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, 1997
                                             -----------------
                                              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's Name, 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   New York Stock Exchange
  Company         Obligated Preferred Securities 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 was  $1,954,875,719  as of  February  27,  1998,  when
94,595,982 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 zero as of February  27,  1998,  when  70,980,203  shares of
common stock, without par value, were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

A portion of Holding's  Proxy  Statement  relating to its 1998 Annual Meeting of
Shareholders is incorporated by reference in Part III hereof.



                                       -2-

<PAGE>



                       MIDAMERICAN ENERGY HOLDINGS COMPANY

                                       AND

                           MIDAMERICAN ENERGY COMPANY


                         1997 Annual Report on Form 10-K

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

                                TABLE OF CONTENTS

                                     Part I
                                                                       Page
Item 1   Business
            General Development of Business..........................    7
            Financial Information About Industry Segments............    8
            Narrative Description of Business........................    8
              Business of MidAmerican Energy Holdings Company........    8
              Business of MidAmerican Energy Company.................    8
                 Electric Operations ................................   10
                 Natural Gas Operations..............................   12
                 Construction Program................................   14
                 General Utility Regulation..........................   14
                 Rate Regulation.....................................   14
                 Nuclear Regulation..................................   16
                 Environmental Regulations...........................   17
              Business of MidAmerican Capital Company................   19
              Business of Midwest Capital Group, Inc.................   20
Item 2   Properties..................................................   20
Item 3   Legal Proceedings...........................................   22
Item 4   Submission of Matters to a Vote of Security Holders.........   23

Other Information
         Executive Officers of the Registrant........................   23
         Business Transaction Policy Statement.......................   23



                                       -3-

<PAGE>



                                     Part II

                                                                       Page
Item 5   Market for the Registrant's Common Equity and
            Related Stockholder Matters..............................    25
Item 6   Selected Financial Data.....................................    25
Item 7   Management's Discussion and Analysis of Financial
            Condition and Results of Operations......................    26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..    26
Item 8   Financial Statements and Supplementary Data.................    29
Item 9   Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosure...................    29

                                    Part III

Item 10  Directors and Executive Officers of the Registrant..........    30
Item 11  Executive Compensation......................................    32
Item 12  Security Ownership of Certain Beneficial Owners
            and Management...........................................    32
Item 13  Certain Relationships and Related Transactions..............    34

                                     Part IV

Item 14  Exhibits, Financial Statement Schedules, and
            Reports on Form 8-K......................................    34
Signatures...........................................................   120

Exhibits Index.......................................................   123

                                       -4-

<PAGE>



DEFINITIONS

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

TERM                  MEANING

ANR                   ANR Pipeline Company
Btu                   British Thermal Unit, the quantity of heat required to 
                        raise the temperature of one pound of water one degree 
                        Fahrenheit
CAAA                  Clean Air Act Amendments of 1990
ComEd                 Commonwealth Edison Company
Company               MidAmerican Energy Holdings Company
Cooper                Cooper Nuclear Station
DOE                   United States Department of Energy
EMFs                  Electric and magnetic fields
EAC                   Energy Adjustment Clause
EPA                   United States Environmental Protection Agency
Exchange Act          Securities Exchange Act of 1934, as amended
FASB                  Financial Accounting Standards Board
FERC                  Federal Energy Regulatory Commission
Holdings              MidAmerican Energy Holdings Company
ICC                   Illinois Commerce Commission
InterCoast            InterCoast Energy Company
InterCoast Capital    InterCoast Capital Company
Iowa-Illinois         Iowa-Illinois Gas and Electric 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
MAPP                  Mid-Continent Area Power Pool
Mcf                   One thousand cubic feet
McLeodUSA             McLeodUSA Incorporated
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
Midwest               Midwest Power Systems Inc.
Midwest Resources     Midwest Resources Inc.
MGP                   Manufactured gas plant
MMcf                  One million cubic feet
MW                    Megawatts, one million watts
NGPL                  Natural Gas Pipeline Company of America
NNG                   Northern Natural Gas

                                       -5-

<PAGE>



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
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  headquartered  in
Des Moines,  Iowa, and incorporated in the state of Iowa. Holdings was formed in
1996 to hold the common stock of  MidAmerican,  and its principal  subsidiaries.
Effective  December 1, 1996,  Holdings became the parent company of MidAmerican,
MidAmerican  Capital and Midwest  Capital  pursuant to a share exchange  between
MidAmerican  and  Holdings.  Prior  to  the  effective  date  of  the  exchange,
MidAmerican Capital 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, an Iowa corporation, was formed on July 1, 1995, as a result
of the merger of  Iowa-Illinois,  Midwest  Resources  and  Midwest.  MidAmerican
Capital  (then  InterCoast)  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.

       During 1996, the Company changed the name of its nonregulated subsidiary,
InterCoast,  to  MidAmerican  Capital.  As  part  of the  restructuring  of that
subsidiary, the Company formed a new subsidiary under MidAmerican Capital, named
InterCoast  Energy  Company.  The new  InterCoast  had as its  subsidiaries  the
Company's  wholesale  nonregulated  energy  companies,  including  oil  and  gas
exploration and development  operations which were discontinued in 1996 and sold
in January 1997.

       The  Company   continued  its  strategic   realignment  of   nonregulated
investments  in 1997. In the fourth  quarter of 1997, the Company sold assets of
its railcar leasing and repair businesses.

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

       In anticipation of changes in the electric utility industry,  MidAmerican
established  in 1997 the  framework for a new approach to managing its business.
Beginning January 1, 1998, MidAmerican began operating as four distinct business
units:   generation,   transmission,   energy   delivery  and  retail.   Certain
administrative  functions  are  handled  by a  corporate  services  group  which
supports all of the business  units.  Although  specific  functions may be moved
between business units as future  circumstances  warrant, the main focus of each
business  unit has been  established.  Presently,  significant  functions of the
generation  business unit include the  production and purchase of energy and the
sale of  wholesale  energy.  The  transmission  business  unit  coordinates  all
activities   related  to  MidAmerican's   transmission   facilities,   including
monitoring  access to and assuring the reliability of the  transmission  system.
Energy  delivery  includes the  distribution  of electricity  and natural gas to
end-users, and related activities.  Retail includes marketing,  customer service
and related functions for core and complementary products and services.


                                       -7-

<PAGE>



       The Company  expects  that, as the industry  moves  towards  competition,
generation  and  retail  functions  will not be  rate-regulated  and will be the
business  units  through  which  most of  MidAmerican's  external  revenues  are
derived.  Energy delivery and transmission  functions,  though not unaffected by
industry  changes,  are expected to remain  rate-regulated  by state and federal
commissions.

       The move to a competitive  environment  creates the need for new employee
skills and  knowledge  and  increased  focus on certain  aspects of the  utility
business.  MidAmerican  anticipates  increases in the number of employees in its
retail business unit in order to meet the increased emphasis on that area, while
some areas will have  decreases  in employees  as  efficiencies  are achieved or
needs change.

(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.

(C)    NARRATIVE DESCRIPTION OF BUSINESS

                              BUSINESS OF HOLDINGS
                              --------------------

       Holdings'  strategy is to become the leading regional  provider of energy
and complementary services. Holdings' interests include 100% of the common stock
of  MidAmerican,   MidAmerican  Capital  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.  MidAmerican  Capital manages marketable  securities and passive investment
activities,  nonregulated wholesale and retail natural gas businesses,  security
services and other  energy-related,  nonregulated  activities.  Midwest  Capital
functions as a regional business  development  company in MidAmerican's  service
territory.  In an effort that began in 1996,  Holdings is continuing to redeploy
investments that do not support its strategy.

       For the  year  ended  December  31,  1997,  86.5% of  Holdings  operating
revenues were from  MidAmerican,  13.4% were from  MidAmerican  Capital and 0.1%
were from Midwest Capital.

                             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.  As of December 31, 1997,  MidAmerican  had 647,700  retail  electric
customers and 618,000 retail natural gas customers.

       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.

       MidAmerican has a residential,  agricultural,  commercial and diversified
industrial customer group, in which no single industry or customer accounted for
more than 3.8% (food and kindred  products  industry) of its total 1997 electric
operating  revenues or 3.7% (food and kindred  products  industry)  of its total
1997 gas

                                       -8-

<PAGE>



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, 1997,  MidAmerican derived  approximately
68% of its gross operating  revenues from its electric business and 32% from its
gas business. For 1996 and 1995, the corresponding percentages were 67% electric
and 33% gas, and 70% 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

                             1997       1996      1995
                            ------     ------    -----
Residential                  20.9%      21.1%     23.2%
Small General Service        16.5       16.2      19.1
Large General Service        27.4       27.6      26.1
Other                         4.4        4.5       4.7
Sales for Resale             30.8       30.6      26.9
                            -----      -----     -----

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

                              Retail Electric Sales
                                    By State

                             1997      1996       1995
                            -----     -----      -----
Iowa                         88.6%     88.7%      88.4%
Illinois                     10.7      10.6       11.0
South Dakota                  0.7       0.7        0.6
                            -----     -----      -----

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

                             1997      1996       1995
                            -----     -----      -----
Residential                  60.8%     61.1%      57.3%
Small General Service        33.1      33.3       32.9
Large General Service         4.2       4.6        6.2
Sales for Resale and Other    1.9       1.0        3.6
                            -----     -----      -----

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



                                       -9-

<PAGE>



                                Retail Gas Sales
                                    By State

                            1997       1996      1995
                           -----      -----     ----
Iowa                        79.1%      78.0%    77.1%
Illinois                    10.4       11.0     11.6
South Dakota                 9.8       10.3     10.6
Nebraska                     0.7        0.7      0.7
                           -----      -----     ----

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

       There  are  seasonal   variations  in  MidAmerican's   electric  and  gas
businesses  which  are  principally  related  to  the  use  of  energy  for  air
conditioning and heating.  In 1997, 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 54% 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, 1997,  MidAmerican had 3,467 full-time employees of which
1,657 are covered by union contracts.  MidAmerican has eight separate  contracts
with locals of the International  Brotherhood of Electrical  Workers (IBEW), the
United  Association  of Plumbers and  Pipefitters  and the United Paper  Workers
International Union. The contracts covering most union employees are as follows:

                                  Employee         Contract
       Union        Local          Members        Expiration Date
       -----        -----         --------        ---------------

       IBEW           109           442                7/31/97
       IBEW           499          1,103             3/01/2000

       Regarding IBEW Local 109,  contract  negotiations are in progress and the
parties are currently  operating  under the terms of the expired  contract.  The
Local 499 employees  numbered above are covered under three  separate  contracts
based on the location of the Local 499 of which they are a member.

ELECTRIC OPERATIONS

       The annual  hourly peak demand on  MidAmerican's  electric  system occurs
principally  as a result of air  conditioning  use  during the  cooling  season.
MidAmerican's  highest  hourly peak demand in 1997 was 3,548 MW,  which was 5 MW
less than MidAmerican's record hourly peak of 3,553 MW set in 1995.

       MidAmerican's  accredited 1997 summer net generating capability was 4,293
MW. Accredited net generating  capability represents the amount of Company-owned
generation  available to meet the requirements on  MidAmerican's  energy system,
net of the  effect of  participation  purchases  and sales.  The net  generating
capability  at  any  time  may be  less  due to  regulatory  restrictions,  fuel
restrictions  and  generating  units  being   temporarily  out  of  service  for
inspection,   maintenance,   refueling  or  modifications.   Refer  to  Item  2,
Properties, for detail of accredited summer 1997 net generating capability.

       MidAmerican is interconnected with certain Iowa and neighboring utilities
and is involved in an electric power pooling  agreement known as MAPP. MAPP is a
voluntary  association of electric utilities doing business in Iowa,  Minnesota,
Nebraska and North Dakota and portions of Montana, South Dakota and

                                      -10-

<PAGE>



Wisconsin  and  the  Canadian  provinces  of  Saskatchewan  and  Manitoba.   Its
membership also includes power  marketers,  regulatory  agencies and independent
power producers.  MAPP facilitates  operation of the transmission system, serves
as a power and energy market  clearing house and is  responsible  for the safety
and reliability of the bulk electric system.

