE>

    (a) MidAmerican's  1995  operating  income  includes  $31.9 million of costs
        related to a restructuring and work force reduction plan implemented and
        completed in 1995.
    (b) Includes amounts due within one year.
    (c) Post-1995  years include  MidAmerican-obligated  mandatorily  redeemable
        preferred  securities of subsidiary  trust  holding  solely  MidAmerican
        junior subordinated debentures.
    (d) 1996 reflects  distribution of the capital stock of MidAmerican  Capital
        Company and Midwest Capital Group, Inc. to Holdings.
    (e) Refer to Operating  Activities  and Other Matters in MD&A for discussion
        of industry restructuring and rate matters.

                                      -39-
<PAGE>

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

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

     MidAmerican Energy Company  (MidAmerican) is a public utility with electric
and natural gas  operations and is the principal  subsidiary of MHC Inc.  (MHC).
MHC is  headquartered  in Des Moines,  Iowa, and has the following  nonregulated
subsidiaries:  MidAmerican Capital Company,  MidAmerican Realty Services Company
and Midwest Capital Group, Inc.  MHC is a wholly owned subsidiary of MidAmerican
Funding,  LLC, which is wholly owned  subsidiary of 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).  CalEnergy, through a
reincorporation  transaction,  was renamed  MidAmerican  Energy Holdings Company
(Holdings).  Holdings is an exempt public utility holding company  headquartered
in Des Moines.  References to MHC regarding  information, events or transactions
prior to the merger relate to the former MidAmerican Energy Holdings Company.

     MidAmerican  was  formed  on July 1,  1995,  as a result  of the  merger of
Iowa-Illinois Gas and Electric Company,  Midwest Resources Inc.  (Resources) and
Midwest  Power  Systems Inc.,  the utility  subsidiary  of Resources.  Effective
December  1, 1996,  MHC became the parent  company of  MidAmerican,  MidAmerican
Capital and Midwest Capital.  Prior to December 1, 1996, MidAmerican Capital and
Midwest Capital were subsidiaries of MidAmerican.  Accordingly, the consolidated
financial  statements of  MidAmerican  present  amounts  related to  MidAmerican
Capital and Midwest Capital as discontinued  operations in 1996 to reflect their
transfer to MHC.

FORWARD-LOOKING STATEMENTS

     From time to time,  MidAmerican may make forward-looking  statements within
the meaning of the federal securities laws that involve  judgments,  assumptions
and other uncertainties beyond its control. These forward-looking statements may
include,  among  others,  statements  concerning  revenue and cost trends,  cost
recovery,   cost  reduction   strategies  and  anticipated   outcomes,   pricing
strategies,  changes in the  utility  industry,  planned  capital  expenditures,
financing  needs and  availability,  statements of  MidAmerican's  expectations,
beliefs,  future plans and strategies,  anticipated events or trends and similar
comments  concerning matters that are not historical facts.  Investors and other
users of the  forward-looking  statements are cautioned that such statements are
not  a  guarantee  of  future   performance   of   MidAmerican   and  that  such
forward-looking  statements  are subject to risks and  uncertainties  that could
cause actual results to differ  materially  from those  expressed in, or implied
by, such statements.  Some, but not all, of the risks and uncertainties  include
weather  effects  on sales  and  revenues,  fuel  prices,  fuel  transportation,
competitive  factors,  general  economic  conditions  in  MidAmerican's  service
territory, interest rates, inflation and federal and state regulatory actions.

                                      -40-
<PAGE>

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

     The following  table  provides a summary of the earnings  contributions of
MidAmerican's operations for each of the periods presented:

                                           1998         1997           1996
                                          ------       ------         ------  
                                                    (In millions)
     Earnings on Common Stock
       Continuing operations              $110.6       $119.5         $154.7
       Discontinued operations *               -           -           (10.1)
                                          ------       ------         ------
     Consolidated earnings                $110.6       $119.5         $144.6
                                          ======       ======         ======

     * 1996 includes the net losses of MidAmerican  Capital and Midwest Capital
prior to their transfer to MHC on December 1, 1996.

EARNINGS DISCUSSION

     Below  is a list  of  some  of the  significant  factors  resulting  in the
variances in earnings. The amounts represent the variance between the respective
years. Therefore, a factor that had a negative impact on earnings in both years,
but which had less of a negative impact in 1998 than in 1997, would be displayed
as a positive factor for comparison purposes.

     In  the  second  half  of  1997,  MidAmerican  began  charging  to  expense
additional  amortization of deferred  energy  efficiency  costs,  ongoing energy
efficiency  costs and certain  Cooper  Nuclear  Station  costs  consistent  with
ratemaking  treatment.  These  items  significantly  increased  other  operating
expenses. In conjunction with expensing these items,  MidAmerican began recovery
of these costs from its customers,  which resulted in additional  revenues.  For
purposes of the  following  table,  the expenses are netted  against the related
revenues.  As a result, the "Other O&M expenses" line below does not reflect the
impact of these  expenses,  and the net effect of the  additional  revenues  and
expenses  is included  in the  amounts on the "Other  factors"  line under gross
margin.


                                                Approximate Net Income Variances
                                                --------------------------------
                                                   For Years Ended December 31
                                                   ---------------------------
                                                 1998 vs 1997       1997 vs 1996
                                                 ------------       ------------
                                                          (In millions)
     Variation in gross margin due to -
          Weather effect                           $ (8.2)            $ (2.9)
          Customer growth & other sales growth       15.2               17.3
          Off-system sales                            8.4                1.9
          Electric retail prices                    (10.0)             (12.6)
          Other factors                               5.5                1.9
     Nuclear O&M expenses                             0.3               (4.7)
     1996 inventory adjustment                        -                 (3.7)
     Storm repair expense                            (1.1)              (1.2)
     Other O&M expenses                              (6.3)             (34.0)
     Depreciation & amortization                     (6.9)              (3.5)
     Utility nonregulated activities                 (2.0)               0.3
     Recognition of deferred
         energy efficiency income                    (2.8)               1.0
     1996 merger proposal costs                       -                  5.1
     Discontinued operations                          -                 10.1

                                      -41-
<PAGE>

     Although  utility  earnings  for 1998 were lower than in the prior year,  a
reduction was anticipated because of the electric pricing  settlements  achieved
in 1996 and 1997 in Iowa and Illinois.  Warmer-than-normal  temperatures  during
the heating season also had a negative  impact on 1998  earnings.  Growth in the
number  of  customers  and in other  sales  factors  contributed  positively  to
earnings in 1998.  Additionally,  MidAmerican's  successful  performance  in the
non-retail  (off-system)  energy market helped offset decreases from weather and
reductions in electric retail prices.  Utility operating  expenses  increased as
MidAmerican   continued   strengthening   its  customer  service  and  marketing
capabilities and adding to its information technology resources.

     Discontinued Operations -

     MidAmerican  received $15.3 million in cash in 1996 as final settlement for
the sale of a former coal mining  subsidiary which was reflected as discontinued
operations in 1982 by one of  MidAmerican's  predecessors.  The final settlement
included  reacquisition  by the buyer of preferred  equity issued to MidAmerican
and the settlement of reclamation  reserves.  MidAmerican  recorded an after-tax
loss on disposal of $3.3 million for the  transaction  in September  1996.  This
transaction is included in discontinued operations in the consolidated financial
statements of MidAmerican.  Discontinued  operations of MidAmerican includes the
net  earnings/loss of MidAmerican  Capital and Midwest Capital for periods prior
to their December 1, 1996, transfer to MHC.

REGULATED GROSS MARGIN

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

                                            1998         1997         1996  
                                           ------       ------       ------
                                                    (In millions)
     Operating revenues                    $1,170       $1,126       $1,099
     Cost of fuel, energy and capacity        228          236          234
                                           ------       ------       ------
          Electric gross margin            $  942       $  890       $  865
                                           ======       ======       ======

     1998 vs 1997 -

     Electric  gross margin  improved $52 million in 1998  compared to 1997.  An
increase in revenues from energy efficiency cost recovery and the Cooper Tracker
(discussed below) accounted for $26.1 million and $2.5 million, respectively, of
the  increase  in  margin.   Increases  in  revenues   from  these  factors  are
substantially offset by increases in other operating expenses.

     Regarding  the increase in energy  efficiency  revenues,  on September  29,
1997,  MidAmerican began recovering from customers its remaining deferred energy
efficiency costs and current,  ongoing energy efficiency costs.  Deferred energy
efficiency  costs  are  costs  previously  incurred  by  MidAmerican  which,  in
accordance with rate treatment,  were not charged to expense until recovery from
customers  began.  Recovery of deferred  energy  efficiency  costs occurs over a
four-year period from the date collection begins. Approximately $44.4 million of
MidAmerican's 1998 electric revenues were from the recovery of energy efficiency
program costs compared to $18.3 million in 1997.  Collection of deferred  energy
efficiency costs will decrease  starting in 1999 as various recovery periods are
completed.  Refer to the  discussion  under Energy  Efficiency  in the OPERATING
ACTIVITIES AND OTHER MATTERS section of MD&A for further discussion.

                                      -42-
<PAGE>

     The Cooper  Tracker  allows  MidAmerican  to collect on a current basis the
Iowa portion of expenses for Cooper Nuclear Station (Cooper) capital improvement
advances.  Prior  to the  Cooper  Tracker,  which  began in July  1997,  capital
improvement  advances were  capitalized  when incurred and amortized over future
periods in accordance with rate treatment.

     Electric margin also improved due to an increase in sales volume. In total,
electric  retail sales for 1998  increased  2.7% compared to 1997.  Moderate but
steady growth in the number of customers increased electric gross margin by $8.6
million  compared  to 1997.  In  addition,  an  increase  in sales  that are not
dependent on weather contributed $15.5 million to the increase. When compared to
normal, the impact of temperatures resulted in an estimated $2 million reduction
of electric  gross margin for 1998 compared to a $4 million  reduction in 1997 -
or, a $2 million  increase in margin for 1998 compared to 1997.  Temperatures in
1998 were  warmer-than-normal  during the heating seasons and hotter-than-normal
during the cooling season.

     As  anticipated,  the effect of rate  proceedings  in 1996 and 1997 reduced
electric  gross margin for 1998  compared to 1997.  Revenues in 1998 reflect the
full-year  effect of a June 1997 price  reduction  for Illinois  customers and a
small price  reduction  in August  1998  related to  Illinois  utility  industry
restructuring.  Prices for Iowa  residential  customers were reduced $10 million
annually  in July 1997 and $5 million  annually  in June 1998.  Since July 1997,
MidAmerican has reduced prices a total of approximately $10 million annually for
its Iowa  commercial  and  industrial  customers.  The commercial and industrial
price reductions were achieved through negotiated contracts, a pilot project and
tariffed rate  reductions.  The combined  effect of price  reductions  decreased
revenues and electric margin by $17.0 million for 1998 compared to 1997.

     Prior to July 11, 1997, MidAmerican was allowed to recover its energy costs
from most of its electric utility customers  through energy  adjustment  clauses
(EACs) included in revenues. Effective July 11, 1997, the EAC was eliminated for
Iowa  customers  as  part  of  MidAmerican's  Iowa  pricing  plan.   Previously,
variations  in energy  costs did not  affect  gross  margin or net income due to
corresponding   changes  in  revenues  collected  through  the  EACs.  With  the
elimination of the Iowa EAC, fluctuations in energy costs now may have an impact
on gross margin and net income.

     Under the Iowa  pricing  settlement,  revenues  from  off-system  sales are
considered a component of total energy costs.  Accordingly,  electric  margin in
1998 reflects MidAmerican's strong performance in the off-system market relative
to 1997.  Margins on off-system  sales,  which account for most of MidAmerican's
sales for resale, contributed $14.2 million more to gross margin in 1998 than in
1997.  Though related sales volumes  decreased 11.5% compared to the 1997 level,
MidAmerican  obtained  improved  margins per unit for the 1998  sales.  Refer to
comments  on the energy  market  under  "Industry  Evolution"  in the  OPERATING
ACTIVITIES AND OTHER MATTERS section of MD&A.

     1997 vs. 1996 -

     Electric  margin  for 1997  increased  $25  million  compared  to 1996.  An
increase in revenues from energy  efficiency  cost  recovery  accounted for $9.0
million of the increase in margin while revenues from the Cooper Tracker totaled
$3.9 million in 1997, the first year for that collection mechanism.

     Retail  sales of  electricity  increased  2.6%  compared to 1996  sales.  A
moderate but steady growth in the number of customers  contributed $11.1 million
to the  increase in electric  gross  margin.  Compared to 1996,  sales and gross
margin  improved  due to the impact of  temperatures  in the  Company's  service
territory.  Although temperatures overall were milder than normal in both years,
comparatively,  margin for 1997 increased $5 million over 1996 margin due to the
effect of weather.  When compared to normal, the impact of temperatures resulted
in a $4 million  reduction  of electric  gross  margin in 1997  compared to a $9
million  
                                      -43-


<PAGE>
reduction in the 1996 margin. Additionally, revenues and margin increased due to
an improvement in sales not dependent on weather.

     As discussed above, the Iowa EAC was eliminated in July 1997.  Energy costs
per unit for the  remainder  of 1997 were  below the amount  recovered  in rates
under the Iowa pricing plan and resulted in an increase to gross margin. Margins
on off-system  sales  contributed  $3.2 million more to electric  margin in 1997
than in 1996.  Additionally,  the 1997  electric  margin  benefited  from a $6.2
million increase in transmission revenues.

     In total, price reductions decreased electric gross margin by $21.4 million
in 1997 compared to 1996. In addition to the price  reductions  discussed above,
MidAmerican  reduced prices for its Illinois customers by $13.1 million annually
on November 3, 1996, in conjunction with a rate reduction  proceeding.  In Iowa,
MidAmerican  reduced  its  electric  retail  prices  by $8.7  million  effective
November 1, 1996. This was the first reduction related to MidAmerican's  pricing
plan  filed in June 1996.  Refer to "Rate  Matters"  in  LIQUIDITY  AND  CAPITAL
RESOURCES later in MD&A for further information regarding prices in Iowa.

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

                                        1998          1997         1996  
                                       -----         -----        -----  
                                                (In millions)
         Operating revenues            $ 430         $ 536        $ 537
         Cost of gas sold                243           346          345
                                       -----         -----        -----
              Gas gross margin         $ 187         $ 190        $ 192
                                       =====         =====        =====

     1998 vs. 1997 -

     MidAmerican's  regulated  gas  revenues  include  purchase  gas  adjustment
clauses (PGAs)  through which  MidAmerican is allowed to recover the cost of gas
sold from most of its gas utility customers.  Consequently,  fluctuations in the
cost of gas sold do not  affect  gross  margin or net  income  because  revenues
reflect  comparable  fluctuations  in revenues from PGAs. A decrease in the 1998
per-unit  cost of gas compared to 1997 reduced  revenues and cost of gas sold by
approximately $59 million.  MidAmerican recently made a filing with the IUB that
would modify the use of the PGA beginning May 1, 2000. Refer to Small Volume Gas
Transportation  under the OPERATING ACTIVITIES AND OTHER MATTERS section of MD&A
for further discussion.

     Recovery of gas energy efficiency costs resulted in a $9.2 million increase
in revenues  and gross  margin for 1998  compared to 1997.  As  discussed in the
Electric Gross Margin section, on September 29, 1997, MidAmerican began recovery
of its deferred  energy  efficiency  costs that had not previously been approved
for recovery.  Approximately  $17.5 million of  MidAmerican's  1998 gas revenues
were from the  recovery  of energy  efficiency  program  costs  compared to $8.3
million in 1997.  Again,  increases  in  revenues  from energy  efficiency  cost
recovery are substantially offset by corresponding  increases in other operating
expenses.

     Unusually mild  temperatures  during the 1998 heating seasons resulted in a
decrease  in gas margin for 1998.  Temperatures  in 1998 were 15.6%  warmer than
normal,  reducing gas gross margin in 1998 by an estimated $18 million  compared
to normal. In 1997, temperatures were closer to normal, resulting in a reduction
of the 1997 margin of only $2 million.  Comparing the two years then, gas margin
decreased  $16 million in 1998 due to the  variation in  temperatures.  Customer
growth,  which  contributed  $1.6 million to gas margin in 1998, and other sales
factors helped  mitigate the negative  effect of weather on the 1998 margin.  In
total, retail sales of natural gas in 1998 decreased 12.7% compared to 1997.
 
                                      -44-

<PAGE>

    1997 vs. 1996 -

     Gas gross  margin for 1997  decreased  $2 million  compared  to 1996.  On a
comparative basis, the 1997 gas margin decreased an estimated $10 million due to
the effect of weather. Temperatures in 1997 were close to normal, resulting in a
$2 million  reduction in margin,  while  temperatures  in 1996 were 10.1% colder
than normal,  contributing $8 million to the 1996 gas gross margin. The decrease
in gross margin due to weather was partially  offset by a $2.3 million  increase
from growth in the number of retail customers. In total, retail sales of natural
gas in 1997 decreased 7.1% compared to 1996 sales.

     Revenues from energy efficiency cost recovery contributed $3.4 million more
to gas  margin in 1997  than in 1996.  Revenues  and cost of gas sold  increased
approximately  $25 million in 1997 due to an increase in the average cost of gas
per unit compared to 1996.

REGULATED OPERATING EXPENSES

     Other Operating Expenses -

     Regulated  other  operating  expenses  increased  $31.1  million  for  1998
compared to 1997.  An increase in energy  efficiency  costs  accounted for $31.6
million of the increase in other operating  expenses  compared to 1997. Refer to
the Electric  Gross  Margin  section for further  comments on energy  efficiency
costs.

     Operating  expenses  related  to  Cooper  increased  due  in  part  to  the
ratemaking  treatment  for Cooper  capital  improvements,  as  discussed  in the
Electric  Gross Margin  section.  Cooper  capital  improvement  advances are now
expensed when  incurred.  MidAmerican  is  recovering  the Iowa portion of these
costs through the Cooper Tracker, while recovery in Illinois is included in base
rates.  This change accounted for a $1.7 million increase in nuclear  operations
costs  compared to 1997.  Excluding  those costs,  nuclear  operations  expenses
decreased  $8.2 million for 1998  compared to 1997 due to an extended  outage at
the Quad Cities Station.

     MidAmerican  continued its focus on customer service and reliability during
1998.  Further  emphasis on customer  service  operations and  marketing-related
efforts,  resulted in increases in customer service costs, IT consulting  costs,
advertising  costs  and  other  related  expenses.  Increases  in such  expenses
accounted  for a majority of the remaining  increase.  The impact of these items
was partially offset by a decrease in employee benefits expenses.

     Regulated other operating expenses increased $79.6 million in 1997 compared
to 1996.  Nuclear  operating costs increased $14.0 million  compared to 1996. Of
that  increase,  $4.5 million  related to the change in rate treatment of Cooper
capital improvement advances. An increase in energy efficiency costs,  including
amortization  of  historical  costs and  charging  expense  for  current  costs,
accounted for $13.1 million of the increase in other operating expenses.

     MidAmerican's  efforts to improve  its  customer  service  and  reliability
resulted  in  increases  in  consulting  costs,  advertising  and other  related
expenses.  In  addition,  1997  reflects  increases  in  uncollectible  accounts
expense, employee incentive compensation and certain employee benefits expenses.
Other  operating  expenses  for 1997 also  reflect an increase  in  transmission
wheeling expense due in part to changes required by FERC Order Nos. 888 and 889.

                                     -45-
<PAGE>
 
     Maintenance -

     Maintenance  expenses  increased  $9.8 million in 1998 compared to 1997. An
increase in  maintenance  costs at the Quad Cities  Station  accounted  for $8.0
million of the total. Additionally, MidAmerican incurred repair costs for storms
in June 1998, totaling $3.8 million,  compared to $2.0 million in 1997 for costs
related to a snowstorm in October of that year.

     Maintenance  expenses increased $9.5 million for 1997 compared to 1996. The
main  cause of the  increase  was an  adjustment  in 1996 to align  power  plant
inventory accounting of predecessor companies which reduced 1996 expense by $6.2
million.  Restoration  costs for the October 1997 snowstorm also  contributed to
the increase,  while  maintenance  expenses at the Quad Cities Station decreased
$2.5 million in 1997 compared to 1996.

