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

                                    FORM 10-K
(Mark One)
                [x] Annual Report pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                  For the fiscal year ended DECEMBER 31, 1996
                                            -----------------
                                       or
             [ ] Transition Report pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934
                       For the transition period from       to
                                                      -----    -----

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

1-12459              MIDAMERICAN ENERGY HOLDINGS COMPANY        42-1451822
                             (An Iowa Corporation)
                            666 GRAND AVE. PO BOX 657
                             DES MOINES, IOWA 50303
                                  515-242-4300

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

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

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

MidAmerican Energy
  Holdings Company        Common Stock, no par value    New York Stock Exchange

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

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

MidAmerican Energy       Preferred Stock, $3.30 Series, no par value
  Company                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
-------------------------------------------------------------------------------
Registrant                         Title of each Class
<PAGE>

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

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

The aggregate market value of voting stock held by non-affiliates of MidAmerican
Energy Holdings Company  (Holdings) was  $1,668,169,740 as of February 21, 1997,
when 100,751,713 shares of common stock, without par value, were outstanding.

The aggregate market value of voting stock held by non-affiliates of MidAmerican
Energy Company was $0 as of February 21, 1997, when 100,751,713 shares of common
stock, without par value, were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

A portion of Holding's  Proxy  Statement  relating to its 1997 Annual Meeting of
Shareholders is incorporated by reference in Part III hereof.

     * MidAmerican  Energy Holdings Company (Holdings) became the parent holding
company for  MidAmerican  Energy Company  (MidAmerican)  pursuant to a statutory
share  exchange.  The effective date of the share exchange was December 1, 1996,
and prior to such effective date, Holdings had no assets or operations. Prior to
such effective date,  MidAmerican was subject to the  requirements of Section 13
or 15(d) of the Securities  Exchange Act of 1934, as amended (Exchange Act), and
accordingly  filed in a timely manner all reports  required to be filed pursuant
to Sections 13 or 15(d) of the Exchange Act during the preceding 12 months.

                                       -2-

<PAGE>



                       MIDAMERICAN ENERGY HOLDINGS COMPANY

                                       AND

                           MIDAMERICAN ENERGY COMPANY


                         1996 Annual Report on Form 10-K

This combined  Form 10-K is  separately  filed by  MidAmerican  Energy  Holdings
Company (Holdings or the Company) and MidAmerican Energy Company (MidAmerican or
the Utility). Information herein relating to each individual registrant is filed
by such  registrant on its own behalf.  Accordingly,  except for its subsidiary,
MidAmerican  makes no  representation  as to  information  relating to any other
subsidiary of Holdings.

                                TABLE OF CONTENTS

                                     Part I
                                     ------
                                                                          Page
                                                                          ----
Item 1  Business
          General Development of Business...........................         7
          Financial Information About Industry Segments.............         7
          Narrative Description of Business.........................         8
            Business of MidAmerican.................................         8
              Rate Matters..........................................         9
              Electric Operations ..................................        11
              Natural Gas Operations................................        13
              Construction Program..................................        14
              General Utility Regulation............................        15
              Nuclear Regulation....................................        16
              Environmental Regulations.............................        17
            Business of MidAmerican Capital Company.................        18
            Business of Midwest Capital Group.......................        19
Item 2  Properties..................................................        19
Item 3  Legal Proceedings...........................................        21
Item 4  Submission of Matters to a Vote of Security Holders.........        21

Other Information
        Executive Officers of the Registrant........................        22
        Business Transaction Policy Statement.......................        22

                                     Part II
                                     -------
Item 5  Market for the Registrant's Common Equity and
        Related Stockholder Matters.................................        23
Item 6  Selected Financial Data.....................................        23
Item 7  Management's Discussion and Analysis of Financial
          Condition and Results of Operations.......................        23
Item 8  Financial Statements and Supplementary Data.................        23
Item 9  Changes in and Disagreements with Accountants
          on Accounting and Financial Disclosure....................        23

                                       -3-

<PAGE>

                                    Part III
                                    --------

Item 10  Directors and Executive Officers of the Registrant.........        24
Item 11  Executive Compensation.....................................        25
Item 12  Security Ownership of Certain Beneficial Owners
           and Management...........................................        26
Item 13  Certain Relationships and Related Transactions.............        27

                                     Part IV
                                     -------

Item 14  Exhibits, Financial Statement Schedules, and
           Reports on Form 8-K......................................        28
Signatures..........................................................       101

Exhibits Index......................................................       104

                                       -4-

<PAGE>



DEFINITIONS

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

TERM                     MEANING

AFUDC                    Allowance for funds used during construction
ANR                      ANR Pipeline Company
Bcf                      Billion cubic feet
Btu                      British Thermal Unit, the quantity of heat required to
                         raise the temperature of one pound of water one degree
                         Fahrenheit
CAA                      Clean Air Act Amendments of 1990
Coalition                Illinois Coalition for Responsible Electricity
ComEd                    Commonwealth Edison Company
Company                  MidAmerican Energy Holdings Company
Cooper                   Cooper Nuclear Station
DOE                      United States Department of Energy
EMFs                     Electric and magnetic fields
Energy Services          InterCoast Energy Marketing and Services Company
EAC                      Energy Adjustment Clause
EPAct                    Energy Policy Act
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
ICC                      Illinois Commerce Commission
InterCoast               InterCoast Energy Company
InterCoast Capital       InterCoast Capital Company
Iowa-Illinois            Iowa-Illinois Gas and Electric Company
IPM                      InterCoast Power Marketing Company
IPO                      Initial public offering
IUB                      Iowa Utilities Board
KCS                      KCS Energy Inc.
KW                       Kilowatt, a thousand watts
KWH                      Kilowatt-hour, one thousand watts used for one hour
LDC                      Local distribution company
LES                      Lincoln Electric System
MAAP                     Mid-Continent Area Power Pool
Mcf                      One thousand cubic feet
McLeod                   McLeod, Inc.
MD&A                     Management's Discussion and Analysis of Financial 
                         Condition and Results of Operations
MidAmerican              MidAmerican Energy Company, a wholly-owned subsidiary 
                         of Holdings
MidAmerican Capital      MidAmerican Capital Company, a wholly-owned subsidiary
                         of Holdings
Midwest Capital          Midwest Capital Group, Inc., a wholly-owned subsidiary 
                         of Holdings

                                       -5-

<PAGE>



Midwest                  Midwest Power Systems Inc.
Midwest Resources        Midwest Resources Inc.
MGP                      Manufactured gas plant
MMcf                     One million cubic feet
MW                       Megawatts, a million watts
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
OASIS                    Open Access Same Time Information System
OCA                      Iowa Office of Consumer Advocate
OPEB                     Other postretirement employee benefits
Order 636 or Orders      FERC Order 636 and related orders
PCBs                     Polychlorinated biphenyls
PGA                      Purchase gas adjustment clause
PRPs                     Potentially responsible parties
Rail Services            InterCoast Rail Services and Investments
SDPUC                    South Dakota Public Utilities Commission
SFAS                     Statement of Financial Accounting Standards
Utility                  MidAmerican Energy Company
Quad Cities Station      Quad Cites Nuclear Power Station

                                       -6-

<PAGE>



                                     PART I
ITEM 1. BUSINESS

(A)  GENERAL DEVELOPMENT OF BUSINESS

     Holdings  is  an  exempt  public  utility   holding  company  and  an  Iowa
corporation.  Effective  December  1,  1996,  it became  the  parent  company of
MidAmerican,  MidAmerican  Capital  and  Midwest  Capital  pursuant  to a  share
exchange between MidAmerican and the Company. Prior to the effective date of the
exchange,  MidAmerican  Captial and Midwest Capital were direct  subsidiaries of
MidAmerican.  MidAmerican is a public  utility and accounts for the  predominant
part of the  Company's  assets and  earnings.  MidAmerican  Capital  and Midwest
Capital are the first-tier, nonregulated subsidiaries of the Company.

     MidAmerican  was  formed  on July 1,  1995,  through  the  merger  of Iowa-
Illinois,  Midwest  Resources  and Midwest. The merger was  accounted  for as a
pooling-of-interests. MidAmerican Capital (then InterCoast Energy Company) was a
wholly owned nonregulated subsidiary of Iowa-Illinois.  Midwest Resources was an
exempt  public  utility  holding  company  with two wholly  owned  subsidiaries:
Midwest and Midwest Capital.

     MidAmerican   is  primarily   engaged  in  the   business  of   generating,
transmitting,  distributing  and selling  electric  energy and in  distributing,
selling and transporting  natural gas.  Midwest Capital  functions as a regional
business development company in the utility service territory.

     MidAmerican   Capital  engages   primarily  in   nonregulated   energy  and
complementary  services-related businesses. During 1996, the Company changed the
name of its nonregulated  subsidiary,  InterCoast Energy Company, to MidAmerican
Capital Company.  As part of the  restructuring of that subsidiary,  the Company
formed a new subsidiary  under  MidAmerican  Capital,  named  InterCoast  Energy
Company  (InterCoast).  The new InterCoast had as its subsidiaries the Company's
wholesale  nonregulated energy companies,  including oil and gas exploration and
development operations. MidAmerican Capital retained as direct subsidiaries the
rail  service  businesses,  the  marketable  securities  and passive  investment
activities, and a nonregulated retail natural gas subsidiary.

     During the third quarter of 1996, the Company  discontinued its oil and gas
exploration  and  development  operations as well as a subsidiary that developed
and  operates a  computerized  information  system  that  facilitates  real-time
exchange of power in the  electric  industry.  The Company  sold its oil and gas
exploration  and  development  subsidiary  and  expects  to  sell  the  computer
information system subsidiary in 1997.

(B)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

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



                                       -7-

<PAGE>



(C)  NARRATIVE DESCRIPTION OF BUSINESS

                             BUSINESS OF MIDAMERICAN

     MidAmerican distributes electric energy 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.

     MidAmerican  distributes  natural gas 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.

     MidAmerican's  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.

        The   population  of   MidAmerican's   utility   service   territory  is
approximately  1.7 million.  As of December 31,  1996,  MidAmerican  had 642,000
retail electric customers and 610,000 natural gas customers.

     MidAmerican  has a residential,  agricultural,  commercial and  diversified
industrial customer group, in which no single industry or customer accounted for
more than 3.5% (food and kindred  products  industry) of its total 1996 electric
operating  revenues or 4.0% (food and kindred  products  industry)  of its total
1996 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.

     For the year ended December 31, 1996, gross operating revenues from utility
operations  represented 87% of the Company's total gross operating revenues. For
1995 and 1994, 94% and 93%, respectively,  of gross operating revenues were from
utility operations.

     For the year ended December 31, 1996, the Company derived approximately 59%
of its gross operating  revenues from its electric business and 28% from its gas
business. For 1995 and 1994, the corresponding percentages were 66% electric and
28% gas, and 63% electric and 30% gas, respectively.

     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

                                    1996         1995        1994
                                   -----        -----       -----
Residential                         21.1%        23.2%       24.7%
Small General Service               16.2         19.1        22.3
Large General Service               27.6         26.1        28.0
Other                                4.5          4.7         5.2
Sales for Resale                    30.6         26.9        19.8
                                   -----        -----       -----

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

                                       -8-

<PAGE>



                                         Retail Electric Sales
                                               By State

                                    1996         1995        1994
                                   -----        -----       -----
Iowa                                88.7%        88.4%       88.6%
Illinois                            10.6         11.0        10.9
South Dakota                         0.7          0.6         0.5
                                   -----        -----       -----

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

     Historical  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 Gas Sales
                                          By Customer Class

                                    1996         1995        1994
                                   -----        -----       -----
Residential                         61.1%        57.3%       55.3%
Small General Service               33.3         32.9        33.0
Large General Service                4.6          6.2         8.4
Sales for Resale and Other           1.0          3.6         3.3
                                   -----        -----       -----

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

                                            Retail Gas Sales
                                                By State

                                    1996         1995        1994
                                   -----        -----       -----
Iowa                                78.0%        77.1%       76.6%
Illinois                            11.0         11.6        11.9
South Dakota                        10.3         10.6        10.8
Other                                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 1996, 38% of MidAmerican's  electric  revenues were reported in the
months of June,  July,  August and September,  reflecting the use of electricity
for cooling,  and 53% of MidAmerican's  gas revenues were reported in the months
of January, February, March and December, reflecting the use of gas for heating.

     At December 31, 1996, MidAmerican had 3,370 full-time employees.

RATE MATTERS

     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

                                       -9-

<PAGE>



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  are provided 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.

     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.

     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.

     Additional   information  on  MidAmerican's  current  rate  proceedings  is
included in Notes to Consolidated  Financial  Statements in Part IV, Item 14, of
this Form 10-K.

     In April 1992, the FERC issued Order No. 636,  directing a restructuring by
interstate  pipeline  companies  of their  natural gas sales and  transportation
services.  Under the FERC  Order,  transitional  gas  supply  realignment  costs
related to this  restructuring  may be billed by  interstate  pipelines to their
customers.  At December 31,  1996,  MidAmerican  had a  regulatory  asset of $25
million, with an offsetting non-current Other Liability, recorded for transition
costs. In addition,  MidAmerican estimates it may incur other future billings of
approximately $8 million related to such restructuring. MidAmerican is currently
recovering such costs through rates.

     MidAmerican  has  established an external trust for the investment of funds
collected for nuclear  decommissioning  associated  with Quad Cities  Station of
which  MidAmerican is a 25% owner. The owner and operator of Cooper,  from which
MidAmerican  purchases  50% of the output  pursuant  to a  long-term  agreement,
maintains a decommissioning fund into which MidAmerican makes contributions as a
component of its power purchase  payments.  Electric  tariffs in effect for 1996
include provisions for annual  decommissioning  costs at Quad Cities Station and
Cooper of  approximately  $18.5 million.  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  Iowa  electric  tariffs  contain a Uniform  Electric  Energy
Adjustment Clause under which MidAmerican's billings reflect changes in the cost
of all fuels used for electric  generation,  including  nuclear fuel disposition
costs,  as well as the net effect of energy  transactions  (other than capacity)
with other utilities. Changes in the cost of gas to MidAmerican are reflected in
its Iowa gas rates through the Iowa Uniform  Purchased Gas Adjustment  Clause. A
discussion  of a proposed  Iowa rate  settlement  that would impact the electric
adjustment   clause  is  included  in  the  "Rate  Matters"  Note  in  Notes  to
Consolidated Financial Statements in Part IV, Item 14 of this Form 10-K.

     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.  Changes  in  the  cost  of  gas to
MidAmerican are reflected in its Illinois gas rates through the Illinois Uniform
Purchased Gas Adjustment Clause.



                                      -10-

<PAGE>



ELECTRIC OPERATIONS

     The  annual  hourly  peak  demand  occurs  principally  as a result  of air
conditioning  use during the cooling season.  MidAmerican's  highest hourly peak
demand  in 1996 was 3,537 MW,  which  was 16 MW less than  MidAmerican's  record
hourly peak of 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 MAPP.  The
purpose of MAPP is to  coordinate  the planning,  construction  and operation of
generation and transmission facilities, including the purchase and sale of power
and energy among members.

     The EPAct was  enacted  in 1992 to  promote  competition  in the  wholesale
electric market. In April 1996, the FERC issued final rules (Orders 888 and 889)
to direct the  implementation  of EPAct. In general,  Orders 888 and 889 require
public  utilities  and other  transmission  providers and users to provide other
companies the same  transmission  access,  service and pricing that they provide
themselves.  In compliance  with Order 888,  which was  effective  July 9, 1996,
MidAmerican  has  filed a pro  forma  open  access  transmission  tariff  and is
currently  operating under it. In accordance with Order 889, which was effective
January 3, 1997,  MidAmerican has separated its electric wholesale marketing and
transmission operation functions. Order 889 establishes standards of conduct for
this functional separation and further requires  transmission  providers such as
MidAmerican  to  either  create  or  participate  in an Open  Access  Same  Time
Information  System (OASIS).  MidAmerican has elected to participate in the MAPP
OASIS. These developments assure that all transmission customers of MidAmerican,
including   MidAmerican's   own  wholesale   marketing   function,   can  obtain
transmission  information  at the same time and can request  service on the same
basis.

     The IUB initiated a formal inquiry  proceeding  (Notice of Inquiry,  Docket
No.  NOI-95-1) in 1995,  titled  "Emerging  Competition in the Electric  Utility
Industry,"  primarily as an information  gathering device.  Since early in 1995,
meetings were held with a variety of interested parties, and the IUB established
an advisory panel of which  MidAmerican  was a member.  The IUB staff authored a
report on the findings and potential options for restructuring in December 1996.
The IUB accepted the report of its staff, as well as other information submitted
in the case and closed the docket.  The IUB has not determined its future course
of action. No legislation has yet been introduced in Iowa to allow generation or
retail service competition. Additional information on anticipated changes in the
utility industry is included in the "Operating Activities" section of Management
Discussion and Analysis of Financial  Condition and Results of Operations (MD&A)
in Part IV, Item 14 of this Form 10-K.

     MidAmerican's  accredited  1996 summer net  generating  capacity  was 4,301
megawatts. The net generating capacity 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.



                                      -11-

<PAGE>



     Fuel Supply for Electric Operations

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

                                        Year Ended December 31,
                                    1996         1995         1994
                                   -----        -----        -----
     Fuel Source:
     Coal                           75.6%        77.6%        83.4%
     Nuclear                        23.9         21.6         15.7
     Gas                             0.4          0.7          0.7
     Oil                             0.1          0.1          0.2
                                   -----        -----        -----
     Total                         100.0%       100.0%       100.0%
                                   =====        =====        =====

     The average costs of fuels received (including  transportation and handling
costs) were as follows for the periods shown:

                                         Year Ended December 31,
                                    1996         1995         1994
                                   ------       ------       ------
                                    (Cents per million BTUs consumed)
     Fuel Source:
     Nuclear                        44.85        44.19        47.08
     Coal                           92.45        95.14        95.90
     Gas                           318.80       226.92       297.08
     Oil                           412.13       422.80       422.13

     Total Weighted Average         88.74        90.21        90.96

     The average cost of coal received  (including  transportation)  per ton for
the years 1996, 1995 and 1994 has been $15.18, $15.61 and $15.67, respectively.

     MidAmerican has contracts with rail shippers  providing for the delivery of
coal to its generating stations.  In addition,  MidAmerican has used spot market
purchases of coal to effectively  manage  inventory levels and take advantage of
near-term  coal market  opportunities.  MidAmerican is continuing to satisfy its
coal requirements with a combination of contract and spot purchases. MidAmerican
believes its sources of coal for its fossil-fueled  generating  stations are and
will continue to be satisfactory. Renewal of expiring contracts and negotiations
of new agreements will be pursued as required.  Natural gas and oil are used for
peak demand  electric  generation  and for 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  Commonwealth  Edison  (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  1997 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 1999.
Commitments for fuel fabrication have been obtained at least through 2000. ComEd
does not anticipate  that it will have any difficulty in contracting for uranium
concentrates for conversion, enrichment or fabrication of nuclear fuel needed to
operate Quad Cities Station.


                                      -12-

<PAGE>



     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 of 1997.  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,  have
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
has stated,  however,  that the delivery  schedule for spent nuclear fuel may be
delayed,  and it is expected that it 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 2008. NPPD has informed  MidAmerican  that
there is on-site storage  capability at the Cooper Station  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, the costs of which have not been determined at this
time.  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.

NATURAL GAS OPERATIONS

     MidAmerican is engaged in the procurement, transportation, and distribution
of natural  gas for  utility  and end-use  customers  in the  Midwest.  With the
implementation  in 1993 of FERC  Order  636 and  related  orders  (Order  636 or
Orders),   MidAmerican  began  operating  in  a  more  competitive  environment.
MidAmerican   has   complete   responsibility   for  natural  gas   procurement,
transportation and storage,  a responsibility  which had previously resided with
the interstate pipeline suppliers.  These Orders directly impact the operations,
revenues and costs of LDCs, including MidAmerican, and create new opportunities.

     MidAmerican has firm rights to pipeline  capacity to transport gas from the
production  area  to  its  service  territory.  With  the  restructuring  of the
industry,  if  MidAmerican  does not need the capacity (due to  fluctuations  in
anticipated system demand),  it can resell such capacity to other companies.  To
provide   incentives   for  the   achievement   of  optimum  use  of   available
transportation capacity, past IUB rulings have allowed MidAmerican to retain 30%
of Iowa  margins  earned on the resold  capacity  and  return  70% to  customers
through the purchased gas adjustment.

     Information  on the impact of FERC Order 636 is included in the  "Operating
Activities and Other  Matters"  section of MD&A in Part IV, Item 14 of this Form
10-K.

     Fuel Supply and Capacity

     MidAmerican  purchases the majority of its gas supplies  from  producers or
third party  marketers and transports the gas on a firm or  interruptible  basis
through  the  NNG,  NGPL  and ANR  systems.  To  insure  system  reliability,  a
geographically  diverse  supply  portfolio  with varying terms and conditions is
utilized for the gas supplies.



                                      -13-

<PAGE>



     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  peak shaving
plants to meet peak day demands.

     On  February 2, 1996,  MidAmerican  had its  highest  peak-day  delivery of
1,143,026  MMBtus.  This peak-day  delivery  included  approximately  88.4% from
traditional   sales  service   customers  and  11.6%  from  customer  owned  gas
transported through MidAmerican's  system.  MidAmerican's 1996/97 winter heating
season  peak-day  delivery of 1,093,503  MMBtus was reached on January 10, 1997.
This peak-day  delivery  included  approximately  81.5% from  traditional  sales
service  customers  and  18.5%  from  customer  owned  gas  transported  through
MidAmerican's  system.  The supply  sources  utilized by MidAmerican to meet its
peak-day deliveries to its sales service customers were:

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

     Underground Storage                320.2            35.9
     Firm Supply                        476.1            53.4
     LNG Facilities                      80.8             9.1
     LP Facilities                       14.0             1.6
                                       ------           -----

     Total                              891.1           100.0
                                        =====           =====

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

CONSTRUCTION PROGRAM

     The table below shows  actual  utility  capital  expenditures  for 1996 and
budgeted utility expenditures for 1997 and for the period 1998 - 2001.

                                       1996            1997        1998-2001
                                      Actual         Budgeted       Budgeted
                                     --------        --------      ---------
                                              (Thousands of Dollars)
     Electric Property
       Production                    $ 27,770        $ 37,316       $108,385
       Transmission                    23,435          32,670         89,257
       Distribution                    34,416          34,402        162,939
       Gas                             33,257          31,916        131,000
       Administration and Other        15,955          44,032         60,686
                                     --------        --------       --------
         Subtotal                     134,833         180,336        552,267
       Quad Cities Fuel                12,249          10,473         50,079
       Cooper Additions                 7,116           8,844         37,584
                                     --------        --------       --------
          Total                      $154,198        $199,653       $639,930
                                     ========        ========       ========

     The  amounts   shown  above   include   allowance  for  funds  used  during
construction. Of the $145.7 million of budgeted electric production expenditures
for the 1997-2001 period, $38.1 million are for expenditures at the

                                      -14-

<PAGE>



Quad  Cities  Station.   Also  included  in  the  amounts  above,   are  capital
expenditures  required to maintain  compliance with the CAA. See  "Environmental
Regulations"  under this Item for  additional  information.  In  addition to the
amounts  shown  above,  the  Company  also  expects  to  contribute  a total  of
approximately   $50  million  to  external   trusts  for  Quad  Cities   nuclear
decommissioning during the 1997-2001 period.

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 a public utility under the laws of Illinois and 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 also a public utility under the laws of Iowa and 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.
MidAmerican  is also subject to  regulation  by the SDPUC as to electric and gas
retail rates and service.

     While  MidAmerican's  electricity prices are presently based on traditional
cost of service  ratemaking,  a number of initiatives are in progress that could
change that  framework.  In Illinois  legislation has been introduced that would
restructure  the industry and allow Illinois  customers to choose their electric
supplier.  Although  the  Company  cannot  predict  the  final  outcome  of such
legislation, passage of some form of restructuring bill is possible during 1997.

     At the federal  level,  a number of bills have been  introduced  addressing
restructuring  of the industry beyond the provisions of FERC Orders 888 and 889.
Such  legislation  would lay the framework  for the  transition to a competitive
retail market environment on a nationwide basis. The Company can not predict the
final outcome of such legislation.

     No industry restructuring legislation was introduced in the 1997 session of
the Iowa legislature.

     Additional information on the status of industry restructuring  initiatives
is included under the "Operating  Activities and Other Matters"  section of MD&A
in Part IV, Item 14 of this Form 10-K.

     In  May  1996,  the  Iowa  legislature  approved  a bill  enhancing  energy
efficiency program flexibility, eliminating mandatory spending levels for energy
efficiency  programs,  and allowing  more timely  recovery of energy  efficiency
expenditures as determined by the IUB. The new legislation became effective July
1, 1996.  Previously,  electric and gas utilities in Iowa were required to spend
approximately 2.0% and 1.5%,  respectively,  of their annual Iowa jurisdictional
revenues on energy efficiency activities. MidAmerican expects final rules on the
implementation of the new legislation in the first half of 1997, following which
MidAmerican  will seek approval to  accelerate  recovery of deferred and current
energy  efficiency  costs.   Additional   information  on  MidAmerican's  energy
efficiency  activities is included  under the  "Operating  Activities  and Other
Matters" section of MD&A in Part IV, Item 14 of this Form 10-K.



                                      -15-

<PAGE>



NUCLEAR REGULATION

     MidAmerican is subject to the  jurisdiction  of the NRC with respect to its
license and 25 percent ownership  interest in the Quad Cities Station.  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  agreement,  MidAmerican has
contracted to purchase one-half of the power and energy from Cooper located near
Brownville,  Nebraska,  through September 22, 2004. Cooper is owned and operated
by NPPD.  Under  the terms of the  contract,  NPPD is the sole NRC  licensee  of
Cooper  and is  required  to comply  with all NRC  regulations.  MidAmerican  is
responsible 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.  Refer to "Management's
Discussion  and  Analysis"  and  Notes  1(h),  4(c),  4(d)  and 4(e) in Notes to
Consolidated  Financial  Statements  in Part  IV,  Item 14 of  this  Form  10-K.
MidAmerican is not subject to the jurisdiction of the NRC with respect to Cooper
and the long-term  power purchase  contract with NPPD.  NPPD,  because it is the
sole owner,  licensee and operator of Cooper, is thereby the only entity subject
to the  jurisdiction of the NRC. Under the terms of the long-term power purchase
contract,  NPPD is required to assure that Cooper is in compliance  with all 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 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.

     The NRC has  required  ComEd to  submit  information  to  allow  the NRC to
determine what actions,  if any, should be taken to assure that ComEd can safely
operate  its  six  nuclear  generating  stations  while  sustaining  performance
improvement at each site. While the NRC acknowledged improvements at Quad Cities
Station,  it also noted  performance  declines at certain  other  ComEd  nuclear
facilities.  ComEd has  indicated  that it intends  to provide  the NRC with the
information requested.

     In June  1988,  the NRC  adopted  final  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,  by making  monthly  deposits to an external
trust fund. NPPD has advised MidAmerican that a decommissioning  plan for Cooper
has  been  submitted  and  approved  by the  NRC.  Monthly  payments  to NPPD by
MidAmerican include monies to fund decommissioning as determined by NPPD.



                                      -16-

<PAGE>



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 CAA were signed into law in November 1990. MidAmerican has five jointly
owned and six wholly  owned  coal-fired  generating  stations,  which  represent
approximately 65% of MidAmerican's electric generating  capability.  Essentially
all  utility  generating  units are subject to the  provisions  of the CAA which
address  continuous  emission  monitoring,  permit  requirements  and  fees  and
emission of certain  substances.  By the year 2000, some MidAmerican  coal-fired
generating  units  will be  required  to  install  emissions  monitoring  system
replacements  or  upgrades.  Under  current  regulations,  MidAmerican  does not
anticipate its construction  costs for the installation of emissions  monitoring
system upgrades to exceed $4 million for 1997 through 2000.

     The EPA has initiated rulemaking proceedings to change the National Ambient
Air Quality Standards for particulate matter and ozone. These new standards,  if
implemented as proposed, could require MidAmerican to install additional control
equipment  at its  coal-fired  units to reduce  certain  emissions.  MidAmerican
cannot predict whether the proposed regulations will be adopted. If the proposed
regulations  were  adopted  in  their  current  form,   MidAmerican's  costs  of
compliance could be substantial.

 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.

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.



                                      -17-

<PAGE>



     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 $21 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  the  Note  "Commitments  and  Contingencies"  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 PCB  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.

     An  unresolved  issue is  whether  exposure  to EMFs may  result in adverse
health effects.  EMFs are produced by all devices carrying or using electricity,
including  transmission  and  distribution  lines  and home  appliances.  Recent
studies have proven  inconclusive as to the health effects of EMFs.  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
significant.

                     BUSINESS OF MIDAMERICAN CAPITAL COMPANY

     MidAmerican  Capital  is a  wholly  owned  nonregulated  subsidiary  of the
Company.   The  nonregulated   activities  emphasize  energy  and  complementary
service-related businesses, credit quality and liquidity.

     MidAmerican  Capital  participates  in energy  and  complementary  services
industries through three  nonregulated  business groups:  Energy Services,  Rail
Services and InterCoast Capital .

     Energy  Services  provides  electric,  natural  gas and  energy  management
services  to both  retail and  wholesale  markets.  Energy  Services'  assets at
December 31, 1996 and 1995 were $5 million and $6 million, respectively.

     AmGas  Inc.,  a  part  of the  Energy  Services  group,  was  organized  in
anticipation of new  opportunities  under Order 636. AmGas Inc.  markets natural
gas and energy management  services to commercial and industrial  clients in the
Midwest.

     IPM, a part of the Energy Services group, was established in September 1993
to offer wholesale power brokering and marketing services to utilities and other
power supply agencies.  In July 1995, IPM was granted  "marketer"  status by the
FERC enabling it to directly buy and sell power.

     InterCoast  Trade and Resources,  Inc.,  part of the Energy Services group,
was established in 1995 to provide wholesale natural gas marketing services.

                                      -18-

<PAGE>



     Rail Services provides railcar leasing, management and maintenance services
through UNITRAIN,  Inc. and Cornhusker Railcar Services, Inc. These services are
primarily  provided to electric  utility  companies  within Iowa and surrounding
states.  In addition,  Rail  Services has indirect  investments  in a variety of
nonregulated   energy   production    technologies    including   wind,   solar,
hydroelectric, and natural gas and coal-fueled generation, equity investments in
two developing  companies  which provide  products and services for the electric
and gas utility industries,  an equity investment in a company that services and
markets  fiber-optic and  telecommunications  systems, an equity investment in a
company  constructing  a  digital  radio  network,  an  equity  investment  in a
residential  and  commercial  security  company and equity  interests in special
purpose   funds  that   invest  in  venture   capital  and   leveraged   buy-out
opportunities.