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

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

                             Year Ended December 31,
                            1997       1996      1995
                            ----       ----      ----
       Fuel Source:
       Coal                 76.3%      75.6%     77.6%
       Nuclear              23.0       23.9      21.6
       Gas                   0.6        0.4       0.7
       Oil                   0.1        0.1       0.1
                           -----      -----     -----
          Total            100.0%     100.0%    100.0%
                           =====      =====     =====

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

                             Year Ended December 31,
                            1997         1996        1995
                            ----         ----        ----
                        (Cents per million BTUs consumed)
       Fuel Source:
       Nuclear              48.92       44.85        44.19
       Coal                 90.60       92.45        95.14
       Gas                 338.71      318.80       226.92
       Oil                 455.22      412.13       422.80
       Weighted Average     88.49       88.74        90.21

       The average cost of coal received (including  transportation) per ton for
the years 1997, 1996 and 1995 was $14.77, $15.18 and $15.61, respectively.

       Two rail shippers deliver coal from the mines to, or near,  MidAmerican's
electric generating stations.  For the Louisa and Riverside generating stations,
a third shipper transports the coal from a common connection point to each plant
site. In November 1997,  MidAmerican  completed the  construction of a 6.25 mile
railway  leading to its Council  Bluffs  Energy Center  (CBEC).  The new railway
brings competition in coal transportation to the CBEC and is an important factor
in reducing coal transportation costs for generating units at that station.

       The  Union   Pacific   Railroad  (UP)   provides   service   directly  to
MidAmerican's  George  Neal  Station  (Neal  Station).   Nationwide  operational
problems for the UP in 1997, and continuing in 1998,  affected deliveries to the
Neal Station during the fourth quarter of 1997 and reduced coal inventory  below
desirable  levels at that site.  The  reduction  in  inventory  did not  prevent
MidAmerican  from  meeting the electric  energy  needs of its retail  customers.
Following  discussions between MidAmerican and the UP, increased deliveries have
been made to the four units at the Neal Station.


                                      -11-

<PAGE>



       MidAmerican  has used spot market  purchases of coal to manage  inventory
levels  and  take  advantage  of  coal  market  opportunities.   MidAmerican  is
continuing to satisfy its coal  requirements  with a combination of contract and
spot purchases. MidAmerican believes its sources of low-sulfur, western coal for
its  coal-fired  generating  stations are and will continue to be  satisfactory.
Renewal of expiring contracts and negotiations of new agreements will be pursued
as  required.   Additional  information  regarding   MidAmerican's  coal  supply
contracts  is  included  in Note  (4)(g)  of  Notes  to  Consolidated  Financial
Statements in Part IV, Item 14, of this Form 10-K.  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 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 1998 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  difficulty  in  contracting  for  uranium   concentrates  for  conversion,
enrichment or fabrication of nuclear fuel needed to operate Quad Cities Station.
Refer to the Nuclear Regulation section later in this discussion of the business
of MidAmerican for comments on an outage at Quad Cities Station.

       MidAmerican  purchases one-half of the power and energy of Cooper through
a long-term power purchase contract with NPPD.  Approximately 30% of the fuel in
the core at Cooper must be replaced every 18 months. The next refueling cycle is
currently scheduled to begin in October 1998. 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
did not begin  receiving  spent  nuclear fuel on the scheduled  date,  and it is
expected that the schedule will be significantly  delayed. The costs incurred by
the DOE for disposal activities are being financed by fees charged to owners and
generators of the waste.  ComEd has informed  MidAmerican  that there is on-site
storage  capability at the Quad Cities Station sufficient to permit such interim
storage at least  through  2006.  NPPD has  informed  MidAmerican  that there is
on-site  storage  capability  at 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.  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,  storage and
distribution  of natural gas for utility and end-use  customers  in the Midwest.
MidAmerican purchases natural gas from various suppliers, transports it from the
production  area  to  the  Company's  service  territory  under  contracts  with
interstate  pipelines,  stores  it  in  various  storage  facilities  to  manage
fluctuations  in system demand and seasonal  pricing and  distributes  it to the
customers through the Company's distribution system. MidAmerican also transports
through its distribution  system natural gas purchased  independently by certain
large users.

                                      -12-

<PAGE>



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

       MidAmerican  purchases the majority of its gas supplies from producers or
third party marketers.  To insure system reliability,  a geographically  diverse
supply  portfolio  with  varying  terms and  conditions  is utilized for the gas
supplies.

       MidAmerican  has rights to firm and  interruptible  pipeline  capacity to
transport  gas to its service  territory  through the NNG, NGPL and ANR systems.
Firm  capacity  in  excess  of  MidAmerican's   system  needs,   resulting  from
fluctuations in anticipated  system demand,  can be resold to other companies to
achieve  optimum use of the  available  capacity.  Past IUB rulings have allowed
MidAmerican  to retain 30% of Iowa  margins  earned on the resold  capacity  and
return 70% to customers through the purchased gas adjustment.

       Changes  in  MidAmerican's  cost of gas from the amount  included  in gas
service rates is recovered  from  customers  through a purchased gas  adjustment
clause. In 1995, the IUB approved MidAmerican's Incentive Gas Supply Procurement
Program for a three-year test period. Under the program, MidAmerican is required
to file with the IUB every six months a comparison of its gas procurement  costs
to an index-based  reference price. If MidAmerican's  cost of gas for the period
are outside of the established  tolerance band around the reference price,  then
MidAmerican  shares a portion  of the  savings/cost  with  customers.  Since the
implementation of the program, MidAmerican has successfully achieved savings for
its natural gas customers.

       MidAmerican utilizes leased gas storage to meet peak day requirements and
to manage the daily changes in demand due to changes in weather. The storage gas
is typically  replaced during the summer months.  In addition,  MidAmerican also
utilizes three liquefied  natural gas plants and three  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%  from
traditional sales service customers and 12% from  customer-owned gas transported
through  MidAmerican's  system.  MidAmerican's  1997/98  winter  heating  season
peak-day  delivery  of 910,769  MMBtus was  reached on January  13,  1998.  This
peak-day  delivery  included  approximately  73% from traditional  sales service
customers and 27% from  customer-owned  gas  transported  through  MidAmerican's
system.

       The supply sources  utilized by MidAmerican to meet its 1997/98  peak-day
deliveries to its sales service customers were:

                                 Thousands       Percent
                                    of             of
                                  MMBtus          Total

       Underground Storage        282.5            42.5
       Firm Supply                382.9            57.5
                                  -----           -----
       Total                      665.4           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.



                                      -13-

<PAGE>



CONSTRUCTION PROGRAM

       The table below shows actual utility  capital  expenditures  for 1997 and
budgeted utility expenditures for 1998.

                                   1997            1998
                                  Actual          Budgeted
                                 --------          --------
                                   (Thousands of Dollars)
       Electric Property
         Production              $ 16,229         $ 26,643
         Transmission              25,062           31,391
         Distribution              34,707           41,398
       Gas                         34,804           31,391
       Administration and Other    40,507           56,916
                                 --------         --------
         Subtotal                 151,309          187,739
       Quad Cities Fuel            11,371           13,179
       Cooper Additions             4,252                -
                                 --------         --------
         Total                   $166,932         $200,918
                                 ========         ========

        The  amounts  shown  above  include  allowance  for  funds  used  during
construction.  Of the $26.6 million of budgeted electric production expenditures
for 1998,  $8.1  million is for  expenditures  at the Quad  Cities  Station.  In
addition to the expenditures  shown above,  the Company  contributes to external
trusts  for  Quad  Cities  nuclear  decommissioning.   Refer  to  the  Investing
Activities  and Plans  section  of MD&A,  under  "Nuclear  Decommissioning"  for
further discussion.

REGULATION

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

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

        MidAmerican  is  regulated  by the  ICC as to  retail  rates,  services,
accounts,   issuance  of  securities,   affiliate  transactions,   construction,
acquisition and sale of utility property, acquisition and sale of securities and
in other respects as provided by the laws of Illinois.  MidAmerican is regulated
by the IUB as to retail  rates,  services,  accounts,  construction  of  utility
property and in other  respects as provided by the laws of Iowa.  MidAmerican is
also subject to  regulation by the SDPUC as to electric and gas retail rates and
service as provided by the laws of South Dakota.

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

        Under Iowa law, temporary  collection of higher rates can begin (subject
to refund) 90 days after  filing  with the IUB for that  portion of such  higher
rates  approved by the IUB based on prior  ratemaking  principles  and a rate of
return on common equity previously  approved.  If the IUB has not issued a final
order within ten months after the filing date,  the temporary  rates cease to be
subject to refund and any balance of the requested

                                      -14-

<PAGE>



rate  increase  may then be  collected  subject  to  refund.  Exceptions  to the
ten-month  limitation  provide for  extensions  due to a  utility's  lack of due
diligence in the rate proceeding,  judicial appeals and situations involving new
generating units being placed in service. Prior to July 11, 1997,  MidAmerican's
Iowa electric  tariffs  contained a Uniform  Electric Energy  Adjustment  Clause
under which  MidAmerican's  billings  reflected changes in the cost of all fuels
used for electric  generation,  including nuclear fuel disposition costs and the
net effect of energy  transactions  (other than capacity) with other  utilities.
Beginning July 11, 1997,  MidAmerican no longer has an EAC in Iowa.  Information
regarding  MidAmerican's  1997 rate  settlement  for its Iowa electric  rates is
included under the caption "Rate Matters" in the OPERATING  ACTIVITIES AND OTHER
MATTERS  section of MD&A in Part IV,  Item 14 of this Form 10-K.  Changes in the
cost of gas to MidAmerican  are reflected in its Iowa gas rates through the Iowa
Uniform Purchased Gas Adjustment Clause.

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

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

        In December 1997,  Illinois  enacted a new law to restructure  Illinois'
electric utility  industry.  The law changes how and what electric  services are
regulated  by the ICC  and  transitions  portions  of the  traditional  electric
services to a competitive environment.  In general, the new law limits the ICC's
regulatory authority over a utility's generation and also relaxes its regulatory
authority over many corporate  transactions,  such as the transfer of generation
assets to  affiliates.  Special  authority and  limitations  of authority  apply
during the transition to a competitive  marketplace.  Bundled electric rates are
generally frozen until 2005. Also, the law permits  utilities to eliminate their
fuel adjustment clauses.

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

        New  rules in Iowa  became  effective  in June  1997,  enhancing  energy
efficiency program flexibility, eliminating mandatory spending levels for energy
efficiency  programs,  and allowing  more timely  recovery of energy  efficiency
expenditures.  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.  On September 29, 1997,
MidAmerican  received  approval from the IUB,  effective  immediately,  to begin
recovery of deferred energy efficiency costs which were not previously  approved
for recovery.  Under the prior rules, recovery of some of these costs would have
been delayed  several more years.  The costs will be collected  over a four-year
period,  along with a return.  MidAmerican  also  received  approval  to recover
current  energy  efficiency  costs.  The filing is subject to periodic  prudence
reviews  by  the  IUB.  Refer  to  the  discussion  under  the  caption  "Energy
Efficiency"  in 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%  ownership  interest in Quad Cities  Station  Units 1 and 2.
ComEd is the  operator of the Quad Cities  Station  and is under  contract  with
MidAmerican  to  secure  and keep in  effect  all  necessary  NRC  licenses  and
authorizations.

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

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

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

        In September 1997 ComEd,  shut down Unit 2 and entered early a scheduled
outage to address  safety system  concerns.  In December  1997,  Unit 1 was also
taken  off-line for the same reason.  ComEd has indicated  that the units may be
unavailable  until  the first  half of May 1998.  During  this  time,  it may be
necessary for MidAmerican to forego off-system sales opportunities, operate more
expensive units,  and/or purchase more off-system energy. In January 1998, ComEd
received  a  Confirmatory  Action  Letter  (CAL) from the NRC.  The CAL  details
actions  that must be taken to correct the  problems  described  above.  Also in
January,  ComEd was  informed  by the NRC that the  performance  of Quad  Cities
Station is trending adversely.  The Company cannot at this time predict the cost
of these actions nor the impact on results of operations of the plant's outage.