     Depreciation and Amortization -

     The  increase  in  1998  expense  compared  to  1997  is due to  additional
decommissioning  funding for Quad Cities  Station,  an increase in utility plant
and regulatory accruals.

     Property and Other Taxes -

     Deregulation of the Illinois  electric utility industry resulted in changes
in the way certain  taxes are  assessed in Illinois.  The changes  resulted in a
decrease in  MidAmerican's  tax expense  for 1998  compared to 1997.  One of the
taxes is now  assessed  directly on the energy  consumer  instead of through the
utility. Accordingly, MidAmerican's electric revenues reflect an equal reduction
in 1998.  Property  taxes  increased  $8.8 million in 1997  compared to 1996 due
primarily to an increase in the assessed value for Iowa property tax purposes.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     MidAmerican's income statements now reflect its nonregulated  operations in
the  determination  of  Operating  Income.  Previously,  these  activities  were
reflected in Other, Net on the Consolidated  Statements  Income.  All prior year
amounts are reclassified to be consistent with the current year's  presentation.
MidAmerican has increased its efforts in nonregulated  operations in preparation
for a competitive  utility  industry.  Additionally,  beginning in May 1998, gas
marketing  contracts   previously  serviced  by  a  nonregulated   affiliate  of
MidAmerican were renewed as MidAmerican contracts.

     Revenues and Cost of Sales -

     Revenues from wholesale  natural gas marketing  operations  increased $32.5
million in 1998  compared to 1997 due to an increase of 18 million  MMBtus (88%)
in related sales volumes.  A decrease in the average price per unit,  reflective
of a lower cost of gas per unit, partially offset the effect of increased sales.
Cost of sales related to natural gas marketing for 1998 reflects the increase in
sales and the decrease in the average  cost of gas per unit.  Total gross margin
(total price less cost of gas) on  nonregulated  natural gas sales was unchanged
compared to 1997.

     Other activities contributing to the increase in nonregulated revenues
for 1998  relate  to work for  other  utilities  and work  beyond  the meter for
customers.  In addition,  the 1998 amount includes  revenues of CBEC Railway,  a
subsidiary of  MidAmerican  that operates rail services on a section of railroad
track it owns.  MidAmerican's  revenues in 1998 and 1997 also  include  pre-tax
income  from  awards  for  successful   performance   under  its  incentive  gas
procurement program. Under the program, if MidAmerican's cost of gas 


                                      -46-
<PAGE>

varies from an established  reference  price range,  then the savings or cost is
shared between customers and  shareholders.  The awards totaled $4.3 million and
$4.9 million in 1998 and 1997, respectively.

     For the comparison of 1997 with 1996,  revenues from wholesale  natural gas
marketing operations increased $23.1 million due to an increase in sales volumes
of 7 million MMBtus (51%).  In addition,  the average price per unit  increased,
reflecting  an  increase  in the  average  cost of gas per  unit.  Cost of sales
related to natural gas  marketing  for 1997  reflects the increases in sales and
the average cost of gas per unit. Total gross margin on nonregulated natural gas
sales decreased $0.3 million compared to 1996.

     Nonregulated  revenues  for 1997  also  reflect  a $2.2  million  increase
compared to 1996 in MidAmerican's  award for performance under its incentive gas
procurement program.

     Other Nonregulated Operating Expenses -

     Other  operating  expenses  increased in 1998 compared to 1997 due to costs
related  to work  for  other  utilities,  costs of work  beyond  the  meter  for
MidAmerican customers,  costs of appliance services and costs of initiatives for
new products and services in preparation for deregulation.

     The increase in 1997 costs  compared to 1996 relates to appliance  services
and initiatives for new products and services.

NON-OPERATING INCOME AND INTEREST EXPENSE

     Interest and Dividend Income-

     In  December  1997,  MidAmerican  sold its billed  accounts  receivable.  A
portion  of the  consideration  for the sale was a  subordinated  note  from the
purchaser.  Interest income on that note caused the increase in 1998 compared to
1997. Refer to FINANCING  ACTIVITIES,  PLANS AND AVAILABILITY  later in MD&A for
discussion of the sale.

     Other, Net -

     Other,  Net,  for 1998 and 1997  reflects  the  discount  on sold  accounts
receivable,  net of a fee for servicing the accounts.  The net discount  reduced
Other, Net by $7.0 million and $0.3 million in 1998 and 1997, respectively.

     In  September  1997,  MidAmerican  received a $15 million cash payment from
Nebraska  Public Power  District  (NPPD) as  settlement  for a lawsuit  filed by
MidAmerican   against   NPPD.   Approximately   $12  million  was   refunded  to
MidAmerican's  customers.  The remaining  amount was retained by MidAmerican for
recovery of litigation  costs in the lawsuit.  Other, Net for 1997 reflects $2.2
million of pre-tax  income for recovery of  litigation  costs  incurred in prior
years.

     In addition,  Other,  Net includes the  recognition of deferred income from
energy efficiency programs totaling $0.2 million,  $5.0 million and $3.3 million
for  1998,  1997 and  1996,  respectively.  As  discussed  in the  gross  margin
sections,   MidAmerican  started  recovery  of  its  remaining  deferred  energy
efficiency costs in September 1997.  Accordingly,  carrying costs for, or return
on,  deferred  balances are now being collected from customers and are reflected
in revenues.

                                      -47-
<PAGE>

     In 1996,  MidAmerican  recorded an initial  pre-tax gain of $3.2 million on
its sale of the certain storage gas supplies. MidAmerican recorded an additional
$0.8  million  gain in the  second  quarter of 1997  after  receiving  favorable
treatment on the transaction from the Iowa Utilities Board (IUB).

     Other,  Net for 1997  reflects a net loss on reacquired  long-term  debt of
$0.9 million compared to a $1.1 million net gain in 1996.

     Other,  Net for 1996  includes  approximately  $8.7 million of expenses for
costs incurred by MidAmerican  for its merger proposal to IES Industries Inc. in
1996.

     Fixed Charges -

     During 1998,  MidAmerican reduced its long-term debt through maturities and
refinancing. Refer to FINANCING ACTIVITIES, PLANS AND AVAILABILITY later in MD&A
for more details.

     A decrease in the average  amount of commercial  paper  outstanding in 1997
compared to 1996 resulted in a decrease in other interest  expense for 1997. The
decrease was partially  offset by interest expense related to IRS settlements in
1997.

     Preferred securities of MidAmerican's subsidiary trust were issued in
December  1996.  MidAmerican  preferred  shares  were  reacquired  at that time,
resulting in the decrease in preferred  dividends.  Preferred  dividends include
net gains or losses on the reacquisition of MidAmerican  preferred  shares.  Net
losses on  reacquisitions  totaled  $1.4  million and $1.6  million for 1997 and
1996, respectively.

                                      -48-
<PAGE>


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

     MidAmerican  has  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's
net cash provided from operating  activities was $381 million,  $310 million and
$327 million in 1998, 1997 and 1996, respectively.

INVESTING ACTIVITIES AND PLANS

     Utility Construction Expenditures -

     MidAmerican's   primary   need  for   capital   is   utility   construction
expenditures.  For 1998, utility construction expenditures totaled $193 million,
including allowance for funds used during  construction  (AFUDC) and Quad Cities
Station  nuclear  fuel  purchases.  All such  expenditures  were  met with  cash
generated from utility operations, net of dividends.

     Beginning  with  July  1997  expenditures,   advances  for  Cooper  capital
improvements are no longer included in utility construction expenditures but are
expensed when incurred and reflected in other  operating  expenses.  Previously,
MidAmerican  capitalized  these expenses in accordance with then applicable rate
regulation.  As part of the 1997 settlement of  MidAmerican's  electric  pricing
proposal,  MidAmerican  is  recovering  on a current  basis the Iowa  portion of
expenses  for  Cooper  capital  improvements  advances  from its  Iowa  electric
customers through a tracking mechanism.

     Forecasted utility construction expenditures, including AFUDC, for 1999 are
$194 million and $698 million for 2000 through 2003.  Capital  expenditure needs
are reviewed regularly by MidAmerican's  management and may change significantly
as a result of such  reviews.  MidAmerican  presently  expects  that all utility
construction  expenditures  for  the  next  five  years  will be met  with  cash
generated from utility  operations,  net of dividends.  The actual level of cash
generated from utility  operations is affected by, among other things,  economic
conditions  in the  utility  service  territory,  weather  and federal and state
regulatory actions.

     Deferred Energy Efficiency Expenditures -

     MidAmerican  stopped reflecting costs of its energy efficiency  programs as
an investing activity on its Consolidated  Statement of Cash Flows following the
IUB's  approval  in  September  1997 of the current  recovery of ongoing  energy
efficiency  program costs.  Under prior energy efficiency  regulations,  program
costs were deferred for several years prior to beginning  their  recovery over a
four-year period,  and accordingly,  MidAmerican  reflected them as an investing
activity.

     Nuclear Decommissioning -

     Each owner of a nuclear  facility is required to set aside funds to provide
for  the  cost  of   decommissioning   its   nuclear   facility.   In   general,
decommissioning  of a nuclear  facility means to safely remove the facility from
service and restore the property to a condition allowing unrestricted use by the
operator.  Based on  information  presently  available,  MidAmerican  expects to
contribute  approximately  $50 million during the period 1999 through 2003 to an
external trust established for the investment of funds for  decommissioning  the
Quad Cities Station.  Approximately 60% of the trust's funds are now invested in

                                      -49-

<PAGE>

domestic corporate debt and common equity securities.  The remainder is invested
in investment grade municipal and U.S. Treasury bonds.

     In addition,  MidAmerican makes payments to NPPD related to decommissioning
Cooper.  These  payments  are  reflected  in  other  operating  expenses  in the
Consolidated  Statements of Income.  NPPD estimates call for  MidAmerican to pay
approximately $57 million to NPPD for Cooper  decommissioning  during the period
1999 through 2003. NPPD invests the funds  predominately in U.S. Treasury Bonds.
MidAmerican's  obligation  for Cooper  decommissioning  may be  affected  by the
actual plant shutdown date and the status of the power purchase contract at that
time. In July 1997, NPPD filed a lawsuit in United States District Court for the
District  of  Nebraska  naming  MidAmerican  as  the  defendant  and  seeking  a
declaration of  MidAmerican's  rights and  obligations in connection with Cooper
nuclear decommissioning funding.

     Cooper  and 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.  MidAmerican  currently
recovers Quad Cities Station decommissioning costs charged to Illinois customers
through a rate rider on customer billings.

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

     MidAmerican currently has authority from the FERC to issue short-term
debt in the form of commercial paper and bank notes aggregating $400 million. As
of March 15, 1999,  MidAmerican  had a $250 million  revolving  credit  facility
agreement and a $5 million bank line of credit.  MidAmerican's  commercial paper
borrowings  are  supported  by the  revolving  credit  facility  and the line of
credit.  MidAmerican  also has a revolving credit facility which is dedicated to
provide  liquidity  for its  obligations  under  outstanding  pollution  control
revenue bonds that are periodically remarketed.

     In 1997,  MidAmerican entered into a revolving agreement,  which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican.  Funding  Corp.  in  turn  sold  receivable  interests  to  outside
investors.  In consideration for the sale,  MidAmerican  received $70 million in
cash and the remaining  balance in the form of a subordinated  note from Funding
Corp. In 1998, the revolving balance was reduced to $60 million due to a decline
in accounts receivable available for sale. The agreement is structured as a true
sale, as determined by Statement of Financial  Accounting  Standards  (SFAS) No.
125, under which the creditors of Funding Corp. will be entitled to be satisfied
out of the  assets  of  Funding  Corp.  prior to any  value  being  returned  to
MidAmerican or its creditors.  Therefore,  the accounts  receivable sold are not
reflected on MidAmerican's Consolidated Balance Sheets. As of December 31, 1998,
$97.4  million of accounts  receivable,  net of  reserves,  was sold under the
agreement.

        The following  table displays the 1998 long-term debt  retirements  and
issuances of MidAmerican.  Repayment of the February and October  maturities was
funded with short-term debt and cash from operations.

                                      -50-

<PAGE>
 
<TABLE>
<CAPTION>

       Date                   Issue                            Principal       Transaction 
     --------   ----------------------------------------    -------------   ---------------- 
     <S>        <C>                                         <C>             <C> 
       2-1-98   6.25% First Mortgage Bonds, due 2-1-98      $  75,000,000   Matured
      6-19-98   6.375% Medium Term Notes due 6-15-06          160,000,000   Issued
      7-15-98   8.125% General Mortgage Bonds due 2-1-03      100,000,000   Called at 105.23
      7-15-98   8% General Mortgage Bonds due 2-15-22          50,000,000   Called at 105.13
     10-15-98   5.05% First Mortgage Bonds due 10-15-98        49,100,000   Matured
</TABLE>

     As of December 31,  1998,  MidAmerican  had $381 million of long-term  debt
maturities and sinking fund requirements for 1999 through 2003.

     MidAmerican has authorization  from the FERC to issue up to $500 million in
various  forms  of debt.  MidAmerican  will  also  need  authorization  from the
Illinois  Commerce  Commission (ICC) prior to issuing any securities.  If 90% or
more of the  proceeds  from a  securities  issuance  are  used  for  refinancing
purposes,   MidAmerican  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.

     Credit Ratings -

     MidAmerican's  access  to  external  capital  and its cost of  capital  are
influenced by the credit ratings of its securities. MidAmerican's credit ratings
as of March 12, 1999, are shown in the table below. The ratings reflect only the
views of such rating agencies, and each rating should be evaluated independently
of  any  other  rating.  Generally,   rating  agencies  base  their  ratings  on
information  furnished  to them by the  issuing  company  and on  investigation,
studies and assumptions by the rating  agencies.  There is no assurance that any
particular rating will continue for any given period of time or that it will not
be  changed or  withdrawn  entirely  if in the  judgment  of the  rating  agency
circumstances so warrant.  Such ratings are not a recommendation to buy, sell or
hold securities.

                                                  Moody's 
                                      Duff &     Investors      Standard
                                      Phelps      Service       & Poor's
                                      ------     ---------      --------
     Mortgage Bonds                     AA-        A2             A+
     Unsecured Medium-Term Notes        A+         A3             A-
     Preferred Stocks                   A          a3             BBB+
     Commercial Paper                   N/A        P-1            A-1

     The  following is a summary of the meanings of the ratings  shown above and
the relative rank of  MidAmerican's  rating within each agency's  classification
system.

     Duff & Phelps top four  bond/note  ratings (AAA,  AA, A, BBB) are generally
considered  "investment  grade." Bonds rated "AA" possess a high credit quality,
and  protection  factors are strong.  Risk is modest but may vary  slightly from
time to time because of economic conditions. Duff & Phelps may use a plus (+) or
minus (-) sign after  ratings to  designate  the  relative  position of security
within the rating category.  Moody's top four bond/note  ratings (Aaa, Aa, A and
Baa) are generally  considered "investment  grade."  Obligations which are rated
"A"  possess  many  favorable  investment   attributes  and  are  considered  as
upper-medium-grade  obligations.   Factors  giving  security  to  principal  and
interest are  considered  adequate but elements may be present  which  suggest a
susceptibility to impairment  sometime in the future. A numerical modifier ranks
the  security  within the  category  with a "1"  indicating  the high end, a "2"
indicating  the  mid-range  and a "3"  indicating  the low end of the  category.
Standard & Poor's top four bond/note ratings (AAA, AA, A and BBB) are considered
"investment  grade".  Debt rated "A" has a strong  capacity to pay  interest and
repay principal  although it is somewhat more susceptible to the adverse effects
of changes in  circumstances  and economic  conditions than  higher-rated  debt.
Standard  & Poor's  may use a plus  (+) or  minus  (-)  sign  after  ratings  to
designate the relative position of a security within the rating category.

                                     -51-

<PAGE>

     Ratings of preferred stocks are an indication of a company's ability to pay
the preferred  dividend and any sinking fund obligations on a timely basis. Duff
& Phelps top four preferred  stock ratings  categories are the same as for bonds
and  notes.  A rating  of "A"  indicates  protection  factors  are  average  but
adequate.  Risk  factors  are more  variable  and greater in periods of economic
stress.  Moody's  top four  preferred  stock  ratings  (aaa,  aa, a and baa) are
generally considered  "investment grade". Moody's "a" rating is considered to be
an upper  medium  grade  preferred  stock.  Earnings  and asset  protection  are
expected to be maintained at adequate levels in the foreseeable future. Standard
& Poor's top four  preferred  stock ratings (AAA,  AA, A and BBB) are considered
"investment  grade".  Standard & Poor's "BBB" rating indicates adequate capacity
to meet  payment  obligations.  Whereas it  normally  exhibits  adequate  asset
protection,  it is susceptible  to weakened  payment  capacities  during adverse
economic conditions than higher rated categories.

     Moody's top three commercial paper ratings (P-1, P-2 and P-3) are generally
considered  "investment grade".  Issuers rated "P-1" have a superior ability for
repayment of senior  short-term debt obligations and repayment  ability is often
evidenced by a  conservative  structure,  broad margins in earnings  coverage of
fixed  financial  charges and well  established  access to a range of  financial
markets and assured sources of alternate liquidity. Standard & Poor's commercial
paper ratings are a current  assessment of the  likelihood of timely  payment of
debt having an original  maturity less than 365 days.  The top three  Standard &
Poor's  commercial  paper ratings (A-1, A-2 and A-3) are considered  "investment
grade".  Issues rated "A-1" indicate that the degree of safety  regarding timely
payment is either  overwhelming  or very  strong.  Those  issues  determined  to
possess overwhelming safety are denoted with a plus (+) sign designation.

OPERATING ACTIVITIES AND OTHER MATTERS

     Industry Evolution -

     The utility industry  continues to evolve into an increasingly  competitive
environment.  In  virtually  every  region  of  the  country,   legislative  and
regulatory actions are being taken which result in customers having more choices
in their energy decisions.

     In  the  electric  industry,   the  traditional   vertical  integration  of
generation,  delivery and marketing is being unbundled,  with the generation and
marketing  functions being deregulated.  For local gas distribution  businesses,
the supply, local delivery and marketing functions are similarly being separated
and opened to competitors  for all classes of customers.  While retail  electric
competition is presently not permitted in Iowa,  MidAmerican's  primary  market,
legislation  is being  considered in the current  legislative  session to do so.
Deregulation  of the gas supply  function  related to small volume  customers is
currently being considered by the IUB. MidAmerican is actively  participating in
the  legislative and regulatory  processes  shaping the new environment in which
its businesses will operate.

     The generation and retail portions of MidAmerican's  electric business will
be  most  affected  by  competition.  The  introduction  of  competition  in the
wholesale  market has  resulted  in a  proliferation  of power  marketers  and a
substantial increase in market activity.  As retail choice evolves,  competition
from other traditional utilities,  power marketers and self-generation could put
pressure on utility margins.

     During the  transition  to full  competition,  increased  volatility in the
marketplace  can be expected,  as evidenced by the extreme price spikes for bulk
power  encountered in the Midwest in June 1998.  Although 

                                     -52-

<PAGE>

the extreme prices did not have a material impact on MidAmerican's results, such
volatility  underscores the increased risk and  opportunity  associated with the
energy business as it transitions to competition.

     MidAmerican is positioning  itself to succeed in a competitive  environment
in a number of ways  including  working to reduce energy costs,  developing  new
energy-related  products and services, and entering into ventures with others to
strengthen   its   relationship   with  existing  and   prospective   customers.
MidAmerican's association with its real estate brokerage affiliate is an example
how it is positioning to expand market share when retail competition is allowed.

     Legislative and Regulatory Evolution -

     In December 1997, the Governor of Illinois signed into law a bill to
restructure   Illinois'  electric  utility  industry  and  transition  it  to  a
competitive market. Under the law, larger non-residential  customers in Illinois
and 33% of the remaining  non-residential  Illinois customers will be allowed to
select their provider of electric supply  services,  beginning  October 1, 1999.
All other non-residential  customers will have supplier choice starting December
31, 2000.  Residential  customers  all receive the  opportunity  to select their
electric supplier on May 1, 2002.