     InterCoast Capital manages  MidAmerican  Capital's  financial  investments.
Such investments consist primarily of investment grade marketable securities and
aircraft leases. InterCoast Capital's total investments at December 31, 1996 and
1995 were $310 million and $362 million, respectively.

     InterCoast Capital's marketable securities portfolio, totaling $220 million
and $270 million at December 31, 1996 and 1995, respectively,  focuses on energy
securities consisting primarily of preferred stocks issued by utility companies.
All such preferred stocks have been issued by companies having  investment grade
senior  debt  ratings by  Moody's  or  Standard  & Poor's.  In  addition  to the
preferred  stocks,  InterCoast  Capital  has  investments  in common  stocks and
independently managed mutual funds.

     InterCoast Capital also holds equity participations in equipment leases for
passenger and freight transport  aircraft.  Such investments totaled $90 million
and $91 million at December 31, 1996 and 1995, respectively.

                     BUSINESS OF MIDWEST CAPITAL GROUP, INC.

     Midwest Capital is a wholly owned  nonregulated  subsidiary of the Company.
Midwest  Capital's  primary  activity is the management of utility  service area
investments  to  support  economic  development.   Midwest  Capital's  principal
interest is a 2,000-acre  planned  residential and business community near Sioux
City, Iowa. The major  construction  phase of the planned community is complete,
and the marketing phase to sell developed  residential and commercial lots is in
progress.

ITEM 2.  PROPERTIES

     The Company's utility  properties  consist of physical assets necessary and
appropriate  to rendering  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 the Company's  subsidiaries are in good operating  condition
and well maintained.



                                      -19-

<PAGE>



     The net  accredited  generating  capacity,  along  with  the  participation
purchases  and sales,  net,  and firm  purchases  and sales,  net, are shown for
summer 1996 accreditation.
<TABLE>
<CAPTION>

                                                                      Company's Share
                                                                       of Accredited
                                                 Percent                  Generating
     Plant                                      Ownership    Fuel     Capability (MW)
---------------------------------               ---------    ----     ---------------
<S>                                               <C>        <C>             <C>    
Steam Electric Generating Plants:
  Council Bluffs Energy Center
    Unit No. 1                                    100.0      Coal               46
    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
                                                                             -----
                                                                             2,850
  Combustion Turbines:
    Coralville - 1 unit                           100.0      Gas/Oil            64
    Electrifarm - 3 units                         100.0      Gas/Oil           185
    Moline - 4 units                              100.0      Gas/Oil            64
    Parr - 2 units                                100.0      Gas/Oil            31
    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
                                                                             -----
                                                                               757
    Nuclear:
      Cooper (1)                                     (1)     Nuclear           387
      Quad-Cities Station (2)
        Unit No. 1                                 25.0      Nuclear           192
        Unit No. 2                                 25.0      Nuclear           193
                                                                             -----
                                                                               772
    Hydro:
      Moline - 4 units                            100.0      Water               3
                                                                             -----

    Net Accredited Generating Capacity                                       4,382

    Participation Purchases and Sales, Net                                     (81)
                                                                             ----- 
    Total Net Accredited Generating Capability                               4,301

    Firm Purchases and Sales, Net                                             (120)
                                                                             ----- 
    Adjusted Net Accredited Generating Capability                            4,181
                                                                             =====
</TABLE>

(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.  

(2) See the "Nuclear  Regulation"  section in Item 1 for information  regarding
    NRC communications with the operator of Quad-Cities Station.

                                      -20-

<PAGE>



     The electric system of MidAmerican at December 31, 1996, included 871 miles
of 345-kV  transmission lines, 1,294 miles of 161-kV lines, 1,812 miles of 69-kV
lines and 261 miles of 34.5-kV lines.

     The gas  distribution  facilities  of  MidAmerican  at December  31,  1996,
included 18,732 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 82% 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 May 26, 1995, a predecessor of  MidAmerican  filed a lawsuit naming NPPD
as defendant.  The action is filed in the U.S.  District  Court for the Southern
District of Iowa and is identified as No. 4-95-CV-80356. The legal proceeding is
based upon a long-term power purchase  agreement  between  MidAmerican and NPPD,
pursuant to which MidAmerican purchases one-half the output of NPPD's Cooper and
pays  one-half  the cost of operating  Cooper.  NPPD,  in turn,  is obligated to
operate the plant in an efficient and  economical  manner  consistent  with good
business and utility practices and in compliance with the terms of its operating
license issued to it by the Nuclear  Regulatory  Commission  (NRC).  In 1993 and
1994,  as a  response  to NPPD  actions,  the NRC  issued  numerous  notices  of
violations  to NPPD;  as a result of these  violations  and other safety  issues
identified by the NRC and NPPD, Cooper experienced unplanned outages and outages
were unduly extended.  MidAmerican's position is that NPPD's failure to meet its
obligations with respect to the operation of Cooper deprived  MidAmerican of the
benefits it was entitled to under the power sales contract,  causing MidAmerican
to  lose  profits  and  incur  increased  costs  of  operation,   which  damages
MidAmerican  seeks to collect from NPPD.  The matter is scheduled to go to trial
on June 9,  1997.  Similar  litigation  has been  filed  against  NPPD by LES, a
municipal  utility  serving  the  City  of  Lincoln,  Nebraska,  and  purchasing
one-eighth  of the  output  of  Cooper  pursuant  to a  similar  power  purchase
contract. The LES legal proceeding is pending in Nebraska state court.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.



                                      -21-

<PAGE>



OTHER INFORMATION

EXECUTIVE OFFICERS OF HOLDINGS

     The names, ages and positions of the executive  officers of the Company are
listed below.
<TABLE>
<CAPTION>

     Name                    Age   Positions Held
     ----                    ---   --------------
     <S>                      <C>  <C>    

     Russell E. Christiansen  61   Chairman of the Board

     Stanley J. Bright        56   President and Chief Executive Officer

     Ronald W. Stepien        50   Executive Vice President

     Philip G. Lindner        53   Senior Vice President and Chief Financial Officer

     John A. Rasmussen, Jr.   51   Senior Vice President and General Counsel
</TABLE>

     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.  Each of the officers has served in the above  stated  capacity  since
December 1, 1996, and has been employed by Holdings  and/or its  subsidiaries or
predecessor companies for five or more years as an executive officer .

BUSINESS TRANSACTION POLICY STATEMENT

     In response to the competitive forces and regulatory changes being faced by
the  Company,  the  Company  has from time to time  considered,  and  expects to
continue to consider,  various  strategies  designed to enhance its  competitive
position and to increase its ability to adapt to and  anticipate  changes in its
utility business.  These strategies may include business combinations with other
companies,  internal restructuring  involving the complete or partial separation
of its wholesale and retail  businesses,  and additions to, or dispositions  of,
portions of its  franchised  service  territories.  The Company may from time to
time be engaged in  preliminary  discussions,  either  internally  or with third
parties,  regarding one or more of these potential strategies. No assurances can
be given as to whether any potential transaction of the type described above may
actually occur, or as to the ultimate effect thereof on the financial  condition
or competitive position of the Company.

     The  Company's  management  is  mindful  of  the  importance  of  informing
investors about Company operations. Management must also pay heed to the legally
sensitive  nature of certain  matters,  and that is particularly  true about any
business  transaction  involving an  acquisition,  disposition or combination of
businesses which the Company may be considering.

     Therefore,  the  Company's  management  has  adopted a policy  to  announce
consideration  of  any  such  transaction  only  after  it  would  enter  into a
definitive  agreement or an agreement in principle describing the material terms
of such a transaction.

     Until that  point,  the  Company  would  respond  with "no  comment" to any
inquiry  concerning  any  such  transaction,  whether  or  not  the  Company  is
considering,  discussing or negotiating  for any  acquisitions,  dispositions or
combinations  of businesses.  The Company's  management  believes this policy is
consistent  both with  investors'  need for  information  and with the Company's
concern for appropriate disclosure regarding legally sensitive matters.



                                      -22-

<PAGE>



                                     PART II

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

MARKET INFORMATION AND DIVIDENDS

     Holdings'  common stock is listed on the New York Stock  Exchange under the
symbol "MEC." The following  table sets forth,  for the periods  indicated,  the
dividends  declared per share of common stock and the high and low market prices
of the common stock of  MidAmerican,  Midwest  Resources and  Iowa-Illinois,  as
reported in The Wall Street  Journal for the New York Stock  Exchange  Composite
Tape.
<TABLE>
<CAPTION>
                                                                     Price Range
                                             ----------------------------------------------------------
                      Dividends Declared         MidAmerican        Iowa-Illinois         Resources
                   -----------------------   -----------------   ------------------   -----------------
                     MEC     IWG      MWR      High        Low     High       Low      High       Low
                   -----   -------   -----   -------   -------   --------   -------   -------   -------
<S>                <C>     <C>       <C>     <C>       <C>       <C>        <C>       <C>       <C>    
1996
     4th Quarter   $0.30   $     -   $   -   $16 1/4   $14 3/4   $      -   $     -   $     -   $     -
     3rd Quarter    0.30         -       -    17 3/4    15 3/8          -         -         -         -
     2nd Quarter    0.30         -       -    17 7/8    16 1/4          -         -         -         -
     1st Quarter    0.30         -       -    18 7/8    16 1/4          -         -         -         -
1995
     4th Quarter   $0.30    $    -   $   -   $17 1/8   $15       $      -   $     -   $     -   $     -
     3rd Quarter    0.30         -       -    15 5/8    13 5/8          -         -         -         -
     2nd Quarter       -    0.4325    0.29         -          -    22        19 7/8    15        13 5/8
     1st Quarter       -    0.4325    0.29         -          -    22 1/8    19        14 5/8    13 3/8
</TABLE>

HOLDERS

     On February 21,  1997,  there were  approximately  65,000  shareholders  of
record of Holdings' common stock.

     MidAmerican's  outstanding  common  stock is held  entirely  by its  parent
company,  Holdings, and is not publicly traded. On December 1, 1996, MidAmerican
distributed  the capital  stock of  MidAmerican  Capital and Midwest  Capital to
Holdings.  All other common dividends are included in the amounts  displayed for
Holdings.

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.

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

         None.

                                      -23-

<PAGE>
                                    PART III

ITEM 10.  DIRECTORS AND OFFICERS OF THE REGISTRANT

Holdings

     The information  required by Item 10 relating to directors who are nominees
for election as directors at Holdings 1997 Annual Meeting of Shareholders is set
forth in Holdings' Proxy Statement filed with the SEC pursuant to Regulation 14A
under the  Securities  Exchange  Act of 1934.  Therefore,  such  information  is
incorporated  herein by reference to the  material  appearing  under the caption
"ELECTION OF DIRECTORS" on pages 2 through 6 of the Proxy Statement. Information
required by Item 10  relating to  Executive  Officers of the  Registrant  is set
forth under a separate caption in Part I hereof.

MidAmerican

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

(A)  IDENTIFICATION
<TABLE>
<CAPTION>
                                                                   Served in      Served as
                                      Present                       Present       Director
     Name                       Age   Position                   Position Since     Since
     ----                       ---   --------                   --------------   ---------
     <S>                        <C>   <C>                             <C>            <C>

     Russell E. Christiansen     61   Director                        1996           1983
     
     Stanley J. Bright           56   Chairman, President and
                                        Chief Executive Officer       1996           1987

     Lynn K. Vorbrich            58   Executive Vice President        1996              -

     Ronald W. Stepien           50   Executive Vice President        1996           1996

     Dave J. Levy                42   Senior Vice President           1996           1996

     Philip G. Lindner           53   Senior Vice President
                                        and Chief Financial Officer   1996           1996

     John A. Rasmussen, Jr.      51   Senior Vice President
                                        and General Counsel           1996           1996

     Stephen E. Shelton          49   Senior Vice President           1995           1996

     Beverly A. Wharton          43   Senior Vice President           1996           1996

</TABLE>

     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.

(B) BUSINESS EXPERIENCE

RUSSELL E. CHRISTIANSEN

     Chairman of Holdings since December 1, 1996,  Chairman of MidAmerican  from
1995 to  December  1, 1996 and  Chairman  of the  Office of the Chief  Executive
Officer  from 1995 to July 1,  1996.  Chairman  and Chief  Executive  Officer of
Midwest Resources from 1992 to 1995 and President form 1990 to 1995. Director of
McLeod, Inc.


                                      -24-
<PAGE>
STANLEY J. BRIGHT

     President and Chief  Executive  Officer of Holdings since December 1, 1996.
Chairman of MidAmerican  since December 1, 1996,  Chief Executive  Officer since
July 1,  1996,  President  since 1995 and  President  of the Office of the Chief
Executive  Officer  from 1995 to July 1,  1996.  Chairman,  President  and Chief
Executive Officer of Iowa-Illinois  from 1991 to 1995.  Director of Norwest Bank
Iowa, N.A. and Utilx Corporation.

LYNN K. VORBRICH

     Executive  Vice  President  of  MidAmerican  since  November  1,  1996  and
President,  Electric  Division  from 1995 to  November 1, 1996.  Executive  Vice
President, Midwest from 1991 to 1995. Director of Norwest Bank Quad Cities.

RONALD W. STEPIEN

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

DAVE 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 and manager prior to 1993.

PHILIP G. LINDNER

     Senior  Vice  President  and Chief  Financial  Officer  of  Holdings  since
December  1,  1996.  Senior  Vice  President  and  Chief  financial  Officer  of
MidAmerican  since November 1, 1996,  Group Vice  President and Chief  Financial
Officer  from August 1, 1996 to November 1, 1996 and Group Vice  President  from
1995 to August 1, 1996. Group Vice President of Midwest from 1992 to 1995.

JOHN A. RASMUSSEN, JR.

     Senior Vice  President and General  Counsel of Holdings  since  December 1,
1996. 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 1991 to 1995.

STEVEN E. SHELTON

     Senior  Vice  President  of  MidAmerican  since  1995.  Vice  President  of
Iowa-Illinois from 1985 to 1995.

BEVERLY A. WHARTON

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

ITEM 11.  EXECUTIVE COMPENSATION

Holdings and MidAmerican

       The information  required by Item 11 is incorporated  herein by reference
to the material appearing under the caption "EXECUTIVE  COMPENSATION" on pages 9
through 20 of Holdings' Proxy Statement filed with the SEC.


                                      -25-

<PAGE>



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

(A)  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

     To the Company's knowledge,  no single entity has beneficial ownership of 5
percent or more of the outstanding Common Stock of Holdings.

     Holdings owns 100 percent of the outstanding Common Stock of MidAmerican.

(B)  SECURITY OWNERSHIP OF MANAGEMENT

Holdings

     Security  ownership  of  management  as  outlined  on  pages 7 and 8 of the
Company's  Proxy  Statement  filed  with the SEC  under  the  caption  "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" is incorporated herein by
reference.

MidAmerican

     The following table shows the beneficial ownership, reported to MidAmerican
as of February 21, 1997,  of Holdings  Common  Stock of each  director,  the two
individuals  serving in the office of the chief executive officer of MidAmerican
Energy  Company until July 1, 1996,  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,  no  single  entity  owns of record  or  beneficially  more than five
percent of any class of the outstanding voting securities of Holdings.
<TABLE>
<CAPTION>

                                              Amount and Nature of    Percent of
     Name of Beneficial Owner               Beneficial Ownership (1)    Class
     ------------------------               ------------------------  ---------
     <S>                                         <C>                      <C>  

     Stanley J. Bright.................           71,061  (2)             *
     Russell E. Christiansen...........           84,950  (3)             *
     Ronald W. Stepien.................           17,839  (4)             *
     Lynn K. Vorbrich..................           32,671  (5)             *
     Stephen E. Shelton................           15,451  (6)             *
     Beverly A. Wharton................           31,782  (7)             *
     Philip G. Lindner.................           17,969  (8)             *
     Dave J. Levy......................            6,062  (9)             *
     John A. Rasmussen, Jr.............           22,795 (10)             *
     Directors and executive officers
       as a group (9) persons..........          300,580 (11)             *
</TABLE>
___________________
*  Less than one percent of the shares of MidAmerican Common Stock outstanding.

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

(2)  Includes  37,500 shares which Mr. Bright has the right to acquire within 60
     days upon the  exercise of stock  options,  6,423  shares held in a Section
     401(k) defined  contribution  plan as of December 31, 1996 and 1,697 shares
     beneficially owned by Mr. Bright and his spouse.

                                      -26-
<PAGE>

(3)  Includes  37,500  shares  which Mr.  Christiansen  has the right to acquire
     within 60 days upon the exercise of stock options,  12,052 shares held in a
     Section 401(k) defined  contribution plan as of December 31, 1996 and 8,040
     shares beneficially owned by Mr. Christiansen and his spouse.

(4)  Includes 10,000 shares which Mr. Stepien has the right to acquire within 60
     days upon the  exercise of stock  options,  1,162  shares held in a Section
     401(k) defined contribution plan as of December 31, 1996.

(5)  Includes  15,000 shares which Mr.  Vorbrich has the right to acquire within
     60 days upon the exercise of stock options,  2,674 shares held in a Section
     401(k)  defined  contribution  plan as of December  31, 1996 and 784 shares
     beneficially owned by Mr. Vorbrich and his spouse.

(6)  Includes 7,400 shares held in a Section 401(k) defined contribution plan as
     of December 31, 1996.

(7)  Includes  15,000 shares which Mrs.  Wharton has the right to acquire within
     60 days upon the exercise of stock options,  1,326 shares held in a Section
     401(k)  defined  contribution  plan as of December 31,  1996,  4,678 shares
     beneficially   owned  by  Mrs.  Wharton  and  her  spouse  and  450  shares
     beneficially owned in a custodial account for a minor child.

(8)  Includes 10,000 shares which Mr. Lindner has the right to acquire within 60
     days upon the  exercise  of stock  options,  161  shares  held in a Section
     401(k) defined  contribution plan as of December 31, 1996, and 1,138 shares
     beneficially owned by Mr. Lindner and his spouse.

(9)  Includes 44 shares held in a Section 401(k) defined contribution plan as of
     December  31,  1996 and 493 shares  beneficially  owned by Mr. Levy and his
     spouse.

(10) Includes 10,000 shares which Mr.  Rasmussen has the right to acquire within
     60 days upon the exercise of stock options,  3,050 shares held in a Section
     401(k) defined  contribution  plan as of December 31, 1996 and 2,700 shares
     beneficially owned by Mr. Rasmussen and his spouse.

(11) Includes  135,000  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, 1996 and shares beneficially
     owned  jointly with and  individually  by family  members of directors  and
     executive officers.

(C) CHANGES IN CONTROL

     There are no arrangements known to the registrants,  the operation of which
may  at a  subsequent  date  result  in a  change  in  control  of  Holdings  or
MidAmerican.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

                                      -27-

<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.........................    30
       Management's Discussion and Analysis of Financial Condition
         And Results of Operations..................................    31

       Index to Financial Statements:
       ------------------------------

                       MidAmerican Energy Holdings Company

       Consolidated Statements of Income
         For the Year Ended December 31, 1996, 1995 and 1994........    46
       Consolidated Statements of Cash Flows
         For the Year Ended December 31, 1996, 1995 and 1994........    47
       Consolidated Balance Sheets
         As of December 31, 1996 and 1995 ..........................    48
       Consolidated Statements of Capitalization
         As of December 31, 1996 and 1995 ..........................    49
       Consolidated Statements of Retained Earnings
         For the Year Ended December 31, 1996, 1995 and 1994........    50
       Notes to Consolidated Financial Statements...................    51
       Management's Responsibility for Financial Statements.........    73
       Reports of Independent Public Accountants....................    74

                           MidAmerican Energy Company

       Consolidated Statements of Income
         For the Year Ended December 31, 1996, 1995 and 1994........    75
       Consolidated Statements of Cash Flows
         For the Year Ended December 31, 1996, 1995 and 1994........    76
       Consolidated Balance Sheets
         As of December 31, 1996 and 1995 ..........................    77
       Consolidated Statements of Capitalization
         As of December 31, 1996 and 1995 ..........................    78
       Consolidated Statements of Retained Earnings
         For the Year Ended December 31, 1996, 1995 and 1994........    79
       Notes to Consolidated Financial Statements...................    80
       Management's Responsibility for Financial Statements.........    92
       Reports of Independent Public Accountants....................    93

       Index to Supplemental Information
       ---------------------------------

       Five-Year Financial Statistics...............................    94
       Five-Year Consolidated Statements of Income..................    95
       Five-Year Consolidated Balance Sheets........................    96
       Five-Year Utility Statistics.................................    97


                                      -28-
<PAGE>

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

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

                                                                     Page No.
                                                                     --------
       MidAmerican Energy Holdings Company  Consolidated
         Valuation and Qualifying Accounts (Schedule II) ...........    99
       MidAmerican Energy Company Consolidated Valuation
         and Qualifying Accounts (Schedule II) .....................   100

     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 104.

(B)  REPORTS ON FORM 8-K

     On October 18, 1996,  MidAmerican filed a report on Form 8-K, dated October
17, 1996.  The report  included  information  regarding  the  announcement  that
MidAmerican  had  entered  into a  letter  of  intent  to  sell  certain  of its
nonregulated oil and gas subsidiaries to KCS Energy Inc. of Edison,  New Jersey.
The press release issued in conjunction  with the  announcement  was filed as an
Exhibit to the report.

     On December 2, 1996, Holdings filed a report on Form 8-K, dated December 2,
1996. The report included information  regarding the formation of Holdings.  The
press release issued with respect to the holding company  formation was filed as
an Exhibit to the report.

     On December 20, 1996,  Holdings  filed a report on From 8-K, dated December
18, 1996, regarding the adoption of a Shareholder Rights Agreement.  Pursuant to
such Agreement,  the Company will make a dividend  distribution of one preferred
stock purchase right for each  outstanding  share of Common Stock of the Company
as of the close of  business  on  December  30,  1996.  The  Shareholder  Rights
Agreement  dated as of December  18, 1996,  between the Company and  Continental
Stock  Transfer and Trust  Company,  as Rights Agent and the news release issued
announcing  the  adoption  of the  Shareholder  Rights  Agreement  were filed as
Exhibits to the report.

                                      -29-
<PAGE>
SELECTED FINANCIAL DATA
-----------------------

MidAmerican Energy Holdings Company
-----------------------------------
<TABLE>
<CAPTION>

                                                                               DECEMBER 31
                                                      ---------------------------------------------------------------
                                                         1996         1995         1994          1993          1992
                                                      ----------   ----------   ----------    ----------   ----------
<S>                                                   <C>          <C>          <C>           <C>          <C>    
INCOME STATEMENT DATA:
Revenues...........................................   $1,872,612   $1,649,341   $1,631,225    $1,627,956   $1,462,580
Operating income (a)...............................      343,638      292,354      264,492       267,938      211,159
Income from continuing operations (b)..............      143,761      119,705      123,098       134,325       75,045
Average common shares outstanding..................      100,752      100,401       98,531        97,762       95,430
Earnings per average common share
    from continuing operations.....................   $     1.43   $     1.19   $     1.25    $     1.38   $     0.79
Cash dividends declared per share..................   $     1.20   $     1.18   $     1.17    $     1.17   $     1.28

BALANCE SHEET DATA:
Total assets.......................................   $4,559,283   $4,470,097   $4,388,894    $4,352,073   $4,103,420
Long-term debt (c).................................    1,474,701    1,468,617    1,471,127     1,407,374    1,401,736
Power purchase obligation (d)......................      111,222      125,729      137,809       151,485      146,150
Short-term borrowings..............................      161,990      184,800      124,500       173,035      120,244
Preferred stock:
    Not subject to mandatory redemption............       31,769       89,945       89,955       109,871       74,242
    Subject to mandatory redemption (e)............      150,000       50,000       50,000        50,000       48,625
Common stock equity................................    1,239,946    1,225,715    1,204,112     1,180,510    1,159,676
Book value per common share........................   $    12.31   $    12.17   $    12.08    $    12.07   $    11.86
</TABLE>




MidAmerican Energy Company
--------------------------
<TABLE>
<CAPTION>
                                                                                DECEMBER 31
                                                      ---------------------------------------------------------------
                                                         1996         1995         1994          1993         1992
                                                      ----------   ----------   ----------    ----------   ----------
<S>                                                   <C>          <C>          <C>           <C>          <C>    
INCOME STATEMENT DATA:
Revenues..........................................    $1,635,761   $1,554,235   $1,513,675    $1,541,959   $1,420,714
Operating income (a)..............................       249,207      219,238      198,491       203,780      176,472
Net income from continuing operations (b).........       165,132      132,489      121,145       133,888       86,713
Earnings on common from continuing operations.....       154,731      124,430      110,594       125,521       77,978

BALANCE SHEET DATA:
Total assets......................................    $3,774,653   $3,976,201   $3,879,847    $3,832,569   $3,583,705
Long-term debt (c)................................     1,136,515    1,110,525    1,109,617     1,051,144    1,075,245
Power purchase obligation (d).....................       111,222      125,729      137,809       151,485      146,150
Short-term borrowings.............................       161,700      184,800      124,500       160,800      110,600
Preferred stock:
    Not subject to mandatory redemption...........        31,769       89,945       89,955       109,871       74,242
    Subject to mandatory redemption (e)...........       150,000       50,000       50,000        50,000       48,625
Common stock equity (f)...........................       986,825    1,225,715    1,204,112     1,180,510    1,159,676
</TABLE>

(a)  MidAmerican  Energy Holdings Company  (Holdings)  operating income includes
     $33.4 million of costs related to a restructuring  and work force reduction
     plan  implemented  and completed in 1995,  and  MidAmerican  Energy Company
     (MidAmerican) operating income includes $31.9 million of such costs.
(b)  Holdings recorded  after-tax losses of approximately $9.4 million and $10.2
     million for the write-down of certain  nonregulated assets during 1996, and
     1995,  respectively.   In  1993,  MidAmerican  recorded  an  $11.5  million
     after-tax gain on an exchange of natural gas service territories.
(c)  Includes long-term debt due within one year.
(d)  Includes power purchase obligation due within one year.
(e)  1996  includes   MidAmerican-obligated   mandatorily  redeemable  preferred
     securities  of  subsidiary   trust  holding   solely   MidAmerican   junior
     subordinated debentures.  
(f)  1996 Reflects the  distribution of capital stock of MidAmerican  Capital 
     Company and Midwest Capital Group, Inc. to Holdings.

                                      -30-
<PAGE>

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


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

COMPANY STRUCTURE

     MidAmerican Energy Holdings Company (Holdings or the Company), is an exempt
public utility  holding company  headquartered  in Des Moines,  Iowa.  Effective
December  1, 1996,  Holdings  became the parent  company of  MidAmerican  Energy
Company  (MidAmerican),  MidAmerican Capital Company  (MidAmerican  Capital) and
Midwest  Capital  Group,  Inc.  (Midwest  Capital).  Prior to  December 1, 1996,
MidAmerican Capital and Midwest Capital were subsidiaries of MidAmerican.

     MidAmerican  was  formed on July 1, 1995,  as a result of the  merger  (the
merger) of  Iowa-Illinois  Gas and  Electric  Company,  Midwest  Resources  Inc.
(Resources) and Midwest Power Systems Inc., the utility subsidiary of Resources.

     MidAmerican  is a public  utility with electric and natural gas  operations
and is the  principal  subsidiary  of Holdings.  MidAmerican  Capital  (formerly
InterCoast  Energy Company),  discussed below, and Midwest Capital are Holdings'
nonregulated  subsidiaries.  Midwest  Capital  functions as a regional  business
development company in MidAmerican's utility service territory.

     During the second  quarter of 1996,  the  Company  restructured  one of its
nonregulated subsidiaries, the former InterCoast Energy Company, and changed the
subsidiary's  name to  MidAmerican  Capital  Company.  In addition,  the Company
formed a new subsidiary  under  MidAmerican  Capital,  named  InterCoast  Energy
Company  (InterCoast).  The new InterCoast had as its subsidiaries the Company's
wholesale  nonregulated  energy  companies,  including  InterCoast  Oil  and Gas
Company,  formerly  named  Medallion  Production  Company.  MidAmerican  Capital
retained as direct  subsidiaries  the rail service  businesses,  the  marketable
securities and passive investment activities,  and a nonregulated retail natural
gas subsidiary.

DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS

     The merger is accounted for as a pooling-of-interests, and the consolidated
financial statements are presented as if the merger occurred as of the beginning
of the earliest  period  presented.  In  addition,  the  consolidated  financial
statements of MidAmerican  present  amounts  related to MidAmerican  Capital and
Midwest Capital as discontinued  operations for all periods presented to reflect
their  transfer  to  Holdings  in  December  1996.  Portions  of  the  following
discussion  provide  information  related to material  changes in the  financial
condition and results of operations of Holdings and  MidAmerican for the periods
presented  based  on the  combined  historical  information  of the  predecessor
companies.  It is not necessarily indicative of what would have occurred had the
predecessor companies actually merged at the beginning of the earliest period.

     The  information  presented in this  management's  discussion  and analysis
addresses the financial  statements of Holdings and  MidAmerican as presented in
this joint filing.  Information related to MidAmerican also relates to Holdings.
Information  related to MidAmerican Capital and Midwest Capital pertains only to
the discussion of the financial condition and results of operations of Holdings.
To the extent necessary,  certain  discussions have been segregated to allow the
reader to identify information applicable only to Holdings.



                                      -31-

<PAGE>



DISCONTINUED OPERATIONS

Holdings:
--------

     The Company is redeploying certain of its nonregulated  investments as part
of  its  strategy  of  becoming  a  leading  regional  provider  of  energy  and
complementary services. As discussed below, the Company discontinued some of its
nonregulated  operations  during the second half of 1996.  The related income or
loss from  operations  and the  anticipated  losses on disposal are reflected as
discontinued  operations  in each of the periods  presented in the  Consolidated
Statements  of  Income.   Also  included  in  discontinued   operations  in  the
Consolidated   Statements  of  Income  are  amounts  related  to  the  Company's
construction  subsidiaries  which were  discontinued  in 1994. Net assets of the
discontinued  operations are separately  presented in the  Consolidated  Balance
Sheets as Investment in Discontinued Operations.

     In the fourth  quarter of 1996,  the Company and KCS Energy,  Inc. (KCS) of
Edison,  New  Jersey,  signed a  definitive  agreement  to sell a portion of the
Company's  nonregulated  operations  to KCS for $210 million in cash and 435,000
warrants to purchase KCS common stock.  The sale,  which  included the Company's
oil and gas  exploration and  development  operations,  was completed in January
1997. The Company recorded an after-tax loss of $7.1 million for the transaction
in 1996.