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


                                      -16-

<PAGE>



        MidAmerican has established  external trusts for the investment of funds
collected for nuclear decommissioning  associated with Quad Cities Station. NPPD
maintains an internal  account and an external trust for  decommissioning  funds
associated  with  Cooper.  MidAmerican  makes  contributions  to NPPD related to
decommissioning and reflects those contributions in MidAmerican's power purchase
costs.  Electric  tariffs  in effect  for 1997  include  provisions  for  annual
decommissioning  costs at Quad Cities  Station and  Cooper.  MidAmerican's  cost
related to  decommissioning  funding  in 1997 was $21.1  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.

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

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

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

        Air Quality

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

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

        Water Quality

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



                                      -17-

<PAGE>



        Hazardous Materials and Waste Management

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

        MidAmerican is evaluating 26 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 Note(4)(b) in Notes to Consolidated  Financial Statements in Part
IV, Item 14 of this Form 10-K.

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

        Other

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

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



                                      -18-

<PAGE>



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

        MidAmerican  Capital  is  a  wholly  owned  nonregulated  subsidiary  of
Holdings.  The  nonregulated   activities  emphasize  energy  and  complementary
service-related  businesses,  credit quality and liquidity.  MidAmerican Capital
manages  these  activities  through its  nonregulated  investment  and operating
companies. Assets of MidAmerican Capital totaled $671 million as of December 31,
1997.

INVESTMENTS

        MidAmerican  Capital's investments totaled $600 million and $434 million
at  December  31,  1997 and 1996,  respectively.  A majority  of the  investment
dollars relate to investment grade marketable  securities and equipment  leases,
most of which are held by  InterCoast  Capital and MHC  Investment  Company.  As
discussed below,  MidAmerican Capital and its subsidiaries also have investments
in energy projects, technology development interests and venture capital funds.

        MidAmerican  Capital's marketable  securities  portfolio,  totaling $477
million and $219 million at December 31, 1997 and 1996,  respectively,  consists
substantially  of a managed  preferred  stock portfolio and an investment in the
common stock of McLeodUSA.  The  preferred  stocks have been issued by companies
having  investment  grade  senior debt  ratings by Moody's or Standard & Poor's.
McLeodUSA is a regional  telecommunications  provider.  As of December 31, 1997,
the  investment  in  McLeodUSA  stock  was  recorded  at a market  value of $258
million.  At the end of 1996,  the  investment in McLeodUSA was recorded at cost
and was not included in marketable securities due to restrictions on the sale of
the stock. In addition,  MidAmerican  Capital has  investments in  independently
managed mutual funds and KCS warrants received in the disposition of oil and gas
operations early in 1997.

        MidAmerican  Capital  holds equity  participations  in equipment  leases
primarily for passenger and freight transport aircraft. Such investments totaled
$74 million and $90 million at December 31, 1997 and 1996, respectively.

        In addition,  MidAmerican  Capital and several of its subsidiaries  have
indirect investments in a variety of nonregulated energy production technologies
including  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  constructing a digital radio network,  and limited interests in special
purpose funds that invest in venture capital.

OPERATING COMPANIES

        Assets of MidAmerican  Capital's operating companies totaled $16 million
and $23 million, respectively at December 31, 1997 and 1996.

     AmGas Inc. 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.  During 1997 AmGas Inc. sold 30 million
MMBtu's of natural gas.

        InterCoast  Trade and Resources,  Inc. (ITR) was  established in 1995 to
provide  wholesale  natural gas trading and marketing  services.  ITR's sales of
natural gas totaled 52 million MMBtu's in 1997.


                                      -19-

<PAGE>



        MidAmerican  Capital  acquired  a  majority,   controlling  interest  in
Diversified  Electronics,  Ltd. in 1996. Diversified Electronics operates as AAA
Security  Systems,  Inc.  (AAA  Security),  one of the largest  residential  and
commercial security systems companies in the Midwest.  During 1997, AAA Security
acquired  assets  of  two  other  midwestern  security  companies.   With  those
acquisitions,  AAA  Security  has more than  12,000  security  customers  in the
Midwest.

        MidAmerican  Capital  sold  most  of the  assets  of its  rail  services
operations in the fourth quarter of 1997. The remaining rail services operations
are  managed  through  MidAmerican  Rail Inc.  which  provides  railcar  leasing
services to MidAmerican.


                     BUSINESS OF MIDWEST CAPITAL GROUP, INC.
                     ---------------------------------------

        Midwest  Capital is a wholly owned  nonregulated  subsidiary of Holdings
with total  assets of $65 million as of December  31,  1997.  Midwest  Capital's
primary  activity is the  management  of utility  service  area  investments  to
support  economic  development.   Midwest  Capital's  principal  interest  is  a
2,000-acre  master planned  residential  and business  community in southeastern
South Dakota. The major construction phase of the planned community is complete,
and the marketing phase to sell developed  residential and commercial lots is in
progress.

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

        MidAmerican'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.



                                      -20-

<PAGE>



        The net accredited  generating  capacity,  along with the  participation
purchases  and sales,  net,  and firm  purchases  and sales,  net, are shown for
summer 1997 accreditation.

                                                                    Company's
                                                                    Share of
                                                                   Accredited
                                             Percent              Generating
               Plant                        Ownership    Fuel   Capability (MW)
   ---------------------------------        ---------    ----   ---------------
   Steam Electric Generating Plants:
    Council Bluffs Energy Center
       Unit No. 1                             100.0      Coal               43
       Unit No. 2                             100.0      Coal               88
       Unit No. 3                              79.1      Coal              534
    George Neal Station
       Unit No. 1                             100.0      Coal              135
       Unit No. 2                             100.0      Coal              300
       Unit No. 3                              72.0      Coal              371
       Unit No. 4                              40.6      Coal              253
    Louisa Unit                                88.0      Coal              616
    Ottumwa Unit                               52.0      Coal              372
    Riverside Station
       Unit No. 3                             100.0      Coal                5
       Unit No. 5                             100.0      Coal              130
                                                                         -----
                                                                         2,847
                                                                         -----
   Combustion Turbines:
    Coralville - 1 unit                       100.0      Gas/Oil            64
    Electrifarm - 3 units                     100.0      Gas/Oil           186
    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
                                                                         -----
                                                                           758
                                                                         -----
   Nuclear:
    Cooper (1)                                   (1)     Nuclear           387
    Quad-Cities Station
       Unit No. 1                              25.0      Nuclear           192
       Unit No. 2                              25.0      Nuclear           191
                                                                         -----
                                                                           770
                                                                         -----
   Hydro:
    Moline - 4 units                          100.0      Water               3
                                                                         -----

   Net Accredited Generating Capacity                                    4,378

   Participation Purchases and Sales, Net                                  (85)
                                                                         -----
   Total Net Accredited Generating Capability                            4,293

   Firm Purchases and Sales, Net                                           (47)
                                                                         -----
   Adjusted Net Accredited Generating Capability                         4,246
                                                                         =====

 (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.



                                      -21-

<PAGE>



        The electric  transmission  system of  MidAmerican at December 31, 1997,
included 871 miles of 345-kV lines,  1,294 miles of 161-kV lines, 1,808 miles of
69-kV lines and 253 miles of 34.5-kV lines.

        The gas  distribution  facilities of  MidAmerican  at December 31, 1997,
included 19,161 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 July 23, 1997, NPPD filed a Complaint,  in the United States District
Court for the District of Nebraska,  naming  MidAmerican  as the  defendant  and
seeking  declaratory  judgment as to three issues  under the parties'  long-term
power purchase agreement for Cooper capacity and energy. More specifically, NPPD
seeks a declaratory judgment in the following respects:  (1) that MidAmerican is
obligated to pay 50% of all costs and expenses  associated with  decommissioning
Cooper,  and that in the event NPPD continues to operate Cooper after expiration
of the power purchase agreement (September 2004), MidAmerican is not entitled to
reimbursement  of any  decommissioning  funds it has paid to date or will pay in
the future; (2) that the current method of allocating transition costs as a part
of the decommissioning  cost is proper under the power purchase  agreement;  and
(3) that the current method of investing  decommissioning  funds is proper under
the power purchase agreement. On September 12, 1997, MidAmerican filed a "Motion
to Dismiss or Transfer Venue" (the Motion).  NPPD filed a brief in opposition to
the Motion on October 16, 1997. After having  unsuccessfully moved to dismiss or
transfer venue, MidAmerican, on January 20, 1998, filed an Answer and Contingent
Counterclaims for declaratory  relief.  Those contingent  counterclaims seek the
declaratory  judgments  establishing  the contrary to the declaratory  judgments
sought  by NPPD  and  also  seek  related  declaratory  relief.  MidAmerican  is
vigorously  defending  the  Company's  interests  in this  declaratory  judgment
action.

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

        On  December  8,  1997,   North  Star  Steel  Company  (NSS),  a  retail
MidAmerican  electric customer,  filed a Complaint in the United States District
Court for the  Southern  District of Iowa naming  Holdings  and  MidAmerican  as
defendents.  The Complaint  alleges that  MidAmerican's  refusal to allow NSS to
obtain retail electric  service from an unspecified  alternative  energy company
amounts to a violation of federal  antitrust  laws. NSS is seeking to recover an
unspecified  level of  damages,  and to require  MidAmerican  to provide  retail
wheeling service so that NSS can obtain  electricity  from an unnamed  supplier.
MidAmerican is vigorously defending its conduct.

                                      -22-

<PAGE>




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

None.

OTHER INFORMATION
-----------------

EXECUTIVE OFFICERS OF HOLDINGS

        The names, ages and positions of the executive  officers of Holdings are
listed below.

        Name                         Age          Positions Held
        ----                         ---          --------------

        Stanley J. Bright             57          Chairman, President and CEO

        Wayne O. Smith                54          Executive Vice President

        Ronald W. Stepien             51          Executive Vice President

        John J. Cappello              51          Senior Vice President

        David J. Levy                 43          Senior Vice President

        John A. Rasmussen, Jr.        52          Senior Vice President and 
                                                    General Counsel

        Alan L. Wells                 38          Senior Vice President and 
                                                    Chief Financial Officer

        Beverly A. Wharton            44          Senior Vice President

        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 with the
exception of Mssrs.  Smith,  Cappello and Wells. Refer to Part III, Item 10 (b),
"Directors  and  Officers  of the  Registrant  - Business  Experience,"  of this
document for a discussion of the business experience of each of these officers.

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

                                      -23-

<PAGE>



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.



                                      -24-

<PAGE>



                                     PART II

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

       Holdings'  common  stock has been  listed on the New York Stock  Exchange
under  the  symbol  "MEC"  since  December  1,  1996;  and  prior to such  time,
MidAmerican's  common stock was listed  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 Holdings
since December 1, 1996,  and of  MidAmerican  prior to that time, as reported in
The Wall Street Journal for the New York Stock Exchange Composite Tape.

                                                Price Range
                    Dividends Declared       High         Low
                    ------------------      -------     --------
1997
    4th Quarter           $0.30             $22 5/8     $17
    3rd Quarter            0.30              17 5/8      16 5/16
    2nd Quarter            0.30              17 7/16     16 3/8
    1st Quarter            0.30              17 7/8      15 1/2

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

       On February 20, 1998,  there were  approximately  59,000  shareholders of
record of Holdings' common stock.

       MidAmerican's outstanding common stock has been held entirely by Holdings
since  December  1, 1996,  and is not  publicly  traded.  On  December  1, 1996,
MidAmerican  distributed  the capital stock of  MidAmerican  Capital and Midwest
Capital to Holdings.  Cash dividends declared on common stock of MidAmerican are
shown in the table below (in thousands).

                                      1997           1996
                                    --------       -------

         4th Quarter                 $29,000       $30,176
         3rd Quarter                  20,000        30,154
         2nd Quarter                  40,000        30,218
         1st Quarter                  31,500        30,222

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

        Reference is made to Part IV of this report.