     The law required a 15% electric rate reduction for all Illinois residential
customers in 1998. To satisfy its  obligation,  MidAmerican  received credit for
its 1996 and 1997 Illinois rate reductions,  totaling $15.5 million, and reduced
rates an additional $0.9 million annually, effective August 1, 1998. MidAmerican
is exempted from the requirement to join an independent system operator (ISO) or
to form an in-state ISO.

     In addition,  the law provides for Illinois  earnings above a certain level
of return on equity (ROE) to be shared equally between customers and MidAmerican
beginning  in April  2000.  MidAmerican's  ROE level  will be based on a rolling
two-year average, with the first determination being based on an average of 1998
and 1999. The ROE level at which  MidAmerican will be required to share earnings
is a multi-step  calculation of average  30-year  Treasury Bond rates plus 5.50%
for 1998 and 1999 and 6.50% for 2000  through  2004.  If the  resulting  average
Treasury Bond rate were equal to the December  1998 30-year  Treasury Bond rate,
the ROE level above which sharing must occur would be  approximately  10.6%. The
law allows  MidAmerican  to mitigate the sharing of earnings above the threshold
ROE  through  non-cash  methods  that  would  reduce   MidAmerican's   earnings.
MidAmerican continues to evaluate its strategy regarding the sharing mechanism.

     The law also addresses charges to customers for transition costs based on a
lost-revenue approach. These transition fees, designed to help utilities recover
stranded  costs,  will end  December 31,  2006,  subject to possible  extension.
MidAmerican  continues  its  involvement  in  proceedings  which  detail the new
competitive environment and to evaluate the impact of the law on its operations.

     In Iowa, a replacement of the prior utility property tax system,  which was
supported by  MidAmerican,  went into effect on January 1, 1999. The replacement
tax is  primarily  a  consumption-based  tax on the user of energy  and  assures
stability  in tax  collections  as the  industry is  deregulated  in Iowa.  With
resolution  of the utility  property  tax issue,  MidAmerican  is  pursuing  the
adoption of restructuring legislation in the 1999 Iowa legislative session.

     Small Volume Gas Transportation -

     In October  1997,  the IUB adopted  rules to encourage  gas  transportation
service for small volume customers starting in 1999.  MidAmerican filed its plan
to unbundle  service for its small volume  customers on October 30, 1998.  Under
the plan,  all of  MidAmerican's  small  volume  natural gas  customers in Iowa,


                                      -53-
<PAGE>


including  residential  customers,  would be allowed to choose their own natural
gas  supplier/marketer,  which  may  be  the  retail  portion  of  MidAmerican's
business,  beginning  May 1, 2000.  If a customer  does not  expressly  choose a
supplier/marketer, then MidAmerican will provide the customer with market-priced
service.  With  implementation  of  customer  choice,  the PGA (refer to the Gas
Margin  discussion of Results of  Operations)  would be modified to recover only
the costs incurred by  MidAmerican,  as the  distribution  system  operator,  to
balance the system and maintain system integrity.

     Residential and Commercial Pilot Project -

     On  August  21,  1998,  the IUB  issued  an Order  approving  MidAmerican's
proposal to allow at least 15,000 Iowa  families and 2,000 small  businesses  to
have the  opportunity  to select  among  competing  electricity  providers.  The
two-year program will allow participating  retail customers in the selected test
area to choose among several electricity providers,  including MidAmerican,  and
to have that energy delivered by MidAmerican.  Customer enrollment will begin on
April 1, 1999,  with the pilot  starting in May 1999.  Businesses in the test
area will be eligible  for the program if their  annual peak demand is less than
four  megawatts.  New  suppliers  participating  in the program  will have to be
certified by the IUB and meet specified requirements.

     Accounting Effects of Industry Restructuring -

     A possible  consequence of competition in the utility industry is that SFAS
71 may no longer apply. SFAS 71 sets forth accounting  principles for operations
that are  regulated  and meet certain  criteria.  For  operations  that meet the
criteria,  SFAS 71 allows,  among other things, the deferral of costs that would
otherwise be expensed when incurred.  A majority of  MidAmerican's  electric and
gas utility operations  currently meet the criteria required by SFAS 71, but its
applicability is periodically  reexamined.  On December 16, 1997,  MidAmerican's
generation  operations serving Illinois were no longer subject to the provisions
of SFAS 71 due to passage of industry  restructuring  legislation  in  Illinois.
Thus, in 1997  MidAmerican  was required to write off the regulatory  assets and
liabilities   from  its  balance  sheet  related  to  its  Illinois   generation
operations.  The net  amount  of such  write-offs  was not  material.  If  other
portions  of its  utility  operations  no longer  meet the  criteria of SFAS 71,
MidAmerican  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.  As of December 31,  1998,  MidAmerican  had $305
million of regulatory assets on its Consolidated Balance Sheet.

     Energy Efficiency -

     MidAmerican's  regulatory  assets as of December 31, 1998,  included  $74.5
million of deferred  energy  efficiency  costs.  Based on the  current  level of
recovery,  MidAmerican  expects  to  recover  these  costs  by the end of  2001.
MidAmerican is also allowed to recover its ongoing energy  efficiency costs on a
current basis.  Recovery of these costs is being  collected from customers based
on projected  annual  costs of $16.8  million,  which may be adjusted  annually.
Amortization of the deferred energy  efficiency  costs and current  expenditures
for energy  efficiency costs will be reflected in other operating  expenses over
the  related  periods of  recovery.  The total of such costs for the years 1999,
2000 and 2001 is  estimated  to be $43  million,  $40 million and $35 million,
respectively.

     Rate Matters: Electric -

     On June 27,  1997,  the IUB  approved  a March  1997  settlement  agreement
between  MidAmerican,  the Iowa  Office  of  Consumer  Advocate  (OCA) and other
parties.  Four  major  components  of the  settlement  and their  status  are as
follows:

                                      -54-
<PAGE>

     1) On an annualized  basis,  prices for residential  customers were reduced
$8.5 million,  $10.0 million and $5.0 million  effective  November 1, 1996, July
11, 1997, and June 1, 1998,  respectively,  for a total annual decrease of $23.5
million.

     2) Prices for industrial  customers were reduced by $6 million annually and
prices for commercial customers were reduced by $4 million annually. MidAmerican
was given permission to implement these reductions through a retail access pilot
project,  negotiated  individual  contracts  and tariffed  rate  reductions.  On
January  1,  1999,  MidAmerican  reduced  base  rates for  certain  non-contract
commercial  customers by  approximately  $1.5 million  annually,  subject to IUB
approval.  Additionally,  MidAmerican will make a one-time refund for reductions
that  were not in place by the June 1,  1998,  deadline.  The  remainder  of the
commercial and industrial  price  reductions  were achieved  through  negotiated
contracts and a retail access pilot project.

     The negotiated  contracts  have  differing  terms and conditions as well as
prices.  The  contracts  range in length  from five to ten years,  and some have
price  renegotiation  and early  termination  provisions  exercisable  by either
party.  The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to 10-year contracts.  Prices are set
as fixed prices;  however,  many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes,  and transition costs.  While the contract prices are fixed (except
for the potential adjustment elements),  the costs MidAmerican incurs to fulfill
these  contracts  will vary.  On an aggregate  basis the annual  revenues  under
contract are approximately $180 million.

     3) The Iowa energy  adjustment  clause (EAC) was eliminated.  Prior to July
11,  1997,  MidAmerican  collected  fuel costs from Iowa  customers on a current
basis  through the EAC,  and thus,  fuel costs had little  impact on net income.
Since then,  base rates for Iowa  customers  include a factor for  recovery of a
representative level of fuel costs. If the actual per-unit fuel cost varies from
that  factor,  pre-tax  earnings  are  affected.  The fuel cost factor was to be
reviewed in February  1999 and  adjusted  prospectively  if the actual 1998 fuel
cost per-unit varied by more than 15% above or below the factor included in base
rates.  Based on 1998 actual fuel costs,  MidAmerican  will reduce the fuel cost
recovery factor in 1999 base rates.  The estimated  annual reduction in revenues
associated with this adjustment is $1.1 million.

     4) If MidAmerican's  annual Iowa electric  jurisdictional  return on common
equity exceeds 12%, then an equal sharing between  customers and shareholders of
earnings  above the 12% level  begins;  if it exceeds 14%,  then  two-thirds  of
MidAmerican's  share of those earnings will be used for accelerated  recovery of
certain regulatory assets. The agreement  precludes  MidAmerican from filing for
increased rates prior to 2001 unless the return on common equity falls below 9%.
Other parties signing the agreement are prohibited from filing for reduced rates
prior to 2001 unless the return on common equity,  after  reflecting  credits to
customers, exceeds 14%.

     Rate Matters: Gas -

     On October 27, 1998,  MidAmerican  made a filing with the IUB  requesting a
rate increase for its Iowa retail gas  customers.  The 4.5% increase  represents
approximately an $18.5 million  increase in annual gas revenues.  On January 22,
1999,  the IUB approved an interim rate increase of  approximately  $6.7 million
annually,  effective  immediately.   MidAmerican  and  the  OCA  have  signed  a
settlement  agreeing to a final rate  increase of $13.9  million  annually.  The
settlement is subject to the IUB's approval which  MidAmerican  expects to occur
in the second quarter of 1999.

                                     -55-
<PAGE>
     On  November  20,  1998,  MidAmerican  filed with the South  Dakota  Public
Service  Commission  requesting a rate  increase for its South Dakota retail gas
customers.  The requested 6.5% increase represents  approximately a $3.2 million
increase in annual  revenues.  MidAmerican  expects the final  rates,  which may
differ from the requested amount, to be implemented in the summer of 1999.

     Environmental Matters -

     The  United  States   Environmental   Protection  Agency  (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 is evaluating 27 properties  which were, at one time,  sites of
gas  manufacturing  plants in which it may be a  potentially  responsible  party
(PRP). The purpose of these  evaluations is to determine whether waste materials
are present,  whether such materials constitute an environmental or health risk,
and  whether   MidAmerican   has  any   responsibility   for  remedial   action.
MidAmerican's  estimate  of  probable  remediation  costs for these  sites as of
December  31,  1998,  was $24  million.  This  estimate  has been  recorded as a
liability  and a regulatory  asset for future  recovery  through the  regulatory
process.  Refer to Note (4) (b) of Notes for further discussion of MidAmerican's
environmental  activities  related  to  manufactured  gas  plant  sites and cost
recovery.

     Although the timing of potential  incurred  costs and recovery of such cost
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's financial position or results of operations.

     Following recommendations provided by the Ozone Transport Assessment Group,
the EPA,  in  November  1997,  issued  a Notice  of  Proposed  Rulemaking  which
identified  22  states  and the  District  of  Columbia  as  making  significant
contribution  to  nonattainment  of the ozone standard in downwind states in the
eastern half of the United States.  In September  1998, the EPA issued its final
rules  in  this  proceeding.  Iowa is not  subject  to the  emissions  reduction
requirements in the final rules, and, as such,  MidAmerican's facilities are not
currently  subject  to  additional  emissions  reductions  as a  result  of this
initiative.

     On July 18,  1997,  the EPA adopted  revisions to the NAAQS for ozone and a
new  standard for fine  particulate  matter.  Based on data to be obtained  from
monitors  located  throughout the states,  the EPA will make a determination  of
whether  the states  have any areas that do not meet the air  quality  standards
(i.e.,  areas that are  classified  as  nonattainment).  If a state has  area(s)
classified  as  nonattainment  area(s),  the state is required to submit a State
Implementation  Plan  specifying  how it will reach  attainment of the standards
through   emission   reductions  or  other  means.  In  August  1998,  the  Iowa
Environmental Protection Commission adopted by reference the NAAQS for ozone and
fine particulate matter.

     The  impact  of  the  new  standards  on  MidAmerican  will  depend  on the
attainment  status  of  the  areas  surrounding   MidAmerican's  operations  and
MidAmerican's  relative contribution to the nonattainment status. The attainment
status of areas in the  state of Iowa will not be known for two to three  years.
However,   if   MidAmerican's   operations   are  determined  to  contribute  to
nonattainment,  the  installation  of  additional  control  equipment,  such  as
scrubbers and/or selective catalytic reduction,  on MidAmerican's units could be
required.  The cost to install such equipment could be significant.  MidAmerican
will continue to follow the attainment  status of the areas in which it operates
and evaluate the  potential  impact of the status of these areas on  MidAmerican
under the new regulations.

                                      -56-
<PAGE>
     In  December  1997,  negotiators  from more than 150  nations met in Kyoto,
Japan to negotiate an international agreement designed to address global climate
change impacts by attempting to reduce so-called greenhouse gas emissions.  Some
scientists contend that these gases build up in the Earth's atmosphere and cause
global  temperatures  to rise. The primary  target of these  emissions is carbon
dioxide (CO2) which is formed by, among other things,  the  combustion of fossil
fuels.  The  agreement  currently  calls for the  United  States  to reduce  its
emissions of CO2 and other  greenhouse  gases to 7 percent  below 1990 levels in
the 2008-2012 time frame.  The United States became a signatory to the agreement
on November 12,  1998.  In order for the  agreement  to become  binding upon the
United States,  ratification  by the U.S.  Senate is necessary.  The cost to the
utility industry in general,  and to MidAmerican,  of reducing its CO2 emissions
levels by 7 percent  below 1990 levels would depend on available  technology  at
the time, but could be material.

     Quad Cities Nuclear Power Station -

     Quad Cities  Station is operated  by and 75% owned by  Commonwealth  Edison
Company (ComEd).  In January 1998, ComEd was informed by the Nuclear  Regulatory
Commission  (NRC) that the  performance  of Quad  Cities  Station  was  trending
adversely.  During  outages at Units 1 and 2 in the first  five  months of 1998,
ComEd worked  extensively  with the NRC regarding  its concerns.  In a July 1998
meeting,  ComEd was  informed  by the NRC that while the  adverse  trend at Quad
Cities  Station  appears to have been stopped,  the operating  time of the units
since their restarts in May and June 1998 was not sufficient for the NRC to make
a final determination of the trend status of Quad Cities Station. The NRC senior
managers are  scheduled to meet again in April 1999 on one unit and are expected
to consider the  performance  of nuclear  power  plants,  including  Quad Cities
Station.  Other than a refueling outage on one unit and a scheduled surveillance
outage required by technical specifications,  the Quad Cities Station units have
remained in full operation.

     Coal Inventories -

     In 1997 and 1998,  nationwide  operational  problems  of the Union  Pacific
Railroad resulted in reduced coal inventories at certain MidAmerican  generating
facilities.  Management believes MidAmerican coal inventories have been restored
to levels adequate to meet expected customer demands.

     Generating Capability -

     In July 1998, customer usage of electricity caused an hourly peak demand of
3,643 MW on  MidAmerican's  energy system.  MidAmerican's  previous  record peak
demand was 3,553 MW set in 1995. MidAmerican is interconnected with certain Iowa
and neighboring utilities and is involved in an electric power pooling agreement
known as Mid-Continent Area Power Pool (MAPP). Each MAPP participant is required
to maintain for emergency  purposes a net  generating  capability  reserve of at
least 15% above its system peak demand.  MidAmerican's  reserve  margin for 1998
was approximately 20%.

     MidAmerican   believes  it  has  adequate  electric  capacity  reserve  and
continues to manage its  generating  resources to ensure an adequate  reserve in
the future. However,  significantly  higher-than-normal  temperatures during the
cooling season could cause MidAmerican's  reserve to fall below the 15% minimum.
If MidAmerican fails to maintain the appropriate reserve,  significant penalties
would be contractually imposed by MAPP.

ACTIVITIES REGARDING YEAR 2000 DATE ISSUES

     The following discussion of year 2000 issues describes MidAmerican's plans
to address technical problems relating to calculations,  manipulations,  storage
and other uses of date data which could cause some computer-controlled  systems,
applications and processes (hereinafter referred to as "Systems") to incorrectly

                                      -57-
<PAGE>

process  critical  financial and  operational  information,  or stop  processing
altogether.   The  discussion   contains  by  necessity   many   forward-looking
statements.  The Company wishes to avail itself of the safe harbor provisions of
the  Private  Securities  Litigation  Reform Act of 1995,  and in order to do so
includes  the  following  meaningful  cautionary  statements  with regard to the
forward  looking  statements of its year 2000 plans.  The Company's  intentions,
expectations,  and predictions  relating to its year 2000 efforts are subject to
risks and  uncertainties  that could cause actual  results to differ  materially
from  those  expressed  in,  or  implied  by such  statements.  Such  risks  and
uncertainties  include,  among  others,  the  effects  of  weather,  competitive
factors,  federal and state regulatory actions, and other matters, many of which
are beyond the  Company's  control.  In  addition,  the Company  claims the full
protections  established by the Year 2000  Information and Readiness  Disclosure
Act for Year 2000 Statements and Year 2000 Readiness Disclosure.

     Project Description -

     The Company has  undertaken  an  extensive  ongoing  project to address its
information  technology (IT) and non-IT (including embedded  technology) Systems
potentially  affected by the year 2000 date change.  The  Company's  approach is
based on a five-phase  project  methodology - inventory,  assessment,  planning,
resolution and  implementation  - designed to result in the  identification  and
evaluation of potential problems,  and remediation of the Company's Systems. The
Company generally defines the five phases as follows:

     1. Inventory  Phase - The purpose of the inventory phase is to identify and
document Systems used by the Company that may have a date function.

     2.  Assessment  Phase - The purpose of the  assessment  phase is to collect
information  about  inventoried  Systems,  including  the business and technical
context  in which  individual  Systems  operate,  to make an  informed  judgment
concerning an appropriate plan to mitigate year 2000 related risks.

     3.  Planning  Phase - The  purpose  of the  planning  phase  is to  develop
strategic  and tactical  plans for Systems that  require  replacement,  repairs,
upgrades or other appropriate actions (collectively referred to as "remedial
actions").

     4. Resolution Phase - The purpose of the resolution phase is to execute the
plan developed during the preceding phases. Testing of Systems and/or components
of Systems is commenced during this phase.

     5.  Implementation  Phase - The  purpose  of the  implementation  phase  is
to examine the Systems to  determine whether they will function adequately in a
production environment and to perform follow-up administrative tasks as required
to develop appropriate documentation in support of year 2000 readiness.

     The  Company's  preparedness  goal is to ensure  high- and  medium-priority
Systems are suitable  for  continued  use into the year 2000 and will  correctly
perform all critical  functions  that require  accurate  processing of date data
("year  2000  ready" or "year 2000  readiness")  by June 30,  1999.  The Company
classifies  all  Systems  ranging  from  low- to  high-priority  based  on their
importance to carrying out the Company's  business  mission.  System priority is
based on  potential  impacts  resulting  from year 2000  problems  on public and
employee safety, prolonged and widespread service outages, long-term shareholder
value,  and  ability  to comply  with  regulatory  requirements.  In the case of
low-priority Systems, year 2000 readiness may be delayed beyond January 1, 2000,
or perhaps indefinitely. The Company plans to use the last six months of 1999 to
perform post-implementation testing, address selected lower priority Systems and
conduct preparedness exercises.

     Vendors, customers and other third parties may affect the Company's ability
to achieve  year 2000  readiness.  Because  service  reliability  and  financial
stability  are dependent on the Company's  supply chain,  a 

                                      -58-

<PAGE>

concerted effort is being made to investigate  important third parties to assess
their  ability to  continue  to supply  products  or  services  to, or  purchase
products or services from, the Company. To date, the Company's  investigation of
third parties has focused  substantial  efforts on vendors of Systems and System
components,  fuel suppliers, joint owners of service providers,  wholesale (bulk
power) customers, major retail customers, and companies that exchange electronic
data with the Company.  However,  information  made available to the Company has
not been  uniform in terms of quality  and  quantity;  e.g.,  information  about
products in which the Company has a specific  interest  has been  definitive  in
some cases, while in other cases such information has been inconclusive.