     The  Company  also  intends  to  divest a  subsidiary  that  developed  and
continues to operate a computerized  information system  facilitating  real-time
exchange of power in the electric industry.  The Company expects the disposition
to occur during the first half of 1997 and, accordingly, recorded a $4.0 million
anticipated after-tax loss on disposal of those operations in September 1996.

MidAmerican:
-----------

     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  as well as  Holdings.  Discontinued  operations  of
MidAmerican  for 1996 also  includes  the net loss of  MidAmerican  Capital  and
Midwest  Capital for the 1996 period prior to the December 1, 1996,  transfer to
Holdings.

FORWARD-LOOKING STATEMENTS

     From time to time, the Company or one of its subsidiaries  individually may
make  forward-looking  statements  within the meaning of the federal  securities
laws that involve  judgments,  assumptions  and other  uncertainties  beyond the
control  of  the  Company  or  any  of  its  subsidiaries  individually.   These
forward-looking  statements  may include,  among others,  statements  concerning
revenue  and  cost  trends,  cost  recovery,   cost  reduction   strategies  and
anticipated  outcomes,  pricing  strategies,  changes in the  utility  industry,
planned capital  expenditures,  financing needs and availability,  statements of
the Company'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 the Company
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,  competitive  factors,  general
economic  conditions  in the Company's  service  territory and federal and state
regulatory actions.


                                      -32-

<PAGE>




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

EARNINGS

     The following tables provide a summary of the earnings contributions of the
Company's and MidAmerican's operations for each of the periods presented:
<TABLE>
<CAPTION>

Holdings:
--------
                                          1996          1995           1994
                                       ----------     ---------     ----------
<S>                                    <C>            <C>           <C>  
Earnings (in millions)
  Continuing operations
    Electric utility ..............    $    122.7     $   111.9     $     96.1
    Gas utility ...................          32.0          12.6           14.5
                                       ----------     ---------     ----------
         Utility ..................         154.7         124.5          110.6
    Nonregulated operations .......         (11.0)         (4.8)          12.5
  Discontinued operations .........         (12.7)          3.1           (2.9)
                                       ----------     ---------     ----------
     Consolidated earnings ........    $    131.0     $   122.8     $    120.2
                                       ==========     =========     ==========

Earnings Per Common Share
  Continuing operations
    Electric utility ..............    $     1.22     $    1.11     $     0.97
    Gas utility ...................          0.32          0.13           0.15
                                       ----------     ---------     ----------
         Utility ..................          1.54          1.24           1.12
    Nonregulated operations .......         (0.11)        (0.05)          0.13
  Discontinued operations .........         (0.13)         0.03          (0.03)
                                       ----------     ---------     ----------
    Consolidated earnings .........    $     1.30     $    1.22     $     1.22
                                       ==========     =========     ==========


MidAmerican:
-----------
                                          1996           1995          1994
                                       ----------     ---------     ----------
                                                    (in millions)
Earnings on Common Stock
  Continuing operations
    Electric utility ..............    $    122.7     $   111.9     $     96.1
    Gas utility ...................          32.0          12.6           14.5
                                       ----------     ---------     ----------
         Total ....................         154.7         124.5          110.6
  Discontinued operations .........         (10.1)         (1.7)           9.6
                                       ----------     ---------     ----------
     Consolidated earnings ........    $    144.6     $   122.8     $    120.2
                                       ==========     =========     ==========
</TABLE>

     The  Company's  earnings per share for 1996  increased 8 cents  compared to
1995.  The effect of  merger-related  costs on 1995 earnings and  realization in
1996 of cost  savings  resulting  from the merger had a favorable  effect on the
Company's  and  MidAmerican's  1996 earnings  compared to 1995. In addition,  an
after-tax gain from the sale of certain MidAmerican storage gas supplies in 1996
and income from MidAmerican's  incentive gas procurement  program  contributed 3
cents per share to 1996  earnings.  A reduction in utility  property  taxes also
contributed  to the  improvement  in  earnings.  The cost of a merger  proposal,
discussed below,  reduced utility earnings by approximately 5 cents per share in
1996. A cooler than normal  summer and a favorable  heating  season  compared to
normal  resulted in an estimated  decrease of 4 cents per share in 1996. For the
Company's nonregulated businesses, earnings from continuing operations decreased
6 cents per share in 1996  compared to 1995 due  primarily  to 1995 gains on the
sales of a  telecommunications  subsidiary  and a partnership  interest in a gas
marketing   organization.   As  discussed  below,  1996  and  1995  earnings  of
nonregulated  subsidiaries  include  write-downs  of certain  assets.  Losses on
disposal  of  discontinued   operations  reduced  1996  earnings  per  share  by
approximately 15 cents.

                                      -33-

<PAGE>




     On August 5, 1996,  the  Company  announced  a  proposal  to merge with IES
Industries Inc. (IES), a holding company  headquartered  in Cedar Rapids,  Iowa.
The IES board of directors rejected the Company's proposal in favor of a pending
merger with WPL Holdings and Interstate  Power Co. (the Wisconsin  Transaction).
The Company solicited  proxies against the Wisconsin  Transaction for use at the
IES annual meeting of shareholders  which was held on September 5, 1996. At that
meeting, the holders of a majority of the IES common stock voted in favor of the
Wisconsin  Transaction,  and the Company  discontinued its attempt to merge with
IES. In the effort, MidAmerican incurred tax deductible costs of $8.7 million in
1996 which are included in Other, Net in the Consolidated Statements of Income.

     The   Company's   and   MidAmerican's   1995   earnings   were  reduced  by
merger-related  costs.  As part of the process of combining  the  operations  of
MidAmerican's  predecessors,  the Company  developed a restructuring  plan which
included  employee   incentive  early  retirement,   relocation  and  separation
programs. The Company recorded $33.4 million of restructuring costs during 1995,
of which  $31.9  million is  included  in utility  operations.  These  costs are
reflected in Other Operating Expenses in the Consolidated Statements of Income.

     In addition, the Company incurred transaction costs to complete the merger.
The Company expensed $4.6 million and $4.5 million of merger  transaction  costs
in 1995 and 1994,  respectively.  Of the total,  $0.2  million of the 1994 costs
relates to nonregulated subsidiaries of the Company. These costs are included in
Other, Net in the Consolidated Statements of Income.

     In  total,  restructuring  and  transaction  costs  reduced  the  Company's
earnings for 1995 by 24 cents per share. Transaction costs reduced 1994 earnings
by 5 cents per share.

     Write-downs of certain assets,  primarily  alternative energy projects,  of
the Company's  nonregulated  subsidiaries reduced earnings by approximately $9.4
million, or 9 cents per share, and $10.2 million, or 10 cents per share, in 1996
and 1995,  respectively.  The write-downs reflect declines in the value of those
nonregulated  investments.  The pre-tax  amounts of the  write-downs,  which are
included in Other, Net in the Consolidated  Statements of Income,  totaled $15.6
million and $18.0 million for 1996 and 1995, respectively.

     The Company's  earnings per share for 1995 were unchanged compared to 1994.
Increases in the gross  margins of utility  electric and natural gas  operations
favorably  affected  earnings  in 1995.  Gross  margin is the amount of revenues
remaining  after  deducting  electric  fuel  costs or the cost of gas  sold,  as
appropriate.   Decreases  in  nuclear  operations  and  maintenance  costs  also
favorably  affected  earnings.  As  discussed  above,  merger-related  costs and
write-downs of certain  nonregulated  assets had a significant adverse affect on
1995 earnings.



                                      -34-

<PAGE>


<TABLE>

<CAPTION>
UTILITY GROSS MARGIN

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

                                          1996          1995         1994
                                       ----------    ---------    ----------
                                                   (In millions)
<S>                                    <C>           <C>          <C>       
Operating revenues ................    $    1,099    $   1,095    $    1,022
Cost of fuel, energy and capacity .           234          230           214
                                       ----------    ---------    ----------

    Electric gross margin .........    $      865    $     865    $      808
                                       ==========    =========    ==========
</TABLE>

     Variations  in gross  margin are the result of changes in  revenues  due to
price and sales volume  variances.  Changes in the cost of electric fuel, energy
and capacity  (collectively,  Energy Costs) reflect  fluctuations  in generation
levels and mix, fuel cost, and energy and capacity  purchases.  MidAmerican  has
been allowed to recover Energy Costs from most of its electric utility customers
through energy  adjustment  clauses  (EACs) in revenues.  Variations in revenues
collected through the EACs, reflecting changes in Energy Costs per unit sold and
volumes sold, do not affect gross margin or net income.  Refer to "Rate Matters"
under the  Operating  Activities  and Other  Matters  section of  Liquidity  and
Capital Resources.

     Electric  gross margin for 1996 was  unchanged  compared to 1995.  Electric
retail  sales  for 1996  increased  nearly  2%  compared  to 1995 due to  modest
customer  growth and an improvement in sales not dependent upon weather.  Cooler
weather  conditions in the 1996 third quarter compared to the 1995 third quarter
caused a significant  decrease in weather-related  sales.  Colder weather during
the 1996 heating seasons compared to the 1995 heating seasons helped to mitigate
the   impact  of  the  mild   cooling   season  in  1996.   Sales  to  the  more
weather-sensitive  customers  have a higher  margin per unit than sales to other
customers.  As a result,  the decrease in sales to those customers had a greater
impact on margin than increases in sales to other  customers.  For the year, the
impact of weather  reduced  electric  gross margin by an  estimated  $15 million
compared to normal.

     Increases in electric  retail  rates due to filings  made by  MidAmerican's
predecessors  increased  revenues  and gross  margin for 1996  compared to 1995.
Electric  revenues  in the first  half of 1995  reflect a $13.6  million  annual
increase for interim  rates in  connection  with an Iowa  electric  rate filing.
Revenues for 1996 reflect the full-year effect of the final $20.3 million annual
rate  increase  in  the   proceeding,   which  was  effective  in  August  1995.
Approximately  $8 million of this  increase  relates to  increased  expenses for
other  postretirement  employee  benefit (OPEB) costs.  Additionally,  in August
1995,  MidAmerican  began  collection of $18.6  million over a four-year  period
related  to an  energy  efficiency  cost  recovery  filing.  At the  same  time,
MidAmerican  began expensing a similar amount for the amortization of previously
deferred  energy  efficiency  costs.  The  amortization  is  included  in  other
operating  expenses.  Refer to "Energy  Efficiency" in the Liquidity and Capital
Resources section for a discussion of changes in energy  efficiency  legislation
and potential acceleration of cost recovery.

     In November 1996,  MidAmerican  implemented  rate  reductions  representing
approximately  $21.8 million in annual revenues related to proceedings  begun in
1996.  In  addition,  electric  revenues  and gross  margin were reduced by $3.7
million in 1996 for a rate refund  reserve for  revenues  prior to November 1 in
connection with one of the proceedings. Refer to "Rate Matters" in Liquidity and
Capital Resources later in this discussion for further information.

     Electric  gross  margin  for  1995  improved  compared  to 1994  due to the
increases in electric  retail rates and a 3% increase in electric  retail sales.
The increase in retail sales was due  primarily  to warmer  temperatures  in the
1995 third quarter compared to the third quarter of 1994.

     In addition to the electric rate increases discussed above, in October 1994
and  January  1995,  MidAmerican  implemented  rate  increases  for Iowa  energy
efficiency  cost  recovery  filings  which  allow a total  increase  in electric
revenues of $31.7 million over a four-year  period together with a corresponding
amortization of deferred energy efficiency costs.

                                      -35-

<PAGE>




     Revenues  from sales for resale  increased $16 million for 1996 compared to
1995 and $21.2  million for 1995  compared to 1994.  Variations in the amount of
available  generation  affected sales  volumes,  especially for 1995 compared to
1994. During 1994 and the first quarter of 1995, nuclear  generating  facilities
were out of service for an extended  period.  Coal delivery  uncertainties  also
limited  MidAmerican's  sales for resale in 1994. In addition,  the  MidAmerican
merger and the  reorganization  of  utility  functions  increased  MidAmerican's
ability to participate in these types of transactions.  Effective November 1995,
the margin on most electric  energy sales for resale is flowed through to retail
customers and has a minimal effect on gross margin and net income.

<TABLE>
<CAPTION>

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

                                          1996          1995         1994
                                       ----------    ---------    ----------
                                                   (In millions)
<S>                                    <C>           <C>          <C>       
Operating revenues ................    $      537    $     460    $      492
Cost of gas sold ..................           345          279           327
                                       ----------    ---------    ----------
    Gas gross margin ..............    $      192    $     181    $      165
                                       ==========    =========    ==========
</TABLE>

     Variations in gas gross margin are the result of changes in revenues due to
price and sales  volume  variances.  MidAmerican  has been allowed to recover in
revenues  the cost of gas sold from most of its gas  utility  customers  through
purchase gas adjustment clauses (PGAs). Variations in revenues collected through
the PGAs,  reflecting  changes in the cost of gas per unit and volumes  sold, do
not affect gross margin or net income.

      Gross margin from gas sales  increased in 1996 and 1995  compared to their
respective  prior years.  The increases were due both to price and sales volumes
increases.  Retail sales of natural gas increased  3.1% in 1996 compared to 1995
due in part to  colder  weather  conditions  in the first  quarter  of 1996 than
during the first  quarter of 1995.  For 1996,  the impact of colder  than normal
weather  increased  gross  margin by an  estimated  $8 million.  Retail sales of
natural gas  increased  slightly  in 1995  compared to 1994 due mainly to colder
temperatures  in the  fourth  quarter of 1995 than in the 1994  fourth  quarter.
Continued growth in the number of natural gas customers contributed to increases
in sales volumes.

     Another  cause of the  increases  in gas  revenues  and gross margin was an
increase in gas retail service rates.  Retail revenues in the first half of 1995
reflect  interim  rates from an $8.2 million  increase in annual gas revenues in
connection  with an Iowa gas rate  filing by one of its  predecessor  companies.
MidAmerican began collecting the interim rates in October 1994. Gas revenues for
1996 reflect the  full-year  effect of the final rate  increase of $10.6 million
annually which was effective in August 1995.  Approximately  $2.5 million of the
$10.6 million increase relates to increased expense for OPEB costs.

     In January 1995, MidAmerican implemented a rate increase for an Iowa energy
efficiency cost recovery filing which allows an increase in gas revenues of $6.7
million over a four-year  period together with a  corresponding  amortization of
deferred  energy  efficiency  costs.  The  amortization  is  included  in  other
operating  expenses.  Refer to "Energy  Efficiency" in the Liquidity and Capital
Resources section for a discussion of changes in energy  efficiency  legislation
and potential acceleration of cost recovery.

UTILITY OPERATING EXPENSES

     For 1996, utility other operating expenses decreased $49.5 million compared
to 1995 due primarily to costs in 1995 of the restructuring plan discussed under
"Earnings"  in the Results of  Operations  section and from cost savings in 1996
resulting  from the merger.  Utility  restructuring  costs in 1995 totaled $31.9
million.  In  addition,  1996  reflects  a $4.4  million  reduction  in  nuclear
operations  costs.  Partially  offsetting  these  decreases  was a $4.2  million
increase from the amortization of deferred energy efficiency  costs.  There were
also increases in consulting  services expenses and some general  administrative
costs for 1996 compared to 1995.


                                      -36-

<PAGE>



     In  addition  to costs of the  restructuring  plan,  1995  other  operating
expenses  increased  compared to 1994 due to increased  amortization of deferred
energy  efficiency  costs and OPEB costs and the effect of a  reduction  of 1994
energy  efficiency  expenses to comply with the IUB  regulation  of these costs.
Nuclear operations costs decreased $8.6 million in 1995 compared to 1994.

     Maintenance  expenses increased for 1996 compared to 1995 and decreased for
1995 compared to 1994. The timing of power plant maintenance  accounted for much
of the variation  between the periods.  The increase in power plant  maintenance
for 1996 was partially  offset by a $6.2 million  adjustment to align  inventory
accounting of  predecessor  companies.  Maintenance  expense for the Quad Cities
Nuclear  Station  (Quad  Cities  Station)  increased  $1.8  million for 1996 and
decreased $5.5 million for 1995 compared to the respective prior years.

     Property  and  other  taxes  decreased  in 1996  compared  to 1995 due to a
reduction in property and payroll taxes.  Lower than expected  assessed property
values and tax rates  reduced  property  tax expense for 1996. A decrease in the
number of  employees as a result of the merger  caused the  reduction in payroll
tax expense.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

Holdings:
--------

     Revenues of MidAmerican  Capital and Midwest  Capital  increased a total of
$141.7  million for 1996  compared to 1995.  The increase was due primarily to a
$136.1  million  increase in revenues from natural gas  marketing  subsidiaries,
some of which did not exist in 1995. Sales volumes for the natural gas marketing
firms  increased 51 million  MMBtu's,  or 153%,  for 1996  compared to 1995.  In
addition, the average price of natural gas increased in 1996.

     Cost of sales includes  expenses  directly related to sales of natural gas.
Increases in gas sales volumes and cost per unit resulted in the increase in the
cost of sales for 1996 compared to 1995.

     Average  margins  (total  price less cost of gas) on sales of  natural  gas
decreased in 1996 compared to 1995 due in part to increased  competition  in the
nonregulated  natural  gas  industry.  As a result,  total 1996 gross  margin on
nonregulated natural gas sales decreased $2.5 million compared to 1995.

     Revenues for 1995  decreased  from 1994 primarily due to a 16% reduction in
sales  volumes of a  nonregulated  retail  natural gas marketing  subsidiary.  A
decrease  in real estate  revenues  and  reduced  revenues  due to the sale of a
telecommunications subsidiary in early 1995 also contributed to the decrease.

NON-OPERATING INCOME AND INTEREST EXPENSE

MidAmerican:
-----------

     Other, Net -

     Other,  Net for 1996 was  reduced by $8.7  million  for costs  incurred  by
MidAmerican  for  its  merger  proposal  to IES  Industries  Inc.  During  1996,
MidAmerican  recorded  a pre-tax  gain of $3.2  million  on the sale of  certain
storage gas supplies.  In addition,  MidAmerican recorded $2.7 million of income
as a result of  successful  performance  under  its  incentive  gas  procurement
program  and a net  pre-tax  gain of $1.1  million  from  the  reacquisition  of
long-term debt. As discussed in the "Earnings" section of Results of Operations,
merger transaction costs related to the Company's 1995 merger reduced Other, Net
in 1995 and 1994.

     Interest Charges -

     Utility  interest on long-term debt decreased for 1996 compared to 1995 due
to the reacquisition of debt in 1996 and increased for 1995 compared to 1994 due
primarily to the issuance of $60 million of 7.875% Series

                                      -37-

<PAGE>



of mortgage  bonds in  November  1994.  An  increase  in the  average  amount of
commercial paper outstanding  during 1996 was the cause of the increase in other
interest expense compared to 1995.

Holdings:
--------

     Realized Gains and Losses on Securities, Net -

     Net realized  gains on securities  increased for 1996 due to an increase in
gains on the  disposition  of equity fund holdings and managed  preferred  stock
portfolios. Net realized gains on securities decreased for 1995 compared to 1994
primarily  from the sale of a single  holding  in 1994  which  generated  a $5.9
million pre-tax gain.

     Other, Net -

     Other,  Net reflects  $2.8 million more income from equity  investments  in
1996 than in 1995. In addition,  Midwest Capital recorded a $1.8 million pre-tax
gain on the sale of the Hub Tower,  a Des Moines office  building,  in the third
quarter of 1996,  Midwest  Capital had written  down the  carrying  value of the
property  by $5.8  million  and  $3.0  million  in 1992  and in  December  1995,
respectively,  to  reflect  anticipated  market  values.  As  discussed  in  the
"Earnings"  section at the beginning of Results of  Operations,  write-downs  of
nonregulated investments decreased Other, Net by $15.6 million and $18.0 million
for 1996 and 1995,  respectively.  The $18.0  million for 1995  includes the Hub
Tower  write-down.  In 1995,  the Company also had pre-tax  gains  totaling $8.5
million on the sales of a partnership  interest in a gas marketing  organization
and a telecommunication subsidiary.


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

     The Company 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.

     For 1996, Holdings had net cash provided from operating  activities of $351
million  compared to $337 million for 1995.  MidAmerican  had net cash  provided
from  operating  activities  of $327 million and $333 million for 1996 and 1995,
respectively.

INVESTING ACTIVITIES AND PLANS

MidAmerican:
-----------

     MidAmerican's   primary   need  for   capital   is   utility   construction
expenditures.  Utility construction expenditures,  including allowance for funds
used during construction (AFUDC), Quad Cities Station nuclear fuel purchases and
Cooper Nuclear  Station  (Cooper)  capital  improvements,  were $154 million for
1996.  All  such   expenditures  were  met  with  cash  generated  from  utility
operations, net of dividends.

     Utility  construction  expenditures  for 1996 and 1995 included $11 million
and $2 million,  respectively, for replacement of a certain type of plastic pipe
installed in prior years in a portion of MidAmerican's  natural gas distribution
system.  MidAmerican  decided to replace all such pipe due to concerns about its
long-term  performance.  MidAmerican  has filed an action  seeking  recovery  of
replacement  costs and damages  from the  manufacturer  of the resin used in the
pipe.

     Forecasted  utility  construction  expenditures  for 1997 are $200  million
including  AFUDC.   Capital   expenditures   needs  are  reviewed  regularly  by
MidAmerican's  management  and may  change  significantly  as a  result  of such
reviews. For the years 1997 through 2001, MidAmerican forecasts $840 million for
utility  construction  expenditures.  MidAmerican  presently  expects  that  all
utility  construction  expenditures  for 1997 through 2001 will be met with cash
generated from utility operations, net of dividends. The actual level of cash

                                      -38-

<PAGE>



generated from utility  operations is affected by, among other things,  economic
conditions  in the  utility  service  territory,  weather  and federal and state
regulatory actions.

     Operators of a nuclear  facility are required to set aside funds to provide
for costs of future  decommissioning  of their  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  $47 million during the period 1997 through 2001 to an
external trust established for the investment of funds for  decommissioning  the
Quad  Cities  Station.  Currently,  the  funds  are  invested  predominately  in
investment  grade  municipal  and  U.S.  Treasury  bonds.   Beginning  in  1997,
MidAmerican  plans to invest a portion of the funds in domestic  corporate  debt
and common equity securities.  In addition, a portion of the payments made under
a power purchase  contract with Nebraska  Public Power  District  (NPPD) are for
decommissioning  funding  related to Cooper.  The Cooper costs are  reflected in
Other Operating Expenses in the Consolidated Statements of Income. Based on NPPD
estimates,  MidAmerican  expects to pay  approximately  $59  million to NPPD for
Cooper  decommissioning  during the period 1997 through  2001.  NPPD invests the
funds predominantly 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. MidAmerican currently recovers Quad
Cities Station  decommissioning  costs charged to Illinois  customers  through a
rate rider on customer billings.  Cooper and Quad Cities Station decommissioning
costs  charged to Iowa  customers  are included in base rates,  and increases in
those amounts must be sought through the normal ratemaking process.

Holdings:
--------

     Capital  expenditures  of  nonregulated  subsidiaries  were $56 million for
1996. Capital  expenditures of nonregulated  subsidiaries  depend primarily upon
the availability of suitable  investment  opportunities which meet the Company's
objectives.  The  Company  continues  to  evaluate  nonstrategic,   nonregulated
investments and may redeploy certain assets in 1997. External financing may also
be used to provide for nonregulated capital expenditures.

     The  Company,  through  one  of  its  nonregulated  subsidiaries,   has  an
investment  in Class A and Class B Common  Stock of  McLeod,  Inc.  (McLeod),  a
telecommunications company. The Class B stock is convertible to Class A stock on
a one-for-one  basis at the Company's  option.  On June 14, 1996, McLeod made an
initial  public  offering  (IPO)  of its  Class A  Common  Stock.  As part of an
investor  agreement,  the  Company  is  prohibited  from  selling  or  otherwise
disposing  of any of the  common  stock of McLeod for a period of two years from
the date of the IPO,  and  accordingly,  no market value  adjustments  have been
reflected in the Company's financial statements.  In the fourth quarter of 1996,
the Company  made an  additional  investment  of $10  million in McLeod  Class A
Common Stock.  At December 31, 1996,  the carrying  amount and fair value of the
Company's investment were $46.3 million and $218.3 million, respectively.

     During the third quarter of 1996, a nonregulated  subsidiary of the Company
made a $10 million investment in convertible  preferred stock of RACOM, which is
a provider of digital wireless  communications in MidAmerican's  utility service
territory and surrounding areas.

     MidAmerican Capital invests in a variety of marketable  securities which it
holds for indefinite periods of time. In 1996,  MidAmerican Capital had net cash
inflows of $55 million from its marketable securities investment activities.  In
the Consolidated  Statements of Cash Flows, the lines Purchase of Securities and
Proceeds from Sale of Securities consist primarily of the gross amounts of these
activities,  including  realized  gains and losses on  investments in marketable
securities.



                                      -39-

<PAGE>



FINANCING ACTIVITIES, PLANS AND AVAILABILITY

Holdings:
--------

     As of  December  31,  1996,  Holdings  had a $20  million  line  of  credit
available to provide for short-term financing needs.

     In addition,  Holdings has the necessary authority to issue up to 6,000,000
shares  of  common  stock  through  its  Shareholder  Options  Plan (a  dividend
reinvestment and stock purchase plan).  Since July 1, 1995, the Company has used
open market  purchases of its common stock rather than original  issue shares to
meet  share   obligations  under  its  Employee  Stock  Purchase  Plan  and  the
Shareholder Options Plan. Holdings currently plans to continue using open market
purchases to meet share obligations under these plans.

     On January 29,  1997,  Holding's  board of  directors  declared a quarterly
dividend on common shares of $0.30 per share payable March 1, 1997. The dividend
represents an annual rate of $1.20 per share.

MidAmerican:
-----------

     MidAmerican  currently has  authority  from the Federal  Energy  Regulatory
Commission  (FERC) to issue  short-term debt in the form of commercial paper and
bank notes aggregating $400 million. As of December 31, 1996,  MidAmerican had a
$250  million  revolving  credit  facility  agreement  and a $10 million line of
credit to provide  short-term  financing for utility  operations.  MidAmerican's
commercial  paper  borrowings,  which totaled $162 million at December 31, 1996,
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.

     During  1996,  MidAmerican  redeemed  all shares of its  $1.7375  Series of
preferred  securities.  In October,  MidAmerican  reacquired  $28 million of its
6.95% Series first  mortgage bonds due 2025 and $3.5 million of its 7.45% Series
first mortgage bonds due 2023. In December 1996, MidAmerican issued $100 million
of 6  1/2%  Medium-Term  Notes  due  2001  and  $103  million  of  7.98%  Series
subordinated debt debentures to a subsidiary  statutory  business trust which in
turn issued $100  million of 7.98%  Series A  redeemable  preferred  securities.
Proceeds  from  these  financings  were  used  to  redeem  all  $40  million  of
MidAmerican's 8.15% Series first mortgage bonds due 2001 and the remaining $45.8
million of $1.7375 Series preferred  securities  mentioned above. The balance of
the proceeds was used to reduce commercial paper outstanding. Refer to Note (17)
for more discussion on Series A preferred securities.

     MidAmerican  currently has regulatory authority to issue an additional $300
million of preferred  securities and long-term  debt,  including its medium-term
note program.  It is management's  intent to refinance certain  MidAmerican debt
securities with additional  issuances of unsecured debt and preferred securities
of a subsidiary trust as market conditions allow.

     As of December 31,  1996,  MidAmerican  had $449 million of long-term  debt
maturities and sinking fund requirements for 1997 through 2001.

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 January 24, 1997, 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

                                      -40-

<PAGE>



judgment of the rating agency  circumstances so warrant.  Such ratings are not a
recommendation to buy, sell or hold securities.
<TABLE>
<CAPTION>

                                          Moody's
                                         Investors    Standard
                                          Service     & Poor's
                                         ---------    --------

<S>                                         <C>          <C> 
     Mortgage Bonds ............            A2           A+
     Unsecured Medium-Term Notes            A3           A
     Preferred Stocks ..........            a3           A
     Commercial Paper ..........            P-1          A-1
</TABLE>

     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.

     Moody's top four bond 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 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 economic  conditions than debt in higher rated
categories. Standard & Poor's may use a plus (+) or minus (-) sign after ratings
to designate the relative position of a credit within the rating category.

     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.
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  "A" rating  indicates  adequate  earnings  and asset
protection.

     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.

Preferred Dividends -

     Preferred  dividends  include net gains or losses on the  reacquisition  of
MidAmerican  preferred shares.  For 1996 and 1994,  preferred  dividends include
losses on  reacquisition  totaling $1.6 million and $0.3 million,  respectively.
Preferred dividends,  excluding the losses on reacquisition,  decreased from the
1994 amount due to the  redemption  of three series of preferred  securities  in
December  1994. A change in the preferred  dividend  payment date  following the
merger  compared  to  that  of a  predecessor  company  resulted  in a  one-time
reduction in 1995 of the preferred dividend amount.


                                      -41-

<PAGE>



Holdings:
--------

     Continuing  operations of  MidAmerican  Capital  currently  have  unsecured
revolving  credit  facilities  in the amount of $114  million.  In January 1997,
MidAmerican  Capital paid off the $90 million  outstanding  under the  revolving
credit facilities with proceeds from the sale transaction with KCS. Another $100
million  revolving  credit  facility  related  to  discontinued  operations  was
terminated in January  1997,  and the $84 million  outstanding  was paid off. In
addition,     MidAmerican     Capital     terminated     two     $32     million
floating-rate-to-fixed-interest-rate  swaps related to amounts outstanding under
one of the revolving credit facilities.

     Excluding the above  January 1997  payments,  MidAmerican  Capital has $142
million of long-term  debt  maturities  and sinking fund  requirements  for 1997
through 2001, of which $30 million is in 1997.

      During the third quarter of 1996,  Midwest  Capital sold the Hub Tower,  a
Des Moines office building,  and retired  approximately $25 million of long-term
debt which was supported by a guarantee from MidAmerican. Proceeds from the sale
provided  most of the funds  necessary to retire the debt.  The  deficiency  was
funded  by  a  $4.5  million  capital  contribution  in  extinguishment  of  the
guarantee.  Midwest  Capital  currently  has a $25  million  line of credit with
MidAmerican.