                                      -25-

<PAGE>



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

        Reference is made to Part IV of this report.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The table  below  provides  information  about the  Company's  financial
instruments that are sensitive to changes in interest rates. The Decommissioning
Trust  Fund and  Investments  are  purchased  to  provide  funds for the  future
decommissioning  of the Quad  Cities  Station  and to provide  liquidity  to the
Company's  nonregulated  subsidiaries.   Derivative  financial  instruments  are
purchased  for hedging  purposes.  Put options are purchased as hedges to offset
changes in market value of fixed rate preferred stock investments. All financial
instruments  shown in the tables in this section are settled and  denominated in
U.S.  dollars.  As of  December  31,  1997,  the  Company's  interest  sensitive
financial  instruments  included the following (amounts in thousands of dollars;
amounts represent face value unless indicated otherwise):

<TABLE>
<CAPTION>
                                                           Expected Maturity Date
                                                  ---------------------------------------------------
                                                                                               There-                 Fair
                                                   1998    1999     2000    2001      2002     after        Total     Value
                                                  -----   -----    -----    ----      ----     ------      ------     -----
<S>                                               <C>     <C>      <C>      <C>       <C>      <C>         <C>        <C>
ASSETS
MIDAMERICAN
Decommissioning Trust Fund:
  Fixed rate U.S. government securities               -       -    1,555    1,100      245     15,140      18,040     19,548
    Average interest rate                             -       -     6.25%    6.63%    6.38%      7.14%

  Fixed rate corporate securities                     -     700    1,640        -      950      2,950       6,240      6,427
    Average interest rate                             -    6.13%    6.39%       -     6.37%      7.70%

  Fixed rate municipal bonds                      2,570   1,370    2,675    1,545      550     23,380      32,090     33,721
    Average interest rate                          6.07%   4.90%    5.01%    7.03%    4.98%      5.86%

  Variable rate municipal bonds                       -       -        -        -        -      6,345       6,345      3,612
    Average interest rate                             -       -        -        -        -       4.87%

MIDAMERICAN CAPITAL
Investments:
  Fixed rate perpetual preferred stocks               -       -       -         -        -     93,988      93,988     99,144
    Average dividend  rate                            -       -       -         -        -       6.74%

  Adjustable rate perpetual preferred stocks          -       -        -        -        -     42,103      42,103     45,527
    Average dividend rate                             -       -        -        -        -       5.63%

  Fixed rate sinking fund preferred stocks          892     910    4,443    1,223    1,223     19,778      28,469     29,815
    Average dividend  rate                         7.35%   7.09%    7.03%    7.36%    7.36%      6.80%

  Fixed rate debt securities                          -       -        -        -        -      7,150       7,150      7,371
    Average interest rate                             -       -        -        -        -       7.85%

  Interest Rate Hedging Instruments:
    Put options (contract amount)                 3,200       -        -        -        -          -       3,200      1,890
      Average strike price                       120.73       -        -        -        -          -
</TABLE>

                                      -26-

<PAGE>

<TABLE>
<CAPTION>


                                                               Expected Maturity Date
                                                  ---------------------------------------------------
                                                                                              There-                 Fair
                                                  1998    1999    2000      2001      2002    after        Total     Value
                                                 ------  ------  -------   -------   -----    ------       -----     -----

<S>                                              <C>     <C>     <C>       <C>       <C>      <C>         <C>        <C>
LIABILITIES AND EQUITY
MIDAMERICAN
Preferred Securities Subject to
  Mandatory Redemption:
  Fixed rate preferred securities                10,000       -        -     6,660   6,660     26,680      50,000     53,650
    Average dividend rate                          5.25%      -        -      7.80%   7.80%      7.80%

Preferred Securities of Subsidiary Trust:
  Fixed rate preferred securities                     -       -        -         -       -    100,000     100,000    104,250
    Average dividend rate                             -       -        -         -       -       7.98%

Long-term Debt:
  Fixed rate debt                               124,963  60,897  110,861   101,600   1,854    527,285     927,460    955,772
    Average interest rate                          6.05%   8.49%    7.59%     6.53%   7.71%      7.47%

  Variable rate debt                                  -       -        -         -       -    120,395     120,395    120,395
    Average interest rate (at 12/31/97)               -       -        -         -       -       3.94%


MIDAMERICAN CAPITAL
Long-term Debt:
  Fixed rate debt                                20,098  45,000   23,333    23,333  23,334          -     135,098    139,776
    Average interest rate                          7.35%   7.76%    8.52%     8.52%   8.52%         -
</TABLE>


        The table below provides information about the Company's assets that are
sensitive  to  commodity  price  changes.   The  Company's  coal  and  fuel  oil
inventories  are held at  various  generating  stations  for the  production  of
electricity.  Natural gas  inventories are held at various storage sites to meet
winter peak demands on the Company's's  distribution  system. As of December 31,
1997, the Company's assets that are sensitive to commodity price change included
the following (in thousands):

                                                  Carrying            Fair
                                                   Amount             Value
                                                  --------            -----
ASSETS
MIDAMERICAN
Coal inventory                                     $14,225           $12,963
Fuel oil inventory                                   2,344             2,551
Natural gas inventory                               35,430            50,283
Propane gas inventory                                  874               465

        Refer  to Note  (4)(g)  in Notes to  Consolidated  Financial  Statements
included  in Part IV,  Item 14,  of this Form  10-K for  additional  information
regarding the Company's long-term coal and natural gas supply contracts.


                                      -27-

<PAGE>



        The table  below  provides  information  about  derivatives  held by the
Company that are sensitive to commodity  price changes.  The natural gas futures
and swap  contracts  are not held  for  trading  or  speculative  purposes.  The
contracts  are  used to  reduce  the  volatility  of  charges  to  MidAmerican's
regulated customers through purchase adjustment clauses and to align the pricing
terms of natural gas supply contracts with the terms of sales contracts with the
Company's  nonregulated  customers.  All of the gas futures  held by the Company
mature in less than  twelve  months.  As of December  31,  1997,  the  Company's
commodity derivatives included the following:

COMMODITY HEDGING INSTRUMENTS:
------------------------------
                                           1998 Expected Maturity
                                           ----------------------
MIDAMERICAN
Futures contracts (Short):
   Contract volumes (MMBtu)                      1,500,000
   Weighted average price (per MMBtu)               $2.314
   Contract amount (in thousands)                   $3,470
   Weighted average fair value (12/31/97)
      price (per MMBtu)                             $2.309
   Fair value at 12/31/97 (in thousands)            $3,464

Futures contracts (Long):
   Contract volumes (MMBtu)                      3,500,000
   Weighted average price (per MMBtu)               $2.390
   Contract amount (in thousands)                   $8,364
   Weighted average fair value (12/31/97)
      price (per MMBtu)                             $2.278
   Fair value at 12/31/97 (in thousands)            $7,971

<TABLE>
<CAPTION>
                                           1998 Expected Maturity   1999 Expected Maturity
                                           ----------------------   ----------------------
<S>                                              <C>                       <C>
MIDAMERICAN
Swap contracts (Variable to fixed):
   Contract volumes (MMBtu)                      5,425,707                 393,100
   Average fixed pay price (per MMBtu)              $2.376                  $2.311
   Average variable receive price (per MMBtu)       $2.211                  $2.361

Swap contracts (Fixed to variable):
   Contract volumes (MMBtu)                      1,150,000                       -
   Average fixed receive price (per MMBtu)          $2.136                       -
   Average variable pay price (per MMBtu)           $2.144                       -
</TABLE>


                                      -28-

<PAGE>



                                               1998 Expected Maturity
                                               ----------------------
MIDAMERICAN CAPITAL
Futures contracts (Short):
   Contract volumes (MMBtu)                           170,000
   Weighted average price (per MMBtu)                  $2.208
   Contract amount (in thousands)                        $375
   Weighted average fair value (12/31/97)
      price (per MMBtu)                                $2.269
   Fair value at 12/31/97 (in thousands)                 $386

Futures contracts (Long):
   Contract volumes (MMBtu)                           170,000
   Weighted average price (per MMBtu)                  $2.283
   Contract amount (in thousands)                        $388
   Weighted average fair value (12/31/97)
      price (per MMBtu)                                $2.269
   Fair value at 12/31/97 (in thousands)                 $386


                                               1998 Expected Maturity
                                               ----------------------
MIDAMERICAN CAPITAL 
Swap contracts (Variable to fixed):
   Contract volumes (MMBtu)                         1,381,245
   Average fixed pay price (per MMBtu)                 $2.852
   Average variable receive price (per MMBtu)          $3.816
Swap contracts (Fixed to variable)
   Contract volumes (MMBtu)                         1,347,400
   Average fixed receive price (per MMBtu)             $3.949
   Average variable pay price (per MMBtu)              $2.911


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

        The Company  selected  Coopers & Lybrand L.L.P.  as its new  independent
public accountants on April 23, 1997. For further details, refer to the combined
Form 8-K filed by Holdings and MidAmerican on April 25, 1997.





                                      -29-

<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'  1998 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.  On the
referenced  pages  of  that  proxy   statement,   the  words  "the  Company"  or
"MidAmerican" and "MidAmerican  Common Stock" refer to Holdings,  and its common
stock,  respectively.  Information  required by Item 10  relating  to  Executive
Officers of Holdings is set forth under a separate caption in Part I hereof.

MIDAMERICAN

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

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

Stanley J. Bright      57    Chairman, President and CEO     1996        1987

Wayne O. Smith         54    Executive Vice President        1997        1997

Ronald W. Stepien      51    Executive Vice President        1996        1996

John J. Cappello       51    Senior Vice President           1997

David J. Levy          43    Senior Vice President           1996        1996

John A. Rasmussen, Jr. 52    Senior Vice President
                                and General Counsel          1996        1996

Alan L. Wells          38    Senior Vice President
                               and Chief Financial Officer   1997

Beverly A. Wharton     44    Senior Vice President           1996        1996

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



                                      -30-

<PAGE>



(B) BUSINESS EXPERIENCE

STANLEY J. BRIGHT

      Chairman of Holdings since June 1, 1997, and President and Chief Executive
Officer 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.

WAYNE O. SMITH

     Executive Vice President of MidAmerican since September 1, 1997.  Executive
Vice President and President and Chief Operating  Officer - Specialty  Chemicals
at B. F.  Goodrich  Company  from 1994 to 1997.  Group  Vice  President  - Gases
Americas at The BOC Group, Ltd. from 1990 to 1993.

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.

JOHN J. CAPPELLO

      Senior Vice President of MidAmerican  since August 1, 1997. Vice President
of  MidAmerican  between  August 1, 1996,  and August 1, 1997.  Prior to joining
MidAmerican,  he held various  executive  and officer  positions at AT&T between
1968 and 1995.

DAVID J. LEVY

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

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.

ALAN L. WELLS

      Senior  Vice  President  and  Chief  Financial  Officer  of  Holdings  and
MidAmerican  since November 1, 1997, Vice President of MidAmerican from November
1, 1996, to November 1, 1997,  and various  executive and  management  positions
with MidAmerican from 1993 to November 1, 1996.



                                      -31-

<PAGE>



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 10
through 20 of Holdings'  Proxy  Statement  filed with the SEC. On the referenced
pages of that proxy  statement,  the words "the  Company" or  "MidAmerican"  and
"MidAmerican   Common   Stock"  refer  to  Holdings,   and  its  common   stock,
respectively.

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

(A)   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

HOLDINGS

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

MIDAMERICAN

      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 8 and 9 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.  On the  referenced  pages of that  proxy  statement,  the words "the
Company" or "MidAmerican" and "MidAmerican Common Stock" refer to Holdings,  and
its common stock, respectively.

MIDAMERICAN

      The  following   table  shows  the  beneficial   ownership,   reported  to
MidAmerican as of February 20, 1998, of Holdings  Common Stock of each director,
the chief executive officer and the four other most highly compensated executive
officers and, as a group,  directors and  executive  officers.  No member of the
group  owned  any  of the  preferred  stock  of  MidAmerican.  To  MidAmerican's
knowledge,  no  single  entity  owns of record  or  beneficially  more than five
percent of any class of the outstanding voting securities of Holdings.


                                      -32-

<PAGE>



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

Stanley J. Bright...................   100,480      (2)              *
David J. Levy.......................     9,707      (3)              *
John A. Rasmussen, Jr...............    17,055      (4)              *
Wayne O. Smith......................     6,498                       *
Ronald W. Stepien...................    19,854      (5)              *
Beverly A. Wharton..................    38,596      (6)              *
Phillip G. Lindner..................    11,155      (7)              *
Directors and executive officers as
  a group (9) persons...............   214,274      (8)              *

-----------------------------
*   Less than one percent of the shares of Holdings Common Stock outstanding.