     State of Readiness -

     Due to factors such as the overlapping nature of the project phases and the
varying degree of complexity of the Systems being addressed,  it is difficult to
accurately  determine  the status of  completion  of a  particular  phase of the
project at any given point in time.  The Company  uses three  methods to measure
the status of project completion:

     1.   As an entity with public utility operations, the Company must comply
          with certain year 2000  regulatory  requirements  imposed by the North
          American Electric Reliability Council ("NERC"). NERC reporting data is
          limited  primarily  to  Systems  that  are  directly  associated  with
          transmission  grid stability.  The  transmission  grid consists of the
          interconnected  transmission  systems  of  North  American  utilities.
          Reporting   categories   include   nuclear   generation,   non-nuclear
          generation, Energy Management Systems and Supervisory Control and Data
          Acquisition ("SCADA") system,  telecommunications  systems, substation
          controls and system protection,  and IT business  information systems.
          Pursuant to NERC requirements, the Company's January compliance filing
          shows the Company has completed 100% of inventory  provisions,  94% of
          assessment   conditions   (the  remaining  6%  relates  to  finalizing
          phase-end sign-off  documentation and completion of assessment on some
          products  that  had  not  been  implemented  to  production  as of the
          reporting date), and 50% of remediation/testing requirements.

     2.   The "checklist" approach counts as one each System that is unique to a
          given organizational  group. For example,  identical substation meters
          may be  located in several  individual  substations,  but the meter is
          counted as only one  System.  All  Systems  are viewed as  equivalent,
          regardless  of  priority,  in  the  checklist  approach.  Systems  are
          categorized as complete or not complete,  without regard to percentage
          of  completion  of the System in total or  percentage of completion of
          any  particular  phase of the project.  As of January 31, 1999,  there
          were 5,469  separate  Systems in the  Company's  inventory.  Of these,
          3,637, or 66.5%, had been completed.

     3.   The Company's  internally  developed  measure is more sensitive and is
          based on business  risk/priority,  weighted tasks and weighted phases.
          Only high- and medium-risk/priority Systems are included in the status
          of  completion  calculation.  The data  related to Systems  that could
          impact grid  stability  pertains  only to those  Systems that directly
          affect the Company's  customers.  Also,  progress toward completion is
          measured.  As of January 31,1999,  the Company as a whole is generally
          in the  resolution  phase.  Percentage of completion  for six areas of
          business operations is a follows:

               A.  IT - Applications:  65% complete
               B.  IT - Operations & Infrastructure:  73% complete
               C.  Generation:  70% complete
               D.  Energy Delivery:  71% complete
               E.  Retail:  47% complete
               F.  Corporate Services (excluding IT):  43% complete
  
                                    -59-
<PAGE>

     The investigation of supply chain issues consists of documenting the nature
of business  relationships  in  correspondence,  surveys and meetings with third
parties and making  determinations  regarding  their year 2000 readiness  status
based on the responses received.  Ongoing communications with some third parties
will be required for the Company to make such a determination. Due to the nature
of third parties'  continued updates of year 2000 readiness  disclosures,  it is
expected that these  communications will continue through the last half of 1999,
as will  continued  monitoring of  information  about  specific  products in the
Company's inventory.

     Costs -

     As of December 31, 1998,  approximately  $5.5 million in operating expenses
have been incurred to carry out year 2000 activities.  It is anticipated that an
additional $8.2 million in operating  expenses and $1.4 million in capital costs
will need to be incurred to complete the project. Although additional unforeseen
costs may be  incurred,  at this time the  Company  has not become  aware of any
material costs which may arise in order to achieve year 2000  readiness.  Future
progress toward achievement of year 2000 readiness could change this outlook.

     The  Company  has  renovated  several   high-priority  Systems  (management
information,  materials management information, work management information, and
others).  Certain other Systems (customer  service,  electric outage management,
meter  control  and  inventory,  and others)  will be replaced to gain  enhanced
functionalities  prior to the end of the first quarter of 1999. The  requirement
to develop  and  install a new  customer  service  system  ("CSS")  and  related
applications  was an outcome of the merger which created  MidAmerican in July of
1995.  Although  potential  year  2000  problems  existing  in  the  predecessor
companies' CSS products were  recognized,  the decision to implement the new CSS
was primarily in response to technical difficulties  associated with application
integration and the need for additional application  functionalities.  The costs
of the  new CSS and  related  applications  are not  reported  herein  as  their
development and installation was not driven by year 2000 concerns.

     Contingency Plans -

     A  contingency  plan  identifying  credible  worst-case  scenarios is being
developed.  Although a number of factors  come into play in defining  reasonably
likely worst case scenarios,  the loss of voice and data ("V/D")  communications
in combination with volatile load patterns is viewed as the most serious threat.
Such   communications   are  crucial  to  enable  the  Company  to  monitor  the
relationship  between  the  supply  and  demand  for  electricity.  Loss  of V/D
communications  would  have a severe  impact in the event load  patterns  become
uncommonly unstable as a result of other utilities and/or large numbers of major
customers on the Company's  transmission grid system experience  problems due to
year 2000 issues.

     The first draft of the  Company's  contingency  plan was  completed  before
December 31, 1998, and the schedule for finalizing the plan calls for the second
draft to be  completed on or before June 30,  1999,  and to have an  operational
plan in place no later than  September 1, 1999. The Company plans to participate
in two contingency  planning drills coordinated by NERC on April 9 and September
9 of 1999.

     The  contingency  plan  comprises  both  mitigation  and recovery  aspects.
Mitigation  entails  planning  to  reduce  the  impact of  unresolved  year 2000
problems and recovery  entails  planning to recover from year 2000 problems that
may occur. The Company's approach to contingency planning includes the following
steps:  identify year 2000  operating  risks;  perform  scenario risk  analysis;
develop risk management strategies; begin general preparations;  implement power
system  operation  planning;  and  implementation  of year 2000 system operating
plan.

                                      -60-
<PAGE>

     Risks -

     Despite the comprehensive nature of the Company's year 2000 project and the
results the project is designed to produce,  the Company may experience  random,
widespread and simultaneous failures in its generation, distribution and Systems
during January 2000.  Contingency plans for any known or reasonably  anticipated
risk of  interruption  to the  generation  or  distribution  of energy are being
developed  to plan  for  resources  needed  to be put in  place  to  reduce  the
potential outage period to a minimum.  Although the impact on future  operations
and revenues is unknown,  failure of the Company's Systems to perform because of
year 2000 implications  could result in operating problems and costs material to
the Company.

     Although management believes the project will be completed  sufficiently in
advance of January 1, 2000,  unforeseen  and other factors could cause delays in
the project,  the results of which may have a material  effect on the  Company's
results of operations.  In addition, there is no assurance that the Company will
not be affected by year 2000 problems experienced by third parties.

ACCOUNTING ISSUES

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
133,  "Accounting for Derivative  Instruments and Hedging Activities"  effective
for fiscal years  beginning  after June 15, 1999. SFAS 133 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
certain  conditions  are met,  such  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. An entity
that elects to apply hedge  accounting is required to establish at the inception
of the  hedge the  method  it will use in  assessing  the  effectiveness  of the
derivative.  If the pronouncement was currently in effect,  MidAmerican believes
it would not have a material  impact on its results of  operations  or financial
condition.

     In  November  1998,  the  Emerging  Issues  Task  Force  (EITF) of the FASB
released EITF Issue No.  98-10,  "Accounting  for  Contracts  Involved in Energy
Trading and Risk  Management  Activities,"  effective for fiscal years beginning
after December 15, 1998. In this issue, the EITF provides guidance on how energy
trading  activities  are to be accounted  for on a company's  income  statement.
Current accounting practice varies throughout the energy industry. Historically,
a "settlement" basis of accounting has been used, meaning the earnings impact of
energy contracts was recognized when such contracts were physically  settled. As
these type of contracts become more complicated or as the operation of the group
conducting these activities takes on more characteristics of a trading function,
the EITF has concluded that such  contracts must be recorded at fair value,  and
the net  change in value  recorded  in  income.  The EITF  outlines  a number of
indicators  to  consider  in  determining  whether  an  operation  is engaged in
"trading  activities."  Presently,  MidAmerican's  operation  does  not meet the
definition of "trading",  and hence it continues to use  settlement  accounting.
However,  if the nature of MidAmerican's  trading activity  changes,  there will
need to be a transition to fair value accounting.

                                      -61-
<PAGE>

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

                                                                 YEARS ENDED DECEMBER 31
                                                        -----------------------------------------
                                                            1998          1997           1996
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ..................................   $ 1,169,810    $ 1,126,300    $ 1,099,008
Regulated gas .......................................       429,870        536,306        536,753
Nonregulated ........................................       107,509         65,249         38,592
                                                        -----------    -----------    -----------
                                                          1,707,189      1,727,855      1,674,353
                                                        -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity .................       227,870        235,760        234,317
  Cost of gas sold ..................................       243,451        346,016        345,014
  Other operating expenses ..........................       460,937        429,794        350,174
  Maintenance .......................................       107,891         98,090         88,621
  Depreciation and amortization .....................       182,211        170,540        164,592
  Property and other taxes ..........................        99,163        101,317         92,630
                                                        -----------    -----------    -----------
                                                          1,321,523      1,381,517      1,275,348
                                                        -----------    -----------    -----------
Nonregulated:
  Cost of sales .....................................        88,390         54,522         31,197
  Other .............................................        16,356          4,507          1,634
                                                        -----------    -----------    -----------
                                                            104,746         59,029         32,831
                                                        -----------    -----------    -----------
Total operating expenses ............................     1,426,269      1,440,546      1,308,179
                                                        -----------    -----------    -----------

OPERATING INCOME ....................................       280,920        287,309        366,174
                                                        -----------    -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ........................         6,116          2,332          1,598
Other, net ..........................................        (6,477)         6,147         (3,361)
                                                        -----------    -----------    -----------
                                                               (361)         8,479         (1,763)
                                                        -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ..........................        70,193         78,120         79,434
Other interest expense ..............................        14,128         10,027         10,842
Preferred dividends of subsidiary trust .............         7,980          7,980            288
Allowance for borrowed funds ........................        (3,377)        (2,597)        (4,212)
                                                        -----------    -----------    -----------
                                                             88,924         93,530         86,352
                                                        -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES       191,635        202,258        278,059
INCOME TAXES ........................................        76,042         76,317        112,927
                                                        -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS ...................       115,593        125,941        165,132
LOSS FROM DISCONTINUED OPERATIONS ...................             -              -        (10,161)
                                                        -----------    -----------    -----------
NET INCOME ..........................................       115,593        125,941        154,971
PREFERRED DIVIDENDS .................................         4,952          6,488         10,401
                                                        -----------    -----------    -----------

EARNINGS ON COMMON STOCK ............................   $   110,641    $   119,453    $   144,570
                                                        ===========    ===========    ===========

</TABLE>


The accompanying notes are an integral part of these statements.

                                      -62-
<PAGE>
                          MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                        AS OF DECEMBER 31
                                                                     -----------------------
                                                                        1998         1997
                                                                     ----------   ----------
<S>                                                                  <C>          <C>    
ASSETS
UTILITY PLANT
Electric .........................................................   $4,258,061   $4,087,924
Gas ..............................................................      786,169      756,874
                                                                     ----------   ----------
                                                                      5,044,230    4,844,798
Less accumulated depreciation and amortization ...................    2,428,954    2,277,110
                                                                     ----------   ----------
                                                                      2,615,276    2,567,688
Construction work in progress ....................................       26,369       55,418
                                                                     ----------   ----------
                                                                      2,641,645    2,623,106
                                                                     ----------   ----------

POWER PURCHASE CONTRACT ..........................................      150,401      173,107
                                                                     ----------   ----------
CURRENT ASSETS
Cash and cash equivalents ........................................        5,370        9,318
Receivables ......................................................      168,764      184,153
Inventories ......................................................       92,745       84,298
Other ............................................................       32,126        6,174
                                                                     ----------   ----------
                                                                        299,005      283,943
                                                                     ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET .......................      183,279      115,029
                                                                     ----------   ----------

OTHER ASSETS .....................................................      311,200      347,122
                                                                     ----------   ----------

TOTAL ASSETS .....................................................   $3,585,530   $3,542,307
                                                                     ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ......................................   $  972,278   $  985,744
MidAmerican preferred securities, not subject to mandatory
    redemption ...................................................       31,759       31,763
Preferred securities, subject to mandatory redemption:
  MidAmerican preferred securities ...............................       50,000       50,000
  MidAmerican-obligated preferred securities of subsidiary trust
    holding solely MidAmerican junior subordinated debentures.....      100,000      100,000
Long-term debt (excluding current portion) .......................      870,069      920,203
                                                                     ----------   ----------
                                                                      2,024,106    2,087,710
                                                                     ----------   ----------
CURRENT LIABILITIES
Notes payable ....................................................      206,221      122,500
Current portion of long-term debt ................................       60,897      124,460
Current portion of power purchase contract .......................       15,034       14,361
Accounts payable .................................................      159,420      128,390
Taxes accrued ....................................................      106,132       91,449
Interest accrued .................................................       13,473       20,616
Other ............................................................       35,405       22,598
                                                                     ----------   ----------
                                                                        596,582      524,374
                                                                     ----------   ----------
OTHER LIABILITIES
Power purchase contract ..........................................       68,093       83,143
Deferred income taxes ............................................      584,675      592,840
Investment tax credit ............................................       77,421       83,127
Other ............................................................      234,653      171,113
                                                                     ----------   ----------
                                                                        964,842      930,223
                                                                     ----------   ----------
TOTAL CAPITALIZATION AND LIABILITIES .............................   $3,585,530   $3,542,307
                                                                     ==========   ==========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -63-
<PAGE>

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

                                                                         YEARS ENDED DECEMBER 31
                                                                  -----------------------------------
                                                                     1998         1997         1996 
                                                                  ---------    ---------    ---------

<S>                                                               <C>          <C>          <C>    
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................................   $ 115,593    $ 125,941    $ 154,971
Adjustments to reconcile net income to net cash provided:
   Depreciation and amortization ..............................     198,616      194,287      185,657
   Net decrease in deferred income taxes and
     investment tax credit, net ...............................     (18,379)     (32,645)      (3,111)
   Amortization of other assets ...............................      40,076       33,112       20,541
   Loss from discontinued operations ..........................           -            -       10,161
   Gain on sale of assets and long-term investments ...........           -            -       (6,104)
   Impact of changes in working capital .......................      42,367       17,003      (58,371)
   Other ......................................................       2,734      (28,160)      23,689
                                                                  ---------    ---------    ---------
     Net cash provided ........................................     381,007      309,538      327,433
                                                                  ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures .............................    (193,354)    (166,932)    (154,198)
Quad Cities Nuclear Power Station decommissioning trust fund ..     (11,409)      (9,819)      (8,607)
Deferred energy efficiency expenditures .......................           -      (12,258)     (20,390)
Nonregulated capital expenditures .............................     (21,065)      (5,920)      (2,970)
Proceeds from sale of assets and other investments ............      19,854            -       11,620
Investment in discontinued operations .........................           -            -       10,100
Other investing activities, net ...............................         799         (788)         734
                                                                  ---------    ---------    ---------
   Net cash used ..............................................    (205,175)    (195,717)    (163,711)
                                                                  ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ................................................    (129,152)    (126,988)    (131,171)
Issuance of long-term debt, net of issuance cost ..............     158,414            -       99,500
Retirement of long-term debt, including reacquisition cost ....    (282,759)     (92,524)     (72,111)
Reacquisition of preferred shares .............................          (4)          (6)     (58,176)
Issuance of preferred securities, net of issuance cost ........           -            -       96,850
Cash inflows (outflows) of accounts receivable securitization .     (10,000)      70,000            -
Net increase (decrease) in notes payable ......................      83,721      (39,200)     (23,100)
                                                                  ---------    ---------    ---------
   Net cash used ..............................................    (179,780)    (188,718)     (88,208)
                                                                  ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..........      (3,948)     (74,897)      75,514
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................       9,318       84,215        8,701
                                                                  ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................   $   5,370    $   9,318    $  84,215
                                                                  =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .....................   $  89,932    $  90,718    $  80,881
                                                                  =========    =========    =========
Income taxes paid .............................................   $  89,130    $ 112,492    $ 103,627
                                                                  =========    =========    =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -64-
<PAGE>


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

                                                                                       AS OF DECEMBER 31
                                                                          --------------------------------------------
                                                                                 1998                    1997
                                                                          -------------------     --------------------

<S>                                                                       <C>           <C>       <C>            <C>
COMMON SHAREHOLDER'S EQUITY
Common shares, no par; 350,000,000 shares authorized;
    70,980,203 shares outstanding....................................     $   560,656             $   560,563
Retained earnings....................................................         411,622                 425,181
                                                                          -----------             -----------
                                                                              972,278   48.0%         985,744    47.2%
                                                                          -----------   -----     -----------    -----
PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding not subject to mandatory redemption:
  $3.30 Series, 49,451 and 49,481 shares, respectively...............           4,945                   4,948
  $3.75 Series, 38,305 and 38,310 shares, respectively...............           3,831                   3,831
  $3.90 Series, 32,630 shares .......................................           3,263                   3,263
  $4.20 Series, 47,362 and 47,369 shares, respectively...............           4,736                   4,737
  $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    1.6%          31,763     1.5%
                                                                          -----------   -----     -----------    -----
Cumulative shares outstanding; subject to mandatory redemption:
  $5.25 Series, 100,000 shares.......................................          10,000                  10,000
  $7.80 Series, 400,000 shares.......................................          40,000                  40,000
                                                                          -----------             -----------
                                                                               50,000    2.5%          50,000     2.4%
                                                                          -----------  ------     -----------   ------
MIDAMERICAN-OBLIGATED PREFERRED SECURITIES
MidAmerican-obligated mandatorily redeemable cumulative
  preferred  securities of subsidiary trust holding solely
  MidAmerican junior subordinated debentures:
  7.98% series, 4,000,000 shares outstanding.........................         100,000    4.9%         100,000     4.8%
                                                                          -----------  ------     -----------   ------

LONG-TERM DEBT
Mortgage bonds:
  7.875% Series, due 1999............................................               -                  60,000
  6% Series, due 2000................................................          35,000                  35,000
  6.75% Series, due 2000.............................................          75,000                  75,000
  7.125% Series, due 2003............................................         100,000                 100,000
  7.70% Series, due 2004.............................................          55,630                  55,630
  7% Series, due 2005................................................          90,500                  90,500
  7.375% Series, due 2008............................................          75,000                  75,000
  8% Series, due 2022................................................               -                  50,000
  7.45% Series, due 2023.............................................           6,940                   6,940
  8.125% Series, due 2023............................................               -                 100,000
  6.95% Series, due 2025.............................................          12,500                  12,500
Pollution control revenue obligations:
  5.15% to 5.75% Series, due periodically through 2003...............           7,704                   8,064
  5.95% Series, due 2023 (secured by general mortgage bonds).........          29,030                  29,030

</TABLE>

The accompanying notes are an integral part of these statements.

                                      -65-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>


                                                                                        AS OF DECEMBER 31
                                                                           -------------------------------------------
                                                                                  1998                    1997
                                                                           ------------------      -------------------

<S>                                                                        <C>         <C>         <C>          <C>   
LONG-TERM DEBT (CONTINUED)
   Variable rate series -
      Due 2016 and 2017, 3.7% .......................................      $   37,600              $   37,600
      Due 2023 (secured by general mortgage bond, 3.7%)..............          28,295                  28,295
      Due 2023, 3.7%.................................................           6,850                   6,850
      Due 2024, 3.7%.................................................          34,900                  34,900
      Due 2025, 3.7%.................................................          12,750                  12,750
Notes:
    8.75% Series, due 2002...........................................             240                     240
    6.5% Series, due 2001............................................         100,000                 100,000
    6.375% Series, due 2006..........................................         160,000                       -
    6.4% Series, due 2003 through 2007...............................           2,000                   2,000
Obligation under capital lease.......................................           2,055                   3,096
Unamortized debt premium and discount, net...........................          (1,925)                 (3,192)
                                                                           ----------              ----------
                                                                              870,069   43.0%         920,203    44.1%
                                                                           ----------  ------      ----------   ------

TOTAL CAPITALIZATION.................................................      $2,024,106  100.0%      $2,087,710   100.0%
                                                                           ==========  ======      ==========   ======

</TABLE>

                           MIDAMERICAN ENERGY COMPANY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31
                                                                          ----------------------------------------
                                                                            1998           1997            1996
                                                                          ---------      ---------       ---------

<S>                                                                       <C>            <C>             <C>      
BEGINNING OF YEAR.................................................        $ 425,181      $ 426,228       $ 430,589
                                                                          ---------      ---------       ---------

NET INCOME........................................................          115,593        125,941         154,971
                                                                          ---------      ---------       ---------

DEDUCT (ADD):
(Gain) loss on reacquisition of preferred shares..................               (3)         1,433           1,572
Dividends declared on preferred shares............................            4,955          5,055           8,829
Dividends declared on common shares...............................          124,200        120,500         120,770
Dividend of investment in subsidiaries............................                -              -          28,161
                                                                          ---------     ----------      ----------
                                                                            129,152        126,988         159,332
                                                                          ---------     ----------      ----------

END OF YEAR.......................................................        $ 411,622      $ 425,181       $ 426,228
                                                                          =========      =========       =========
</TABLE>


The accompanying notes are an integral part of these statements.