OPERATING ACTIVITIES AND OTHER MATTERS

     The Company  continues to adjust to its  strategies  and operations for the
changes it expects in the electric utility industry. The merger that resulted in
MidAmerican and the  reorganization of utility operations were some of the first
steps  taken to better  position  the  Company  for  competition.  In June 1996,
MidAmerican  filed an electric  pricing  proposal in Iowa and  Illinois  that it
believes  benefits  customers and is designed to allow  MidAmerican  to function
more effectively in a competitive environment. Refer to the following discussion
under the heading "Rate  Matters" for the current  status of those  filings.  As
mentioned under "Discontinued  Operations" in the Results of Operations section,
the Company has been  evaluating its  nonregulated  investments to determine the
best use of those assets to support the  Company's  objective of being a leading
regional provider of energy and complementary services. The Company continues to
seek opportunities to better position itself as the industry evolves.

Holdings:
--------

     During 1996, the Company began to reevaluate its nonregulated  investments.
Through the evaluation process,  management will determine which investments fit
the Company's objectives and which should be divested. The method of divestiture
could  include  alternatives  from  finding an  immediate  buyer to holding  the
investment  until  maturity.   The  Company  holds  approximately  70  different
investments  within its  MidAmerican  Capital and Midwest  Capital  subsidiaries
which it is  evaluating.  In 1996, the  evaluation of  nonregulated  investments
resulted in a $20.9 million  reduction in earnings because of asset  impairments
or a decision to pursue the sale of an investment  at below its carrying  value.
The  process  will  continue  for the next 18 to 24 months  and could  result in
additional  losses if the Company decides to divest of investments for less than
carrying value.

MidAmerican:
-----------

     Regulatory Evolution and Competition -

     MidAmerican  is  subject  to  regulation  by  several  utility   regulatory
agencies. The operating environment and the recoverability of costs from utility
customers  are  significantly  influenced by the  regulation of those  agencies.
MidAmerican supports changes in the electric utility industry that will create a
more  competitive  environment  for the  entire  electric  industry,  as long as
appropriate  transitional  steps  are in  place  to  accommodate  moving  from a
regulated  cost-of-service  industry to a competitive  industry.  Although these
anticipated changes may create  opportunities,  they will also create additional
challenges and risks for utilities.

                                      -42-

<PAGE>



     In  December  1996,  MidAmerican  was  selected  from  among  20  potential
suppliers to provide electric service for the Resale Power Group of Iowa (RPGI).
The RPGI includes 27 municipal  utilities,  a rural electric  cooperative and an
investor-owned utility. Members of the RPGI serve nearly 27,000 retail customers
and purchase approximately 500,000 megawatt hours annually.  Under the five-year
contract beginning January 1, 1999,  MidAmerican will also offer electric system
maintenance  services,  energy  efficiency  services  and  economic  development
assistance.   Electricity  to  RPGI  utilities  presently  is  supplied  by  IES
Utilities.  This opportunity  provided  MidAmerican  valuable  experience in the
evolving competitive electric market.

     MidAmerican  is  a  member  of  the  Illinois   Coalition  for  Responsible
Electricity Choice (the Coalition). The Coalition has produced draft legislation
(the  Proposal) that would  restructure  Illinois'  electric  industry and allow
Illinois  customers to choose their electric service  provider.  The Proposal is
designed to, among other things, balance tax and regulatory burdens;  transition
the industry to a competitive  electric  marketplace in phases between the years
2000 and 2005; stabilize or reduce tariffed electric rates; provide for recovery
of prior mandated  investments of the utilities;  and increase  flexibility  for
utilities  while  providing for oversight of reliability  and safety by the ICC.
MidAmerican expects the Proposal to be addressed by the Illinois  legislature in
1997.  The Illinois  legislature  previously  passed laws allowing the filing of
alternative pricing plans by utilities and increased  flexibility for agreements
with industrial customers.

     In  Iowa,  the Iowa  Utilities  Board  (IUB)  initiated  a  formal  inquiry
proceeding  (Notice of Inquiry,  Docket No. NOI-95-1) in 1995,  titled "Emerging
Competition  in the Electric  Utility  Industry,"  primarily  as an  information
gathering device. Since early in 1995, meetings have been held with a variety of
interested  parties,  and  the  IUB  established  an  advisory  panel  of  which
MidAmerican  was a member.  The IUB staff  authored a report on the findings and
potential  options for  restructuring  in December  1996.  The IUB  accepted the
report of its  staff,  as well as other  information  submitted  in the case and
closed the docket.  The IUB has not determined  its future course of action.  No
legislation  has yet been  introduced  in Iowa to  allow  generation  or  retail
service competition.

     The Energy Policy Act (EPAct) was enacted in 1992 to promote competition in
the  wholesale  electric  market.  In April 1996,  the FERC  issued  final rules
(Orders 888 and 889) to direct the  implementation of EPAct. In general,  Orders
888 and 889, require public utilities and other transmission providers and users
to provide other  companies the same  transmission  access,  service and pricing
that they provide themselves.  In compliance with Order 888, which was effective
July 9, 1996,  MidAmerican has filed a pro forma open access transmission tariff
and is currently  operating  under it. In accordance  with Order 889,  which was
effective  January 3, 1997,  MidAmerican  has separated  its electric  wholesale
marketing and transmission operation functions.  Order 889 establishes standards
of conduct for this  functional  separation  and further  requires  transmission
providers  such as MidAmerican to either create or participate in an Open Access
Same Time Information System (OASIS).  MidAmerican has elected to participate in
the  Mid-Continent  Area Power Pool OASIS.  These  developments  assure that all
transmission  customers of MidAmerican,  including  MidAmerican's  own wholesale
marketing function, can obtain transmission information at the same time and can
request service on the same basis.

     A possible  consequence  of  competition  in the  utility  industry  is the
discontinued applicability of Statement of Financial Accounting Standards (SFAS)
No.  71.  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.  MidAmerican's  electric and gas utility  operations are
currently  subject  to the  provisions  of SFAS  71,  but its  applicability  is
periodically  reexamined.  If a portion of MidAmerican's  utility  operations no
longer meets the criteria of SFAS 71, MidAmerican would be required to eliminate
from its balance sheet the assets and  liabilities  related to those  operations
that  resulted  from actions of its  regulators.  Although the amount of such an
elimination would depend on the specific circumstances, a material adjustment to
earnings in the appropriate  period could result from the discontinuance of SFAS
71. As of December 31, 1996,  MidAmerican had $374 million of regulatory  assets
in its Consolidated  Balance Sheet. Refer to Note (1)(c) for more detail related
to regulatory assets.


                                      -43-

<PAGE>



     Energy Efficiency -

     In  May  1996,  the  Iowa  legislature  approved  a bill  enhancing  energy
efficiency program flexibility, eliminating mandatory spending levels for energy
efficiency  programs  and  allowing  more timely  recovery of energy  efficiency
expenditures as determined by the IUB. The new legislation became effective July
1, 1996.  Previously,  electric and gas utilities in Iowa were required to spend
approximately  2% and 1.5%,  respectively,  of their annual Iowa  jurisdictional
revenues on energy efficiency activities. MidAmerican expects final rules on the
implementation of the new legislation in the first half of 1997, following which
MidAmerican  will seek approval to  accelerate  recovery of deferred and current
energy  efficiency  costs.  MidAmerican  received  approval  to  collect  and is
collecting a total of $14.3  million  annually for  previously  deferred  energy
efficiency  costs.  The  Consolidated  Balance  Sheet as of December  31,  1996,
included  approximately  $24 million of such approved  costs yet to be collected
from customers. In addition, MidAmerican had approximately $88 million of energy
efficiency costs deferred and included as regulatory  assets in its December 31,
1996,  Consolidated  Balance  Sheet for which  recovery will be sought in future
energy efficiency filings.

     Rate Matters -

     On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois.  The proposal would provide  MidAmerican more flexibility to negotiate
with customers who have service options and to mitigate  strandable  costs.  The
proposal would also reduce  regulatory lag in  implementing  new tariff services
and prices. As part of the proposal, MidAmerican would reduce electric revenues,
on a graduated basis, to the level of approximately  $25 million annually within
five  years  and  eliminate  automatic  fuel  adjustment   clauses.   The  price
reductions,  possible  due to merger and  restructuring  related  cost  savings,
reduce price disparity within customer classes and would move MidAmerican closer
to prices that it believes can be sustained in a competitive market.

     On October 15, 1996,  the ICC ordered  MidAmerican  to reduce rates for its
Illinois  customers by 10%, or $13.1  million  annually,  effective  November 3,
1996, and commenced an investigation  into the  reasonableness  of MidAmerican's
rates.  MidAmerican negotiated termination of the proceeding to reduce its rates
and withdrew its electric pricing  proposal.  The negotiated  termination of the
rate  reduction  proceeding  left in place  the  initial  $13.1  million  annual
reduction and included a second price  reduction of $2.4 million  annually to be
effective on June 1, 1997.

     On August 1, 1996, the Iowa Office of Consumer Advocate (OCA) requested the
IUB to order  MidAmerican  to  reduce  its Iowa  electric  rates  by  10.7%,  or
approximately $101 million annually, in electric revenues. On September 6, 1996,
the  IUB  docketed  the  OCA  request  and  initiated  an   investigation   into
MidAmerican's   rates.  The  IUB  also  consolidated  the   investigation   with
MidAmerican's  alternative  regulation and pricing  proposal for purposes of the
hearings  scheduled  to begin in  January  1997.  Effective  November  1,  1996,
MidAmerican  reduced its  electric  rates in Iowa $8.7  million  annually to the
levels in its pricing proposal filed on June 4, 1996.

     In January 1997, a settlement  agreement between  MidAmerican,  the OCA and
other parties to the proceeding was negotiated.  The agreement, which includes a
number of  characteristics  of  MidAmerican's  pricing  proposal,  is subject to
approval by the IUB. The  agreement  includes a tracking  mechanism to currently
recover the cost of Cooper capital improvements.  After reflecting the effect of
the Cooper tracking mechanism, prices for residential customers would be reduced
approximately  $20 million  annually by June 1, 1998,  including the November 1,
1996, reduction.  Rates for commercial and industrial customers would be reduced
a total  of $10  million  annually  by June 1,  1998,  through  pilot  projects,
negotiated rates with individual customers and, if needed, a base rate reduction
effective June 1, 1998.

     In addition,  the agreement accepts MidAmerican's proposal to eliminate the
energy  adjustment  clause (EAC) which currently is the mechanism  through which
fuel costs are collected from Iowa customers.  The EAC flows the cost of fuel to
customers on a current  basis,  and thus,  fuel costs have little  impact on net
income. Prospectively,  base rates for Iowa customers would include a factor for
recovery  of a  representative  level of fuel costs.  To the extent  actual fuel
costs vary from that factor, pre-tax earnings would be impacted. The fuel cost

                                      -44-

<PAGE>


factor would be reviewed in February 1999 and adjusted  prospectively  if actual
fuel costs vary 15% above or below the agreed factor.

     Under the agreement,  if MidAmerican's return on common equity exceeds 12%,
then a sharing between customers and shareholders begins, and if it exceeds 14%,
then a portion of MidAmerican's share would be used for accelerated  recovery of
certain  regulatory  assets.  The  agreement  permits  MidAmerican  to file  for
increased  rates if the  return  falls  below  9%.  Other  parties  signing  the
agreement are prohibited  from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.

     As of December 31, 1996,  MidAmerican had a $2.6 million liability recorded
for the  portion of its Iowa  electric  revenues  between  August 1,  1996,  and
October 31, 1996, that were in excess of those included in the pricing proposal.

     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.

     The Company 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  the  Company  has any  responsibility  for  remedial  action.  The
Company's present estimate of probable  remediation costs for these sites is $21
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 the Company'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 the Company's financial position or results of operations.

     The Clean Air Act Amendments of 1990 (CAA) were signed into law in November
1990.  MidAmerican  has six  wholly  owned  and five  jointly  owned  coal-fired
generating stations, which represent approximately 65% of MidAmerican's electric
generating  capability.  Essentially all utility generating units are subject to
CAA provisions which address continuous emission monitoring, permit requirements
and fees,  and emission of certain  substances.  By the year 2000,  some Company
coal-fired  generating  units will be required to install  emissions  monitoring
system replacements or upgrades. Under current regulations, MidAmerican does not
anticipate its construction  costs for the installation of emissions  monitoring
system upgrades to exceed $8 million for 1997 through 2000.

ACCOUNTING ISSUES

      The staff of the Securities and Exchange Commission has questioned certain
of the current  accounting  practices of the electric utility industry regarding
the recognition, measurement and classification of nuclear decommissioning costs
in the financial statements. In response to these questions, the FASB has issued
an Exposure  Draft,  "Accounting for Certain  Liabilities  Related to Closure or
Removal of Long-Lived  Assets,"  which  addresses the accounting for closure and
removal costs,  including  decommissioning  of nuclear power plants.  If current
electric  utility industry  accounting  practices for such  decommissioning  are
changed,  the annual provision for  decommissioning  could increase  relative to
1996, and the total  estimated cost for  decommissioning  could be recorded as a
liability with  recognition of an increase in the cost of related  nuclear power
plant.  Due to the continuing  evolution of the exposure  draft,  the Company is
uncertain as to the impact on its results of operations and financial position.

                                      -45-

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

                                                                 YEARS ENDED DECEMBER 31
                                                           1996           1995           1994
                                                        -----------    -----------    -----------
<S>                                                     <C>            <C>            <C>   
OPERATING REVENUES
Electric utility ....................................   $ 1,099,008    $ 1,094,647    $ 1,021,660
Gas utility .........................................       536,753        459,588        492,015
Nonregulated ........................................       236,851         95,106        117,550
                                                        -----------    -----------    -----------
                                                          1,872,612      1,649,341      1,631,225
                                                        -----------    -----------    -----------
OPERATING EXPENSES
Utility:
    Cost of fuel, energy and capacity ...............       234,317        230,261        213,987
    Cost of gas sold ................................       345,014        279,025        326,782
    Other operating expenses ........................       350,174        399,648        354,190
    Maintenance .....................................        88,621         85,363        101,275
    Depreciation and amortization ...................       164,592        158,950        154,229
    Property and other taxes ........................        92,630         96,350         94,990
                                                        -----------    -----------    -----------
                                                          1,275,348      1,249,597      1,245,453
                                                        -----------    -----------    -----------
Nonregulated:
    Cost of sales ...................................       218,256         70,209         84,515
    Other ...........................................        35,370         37,181         36,765
                                                        -----------    -----------    -----------
                                                            253,626        107,390        121,280
                                                        -----------    -----------    -----------
    Total operating expenses ........................     1,528,974      1,356,987      1,366,733
                                                        -----------    -----------    -----------

OPERATING INCOME ....................................       343,638        292,354        264,492
                                                        -----------    -----------    -----------

NON-OPERATING INCOME
Interest income .....................................         4,012          4,485          4,334
Dividend income .....................................        16,985         16,954         17,087
Realized gains and losses on securities, net ........         1,895            688          7,635
Other, net ..........................................        (4,020)       (10,467)         4,316
                                                        -----------    -----------    -----------
                                                             18,872         11,660         33,372
                                                        -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ..........................       102,909        105,550        101,267
Other interest expense ..............................        10,941          9,449          6,446
Allowance for borrowed funds ........................        (4,212)        (5,552)        (3,955)
Preferred dividends of subsidiaries .................        10,689          8,059         10,551
                                                        -----------    -----------    -----------
                                                            120,327        117,506        114,309
                                                        -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES       242,183        186,508        183,555
INCOME TAXES ........................................        98,422         66,803         60,457
                                                        -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS ...................       143,761        119,705        123,098

DISCONTINUED OPERATIONS
Income from operations (net of income taxes).........         2,117          3,059            856
Loss on disposal (net of income taxes) ..............       (14,832)          --           (3,765)
                                                        -----------    -----------    -----------
                                                            (12,715)         3,059         (2,909)
                                                        -----------    -----------    -----------

NET INCOME ..........................................   $   131,046    $   122,764    $   120,189
                                                        ===========    ===========    ===========

AVERAGE COMMON SHARES OUTSTANDING ...................       100,752        100,401         98,531

EARNINGS PER COMMON SHARE
Continuing operations ...............................   $      1.43    $      1.19    $      1.25
Discontinued operations .............................         (0.13)          0.03          (0.03)
                                                        -----------    -----------    -----------
Earnings per average common share ...................   $      1.30    $      1.22    $      1.22
                                                        ===========    ===========    ===========

DIVIDENDS DECLARED PER SHARE ........................   $      1.20    $      1.18    $      1.17
                                                        ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -46-
<PAGE>
<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

                                                                       YEARS ENDED DECEMBER 31
                                                                   1996         1995         1994
                                                                ---------    ---------    ---------

<S>                                                               <C>             <C>            <C>    
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ..................................................   $ 131,046    $ 122,764    $ 120,189
Adjustments to reconcile net income to net cash provided:
  Depreciation, depletion and amortization ..................     190,511      181,636      179,918
  Net increase (decrease) in deferred income taxes and
    investment tax credit, net ..............................      22,142         (961)      34,103
  Amortization of other assets ..............................      20,541       19,630        9,731
  Capitalized cost of real estate sold ......................       3,568        1,744        3,723
  Loss (income) from discontinued operations ................      12,715       (3,059)       2,909
  Gain on sale of securities, assets and other investments ..     (10,132)      (1,050)      (6,409)
  Other-than-temporary decline in value of investments ......      15,566       17,971        1,791
  Impact of changes in working capital, net of effects
    from discontinued operations ............................     (53,752)     (21,024)      (6,917)
  Other .....................................................      19,218       19,369       10,831
                                                                ---------    ---------    ---------
    Net cash provided .......................................     351,423      337,020      349,869
                                                                ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ...........................    (154,198)    (190,771)    (211,669)
Quad Cities Nuclear Power Station decommissioning trust fund       (8,607)      (8,636)      (9,044)
Deferred energy efficiency expenditures .....................     (20,390)     (35,841)     (28,221)
Nonregulated capital expenditures ...........................     (55,788)     (12,881)      (9,095)
Purchase of securities ......................................    (198,947)    (164,521)    (113,757)
Proceeds from sale of securities ............................     243,290       94,493      142,307
Proceeds from sale of assets and other investments ..........      33,285       34,263        6,433
Investment in discontinued operations .......................     (36,020)      (9,752)     (23,695)
Other investing activities, net .............................       8,308        6,946       (7,957)
                                                                ---------    ---------    ---------
  Net cash used .............................................    (189,067)    (286,700)    (254,698)
                                                                ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid .......................................    (120,770)    (118,828)    (114,924)
Issuance of long-term debt, net of issuance cost ............      99,500       12,750      180,410
Retirement of long-term debt, including reacquisition cost ..    (136,616)    (110,351)    (102,472)
Reacquisition of preferred shares ...........................     (58,176)         (10)     (19,916)
Issuance of preferred shares, net of issuance cost...........      96,850         --           --
Increase (decrease) in MidAmerican Capital Company
  unsecured revolving credit facility .......................      44,500       95,000       (9,500)
Issuance of common shares ...................................        --         15,083       27,760
Net increase (decrease) in notes payable ....................     (22,810)      60,300      (48,535)
                                                                ---------    ---------    ---------
  Net cash used .............................................     (97,522)     (46,056)     (87,177)
                                                                ---------    ---------    ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS ...................      64,834        4,264        7,994
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ..............      32,915       28,651       20,657
                                                                ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ....................   $  97,749    $  32,915    $  28,651
                                                                =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ...................   $ 107,179    $ 116,843    $ 105,004
                                                                =========    =========    =========
Income taxes paid ...........................................   $  85,894    $  69,319    $  50,713
                                                                =========    =========    =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -47-
<PAGE>
<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                                                             AS OF DECEMBER 31
                                                                             1996         1995
                                                                          ----------   -----------
<S>                                                                       <C>          <C>    
ASSETS
UTILITY PLANT
Electric ..............................................................   $4,010,847   $3,881,699
Gas ...................................................................      723,491      695,741
                                                                          ----------   ----------
                                                                           4,734,338    4,577,440
Less accumulated depreciation and amortization ........................    2,153,058    2,027,055
                                                                          ----------   ----------
                                                                           2,581,280    2,550,385
Construction work in progress .........................................       49,305      104,164
                                                                          ----------   ----------
                                                                           2,630,585    2,654,549
                                                                          ----------   ----------

POWER PURCHASE CONTRACT ...............................................      190,897      212,148
                                                                          ----------   ----------

INVESTMENT IN DISCONTINUED OPERATIONS .................................      196,356      177,300
                                                                          ----------   ----------

CURRENT ASSETS
Cash and cash equivalents .............................................       97,749       32,915
Receivables, less reserves of $2,093 and $2,296, respectively..........      312,930      228,128
Inventories ...........................................................       90,864       85,235
Other .................................................................       11,696       18,428
                                                                          ----------   ----------
                                                                             513,239      364,706
                                                                          ----------   ----------

INVESTMENTS ...........................................................      628,791      646,456
                                                                          ----------   ----------

OTHER ASSETS ..........................................................      399,415      414,938
                                                                          ----------   ----------

TOTAL ASSETS ..........................................................   $4,559,283   $4,470,097
                                                                          ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity ...........................................   $1,239,946   $1,225,715
MidAmerican preferred securities, not subject to mandatory redemption .       31,769       89,945
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         --
Long-term debt (excluding current portion) ............................    1,395,103    1,403,322
                                                                          ----------   ----------
                                                                           2,816,818    2,768,982
                                                                          ----------   ----------

CURRENT LIABILITIES
Notes Payable .........................................................      161,990      184,800
Current portion of long-term debt......................................       79,598       65,295
Current portion of power purchase contract ............................       13,718       13,029
Accounts payable ......................................................      169,806      122,055
Taxes accrued .........................................................       82,254       81,898
Interest accrued ......................................................       28,513       30,635
Other .................................................................       30,229       46,267
                                                                          ----------   ----------
                                                                             566,108      543,979
                                                                          ----------   ----------

OTHER LIABILITIES
Power purchase contract ...............................................       97,504      112,700
Deferred income taxes .................................................      752,336      724,587
Investment tax credit .................................................       88,842       95,041
Other .................................................................      237,675      224,808
                                                                          ----------   ----------
                                                                           1,176,357    1,157,136
                                                                          ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES ..................................   $4,559,283   $4,470,097
                                                                          ==========   ==========
</TABLE>
The accompanying notes are an integral part of these statements.

                                      -48-
<PAGE>
<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION

                                                                                    AS OF DECEMBER 31
                                                                               1996                   1995
                                                                           --------------------   --------------------
                                                                              (In thousands, except share amounts)
<S>                                                                        <C>           <C>      <C>           <C>    
COMMON SHAREHOLDERS' EQUITY
Common shares, no par; 350,000,000 shares authorized;
 100,751,713 and 100,751,713 shares outstanding, respectively..........    $  801,431             $  801,227
Retained earnings......................................................       440,971                430,589
Valuation allowance, net of income taxes...............................        (2,456)                (6,101)
                                                                           ----------             ----------
                                                                            1,239,946     44.0%    1,225,715     44.3%
                                                                           ----------    ------   ----------    ------
MIDAMERICAN  PREFERRED  SECURITIES  (100,000,000  SHARES AUTHORIZED) 
Cumulative shares outstanding not subject to mandatory redemption:
    $3.30 Series, 49,523 shares........................................         4,952                  4,952
    $3.75 Series, 38,320 shares........................................         3,832                  3,832
    $3.90 Series, 32,630 shares .......................................         3,263                  3,263
    $4.20 Series, 47,369 shares........................................         4,737                  4,737
    $4.35 Series, 49,950 shares........................................         4,995                  4,995
    $4.40 Series, 50,000 shares........................................         5,000                  5,000
    $4.80 Series, 49,898 shares........................................         4,990                  4,990
    $1.7375 Series, zero and 2,400,000 shares, respectively............          --                   58,176
                                                                           ----------             ----------
                                                                               31,769      1.1%       89,945      3.2%
                                                                           ----------    ------   ----------    ------
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      1.8%       50,000      1.8%
                                                                           ----------    ------   ----------    ------
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 and zero shares, respectively.............       100,000      3.6%         --        0.0%
                                                                           ----------    ------   ----------    ------

LONG-TERM DEBT
MidAmerican Mortgage bonds:
    5.875% Series, due 1997............................................          --                   22,000
    Adjustable Rate Series (8.8%), due 1997............................          --                   25,000
    5.05% Series, due 1998.............................................        49,100                 50,000
    6.25% Series, due 1998.............................................        75,000                 75,000
    7.875% Series, due 1999............................................        60,000                 60,000
    6% Series, due 2000................................................        35,000                 35,000
    6.75% Series, due 2000.............................................        75,000                 75,000
    8.15% Series, due 2001.............................................          --                   40,000
    7.125% Series, due 2003............................................       100,000                100,000
    7.70% Series, due 2004.............................................        60,000                 60,000
    7% Series, due 2005................................................       100,000                100,000
    7.375% Series, due 2008............................................        75,000                 75,000
    8% Series, due 2022................................................        50,000                 50,000
    7.45% Series, due 2023.............................................        26,500                 30,000
    8.125% Series, due 2023............................................       100,000                100,000
    6.95% Series, due 2025.............................................        21,500                 50,000

MidAmerican Pollution control revenue obligations:
    5.15% to 5.75% Series, due periodically through 2003...............         8,424                 10,984
    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.


                                      -49-

<PAGE>

<TABLE>
<CAPTION>


                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION

                                                                                     AS OF DECEMBER 31
                                                                                 1996                   1995
                                                                           --------------------   --------------------
                                                                                        (In thousands)
<S>                                                                        <C>           <C>      <C>           <C>    
LONG-TERM DEBT (CONTINUED)
    Variable Rate Series:
       Due 2016 and 2017 (3.5% and 5.0%, respectively)................     $   37,600             $   37,600
       Due 2023 (secured by general mortgage
            bonds, 3.5% and 5.05%, respectively)......................         28,295                 28,295
       Due 2023 (3.5% and 5.1%, respectively).........................          6,850                  6,850
       Due 2024 (3.6% and 5.25%, respectively)........................         34,900                 34,900
       Due 2025 (3.5% and 5.1%, respectively).........................         12,750                 12,750

MidAmerican Notes:
    8.75% Series, due 2002............................................            240                    240
    6.5% Series, due 2001.............................................        100,000                   --  
    6.4% Series, due 2003 through 2007................................          2,000                  2,000
    Obligation under capital lease....................................          2,218                  2,218
    Unamortized debt premium and discount, net........................         (4,009)                (4,126)
                                                                           ----------             ----------
       Total utility..................................................      1,085,398              1,107,741
                                                                           ----------             ----------
Nonregulated Subsidiaries Notes:
    10.20% Series, due 1996 and 1997..................................           --                   30,000
    7.34% Series, due 1998............................................         20,000                 20,000
    7.76% Series, due 1999............................................         45,000                 45,000
    8.52% Series, due 2000 through 2002...............................         70,000                 70,000
    8% Series, due annually through 2004..............................            205                    581
    Borrowings under unsecured revolving credit facility (6.2% and
       6.3% respectively).............................................         64,000                 64,000
    Borrowings under unsecured revolving credit facility
       (6.1% and 6.4%, respectively)..................................         26,000                 66,000
    Borrowings under unsecured revolving credit facility (6.1%).......         84,500                   --
                                                                           ----------             ----------
       Total Nonregulated Subsidiaries................................        309,705                295,581
                                                                           ----------             ----------
                                                                            1,395,103     49.5%    1,403,322     50.7%
                                                                          -----------    ------   ----------    ------

TOTAL CAPITALIZATION..................................................     $2,816,818    100.0%   $2,768,982    100.0%
                                                                           ==========    ======   ==========    ======
</TABLE>
<TABLE>
<CAPTION>

                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                                                                  YEARS ENDED DECEMBER 31
                                                                            1996           1995           1994
                                                                          --------       --------       --------
                                                                          (In thousands, except per share amounts)

<S>                                                                       <C>            <C>            <C>     
BEGINNING OF YEAR....................................................     $430,589       $426,683       $421,358
                                                                          --------       --------       --------

NET INCOME...........................................................      131,046        122,764        120,189
                                                                          --------       --------       --------

DEDUCT (ADD):
Dividends declared on common shares of $1.20, $1.18 and
  $1.17 per share, respectively......................................      120,770        118,828        114,924
Other................................................................         (106)            30            (60)
                                                                          --------       --------       --------
                                                                           120,664        118,858        114,864
                                                                          --------       --------       --------

END OF YEAR..........................................................     $440,971       $430,589       $426,683
                                                                          ========       ========       ========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -50-

<PAGE>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (A)  MERGER AND FORMATION OF THE COMPANY:

     MidAmerican Energy Holdings Company (Company or Holdings) is a holding
company  for  MidAmerican  Energy  Company  (MidAmerican),  MidAmerican  Capital
Company (MidAmerican Capital) and Midwest Capital Group, Inc. (Midwest Capital).
On April 24, 1996, MidAmerican shareholders approved a proposal to form Holdings
as a holding company for MidAmerican and its subsidiaries,  MidAmerican  Capital
and  Midwest  Capital.  Effective  December 1, 1996,  each share of  MidAmerican
common stock was  exchanged for one share of Holdings  common stock.  As part of
the  transaction,  MidAmerican  distributed  the  capital  stock of  MidAmerican
Capital and Midwest Capital to Holdings.

     MidAmerican  was  formed  on July 1,  1995,  as a result  of the  merger of
Iowa-Illinois Gas and Electric Company  (Iowa-Illinois),  Midwest Resources Inc.
(Midwest  Resources)  and its utility  subsidiary,  Midwest  Power  Systems Inc.
(Midwest Power). Each outstanding share of preferred and preference stock of the
predecessor  companies  was converted  into one share of a similarly  designated
series of MidAmerican  preferred stock, no par value.  Each outstanding share of
common stock of Midwest Resources and Iowa-Illinois was converted into one share
and 1.47 shares,  respectively,  of MidAmerican  common stock, no par value. The
merger was accounted for as a  pooling-of-interest  and the financial statements
included  herein are presented as if the merger and the formation of the holding
company had occurred as of the earliest period shown.

     (B)  CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

     The accompanying  Consolidated Financial Statements include the Company and
its wholly  owned  subsidiaries,  MidAmerican,  MidAmerican  Capital and Midwest
Capital. 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.