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

(2)     Includes  50,000 shares which Mr. Bright has the right to acquire within
        60 days upon the  exercise  of stock  options,  6,879  shares  held in a
        Section  401(k) defined  contribution  plan as of December 31, 1997, and
        1,697 shares beneficially owned by Mr. Bright and his spouse.

(3)     Includes 47 shares held in a Section 401(k) defined contribution plan as
        of December 31, 1997, and 147 shares  beneficially owned by Mr. Levy and
        his spouse.

(4)     Includes 3,267 shares held in a Section 401(k) defined contribution plan
        as of December 31,  1997,  and 2,700  shares  beneficially  owned by Mr.
        Rasmussen and his spouse.

(5)     Includes  5,000 shares which Mr. Stepien has the right to acquire within
        60 days upon the  exercise of stock  options and 1,679  shares held in a
        Section 401(k) defined contribution plan as of December 31, 1997.

(6)     Includes  15,000  shares  which  Mrs.  Wharton  has the right to acquire
        within 60 days upon the exercise of stock options,  1,420 shares held in
        a Section  401(k)  defined  contribution  plan as of December  31, 1997,
        5,316 shares  beneficially  owned by Mrs. Wharton and her spouse and 986
        shares beneficially owned in a custodial account for a minor child.

(7)     Includes 138 shares beneficially owned by Mr. Lindner and his spouse.  
        Mr. Lindner retired from the Company in January 1998.

(8)     Includes  115,000 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,  1997,  and shares
        beneficially  owned jointly with and  individually  by family members of
        directors and executive officers.



                                      -33-

<PAGE>



(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
--------------------------------------------------------

        Effective  with his  retirement  on May 31,  1997,  as  Chairman  of the
Company, Mr. Christiansen's employment agreement provides that his service in an
advisory  capacity to the Company  would  commence on June 1, 1997 and  continue
through June 1, 2000. Mr.  Christiansen  receives annual compensation of $50,000
for this service.

                                     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.......................      36
       Management's Discussion and Analysis of Financial 
         Condition And Results of Operations......................      37

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

                       MidAmerican Energy Holdings Company

       Consolidated Statements of Income
         For the Year Ended December 31, 1997, 1996 and 1995......      58
       Consolidated Balance Sheets
         As of December 31, 1997 and 1996 ........................      59
       Consolidated Statements of Cash Flows
         For the Year Ended December 31, 1997, 1996 and 1995......      60
       Consolidated Statements of Capitalization
         As of December 31, 1997 and 1996 ........................      61
       Consolidated Statements of Retained Earnings
         For the Year Ended December 31, 1997, 1996 and 1995......      62
       Notes to Consolidated Financial Statements.................      63
       Report of Management.......................................      90
       Report of Independent Accountants..........................      91

                           MidAmerican Energy Company

       Consolidated Statements of Income
         For the Year Ended December 31, 1997, 1996 and 1995......      92
       Consolidated Balance Sheets
         As of December 31, 1997 and 1996 ........................      93

                                      -34-

<PAGE>


                                                                      Page No.
                                                                      --------

       Consolidated Statements of Cash Flows
         For the Year Ended December 31, 1997, 1996 and 1995......      94
       Consolidated Statements of Capitalization
         As of December 31, 1997 and 1996 ........................      95
       Consolidated Statements of Retained Earnings
         For the Year Ended December 31, 1997, 1996 and 1995......      96
       Notes to Consolidated Financial Statements.................      97
       Report of Management.......................................     111
       Report of Independent Accountants..........................     112

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

       Five-Year Financial Statistics.............................     113
       Five-Year Consolidated Statements of Income................     114
       Five-Year Consolidated Balance Sheets......................     115
       Five-Year Utility Statistics...............................     116

(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) ........     118
       MidAmerican Energy Company Consolidated Valuation
          and Qualifying Accounts (Schedule II) ..................     119

    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 123.

(B) REPORTS ON FORM 8-K

    On December 8, 1997,  Holdings and  MidAmerican  filed a combined  report on
Form 8-K,  dated  December  5, 1997.  The report  included  an  announcement  by
MidAmerican  that coal  delivery at some of its electric  generating  facilities
continued to be impacted by the Union Pacific Railroad's  nationwide slowdown of
trains.  The press release issued in conjunction with the announcement was filed
as an Exhibit to the report.



                                      -35-

<PAGE>



SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                                               DECEMBER 31
                                                      ---------------------------------------------------------------
                                                         1997         1996         1995         1994         1993
                                                      ----------   ----------   ----------   ----------   -----------
<S>                                                   <C>          <C>          <C>          <C>          <C>
MidAmerican Energy Holdings Company
-----------------------------------
INCOME STATEMENT DATA: (g)
Revenues...........................................   $1,922,281   $1,872,612   $1,649,341   $1,631,225   $1,627,956
Operating income (a)...............................      270,506      343,638      292,354      264,492      267,938
Income from continuing operations (b)..............      139,332      143,761      119,705      123,098      134,325
Average common shares outstanding..................       98,058      100,752      100,401       98,531       97,762
Earnings per average common share
    from continuing operations.....................   $     1.42   $     1.43   $     1.19   $     1.25   $     1.38
Cash dividends declared per share..................   $     1.20   $     1.20   $     1.18   $     1.17   $     1.17

BALANCE SHEET DATA:
Total assets.......................................   $4,278,091   $4,521,848   $4,470,097   $4,388,894   $4,352,073
Long-term debt (c).................................    1,178,769    1,474,701    1,468,617    1,471,127    1,407,374
Power purchase obligation (c)......................       97,504      111,222      125,729      137,809      151,485
Short-term borrowings..............................      138,054      161,990      184,800      124,500      173,035
Preferred stock:
    Not subject to mandatory redemption............       31,763       31,769       89,945       89,955      109,871
    Subject to mandatory redemption (d)............      150,000      150,000       50,000       50,000       50,000
Common stock equity (f)............................    1,301,286    1,239,946    1,225,715    1,204,112    1,180,510
Book value per common share (f)....................   $    13.65   $    12.31   $    12.17   $    12.08   $    12.07


MidAmerican Energy Company
--------------------------
INCOME STATEMENT DATA: (g)
Revenues..........................................    $1,662,606   $1,635,761   $1,554,235   $1,513,675   $1,541,959
Operating income (a)..............................       206,527      249,207      219,238      198,491      203,780
Net income from continuing operations (b).........       125,941      165,132      132,489      121,145      133,888
Earnings on common from continuing operations.....       119,453      154,731      124,430      110,594      125,521

BALANCE SHEET DATA:
Total assets......................................    $3,542,307   $3,774,653   $3,976,201   $3,879,847   $3,832,569
Long-term debt (c)................................     1,044,663    1,136,515    1,110,525    1,109,617    1,051,144
Power purchase obligation (c).....................        97,504      111,222      125,729      137,809      151,485
Short-term borrowings.............................       122,500      161,700      184,800      124,500      160,800
Preferred stock:
    Not subject to mandatory redemption...........        31,763       31,769       89,945       89,955      109,871
    Subject to mandatory redemption (d)...........       150,000      150,000       50,000       50,000       50,000
Common stock equity (e)...........................       985,744      986,825    1,225,715    1,204,112    1,180,510

</TABLE>

(a)  MidAmerican  Energy  Holdings  Company  (Holdings)  1995  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)  In 1997,  Holdings  recorded  after-tax  gains  totalling $11.2 million for
     sales of assets of  certain  railcar  businesses  and a portion of a common
     stock  investment that has  appreciated  significantly.  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 amounts due within one year.
(d)  Post-1995  years  include   MidAmerican-obligated   mandatorily  redeemable
     preferred  securities of subsidiary trust holding solely MidAmerican junior
     subordinated debentures.
(e)  1996  reflects  distribution  of the capital stock of  MidAmerican  Capital
     Company and Midwest Capital Group, Inc. to Holdings.
(f)  Holdings' common equity increased in 1997 due to recording at market value
     an investment in McLeodUSA, Inc. common stock.  Refer to Note (14) for 
     further discussion.
(g)  Refer to Operating  Activities  and Other Matters in MD&A for discussion of
     industry restructuring, and rate matters.




                                      -36-
<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 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 and Midwest
Capital are Holdings' nonregulated subsidiaries.  Midwest Capital functions as a
regional  business   development   company  in  MidAmerican's   utility  service
territory.   MidAmerican  Capital  manages  marketable  securities  and  passive
investment activities, nonregulated wholesale and retail natural gas businesses,
security services and other energy-related, nonregulated activities.

DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS

     The  MidAmerican  merger was accounted for as a  pooling-of-interests,  and
consolidated  financial statements are presented as if the merger occurred as of
the  beginning of the earliest  period  presented.  The  consolidated  financial
statements of MidAmerican  present  amounts  related to MidAmerican  Capital and
Midwest Capital as  discontinued  operations for all periods that include months
prior to December  1, 1996,  in order 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.

     Management's   Discussion  and  Analysis  (MD&A)  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.




                                      -37-

<PAGE>



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, fuel prices, competitive factors,
general economic conditions in the Company's service territory,  interest rates,
inflation and federal and state regulatory actions.

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

Holdings:
---------

     The following tables provide a summary of the earnings contributions of the
Company's operations for each of the periods presented:

<TABLE>
<CAPTION>
                                         1997        1996        1995
                                        ------      ------      ------
     <S>                                <C>         <C>         <C>
     Net Income (in millions)
      Continuing operations
        Electric utility                $100.9      $122.7      $111.9
        Gas utility                       18.6        32.0        12.6
                                        ------      ------      ------
          Total                          119.5       154.7       124.5
        Nonregulated operations           19.8       (11.0)       (4.8)
      Discontinued operations             (4.2)      (12.7)        3.1
                                        ------      ------      ------
        Consolidated earnings           $135.1      $131.0      $122.8
                                        ======      ======      ======

     Earnings Per Common Share
      Continuing operations
        Electric utility                $ 1.03      $ 1.22      $ 1.11
        Gas utility                       0.19        0.32        0.13
                                        ------      ------      ------
          Total                           1.22        1.54        1.24
        Nonregulated operations           0.20       (0.11)      (0.05)
      Discontinued operations            (0.04)      (0.13)       0.03
                                        ------      ------      ------
        Consolidated earnings           $ 1.38      $ 1.30      $ 1.22
                                        ======      ======      ======
</TABLE>



                                      -38-

<PAGE>



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

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

<TABLE>
<CAPTION>

                                         1997       1996        1995
                                        ------     ------      ------
                                                (in millions)
     <S>                                <C>        <C>         <C>
     Earnings on Common Stock
       Continuing operations
        Electric utility                $100.9     $122.7      $111.9
        Gas utility                       18.6       32.0        12.6
                                        ------     ------      ------
          Total                          119.5      154.7       124.5
       Discontinued operations *             -      (10.1)       (1.7)
                                        ------     ------      ------
         Consolidated earnings          $119.5     $144.6      $122.8
                                        ======     ======      ======
</TABLE>

        *1996 and 1995  include  the income  (loss) of  MidAmerican  Capital and
        Midwest Capital prior to their transfer to Holdings on December 1, 1996.

EARNINGS DISCUSSION

        Earnings per share for 1997 and 1996 each  increased 8 cents compared to
their prior year. Some of the significant factors resulting in the increases are
listed  below,  on a Holdings  per-share  basis.  The  discussion  that  follows
addresses these factors as well as other items  affecting the Company's  results
of operations.