                                      -66-
<PAGE>


                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (A) COMPANY STRUCTURE AND MERGER:


     MidAmerican Energy Company  (MidAmerican) is a public utility with electric
and natural gas  operations and is the principal  subsidiary of MHC Inc.  (MHC).
MHC is  headquartered  in Des Moines,  Iowa, and has the following  nonregulated
subsidiaries:  MidAmerican Capital Company,  MidAmerican Realty Services Company
and Midwest Capital Group, Inc.  MHC is a wholly owned subsidiary of MidAmerican
Funding,  LLC, which is wholly owned  subsidiary of MidAmerican  Energy Holdings
Company.

     The current  corporate  structure  is the result of the merger  transaction
completed on March 12, 1999,  (the Merger)  involving MHC (formerly  MidAmerican
Energy Holdings Company),  and CalEnergy Company, Inc.  (CalEnergy).  CalEnergy,
through a reincorporation  transaction,  was renamed MidAmerican Energy Holdings
Company (Holdings).  Holdings  is an  exempt  public  utility  holding  company
headquartered in Des Moines. References to MHC regarding information,  events or
transactions  prior  to the  merger  relate  to the  former  MidAmerican  Energy
Holdings Company.

     MidAmerican  was  formed  on July 1,  1995,  as a result  of the  merger of
Iowa-Illinois Gas and Electric Company,  Midwest Resources Inc.  (Resources) and
Midwest  Power  Systems Inc.,  the utility  subsidiary  of Resources.  Effective
December  1, 1996,  MHC became the parent  company of  MidAmerican,  MidAmerican
Capital and Midwest Capital.  Prior to December 1, 1996, MidAmerican Capital and
Midwest Capital were subsidiaries of MidAmerican.  Accordingly, the consolidated
financial  statements of  MidAmerican  present  amounts  related to  MidAmerican
Capital and Midwest Capital as discontinued  operations in 1996 to reflect their
transfer  to MHC.  See  Note  (10)  for  additional  information  regarding  the
formation of the holding company in 1996.

     (B) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

     The accompanying  Consolidated Financial Statements include MidAmerican and
its wholly  owned  subsidiaries.  In 1998,  MidAmerican  reformatted  its income
statement to reflect certain  nonregulated  operations  differently.  Prior year
amounts  have  been  reclassified  accordingly.   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.

     (C) REGULATION:

     MidAmerican's  utility operations are subject to the regulation of the Iowa
Utilities Board (IUB), the Illinois Commerce  Commission (ICC), the South Dakota
Public  Utilities  Commission,  and the  Federal  Energy  Regulatory  Commission
(FERC).  MidAmerican'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.

                                      -67-
<PAGE>

     Statement  of  Financial  Accounting  Standards  (SFAS)  No. 71 sets  forth
accounting  principles  for  operations  that are  regulated  and  meet  certain
criteria.  For operations  that meet the criteria,  SFAS 71 allows,  among other
things, the deferral of costs that would otherwise be expensed when incurred.  A
possible  consequence of the changes in the utility industry is the discontinued
applicability of SFAS 71. The majority of MidAmerican's electric and gas utility
operations  currently  meet the  criteria of SFAS 71, but its  applicability  is
periodically   reexamined.   On  December  16,  1997,  MidAmerican's  generation
operations  serving Illinois were no longer subject to the provisions of SFAS 71
due to passage of industry restructuring  legislation in Illinois. Thus in 1997,
MidAmerican was required to write off the regulatory assets and liabilities from
its balance sheet related to its Illinois generation operations.  The net amount
of such write-offs was not material. If other portions of its utility operations
no longer meet the criteria of SFAS 71,  MidAmerican  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.  The
following  regulatory  assets,   primarily  included  in  Other  Assets  in  the
Consolidated  Balance Sheets,  represent  probable future revenue to MidAmerican
because these costs are expected to be recovered in charges to utility customers
(in thousands):

                                                   1998            1997
                                                 --------        --------

      
     Deferred income taxes...................    $148,036        $143,851
     Energy efficiency costs.................      74,509         111,471
     Debt refinancing costs..................      40,233          34,923
     FERC Order 636 transition costs.........           -           9,279
     Environmental costs.....................      23,427          20,417
     Enrichment facilities decommissioning...       8,659           8,781
     Unamortized costs of retired plant .....       3,537           5,771
     Other...................................       7,088           4,796
                                                 --------        --------
       Total.................................    $305,489        $339,289
                                                 ========        ========

     (D) REVENUE RECOGNITION:

     Revenues are recorded as services  are rendered to  customers.  MidAmerican
records unbilled revenues, and related energy costs,  representing the estimated
amount customers will be billed for services  rendered between the meter-reading
dates in a particular month and the end of such month. Accrued unbilled revenues
were  $79.8   million  and  $80.2   million  at  December  31,  1998  and  1997,
respectively,  and are  included  in  Receivables  on the  Consolidated  Balance
Sheets.

     MidAmerican's   Illinois  and  South  Dakota   jurisdictional   sales,   or
approximately  12% of total retail electric sales, and the majority of its total
retail  gas sales  are  subject  to  adjustment  clauses.  These  clauses  allow
MidAmerican  to adjust the amounts  charged for  electric and gas service as the
costs of gas, fuel for generation or purchased power change. The costs recovered
in revenues through use of the adjustment  clauses are charged to expense in the
same period.

                                      -68-

<PAGE>

     (E) DEPRECIATION AND AMORTIZATION:

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


                                             1998     1997     1996
                                             ----     ----     ----

    Electric..........................       3.9%     3.8%     3.8%
    Gas...............................       3.4%     3.4%     3.7%

     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.

     An allowance for the  estimated  annual  decommissioning  costs of the Quad
Cities Nuclear Power Station (Quad Cities Station) equal to the level of funding
is included in depreciation  expense.  See Note 4(e) 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):

                                                  1998          1997
                                                --------      --------

     Nuclear decommissioning trust fund....     $116,973      $ 93,251
     Corporate owned life insurance........       43,945             -
     Coal transportation property..........       11,562        11,626
     Other.................................       10,799        10,152
                                                --------      --------
       Total...............................     $183,279      $115,029
                                                ========      ========

     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.

     (G) CONSOLIDATED STATEMENTS OF CASH FLOWS:

     MidAmerican 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.

                                      -69-
<PAGE>


     Net cash provided  (used) from changes in working  capital,  net of effects
from discontinued operations was as follows (in thousands):

                                         1998         1997          1996   
                                        -------      -------      --------

     Receivables...................     $25,389      $  (209)     $(55,014)
     Inventories...................      (8,447)       6,566        (7,311)
     Other current assets .........     (25,952)       1,602         9,118
     Accounts payable..............      31,030        5,416         6,543
     Taxes accrued.................      14,683        9,111         3,345
     Interest accrued..............      (7,143)      (3,629)          603
     Other current liabilities.....      12,807       (1,854)      (15,655)
                                        -------      -------      --------
       Total.......................     $42,367      $17,003      $(58,371)
                                        =======      =======      ========

     MidAmerican  distributed  the  capital  stock of  MidAmerican  Capital and
Midwest Capital to MHC. See Note (10) for additional information.

     (H) ACCOUNTING FOR LONG-TERM POWER PURCHASE CONTRACT:

     Under a long-term  power  purchase  contract  with  Nebraska  Public  Power
District (NPPD),  expiring in 2004, MidAmerican purchases one-half of the output
of the 778-megawatt  Cooper Nuclear Station (Cooper).  The Consolidated  Balance
Sheets  include a liability  for  MidAmerican's  fixed  obligation to pay 50% of
NPPD's Nuclear Facility Revenue Bonds and other fixed liabilities. A like amount
representing MidAmerican's right to purchase power is shown as an asset.

     Cooper capital  improvement costs prior to 1997,  including carrying costs,
were deferred in accordance with then applicable rate regulation,  and are being
amortized and  recovered in rates over either a five-year  period or the term of
the  NPPD  contract.  Beginning  July 11,  1997,  the Iowa  portion  of  capital
improvement  costs is  recovered  currently  from  customers  and is expensed as
incurred.  MidAmerican  began charging the remaining Cooper capital  improvement
costs to expense as incurred in January 1997.

     The fuel cost portion of the power purchase contract is included in Cost of
Fuel,  Energy and Capacity on the Consolidated  Statements of Income.  All other
costs  MidAmerican  incurs in relation to its long-term power purchase  contract
with  NPPD  are  included  in  Other  Operating  Expenses  on  the  Consolidated
Statements of Income.

     See Notes 4(d),  4(e) and 4(f) for  additional  information  regarding  the
power purchase contract.

     (I) ACCOUNTING FOR DERIVATIVES:

     MidAmerican  uses gas futures  contracts  and swap  contracts to reduce the
volatility  in the  price of  natural  gas  purchased  to meet the  needs of its
customers.  Investments  in natural  gas  futures  contracts,  which  total $0.3
million and $1.5  million as of December  31, 1998 and 1997,  respectively,  are
included in Receivables on the Consolidated  Balance Sheets. Gains and losses on
gas  futures  contracts  that  qualify for hedge  accounting  are  deferred  and
reflected as adjustments to the carrying value of the hedged item or included in
Other Assets on the  Consolidated  Balance Sheets until the underlying  physical
transaction is recorded if the instrument is used to hedge an anticipated future
transaction.  The net gain or loss on gas futures  contracts  is included in the
determination  of income  in the same  period as the  expense  for the  physical
delivery of the natural gas.  Realized gains and losses on gas futures contracts
and the net amounts  exchanged or accrued  under the natural gas swap  contracts
are included in Cost of Gas Sold, or Nonregulated  Cost of Sales consistent 

                                      -70-
<PAGE>

with the expense for the physical commodity. Deferred net gains (losses) related
to the Company's gas futures  contracts are $(1.9) million and $(0.4) million as
of December 31, 1998 and 1997, respectively.

     MidAmerican  periodically  evaluates the  effectiveness  of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved,  the contracts
are  recorded  at fair  value  and the  gains  or  losses  are  included  in the
determination  of income.  At December 31, 1998,  MidAmerican held the following
hedging instruments:

                                                               Weighted Average
                                             Notional Volume     Market Value
                                                  (MMBtu)        (Per MMBtu)
                                             ---------------   ----------------
     Natural Gas Futures (Long)                  6,970,000         $1.857
     Natural Gas Futures (Short)                 7,320,000         $1.854
     Natural Gas Swaps (Variable to Fixed)      16,322,181
           Weighted average variable price                         $1.922
           Weighted average fixed price                            $2.098

(2)  LONG-TERM DEBT:

     MidAmerican's  sinking fund  requirements  and maturities of long-term debt
for 1999 through 2003 are $61 million,  $111 million,  $102 million,  $2 million
and $105 million, respectively.

     MidAmerican'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,  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, 1998 and 1997.  MidAmerican  maintains  dedicated  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.

(3)  JOINTLY OWNED UTILITY PLANT:

     Under joint plant ownership  agreements with other  utilities,  MidAmerican
had undivided interests at December 31, 1998, in jointly owned generating plants
as shown in the table below.

                                      -71-
<PAGE>


     The dollar  amounts  below  represent  MidAmerican'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'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          $242       $127     $298     $161    $210      $530
     Accumulated depreciation         $  98       $ 82     $175     $ 92    $109      $252
     Unit capacity-MW                 1,529        515      675      624     716       700
     Percent ownership                 25.0%      72.0%    79.1%    40.6%   52.0%     88.0%
</TABLE>


(4)  COMMITMENTS AND CONTINGENCIES:

     (A) CAPITAL EXPENDITURES:

     Utility  construction  expenditures  for  1999  are  estimated  to be  $194
million, including $9 million for Quad Cities Station nuclear fuel.

     (B) MANUFACTURED GAS PLANT FACILITIES:

     The  United  States  Environmental  Protection  Agency  (EPA) and the 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 is evaluating 27 properties  which were, at one time,  sites of
gas  manufacturing  plants in which it may be a  potentially  responsible  party
(PRP). The purpose of these  evaluations is to determine whether waste materials
are present,  whether such materials constitute an environmental or health risk,
and whether MidAmerican has any responsibility for remedial action.  MidAmerican
is currently conducting field investigations at eighteen sites and has conducted
interim removal actions at five of the eighteen sites. In addition,  MidAmerican
has  completed  investigations  and  removals  at  four  sites.  MidAmerican  is
continuing to evaluate  several of the sites to determine the future  liability,
if any, for conducting site investigations or other site activity.

     MidAmerican's   estimate  of  probable  remediation  costs  for  the  sites
discussed above as of December 31, 1998, was $24 million. This estimate has been
recorded as a liability and a regulatory asset for future recovery.  The ICC has
approved the use of a tariff rider which permits recovery of the actual costs of
litigation,   investigation  and  remediation  relating  to  former  MGP  sites.
MidAmerican's  present rates in Iowa provide for a fixed annual  recovery of MGP
costs.  MidAmerican  intends to pursue  recovery of the  remediation  costs from
other PRPs and its insurance carriers.

     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  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  


                                      -72-
<PAGE>

are accrued.  As the investigation is performed and if it is determined remedial
action is  required,  the best  estimate of  remediation  costs is  accrued.  If
necessary, the estimate is revised when a consent order is issued. 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. In addition,
insurance  recoveries  for some or all of the  costs  may be  possible,  but the
liabilities recorded have not been reduced by any estimate of such recoveries.

     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's financial position or results of operations.

     (C) CLEAN AIR ACT:

     Following recommendations provided by the Ozone Transport Assessment Group,
the EPA,  in  November  1997,  issued  a Notice  of  Proposed  Rulemaking  which
identified  22 states  and the  District  of  Columbia  as making a  significant
contribution  to  nonattainment  of the ozone standard in downwind states in the
eastern half of the United States.  In September  1998, the EPA issued its final
rules  in  this  proceeding.  Iowa is not  subject  to the  emissions  reduction
requirements in the final rules, and, as such,  MidAmerican's facilities are not
currently  subject  to  additional  emissions  reductions  as a  result  of this
initiative.

     On July 18, 1997,  the EPA adopted  revisions  to the National  Ambient Air
Quality  Standards  (NAAQS) 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). If a state
has area(s) classified as nonattainment area(s), the state is required to submit
a State  Implementation  Plan  specifying  how it will reach  attainment  of the
standards  through emission  reductions or other means. In August 1998, the Iowa
Environmental Protection Commission adopted by reference the NAAQS for ozone and
fine particulate matter.

     The  impact  of  the  new  standards  on  MidAmerican  will  depend  on the
attainment  status  of  the  areas  surrounding   MidAmerican's  operations  and
MidAmerican's  relative contribution to the nonattainment status. The attainment
status of areas in the  state of Iowa will not be known for two to three  years.
However,   if   MidAmerican's   operations   are  determined  to  contribute  to
nonattainment,  the  installation  of  additional  control  equipment,  such  as
scrubbers and/or selective catalytic reduction,  on MidAmerican's units could be
required.  The cost to install such equipment could be significant.  MidAmerican
will continue to follow the attainment  status of the areas in which it operates
and evaluate the  potential  impact of the status of these areas on  MidAmerican
under the new regulations.

     (D) LONG-TERM POWER PURCHASE CONTRACT:

     Payments to NPPD cover one-half of the fixed and operating  costs of Cooper
(excluding  depreciation but including debt service) and MidAmerican's  share of
nuclear fuel cost (including  nuclear fuel disposal) based on energy  delivered.
The debt service portion is approximately $1.5 million per month for 1999 and is
not contingent upon the plant being in service.  In addition,  MidAmerican  pays
one-half of NPPD's decommissioning funding related to Cooper.


                                      -73-
<PAGE>

     The debt  amortization  and  Department  of Energy (DOE)  enrichment  plant
decontamination and decommissioning  component of MidAmerican's payments to NPPD
were  $14.4  million,  $13.8  million  and $14.5  million  and the net  interest
component  was $2.9  million,  $3.8  million and $3.6 million each for the years
1998, 1997 and 1996, respectively.

     MidAmerican's payments for the debt principal portion of the power purchase
contract   obligation  and  the  DOE  enrichment   plant   decontamination and
decommissioning  payments are $15.0 million, $15.8 million, $16.6 million, $17.4
million and $18.3 million, for 1999 through 2003, respectively.

     (E) DECOMMISSIONING COSTS:

     Based   on    site-specific    decommissioning    studies    that   include
decontamination,  dismantling,  site  restoration  and dry  fuel  storage  cost,
MidAmerican's share of expected decommissioning costs for Cooper and Quad Cities
Station,  in 1998 dollars,  is $256 million and $242 million,  respectively.  In
Illinois,  nuclear  decommissioning  costs are  included  in  customer  billings
through a mechanism that permits annual adjustments. Such costs are reflected as
base rates in Iowa tariffs.

     For purposes of developing a decommissioning  funding plan for Cooper, NPPD
assumes  that  decommissioning  costs will  escalate  at an annual rate of 4.0%.
Although  Cooper's  operating  license expires in 2014, the funding plan assumes
decommissioning will start in 2004, the anticipated plant shutdown date.

     As of December 31, 1998,  MidAmerican's share of funds set aside by NPPD in
internal  and  external  accounts  for  decommissioning  was $97.5  million.  In
addition,  the funding plan also assumes  various  funds and reserves  currently
held to satisfy NPPD bond  resolution  requirements  will be available for plant
decommissioning  costs after the bonds are  retired in early  2004.  The funding
schedule  assumes a  long-term  return on funds in the trust of 6.75%  annually.
Certain  funds  will be  required  to be  invested  on a  short-term  basis when
decommissioning begins and are assumed to earn at a rate of 4.0% annually.  NPPD
is recognizing  decommissioning costs over the life of the power sales contract.
MidAmerican  makes  payments to NPPD related to  decommissioning  Cooper.  These
payments  are  included  in  MidAmerican's  power  purchase  costs.  The  Cooper
decommissioning  component of  MidAmerican's  payments to NPPD was $7.9 million,
$11.3 million and $9.9 million for the years 1998, 1997, and 1996, respectively,
and is included in Other Operating  Expenses in the  Consolidated  Statements of
Income.  Earnings  from  the  internal  and  external  trust  funds,  which  are
recognized by NPPD as the owner of the plant, are tax exempt and serve to reduce
future funding requirements.

     External  trusts  have been  established  for the  investment  of funds for
decommissioning  the Quad  Cities  Station.  The  total  accrued  balance  as of
December 31, 1998, was $117.0 million and is included in Other Liabilities and a
like amount is reflected in  Investments  and  represents  the fair value of the
assets held in the trusts.

     MidAmerican's  provision for  depreciation  included  costs for Quad Cities
Station nuclear  decommissioning of $11.4 million, $9.8 million and $8.6 million
for 1998, 1997 and 1996, respectively. The provision charged to expense is equal
to the funding that is being  collected in rates.  The  decommissioning  funding
component of  MidAmerican's  Illinois and Iowa tariffs  assumes  decommissioning
costs,  related to the Quad Cities  Station,  will escalate at an annual rate of
4.9% and the assumed annual return on funds in the trust is 6.9%. Earnings,  net
of  investment  fees,  on the assets in the trust fund were $1.7  million,  $4.5
million and $3.2 million for 1998,  1997 and 1996,  respectively.  See Note (14)
for information regarding unrealized gains and losses.