     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. MidAmerican's  electric and gas utility operations are
currently  subject  to the  provisions  of SFAS  71,  but its  applicability  is
periodically  reexamined.  If a portion of MidAmerican's  utility  operations no
longer meets the criteria of SFAS 71, MidAmerican would be required to eliminate
from its balance sheet

                                      -51-

<PAGE>



the regulatory assets and liabilities  related to those operations that resulted
from actions of its regulators. Although the amount of such an elimination would
depend on the specific  circumstances,  a material adjustment to earnings in the
appropriate  period  could  result  from  the  discontinuance  of SFAS  71.  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):


<TABLE>
<CAPTION>
                                                           1996           1995
                                                         --------       --------

<S>                                                      <C>            <C>     
Deferred income taxes ............................       $140,649       $144,257
Energy efficiency costs ..........................        112,244        101,541
Debt refinancing costs ...........................         40,230         44,370
FERC Order 636 transition costs ..................         25,033         40,824
Environmental costs ..............................         22,577         23,076
Retirement benefit costs .........................         11,025         15,354
Enrichment facilities decommissioning ............         11,089          8,970
Unamortized costs of retired plant ...............          8,953         11,618
Other ............................................          2,655          7,396
                                                         --------       --------
     Total .......................................       $374,455       $397,406
                                                         ========       ========
</TABLE>

     (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
are $70.1 million and $61.0 million at December 31, 1996 and 1995, respectively,
and are included in Receivables on the Consolidated Balance Sheets.

         The  majority of  MidAmerican's  electric  and 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.  See Note 8 for a 
discussion of a proposed Iowa rate settlement that would impact the electric
adjustment clause.

     (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:

<TABLE>
<CAPTION>
                                        1996           1995               1994
                                        ----           ----               ----

<S>                                     <C>             <C>                <C> 
         Electric..........             3.8%            3.9%               3.8%
         Gas...............             3.7%            3.7%               3.6%
</TABLE>

     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 is eliminated  from the utility plant  accounts
and such cost, plus net removal cost, is charged to accumulated depreciation.

                                      -52-

<PAGE>



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

     (F)  INVESTMENTS:

     Investments,   managed   primarily   through  the  Company's   nonregulated
subsidiaries, include the following amounts as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                           1996           1995
                                                         --------       --------
<S>                                                      <C>            <C>    
Investments:
     Marketable securities .......................       $219,890       $270,162
     Equipment Leases ............................         89,791         90,729
     Nuclear decommissioning trust fund ..........         76,304         64,781
     Energy projects .............................         30,217         36,978
     Special-purpose funds .......................         44,932         47,046
     Real estate .................................         45,457         68,126
     Corporate owned life insurance ..............         27,395         22,743
     Coal transportation .........................         18,623         12,703
     Communications ..............................         56,333         16,332
     Other .......................................         19,849         16,856
                                                         --------       --------
         Total ...................................       $628,791       $646,456
                                                         ========       ========
</TABLE>

     Marketable  securities generally consist of preferred stocks, common stocks
and  mutual  funds  held  by  MidAmerican  Capital.  Investments  in  marketable
securities classified as available-for-sale  are reported at fair value with net
unrealized  gains  and  losses  reported  as a  net  of  tax  amount  in  Common
Shareholders' Equity until realized.  Investments in marketable  securities that
are  classified  as   held-to-maturity   are  reported  at  amortized  cost.  An
other-than-temporary decline in the value of a marketable security is recognized
through a write-down of the investment to earnings.

     Investments  held by the  nuclear  decommissioning  trust fund for the Quad
Cities 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:

     The Company 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.



                                      -53-

<PAGE>



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

<TABLE>
<CAPTION>
                                         1996           1995           1994
                                       --------       --------       --------
     <S>                               <C>            <C>            <C>     
     Receivables .................     $(84,802)      $(31,314)      $ 19,343
     Inventories .................       (5,629)         7,013          8,427
     Other current assets ........        6,732         (4,140)         6,907
     Accounts payable ............       47,751         15,903        (17,466)
     Taxes accrued ...............          356         (9,755)       (19,270)
     Interest accrued ............       (2,122)           (24)          (362)
     Other current liabilities ...      (16,038)         1,293         (4,496)
                                       --------       --------       --------
       Total .....................     $(53,752)      $(21,024)      $ (6,917)
                                       ========       ========       ========
</TABLE>

     (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.

     Capital  improvement costs for new property,  including carrying costs, are
being  deferred,  amortized  and  recovered  in rates  over the term of the NPPD
contract.  Capital  improvement  costs  for  property  replacements,   including
carrying  costs,  are being  deferred,  amortized  and recovered in rates over a
five-year period.

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

     (I)  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121:

     On January 1, 1996, the Company  adopted SFAS No. 121 regarding  accounting
for asset impairments.  This statement requires the Company to review long-lived
assets for impairment whenever events or changes in circumstances  indicate that
the  carrying  amount  of an asset  may not be  recoverable.  SFAS No.  121 also
requires  rate-regulated  companies to recognize an  impairment  for  regulatory
assets for which future  recovery is not probable.  Adoption of SFAS No. 121 did
not have a material  impact on the Company's  results of operations or financial
position.

(2)  LONG-TERM DEBT:

     The Company's  sinking fund  requirements  and maturities of long-term debt
for 1997 through 2001 are $80 million, $235 million, $190 million, $134 
million and $125 million, respectively.

     The interest rate on the Company's Adjustable Rate Series Mortgage Bonds is
reset every two years at 160 basis points over the average  yield to maturity of
10-year Treasury securities. The rate was reset in 1995.


                                      -54-

<PAGE>



     The Company'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.  The Company,  at its option,  may
change the mode of interest  calculation for these bonds by selecting from among
several  alternative  floating or fixed rate modes.  The interest rates shown in
the Consolidated  Statements of Capitalization are the weighted average interest
rates as of  December  31,  1996  and  1995.  The  Company  maintains  dedicated
revolving  credit  facility  agreements or renewable  lines of credit to provide
liquidity for holders of these issues.

     Substantially all the former Iowa-Illinois utility property and franchises,
and  substantially  all of the former Midwest Power electric utility property in
Iowa, or approximately 82% of gross utility plant, is pledged to secure mortgage
bonds.

     MidAmerican  Capital has $64 million  and $50 million  unsecured  revolving
credit  facility  agreements  which  mature  in  1998.  Borrowings  under  these
agreements may be on a fixed rate,  floating rate or competitive bid rate basis.
In addition,  MidAmerican had a $100 million unsecured revolving credit facility
agreement  which was  retired  in  January  of 1997.  All  subsidiary  long-term
borrowings outstanding at December 31, 1996, are without recourse to Holdings.

(3)  JOINTLY OWNED UTILITY PLANT:

     Under joint plant ownership  agreements with other  utilities,  MidAmerican
had undivided interests at December 31, 1996, in jointly owned generating plants
as shown in the table below.

     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    $  229        $ 126      $ 297      $ 160      $ 207     $ 530
     Accumulated depreciation    $   79        $  72      $ 154      $  82      $  96     $ 216
     Unit capacity-MW             1,539          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  1997  are  estimated  to be  $200
million,  including $10 million for Quad Cities  nuclear fuel and $9 million for
Cooper capital  improvements.  Nonregulated capital expenditures depend upon the
availability of investment  opportunities  and other factors.  During 1997, such
expenditures are estimated to be approximately $39 million.



                                      -55-

<PAGE>



     (B)  ENVIRONMENTAL MATTERS:

     The  United  States  Environmental  Protection  Agency  (EPA) and the state
environmental  agencies have determined that  contaminated  wastes  remaining at
certain decommissioned manufactured gas plant (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
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 fifteen of the sites and has
completed  investigations  at three of the sites.  In addition,  MidAmerican  is
currently  removing  contaminated  soil at four of the sites,  and has completed
removals at two of the 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  present estimate of probable remediation costs for the sites
discussed  above is $21 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
are  accrued.  Once  the  investigation  is  completed  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,  which 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,  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)  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 1997 and is
not contingent upon the plant being in service.  In addition,  MidAmerican  pays
one-half of NPPD's decommissioning funding related to Cooper.


                                      -56-

<PAGE>



     The debt  amortization  and  Department  of Energy (DOE)  enrichment  plant
decontamination and decommissioning  component of MidAmerican's payments to NPPD
were  $14.5  million,  $12.0  million  and $10.8  million  and the net  interest
component  was $3.6  million,  $4.6  million and $5.4 million each for the years
1996, 1995 and 1994, 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 $13.7 million, $14.4 million, $15.0 million, $15.8
million and $16.6 million for 1997 through 2001, respectively, and $35.7 million
for 2002 through 2004.

     (D)  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, in 1996 dollars, is $440 million. 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 currently  anticipated  plant shutdown
date.

     As of December 31, 1996,  MidAmerican's share of funds set aside by NPPD in
internal  and  external  accounts  for  decommissioning  was $62.9  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 6.3%  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  expected  service  life of the
plant, and 50% of the costs are included as a component of  MidAmerican's  power
purchased costs. The Cooper decommissioning  component of MidAmerican's payments
to NPPD were $9.9  million,  $8.9  million and $8.9  million for the years 1996,
1995, and 1994,  respectively,  and are 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.

     An external  trust has been  established  for the  investment  of funds for
decommissioning  the Quad Cities units. The total accrued balance as of December
31,  1996,  was $76.3  million and is included in Other  Liabilities  and a like
amount is reflected in  Investments  and represents the value of the assets held
in the trust.

     MidAmerican's  provision for  depreciation  includes  costs for Quad Cities
nuclear decommissioning of $8.6 million, $8.6 million and $9.1 million for 1996,
1995 and 1994,  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 tariffs assumes that decommissioning costs, related to
the Quad Cities  unit,  will  escalate at an annual rate of 5.3% and the assumed
annual  return on funds in the trust is 6.5%.  The Quad  Cities  decommissioning
funding  component of  MidAmerican's  Iowa tariffs assumes that  decommissioning
costs will  escalate at an annual rate of 6.3% and the assumed  annual return on
funds in the trust is 6.5%.  Earnings  on the assets in the trust fund were $3.5
million, $2.5 million and $2.2 million for 1996, 1995 and 1994, respectively.

     (E)  NUCLEAR INSURANCE:

     MidAmerican   maintains  financial  protection  against  catastrophic  loss
associated  with its interest in Quad Cites and Cooper  through a combination of
insurance purchased by NPPD (the owner and operator of Cooper) and

                                      -57-

<PAGE>



Commonwealth  Edison (the joint owner and  operator of Quad  Cities),  insurance
purchased directly by MidAmerican,  and the mandatory industry-wide loss funding
mechanism afforded under the Price-Anderson Amendments Act of 1988. The coverage
falls into three categories:  nuclear  liability,  property coverage and nuclear
worker liability.

     NPPD and Commonwealth  Edison each purchase nuclear liability  insurance 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 owners
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 maximum potential share of such an assessment
is $79.3 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,  Commonwealth  Edison  purchases
primary and excess property  insurance  protection for the combined  interest in
Quad Cities totalling $2.1 billion.  For Cooper, NPPD purchases primary property
insurance  in the amount of $500  million.  Additionally,  MidAmerican  and NPPD
separately  purchase coverage for their respective  obligation of $1.125 billion
each in  excess  of the $500  million  primary  layer  purchased  by NPPD.  This
structure  provides  that  both  MidAmerican  and NPPD  are  covered  for  their
respective  50%  obligation  in the  event of a loss  totalling  $2.75  billion.
MidAmerican also directly purchases extra expense/business interruption coverage
to cover the cost of  replacement  power  and/or other  continuing  costs in the
event of a covered  accidental  outage at Cooper or Quad Cities.  The  coverages
purchased directly by MidAmerican, and the primary and excess property coverages
purchased by Commonwealth Edison,  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 insurance companies for its obligations
associated with Cooper and Quad Cities combined total $13.8 million.

     The master nuclear worker  liability  coverage is an  industry-wide  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  as a result of  radiation
exposure on or after January 1, 1988. MidAmerican's share, based on its interest
in Cooper  and Quad  Cities,  of a maximum  potential  share of a  retrospective
assessment under this program is $3.0 million.

     (F)  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 1997 to 2003, require minimum payments of $68 million, $36 million,
$26  million,  $19  million and $20  million  for the years 1997  through  2001,
respectively,  and $12  million for the total of the two years  thereafter.  The
Company expects to supplement these coal contracts with spot market purchases to
fulfill its future fossil fuel needs.

     The Company has entered into various natural gas supply and  transportation
contracts  for its  utility  operations.  The  minimum  commitments  under these
contracts are $91 million, $78 million, $43 million, $22 million and $19 million
for the years 1997 through 2001, respectively,  and $82 million for the total of
the years  thereafter.  During 1993 FERC Order 636 became  effective,  requiring
interstate  pipelines to restructure their services.  The pipelines will recover
the transition costs related to Order 636 from the local distribution companies.
The Company has recorded a liability  and  regulatory  asset for the  transition
costs  which are being  recovered  by the  Company  through  the  purchased  gas
adjustment  clause.  The  unrecovered  balance  recorded  by the  Company  as of
December 31, 1996, was $25 million.




                                      -58-

<PAGE>



(5)  COMMON SHAREHOLDERS' EQUITY:

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

                                             1996                   1995                       1994
                                      -------------------   --------------------   --------------------
                                       Amount     Shares     Amount      Shares       Amount      Shares
                                      --------    -------   ---------   --------    ---------    -------
     <S>                              <C>         <C>       <C>          <C>        <C>          <C>   
     Balance, beginning of year ...   $801,227    100,752   $786,420     99,687     $759,120    97,782

     Changes due to:
       Issuance of common shares ..       --         --       15,083      1,065       27,760     1,911
       Accrued stock options ......        623       --         --         --           --        --
       Capital stock expense ......       (419)      --         (276)      --           (377)     --
       Other ......................       --         --         --         --            (83)       (6)
                                      --------    -------   --------    -------     --------    ------
     Balance, end of year .........   $801,431    100,752   $801,227    100,752     $786,420    99,687
                                      ========    =======   ========    =======     ========    ======
</TABLE>

(6)  RETIREMENT PLANS:

     The Company has  noncontributory  defined  benefit  pension plans  covering
substantially all employees. 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.

     Net periodic  pension cost includes the following  components for the years
ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                                        1996       1995       1994
                                                      --------   --------   --------

     <S>                                              <C>        <C>        <C>     
     Service cost-benefit earned during the period .  $ 12,323   $  9,817   $ 13,241
     Interest cost on projected benefit obligation .    31,109     27,934     26,822
     Decrease in pension costs from actual
       return on assets ............................   (58,460)   (63,593)    (7,835)
     Net amortization and deferral .................    26,223     32,126    (21,030)
     One-time charge ...............................      --       15,683       --
     Regulatory deferral of incurred cost ..........       568    (10,470)    (2,871)
                                                      --------   --------   --------
     Net periodic pension cost .....................  $ 11,763   $ 11,497   $  8,327
                                                      ========   ========   ========
</TABLE>

     During  1995,  the  Company  incurred  a one-time  charge of $15.7  million
related to the early retirement portion of its restructuring plan. Of such cost,
$3.0  million was charged to expense and the  remaining  amount was deferred for
future recovery through the regulatory process.

     The plan assets are stated at fair market value and are primarily comprised
of insurance  contracts,  United States  government  debt and  corporate  equity
securities.  The  plans in which  accumulated  benefits  exceed  assets  consist
entirely of  nonqualified  defined  benefit  plans.  Although  the plans have no
assets, the Company purchases  corporate owned life insurance to provide funding
for the future cash  requirements.  The cash value of such  insurance  was $17.3
million and $14.5  million at  December  31,  1996 and 1995,  respectively.  The
following table presents the funding status of the plans

                                      -59-

<PAGE>



and amounts  recognized  in the  Consolidated  Balance  Sheets as of December 31
(dollars in thousands):
<TABLE>
<CAPTION>

                                                                         Plans in Which:
                                                     --------------------------------------------------------
                                                     Assets Exceed Accumulated    Accumulated Benefits Exceed
                                                            Benefits                   Assets
                                                     -------------------------    ---------------------------    
                                                          1996        1995              1996       1995
                                                        ---------   ---------         --------   ---------    
     <S>                                                <C>         <C>               <C>        <C>
     Actuarial present value of benefit obligations:
       Vested benefit obligation ...................    $(298,237)  $(293,985)        $(36,574)  $(32,429)
       Nonvested benefit obligation ................       (3,454)     (7,516)          (1,925)      (816)
                                                        ---------   ---------         --------   --------
       Accumulated benefit obligation ..............     (301,691)   (301,501)         (38,499)   (33,245)
       Provision for future pay increases ..........      (79,790)    (94,633)          (8,733)    (5,455)
                                                        ---------   ---------         --------   --------
       Projected benefit obligation ................     (381,481)   (396,134)         (47,232)   (38,700)

     Plan assets at fair value .....................      427,828     385,598             --         --
                                                        ---------   --------          --------   --------
     Projected benefit obligation (greater) less
          than plan assets .........................       46,347     (10,536)         (47,232)   (38,700)

     Unrecognized prior service cost ...............       18,636     (15,866)          21,544      2,884
     Unrecognized net loss (gain) ..................      (63,173)     29,541             --        9,431
     Unrecognized net transition asset .............      (18,929)    (21,521)            --         --
     Other .........................................         --          --            (12,811)    (6,860)
                                                        ---------   ---------         --------   --------
     Pension liability recognized in the
       Consolidated Balance Sheets .................    $ (17,119)  $ (18,382)        $(38,499)  $(33,245)
                                                        =========   =========         ========   ========

</TABLE>

<TABLE>
<CAPTION>
                                                        1996       1995
                                                        ----     --------
     <S>                                                <C>      <C>
     Assumptions used were:
       Discount rate...............................     7.5%          7.0%
       Rate of increase in compensation levels.....     5.0%          5.0%
       Weighted average expected long-term rate
         of return on assets.......................     9.0%          8.9%
</TABLE>

     The Company  currently  provides  certain  health  care and life  insurance
benefits  for  retired  employees.  Under the  plans,  substantially  all of the
Company's  employees  may  become  eligible  for these  benefits  if they  reach
retirement age while working for the Company.  However,  the Company retains the
right to change these benefits anytime at its discretion.

     In January 1993, the Company adopted SFAS No. 106, Employers Accounting for
Postretirement  Benefits Other Than Pensions.  The Company began expensing these
costs on an accrual  basis for its  Illinois  customers  and certain of its Iowa
customers  in 1993 and  including  provisions  for such costs in rates for these
customers. For its remaining Iowa customers, the Company deferred the portion of
these costs above the  "pay-as-you-go"  amount  already  included in rates until
recovery on an accrual basis was  established  in 1995. The Company is currently
amortizing  the  deferral,  expensing  the SFAS No. 106  accrual  and  including
provisions for these costs in rates.



                                      -60-

<PAGE>



     Net periodic  postretirement benefit cost includes the following components
for the year ended December 31 (in thousands):
<TABLE>
<CAPTION>

                                                                           1996       1995      1994
                                                                         --------   --------   ------

     <S>                                                                 <C>        <C>        <C>    
     Service cost-benefit earned during the period ....................  $  2,118   $  1,583   $ 2,147
     Interest cost ....................................................     8,341      7,185     7,221
     Increase (decrease) in benefit cost from actual return on assets .    (1,598)    (2,090)      894
     Amortization of unrecognized transition obligation ...............     5,291      5,291     5,442
     Other ............................................................      (297)      (262)   (1,991)
     One-time charge for early retirement .............................      --        4,353      --
     Regulatory recognition of incurred cost ..........................     5,112      5,140    (6,218)
                                                                         --------   --------   -------
     Net periodic postretirement benefit cost .........................  $ 18,967   $ 21,200   $ 7,495
                                                                         ========   ========   =======
</TABLE>

     During  1995,  the  Company  recorded  a one-time  expense of $4.4  million
related to the early retirement portion of its restructuring plan.

     The  Company has  established  external  trust  funds to meet its  expected
postretirement  benefit obligations.  The trust funds are comprised primarily of
guaranteed  rate investment  accounts and money market  investment  accounts.  A
reconciliation  of the funded  status of the plan to the amounts  realized as of
December 31 is presented below (dollars in thousands):

<TABLE>
<CAPTION>
                                                                      1996        1995
                                                                   ---------    ---------
     <S>                                                           <C>          <C>    
     Accumulated present value of benefit obligations:
       Retiree benefit obligation ...............................  $ (78,935)   $ (67,488)
       Active employees fully eligible for benefits .............     (2,798)      (5,904)
       Other active employees ...................................    (34,772)     (33,949)
                                                                   ---------    ---------
       Accumulated benefit obligation ...........................   (116,505)    (107,341)
     Plan assets at fair value ..................................     36,783       26,916
                                                                   ---------    ---------
     Accumulated benefit obligation greater than plan assets ....    (79,722)     (80,425)
     Unrecognized net gain ......................................     (8,810)     (13,880)
     Unrecognized transition obligation .........................     84,662       89,952
                                                                   ---------    ---------
     Postretirement benefit liability recognized in the
       Consolidated Balance Sheets ..............................  $  (3,870)   $  (4,353)
                                                                   ---------    =========

     Assumptions used were:
       Discount rate ............................................        7.5%         7.0%
       Weighted average expected long-term rate of return 
         on assets (after taxes).................................        6.7%         6.4%

</TABLE>

     For purposes of calculating the postretirement  benefit  obligation,  it is
assumed  that  health care costs for  covered  individuals  prior to age 65 will
increase by 11.0% in 1997, and that the rate of increase thereafter will decline
by 1.0%  annually  to an  ultimate  rate of 5.5% by the year 2002.  For  covered
individuals age 65 and older, it is assumed that health care costs will increase
by 8.0% in 1997, and that the rate of increase  thereafter  will decline by 1.0%
annually to an ultimate rate of 5.5% by the year 2000.


                                      -61-

<PAGE>



     If the assumed health care trend rates used to measure the expected cost of
benefits  covered  by the plans were  increased  by 1%,  the total  service  and
interest cost would increase by $1.3 million and the accumulated  postretirement
benefit obligation would increase by $11.9 million.

     The Company  sponsors  defined  contribution  pension plans (401(k)  plans)
covering substantially all employees.  The Company's contributions to the plans,
which are based on the participants level of contribution and cannot exceed four
percent of the participants  salaries or wages, were $4.4 million,  $3.7 million
and $3.6 million for 1996, 1995 and 1994, respectively.

(7)  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>

                                                             1996       1995      1994
                                                           --------   --------   -------

    <S>                                                    <C>        <C>        <C>  
    Balance at year-end   ..............................   $161,990   $184,800   $124,500
    Weighted average interest rate
      on year-end balance...............................        5.4%       5.7%       6.1 %
    Average daily amount outstanding
      during the year...................................   $151,318   $114,036   $105,728
    Weighted average interest rate on average daily
      amount outstanding during the year................        5.5%       6.0%       4.4 %
</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,
1996,  MidAmerican had a $250 million revolving credit facility  agreement and a
$10  million  line of credit  and  Holdings  had a $20  million  line of credit.
MidAmerican's  commercial paper borrowings are supported by the revolving credit
facility and the line of credit.

(8)  RATE MATTERS:

     On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois.  The proposal would provide  MidAmerican more flexibility to negotiate
with  customers  who have service  options and mitigate  strandable  costs.  The
proposal would also reduce  regulatory lag in  implementing  new tariff services
and prices. As part of the proposal, MidAmerican would reduce electric revenues,
on a graduated basis, to the level of approximately  $25 million annually within
five  years  and  eliminate  automatic  fuel  adjustment   clauses.   The  price
reductions,  possible  due to merger and  restructuring  related  cost  savings,
reduce price disparity within customer classes and would move MidAmerican closer
to prices that it believes can be sustained in a competitive market.

     On October 15, 1996,  the ICC ordered  MidAmerican  to reduce rates for its
Illinois  customers by 10%, or $13.1  million  annually,  effective  November 3,
1996, and commenced an investigation  into the  reasonableness  of MidAmerican's
rates.  MidAmerican negotiated termination of the proceeding to reduce rates and
withdraw its electric pricing proposal.  The negotiated  termination of the rate
proceeding left in place the initial $13.1 million annual reduction and included
a second price reduction of $2.4 million to be effective on June 1, 1997.

     On August 1, 1996, the Iowa Office of Consumer Advocate (OCA) requested the
IUB to order  MidAmerican  to  reduce  its Iowa  electric  rates  by  10.7%,  or
approximately $101 million annually, in electric revenues. On September 6,

                                      -62-

<PAGE>



1996,  the IUB docketed  the OCA request and  initiated  an  investigation  into
MidAmerican's   rates.  The  IUB  also  consolidated  the   investigation   with
MidAmerican's  alternative  regulation and pricing  proposal for purposes of the
hearings  scheduled  to begin in  January  1997.  Effective  November  1,  1996,
MidAmerican  reduced its  electric  rates in Iowa $8.7  million  annually to the
levels in its pricing proposal filed on June 4, 1996.

     In January 1997, a settlement  agreement between  MidAmerican,  the OCA and
other parties to the proceeding was negotiated.  The agreement, which includes a
number of  characteristics  of  MidAmerican's  pricing  proposal,  is subject to
approval by the IUB. The  agreement  includes a tracking  mechanism to currently
recover the cost of Cooper capital improvements.  After reflecting the effect of
the Cooper tracking mechanism, prices for residential customers would be reduced
$20 million annually by June 1, 1998, including the November 1, 1996, reduction.
Rates for commercial and  industrial  customers  would be reduced a total of $10
million annually by June 1, 1998, through pilot projects,  negotiated rates with
individual  customers and, if needed,  a base rate  reduction  effective June 1,
1998.

     In addition,  the agreement accepts MidAmerican's proposal to eliminate the
energy  adjustment  clause (EAC) which currently is the mechanism  through which
fuel costs are collected from Iowa customers.  The EAC flows the cost of fuel to
customers on a current  basis,  and thus,  fuel costs have little  impact on net
income. Prospectively,  base rates for Iowa customers would include a factor for
recovery  of a  representative  level of fuel costs.  To the extent  actual fuel
costs vary from that factor,  pre-tax earnings would be impacted.  The fuel cost
factor would be reviewed in February 1999 and adjusted  prospectively  if actual
fuel costs vary 15% above or below the agreed factor.

     Under the agreement,  if MidAmerican's return on common equity exceeds 12%,
then a sharing between customers and shareholders begins, and if it exceeds 14%,
then a portion of MidAmerican's share would be used for accelerated  recovery of
certain  regulatory  assets.  The  agreement  permits  MidAmerican  to file  for
increased  rates if the  return  falls  below  9%.  Other  parties  signing  the
agreement are prohibited  from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.

     As of December 31, 1996,  MidAmerican had a $2.6 million liability recorded
for the  portion of its Iowa  electric  revenues  between  August 1,  1996,  and
October 31, 1996, that were in excess of those included in the pricing proposal.

(9)  DISCONTINUED OPERATIONS:

     In the third quarter of 1996, the Company announced the  discontinuation of
certain nonstrategic businesses in support of its strategy of becoming a leading
regional energy and complementary  services  provider.  In November of 1996, the
Company signed a definitive agreement with KCS Energy, Inc. (KCS) to sell an oil
and gas exploration and development subsidiary and completed the sale on January
3,  1997.  The  Company  recorded  an  after-tax  loss of $7.1  million  for the
disposition  in 1996.  The  Company  has  also  announced  its plan to  divest a
subsidiary  that developed and continues to operate a  computerized  information
system  facilitating the real-time  exchange of power in the electric  industry.
The Company  expects the  disposition to occur during the first half of 1997 and
has recorded a $4.0 million  estimated  after-tax  loss on disposal in the third
quarter of 1996. The Company  reflected as discontinued  operations at September
30, 1994, all activities of a subsidiary that constructed  generating facilities
and  a  subsidiary  that  constructed  electric  distribution  and  transmission
systems.  Essentially all of the assets of the  construction  subsidiaries  have
been sold but some remaining activity has been recorded in the periods reported.
In  addition,  in the  third  quarter  of  1996  the  Company  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,  included the reacquisition
of preferred equity by the buyer and the settlement of reclamation reserves.


                                      -63-

<PAGE>



     Proceeds  received  from  the  disposition  of the oil  and gas  subsidiary
included $210 million in cash and 435,000 warrants to purchase KCS common stock.
The warrants were valued at $6 million.  Proceeds  received from the disposition
of the construction  subsidiaries and the coal mining subsidiary settlement were
$4  million  and $15  million,  respectively.  Net  assets  of the  discontinued
operations  are  separately  presented  on the  Consolidated  Balance  Sheets as
Investment in Discontinued Operations. Revenues from discontinued activities, as
well as the results of  operations  and the  estimated  loss on the  disposal of
discontinued  operations  for the years  ended  December  31 are as follows  (in
thousands):
<TABLE>
<CAPTION>

                                                1996       1995       1994
                                              --------   --------   --------

     <S>                                     <C>        <C>        <C>     
     OPERATING REVENUES ...................   $233,952   $81,637    $129,643
                                              ========   =======    ========

     INCOME FROM OPERATIONS
       Income before income taxes .........   $  1,638   $ 4,704    $  1,841
       Income tax benefit (expense) .......        479    (1,645)       (985)
                                              --------   -------    --------
       Income from Operations .............   $  2,117   $ 3,059    $    856
                                              ========   =======    ========

     LOSS ON DISPOSAL
       Income (loss) before income taxes ..   $  9,047   $  --      $(11,576)
       Income tax benefit (expense) .......    (23,879)     --         7,811
                                              --------   -------    --------
       Loss on Disposal ...................   $(14,832)  $  --      $ (3,765)
                                              ========   =======    ========
</TABLE>

(10)  CONCENTRATION OF CREDIT RISK:

     The Company's  electric utility operations serve 555,000 customers in Iowa,
84,000 customers in western  Illinois and 3,000 customers in southeastern  South
Dakota.  The Company's gas utility  operations serve 480,000  customers in Iowa,
65,000 customers in western  Illinois,  61,000  customers in southeastern  South
Dakota and 4,000 customers in  northeastern  Nebraska.  The largest  communities
served by the Company 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. The Company's utility operations grant unsecured credit to
customers,  substantially all of whom are local businesses and residents.  As of
December 31, 1996,  billed  receivables  from the  Company's  utility  customers
totalled $146 million.

     MidAmerican Capital has investments in preferred stocks of companies in the
utility  industry.  As of December 31, 1996, the total cost of these investments
was $132 million.

     MidAmerican  Capital has  entered  into  leveraged  lease  agreements  with
companies in the airline  industry.  As of December 31,  1996,  the  receivables
under these agreements totalled $37 million.

(11)  PREFERRED SHARES:

     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.

     During 1994,  MidAmerican  redeemed all of its  outstanding  $4.36  Series,
$4.22 Series and $7.50 Series preferred  shares.  The redemptions were made at a
premium, which resulted in a charge to net income of $0.3 million.

     The  $5.25  Series  Preferred  Shares,  which are 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.

                                      -64
<PAGE>


     The total outstanding cumulative preferred stock of MidAmerican that is not
subject to mandatory  redemption  requirements  may be redeemed at the option of
the  Company  at prices  which,  in the  aggregate,  total  $31.8  million.  The
aggregate total the holders of all preferred  stock  outstanding at December 31,
1996, are entitled to upon involuntary bankruptcy is $181.8 million plus accrued
dividends.  Annual dividend  requirements for all preferred stock outstanding at
December 31, 1996, total $12.3 million.