<TABLE>
<CAPTION>

                                                    1997 vs 1996  1996 vs 1995
                                                    ------------  ------------
     <S>                                              <C>           <C>
     MidAmerican
         Net reduction in electric and gas
          gross margin due to -
            Variation in the effect of weather        $  (0.03)     $  (0.09)
            Customer growth                               0.08          0.09
            Electric retail rate changes                 (0.07)        (0.01)
            Improvements due to other factors             0.10          0.05
         Nuclear O&M expenses                            (0.07)         0.02
         1995 merger and restructuring costs                 -          0.24
         Other O&M expenses                              (0.40)         0.09
         1996 merger proposal costs                       0.05         (0.05)
         Gas procurement program awards
          and 1996 storage gas sale                          -          0.03

     Nonregulated subsidiaries
         Write-downs of certain assets
          (primarily alternative energy projects)         0.07          0.01
         Realized gain on sale of McLeodUSA
          Incorporated common stock                       0.05             -
         Gains on sales of certain assets                 0.06         (0.05)
         Interest on long-term debt                       0.07          0.02
         Other continuing operations                      0.07         (0.04)

     Discontinued operations                              0.09         (0.16)

</TABLE>

                                      -39-

<PAGE>



     The Company continued its strategic realignment of utility and nonregulated
operations which began in 1996. Earnings of nonregulated  subsidiaries have been
significantly affected by such realignment.  During 1997, the Company divested a
number of its  interests  in  nonregulated  assets  which did not align with the
corporate  vision of  becoming  the  leading  regional  provider  of energy  and
complementary  services.  Earnings  for 1997  include 6 cents per share from the
sale of assets  of its  railcar  leasing  and  repair  businesses.  Losses  from
discontinued  operations  reduced earnings in 1996 and 1997,  though to a lesser
degree in 1997. Cash proceeds from the sale of discontinued  operations  allowed
the Company to pay off  long-term  debt,  significantly  reducing  its  interest
expense compared to 1996.

     In  addition,  1997  earnings  include 5 cents per share from the sale of a
portion of the Company's interest in McLeodUSA Incorporated (McLeodUSA).

     Although  utility  earnings  for 1997 were lower than in the prior year,  a
reduction was anticipated because of the electric pricing  settlements  achieved
in 1996 and 1997 in Iowa and Illinois. Additionally,  utility operating expenses
increased  as  the  Company  continued  strategic   realignment  which  included
strengthening its marketing and customer service  capabilities and adding to its
information technology resources.

     In the past three  years,  the  Company's  evaluation  of its  nonregulated
investments has resulted in write-downs of certain assets, primarily investments
in alternative energy projects.  The write-downs,  which reflect declines in the
value of those nonregulated investments,  reduced earnings by approximately $2.0
million,  or 2 cents per share,  $9.4 million,  or 9 cents per share,  and $10.2
million, or 10 cents per share, in 1997, 1996 and 1995, respectively.

     Discontinued Operations -

Holdings:
---------

     During 1996, the Company discontinued some of its nonregulated  operations.
The  income  or loss from  those  operations  and the  losses  on  disposal  are
reflected as  discontinued  operations  in each of the periods  presented in the
Consolidated Statements of Income. 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 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
and an additional $0.9 million in 1997.

     In October 1997, the Company also divested a subsidiary  that developed and
operated a computerized  information system which facilitated real-time exchange
of  power  in the  electric  industry.  The  Company  recorded  a  $4.0  million
anticipated after-tax loss on disposal of those operations in September 1996 and
an additional $3.2 million after-tax loss on disposal in September 1997.



                                      -40-

<PAGE>



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  includes the net  earnings/loss of MidAmerican  Capital and Midwest
Capital for periods prior to their December 1, 1996, transfer to Holdings.

UTILITY GROSS MARGIN
<TABLE>
<CAPTION>

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

                                            1997       1996       1995
                                           ------     ------     ------
                                                     (in millions)
     <S>                                   <C>        <C>        <C>
     Operating revenues                    $1,126     $1,099     $1,095
     Cost of fuel, energy and capacity        236        234        230
                                           ------     ------     ------
        Electric gross margin              $  890     $  865     $  865
                                           ======     ======     ======
</TABLE>

     A variety of factors contributed to the increase in MidAmerican's  electric
gross  margin for 1997  compared to 1996.  An increase in electric  retail sales
volumes,  additional  recovery  of energy  efficiency  costs and an  increase in
transmission  revenues all contributed to the improvement in gross margin.  Rate
reductions partially offset the increases.

     Retail  sales of  electricity  increased  2.6%  compared  to 1996 sales due
primarily  to a moderate  but  steady  growth in the  number of  customers.  The
increase in sales resulting from customer growth  contributed $11 million to the
increase in  electric  gross  margin.  Also,  compared to 1996,  sales and gross
margin  improved  due to the impact of  temperatures  in the  Company's  service
territory.  Although  temperatures  were  milder  than  normal  in  both  years,
comparatively,  margin for 1997 increased $2 million over 1996 margin due to the
effect of weather.  When compared to normal, the impact of temperatures resulted
in a $13 million  reduction in electric  gross margin in 1997  compared to a $15
million reduction in the 1996 margin.

     Prior to July 11, 1997, MidAmerican was allowed to recover its energy costs
from most of its electric utility customers  through energy  adjustment  clauses
(EACs) included in revenues. Effective July 11, 1997, the EAC was eliminated for
Iowa  customers as part of a new Iowa pricing  plan.  Previously,  variations in
revenues  collected  through the EACs did not affect  gross margin or net income
due to corresponding increases in energy costs. With the elimination of the Iowa
EAC,  fluctuations  in energy  costs now have an impact on gross  margin and net
income.  Energy  costs per unit  since  July 11,  1997,  were  below the  amount
recovered  in rates under the new Iowa  pricing plan and resulted in an increase
to gross margin.

     In October 1996, the Illinois Commerce Commission (ICC) ordered MidAmerican
to reduce  electric  retail  rates for its  Illinois  customers by 10%, or $13.1
million in annual revenues, effective November 3, 1996. A 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
effective on June 1, 1997.  In Iowa,  MidAmerican  reduced its  electric  retail
rates by $8.7 million effective November 1, 1996. The reduction lowered rates to
levels  proposed by  MidAmerican  in its pricing  plan filed in June 1996.  With
implementation

                                      -41-

<PAGE>



of the approved  settlement in July 1997, rates for Iowa  residential  customers
were reduced an additional $10.0 million annually.  The Iowa rate reductions are
partially  offset by a new  tracking  mechanism  (Cooper  Tracker)  for  capital
improvement costs at the Cooper Nuclear Station  (Cooper).  Net of the effect of
the Cooper  Tracker,  rate  reductions  reduced  electric  gross margin by $17.3
million  compared  to 1996.  Refer to "Rate  Matters" in  Liquidity  and Capital
Resources  later in this discussion for further  information  regarding the Iowa
proceeding.

     Beginning September 29, 1997, MidAmerican began collection of its remaining
deferred energy  efficiency costs and current,  ongoing energy efficiency costs.
Including an allowed return on deferred  costs,  the annual increase in electric
revenues is $36.1  million.  The effect on earnings of this increase in revenues
and  gross  margin is  partially  offset by a  corresponding  increase  in other
operating  expenses of $31.1 million for deferred and current energy  efficiency
costs. Refer to "Energy  Efficiency" in Liquidity and Capital Resources later in
this discussion for further information.

     Revenues  and  margin   increased  $6.2  million  due  to  an  increase  in
transmission revenues. In addition, a 3.9% increase in non-retail sales resulted
in a $3.3 million increase in revenues.

     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.

     The net impact of increases  and  decreases in retail rates  resulted in an
overall  decrease of $2.1 million in revenues and gross margin for 1996 compared
to 1995.  Rate decreases  implemented in Iowa and Illinois in November 1996 were
partially  offset  by an  increase  resulting  from  a  filing  made  by  one of
MidAmerican's predecessor companies. Electric revenues in the first half of 1995
reflect a $13.6 million  annual  increase for interim  rates in connection  with
that 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.

     In  August  1995,  MidAmerican  began  collection  of $5.7  million  over a
four-year period related to an energy  efficiency cost recovery  filing.  At the
same time, MidAmerican began amortization of the related energy efficiency costs
that had previously  been deferred and included on the Company's  balance sheet.
The amortization is included in other operating expenses.

<TABLE>
<CAPTION>

     Gas Gross Margin:
     -----------------
                                      1997     1996     1995
                                      ----     ----     ----
                                           (in millions)
     <S>                              <C>      <C>      <C>
     Operating revenues               $536     $537     $460
     Cost of gas sold                  346      345      279
                                      ----     ----     ----
       Gas gross margin               $190     $192     $181
                                      ====     ====     ====
</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

                                      -42-

<PAGE>



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.

     Gas gross  margin for 1997  decreased  $2 million  compared  to 1996 due to
warmer temperatures  during the 1997 heating seasons.  Temperatures in 1997 were
close to normal while temperatures in 1996 were colder than normal, contributing
$8 million to the 1996 gas gross margin.  The decrease in sales and gross margin
due to  weather  was  partially  offset by the  effect of a modest  increase  in
natural  gas retail  customers.  In total,  retail  sales of natural gas in 1997
decreased 7.1% compared to 1996 sales.

     As discussed in the electric  margin  discussion,  beginning  September 29,
1997,  MidAmerican  began recovery of its energy efficiency costs not previously
approved for recovery. Including an allowed return on deferred costs, the annual
increase  in gas  revenues  is $12.8  million.  The effect on  earnings  of this
increase in revenues  and gross margin is  partially  offset by a  corresponding
increase in other operating expenses of approximately $11.1 million for deferred
and current energy efficiency costs.

     The average cost of gas per unit  increased in 1997 compared to 1996 and is
reflected in revenues and cost of gas sold.

     Gas gross margin  increased in 1996 compared to 1995.  The increase was 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.

     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  MidAmerican's  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 August  1995,  MidAmerican  began  collection  of $12.9  million  over a
four-year period related to an energy  efficiency cost recovery  filing.  At the
same time, MidAmerican began amortization of the related energy efficiency costs
that had previously  been deferred and included on the Company's  balance sheet.
The amortization is included in other operating expenses.

     Revenues and cost of gas sold each increased significantly in 1996 compared
to 1995 due to an increase in the average cost of gas per unit in 1996.

UTILITY OPERATING EXPENSES

     Utility other operating expenses increased for 1997 compared to 1996 due in
part to an  increase  of $14.0  million in nuclear  operating  costs.  Operating
expenses related to Cooper increased in part due to the ratemaking treatment for
Cooper  capital  improvements.  As a result of 1996 and 1997  rate  settlements,
Cooper capital  improvements  are now expensed when  incurred,  instead of being
capitalized.  As  mentioned  previously  in the Electric  Gross Margin  section,
MidAmerican is now recovering on a current basis the Iowa portion of these costs
from its Iowa  electric  customers.  Recovery  in  Illinois  is included in base
rates.  This change accounted for $4.5 million of the nuclear  operating expense
increase.


                                      -43-

<PAGE>



     As mentioned in the gross margin discussions,  1997 reflects an increase in
expense  related to the increased  recovery of certain energy  efficiency  costs
beginning September 29, 1997. The increase in energy efficiency costs, including
amortization  of  historical  costs and  charging  expense  for  current  costs,
accounted for $13.1 million of the increase in other operating expenses.

     Continued  restructuring  of the Company in  preparation  for a competitive
industry  has  required  additional  expenses.  MidAmerican  has  increased  its
emphasis in  marketing-related  efforts, as well as customer service operations,
resulting  in increases  in  consulting  costs,  advertising  and other  related
expenses.  In  addition,  1997  reflects  increases  in  uncollectible  accounts
expense, employee incentive compensation and certain employee benefits expenses.
Other operating  expenses for 1997 reflect an increase in transmission  wheeling
expense due in part to changes required by FERC Order Nos. 888 and 889.

     For 1996,  utility other operating  expenses decreased compared to 1995 due
primarily to $31.9 million of costs in 1995 for the Company's restructuring plan
implemented  as part of the  merging  of its  predecessors.  In  addition,  1996
reflects  cost  savings  resulting  from the merger.  Nuclear  operations  costs
decreased  $4.5 million in 1996  compared to 1995.  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.

     Maintenance expenses increased for 1997 compared to 1996. The main cause of
the increase was an adjustment in 1996 to align power plant inventory accounting
of  predecessor  companies  which  reduced  1996  expense  by $6.2  million.  In
addition,  the  Company  incurred  $2.0  million  in  maintenance  expenses  for
restoration following a snow storm in October 1997.  Maintenance expenses at the
Quad Cities Station  decreased  $2.5 million in 1997 compared to 1996.  Refer to
the  discussion  of Quad Cities  Nuclear  Station in the  Liquidity  and Capital
Resources section of MD&A for information regarding the status of the plant.