                                      -74-

<PAGE>
     (F) NUCLEAR INSURANCE:

     MidAmerican   maintains  financial  protection  against  catastrophic  loss
associated  with its  interest  in Quad  Cities  Station  and  Cooper  through a
combination  of  insurance  purchased by NPPD (the owner and operator of Cooper)
and  Commonwealth  Edison  (ComEd,  the joint owner and  operator of Quad Cities
Station),  insurance  purchased  directly  by  MidAmerican,  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.

     NPPD and ComEd each  purchase  nuclear  liability  insurance for Cooper and
Quad  Cities  Station,  respectively,  in the maximum  available  amount of $200
million.  In accordance with the  Price-Anderson  Amendments Act of 1988, excess
liability protection above that amount is provided by a mandatory  industry-wide
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's
aggregate  maximum  potential  share of such an  assessment  for Cooper and Quad
Cities Station  combined is $88.1 million per incident,  payable in installments
not to exceed $10 million annually.

     The  property  coverage  provides for property  damage,  stabilization  and
decontamination  of the facility,  disposal of the  decontaminated  material and
premature decommissioning.  For Quad Cities Station, ComEd purchases primary and
excess property insurance  protection for the combined interests in Quad Cities,
with coverage limits  totalling $2.1 billion.  For Cooper,  MidAmerican and NPPD
separately  purchase primary and excess property insurance  protection for their
respective  obligations,  with  coverage  limits of $1.375  billion  each.  This
structure  provides  that  both  MidAmerican  and NPPD  are  covered  for  their
respective  50% obligation in the event of a loss totalling up to $2.75 billion.
MidAmerican also directly purchases 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  Cooper or Quad  Cities  Station.  The  coverages
purchased  directly by  MidAmerican,  and the  property  coverages  purchased by
ComEd,  which  includes the interests of  MidAmerican,  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 from industry mutual policies for its obligations associated
with Cooper and Quad Cities Station combined, total $11.2 million.

     The master nuclear worker  liability  coverage,  which is purchased by NPPD
and ComEd for Cooper and Quad Cities Station,  respectively, 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 of  workers  in
nuclear-related industries as a result of radiation exposure.

     (G) COAL AND NATURAL GAS CONTRACT COMMITMENTS:

     MidAmerican  has entered into supply and related  transportation  contracts
for its fossil fueled generating stations. The contracts,  with expiration dates
ranging from 1999 to 2003,  require minimum  payments of $110.2  million,  $75.8
million, $28.0 million, $8.1 million and $2.6 million for the years 1999 through
2003, respectively.  MidAmerican expects to supplement these coal contracts with
spot market purchases to fulfill its future fossil fuel needs.

     MidAmerican has entered into various natural gas supply and  transportation
contracts  for its  utility  operations.  The  minimum  commitments  under these
contracts are $57.4  million,  $40.1 million,  $33.3 million,  $18.7 million and
$13.7 million for the years 1999 through 2003,  respectively,  and $60.7 million
for the total of the years thereafter.

                                      -75-
<PAGE>

     (H) OPERATING LEASE COMMITMENTS:

     MidAmerican has entered into various  operating lease  agreements  covering
facilities,  computer and transportation equipment. Rental payments on operating
leases were $23.2 million for 1998,  $20.4  million for 1997,  and $21.1 million
for 1996. The approximate  minimum annual commitments under all operating leases
are $13.3 million,  $11.8 million,  $7.1 million,  $5.5 million and $3.8 million
for the years 1999 through 2003, respectively, and $3.6 million for the total of
the years thereafter.

(5)  COMMON SHAREHOLDER'S EQUITY:

     Common shares  outstanding  changed  during the years ended  December 31 as
shown in the table below (in thousands):

<TABLE>
<CAPTION>

                                            1998                   1997                    1996
                                   --------------------    -------------------    --------------------
                                    Amount      Shares      Amount      Shares     Amount      Shares
                                    ------      ------      ------      ------     ------      ------

<S>                                <C>          <C>        <C>         <C>         <C>         <C>    
Balance, beginning of year.......  $560,563     70,980     $560,597    100,752     $801,227    100,752

Changes due to:
Cancellation of common shares....         -          -            -    (29,772)           -          -
Stock options....................         -          -            -          -          623          -
Capital stock expense  ..........         -          -            -          -         (391)         -
Distribution of investment in
    subsidiaries to Holdings.....         -          -            -          -     (240,862)         -
Other............................        93          -         (34)          -            -          -
                                   --------    -------     --------    -------     --------    -------
Balance, end of year.............  $560,656     70,980     $560,563     70,980     $560,597    100,752
                                   ========    =======     ========    =======     ========    =======
</TABLE>

(6)  RETIREMENT PLANS:

     MidAmerican  has primarily  noncontributory  defined  benefit pension plans
covering   substantially  all  employees  of  MidAmerican  and  its  affiliates,
MidAmerican  Capital and Midwest Capital.  No detail  segregation of the data is
available by company.  Employees of MidAmerican  represent  approximately 95% of
the payroll  covered  under these plans.  Benefits  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 has been allowed to recover funding contributions in rates.

     MidAmerican  currently  provides  certain  health  care and life  insurance
(postretirement)   benefits  for  retired   employees  of  MidAmerican  and  its
affiliates,  MidAmerican Capital and Midwest Capital. No detailed segregation of
the  data  is  available  by  company.   Employees  of   MidAmerican   represent
approximately  99% of the  participants  covered  under these  plans.  Under the
plans,  substantially  all of  MidAmerican's  employees may become  eligible for
these  benefits if they reach  retirement  age while  working  for  MidAmerican.
However,  MidAmerican  retains the right to change these benefits anytime at its
discretion.  MidAmerican  expenses  postretirement  benefit  costs on an accrual
basis and includes provisions for such costs in rates.

     MidAmerican  also  maintains  noncontributory,   nonqualified  supplemental
executive retirement plans for active and retired participants.

                                      -76-

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

<TABLE>
<CAPTION>

                                                             Pension Cost                  Postretirement Cost
                                                ---------------------------------     -----------------------------
                                                  1998         1997        1996         1998       1997       1996  
                                                --------     --------    --------     --------   --------   -------

<S>                                             <C>          <C>         <C>          <C>        <C>        <C>    
Service cost................................    $ 11,284     $ 10,092    $ 12,323     $ 3,558    $ 2,680    $ 2,118
Interest cost...............................      29,941       29,623      31,109       9,344      8,822      8,341
Expected return on plan assets..............     (42,578)     (37,617)    (33,635)     (3,651)    (2,573)    (1,895)
Amortization of net transition obligation...      (2,591)      (2,591)     (2,591)      5,291      5,291      5,291
Amortization of prior service cost..........       1,871        1,871       3,183         650        650          -
Amortization of prior year (gain) loss......      (2,802)      (1,797)        806           -       (298)         -
Regulatory deferral of incurred cost........           -        5,423         568           -      4,888      5,112
                                                --------     --------    --------     -------    -------    -------   
    Net periodic (benefit) cost.............    $ (4,875)    $  5,004    $ 11,763     $15,192    $19,460    $18,967
                                                ========     ========    ========     =======    =======    =======
</TABLE>

     The  pension  plan  assets  are in  external  trusts and are  comprised  of
corporate equity securities, United States government debt, corporate bonds, and
insurance contracts.  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.

     Although the supplemental executive retirement plans had no plan assets as
of December 31, 1998,  MidAmerican  had Rabbi trusts which held  corporate-owned
life  insurance  to provide  funding for the future cash  requirements.  Because
these plans are nonqualified,  the fair value of these assets is not included in
the following  table.  The cash value of the life  insurance  policies was $27.2
million and $21.5  million as of December 31, 1998 and 1997,  respectively.  

     The projected benefit obligation and accumulated benefit obligation for the
supplemental  incentive  retirement  plans were $55.1 million and $49.9 million,
respectively,  as of December 31,  1998,  and $48.6  million and $40.3  million,
respectively, as of December 31, 1997.

                                      -77-
<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 MidAmerican and the aforementioned  affiliate plans to the net amounts
recognized in MHC's  Consolidated  Balance  Sheets as of December 31 (dollars in
thousands):
<TABLE>
<CAPTION>

                                                      Pension Benefits       Postretirement Benefits
                                                   ----------------------    -----------------------
                                                     1998         1997         1998         1997    
                                                   ---------    ---------    --------     --------
<S>                                                <C>          <C>          <C>          <C>  
Reconciliation of benefit obligation:
Benefit obligation at beginning of year ........   $ 430,043    $ 428,713    $ 127,347    $ 116,505
Service cost ...................................      11,285       10,091        3,558        2,680
Interest cost ..................................      29,941       29,623        9,344        8,822
Participant contributions ......................         127          125        1,404        1,704
Plan amendments ................................           -      (16,211)     (21,607)       8,927
Actuarial (gain) loss ..........................      15,793        8,088        9,463       (3,025)
Benefits paid ..................................     (30,714)     (30,386)      (9,321)      (8,266)
                                                   ---------    ---------    ---------    ---------
    Benefit obligation at end of year ..........     456,475      430,043      120,188      127,347
                                                   ---------    ---------    ---------    ---------

Reconciliation of the fair value of plan assets:
Fair value of plan assets at beginning of year .     483,668      427,828       52,174       36,783
Employer contributions .........................       3,445        6,362       10,095       19,668
Participant contributions ......................         127          125        1,404        1,704
Actual return on plan assets ...................      67,982       79,739        8,741        2,285
Benefits paid ..................................     (30,714)     (30,386)      (9,321)      (8,266)
                                                   ---------    ---------    ---------    ---------
    Fair value of plan assets at end of year ...     524,508      483,668       63,093       52,174
                                                   ---------    ---------    ---------    ---------

Funded status ..................................      68,033       53,625      (57,095)     (75,173)
Unrecognized net loss (gain) ...................    (101,860)     (95,051)      (6,873)     (11,248)
Unrecognized prior service cost ................      19,868       21,739        2,555        8,277
Unrecognized net transition obligation (asset) .     (13,748)     (16,339)      57,543       79,370
                                                   ---------    ---------    ---------    ---------
    Net amount recognized in MHC's
         Consolidated Balance sheets ...........   $ (27,707)   $ (36,026)   $  (3,870)   $   1,226
                                                   =========    =========    =========    =========

Amounts recognized in the Consolidated Balance
  Sheets of MHC consist of:
Prepaid benefit cost ...........................   $   4,350    $       -    $       -    $   1,226
Accrued benefit liability ......................     (49,874)     (47,591)      (3,870)           -
Intangible asset ...............................      17,817       11,565            -            -
                                                   ---------    ---------    ---------    ---------
    Net amount recognized ......................   $ (27,707)   $ (36,026)   $  (3,870)   $   1,226
                                                   =========    =========    =========    =========
</TABLE>


                                                   Pension and Postretirement
                                                          Assumptions
                                                   --------------------------
                                                      1998          1997
                                                      -----         ----
Assumptions used were:
Discount rate...................................      6.75%         7.0%
Rate of increase in compensation levels.........       5.0%         5.0%
Weighted average expected long-term
  rate of return on assets......................       9.0%         9.0%

                                      -78-

<PAGE>

     The  postretirement  plan was  amended on January 1, 1999,  increasing the
retiree  co-payment for prescription  drugs. This decrease in benefit obligation
is reflected for December 31, 1998.

     For purposes of calculating the postretirement  benefit  obligation,  it is
assumed health care costs for covered  individuals prior to age 65 will increase
by 8.4% in 1999 and that the rate of increase  thereafter  will  decline by 1.0%
annually to an ultimate rate of 5.25% by the year 2003. For covered  individuals
age 65 and older,  it is assumed health care costs will increase by 6.0% in 1999
and 5.5% in 2000.

     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 1998 would  increase by $2.4 million,  and the  postretirement
benefit obligation at December 31, 1998, would increase by $18.3 million. If the
assumed  health care trend rates were to decrease by 1.0%, the total service and
interest  cost for 1998 would  decrease by $1.9  million and the  postretirement
benefit obligation at December 31, 1998, would decrease by $15.3 million.

     MidAmerican  sponsors  defined  contribution  pension plans (401(k)  plans)
covering   substantially  all  employees  of  MidAmerican  and  its  affiliates,
MidAmerican  Capital and Midwest  Capital.  MidAmerican's  contributions  to the
plans for MidAmerican employees,  which are based on each participant's level of
contribution  and cannot  exceed four  percent of each  participant's  salary or
wages, were $5.6 million, $4.5 million and $4.0 million for 1998, 1997 and 1996,
respectively.

(7) STOCK-BASED COMPENSATION PLANS:

     MidAmerican has  stock-based  compensation  arrangements  for employees and
directors of MidAmerican and affiliates MidAmerican Capital and Midwest Capital,
as  described  below.  MidAmerican  accounts  for these plans  under  Accounting
Principles Board Opinion No. 25 and the related  interpretations.  MidAmerican's
allocated   portion  of  total   compensation  cost  recognized  in  income  for
stock-based compensation awards was $0.2 million, $1.2 million, and $0.6 million
for 1998,  1997,  and 1996,  respectively.  Had  MidAmerican  used  Statement of
Accounting  Standards No. 123,  "Accounting for Stock-Based  Compensation" (SFAS
123),  pro-forma  net income for common  stock would be $110.2  million,  $119.6
million, and $144.4 million, respectively.

     Stock options and  performance  share awards have been granted  pursuant to
the MidAmerican Energy Company 1995 Long-Term Incentive Plan (the "Plan"). Up to
four million shares are authorized to be granted under the Plan.

     STOCK  OPTIONS - Under the Plan,  the  Board of  Directors  of MHC  granted
options to purchase  shares of common stock (the  "Options")  at the fair market
value of the shares on the date of the grant.  The  options  granted in 1998 and
1997 vest over a 3-year  period at a rate of 33.3% per year and options  granted
in 1995 and 1996 vest over a 4-year period at a rate of 25% per year.  Under the
plan,  all options  expire ten years after the date of grant.  At the  effective
time of the Merger,  each outstanding  option to purchase shares of common stock
whether or not  exercisable  or vested,  was assumed by  Holdings  and became an
option to purchase shares of Holdings common stock based on a conversion  factor
of  0.9603.  Stock  option  activity  for  1998,  1997  and  1996,  based on
preconversion amounts, is summarized as follows:

                                      -79-
<PAGE>

<TABLE>
<CAPTION>


                                             1998                            1997                        1996
                                     ----------------------        -----------------------        ----------------------
                                                   Weighted                       Weighted                   Weighted
                                                    Average                       Average                    Average
                                                   Exercise                       Exercise                   Exercise
                                      Number        Price          Number          Price          Number      Price
                                     --------      --------        ------         --------        ------     --------

<S>                                  <C>      <C>    <C>           <C>       <C>    <C>           <C>    <C>   <C>
Outstanding, beginning of year...    566,666         $15.12         800,000         $14.66        700,000      $14.50
Granted..........................    289,000         $25.25          46,666         $17.36        100,000      $15.75
Exercised........................    (70,000)        $14.50        (165,000)        $14.58              -           -
Forfeited........................    (10,000)        $17.38        (115,000)        $14.93              -           -
                                     -------                       --------                       -------
Outstanding, end of year.........    775,666         $18.72         566,666         $15.12        800,000      $14.66
                                     =======                       ========                       =======

Exercisable, end of year.........    369,710         $14.70         315,000         $14.54        175,000      $14.50
                                     =======         ======        ========

Weighted average fair value of
  options granted during year....      $3.21                          $1.66                       $1.48

</TABLE>


     The fair value of the options  granted were estimated as of the date of the
grant using the Black-Scholes option pricing model. The model assumed:



                                  1998             1997             1996
                                --------        ---------         --------

Dividend rate per share......     $1.20          $  1.20          $  1.20
Expected volatility..........     17.52%           16.55%           17.62%
Expected life................   10 Years         10 Years         10 Years
Risk free interest rate......      5.27%            6.14%            6.53%

     The options  outstanding at December 31, 1998, have an exercise price range
of $14.50 to $25.25, with a weighted average contractual life of 8.27 years.

     PERFORMANCE  SHARES - Under the Plan,  participants were granted contingent
shares of MHC common stock.  The shares are  contingent  upon the  attainment of
specified  performance  measures within a 3-year performance period.  During the
performance  period,  the participant is entitled to receive  dividends and vote
the stock. The stock is vested upon achievement of the performance  measures. If
the  specified  criteria is not met within the 3-year  performance  period,  the
shares are  forfeited.  At the effective  date of the Merger,  each  outstanding
grant of  performance  shares whether or not vested was converted into the right
to receive $27.15 in cash, payable to the grantee without interest.

     The following  table  provides  certain  information  regarding  contingent
performance incentive shares granted under the Plan:

<TABLE>
<CAPTION>

                                                    1998           1997          1996
                                                 --------       ---------     ---------
<S>                                              <C>            <C>           <C>   
Number of performance shares granted.......        77,441          77,105        68,189
Fair value at date of grant (in thousands).      $  1,645       $   1,335     $   1,176
Weighted average per share amount..........      $21.2372       $ 17.3125     $ 17.2500
End of performance period..................       6/30/01         6/30/00       6/30/99
</TABLE>

     In addition,  MHC has granted 1,200 restricted  shares to each non-employee
director in 1998 and 800 restricted shares to each non-employee director in 1997
and 1996, respectively.  Non-employee directors are 

                                      -80-
<PAGE>

restricted  from disposing of granted shares until such time as they cease to be
a director of the company.  The following  table  provides  certain  information
regarding the directors restricted shares granted under the Plan.

                                                   1998       1997       1996 
                                                 --------   --------   --------

Number of shares granted ....................      14,400     11,200     12,000
Fair value at date of grant (in thousands) ..    $    295   $    194   $    207
Weighted average price per share amounts ....    $20.4658   $17.3125   $17.2500

     EMPLOYEE STOCK PURCHASE PLAN - Employees of MidAmerican  and its affiliates
were  allowed  to  purchase  MHC stock up to the  lesser of 15% of their  annual
compensation  or $25,000 at a 15%  discount.  The number of shares  acquired  by
employees  under the plan were 146,299,  140,943,  and 150,899 in 1998, 1997 and
1996,  respectively.  MHC  acquired  shares in the open  market  for this  plan.
Participants  who purchase  shares under the Plan are required to hold purchased
shares for 180 days.

(8)  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):

<TABLE>
<CAPTION>

                                                          1998       1997       1996
                                                        --------   --------   --------

<S>                                                     <C>        <C>        <C>     
Balance at year-end   ................................  $206,221   $122,500   $161,700
Weighted average interest rate
  on year-end balance.................................     5.9%       5.9%       5.4%
Average daily amount outstanding
  during the year.....................................  $104,557   $110,472   $151,162
Weighted average interest rate
  on average daily amount outstanding during the year.     5.6%       5.7%       5.5%
</TABLE>

     MidAmerican has authority from FERC to issue short-term debt in the form of
commercial  paper and bank notes  aggregating  $400 million.  As of December 31,
1998,  MidAmerican  had a $250 million  revolving  credit  facility and lines of
credit  totaling $90 million.  In March 1999,  an $85 million line of credit was
terminated.  MidAmerican's  commercial  paper  borrowings  are  supported by the
revolving credit facility and the lines of credit.

(9)  RATE MATTERS:

     As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois  electric  service  rates by annual  amounts of $13.1  million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively. MidAmerican
implemented  an additional  $0.9 million  annual rate reduction for its Illinois
residential  customers,  effective  August 1, 1998, in connection with Illinois'
electric utility restructuring law.

     On June 27,  1997,  the IUB  approved  a March  1997  settlement  agreement
between  MidAmerican,  the Iowa  Office  of  Consumer  Advocate  (OCA) and other
parties.  Four  major  components  of the  settlement  and their  status  are as
follows:

                                      -81-
<PAGE>

     1) On an annualized  basis,  prices for residential  customers were reduced
$8.5 million,  $10.0 million and $5.0 million  effective  November 1, 1996, July
11, 1997, and June 1, 1998,  respectively,  for a total annual decrease of $23.5
million.