(12)  SEGMENT INFORMATION:

     Information related to segments of the Company's business is as follows for
the years ended December 31 (in thousands):

<TABLE>
<CAPTION>
                                                       1996          1995          1994
                                                    -----------   -----------   -----------
     <S>                                            <C>           <C>           <C> 
     UTILITY
     Electric:
       Operating revenues ........................  $ 1,099,008   $ 1,094,647   $ 1,021,660
       Cost of fuel, energy and capacity .........      234,317       230,261       213,987
       Depreciation and amortization expense .....      140,939       136,324       132,886
       Other operating expenses ..................      424,594       459,344       438,811
                                                    -----------   -----------   -----------
       Operating income ..........................  $   299,158   $   268,718   $   235,976
                                                    ===========   ===========   ===========

     Gas:
       Operating revenues ........................  $   536,753   $   459,588   $   492,015
       Cost of gas sold ..........................      345,014       279,025       326,782
       Depreciation and amortization expense .....       23,653        22,626        21,343
       Other operating expenses ..................      106,831       122,017       111,644
                                                    -----------   -----------   -----------
       Operating income ..........................  $    61,255   $    35,920   $    32,246
                                                    ===========   ===========   ===========

     Operating income ............................  $   360,413   $   304,638   $   268,222
     Other income (expense) ......................        3,998        (4,074)       (3,712)
     Fixed charges ...............................       96,753        92,036        87,157
                                                    -----------   -----------   -----------
     Income from continuing operations
          before income taxes ....................      267,658       208,528       177,353
     Income taxes ................................      112,927        84,098        66,759
                                                    -----------   -----------   -----------
     Income from continuing operations ...........  $   154,731   $   124,430   $   110,594
                                                    ===========   ===========   ===========

     Capital Expenditures-
       Electric ..................................  $   116,243   $   133,490   $   164,870
       Gas .......................................       37,955        57,281        46,799

</TABLE>


                                      -65-

<PAGE>

<TABLE>
<CAPTION>


                                                        1996         1995          1994
                                                    -----------   -----------   -----------

     <S>                                            <C>           <C>           <C>
     NONREGULATED
       Revenues ..................................  $   236,851   $    95,106   $   117,550
       Cost of sales .............................      218,256        70,351        84,515
       Depreciation
          and amortization .......................        4,854         6,010         6,935
       Other operating expenses ..................       30,516        31,029        29,830
                                                    -----------   -----------   -----------
       Operating income (loss) ...................      (16,775)      (12,284)       (3,730)
       Other income ..............................       14,874        15,734        37,084
       Fixed charges .............................       23,574        25,470        27,152
                                                    -----------   -----------   -----------
       Income (loss) from continuing operations
          before income taxes ....................      (25,475)      (22,020)        6,202
       Income taxes ..............................      (14,505)      (17,295)       (6,302)
                                                    -----------   -----------   -----------
       Income (loss) from continuing operations ..  $   (10,970)  $    (4,725)  $    12,504
                                                    ===========   ===========   ===========

       Capital expenditures ......................  $    55,788   $    12,881   $     9,095

     ASSET INFORMATION 
       Identifiable assets:
         Electric (a) ............................  $ 2,954,324   $ 2,947,832   $ 2,915,749
         Gas (a) .................................      692,993       699,539       683,704
         Used in overall utility
            operations ...........................      114,545        30,084        46,143
         Nonregulated ............................      601,065       615,342       557,052
         Investment in discontinued operations ...      196,356       177,300       186,246
                                                    -----------   -----------   -----------
           Total assets ..........................  $ 4,559,283   $ 4,470,097   $ 4,388,894
                                                    ===========   ===========   ===========
</TABLE>

(a)  Utility plant less  accumulated  provision for  depreciation,  receivables,
     inventories, nuclear decommissioning trust fund and regulatory assets.

(13)  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 the  Company'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 the  Company'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  nuclear  decommissioning  trust fund - Fair value is based on
quoted market prices of the investments held by the fund.

     Marketable securities - Fair value is based on quoted market prices.

     Debt securities - Fair value is based on the discounted value of the future
cash flows expected to be received from such investments.

                                      -66-

<PAGE>



     Equity investments  carried at cost - Fair value is based on an estimate of
the Company's share of partnership  equity,  offers from unrelated third parties
or the  discounted  value of the future cash flows  expected to be received from
such investments.

     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
offered to the Company for debt of the same remaining maturities.  The following
table presents the carrying amount and estimated fair value of certain financial
instruments as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                 1996                    1995
                                                        ----------------------  ----------------------
                                                         Carrying      Fair      Carrying      Fair
                                                           Amount      Value      Amount       Value
                                                        ----------  ----------  ----------  ----------
     <S>                                                <C>         <C>         <C>         <C>    
     Financial Instruments Owned by the Company:
       Equity investments carried at cost ............  $   95,339  $  273,311  $   58,972  $   61,316

     Financial Instruments Issued by the Company:
       MidAmerican preferred securities; subject
          to mandatory redemption ....................  $   50,000  $   52,920  $   50,000  $   52,800
       MidAmerican-obligated preferred securities;
          subject to mandatory redemption ............  $  100,000  $  100,490  $     --    $     --
       Long-term debt, including current portion .....  $1,474,701  $1,522,500  $1,468,617  $1,528,504
</TABLE>

     Included in Equity Investments Carried at Cost is the Company's  investment
in Class A and Class B Common Stock of McLeod, Inc. (McLeod). The Class B Common
Stock is convertible into Class A Common Stock. On June 14, 1996, McLeod made an
initial  public  offering (the IPO) of its Class A Common  Stock.  As part of an
investor  agreement,  the  Company  is  prohibited  from  selling  or  otherwise
disposing  of any of the  common  stock of McLeod for a period of two years from
the date of the IPO. The Company's investment in McLeod is considered restricted
stock and, as such,  is recorded at cost.  At December  31,  1996,  the carrying
amount and fair value of this  investment were $46.3 million and $218.3 million,
respectively.



                                      -67-

<PAGE>



     The amortized  cost,  gross  unrealized  gain and losses and estimated fair
value of investments in debt and equity securities at December 31 are as follows
(in thousands): 1996

<TABLE>
<CAPTION>

                                                             1996
                                       Amortized   Unrealized   Unrealized      Fair
                                          Cost        Gains       Losses        Value
                                        --------    --------     ---------    --------
     <S>                                <C>         <C>          <C>          <C>    
     Available-for-sale:
       Equity securities ...........    $208,226    $  4,883     $ (8,325)    $204,784
       Municipal bonds .............      41,800       3,041         (356)      44,485
       U.S. Government securities ..      26,814         137         (157)      26,794
       Cash equivalents ............      11,152        --           --         11,152
                                        --------    --------     --------     --------
                                        $287,992    $  8,061     $ (8,838)    $287,215
                                        ========    ========     ========     ========
     Held-to-maturity:
       Equity securities ...........    $  6,435    $   --       $   (196)    $  6,239
       Debt securities .............      15,445         252         --         15,697
                                        --------    --------     --------     --------
                                        $ 21,880    $    252     $   (196)    $ 21,936
                                        ========    ========     ========     ========
</TABLE>


<TABLE>
<CAPTION>

                                                            1995
                                        Amortized  Unrealized   Unrealized      Fair
                                          Cost       Gains        Losses        Value
                                        --------    --------     --------     --------
     <S>                                <C>         <C>          <C>          <C>   
     Available-for-sale:
       Equity securities ...........    $254,066    $  7,132     $ (9,278)    $251,920
       Municipal Bonds .............      38,098       3,228         (210)      41,116
       U. S. Government securities .      18,402         355         --         18,757
       Cash equivalents ............      13,000        --           --         13,000
                                        --------    --------     --------     --------
                                        $323,566    $ 10,715     $ (9,488)    $324,793
     Held-to-maturity:
       Equity securities ...........    $ 11,389    $   --       $   (786)    $ 10,603
       Debt securities .............      19,440          31         (921)      18,550
                                        --------    --------     --------     --------
                                        $ 30,829    $     31     $ (1,707)    $ 29,153
                                        ========    ========     ========     ========
 </TABLE>                               

     At  December  31,  1996,  the debt  securities  held by the Company had the
following maturities (in thousands):

<TABLE>
<CAPTION>

                                        Available for Sale       Held to Maturity
                                        --------------------    --------------------
                                        Amortized     Fair      Amortized     Fair
                                          Cost        Value       Cost        Value
                                        --------    --------    --------    --------
     <S>                                <C>         <C>         <C>         <C>     
     Within 1 year .................    $  1,361    $  1,313    $     72    $     76
     1 through 5 years .............      23,847      23,765      10,262      10,420
     5 through 10 years ............      28,564      30,100       2,812       2,828
     Over 10 years .................      14,842      16,101       2,299       2,373
</TABLE>

     During 1996, the Company sold a portion of its held-to-maturity  securities
due to a  significant  deterioration  in the issuer's  credit  worthiness.  Such
securities  had a carrying value of $4.8 million and proceeds from the sale were
$4.3 million.

     During 1995, the Company  reevaluated the  classification of its classified
as  held-to-maturity  and  available-for-sale  securities in accordance with the
Financial  Accounting Standards Board's Guide to Implementation of Statement 115
on

                                      -68-

<PAGE>



Accounting for Certain  Investments in Debt and Equity Securities.  As a result,
certain  securities,  with a total  amortized cost of $33.1 million and a market
value  of  $33.8  million,   were  transferred  from  securities  classified  as
held-to-maturity to available-for-sale securities.

     The proceeds and the gross realized gains and losses on the  disposition of
investments  held by the Company for the years ended December 31, are as follows
(in thousands):

<TABLE>
<CAPTION>
                                        1996          1995         1994
                                     ---------     ---------     --------

     <S>                             <C>           <C>           <C>      
     Proceeds from sales ........    $ 250,772     $ 106,910     $ 135,769
     Gross realized gains .......        9,920         3,923        10,338
     Gross realized losses ......       (7,950)       (3,082)       (5,234)
</TABLE>


(14)  INCOME TAX EXPENSE:

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

<TABLE>
<CAPTION>

                                          1996         1995         1994
                                       ---------     --------     --------
     <S>                               <C>           <C>          <C>    
     Current
        Federal ...................    $  80,165     $ 54,430     $ 20,874
        State .....................       22,100       13,330        5,500
                                       ---------     --------     --------
                                         102,265       67,760       26,374
     Deferred
        Federal ...................        2,627        5,750       35,242
        State .....................         (264)       1,470        5,796
                                       ---------     --------     --------
                                           2,363        7,220       41,038
     Investment tax credit, net ...       (6,206)      (8,177)      (6,955)
                                       ---------     --------     --------
        Total .....................    $  98,422     $ 66,803     $ 60,457
                                       =========     ========     ========
</TABLE>


     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):

<TABLE>
<CAPTION>
                                                          1996       1995
                                                        --------   --------
     <S>                                                <C>        <C>
     Deferred tax assets
        Related to:
            Investment tax credits ..................   $ 61,349   $ 63,374
            Unrealized losses .......................     12,034      7,548
            Pensions ................................     17,648     17,938
            AMT credit carry forward ................     10,188     18,738
            Nuclear reserves and decommissioning ....      8,233      8,367
            Other ...................................      5,839      7,186
                                                        --------   --------
               Total ................................   $115,291   $123,151
                                                        ========   ========

</TABLE>


                                      -69-

<PAGE>

<TABLE>
<CAPTION>


                                                         1996        1995
                                                       --------    --------
     <S>                                               <C>         <C>
     Deferred tax liabilities
       Related to:
          Depreciable property ....................    $575,495    $546,827
          Income taxes recoverable
             through future rates .................     201,998     207,631
          Energy efficiency .......................      44,734      28,616
          Reacquired debt .........................      14,265      17,595
          FERC Order 636 ..........................       9,023      16,073
          Other ...................................      22,112      30,996
                                                       --------    --------
            Total .................................    $867,627    $847,738
                                                       ========    ========
</TABLE>

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

                                                      1996     1995      1994
                                                      ----     ----      ----
     <S>                                               <C>      <C>       <C>  
     Effective federal and state
       income tax rate ...........................     39%      34%       31%
     Amortization of investment tax credit .......      2        4         4
     Resolution of prior year tax issue ..........     --       --         2
     State income tax, net of federal income
       tax benefit ...............................     (6)      (5)       (4)
     Dividends received deduction ................      2        2         2
     Other .......................................     (2)      --        --
                                                       ---      ---       ---
     Statutory federal income tax rate ...........     35%      35%       35%
                                                       ===      ===       ===
</TABLE>

(15)  INVENTORIES:

     Inventories include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>

                                                      1996        1995
                                                     -------     -------

     <S>                                             <C>         <C>    
     Materials and supplies, at average cost ...     $32,222     $27,442
     Coal stocks, at average cost ..............      32,293      32,163
     Gas in storage, at LIFO cost ..............      23,915      21,883
     Fuel oil, at average cost .................       1,264       1,523
     Other .....................................       1,170       2,224
                                                     -------     -------
       Total ...................................     $90,864     $85,235
                                                     =======     =======
</TABLE>

     At December 31, 1996  prices,  the current cost of gas in storage was $61.3
million.


                                      -70-

<PAGE>




(16)  OTHER INFORMATION:

     The Company  completed a  merger-related  restructuring  plan during  1995.
Other  operating  expenses  in the  Consolidated  Statements  of Income for 1995
includes $33.4 million related to the restructuring plan.

     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>

                                                        1996        1995       1994
                                                      --------    --------    -------

     <S>                                              <C>         <C>         <C>    
     Other-than-temporary declines in value
       of investments and other assets ...........    $(15,566)   $(17,971)   $(1,791)
     IES merger costs ............................      (8,689)       --         --
     Special purpose fund income .................       3,301       1,863      1,845
     Energy efficiency carrying charges ..........       3,255       3,092      1,681
     Gain on sale of cushion gas .................       3,182        --         --
     Incentive gas purchase plan award ...........       2,677        --         --
     Agency gas sales, net .......................       1,840         228         (2)
     Gain on reacquisition of long-term debt .....       1,105        --         --
     Gain on sale of assets, net .................         974       8,570      4,468
     MidAmerican merger costs ....................        --        (4,624)    (4,510)
     Allowance for equity funds used
       during construction .......................        --           481        452
     Income (loss) from equity method investments.       2,510        (312)     2,712
     Other .......................................       1,391      (1,794)      (539)
                                                      --------    --------    -------
       Total .....................................    $ (4,020)   $(10,467)   $ 4,316
                                                      ========    ========    =======
</TABLE>

(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.


                                      -71-

<PAGE>


(18)  UNAUDITED QUARTERLY OPERATING RESULTS:

<TABLE>
<CAPTION>

     1996                                             1st Quarter  2nd Quarter  3rd Quarter   4th Quarter
                                                      -----------  -----------  -----------   -----------
                                                           (In thousands, except per share amounts)

     <S>                                               <C>          <C>          <C>           <C>     
     Operating revenues ..........................     $507,596     $391,466     $434,678      $538,872
     Operating income ............................      100,141       65,004       97,919        80,574
     Income from continuing operations ...........       48,405       25,099       40,548        29,709
     Income (loss) from discontinued operations ..        2,642        3,896      (17,992)       (1,261)
     Earnings on common stock ....................       51,047       28,995       22,556        28,448

     Earnings per average common share:
     Income from continuing operations ...........     $   0.48     $   0.25     $   0.40      $   0.29
     Income (loss) from discontinued operations ..         0.03         0.04        (0.18)        (0.01)
                                                       --------     --------     --------      --------

     Earnings per average common share ...........     $   0.51     $   0.29     $   0.22      $   0.28
                                                       ========     ========     ========      ========
</TABLE>

<TABLE>
<CAPTION>

1995                                                  1st Quarter  2nd Quarter  3rd Quarter   4th Quarter
                                                      -----------  -----------  -----------   -----------
                                                           (In thousands, except per share amounts)

     <S>                                               <C>          <C>          <C>           <C>     
     Operating revenues ..........................     $447,985     $356,990     $420,002      $424,364
     Operating income ............................       77,069       53,925       98,225        63,135
     Income from continuing operations ...........       34,947       23,634       35,458        25,666
     Income from discontinued operations .........          349        1,274          322         1,114
     Earnings on common stock ....................       35,296       24,908       35,780        26,780

     Earnings per average common share:
     Income from continuing operations ...........     $   0.35     $   0.24     $   0.35      $   0.26
     Income from discontinued operations .........         --           0.01         0.01          0.01
                                                       --------     --------     --------      --------

     Earnings per average common share ...........     $   0.35     $   0.25     $   0.36      $   0.27
                                                       ========     ========     ========      ========
</TABLE>

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

                                      -72-

<PAGE>
REPORT OF MANAGEMENT

     Management is responsible for the preparation of the accompanying financial
statements  which have been  prepared  in  conformity  with  generally  accepted
accounting  principles.  In the opinion of management,  the financial  position,
results of operation and cash flows of the Company are  reflected  fairly in the
statements. The statements have been audited by the Company's independent public
accountants, Arthur Andersen LLP.

     The Company  maintains a system of internal  controls  which is designed to
provide reasonable  assurance,  on a cost effective basis, that transactions are
executed in accordance with management's authorization, the financial statements
are  reliable  and  the  Company's   assets  are  properly   accounted  for  and
safeguarded.  The Company's internal auditors  continually evaluate and test the
system of  internal  controls  and  actions  are taken  when  opportunities  for
improvement  are  identified.  Management  believes  that the system of internal
controls is effective.

     The Audit  Committee  of the Board of  Directors,  the members of which are
directors who are not employees of the Company, meets regularly with management,
the internal auditors and Arthur Andersen LLP to discuss  accounting,  auditing,
internal  control and financial  reporting  matters.  The Company's  independent
public  accountants  are  appointed  annually  by  the  Board  of  Directors  on
recommendation of the Audit Committee. The internal auditors and Arthur Andersen
LLP  each  have  full  access  to  the  Audit  Committee,   without   management
representatives present.




Stanley J. Bright
President and Chief Executive Officer




Philip G. Lindner
Senior Vice President and
Chief Financial Officer

                                      -73-

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To MidAmerican  Energy  Holdings Company and Subsidiaries:

     We  have  audited  the   accompanying   consolidated   balance  sheets  and
consolidated statements of capitalization of MidAmerican Energy Holdings Company
(an Iowa  corporation) and  subsidiaries,  as of December 31, 1996 and 1995, and
the related consolidated  statements of income, retained earnings and cash flows
for each of the  three  years in the  period  ended  December  31,  1996.  These
financial  statements and the supplemental  schedules  referred to below are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and  supplemental  schedules 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 financial position of MidAmerican Energy Holdings
Company and  subsidiaries  as of December 31, 1996 and 1995,  and the results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.

     Our  audits  were made for the  purpose  of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in Item
14(a)2.,  are  presented  for  purposes of  complying  with the  Securities  and
Exchange  Commission's rules and are not part of the basic financial statements.
These  supplemental  schedules  have been  subjected to the auditing  procedures
applied in the audits of the basic  financial  statements  and, in our  opinion,
fairly state in all  material  respects the  financial  data  required to be set
forth therein in relation to the basic financial statements taken as a whole.


                                                      Arthur Andersen LLP

Chicago, Illinois
January 24, 1997


                                     -74-

<PAGE>

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

                                                                          YEARS ENDED DECEMBER 31
                                                                    1996           1995            1994
                                                                 ----------     ----------      ----------
<S>                                                              <C>            <C>             <C>    
OPERATING REVENUES
Electric utility..............................................   $1,099,008     $1,094,647      $1,021,660
Gas utility...................................................      536,753        459,588         492,015
                                                                 ----------     ----------      ----------
                                                                  1,635,761      1,554,235       1,513,675
                                                                 ----------     ----------      ----------
OPERATING EXPENSES
Cost of fuel, energy and capacity.............................      234,317        230,261         213,987
Cost of gas sold..............................................      345,014        279,025         326,782
Other operating expenses......................................      350,174        399,648         354,190
Maintenance...................................................       88,621         85,363         101,275
Depreciation and amortization.................................      164,592        158,950         154,229
Property and other taxes......................................       92,630         96,350          94,990
Income taxes..................................................      111,206         85,400          69,731
                                                                 ----------     ----------      ----------
                                                                  1,386,554      1,334,997       1,315,184
                                                                 ----------     ----------      ----------

OPERATING INCOME..............................................      249,207        219,238         198,491
                                                                 ----------     ----------      ----------

NON-OPERATING INCOME
Interest and dividend income..................................        1,598          1,354           1,672
Non-operating income taxes....................................       (1,721)         1,302           2,972
Other, net....................................................        2,400         (5,428)         (5,384)
                                                                 ----------     ----------      ----------
                                                                      2,277         (2,772)           (740)
                                                                 ----------     ----------      ----------
FIXED CHARGES
Interest on long-term debt....................................       79,434         80,133          73,922
Other interest expense........................................       10,842          9,396           6,639
Preferred dividends of subsidiary trust.......................          288           --              --  
Allowance for borrowed funds..................................       (4,212)        (5,552)         (3,955)
                                                                 ----------     ----------      ----------
                                                                     86,352         83,977          76,606
                                                                 ----------     ----------      ----------

INCOME FROM CONTINUING OPERATIONS.............................      165,132        132,489         121,145

INCOME (LOSS) FROM DISCONTINUED OPERATIONS....................      (10,161)        (1,666)          9,595
                                                                 ----------     ----------      ----------
NET INCOME....................................................      154,971        130,823         130,740
PREFERRED DIVIDENDS...........................................       10,401          8,059          10,551
                                                                 ----------     ----------      ----------

EARNINGS ON COMMON STOCK......................................   $  144,570     $  122,764      $  120,189
                                                                 ==========     ==========      ==========


</TABLE>

The accompanying notes are an integral part of these statements.

                                      -75-
<PAGE>

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

                                                                          YEARS ENDED DECEMBER 31
                                                                    1996            1995           1994
                                                                  ---------       ---------      ---------

<S>                                                               <C>             <C>            <C>    
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.....................................................   $ 154,971       $ 130,823      $ 130,740
Adjustments to reconcile net income to net cash provided:
   Depreciation, depletion and amortization....................     185,657         175,969        173,164
   Net increase (decrease) in deferred income taxes and
     investment tax credit, net................................      (3,111)          6,835         34,090
   Amortization of other assets................................      20,541          19,630          6,595
   Loss (income) from discontinued operations..................      10,161           1,666         (9,595)
   (Gain) Loss on sale of assets and long term investments.....      (6,104)           --             --   
   Other-than-temporary decline in value of investments........        --              --            2,872
   Impact of changes in working capital........................     (58,371)         (5,595)        (9,220)
   Other.......................................................      23,689           3,856          5,489
                                                                  ---------       ---------      ---------
     Net cash provided.........................................     327,433         333,184        334,135
                                                                  ---------       ---------      ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures..............................    (154,198)       (192,625)      (211,669)
Quad Cities Nuclear Power Station decommissioning trust fund...      (8,607)         (8,636)        (9,144)
Deferred energy efficiency expenditures........................     (20,390)        (35,841)       (28,174)
Nonregulated capital expenditures..............................      (2,970)           --           (1,578)
Proceeds from sale of assets and other investments.............      11,620            --             --
Investment in discontinued operations..........................      10,100         (47,968)        11,126
Other investing activities, net................................         734             203         (1,284)
                                                                  ---------       ---------      ---------
   Net cash used...............................................    (163,711)       (284,867)      (240,723)
                                                                  ---------       ---------      ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid.................................................    (131,171)       (126,887)      (125,475)
Issuance of long-term debt, net of issuance cost...............      99,500          14,604        152,792
Retirement of long-term debt, including reacquisition cost.....     (72,111)        (14,277)       (95,639)
Reacquisition of preferred shares..............................     (58,176)            (10)       (19,916)
Issuance of preferred securities, net of issuance cost.........      96,850            --             --
Issuance of common shares......................................        --            15,083         27,760
Net increase (decrease) in notes payable.......................     (23,100)         60,300        (36,300)
                                                                  ---------       ---------      ---------
   Net cash used...............................................     (88,208)        (51,187)       (96,778)
                                                                  ---------       ---------      ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...........      75,514          (2,870)        (3,366)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................       8,701          11,571         14,937
                                                                  ---------       ---------      ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................   $  84,215       $   8,701      $  11,571
                                                                  =========       =========      ==========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized......................   $  80,881       $ 89,055       $  72,835
                                                                  =========       ========       =========
Income taxes paid..............................................   $ 103,627       $ 90,102       $  85,316
                                                                  =========       ========       =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -76-

<PAGE>
<TABLE>
<CAPTION>
                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                                                                  AS OF DECEMBER 31
                                                                             1996                  1995
                                                                          ----------            ----------
<S>                                                                       <C>                   <C>   
ASSETS
UTILITY PLANT
Electric..........................................................        $4,013,851            $3,884,702
Gas...............................................................           723,491               695,741
                                                                          ----------            ----------
                                                                           4,737,342             4,580,443
Less accumulated depreciation and amortization....................         2,154,505             2,027,994
                                                                          ----------            ----------
                                                                           2,582,837             2,552,449
Construction work in progress.....................................            49,305               104,164
                                                                          ----------            ----------
                                                                           2,632,142             2,656,613
                                                                          ----------            ----------

POWER PURCHASE CONTRACT...........................................           190,897               212,148
                                                                          ----------            ----------

INVESTMENT IN DISCONTINUED OPERATIONS.............................              --                 288,147
                                                                          ----------            ----------

CURRENT ASSETS
Cash and cash equivalents.........................................            84,215                 8,701
Receivables, less reserves of $1,845 and $2,214, respectively.....           253,944               198,930
Inventories.......................................................            90,864                83,553
Other.............................................................             7,776                16,894
                                                                          ----------            ----------
                                                                             436,799               308,078
                                                                          ----------            ----------

INVESTMENTS.......................................................           118,344                99,326
                                                                          ----------            ----------

OTHER ASSETS......................................................           396,471               411,889
                                                                          ----------            ----------

TOTAL ASSETS......................................................        $3,774,653            $3,976,201
                                                                          ==========            ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity.......................................        $  986,825            $1,225,715
MidAmerican preferred securities, not subject to mandatory
    redemption....................................................            31,769                89,945
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                  --  
Long-term debt (excluding current portion)........................         1,086,955             1,109,298
                                                                          ----------            ----------
                                                                           2,255,549             2,474,958
                                                                          ----------            ----------

CURRENT LIABILITIES
Notes Payable.....................................................           161,700               184,800
Current portion of long-term debt.................................            49,560                 1,227
Current portion of power purchase contract........................            13,718                13,029
Accounts payable..................................................           122,974               116,431
Taxes accrued.....................................................            82,338                78,993
Interest accrued..................................................            24,245                23,642
Other.............................................................            24,452                40,107
                                                                          ----------            ----------
                                                                             478,987               458,229
                                                                          ----------            ----------

OTHER LIABILITIES
Power purchase contract...........................................            97,504               112,700
Deferred income taxes.............................................           616,567               617,168
Investment tax credit.............................................            88,842                95,041
Other.............................................................           237,204               218,105
                                                                          ----------            ----------
                                                                           1,040,117             1,043,014
                                                                          ----------            ----------
TOTAL CAPITALIZATION AND LIABILITIES                                      $3,774,653            $3,976,201
                                                                          ==========            ==========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -77-
<PAGE>

<TABLE>
<CAPTION>
                           MIDAMERICAN ENERGY COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION

                                                                                     AS OF DECEMBER 31
                                                                                 1996                1995
                                                                          ------------------   -------------------
                                                                          (In thousands, except share amounts)
<S>                                                                       <C>         <C>      <C>          <C>   
COMMON SHAREHOLDERS'EQUITY
Common shares, no par; 350,000,000 shares authorized;
    100,751,713 and 100,751,713 shares outstanding, respectively.......   $   563,579          $  801,227
Retained earnings......................................................       423,246             430,589
Valuation allowance, net of income taxes...............................          --                (6,101)
                                                                          -----------          ----------
                                                                              986,825  43.8%    1,225,715    49.5%
                                                                          ----------- ------   ----------   ------
PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding not subject to mandatory redemption:
    $3.30 Series, 49,523 shares........................................         4,952               4,952
    $3.75 Series, 38,320 shares........................................         3,832               3,832
    $3.90 Series, 32,630 shares .......................................         3,263               3,263
    $4.20 Series, 47,369 shares........................................         4,737               4,737
    $4.35 Series, 49,950 shares........................................         4,995               4,995
    $4.40 Series, 50,000 shares........................................         5,000               5,000
    $4.80 Series, 49,898 shares........................................         4,990               4,990
    $1.7375 Series, zero and 2,400,000 shares, respectively............          --                58,176
                                                                          -----------          -----------
                                                                               31,769    1.4%      89,945     3.7%
                                                                          ----------- -------  -----------  ------
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     2.2%     50,000     2.0%
                                                                          ----------- -------  -----------  ------
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 and zero shares, respectively............        100,000    4.4%        --       0.0%
                                                                          ----------- -------  -----------  ------

LONG-TERM DEBT
Mortgage bonds:
    5.875% Series, due 1997...........................................           --                22,000
    Adjustable Rate Series (8.8%), due 1997...........................           --                25,000
    5.05% Series, due 1998............................................         49,100              50,000
    6.25% Series, due 1998............................................         75,000              75,000
    7.875% Series, due 1999...........................................         60,000              60,000
    6% Series, due 2000...............................................         35,000              35,000
    6.75% Series, due 2000............................................         75,000              75,000
    8.15% Series, due 2001............................................           --                40,000
    7.125% Series, due 2003...........................................        100,000             100,000
    7.70% Series, due 2004............................................         60,000              60,000
    7% Series, due 2005...............................................        100,000             100,000
    7.375% Series, due 2008...........................................         75,000              75,000
    8% Series, due 2022...............................................         50,000              50,000
    7.45% Series, due 2023............................................         26,500              30,000
    8.125% Series, due 2023...........................................        100,000             100,000
    6.95% Series, due 2025............................................         21,500              50,000
Pollution control revenue obligations:
    5.15% to 5.75% Series, due periodically through 2003..............          8,424              10,984
    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.