     Maintenance  expenses  increased for 1996  compared to 1995.  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 the
inventory  adjustment  mentioned above.  Maintenance expense for the Quad Cities
Station increased $1.8 million for 1996 compared to 1995.

        Property  taxes  increased  $8.8  million in 1997  compared  to 1996 due
     primarily to an increase in the assessed value for Iowa property tax
purposes.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

Holdings:
---------

     Revenues of MidAmerican  Capital and Midwest  Capital  increased a total of
$22.8 million in 1997 compared to 1996.  Revenues from the natural gas marketing
subsidiaries increased $22.6 million due to an increase in the average price per
unit,  reflective  of an increase in the cost of gas sold.  Sales of natural gas
decreased 3 million MMBtu's (4%) compared to 1996 sales.

     Cost of sales includes  expenses  directly related to sales of natural gas.
The  increase in cost of sales for 1997  reflects a 15%  increase in the average
cost of gas per unit.  Compared to 1996,  total gross  margin  (total price less
cost of gas) on nonregulated natural gas sales increased $1.0 million.


                                      -44-

<PAGE>



     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  (153%)  for 1996  compared  to 1995.  In
addition, the average price of natural gas increased in 1996.

     Cost of sales for 1996 reflects the increases in gas sales volumes and cost
per unit compared to 1995.  Average margins 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.

NON-OPERATING INCOME AND INTEREST EXPENSE

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

     Other, Net -

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

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

     MidAmerican  was  awarded  $4.9  million of pre-tax  income in 1997 for its
performance  under its incentive gas procurement  program during the May 1996 to
April 1997 period. In the fourth quarter of 1996,  MidAmerican recorded an award
of $2.7 million of pre-tax  income as a result of successful  performance  under
its incentive gas procurement program during the 1995-1996 heating season.

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

     In addition,  Other,  Net includes the  recognition of deferred income from
energy  efficiency  programs totaling $5.0 million and $3.3 million for 1997 and
1996, respectively.

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

     Other,  Net for 1995  includes  $4.6  million of merger  transaction  costs
related  to the  Company's  1995  merger and $3.1  million  for  recognition  of
deferred income from energy efficiency programs.






                                      -45-

<PAGE>



     Interest Charges -

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

Holdings:
---------

        Dividend Income -

     Dividend  income  decreased  for 1997  periods  due  MidAmerican  Capital's
reduced holdings of preferred stock portfolios as discussed below.

     Realized Gains and Losses on Securities, Net -

     Net realized gains on securities for 1997 includes an $8.0 million  pre-tax
gain on the sale of shares of McLeodUSA  common stock.  Excluding that gain, net
realized gains  decreased in 1997 compared to 1996 primarily from realized gains
on the sales of certain  common equity fund holdings which  MidAmerican  Capital
began  liquidating in 1996. Net realized gains on securities  increased for 1996
compared to 1995 due to an increase in gains on the  disposition  of equity fund
holdings and managed preferred stock portfolios.

        Other, Net -

     During  1997,  the  Company  sold all of the assets of its  railcar  repair
services subsidiary and most of the assets of its railcar leasing subsidiary and
recorded  pre-tax gains  totaling $10.0  million.  Write-downs  of  nonregulated
investments, as discussed in the Earnings Discussion section at the beginning of
Results of Operations,  decreased Other, Net by $3.4 million,  $15.6 million and
$18.0  million  for  1997,  1996 and  1995,  respectively.  Income  from  equity
investments  decreased in 1997 due to the liquidation  activity discussed above.
Other,  Net for 1996 reflects an increase in income from equity  investments and
special  purpose funds  compared to 1995. In 1995, the Company had pre-tax gains
totaling $8.5 million on the sales of a partnership  interest in a gas marketing
organization and a telecommunication subsidiary.

        Interest Charges -

     MidAmerican  Capital's  interest on long-term debt decreased  $10.1 million
compared to 1996  expense due to the  reduction of its  long-term  debt in early
1997.


INCOME TAXES

Holdings:
---------

     During  the second  quarter of 1997,  the  Company  contributed  part of an
appreciated  common stock  investment to its tax exempt  foundation and realized
$2.9 million of tax benefit.



                                      -46-

<PAGE>



                                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.

     As of December 31, 1997,  common equity  represented 51.7% of the Company's
total  capitalization  compared to 44.0% and 44.3% as of  December  31, 1996 and
1995, respectively. Several factors other than earnings, dividends and scheduled
maturities of debt affected the change.  Recording an investment in McLeodUSA at
market  value and  repurchases  and  retirement  of debt prior to its  scheduled
maturity were major  contributors to the move to a higher  percentage of equity.
The Company's common stock repurchase program reduced common equity during 1997.
Each of these items is included in the discussion that follows.

     MidAmerican's  common equity as of December  31,1997,  represented 47.2% of
its  capitalization  compared to 43.8% as of December  31,  1996. A reduction of
long-term debt was the primary cause of the change.

     As reflected on the Consolidated Statements of Cash Flows, Holdings had net
cash  provided  from  operating  activities of $392 million for 1997 compared to
$321 million and $337 million in 1996 and 1995, respectively.  MidAmerican's net
cash  provided  from  operating  activities  was $380  million for 1997 and $327
million and $333 million for 1996 and 1995, respectively.

INVESTING ACTIVITIES AND PLANS

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

     Utility Construction Expenditures -

     MidAmerican's   primary   need  for   capital   is   utility   construction
expenditures.  For 1997, utility construction expenditures totaled $167 million,
including  allowance  for funds used during  construction  (AFUDC),  Quad Cities
Station  nuclear fuel  purchases and Cooper capital  improvements.  In addition,
MidAmerican's  nonregulated  railway  subsidiary had $6 million of  construction
expenditures  in 1997. All such  expenditures  were met with cash generated from
utility operations, net of dividends.

     Beginning with July 1997 expenditures,  Cooper capital  improvements are no
longer  included in utility  construction  expenditures  but are  expensed  when
incurred  in  Other  Operating  Expenses.  As part  of the  1997  settlement  of
MidAmerican's pricing proposal, MidAmerican is recovering on a current basis the
Iowa portion of Cooper  capital  improvements  from its Iowa electric  customers
through a tracking mechanism.

     Forecasted  utility  construction  expenditures  for 1998 are $201  million
including  AFUDC.   Capital   expenditure   needs  are  reviewed   regularly  by
MidAmerican's  management  and may  change  significantly  as a  result  of such
reviews.   MidAmerican   presently   expects   that  all  utility   construction
expenditures  for the next  five  years  will be met with  cash  generated  from
utility  operations,  net of dividends.  The actual level of cash generated from
utility  operations is affected by, among other things,  economic  conditions in
the utility service territory, weather and federal and state regulatory actions.




                                      -47-

<PAGE>



     Nuclear Decommissioning -

     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  $51 million during the period 1998 through 2002 to an
external trust established for the investment of funds for  decommissioning  the
Quad Cities Station.  Historically,  the funds were invested in investment grade
municipal and U.S.  Treasury bonds;  however,  in 1997 MidAmerican  directed the
trust to begin  investing a portion of the funds in domestic  corporate debt and
common  equity  securities.  Approximately  40% of the  trust's  funds  are  now
invested in domestic corporate debt and common equity securities.

     In addition,  MidAmerican makes payments to NPPD related to decommissioning
Cooper.  These  payments  are  reflected  in  Other  Operating  Expenses  in the
Consolidated  Statements of Income.  NPPD estimates call for  MidAmerican to pay
approximately $57 million to NPPD for Cooper  decommissioning  during the period
1998 through 2002. 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. In July 1997, NPPD filed a lawsuit in United States District Court for the
District  of  Nebraska  naming  MidAmerican  as  the  defendant  and  seeking  a
declaration of  MidAmerican's  rights and  obligations in connection with Cooper
nuclear decommissioning funding.

     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  recovery of  increases  in those  amounts  must be
sought through the normal ratemaking process.

Holdings:
---------

     Nonregulated Capital Expenditures -

     Capital  expenditures of MidAmerican Capital and Midwest Capital totaled $8
million in 1997.  Capital  expenditures of these  subsidiaries  depend primarily
upon the  availability  of  suitable  investment  opportunities  which  meet the
Company's objectives. The Company continues to evaluate nonregulated investments
and may redeploy certain assets in the next year. External financing may also be
used to provide for nonregulated capital expenditures.

     Investments -

     MidAmerican Capital invests in a variety of marketable  securities which it
holds for  indefinite  periods of time. 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.

     Included in investments on the Consolidated Balance Sheets is the Company's
investment  in  common  stock of  McLeodUSA.  McLeodUSA  common  stock  has been
publicly traded since June 14, 1996.  Investor agreements related to McLeodUSA's
initial public offering and subsequent merger with  Consolidated  Communications
Inc.  prohibit the Company  from  selling or  otherwise  disposing of any of the
common stock of McLeodUSA  prior to September 24, 1998,  without the approval of
McLeodUSA's board of directors. As

                                      -48-

<PAGE>



a result of the agreements,  the Company's investment was considered  restricted
stock and, as such, was recorded at cost in all periods prior to September 1997.
Beginning in September 1997, the investment is no longer  considered  restricted
for accounting purposes and is recorded at fair value. At December 31, 1997, the
cost and fair value of the  McLeodUSA  investment  were $45.2 million and $257.9
million,  respectively. The unrealized gain is recorded, net of income taxes, as
a valuation allowance in common shareholders'  equity. At December 31, 1997, the
unrealized  gain and  deferred  income  taxes for this  investment  were  $212.7
million and $74.4 million, respectively.

     MidAmerican Capital received approximately $302 million in cash during 1997
from sales of  investments  primarily  as part of its efforts to align them with
the Company's  strategy.  A significant portion of the proceeds from these sales
was used for retirement of MidAmerican  Capital long-term debt and for dividends
to Holdings for use in the repurchase of the Company's common stock.

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

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, 1997,  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 $123 million at December 31, 1997,
are  supported  by the  revolving  credit  facility  and  the  line  of  credit.
MidAmerican  also has a revolving  credit facility which is dedicated to provide
liquidity for its obligations under outstanding  pollution control revenue bonds
that are periodically remarketed.

     In 1997,  MidAmerican entered into a revolving agreement,  which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican.  Funding  Corp.  in  turn  sold  receivable  interests  to  outside
investors.  In consideration for the sale,  MidAmerican  received $70 million in
cash and the remaining  balance in the form of a subordinated  note from Funding
Corp.  The  agreement is  structured as a true sale under which the creditors of
Funding  Corp.  will be  entitled to be  satisfied  out of the assets of Funding
Corp.  prior to any value being returned to MidAmerican or its creditors and, as
such,  the  accounts   receivable   sold  are  not  reflected  on  Holdings'  or
MidAmerican's Consolidated Balance Sheets. At December 31, 1997, $130.0 million,
net of reserves, was sold under the agreement.

     During 1997, MidAmerican  repurchased $42.4 million of first mortgage bonds
with annual interest rates from 6.95% to 7.70%, excluding bonds which matured in
1997.

     As of December 31,  1997,  MidAmerican  had $401 million of long-term  debt
maturities and sinking fund requirements for 1998 through 2002.

     MidAmerican  currently has regulatory authority to issue an additional $300
million of preferred  securities and long-term debt,  including issues under 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.



                                      -49-

<PAGE>



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 31, 1998, are shown in the table below.  The ratings  reflect only
the  views  of such  rating  agencies,  and  each  rating  should  be  evaluated
independently of any other rating. Generally, rating agencies base their ratings
on information  furnished to them by the issuing  company and on  investigation,
studies and assumptions by the rating  agencies.  There is no assurance that any
particular rating will continue for any given period of time or that it will not
be  changed or  withdrawn  entirely  if in the  judgment  of the  rating  agency
circumstances so warrant.  Such ratings are not a recommendation to buy, sell or
hold securities.