     2) Prices for industrial  customers were reduced by $6 million annually and
prices for commercial customers were reduced by $4 million annually. MidAmerican
was given permission to implement these reductions through a retail access pilot
project,  negotiated  individual  contracts  and tariffed  rate  reductions.  On
January  1,  1999,  MidAmerican  reduced  base  rates for  certain  non-contract
commercial  customers by  approximately  $1.5 million  annually,  subject to IUB
approval.  Additionally,  MidAmerican will make a one-time refund for reductions
that  were not in place by the June 1,  1998,  deadline.  The  remainder  of the
commercial and industrial  price  reductions  were achieved  through  negotiated
contracts and a retail access pilot project.

     The negotiated  contracts  have  differing  terms and conditions as well as
prices.  The  contracts  range in length  from five to ten years,  and some have
price  renegotiation  and early  termination  provisions  exercisable  by either
party.  The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to 10-year contracts.  Prices are set
as fixed prices;  however,  many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes,  and transition costs.  While the contract prices are fixed (except
for the potential adjustment elements),  the costs MidAmerican incurs to fulfill
these  contracts  will vary.  On an aggregate  basis the annual  revenues  under
contract are approximately $180 million.

     3) The Iowa energy  adjustment  clause (EAC) was eliminated.  Prior to July
11,  1997,  MidAmerican  collected  fuel costs from Iowa  customers on a current
basis  through the EAC,  and thus,  fuel costs had little  impact on net income.
Since then,  base rates for Iowa  customers  include a factor for  recovery of a
representative level of fuel costs. If the actual per-unit fuel cost varies from
that  factor,  pre-tax  earnings  are  affected.  The fuel cost factor was to be
reviewed in February  1999 and  adjusted  prospectively  if the actual 1998 fuel
cost per unit varied by more than 15% above or below the factor included in base
rates.  Based on 1998 actual fuel costs,  MidAmerican  will reduce the fuel cost
recovery factor in 1999 base rates.  The estimated  annual reduction in revenues
associated with this adjustment is $1.1 million.

     4) If MidAmerican's  annual Iowa electric  jurisdictional  return on common
equity  exceeds 12%, an equal  sharing  between  customers and  shareholders  of
earnings  above  the  12%  level  begins;  if  it  exceeds  14%,  two-thirds  of
MidAmerican's  share of those earnings will be used for accelerated  recovery of
certain regulatory assets. The agreement  precludes  MidAmerican from filing for
increased rates prior to 2001 unless the return on common equity falls below 9%.
Other parties signing the agreement are prohibited from filing for reduced rates
prior to 2001 unless the return on common equity,  after  reflecting  credits to
customers, exceeds 14%.

     Under a restructuring  law enacted in 1997, a similar sharing  mechanism is
in place for Illinois operations. Two-year average ROE's greater than a two-year
average  benchmark will trigger an equal sharing of earnings on the excess.  The
benchmark is a calculation of average 30-year  Treasury Bond rates plus 5.5% for
1998 and 1999 and 6.5% for 2000 through 2004. The initial calculation, due March
31, 2000, will be based on 1998 and 1999 results.

(10)  DISCONTINUED OPERATIONS:

     On April 24, 1996, MidAmerican shareholders approved a proposal to form MHC
as a holding company for MidAmerican and its subsidiaries. Effective December 1,
1996, each share of MidAmerican  common stock was exchanged for one share of MHC
common stock. As part of the  transaction,  MidAmerican  

                                      -82-
<PAGE>

distributed the capital stock of MidAmerican Capital and Midwest Capital to 
MHC.  The subsidiaries that were distributed to MHC have been reflected as
discontinued operations for MidAmerican.

         In the third quarter of 1996  MidAmerican  received a final  settlement
from the sale of a coal mining  subsidiary which was reflected as a discontinued
operation by a predecessor company in 1982. The final settlement, which resulted
in an after-tax loss of $3.3 million,  includes the  reacquisition  of preferred
equity  by the  buyer  and the  settlement  of  reclamation  reserves.  Proceeds
received from the settlement were $15 million.

     Revenues  from  discontinued   activities,   as  well  as  the  results  of
discontinued  operations  for the years  ended  December  31 are as follows  (in
thousands):

                                                1998        1997        1996 
                                              --------    --------    ---------

OPERATING REVENUES ......................     $      -     $     -    $ 215,631
                                              ========     =======    =========

INCOME (LOSS) FROM OPERATIONS
   Income (loss) before income taxes ....     $      -     $     -    $  12,588
   Income tax benefit (expense) .........            -           -      (19,457)
                                              --------     -------    ---------
                                              $      -     $          $  (6,869)
                                              ========     =======    =========

LOSS ON DISPOSAL
   Loss before income taxes .............     $      -     $     -    $  (5,579)
   Income tax benefit ...................            -           -        2,287
                                              --------     -------    ---------
   Loss on Disposal .....................     $      -     $     -    $  (3,292)
                                              ========     =======    =========

(11)  CONCENTRATION OF CREDIT RISK:

     MidAmerican's  electric utility operations serve 565,000 customers in Iowa,
85,000 customers in western  Illinois and 3,000 customers in southeastern  South
Dakota.  MidAmerican's  gas utility  operations serve 489,000 customers in Iowa,
65,000 customers in western  Illinois,  64,000  customers in southeastern  South
Dakota and 4,000 customers in  northeastern  Nebraska.  The largest  communities
served by MidAmerican 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's utility operations grant unsecured credit to
customers,  substantially all of whom are local businesses and residents.  As of
December 31, 1998,  billed  receivables  from  MidAmerican's  utility  customers
totaled $20.1 million.  As described in Note 18, billed  receivables  related to
utility services have been sold to a wholly owned unconsolidated subsidiary.

(12)  PREFERRED SHARES:

     The $5.25  Series  Preferred  Shares,  which were not  redeemable  prior to
November  1, 1998 for any  purpose,  are  subject  to  mandatory  redemption  on
November  1, 2003 at $100 per share.  The $7.80  Series  Preferred  Shares  have
sinking fund requirements under which 66,600 shares will be redeemed at $100 per
share each May 1, beginning in 2001 through May 1, 2006.

     The total outstanding cumulative preferred stock of MidAmerican not subject
to  mandatory  redemption  requirements  may be  redeemed  at the  option of the
Company at prices which,  in the aggregate,  total $32.2 million.  The aggregate
total the holders of all preferred  stock  outstanding at December 31, 1998, are
entitled  to  upon  involuntary   bankruptcy  is  $181.8  million  plus  accrued
dividends.  Annual dividend  requirements for all preferred stock outstanding at
December 31, 1998, total $12.9 million.  

                                      -83-
<PAGE>

     During  1996,  MidAmerican  redeemed  all shares of the  $1.7375  Series of
preferred  stock.  The redemptions  were made at a premium,  which resulted in a
charge to net income of $1.6 million.

(13)  SEGMENT INFORMATION:

     In 1998, the Company  adopted SFAS 131,  "Disclosures  About Segments of an
Enterprise and Related Information."

     MidAmerican has two reportable  operating  segments:  electric and gas. The
electric segment derives most of its revenue from retail sales of electricity to
residential,  commercial, and industrial customers and sales to other utilities;
whereas the gas segment derives most of its revenue from retail sales of natural
gas to residential,  commercial,  and industrial customers. The gas segment also
earns  significant  revenues  by  transporting  gas owned by others  through its
distribution  systems.  Pricing  for  electric  and gas  sales  are  established
separately  by  regulatory  agencies;  therefore,  management  also reviews each
segment  separately to make decisions  regarding  allocation of resources and in
evaluating  performance.  Common  operating  costs,  interest  income,  interest
expense,  income  tax  expense,  and  equity  in the net loss of  investees  are
allocated to each segment.

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

<TABLE>
<CAPTION>

                                                1998           1997           1996
                                             -----------    -----------    -----------
<S>                                          <C>            <C>            <C>
SEGMENT PROFIT INFORMATION
ELECTRIC:
    Revenues .............................   $ 1,169,810    $ 1,126,300    $ 1,099,008
    Depreciation and amortization expense.       156,546        145,931        140,939
    Interest income ......................         4,945          1,820          1,360
    Interest expense .....................        66,784         71,138         72,484
    Income tax expense ...................        75,831         64,017         90,544
    Equity in the net loss of investees ..          (219)          (161)             -
    Earnings on Common ...................       109,539        101,534        119,583
GAS:
    Revenues .............................       429,870        536,306        536,753
    Depreciation and amortization expense.        25,665         24,609         23,653
    Interest income ......................         1,169            501            237
    Interest expense .....................        14,011         14,412         13,580
    Income tax expense (benefit)..........          (800)         9,698         20,023
    Equity in the net loss of investee ...           (45)           (32)             -
    Earnings on Common ...................          (435)        14,177         28,460
NONREGULATED AND OTHER (a):
    Revenues .............................       107,509         65,249         38,592
    Interest income ......................             2              -              -
    Interest expense .....................           149              -              -
    Income tax expense ...................         1,011          2,602          2,360
    Earnings on Common ...................         1,537          3,742         (3,473)
</TABLE>

                                      -84-
<PAGE>

<TABLE>
<CAPTION>


SEGMENT ASSET INFORMATION
                                                  1998         1997         1996
                                               ----------   ----------   ----------
<S>                                            <C>          <C>          <C>
Electric:
    Total assets ...........................   $2,897,657   $2,843,884   $3,036,211
    Capital expenditures ...................      158,596      128,544      116,243
    Investment in equity method investments.        1,388        1,292            -
GAS:
    Total assets ...........................      672,072      686,238      732,220
    Capital expenditures ...................       34,758       38,388       37,955
    Investment in equity method investments.          256          615            -
NONREGULATED AND OTHER (a):
    Total assets ...........................       15,801       12,185        6,222
    Capital expenditures ...................       21,065        5,920        2,970
</TABLE>


(a)  "Nonregulated  and Other"  consists of  nonregulated  gas, CBEC Railway and
other nonregulated operations.

(14)  FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The following  methods and assumptions were used to estimate the fair value
of each  class of  financial  instruments.  Tariffs  for  MidAmerican's  utility
services are established  based on historical cost  ratemaking.  Therefore,  the
impact  of any  realized  gains  or  losses  related  to  financial  instruments
applicable  to  MidAmerican's  utility  operations is dependent on the treatment
authorized under future ratemaking proceedings.

     Cash and cash equivalents - The carrying amount approximates fair value due
to the short maturity of these instruments.

     Quad  Cities  Station  nuclear  decommissioning  trust fund - Fair value is
based on quoted market prices of the investments held by the fund.

     Notes  payable - Fair value is estimated  to be the carrying  amount due to
the short maturity of these issues.

     Preferred shares - Fair value of preferred shares with mandatory redemption
provisions is estimated based on the quoted market prices for similar issues.

     Long-term  debt - Fair value of long-term  debt is  estimated  based on the
quoted  market  prices for the same or similar  issues or on the  current  rates
available to MidAmerican for debt of the same remaining maturities.

                                      -85-
<PAGE>


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

<TABLE>
<CAPTION>
                                                          1998                      1997
                                                 --------------------    ------------------------
                                                 Carrying      Fair       Carrying        Fair
                                                  Amount       Value       Amount         Value
                                                  ------       -----       ------         -----
<S>                                              <C>         <C>         <C>           <C> 
Financial Instruments Issued by MidAmerican:
  MidAmerican preferred securities; subject
    to mandatory redemption....................  $ 50,000    $ 53,317    $   50,000    $   53,650
   MidAmerican-obligated preferred securities;
     subject to mandatory redemption...........   100,000     102,500       100,000       104,250
   Long-term debt, including current portion...   930,966     968,308     1,044,663     1,076,167
</TABLE>

         The amortized cost, gross unrealized gain and losses and estimated fair
value of  investments  held in the Quad Cities Station  nuclear  decommissioning
trust fund at December 31 are as follows (in thousands):

                                                        1998
                                    -------------------------------------------
                                    Amortized  Unrealized  Unrealized   Fair
                                      Cost       Gains       Losses     Value
                                    ---------  ----------  ----------  --------
     Available-for-sale:
       Equity Securities .........  $ 43,577   $ 13,250    $   (393)  $ 56,434
       Municipal Bonds ...........    28,645      2,037          (8)    30,674
       U.S. Government Securities.    15,411      1,410           -     16,821
       Corporate Debt Securities..     8,620        345          (4)     8,961
       Cash equivalents ..........     4,083          -           -      4,083
                                    --------   --------    --------   --------
                                    $100,336   $ 17,042    $   (405)  $116,973
                                    ========   ========    ========   ========

                                                       1997
                                   --------------------------------------------
                                   Amortized  Unrealized   Unrealized    Fair
                                     Cost       Gains        Losses      Value
                                   ---------  ----------   ----------   -------
     Available-for-sale:
       Equity Securities .........   $24,336    $ 3,848    $   (122)   $28,062
       Municipal Bonds ...........    35,217      2,116          (1)    37,332
       U.S. Government Securities.    18,753        800          (4)    19,549
       Corporate Securities ......     6,353         77          (3)     6,427
       Cash equivalents ..........     1,881          -           -      1,881
                                     -------    -------    --------    -------
                                     $86,540    $ 6,841    $   (130)   $93,251
                                     =======    =======    ========    =======


                                     -86-
<PAGE>

     At December 31, 1998, the debt  securities  held in the Quad Cities Station
nuclear decommissioning trust fund had the following maturities (in thousands):

                                    Available for Sale
                                    ------------------
                                    Amortized     Fair
                                      Cost       Value  
                                    ---------   -------  

         Within 1 year............   $ 1,397    $ 1,397
         1 through 5 years........    21,793     22,852
         5 through 10 years.......    14,595     15,820
         Over 10 years............    14,891     16,387

 
     The proceeds and the gross realized gains and losses on the  disposition of
investments held in the Quad Cities Station nuclear  decommissioning  trust fund
for the years ended December 31, are as follows (in thousands):


                                        1998        1997       1996  
                                      --------    --------    -------

     Proceeds from sales ..........   $ 29,380    $ 30,801    $ 4,106
     Gross realized gains .........      1,073         713         92
     Gross realized losses ........     (2,690)       (659)       (17)

 (15)  INCOME TAX EXPENSE:

     Income tax expense from  continuing  operations  includes the following for
the years ended December 31 (in thousands):


                                       1998         1997         1996
                                    ---------    ---------    ---------
       Current
           Federal ..............   $  69,266    $  83,466    $  92,240
           State ................      25,154       25,495       23,798
                                    ---------    ---------    ---------
                                       94,420      108,961      116,038
                                    ---------    ---------    ---------
       Deferred
           Federal ..............      (8,666)     (23,143)       2,504
           State ................      (4,007)      (3,786)         583
                                    ---------    ---------    ---------
                                      (12,673)     (26,929)       3,087

       Investment tax credit, net      (5,705)      (5,715)      (6,198)
                                    ---------    ---------    ---------
       Total income tax expense .   $  76,042    $  76,317    $ 112,927
                                    =========    =========    =========

                                      -87-
<PAGE>


     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):

                                                            1998        1997
                                                         ---------    --------
     Deferred tax assets
         Related to:
         Investment tax credits ......................   $  52,139    $ 55,998
         Pensions ....................................      15,677      17,339
         Nuclear reserves and decommissioning ........      17,715      15,287
         Other .......................................           -         799
                                                         ---------    --------
            Total ....................................   $  85,531    $ 89,423
                                                         =========    ========

     Deferred tax liabilities
         Related to:
         Depreciable property ........................   $ 419,265    $417,333
         Income taxes recoverable through future rates     198,364     197,877
         Energy efficiency ...........................      27,186      40,902
         Reacquired debt .............................      16,385      15,346
         FERC Order 636 ..............................        (941)      2,858
         Other .......................................       9,947       7,947
                                                         ---------    --------
            Total ....................................   $ 670,206    $682,263
                                                         =========    ========

     The following table is a  reconciliation  between the effective  income tax
rate,  before  preferred stock dividends of subsidiary  trust,  indicated by the
Consolidated  Statements of Income and the statutory federal income tax rate for
the years ended December 31:

                                                     1998    1997    1996 
                                                     ----    ----    ----

     Effective federal and state income tax rate .    38%     36%     41%
     Amortization of investment tax credit .......     3       3       2
     State income tax, net of federal income
         tax benefit .............................    (7)     (7)     (6)
     Other .......................................     1       3      (2)
                                                     ---     ---     ---
     Statutory federal income tax rate ...........    35%     35%     35%
                                                     ===     ===     ===

(16)  INVENTORIES:

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

                                                  1998      1997   
                                                -------   -------

     Materials and supplies, at average cost    $30,914   $31,425
     Coal stocks, at average cost ...........    22,266    14,225
     Gas in storage, at LIFO cost ...........    37,306    35,430
     Fuel oil, at average cost ..............     1,294     2,344
     Other ..................................       965       874
                                                -------   -------
        Total ...............................   $92,745   $84,298
                                                =======   =======

     At December 31, 1998  prices,  the current cost of gas in storage was $43.0
million.

                                      -88-
<PAGE>


(17) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
       SECURITIES OF MIDAMERICAN ENERGY FINANCING I:

     In December  1996,  MidAmerican  Energy  Financing I (the Trust),  a wholly
owned statutory business trust of MidAmerican,  issued 4,000,000 shares of 7.98%
Series  MidAmerican-obligated  Mandatorily  Redeemable Preferred Securities (the
Preferred  Securities).  The sole  assets  of the Trust are  $103.1  million  of
MidAmerican 7.98% Series A Debentures due 2045 (the Debentures). There is a full
and unconditional  guarantee by MidAmerican of the Trust's obligations under the
Preferred Securities. MidAmerican has the right to defer payments of interest on
the Debentures by extending the interest payment period for up to 20 consecutive
quarters. If interest payments on the Debentures are deferred,  distributions on
the  Preferred   Securities   will  also  be  deferred.   During  any  deferral,
distributions will continue to accrue with interest thereon, and MidAmerican may
not declare or pay any dividend or other distribution on, or redeem or purchase,
any of its capital stock.

     The  Debentures  may be redeemed by  MidAmerican  on or after  December 18,
2001,  or at an earlier  time if there is more than an  insubstantial  risk that
interest paid on the  Debentures  will not be deductible  for federal income tax
purposes. If the Debentures,  or a portion thereof, are redeemed, the Trust must
redeem a like amount of the Preferred Securities.  If a termination of the Trust
occurs,  the Trust will distribute to the holders of the Preferred  Securities a
like amount of the Debentures unless such a distribution is determined not to be
practicable.  If such  determination  is  made,  the  holders  of the  Preferred
Securities  will be entitled  to  receive,  out of the assets of the trust after
satisfaction of its liabilities,  a liquidation amount of $25 for each Preferred
Security held plus accrued and unpaid distributions.

(18) SALE OF ACCOUNTS RECEIVABLE:

     In 1997 MidAmerican  entered into a revolving  agreement,  which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican.  Funding  Corp.  in turn has sold  receivable  interests to outside
investors.  In  consideration of the sale,  MidAmerican  received $70 million in
cash and the remaining  balance in the form of a subordinated  note from Funding
Corp. In 1998 the revolving  balance was reduced to $60 million due to a decline
in accounts receivable available for sale. The agreement is structured as a true
sale under which the creditors of Funding Corp. will be entitled to be satisfied
out of the  assets  of  Funding  Corp.  prior to any  value  being  returned  to
MidAmerican  or its creditors.  At December 31, 1998,  $97.4 million of accounts
receivable, net of reserves, was sold under the agreement.

(19)  AFFILIATED COMPANY TRANSACTIONS:

     The companies  identified as affiliates are  subsidiaries of MHC. The basis
for these charges is provided for in service agreements between  MidAmerican 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.  MHC  reimbursed
MidAmerican  for  charges  originating  at  MidAmerican  in the  amount of $12.2
million  and  $4.1  million  for  1998  and  1997,  respectively.  MidAmerican's
allocated  share of such  costs  and  those  which  originated  at MHC was $15.3
million and $13.8 million for 1998 and 1997, respectively.

                                      -89-
<PAGE>

     MidAmerican  was also  reimbursed  for  charges  incurred  on behalf of its
affiliates,  MidAmerican  Capital,  Midwest Capital and MidAmerican  Realty. 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
$3.2 million and $6.6 million for 1998 and 1997, respectively.