                                      -78-

<PAGE>

<TABLE>
<CAPTION>


                           MIDAMERICAN ENERGY COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION

                                                                                      AS OF DECEMBER 31
                                                                                  1996                1995
                                                                           ------------------   ------------------
                                                                                        (In thousands)
                                                                                                         
<S>                                                                        <C>         <C>      <C>         <C>    
LONG-TERM DEBT (CONTINUED)
   Variable Rate Series:
      Due 2016 and 2017 (3.5% and 5.0%, respectively).............         $   37,600           $   37,600
      Due 2023 (secured by general mortgage bonds,
         3.5% and 5.05%, respectively)............................             28,295               28,295
      Due 2023 (3.5% and 5.1%, respectively)......................              6,850                6,850
      Due 2024 (3.6% and 5.25%, respectively).....................             34,900               34,900
      Due 2025 (3.5% and 5.1%, respectively)......................             12,750               12,750

Notes:
   8.75% Series, due 2002.........................................                240                  240
   6.5% Series, due 2001..........................................            100,000                 --  
   6.4% Series, due 2003 through 2007.............................              2,000                2,000
   Obligation under capital lease.................................              3,775                3,775
   Unamortized debt premium and discount, net.....................             (4,009)              (4,126)
                                                                           ----------           ----------
Total ............................................................          1,086,955   48.2%    1,109,298   44.8%
                                                                           ----------  ------   ----------  ------

TOTAL CAPITALIZATION .............................................         $2,255,549  100.0%   $2,474,958  100.0%
                                                                           ==========  ======   ==========  ======
</TABLE>


<TABLE>
<CAPTION>

                           MIDAMERICAN ENERGY COMPANY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

                                                                                  YEARS ENDED DECEMBER 31
                                                                             1996           1995          1994
                                                                          ---------      ---------     ---------
                                                                          (In thousands, except per share amounts)

<S>                                                                       <C>            <C>           <C>        
BEGINNING OF YEAR.................................................        $ 430,589      $ 426,683     $ 421,358
                                                                          ---------      ---------     ---------

NET INCOME........................................................          154,971        130,823       130,740
                                                                          ---------      ---------     ---------

DEDUCT (ADD):
(Gain) loss on reacquisition of preferred shares..................            1,572             (5)          312
Dividends declared on preferred shares............................            8,829          8,064        10,141
Dividends declared on common shares of $1.20, $1.18 and
  $1.17 per share, respectively...................................          120,770        118,828       114,924
Dividend of Investment in Subsidiaries............................           31,143           --            --  
Other.............................................................             --               30            38
                                                                          ---------      ---------     ---------
                                                                            162,314        126,917       125,415
                                                                          ---------      ---------     ---------

END OF YEAR.......................................................        $ 423,246      $ 430,589     $ 426,683
                                                                          =========      =========     ==========

</TABLE>

The accompanying notes are an integral part of these statements.

                                      -79-

<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (A)  MERGER AND FORMATION OF HOLDING COMPANY:

     MidAmerican  Energy Company  (MidAmerican or Company) was formed on July 1,
1995,  as a result  of the  merger of  Iowa-Illinois  Gas and  Electric  Company
(Iowa-Illinois),  Midwest Resources Inc. (Resources) and its utility subsidiary,
Midwest Power Systems Inc. (Midwest Power).  Each outstanding share of preferred
and preference  stock of the predecessor  companies was converted into one share
of a similarly  designated series of MidAmerican  preferred stock, no par value.
Each  outstanding  share of common  stock of  Resources  and  Iowa-Illinois  was
converted into one share and 1.47 shares,  respectively,  of MidAmerican  common
stock, no par value. The merger was accounted for as a pooling-of-interests  and
the financial  statements included herein are presented as if the companies were
merged as of the earliest period shown.

     On April 24, 1996,  MidAmerican  shareholders approved a proposal to form a
holding company,  MidAmerican Energy Holdings Company (Holdings) for MidAmerican
and its  subsidiaries,  MidAmerican  Capital Company  (MidAmerican  Capital) and
Midwest Capital Group, Inc. (Midwest Capital).  Effective December 1, 1996, each
share of MidAmerican common stock was exchanged for one share of Holdings common
stock. As part of the transaction,  MidAmerican distributed the capital stock of
MidAmerican Capital and Midwest Capital to Holdings. See Note (9) for additional
information regarding the formation of the holding company.

     (B)  CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

     The accompanying  Consolidated Financial Statements include the Company and
its wholly owned subsidiaries.  All significant  intercompany  transactions have
been eliminated.

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of contingent liabilities at the date of the financial statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results may differ from those estimates.

     (C)  REGULATION:

     Refer to Note 1(c) of Holdings' Notes to Consolidated  Financial Statements
for  information  regarding  the  effects  of  regulation  on the  MidAmerican's
accounting policy.

     (D)  REVENUE RECOGNITION:

     Refer to Note 1(d) of Holdings' Notes to Consolidated  Financial Statements
for information regarding MidAmerican's revenue recognition accounting policy.

     (E)  DEPRECIATION AND AMORTIZATION:

     Refer to Note 1(e) of Holdings' Notes to Consolidated  Financial Statements
for information regarding MidAmerican's depreciation and amortization accounting
policy.


                                      -80-

<PAGE>



     (F)  INVESTMENTS:

     Investments include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>

                                                     1996               1995
                                                   --------           -------
         <S>                                       <C>               <C>    
         Investments:
         Nuclear decommissioning trust fund..      $ 76,304          $ 64,781
         Corporate owned life insurance......        27,395            22,743
         Other...............................        14,645            11,802
                                                   --------         ---------
             Total...........................      $118,344          $ 99,326
                                                   ========          ========
</TABLE>

     Investments  held by the  nuclear  decommissioning  trust fund for the Quad
Cities 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:

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

     Net cash provided  (used) from changes in working  capital,  net of effects
from  discontinued  operations  and  exchange  of  assets  was  as  follows  (in
thousands):
<TABLE>
<CAPTION>

                                         1996         1995         1994
                                       --------     --------     --------

         <S>                           <C>          <C>          <C>     
         Receivables.................. $(55,014)    $(19,044)    $ 19,111
         Inventories..................   (7,311)       5,777        9,957
         Other current assets ........    9,118       (4,358)       5,536
         Accounts payable.............    6,543       21,475      (19,452)
         Taxes accrued................    3,345       (8,586)     (20,547)
         Interest accrued.............      603         (289)         217
         Other current liabilities....  (15,655)        (570)      (4,042)
                                       --------     --------     --------
            Total..................... $(58,371)    $ (5,595)    $ (9,220)
                                       ========     ========     ========
</TABLE>

     MidAmerican  distributed  the  capital  stock of  MidAmerican  Capital  and
Midwest Capital to Holdings. See Note (9) for additional information.

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

     Refer to Note 1(h) of Holdings' Notes to Consolidated  Financial Statements
for  information  regarding  MidAmerican's  accounting  for the  Cooper  Nuclear
Station (Cooper) long-term power purchase contract.

     (I)  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 121:

     Refer to Note 1(I) of Holdings' Notes to Consolidated  Financial Statements
for  information  regarding  the adoption of  Statement of Financial  Accounting
Standards No. 121.


                                      -81-

<PAGE>



(2)  LONG-TERM DEBT:

     The Company's  sinking fund  requirements  and maturities of long-term debt
for 1997 through 2001 are $50 million,  $126 million, $61 million,  $111 million
and $101 million, respectively.

     The interest rate on the Company's Adjustable Rate Series Mortgage Bonds is
reset every two years at 160 basis points over the average  yield to maturity of
10-year Treasury securities. The rate was reset in 1995.

     The Company'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.  The Company,  at its option,  may
change the mode of interest  calculation for these bonds by selecting from among
several  alternative  floating or fixed rate modes.  The interest rates shown in
the Consolidated  Statements of Capitalization are the weighted average interest
rates as of  December  31,  1996  and  1995.  The  Company  maintains  dedicated
revolving  credit  facility  agreements or renewable  lines of credit to provide
liquidity for holders of these issues.

     Substantially all the former Iowa-Illinois utility property and franchises,
and  substantially  all of the former Midwest Power electric utility property in
Iowa,  or  approximately  82% of gross  utility  property,  is pledged to secure
mortgage bonds.

(3)  JOINTLY OWNED UTILITY PLANT:

     Refer to Note 3 of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's jointly owned utility plant.

(4)  COMMITMENTS AND CONTINGENCIES:

     (A)  CAPITAL EXPENDITURES:

     Utility  construction  expenditures  for  1997  are  estimated  to be  $200
million,  including $10 million for Quad Cities  nuclear fuel and $9 million for
Cooper capital improvements.

     (B)  ENVIRONMENTAL MATTERS:

     Refer to Note 4(b) of Holdings' Notes to Consolidated  Financial Statements
for information regarding MidAmerican's Environmental Matters.

     (C)  LONG-TERM POWER PURCHASE CONTRACT:

     Refer to Note 4(c) of Holdings' Notes to Consolidated  Financial Statements
for information  regarding  MidAmerican's  commitment under the Cooper long-term
power purchase contract. 

     (D) DECOMMISSIONING COSTS:

     Refer to Note 4(d) of Holdings' Notes to Consolidated  Financial Statements
for  information  regarding  MidAmerican's  commitment  for  decommissioning  of
nuclear facilities.

                                      -82-
<PAGE>

     (E)  NUCLEAR INSURANCE:

     Refer to Note 4(e) of Holdings' Notes to Consolidated  Financial Statements
for  information  regarding  MidAmerican's  nuclear  insurance  coverage and the
potential assessments under such coverage.

     (F)  COAL AND NATURAL GAS CONTRACT COMMITMENTS:

     Refer to Note 4(f) of Holdings' Notes to Consolidated  Financial Statements
for  information  regarding  MidAmerican's  commitment  under  various  coal and
natural gas supply and transportation contracts.

(5)  COMMON SHAREHOLDERS' EQUITY:

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

                                          1996                 1995                  1994
                                  ------------------   -------------------   -------------------
                                   Amount     Shares    Amount      Shares    Amount      Shares

<S>                               <C>        <C>       <C>          <C>      <C>          <C>   
Balance, beginning of year....... $801,227   100,752   $786,420     99,687   $759,120     97,782

Changes due to:
Issuance of common shares........     --        --       15,083      1,065     27,760      1,911
Accrued stock options............      623      --         --         --         --         --
Capital stock expense  ..........     (391)     --         (276)      --         (377)      --
Distribution of investment in
    subsidiaries to Holdings..... (237,880)     --         --         --         --         --
Other............................     --        --         --         --          (83)        (6)
                                  --------   -------   --------    -------   --------     ------
Balance, end of year............. $563,579   100,752   $801,227    100,752   $786,420     99,687
                                  ========   =======   ========    =======   ========     ======
</TABLE>

(6)  RETIREMENT PLANS:

     MidAmerican  Energy  has  noncontributory  defined  benefit  pension  plans
covering  employees of MidAmerican and its affiliates,  MidAmerican  Capital and
Midwest Capital. No detailed segregation of the data is available by subsidiary.
Employees of  MidAmerican  represent  approximately  95% of the payroll  covered
under these plans. Refer to Note 6 of Holdings' Notes to Consolidated  Financial
Statements for detailed  information  regarding net periodic  pension cost and a
schedule  reconciling  the funded status of the plan with the amount recorded on
the consolidated  financial  statements of Holdings.  MidAmerican's net periodic
pension  costs  under  the  plans  for its  continuing  operations  the was $7.0
million, $11.4 million and $7.7 million for 1996, 1995 and 1994, respectively.

     MidAmerican  provides  certain health care and life insurance  benefits for
retired  employees of MidAmerican  and its affiliates,  MidAmerican  Capital and
Midwest Capital. No detailed segregation of the data is available by subsidiary.
Employees of MidAmerican represent approximately 99% of the participants covered
under these plans. Refer to Note 6 of Holdings' Notes to Consolidated  Financial
Statements  for  detailed  information  regarding  net  periodic  postretirement
benefit cost and a schedule  reconciling  the funded status of the plan with the
amount  recorded  on  the   consolidated   financial   statements  of  Holdings.
MidAmerican Energy's net periodic  postretirement  benefit costs under the plans
for its  continuing  operations  the was $18.7  million,  $21.1 million and $7.2
million for 1996, 1995 and 1994, respectively.



                                      -83-

<PAGE>



(7)  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>

                                                            1996         1995         1994
                                                          --------     --------     --------

<S>                                                       <C>          <C>          <C>     
Balance at year-end   ................................... $161,700     $184,800     $124,500
Weighted average interest rate
  on year-end balance....................................     5.4%         5.7%         6.1%
Average daily amount outstanding
  during the year........................................ $151,162     $114,036     $105,728
Weighted average interest rate
    on average daily amount outstanding during the year..     5.5%         6.0%        4.4 %
</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,
1996,  MidAmerican had a $250 million revolving credit facility  agreement and a
$10  million  line of credit.  MidAmerican's  commercial  paper  borrowings  are
supported by the revolving credit facility and the line of credit.

(8)  RATE MATTERS:

     Refer to Note 8 of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's rate matters.

(9)  DISCONTINUED OPERATIONS:

     On April 24, 1996, MidAmerican shareholders approved a proposal to form
Holdings 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  Holdings  common  stock.  As  part  of the  transaction,  MidAmerican
distributed  the capital  stock of  MidAmerican  Capital and Midwest  Capital to
Holdings. The subsidiaries that were distributed to Holdings have been reflected
as discontinued operations.

     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.


                                      -84-

<PAGE>



     Net assets of the discontinued  operations are separately  presented on the
Consolidated Balance Sheets as Investment in Discontinued  Operations.  Revenues
from discontinued activities,  as well as the results of discontinued operations
for the years ended December 31 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                 1996       1995       1994
                                               --------   --------   --------

<S>                                            <C>        <C>        <C>     
OPERATING REVENUES..........................   $215,631   $176,743   $247,193
                                               ========   ========   ========

INCOME (LOSS) FROM OPERATIONS
   Income (loss) before income taxes........   $ 12,588   $(17,317)  $ (3,534)
   Income tax benefit (expense).............    (19,457)    15,651     13,129
                                               --------   --------   --------
   Income (loss) from Operations............   $ (6,869)  $ (1,666)  $  9,595
                                               ========   ========   ========

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

(10)  CONCENTRATION OF CREDIT RISK:

     MidAmerican's  electric utility operations serve 550,000 customers in Iowa,
84,000 customers in western  Illinois and 3,000 customers in southeastern  South
Dakota.  MidAmerican's  gas utility  operations serve 480,000 customers in Iowa,
65,000 customers in western  Illinois,  61,000  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, 1996, billed  receivables from the MidAmerican's  utility customers
totalled $146 million.

(11)  PREFERRED SHARES:

     Refer to Note 11 of Holdings'  Notes to Consolidated  Financial  Statements
for information regarding MidAmerican's preferred shares.



                                      -85-

<PAGE>



(12)  SEGMENT INFORMATION:

     Information related to segments of the MidAmerican's business is as follows
for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>

                                                     1996           1995           1994
                                                  -----------    -----------    -----------
<S>                                               <C>            <C>            <C>
UTILITY
    Electric-
        Operating revenues ....................   $ 1,099,008    $ 1,094,647    $ 1,021,660
        Cost of fuel, energy and capacity .....       234,317        230,261        213,987
        Depreciation and amortization expense .       140,939        136,324        132,886
        Other operating expenses ..............       424,594        459,344        438,811
        Income taxes ..........................        92,365         76,955         63,428
                                                  -----------    -----------    -----------
        Operating income ......................   $   206,793    $   191,763    $   172,548
                                                  ===========    ===========    ===========

    Gas-
        Operating revenues ....................   $   536,753    $   459,588    $   492,015
        Cost of gas sold ......................       345,014        279,025        326,782
        Depreciation and amortization expense .        23,653         22,626         21,343
        Other operating expenses ..............       106,831        122,017        111,644
        Income taxes ..........................        18,841          8,445          6,303
                                                  -----------    -----------    -----------
        Operating income ......................   $    42,414    $    27,475    $    25,943
                                                  ===========    ===========    ===========

    Operating income ..........................   $   249,207    $   219,238    $   198,491
    Other income (expense) ....................         3,998         (4,074)        (3,712)
    Income taxes - other (benefit) ............         1,721         (1,302)        (2,972)
    Fixed charges .............................        86,352         83,977         76,606
                                                  -----------    -----------    -----------
    Income from continuing operations .........   $   165,132    $   132,489    $   121,145
                                                  ===========    ===========    ===========

    Capital Expenditures-
        Electric ..............................   $   116,243    $   135,344    $   164,870
        Gas ...................................        37,955         57,281         46,799

ASSET INFORMATION
    Identifiable assets-
        Electric (a) ..........................   $ 2,955,881    $ 2,950,285    $ 2,917,444
        Gas (a) ...............................       692,993        699,702        684,004
        Used in overall utility operations ....       125,779         38,067         45,950
    Investment in discontinued operations .....          --          288,147        232,449
                                                  -----------    -----------    -----------
    Total assets ..............................   $ 3,774,653    $ 3,976,201    $ 3,879,847
                                                  ===========    ===========    ===========
</TABLE>

(a)  Utility plant less  accumulated  provision for  depreciation,  receivables,
     inventories, nuclear decommissioning trust fund and regulatory assets.



                                      -86-

<PAGE>



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

                                                               1996                      1995
                                                      -----------------------   -----------------------
                                                      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   $   52,920   $   50,000   $   52,800
   MidAmerican-obligated preferred securities;
      subject to mandatory redemption............    $  100,000   $  100,000   $     --     $     --
   Long-term debt, including current portion.....    $1,136,515   $1,177,792   $1,110,525   $1,158,900

</TABLE>

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

                                                                          1996
                                                     ---------------------------------------------
                                                     Amortized   Unrealized   Unrealized    Fair
                                                       Cost        Gains        Losses      Value
                                                     ---------   ----------   ----------  --------
         <S>                                         <C>          <C>         <C>         <C>  
         Available-for-sale:
           Municipal bonds......................     $ 41,800     $ 3,041     $  (356)    $ 44,485
           U.S. Government Securities...........       26,814         137        (157)      26,794
           Cash equivalents.....................        5,025         --         --          5,025
                                                     --------     -------     -------     --------
                                                     $ 73,639     $ 3,178     $  (513)    $ 76,304
                                                     ========     =======     =======     ========
</TABLE>


                                      -87-

<PAGE>


<TABLE>
<CAPTION>

                                                                          1995
                                                     ----------------------------------------------
                                                     Amortized   Unrealized   Unrealized     Fair
                                                       Cost        Gains        Losses       Value
                                                     ---------   ----------   ----------   --------
         <S>                                         <C>          <C>         <C>         <C>   
         Available-for-sale:  
           Municipal Bonds......................     $ 38,098     $ 3,228     $  (210)    $ 41,116
           U.S. Government Securities...........        4,908        --          --          4,908
           Cash equivalents.....................       18,402         355        --         18,757
                                                     --------     -------     -------     --------
                                                     $ 61,408     $ 3,583     $  (210)    $ 64,781
                                                     ========     =======     =======     ========
</TABLE>

     At December 31, 1996, the debt  securities  held in the Quad Cities nuclear
decommissioning trust fund had the following maturities (in thousands):
<TABLE>
<CAPTION>

                                         Available for Sale
                                        --------------------
                                        Amortized      Fair
                                          Cost         Value
                                        ---------     -------
         <S>                             <C>          <C>    
         Within 1 year...............    $ 1,361      $ 1,313
         1 through 5 years...........     23,847       23,765
         5 through 10 years..........     28,564       30,100
         Over 10 years...............     14,842       16,101
</TABLE>

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

                                           1996         1995         1994
                                          ------       -------      ------

         <S>                              <C>          <C>          <C>   
         Proceeds from sales.........     $4,106       $21,266      $2,214
         Gross realized gains........         92           165           2
         Gross realized losses.......        (17)         (448)        (85)
</TABLE>

(14)  INCOME TAX EXPENSE:

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

                                           1996          1995         1994
                                         -------       -------      -------
         <S>                            <C>            <C>          <C>
         Income taxes
           Current
              Federal................   $ 92,240       $60,312      $25,701
              State..................     23,798        16,950        5,870
                                         -------       -------      -------
                                         116,038        77,262       31,571
           Deferred
              Federal................      2,504        11,571       33,378
              State..................        583         1,094        7,668
                                        --------       -------      -------
                                           3,087        12,665       41,046
         Investment tax credit, net..     (6,198)       (5,829)      (5,858)
                                        --------       -------      -------
         Total income tax expense....   $112,927       $84,098      $66,759
                                        ========       =======      =======
</TABLE>

                                      -88-

<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):
<TABLE>
<CAPTION>

                                                            1996        1995
                                                          ---------   --------
     <S>                                                  <C>         <C> 
     Deferred tax assets
       Related to:
       Investment tax credits........................     $ 61,349    $ 63,374
       Pensions......................................       17,648      17,938
       Nuclear reserves and decommissioning..........        8,233       8,367
       Other.........................................        5,839       7,322
                                                          --------    --------
          Total......................................     $ 93,069    $ 97,001
                                                          ========    ========

                                                            1996        1995
                                                          --------    --------
     Deferred tax liabilities
       Related to:
       Depreciable property..........................     $422,770    $421,363
       Income taxes recoverable through future rates.      201,998     207,631
       Energy efficiency.............................       44,733      28,616
       Reacquired debt...............................       14,265      17,595
       FERC Order 636................................        9,023      16,073
       Other.........................................       16,847      22,891
                                                          --------    --------
          Total......................................     $709,636    $714,169
                                                          ========    ========
</TABLE>

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

                                                       1996     1995     1994
                                                       -----    ----     ----

     <S>                                               <C>      <C>      <C>
     Effective federal and state income tax rate.....   41%      39%      36%
     Amortization of investment tax credit...........    2        3        3
     Resolution of prior year tax issue..............   --       --        2
     State income tax, net of federal income
       tax benefit...................................   (6)      (5)      (4)
     Other...........................................   (2)      (2)      (2)
                                                       ----     ----     ----
     Statutory federal income tax rate...............   35%      35%      35%
                                                       ====     ====     ====
</TABLE>


                                      -89-

<PAGE>



(15)  INVENTORIES:

     Inventories include the following amounts as of December 31 (in thousands):
<TABLE>
<CAPTION>

                                                   1996      1995
                                                  -------   -------

     <S>                                          <C>       <C>    
     Materials and supplies, at average cost..    $32,222   $26,586
     Coal stocks, at average cost.............     32,293    32,163
     Gas in storage, at LIFO cost.............     23,915    21,883
     Fuel oil, at average cost................      1,264     1,523
     Other....................................      1,170     1,398
                                                  -------   -------
     Total....................................    $90,864   $83,553
                                                  =======   =======
</TABLE>

     At December 31, 1996  prices,  the current cost of gas in storage was $61.3
million.

(16)  OTHER INFORMATION:

     The Company  completed a  merger-related  restructuring  plan during  1995.
Other  operating  expenses  in the  Consolidated  Statements  of Income for 1995
includes $31.9 million related to the restructuring plan.

     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>

                                                   1996      1995      1994
                                                  -------   -------   -------

     <S>                                          <C>       <C>       <C>      
     IES merger costs.........................    $(8,689)  $         $    -
     Energy efficiency carrying charges.......      3,225     3,092     1,681
     Gain on sale of cushion gas..............      3,182      --        --
     Incentive gas procurement plan award.....      2,677      --        --
     Agency gas sales, net....................      1,840       228        (2)
     Donations................................     (1,271)   (1,612)   (1,336)
     Gain on reacquisition of long-term debt..      1,105      --        --
     MidAmerican merger costs.................       --      (4,624)   (4,279)
     Allowance for equity funds used
       during construction....................       --         481       452
     Other....................................        331    (2,993)   (1,900)
                                                  -------   -------   -------
           Total..............................    $ 2,400   $(5,428)  $(5,384)
                                                  =======   =======   =======
</TABLE>


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

     Refer to Note 17 of Holdings'  Notes to Consolidated  Financial  Statements
for information regarding MidAmerican-Obligated Mandatorily Redeemable Preferred
Securities Of MidAmerican Energy Financing I.



                                      -90-

<PAGE>


(18)  AFFILIATED COMPANY TRANSACTIONS:

     The companies  identified as affiliates  are wholly owned  subsidiaries  of
Holdings.  The basis for these  charges is  provided  for in service  agreements
between  MidAmerican  and its  affiliates.  In the  opinion of  management,  the
expenses between entities are fair and reasonable.

     MidAmerican  incurred  charges for employee wages and benefits,  insurance,
building  rent,  computer  costs,  administrative  services,  travel expense and
general and administrative  expenses;  including  treasury,  legal,  shareholder
relations and accounting functions, on behalf of MidAmerican Capital and Midwest
Capital. Such charges were $9.3 million, $4.6 million and $3.4 million for 1996,
1995 and 1994, respectively.

     MidAmerican  leases office facilities and other properties from affiliates.
Total lease  payments were  approximately  $0.3  million,  $0.6 million and $0.6
million for 1996, 1995 and 1994, respectively.

     MidAmerican  leases unit trains from an affiliate for the transportation of
coal  to  MidAmerican's   generating  stations.   Unit  train  costs,  including
maintenance,  were approximately $3.0 million, $3.0 million and $2.9 million for
1996, 1995 and 1994, respectively.

     MidAmerican purchased natural gas from an affiliate. MidAmerican's costs of
gas  related to these  transactions  was $0.2  million,  $0.3  million  and $1.9
million for 1996, 1995 and 1994, respectively.

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

1996                                                1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
                                                    -----------  -----------  -----------  -----------
                                                                       (In thousands)

<S>                                                   <C>          <C>         <C>         <C>      
Operating revenues ................................   $458,260     $352,198    $ 384,071   $ 441,232
Operating income ..................................     69,361       47,058       70,100      62,688
Income from continuing operations .................     47,419       26,846       43,658      47,209
Income (loss) from discontinued operations ........      6,105        4,333      (19,015)     (1,584)
Earnings on common stock ..........................     51,047       28,995       22,556      41,972


1995                                                1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
                                                    -----------  -----------  -----------  ---------
                                                                       (In thousands)
Operating revenues ................................   $418,583     $338,607    $ 403,235   $ 393,810
Operating income ..................................     56,563       44,517       70,572      47,586
Income from continuing operations .................     36,532       21,880       46,078      27,999
Income from discontinued operations ...............      1,045        5,310       (8,621)        600
Earnings on common stock ..........................     35,296       24,908       35,780      26,780
</TABLE>

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


                                      -91-

<PAGE>
REPORT OF MANAGEMENT

     Management is responsible for the preparation of the accompanying financial
statements  which have been  prepared  in  conformity  with  generally  accepted
accounting  principles.  In the opinion of management,  the financial  position,
results of operation and cash flows of MidAmerican  are reflected  fairly in the
statements. The statements have been audited by MidAmerican's independent public
accountants, Arthur Andersen LLP.

     MidAmerican  maintains a system of internal  controls  which is designed to
provide reasonable  assurance,  on a cost effective basis, that transactions are
executed in accordance with management's authorization, the financial statements
are  reliable  and   MidAmerican's   assets  are  properly   accounted  for  and
safeguarded.  MidAmerican's  internal auditors continually evaluate and test the
system of  internal  controls  and  actions  are taken  when  opportunities  for
improvement  are  identified.  Management  believes  that the system of internal
controls is effective.

     The  MidAmerican  Energy Holdings  Company Board of Directors,  through its
Audit Committee  comprised entirely of outside  directors,  meets regularly with
management, the internal auditors and Arthur Andersen LLP to discuss accounting,
auditing,  internal  control  and  financial  reporting  matters.  MidAmerican's
independent  public accountants are appointed annually by the Board of Directors
on  recommendation  of the Audit  Committee.  The  internal  auditors and Arthur
Andersen LLP each have full access to the Audit  Committee,  without  management
representatives present.



Stanley J. Bright
President and Chief Executive Officer




Philip G. Lindner
Senior Vice President and
Chief Financial Officer

                                      -92-

<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To MidAmerican Energy Company and Subsidiaries:

     We  have  audited  the   accompanying   consolidated   balance  sheets  and
consolidated statements of capitalization of MidAmerican Energy Company (an Iowa
corporation) and subsidiaries, as of December 31, 1996 and 1995, and the related
consolidated  statements of income, retained earnings and cash flows for each of
the  three  years  in the  period  ended  December  31,  1996.  These  financial
statements   and  the   supplemental   schedules   referred  to  below  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and  supplemental  schedules 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 financial position of MidAmerican Energy Company
and  subsidiaries  as of December  31,  1996 and 1995,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.

     Our  audits  were made for the  purpose  of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules listed in Item
14(a)2.,  are  presented  for purposes of  complying  with the  Securities  and
Exchange  Commission's rules and are not part of the basic financial statements.
These  supplemental  schedules  have been  subjected to the auditing  procedures
applied in the audits of the basic  financial  statements  and, in our  opinion,
fairly state in all  material  respects the  financial  data  required to be set
forth therein in relation to the basic financial statements taken as a whole.

                                                      Arthur Andersen LLP

Chicago, Illinois
January 24, 1997


                                      -93-

<PAGE>

<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                    UNAUDITED FIVE-YEAR FINANCIAL STATISTICS

                                                              1996         1995         1994         1993        1992
                                                           ---------    ---------    ---------    ---------   ---------
<S>                                                        <C>          <C>          <C>          <C>         <C>    
Earnings per average common share --
Continuing operations:
  Utility operations ...................................   $    1.54    $    1.24    $    1.12    $    1.29   $    0.82
  Nonregulated activities ..............................       (0.11)       (0.05)        0.13         0.09       (0.03)
Discontinued operations ................................       (0.13)        0.03        (0.03)        0.01        0.05
                                                           ---------    ---------    ---------    ---------   ---------
Earnings per average common share ......................   $    1.30    $    1.22    $    1.22    $    1.39   $    0.84
                                                           =========    =========    =========    =========   =========

Average shares of common stock
  outstanding (in thousands) ...........................     100,752      100,401       98,531       97,762      95,430
Return on average common equity (%) ....................        10.6         10.1         10.1         11.6         7.1
Cash dividends declared per common share ...............   $    1.20    $    1.18    $    1.17    $    1.17   $    1.28
Common dividend payout ratio (%) .......................          92           97           96           84         152

Ratio of earnings to fixed charges --
  Holdings .............................................         3.3          2.8          2.8          2.8         1.9
  MidAmerican...........................................         4.1          3.4          3.3          3.4         2.3
Ratio of earnings to fixed charges and Cooper
  Nuclear Station debt service --
  Holdings..............................................         3.1          2.7          2.7          2.8         1.8
  MidAmerican ..........................................         4.0          3.3          3.2          3.3         2.2
Quarterly earnings per average common share
  outstanding --
  1st quarter ..........................................   $    0.51    $    0.35    $    0.45    $    0.44   $    0.28
  2nd quarter ..........................................        0.29         0.25         0.22         0.22        0.13
  3rd quarter ..........................................        0.22         0.36         0.36         0.52        0.26
  4th quarter ..........................................        0.28         0.27         0.19         0.20        0.17

Total assets (in millions) .............................   $   4,559    $   4,470    $   4,389    $   4,352   $   4,103

Capitalization (in millions) --
  Common shareholders' equity ..........................   $   1,240    $   1,226    $   1,204    $   1,181   $   1,160
  Preferred shares, not subject to mandatory redemption           32           90           90          110          74
  Preferred shares, subject to mandatory redemption ....         150           50           50           50          49
  Long-term debt (excluding current portion) ...........       1,395        1,403        1,398        1,341       1,369

Capitalization ratios % --
  Common shareholders' equity ..........................        44.0         44.3         43.9         44.0        43.8
  Preferred shares, not subject to mandatory redemption          1.1          3.2          3.3          4.1         2.8
  Preferred shares, subject to mandatory redemption ....         5.4          1.8          1.8          1.9         1.8
  Long-term debt (excluding current portion) ...........        49.5         50.7         51.0         50.0        51.6

Book value per common share at year-end ................   $   12.31    $   12.17    $   12.08    $   12.07   $   11.86
Utility construction expenditures (in thousands) .......   $ 154,198    $ 190,771    $ 211,669    $ 215,081   $ 188,344
Net cash from utility operations less
  dividends as a % of construction .....................         127          108           99           86          85

Number of fulltime employees --
  Utility ..............................................       3,370        3,331        4,077        4,196       4,305
  Nonregulated .........................................         236          271          274          347         200

</TABLE>

                                      -94-

<PAGE>

<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
              UNAUDITED FIVE-YEAR CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                        YEARS ENDED DECEMBER 31
                                                    1996           1995           1994           1993           1992
                                                -----------    -----------    -----------    -----------    -----------
<S>                                             <C>            <C>            <C>            <C>            <C>
OPERATING REVENUES
Electric utility ............................   $ 1,099,008    $ 1,094,647    $ 1,021,660    $ 1,002,970    $   936,027
Gas utility .................................       536,753        459,588        492,015        538,989        484,687
Nonregulated ................................       236,851         95,106        117,550         85,997         41,866
                                                -----------    -----------    -----------    -----------    -----------
                                                  1,872,612      1,649,341      1,631,225      1,627,956      1,462,580
                                                -----------    -----------    -----------    -----------    -----------

OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity ...........       234,317        230,261        213,987        217,385        211,924
Cost of gas sold ............................       345,014        279,025        326,782        366,049        326,097
Other operating expenses ....................       350,174        399,648        354,190        340,720        329,911
Maintenance .................................        88,621         85,363        101,275        101,601         93,769
Depreciation and amortization ...............       164,592        158,950        154,229        150,822        144,646
Property and other taxes ....................        92,630         96,350         94,990         93,238         97,479
                                                -----------    -----------    -----------    -----------    -----------
                                                  1,275,348      1,249,597      1,245,453      1,269,815      1,203,826
                                                -----------    -----------    -----------    -----------    -----------
Nonregulated:
Cost of sales ...............................       218,256         70,209         84,515         57,907         14,411
Other .......................................        35,370         37,181         36,765         32,296         33,184
                                                -----------    -----------    -----------    -----------    -----------
                                                    253,626        107,390        121,280         90,203         47,595
                                                -----------    -----------    -----------    -----------    -----------
Total operating expenses ....................     1,528,974      1,356,987      1,366,733      1,360,018      1,251,421
                                                -----------    -----------    -----------    -----------    -----------

OPERATING INCOME ............................       343,638        292,354        264,492        267,938        211,159
                                                -----------    -----------    -----------    -----------    -----------

NON-OPERATING INCOME
Interest income .............................         4,012          4,485          4,334          5,805          4,457
Dividend income .............................        16,985         16,954         17,087         17,601         17,353
Realized gains and losses on securities, net          1,895            688          7,635          7,915          4,233
Other, net ..................................        (4,020)       (10,467)         4,316         20,842        (10,387)
                                                -----------    -----------    -----------    -----------    -----------
                                                     18,872         11,660         33,372         52,163         15,656
                                                -----------    -----------    -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ..................       102,909        105,550        101,267        107,044        114,732
Other interest expense ......................        10,941          9,449          6,446          5,066          5,899
Allowance for borrowed funds ................        (4,212)        (5,552)        (3,955)        (2,186)        (2,162)
Preferred dividends of subsidiaries .........        10,689          8,059         10,551          8,367          8,735
                                                -----------    -----------    -----------    -----------    -----------
                                                    120,327        117,506        114,309        118,291        127,204
                                                -----------    -----------    -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME     242,183        186,508        183,555        201,810         99,611
INCOME TAXES ................................        98,422         66,803         60,457         67,485         24,566
                                                -----------    -----------    -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS ...........       143,761        119,705        123,098        134,325         75,045

INCOME (LOSS) FROM DISCONTINUED OPERATIONS ..       (12,715)         3,059         (2,909)         1,159          5,099
                                                -----------    -----------    -----------    -----------    -----------

NET INCOME ..................................   $   131,046    $   122,764    $   120,189    $   135,484    $    80,144
                                                ===========    ===========    ===========    ===========    ===========

AVERAGE COMMON SHARES OUTSTANDING ...........       100,752        100,401         98,531         97,762         95,430

EARNINGS PER COMMON SHARE
Continuing operations .......................   $      1.43    $      1.19    $      1.25    $      1.38    $      0.79
Discontinued operations .....................         (0.13)          0.03          (0.03)          0.01           0.05
                                                -----------    -----------    -----------    -----------    -----------
Earnings per average common share ...........   $      1.30    $      1.22    $      1.22    $      1.39    $      0.84
                                                ===========    ===========    ===========    ===========    ===========

DIVIDENDS DECLARED PER SHARE ................   $      1.20    $      1.18    $      1.17    $      1.17    $      1.28
                                                ===========    ===========    ===========    ===========    ===========



</TABLE>
                                      -95-

<PAGE>

<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                 UNAUDITED FIVE-YEAR CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                                                                       AS OF  DECEMBER 31
                                                                  1996          1995          1994          1993          1992
                                                               -----------   -----------   -----------   -----------   -----------
ASSETS
UTILITY PLANT
<S>                                                            <C>           <C>           <C>           <C>           <C>
Electric ...................................................   $ 4,010,847   $ 3,881,699   $ 3,765,004   $ 3,642,415   $ 3,534,703
Gas ........................................................       723,491       695,741       663,792       639,276       628,856
                                                               -----------   -----------   -----------   -----------   -----------
                                                                 4,734,338     4,577,440     4,428,796     4,281,691     4,163,559
Less accumulated depreciation and amortization .............     2,153,058     2,027,055     1,885,870     1,801,668     1,680,033
                                                               -----------   -----------   -----------   -----------   -----------
                                                                 2,581,280     2,550,385     2,542,926     2,480,023     2,483,526
Construction work in progress ..............................        49,305       104,164       101,252       111,726        67,664
                                                               -----------   -----------   -----------   -----------   -----------
                                                                 2,630,585     2,654,549     2,644,178     2,591,749     2,551,190
                                                               -----------   -----------   -----------   -----------   -----------

POWER PURCHASE CONTRACT ....................................       190,897       212,148       221,998       248,643       243,146
                                                               -----------   -----------   -----------   -----------   -----------

INVESTMENT IN DISCONTINUED OPERATIONS ......................       196,356       177,300       186,246       168,907       118,163
                                                               -----------   -----------   -----------   -----------   -----------

CURRENT ASSETS
Cash and cash equivalents ..................................        97,749        32,915        28,651        20,657        23,723
Receivables less reserves...................................       312,930       228,128       196,814       216,157       218,258
Inventories ................................................        90,864        85,235        92,248       100,675        98,608
Other ......................................................        11,696        18,428        14,288        21,195        24,811
                                                               -----------   -----------   -----------   -----------  ------------
                                                                   513,239       364,706       332,001       358,684       365,400
                                                               -----------   -----------   -----------   -----------   -----------

INVESTMENTS ................................................       628,791       646,456       595,510       614,153       635,315
                                                               -----------   -----------   -----------   -----------   -----------

OTHER ASSETS ...............................................       399,415       414,938       408,961       369,937       190,206
                                                               -----------   -----------   -----------   -----------   -----------

TOTAL ASSETS ...............................................   $ 4,559,283   $ 4,470,097   $ 4,388,894   $ 4,352,073   $ 4,103,420
                                                               ===========   ===========   ===========   ===========   ===========


CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity ................................   $ 1,239,946   $ 1,225,715   $ 1,204,112   $ 1,180,510   $ 1,159,676
Preferred shares, not subject to mandatory redemption ......        31,769        89,945        89,955       109,871        74,242
Preferred shares, subject to mandatory redemption ..........       150,000        50,000        50,000        50,000        48,625
Long-term debt (excluding current portion) .................     1,395,103     1,403,322     1,398,255     1,341,003     1,368,784
                                                               -----------   -----------   -----------   -----------   -----------
                                                                 2,816,818     2,768,982     2,742,322     2,681,384     2,651,327
                                                               -----------   -----------   -----------   -----------   -----------

CURRENT LIABILITIES
Notes payable ..............................................       161,990       184,800       124,500       173,035       120,244
Current portion of long-term debt...........................        79,598        65,295        72,872        66,371        32,952
Current portion of power purchase contract .................        13,718        13,029        12,080        10,830         8,065
Accounts payable ...........................................       169,806       122,055       106,152       123,618       112,198
Taxes accrued ..............................................        82,254        81,898        91,653       110,923       101,585
Interest accrued ...........................................        28,513        30,635        30,659        31,021        31,395
Other ......................................................        30,229        46,267        44,974        49,470        53,050
                                                               -----------   -----------   -----------   -----------   -----------
                                                                   566,108       543,979       482,890       565,268       459,489
                                                               -----------   -----------   -----------   -----------   -----------

OTHER LIABILITIES
Power purchase contract ....................................        97,504       112,700       125,729       140,655       138,085
Deferred income taxes ......................................       752,336       724,587       712,307       659,753       589,626
Investment tax credit ......................................        88,842        95,041       100,871       106,729       113,846
Other ......................................................       237,675       224,808       224,775       198,284       151,047
                                                               -----------   -----------   -----------   -----------   -----------
                                                                 1,176,357     1,157,136     1,163,682     1,105,421       992,604
                                                               -----------   -----------   -----------   -----------   -----------

TOTAL CAPITALIZATION AND LIABILITIES .......................   $ 4,559,283   $ 4,470,097   $ 4,388,894   $ 4,352,073   $ 4,103,420
                                                               ===========   ===========   ===========   ===========   ===========
</TABLE>

                                      -96-

<PAGE>

<TABLE>
<CAPTION>
                      MIDAMERICAN ENERGY HOLDINGS COMPANY
                 UNAUDITED UTILITY FIVE-YEAR ELECTRIC STATISTICS

FOR THE YEARS ENDED DECEMBER 31                    1996          1995          1994           1993           1992
                                                -----------   -----------   -----------    -----------    -----------

<S>                                             <C>           <C>           <C>            <C>            <C>    
REVENUES (in thousands)
Residential .................................   $   415,954   $   434,105   $   400,346    $   386,047    $   343,842
Small general service .......................       237,466       252,427       253,703        242,205        236,292
Large general service .......................       241,172       219,075       204,481        193,616        199,256
Other sales .................................        60,476        60,160        57,731         56,198         30,878
Sales for resale ............................       121,452       105,472        84,260        104,461        106,982
                                                -----------   -----------   -----------    -----------    -----------
Total from electric sales ...................     1,076,520     1,071,239     1,000,521        982,527        917,250
Other electric revenue ......................        22,488        23,408        21,139         20,443         18,777
                                                -----------   -----------   -----------    -----------    -----------
Total .......................................   $ 1,099,008   $ 1,094,647   $ 1,021,660    $ 1,002,970    $   936,027
                                                ===========   ===========   ===========    ===========    ===========

KWH SALES (in thousands)
Residential .................................     4,652,031     4,767,608     4,500,265      4,475,883      4,098,567
Small general service .......................     3,565,459     3,920,792     4,062,993      3,937,360      3,885,898
Large general service .......................     6,067,325     5,351,933     5,091,685      4,851,493      4,993,213
Other .......................................       988,022       957,463       938,620        930,117        470,444
Sales for resale ............................     6,727,326     5,509,161     3,605,092      5,566,208      6,386,957
                                                -----------   -----------   -----------    -----------    -----------
Total .......................................    22,000,163    20,506,957    18,198,655     19,761,061     19,835,079
                                                ===========   ===========   ===========    ===========    ===========

REVENUES AS A % OF TOTAL
Residential .................................          38.6          40.5          40.0           39.3           37.5
Small general service .......................          22.1          23.6          25.4           24.7           25.7
Large general service .......................          22.4          20.5          20.4           19.7           21.7
Other .......................................           5.6           5.6           5.8            5.7            3.4
Sales for resale ............................          11.3           9.8           8.4           10.6           11.7
                                                -----------   -----------   -----------    -----------    -----------
Total .......................................         100.0         100.0         100.0          100.0          100.0
                                                ===========   ===========   ===========    ===========    ===========
SALES AS A % OF TOTAL
Residential .................................          21.1          23.2          24.7           22.7           20.6
Small general service .......................          16.2          19.1          22.3           19.9           19.6
Large general service .......................          27.6          26.1          28.0           24.5           25.2
Other .......................................           4.5           4.7           5.2            4.7            2.4
Sales for resale ............................          30.6          26.9          19.8           28.2           32.2
                                                -----------   -----------   -----------    -----------    -----------
Total .......................................         100.0         100.0         100.0          100.0          100.0
                                                ===========   ===========   ===========    ===========    ===========

RETAIL ELECTRIC SALES BY JURISDICTION (%)
Iowa ........................................          88.7          88.4          88.6           88.7           87.8
Illinois ....................................          10.6          11.0          10.9           10.9           11.8
South Dakota ................................           0.7           0.6           0.5            0.4            0.4
                                                -----------   -----------   -----------    -----------    -----------
Total .......................................         100.0         100.0         100.0          100.0          100.0
                                                ===========   ===========   ===========    ===========    ===========

CUSTOMERS (end of year)
Residential .................................       557,637       551,384       548,106        541,220        536,767
Small general service .......................        73,022        72,616        69,905         68,829         71,843
Large general service .......................           982           945           743            744            833
Other .......................................         9,937         9,744         9,518          9,572          5,156
Sales for resale ............................            55            55            59             63             61
                                                -----------   -----------   -----------    -----------    -----------
Total .......................................       641,633       634,744       628,331        620,428        614,660
                                                ===========   ===========   ===========    ===========    ===========

ANNUAL AVERAGE PER RESIDENTIAL CUSTOMER
Revenue per Kwh (cents) .....................          8.94          9.11          8.90           8.62           8.39
KWh sales ...................................         8,392         8,670         8,265          8,310          7,681

COOLING DEGREE DAYS
Actual ......................................           788         1,112           912            813            603
Percent warmer (colder) than normal .........         (17.5)         14.1          (6.5)         (16.4)         (38.5)

ELECTRIC PEAK DEMAND (net MW) ...............         3,537         3,553         3,226          3,284          2,902

SUMMER NET ACCREDITED CAPABILITY (MW) .......         4,301         4,311         4,145          4,072          4,116


</TABLE>
                                      -97-
<PAGE>

<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                   UNAUDITED UTILITY FIVE-YEAR GAS STATISTICS

FOR THE YEARS ENDED DECEMBER 31                                1996      1995      1994       1993      1992
                                                             --------  --------  --------   --------  -------- 
<S>                                                          <C>       <C>       <C>        <C>       <C>      
REVENUES (in thousands)
Residential ...............................................  $338,605  $279,819  $287,171   $319,359  $282,688
Small general service .....................................   153,616   128,501   142,894    150,913   133,384
Large general service .....................................    17,670    23,280    36,729     37,761    43,919
Sales for resale and other ................................     2,050     5,303     5,514     10,376     2,648
                                                             --------  --------  --------   --------  -------- 
  Total revenue from gas sales ............................   511,941   436,903   472,308    518,409   462,639
Gas transported ...........................................    20,155    16,677    12,842     13,457    17,473
Other gas revenues ........................................     4,657     6,008     6,865      7,123     4,575
                                                             --------  --------  --------   --------  -------- 
Total .....................................................  $536,753  $459,588  $492,015   $538,989  $484,687
                                                             ========  ========  ========   ========  ========

THROUGHPUT (MMBtu in thousands)
Sales
  Residential .............................................    61,732    57,153    54,732     60,612    56,072
  Small general service ...................................    33,642    32,786    32,677     34,504    31,894
  Large general service ...................................     4,634     6,222     8,253      9,681    12,357
  Sales for resale and other ..............................       977     3,582     3,231      4,305       837
                                                             --------  --------  --------   --------  -------- 
    Total sales ...........................................   100,985    99,743    98,893    109,102   101,160
Gas transported ...........................................    54,618    50,695    43,293     39,570    34,686
                                                             --------  --------  --------   --------  -------- 
  Total ...................................................   155,603   150,438   142,186    148,672   135,846
                                                             ========  ========  ========   ========  ========
REVENUES AS A % OF TOTAL
Residential ...............................................      63.6      61.7      59.2       60.0      58.9
Small general service .....................................      28.9      28.3      29.4       28.4      27.8
Large general service .....................................       3.3       5.1       7.6        7.1       9.1
Sales for resale and other ................................       0.4       1.2       1.1        2.0       0.6
Gas Transported ...........................................       3.8       3.7       2.7        2.5       3.6
                                                             --------  --------  --------   --------  -------- 
  Total ...................................................     100.0     100.0     100.0      100.0     100.0
                                                             ========  ========  ========   ========  ========
SALES AS A % OF TOTAL (excluding gas transported)
Residential ...............................................      61.1      57.3      55.3       55.6      55.5
Small general service .....................................      33.3      32.9      33.0       31.6      31.5
Large general service .....................................       4.6       6.2       8.4        8.9      12.2
Sales for resale and other ................................       1.0       3.6       3.3        3.9       0.8
                                                             --------  --------  --------   --------  -------- 
  Total ...................................................     100.0     100.0     100.0      100.0     100.0
                                                             ========  ========  ========   ========  ========

RETAIL GAS SALES BY JURISDICTION (%)
Iowa ......................................................      78.0      77.1      76.6       74.5      73.4
Illinois ..................................................      11.0      11.6      11.9       11.4      11.6
South Dakota ..............................................      10.3      10.6      10.8        5.4       2.2
Other .....................................................       0.7       0.7       0.7        8.7      12.8
                                                             --------  --------  --------   --------  -------- 
  Total ...................................................     100.0     100.0     100.0      100.0     100.0
                                                             ========  ========  ========   ========  ========

CUSTOMERS (end of year)
Residential ...............................................   550,786   541,732   535,301    526,863   552,660
Small general service .....................................    58,059    57,207    55,855     54,972    54,918
Large general service .....................................       821       830       876        868     1,020
Gas transported and other .................................       504     1,128       171        128       123
                                                             --------  --------  --------   --------  --------
  Total ...................................................   610,170   600,897   592,203    582,831   608,721
                                                             ========  ========  ========   ========  ========
ANNUAL AVERAGES PER RESIDENTIAL CUSTOMER
Revenue per MMBtu .........................................     $5.49     $4.90     $5.25      $5.27     $5.04
MMBtu sales ...............................................       113       106       103        111       103

HEATING DEGREE DAYS
Actual ....................................................     7,445     6,841     6,565      7,097     6,302
Percent colder (warmer) than normal .......................      10.1       0.9      (3.5)       3.2      (8.7)

COST PER MMBTU ............................................     $3.42     $2.80     $3.30      $3.36     $3.22


</TABLE>
                                      -98-
<PAGE>
                                                                   SCHEDULE II


              MIDAMERICAN ENERGY HOLDINGS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996
                                 (In Thousands)
<TABLE>
<CAPTION>


   Column A                                Column B      Column C     Column D      Column E

                                           Balance at    Additions                  Balance at
                                           Beginning     Charged                      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 1996.....................     $2,296        $6,145      $(6,348)       $2,093
                                             ======        ======      =======        ======

    Year ended 1995.....................     $2,099        $4,934      $(4,737)       $2,296
                                             ======        ======      =======        ======

    Year ended 1994.....................     $3,697        $3,920      $(5,518)       $2,099
                                             ======        ======      =======        ======


Reserves Not Deducted From Assets:

   Property insurance

     Year ended 1996....................     $2,098        $  (70)     $     -        $2,028
                                             ======        ======      =======        ======

     Year ended 1995....................     $2,224        $   17      $  (143)       $2,098
                                             ======        ======      =======        ======

     Year ended 1994....................     $2,561        $  200      $  (537)       $2,224
                                             ======        ======      =======        ======


   Injuries and damages

     Year ended 1996....................     $1,079        $2,753      $(1,593)       $2,239
                                             ======        ======      =======        ======

     Year ended 1995....................     $2,350        $2,645      $(3,916)       $1,079
                                             ======        ======      =======        ======

     Year ended 1994....................     $1,801        $3,452      $(2,903)       $2,350
                                             ======        ======      =======        ======

</TABLE>
                                      -99-
<PAGE>

                                                                   SCHEDULE II


                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1996
                                 (In Thousands)

<TABLE>
<CAPTION>

   Column A                                Column B      Column C     Column D      Column E

                                           Balance at    Additions                  Balance at
                                           Beginning      Charged                      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 1996....................     $2,214        $5,854      $(6,223)       $1,845
                                             ======        ======      =======        ======

     Year ended 1995....................     $2,008        $4,680      $(4,474)       $2,214
                                             ======        ======      =======        ======

     Year ended 1994....................     $2,040        $3,466      $(3,498)       $2,008
                                             ======        ======      =======        ======


Reserves Not Deducted From Assets:

   Property insurance

     Year ended 1996....................     $2,098        $  (70)     $     -        $2,028
                                             ======        ======      =======        ======

     Year ended 1995....................     $2,224        $   17      $  (143)       $2,098
                                             ======        ======      =======        ======

     Year ended 1994....................     $2,561        $  200      $  (537)       $2,224
                                             ======        ======      =======        ======


   Injuries and damages

     Year ended 1996....................     $1,079        $2,753      $(1,593)       $2,239
                                             ======        ======      =======        ======

     Year ended 1995....................     $2,350        $2,645      $(3,916)       $1,079
                                             ======        ======      =======        ======

     Year ended 1994....................     $1,801        $3,452      $(2,903)       $2,350
                                             ======        ======      =======        ======
</TABLE>
                                      -100-
<PAGE>
                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrants  have duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                                        MIDAMERICAN ENERGY HOLDINGS COMPANY
                                        MIDAMERICAN ENERGY COMPANY
                                        -----------------------------------
                                             Registrants



Date:                                   By  /s/ S. J. Bright
                                        -----------------------------------
                                           (S. J. Bright)  President, Chief 
                                                             Executive Officer
                                                             and Director

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 registrants and
in the capacities and on the date indicated:

         Signature                                     Title
         ---------                                     -----

MidAmerican Energy Holdings Company



      /s/  R. E. Christiansen               Chairman of the Board of Directors
     ------------------------
         (R. E. Christiansen)



      /s/  P.G. Lindner                     Senior Vice President and Chief
     -------------------------
         (P.G. Lindner)                     Financial Officer



      /s/  J. W. Aalfs                      Director
     -------------------------
         (J. W. Aalfs)



      /s/  Robert A. Burnett                Director
     -------------------------
         (R. A. Burnett)



      /s/  Ross D. Christensen              Director
     -------------------------
         (R. D. Christensen)

                                      -101-

<PAGE>



      /s/  John W. Colloton                 Director
     -------------------------
         (J. W. Colloton)


      /s/  Frank S. Cottrell                Director
     -------------------------
         (F. S. Cottrell)


      /s/  Jack W. Eugster                  Director
     -------------------------
         (J. W. Eugster)


      /s/  Mel Foster, Jr.                  Director
     -------------------------
         (M. Foster, Jr.)


      /s/  Nolden Gentry                    Director
     -------------------------
         (N. Gentry)


      /s/  J. M. Hoak, Jr.                  Director
     -------------------------
         (J. M. Hoak, Jr.)


      /s/  R. L. Lawson                     Director
     -------------------------
         (R. L. Lawson)


      /s/  R. L. Peterson                   Director
     -------------------------
         (R. L. Peterson)


      /s/  N. L. Seifert                    Director
     ------------------------
         (N. L. Seifert)


      /s/  W. Scott Tinsman                 Director
     -------------------------
         (W. S. Tinsman)


      /s/  L. L. Woodruff                   Director
     -------------------------
         (L. L. Woodruff)



                                      -102-

<PAGE>



MidAmerican Energy Company




      /s/  S. J. Bright                     Chairman of the Board of Directors
     --------------------------
         (S.  J. Bright)



                                            Director
     --------------------------
         (R. E. Christiansen)



      /s/  P.G. Lindner                     Director, Senior Vice President
     --------------------------
         (P.G. Lindner)                       and Chief Financial Officer



                                            Director
     --------------------------
         (D. J. Levy)



      /s/  J. A. Rasmussen, Jr.             Director
     --------------------------
         (J. A. Rasmussen, Jr.)



      /s/  S. E. Shelton                    Director
     --------------------------
         (S. E. Shelton)



      /s/  R. W. Stepien                    Director
     --------------------------
         (R. W. Stepien)



     /s/  B. A. Wharton                     Director
     -------------------------
         (B. A. Wharton)


                                      -103-

<PAGE>
EXHIBIT INDEX

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

Holdings

3.1       Restated  Articles of  Incorporation  of MidAmerican  Energy  Holdings
          Company, as amended December 19, 1996.

3.2       Bylaws of MidAmerican  Energy  Holdings  Company,  as amended July 24,
          1996.

MidAmerican Energy

3.3       Restated Articles of Incorporation of MidAmerican  Energy Company,  as
          amended January 22, 1997.

Holdings and MidAmerican

10.1      MidAmerican Energy Company Severance Plan For Specified Officers dated
          November 1, 1996.

Holdings

10.2      Form  of  Indemnity  Agreement  between  MidAmerican  Energy  Holdings
          Company and its directors and officers.

10.3      Employment  Agreement between Stanley J. Bright and MidAmerican Energy
          Holdings Company dated January 24, 1996.

10.4      Employment  Agreement  between Russell E. Christiansen and MidAmerican
          Energy Holdings Company dated January 24, 1996, as amended January 29,
          1997.

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

MidAmerican

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

Holdings

21.1      Subsidiaries of the Registrant.

MidAmerican

21.2      Subsidiaries of the Registrant.

                                      -104-
<PAGE>

Holdings

23.1      Consent of Arthur Andersen LLP.

MidAmerican

23.3      Consent of Arthur Andersen LLP.

27        Financial Data Schedules (for electronic filings only).

Holdings

99.1      MidAmerican  Energy Company Employee Stock Purchase Plan Annual Report
          of Form 11-K.


Exhibits Incorporated by Reference
----------------------------------

MidAmerican Energy

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.)

Holdings

4.1       Shareholder  Rights  Agreement  dated as of December  18, 1996 between
          Holding's and Continental Stock Transfer and Trust Company.  (Filed as
          Exhibit 4 to Holdings'  Current  Report on Form 8-K dated December 18,
          1996, Commission File No. 1-12459.)

Holdings and MidAmerican Energy

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'  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.)

                                      -105-

<PAGE>

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.)

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.)

10.2      MidAmerican  Energy Company Deferred  Compensation Plan for Directors.
          (Filed as Exhibit  10.1 to  MidAmerican's  Annual  Report on Form 10-K
          dated December 31, 1995, Commission File No. 1-11505.)

10.3      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.)

                                      -106-

<PAGE>

10.4      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.)

10.5      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.)

10.6      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).

10.7      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).

10.8      Midwest  Resources Inc.  Directors  Retirement Plan. (Filed as Exhibit
          10.3 to  Midwest  Resources'  Annual  Report on Form 10-K for the year
          ended December 31, 1990, Commission File No. 1-10654.)

10.9      Non-Cash  Bonus Award Plan for  Executives of Midwest  Resources  Inc.
          (Filed as Exhibit  10.4 to Midwest  Resources'  Annual  Report on Form
          10-K  for the  year  ended  December  31,  1990,  Commission  File No.
          1-10654).

10.10     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.)

10.11     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.)

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

10.13     Midwest  Resources  Inc.  and  Participating   Subsidiaries  Long-Term
          Incentive  Compensation  Plan.  (Filed  as  Exhibit  10.8  to  Midwest
          Resources'  Annual Report on Form 10-K for the year ended December 31,
          1991, Commission File No. 1-10654.)

10.14     Midwest Power Group 1992 Key Executive  Incentive  Compensation  Plan.
          (Filed as Exhibit  10.9 to Midwest  Resources'  Annual  Report on Form
          10-K  for the  year  ended  December  31,  1991,  Commission  File No.
          1-10654.)

10.15     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.)

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<PAGE>

10.16     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.)

10.17     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.)

10.18     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.)

10.19     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.)

10.20     Revised and amended  Executive  Compensation  Plan for Iowa  Resources
          Inc. and Subsidiaries, dated July 24, 1985. (Filed as Exhibit 10.21 to
          Iowa  Resources  Inc.'s (IOR) Annual  Report on Form 10-K for the year
          ended December 31, 1985, Commission File No. 1-7830.)

10.21     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.)

10.22     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.)

10.23     Revised  and  amended   Executive   Compensation   Plan  for  IOR  and
          Subsidiaries,  dated  December  18, 1987.  (Filed as Exhibit  10.14 to
          IOR's Annual Report on Form 10-K for the year ended December 31, 1987,
          Commission File No. 1-7830.)

10.24     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.)

10.25     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.)

10.27     Change in  control  agreement  between  Russell  E.  Christiansen  and
          Midwest  Energy  Company  dated as of May 5,  1989.  (Filed as Exhibit
          10(e)  in  MWE's  Form  10-K for the year  ended  December  31,  1989,
          Commission File No. 1-8708.)

10.29     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.)

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<PAGE>
10.30     Midwest Power Systems 1993 Key Executive Incentive  Compensation Plan.
          (Filed as Exhibit  10.30 in Midwest  Resources'  Annual Report on Form
          10-K  for the  year  ended  December  31,  1993,  Commission  File No.
          1-10654.)

10.31     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.)

10.32     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.)

10.33     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.)

10.34     Revised  and  amended  Supplemental  Retirement  Income  Plan for Iowa
          Resources  Inc. and  Subsidiaries  dated  October 24, 1984.  (Filed as
          Exhibit 10.15 to Midwest Resources' Annual Report on Form 10-K for the
          year ended December 31, 1994, Commission File No. 1-10654.)

10.35     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.)

10.36     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.)

10.37     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.)

10.38     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.)

 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 being registered if the
          total amount of securities  authorized  thereunder does not exceed 10%
          of total  assets of the  Company  but hereby  agrees to furnish to the
          Commission on request any such instruments.


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