     Prior to 1997, MidAmerican, as the parent company, incurred costs of
general benefit to itself and its subsidiaries.  In addition,  it incurred costs
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,  on
behalf of  MidAmerican  Capital  and  Midwest  Capital.  The total of such costs
charged to MidAmerican Capital and Midwest Capital was $9.3 million for 1996.

     MidAmerican leases unit trains from an affiliate for the transportation
of coal to  MidAmerican's  generating  stations.  Unit  train  costs,  including
maintenance,  were approximately $2.1 million, $2.8 million and $3.0 million for
1998, 1997 and 1996, respectively.

     MidAmerican  purchased natural gas from AmGas, an affiliate.  MidAmerican's
cost of gas related to these  transactions  was $2.2  million,  $0.5 million and
$0.2 million for 1998, 1997 and 1996, respectively. During 1998 MidAmerican also
sold natural gas to AmGas in the amount of $24.8 million.

     MidAmerican  purchased natural gas from InterCoast Trade and Resources,  an
affiliate,  in the amount of $2.0  million and $11.4  million for 1998 and 1997,
respectively.  MidAmerican  also  sold  natural  gas  to  InterCoast  Trade  and
Resources  in the amount of $1.6  million  and $6.1  million  for 1998 and 1997,
respectively.

(20)  UNAUDITED QUARTERLY OPERATING RESULTS:


                                                     1998
                                 -----------------------------------------------
                                 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
                                 ----------- ----------- ----------- -----------
                                                   (In thousands)

Operating revenues................ $447,266    $375,506    $447,992    $436,425
Operating income..................   80,098      54,350     106,722      39,750
Income from continuing operations.   33,179      18,380      49,544      14,490
Earnings on common stock..........   31,942      17,142      48,305      13,252


                                                      1997    
                                 -----------------------------------------------
                                 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
                                 ----------- ----------- ----------- -----------
                                                   (In thousands)

Operating revenues................ $486,640    $356,756    $406,531    $477,928
Operating income..................   81,165      59,568     102,476      44,100
Income from continuing operations.   35,224      21,822      50,255      18,640
Earnings on common stock..........   32,450      20,586      49,016      17,401

The quarterly data reflect seasonal variations common in the utility industry.

                                      -90-
<PAGE>


(21)  OTHER INFORMATION:

     Non-Operating  - Other,  Net, as shown on the  Consolidated  Statements  of
Income includes the following for the years ended December 31 (in thousands):

<TABLE>
<CAPTION>

                                                       1998       1997       1996  
                                                      -------    -------    -------

<S>                                                   <C>        <C>        <C>    
     Discount on sold receivables .................   $(8,716)   $  (439)   $     -
     Subservicer fee from Funding Corp. ...........     1,714        153          -
     Loss from equity method investments ..........      (264)      (193)         -
     Energy efficiency carrying charges ...........       197      4,993      3,255
     Gain on sale of cushion gas ..................         -        855      3,182
     Donations ....................................      (228)      (556)    (1,271)
     Gain (loss) on reacquisition of long-term debt         -       (923)     1,105
     NPPD settlement ..............................         -      2,248          -
     IES merger proposal ..........................         -          -     (8,689)
     Other ........................................       820          9       (943)
                                                      -------    -------    -------
       Total ......................................   $(6,477)   $ 6,147    $(3,361)
                                                      =======    =======    =======
</TABLE>

                                      -91-
<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS

To MidAmerican Energy Company and Subsidiaries:

We have  audited the  accompanying  consolidated  financial  statements  and the
financial  statement  schedule of MidAmerican  Energy  Company and  subsidiaries
listed in Item 14(a) of this Form 10-K. These financial statements and financial
statement  schedule are the  responsibility  of the  Company's  management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
financial statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of MidAmerican Energy
Company and  subsidiaries as of December 31, 1998 and 1997, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1998,  in  conformity  with  generally  accepted
accounting  principles.  In addition,  in our opinion,  the financial  statement
schedule  referred to above,  when considered in relation to the basic financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information required to be included therein.





                                             /s/  PricewaterhouseCoopers LLP

Kansas City, Missouri
January 22, 1999, except with respect to Note (1)(a),
                  as to which the date is March 12, 1999.

                                      -92-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                     UNAUDITED REGULATED ELECTRIC STATISTICS
<TABLE>
<CAPTION>


YEARS ENDED DECEMBER 31                        1998           1997            1996 
                                            ------------   ------------    ------------

<S>                                         <C>            <C>             <C>   
REVENUES (in thousands)
Residential .............................   $    436,696   $    417,845    $    415,954
Small general service ...................        261,476        246,927         237,466
Large general service ...................        259,138        249,444         241,172
Other sales .............................         63,509         62,261          60,476
Sales for resale ........................        125,919        124,741         121,452
                                            ------------   ------------    ------------
    Total from electric sales ...........      1,146,738      1,101,218       1,076,520
Other electric revenue ..................         23,072         25,082          22,488
                                            ------------   ------------    ------------
    Total ...............................   $  1,169,810   $  1,126,300    $  1,099,008
                                            ============   ============    ============

KWH SALES (in thousands)
Residential .............................      4,942,044      4,740,688       4,652,031
Small general service ...................      3,900,616      3,725,873       3,565,459
Large general service ...................      6,256,141      6,204,087       6,067,325
Other ...................................        989,756        995,295         988,022
Sales for resale ........................      6,185,653      6,987,268       6,727,326
                                            ------------   ------------    ------------
    Total ...............................     22,274,210     22,653,211      22,000,163
                                            ============   ============    ============

REVENUES FROM SALES AS A % OF TOTAL
Residential .............................           38.1           37.9            38.6
Small general service ...................           22.8           22.4            22.1
Large general service ...................           22.6           22.7            22.4
Other ...................................            5.5            5.7             5.6
Sales for resale ........................           11.0           11.3            11.3
                                            ------------   ------------    ------------
   Total ................................          100.0          100.0           100.0
                                            ============   ============    ============

SALES AS A % OF TOTAL
Residential .............................           22.2           20.9            21.1
Small general service ...................           17.5           16.5            16.2
Large general service ...................           28.1           27.4            27.6
Other ...................................            4.4            4.4             4.5
Sales for resale ........................           27.8           30.8            30.6
                                            ------------   ------------    ------------
   Total ................................          100.0          100.0           100.0
                                            ============   ============    ============

RETAIL ELECTRIC SALES BY JURISDICTION (%)
Iowa ....................................           88.4           88.6            88.7
Illinois ................................           10.9           10.7            10.6
South Dakota ............................            0.7            0.7             0.7
                                            ------------   ------------    ------------
   Total ................................          100.0          100.0           100.0
                                            ============   ============    ============

CUSTOMERS (end of year)
Residential .............................        567,316        563,189         557,637
Small general service ...................         74,310         73,488          73,022
Large general service ...................          1,031          1,000             982
Other ...................................         10,216         10,047           9,937
Sales for resale ........................             54             47              55
                                            ------------   ------------    ------------
   Total ................................        652,927        647,771         641,633
                                            ============   ============    ============

ANNUAL AVERAGE PER RESIDENTIAL CUSTOMER
Revenue per Kwh (cents) .................           8.83           8.81            8.94
KWh sales ...............................          8,739          8,463           8,392

COOLING DEGREE DAYS
Actual ..................................          1,054            883             788
Percent warmer (colder) than normal .....           10.4           (7.5)          (17.5)

ELECTRIC PEAK DEMAND (net MW) ...........          3,643          3,548           3,537

SUMMER NET ACCREDITED CAPABILITY (MW) ...          4,425          4,293           4,301

</TABLE>

                                      -93-

<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                       UNAUDITED REGULATED GAS STATISTICS


<TABLE>
<CAPTION>

YEARS ENDED DECEMBER 31                                        1998       1997        1996      
                                                             ---------  ----------  ----------

<S>                                                          <C>        <C>         <C>    
REVENUES (in thousands)
Residential...........................................       $ 278,420  $  339,924  $  338,605
Small general service.................................         113,675     152,661     153,616
Large general service.................................           9,837      15,201      17,670
Sales for resale and other............................           4,652       2,914       2,050
                                                             ---------  ----------  ----------
   Total revenue from gas sales ......................         406,584     510,700     511,941
Gas transported.......................................          18,694      20,443      20,155
Other gas revenues....................................           4,592       5,163       4,657
                                                             ---------  ----------  ----------
   Total..............................................       $ 429,870  $  536,306  $  536,753
                                                             =========  ==========  ==========

THROUGHPUT (MMBtu in thousands)
Sales
   Residential........................................          49,084      57,039      61,732
   Small general service..............................          26,250      31,066      33,642
   Large general service..............................           3,032       3,920       4,634
   Sales for resale and other.........................           3,524       1,800         977
                                                             ---------  ----------  ----------
     Total sales......................................          81,890      93,825     100,985
Gas transported.......................................          59,062      58,804      54,618
                                                             ---------  ----------  ----------
   Total..............................................         140,952     152,629     155,603
                                                             =========  ==========  ==========

REVENUES FROM THROUGHPUT AS A % OF TOTAL
Residential...........................................            65.5        64.0        63.6
Small general service.................................            26.7        28.7        28.9
Large general service.................................             2.3         2.9         3.3
Sales for resale and other............................             1.1         0.5         0.4
Gas transported.......................................             4.4         3.9         3.8
                                                             ---------  ----------  ----------
   Total..............................................           100.0       100.0       100.0
                                                             =========  ==========  ==========

SALES AS A % OF TOTAL (excludes gas transported)
Residential...........................................            59.9        60.8        61.1
Small general service.................................            32.1        33.1        33.3
Large general service.................................             3.7         4.2         4.6
Sales for resale and other............................             4.3         1.9         1.0
                                                             ---------  ----------  ----------
   Total..............................................           100.0       100.0       100.0
                                                             =========  ==========  ==========

RETAIL GAS SALES BY JURISDICTION (%)
Iowa .................................................            79.0        79.1        78.0
Illinois..............................................            10.2        10.4        11.0
South Dakota..........................................            10.1         9.8        10.3
Other.................................................             0.7         0.7         0.7
                                                             ---------  ----------  ----------
   Total .............................................           100.0       100.0       100.0
                                                             =========  ==========  ==========

CUSTOMERS (end of year)
Residential...........................................         561,579     558,501     550,786
Small general service.................................          58,703      58,739      58,059
Large general service.................................             713         767         821
Gas transported and other.............................             566         569         504
                                                             ---------  ----------  ----------
   Total..............................................         621,561     618,576     610,170
                                                             =========  ==========  ==========

ANNUAL AVERAGES PER RESIDENTIAL CUSTOMER
Revenue per MMBtu.....................................       $    5.67  $     5.96  $     5.49
MMBtu sales...........................................              88         103         113

HEATING DEGREE DAYS
Actual................................................           5,705       6,872       7,445
Percent colder (warmer) than normal...................           (15.6)        1.6        10.1
COST PER MMBTU........................................       $    2.97  $     3.69  $     3.42

</TABLE>

                                      -94-

<PAGE>
                                                                     SCHEDULE II


                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1998
                                 (In thousands)

<TABLE>
<CAPTION>

   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
                                            ----------     ---------   ----------   --------

<S>                                         <C>             <C>         <C>           <C>   
Reserves Deducted From Assets
   To Which They Apply:

   Reserve for uncollectible accounts:


     Year ended 1998 .................      $        -      $6,915      $ 6,915       $    -
                                            ==========      ======      =======       ======

     Year ended 1997 .................      $    1,845      $7,386      $(9,231)      $    -
                                            ==========      ======      =======       ======

     Year ended 1996 .................      $    2,214      $5,854      $(6,223)      $1,845
                                            ==========      ======      =======       ======

Reserves Not Deducted From Assets:

     Year ended 1998 .................      $    5,257      $1,148      $(1,717)      $4,688
                                            ==========      ======      =======       ======

     Year ended 1997 .................      $    4,267      $2,971      $(1,981)      $5,257
                                            ==========      ======      =======       ======

     Year ended 1996 .................      $    3,177      $2,683      $(1,593)      $4,267
                                            ==========      ======      =======       ======
</TABLE>

                                      -95-




<PAGE>


                                   SIGNATURES

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 30, 1999              By  /s/  Gregory E. Abel   
                                    --------------------------
                          
                                      (Gregory E. Abel)
                                       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 *         Chairman                     March 30, 1999
     --------------------------
           (David L. Sokol)




       /s/  Gregory E. Abel          Chief Executive Officer      March 30, 1999
     --------------------------
           (Gregory E. Abel)           and Director




       /s/  Alan L. Wells            Senior Vice President and    March 30, 1999
     --------------------------
           (Alan L. Wells)             Chief Financial Officer




       /s/  Wayne O. Smith           Director                     March 30, 1999
     --------------------------
           (Wayne O. Smith)




       /s/  Ronald W. Stepien        Director                     March 30, 1999
     --------------------------
           (Ronald W. Stepien)



*By:  /s/  Steven A. McArthur        Attorney-in-Fact             March 30, 1999
     --------------------------
          (Steven A. McArthur)

                                      -96-
<PAGE>



EXHIBIT INDEX

Exhibits Filed Herewith
-----------------------

12       Computation of ratios of earnings to fixed charges and  computation of
         ratios  of  earnings  to  fixed   charges  plus   preferred   dividend
         requirements

21       Subsidiaries of the Registrant.

23       Consent of  PricewaterhouseCoopers LLP.

27       Financial Data Schedules (electronic filing only)

Exhibits Incorporated by Reference

3.3      Restated  Articles of Incorporation of MidAmerican  Energy Company,  as
         amended  October  27,  1998.  (Filed as  Exhibit  3.3 to  MidAmerican's
         Quarterly  Report on Form 10-Q for the period ended September 30, 1998,
         Commission File No. 1-11505.)

3.4      Restated  Bylaws of  MidAmerican  Energy  Company,  as amended July 24,
         1996.  (Filed as Exhibit 3.1 to MidAmerican's  Quarterly Report on Form
         10-Q for the period ended June 30, 1996, Commission File No.
         1-11505.)

4.2      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.)

4.3      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.)

4.4      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.)

4.5      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.)

4.6      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.)

4.7      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.)

                                      -97-
<PAGE>


4.8      Indenture  of Mortgage  and Deed of Trust,  dated as of March 1, 1947.
         (Filed by Iowa-Illinois as Exhibit 7B to Commission File No. 2-6922.)

4.9      Sixth  Supplemental  Indenture  dated as of July 1,  1967.  (Filed  by
         Iowa-Illinois as Exhibit 2.08 to Commission File No. 2-28806.)

4.10     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.)

4.11     Resignation and Appointment of successor Individual Trustee. (Filed by
         Iowa-Illinois as Exhibit 4.B.30 to Commission File No. 33-39211.)

4.13     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.)

4.14     Twenty-Ninth  Supplemental Indenture dated as of March 15, 1993. (Filed
         as Exhibit  4.32.A to  Iowa-Illinois'  Current Report on Form 8-K dated
         March 24, 1993, Commission File No. 1-3573.)

4.15     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.)

4.16     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's  Annual  Report on Form 10-K  dated
         December 31, 1995, Commission File No. 1-11505.)

4.17     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's Annual Report on
         Form 10-K dated December 31, 1995, Commission File No. 1-11505.)

10.1     MidAmerican  Energy Company Severance Plan For Specified Officers dated
         November 1, 1996. (Filed as Exhibit 10.1 to Holdings' and MidAmerican's
         respective  Annual Reports on the combined Form 10-K for the year ended
         December  31,  1996,   Commission   File  Nos.   1-12459  and  1-11505,
         respectively.)

10.2     MidAmerican  Energy Company Deferred  Compensation Plan for Executives.
         (Filed as  Exhibit  10.2 to  MidAmerican's  Annual  Report on Form 10-K
         dated December 31, 1995, Commission File No. 1-11505.)

10.3     MidAmerican Energy Company Supplemental Retirement Plan for Designated
         Officers.  (Filed as Exhibit 10.3 to  MidAmerican's  Annual  Report on
         Form 10-K dated December 31, 1995, Commission File No. 1-11505.)

10.4     MidAmerican  Energy Company Key Employee  Short-Term  Incentive  Plan.
         (Filed as Exhibit  10.4 to  MidAmerican's  Annual  Report on Form 10-K
         dated December 31, 1995, Commission File No. 1- 11505.)

10.5     Deferred  Compensation  Plan for Executives of Midwest  Resources Inc.
         and Subsidiaries.  (Filed as Exhibit 10.1 to Midwest Resources' Annual
         Report on Form 10-K for the year ended  December 31, 1990,  Commission
         File No. 1-10654).

                                      -98-
<PAGE>


10.6     Deferred  Compensation Plan for Board of Directors of Midwest Resources
         Inc. and  Subsidiaries.  (Filed as Exhibit  10.2 to Midwest  Resources'
         Annual  Report  on Form  10-K for the year  ended  December  31,  1990,
         Commission File No. 1-10654).

10.7     Midwest   Resources  Inc.  revised  and  amended   Executive   Deferred
         Compensation  Plan for IOR and  Subsidiaries,  dated  January 29, 1992.
         (Filed as Exhibit 10.5 to Midwest Resources' Annual Report on Form 10-K
         for the year ended December 31, 1991, Commission File No. 1-10654.)

10.8     Midwest Resources Inc. revised and amended Board of Directors  Deferred
         Compensation  Plan for IOR and  Subsidiaries,  dated  January 29, 1992.
         (Filed as Exhibit 10.6 to Midwest Resources' Annual Report on Form 10-K
         for the year ended December 31, 1991, Commission File No. 1-10654.)

10.9     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.)

10.10    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.)

10.11    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.)

10.12    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.)

10.13    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.)

10.14    Revised and amended  Executive  Deferred  Compensation Plan for IOR and
         Subsidiaries,  dated July 24,  1985.  (Filed as Exhibit  10.22 to IOR's
         Annual  Report  on Form  10-K for the year  ended  December  31,  1985,
         Commission File No. 1-7830.)

10.15    Revised and amended Deferred  Compensation  Plan for Board of Directors
         of IOR and  Subsidiaries,  dated July 24, 1985. (Filed as Exhibit 10.22
         to IOR's  Annual  Report on Form 10-K for the year ended  December  31,
         1985, Commission File No. 1-7830.)

10.16    Revised and amended  Executive  Deferred  Compensation Plan for IOR and
         Subsidiaries, dated December 18, 1987. (Filed as Exhibit 10.15 to IOR's
         Annual  Report  on Form  10-K for the year  ended  December  31,  1987,
         Commission File No. 1-7830.)

10.17    Revised and amended Deferred  Compensation  Plan for Board of Directors
         of IOR and  Subsidiaries,  dated  December 18, 1987.  (Filed as Exhibit
         10.16 to IOR's Annual  Report on Form 10-K for the year ended  December
         31, 1987, Commission File No. 1-7830.)

                                      -99-
<PAGE>

10.18    Amendments to Midwest Resources Executive Deferred  Compensation Plans,
         dated October 30, 1992.  (Filed as Exhibit 10(h) to Midwest  Resource's
         Annual  Report  on Form  10-K for the year  ended  December  31,  1992,
         Commission File No. 1-10654.)

10.19    Supplemental  Retirement 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.)

10.20    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.)

10.21    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.)


10.22    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.)

10.23    Deferred  Compensation  Plan of Midwest  Energy  Company and Subsidiary
         Corporations.  (Filed as  Exhibit  10.25 to Midwest  Resources'  Annual
         Report on Form 10-K for the year ended  December 31,  1994,  Commission
         File No. 1-10654.)

10.24    Form of Indemnity  Agreement between MidAmerican Energy Company and its
         directors and officers. (Filed as Exhibit 10.37 to MidAmerican's Annual
         Report  on Form 10-K  dated  December  31,  1995,  Commission  File No.
         1-11505.)

10.25    MidAmerican  Energy Company 1995 Long-Term  Incentive Plan.  (Filed as
         Exhibit  10(a) to Holdings'  Registration  Statement on Form S-4, File
         No. 333-01645.)

10.26    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'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.)

10.27    Amendment  No. 1 dated  October 29,  1997,  to the  MidAmerican  Energy
         Company  1995  Long-Term  Incentive  Plan.  (Filed as  Exhibit  10.1 to
         Holdings'  and  MidAmerican'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.)

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.

                                     -100-