<TABLE>
<CAPTION>

                                            Moody's
                                            Investors            Standard
                                             Service             & Poor's
                                            ---------            --------
        <S>                                    <C>                  <C>  
        Mortgage Bonds                         A2                   AA-
        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 "AA" has a very strong
capacity to meet its  financial  commitment  and differs from the highest  rated
obligations only in small degree.  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

                                      -50-

<PAGE>



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. Net losses on reacquisitions  totaled $1.4 million
and $1.6  million  for 1997 and  1996,  respectively.  Excluding  these  losses,
preferred  dividends  increased for 1997 compared to 1996 due to the increase in
preferred stock outstanding.

Holdings:
---------

     As of December 31, 1997, Holdings had lines of credit totaling $120 million
available to provide for short-term financing needs.

     In addition,  Holdings has the  necessary  authority to issue shares of its
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.

     In March 1997, Holdings announced its plan to repurchase up to $200 million
of the  Company's  common  stock.  The Company plans to purchase the shares from
time to time as market  conditions  warrant,  with the intent of completing  the
entire  repurchase  program by December 31, 1998.  As of December 31, 1997,  the
Company had repurchased  approximately 5.0 million shares for $89.2 million. The
Company believes  repurchasing  Holding's common stock is the best investment of
Company  funds at this time.  Repurchasing  the common  stock will reduce  total
common dividend  requirements and aid in improving the Company's dividend payout
ratio.  In addition,  a subsidiary  of the Company holds  approximately  437,000
shares of Holdings common stock which are also excluded from shares outstanding.

     On January 28,  1998,  Holdings'  board of  directors  declared a quarterly
dividend on common shares of $0.30 per share payable March 1, 1998. The dividend
represents an annual rate of $1.20 per share.

     Nonregulated Subsidiaries -

     As of December 31, 1997, MidAmerican Capital had unsecured revolving credit
facilities in the amount of $114 million with a zero balance  outstanding  under
these facilities.  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 repaid. 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.  MidAmerican Capital has $135 million of
long-term debt maturities and sinking fund requirements for 1998 through 2002.

     Midwest   Capital   currently  has  a  $25  million  line  of  credit  with
MidAmerican, of which $5 million was outstanding at December 31, 1997.



                                      -51-

<PAGE>



OPERATING ACTIVITIES AND OTHER MATTERS

     Throughout the country,  the utility  industry  continues to move towards a
competitive  environment.  Although the extent of  deregulation  varies  between
states, increased competition is becoming a reality in virtually every region of
the country.  Numerous  states have passed  restructuring  legislation,  some of
which  initiated  a  phase-in  of  customer  choice  in  1998.  Legislators  and
regulators in many other states are addressing the issue.

     As part of many restructuring legislation packages,  electric utilities are
required to unbundle  traditional  services  previously  provided as a "packaged
product" under their rate tariffs.  Unbundling  allows customers to choose their
energy  supplier  and the level of energy  delivery  and  retail  services  they
desire.  Gas  utilities  are also  experiencing  separation  of the merchant and
delivery functions for all classes of customers.

     The  generation  segment of the  electric  industry  will be  significantly
impacted by competition. The introduction of competition in the wholesale market
has resulted in a proliferation of power marketers and a substantial increase in
market activity.  As retail  competition  evolves,  margins will be pressured by
competition from other utilities, power marketers, and self-generation.

     MidAmerican  has been active in promoting and  monitoring  legislative  and
regulatory changes that affect the jurisdictions in which it operates.  In order
to successfully  compete in the new  environment,  the Company  believes it must
become the leading regional provider of energy and complementary  services.  The
Company is evaluating all aspects of its business to determine what  adjustments
are necessary to align them with this strategy. Aligning nonregulated businesses
with the Company's strategy has resulted, and may continue to result in the next
year, in negative  impacts on Holdings'  earnings in the form of write-downs for
the  sale,   revaluation  or  discontinuance  of  nonregulated   operations  and
investments. (Refer to the Results of Operations section of MD&A for comments on
the earnings impact of such actions.) The following discussion further addresses
changes  affecting  the  industry and actions the Company is taking to implement
its strategy.

     Competition -

     MidAmerican is subject to regulation by several utility regulatory agencies
which significantly  influences the operating environment and the recoverability
of costs from utility  customers.  That regulatory  environment has, in general,
given  MidAmerican  an  exclusive  right to serve  customers  within its service
territory  and, in turn,  the  obligation to provide  electric  service to those
customers.

     Although  the  anticipated  changes in the  electric  utility  industry may
create opportunities,  they will also create additional challenges and risks for
utilities.  Competition  will put pressure on margins for  traditional  electric
services.  In order to lessen the impact of reduced  margins,  MidAmerican  will
continue  to  focus  on  controlling  the cost of such  services.  In  addition,
MidAmerican is positioning itself to offer  complementary  products and services
as expected  opportunities  become  available in a  competitive  utility  retail
market.  Additional products and services may provide avenues to replace margins
lost on traditional electric services.

     MidAmerican  has been  authorized  in an order from the IUB  approving  the
electric  pricing  settlement to enter into  long-term  electric  contracts with
industrial  and  commercial  customers.  MidAmerican  is  negotiating  long-term
contracts with various industrial and commercial customers. The Company believes
these contracts will help stabilize margins in the future.



                                      -52-

<PAGE>



     Legislative and Regulatory Evolution -

     On December  16, 1997,  the Governor of Illinois  signed into law a bill to
restructure   Illinois'  electric  utility  industry  and  transition  it  to  a
competitive  market  beginning  October 1, 1999.  The law is very  complex,  and
MidAmerican continues to evaluate the impact of the law on its operations.

     The law requires a 15% electric rate reduction for all Illinois residential
customers in 1998. To satisfy its  obligation,  the law  specifically  permitted
MidAmerican to receive credit for the $15.5 million,  or approximately 13%, rate
reductions  implemented  in  Illinois  in 1996  and  1997.  MidAmerican  is also
exempted from the requirement to join an independent system operator (ISO) or to
form an in-state ISO.

     In addition,  the law provides for Illinois  earnings above a certain level
of return on equity (ROE) to be shared equally between customers and MidAmerican
beginning in April 2000. The ROE level at which  MidAmerican will be required to
share  earnings is a multi-step  calculation  of average  30-year  Treasury Bill
rates  plus  5.50%  for 1998 and 1999 and 6.50% for 2000  through  2004.  If the
resulting average Treasury Bill rate  approximated  rates which existed in 1997,
the ROE level above which sharing must occur would be approximately 12%.

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

     The law also addresses charges to customers for transition costs based on a
lost-revenue approach. These transition fees, designed to help utilities address
stranded costs, will end December 31, 2006, subject to possible extension.

     In Iowa, no  legislation  has yet been  introduced  to allow  generation or
retail  service  competition.  Because  energy  costs are low in Iowa,  industry
restructuring has not been an issue  aggressively  pursued in the state to date.
However,  a group  of  industrial  customers  formed  in the  fall  of 1997  has
indicated that it may introduce retail  competition  legislation during the 1998
Iowa legislative  session.  MidAmerican's Iowa legislative  priority for 1998 is
property  tax  reform,   a  condition   it   considers   precedent  to  industry
restructuring.

     In April 1996,  the FERC issued Order Nos. 888 and 889 which 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 May 1997,  MidAmerican  filed revisions to the tariff in accordance
with Order No. 888-A which was issued in March 1997.  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 is a long-time
member  of  the  Mid-Continent  Area  Power  Pool  (MAPP)  and  has  elected  to
participate in the MAPP OASIS.

     In October  1997,  the IUB adopted  rules to encourage  gas  transportation
service  for small  volume  customers  starting in 1999.  MidAmerican  has until
November 15, 1998, to file its own plan to unbundle service for its small volume
customers.  MidAmerican  presently  believes  that  these  rules will not have a
material impact on its results of operations.

                                      -53-

<PAGE>



     Accounting Effects of Industry Restructuring -

     A possible  consequence  of  competition  in the  utility  industry is that
Statement of Financial  Accounting  Standards (SFAS) No. 71 may no longer apply.
SFAS 71 sets forth  accounting  principles for operations that are regulated and
meet certain  criteria.  For operations that meet the criteria,  SFAS 71 allows,
among other things,  the deferral of costs that would otherwise be expensed when
incurred.  A majority  of  MidAmerican's  electric  and gas  utility  operations
currently  meet the  criteria  required  by SFAS 71,  but its  applicability  is
periodically   reexamined.   On  December  16,  1997,  MidAmerican's  generation
operations  serving Illinois were no longer subject to the provisions of SFAS 71
due to passage of restructuring  legislation in Illinois.  Thus, MidAmerican was
required to write off those amounts of regulatory  assets and  liabilities  from
its  balance  sheet  related  to  its  Illinois  generation  operations.   These
write-offs  were not material.  If other  portions of its utility  operations no
longer meet the criteria of SFAS 71,  MidAmerican would be required to write off
the related regulatory assets and liabilities from its balance sheet and thus, a
material  adjustment to earnings in that period could result. As of December 31,
1997,  MidAmerican  had $339 million of  regulatory  assets in its  Consolidated
Balance  Sheet.  Refer to Note  1(c) for a list of the  regulatory  assets as of
December 31, 1997.

     Energy Efficiency -

     MidAmerican's  regulatory  assets as of December 31, 1997,  included $111.5
million of deferred energy efficiency costs. On September 29, 1997,  MidAmerican
received  approval from the IUB,  effective  immediately,  to begin  recovery of
deferred energy  efficiency costs not previously  approved.  Accordingly,  $95.1
million of such costs will be collected  over a four-year  period,  along with a
return of $26.6 million on those costs.  MidAmerican  also received  approval to
recover current energy efficiency costs,  which are expected to be $18.5 million
for the period May 1997  through  April 1998.  The  projected  $18.5  million of
current  costs,  $5.3 million of which were deferred from May through  September
1997, will be collected in the twelve-month period ending in September 1998. The
filing is subject to periodic  prudence reviews by the IUB. Deferred and current
energy efficiency costs will be reflected in operating expenses over the related
periods of recovery.

     Rate Matters -

     As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois  electric  service  rates by annual  amounts of $13.1  million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.

     On June 27, 1997, the IUB issued an order in a consolidated rate proceeding
involving  MidAmerican's  pricing  proposal  and a filing by the Iowa  Office of
Consumer  Advocate (OCA).  The order approved a March 1997 settlement  agreement
between MidAmerican,  the OCA and other parties to the proceeding. The agreement
includes a number of characteristics of MidAmerican's  pricing proposal.  Prices
for residential  customers were reduced $8.5 million  annually and $10.0 million
annually, effective November 1, 1996, and July 11, 1997, respectively,  and will
be reduced an  additional  $5.0  million  annually on June 1, 1998,  for a total
annual decrease of $23.5 million.  Rates for commercial and industrial customers
will 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. The agreement includes a tracking mechanism to
currently  recover  the cost of  capital  improvements  required  by the  Cooper
Nuclear  Station Power  Purchase  Contract.  The tracking  mechanism will offset
approximately $9 million of these reductions.



                                      -54-

<PAGE>
     In addition, the agreement accepted MidAmerican's proposal to eliminate the
energy  adjustment clause (EAC) which was the mechanism through which fuel costs
were collected  from Iowa  customers  prior to July 11, 1997. The EAC flowed the
cost of fuel to customers on a current  basis,  and thus,  fuel costs had little
impact on net income.  Beginning  July 11, 1997,  base rates for Iowa  customers
include a factor for recovery of a representative level of fuel costs.  Earnings
are now affected by  variances in actual fuel costs from the factor  included in
rates.  The fuel cost factor will be  reviewed  in  February  1999 and  adjusted
prospectively  if actual  1998  fuel  costs  vary 15% above or below the  factor
included in base rates.

     Under the  agreement,  if  MidAmerican's  annual  return  on common  equity
exceeds  12%,  then an equal  sharing  between  customers  and  shareholders  of
earnings  above the 12% level  begins;  if it exceeds 14%,  then  two-thirds  of
MidAmerican's  share of those earnings will be used for accelerated  recovery of
certain  regulatory  assets.  The  agreement  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%.

     The agreement also provides that  MidAmerican  will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers.  The pilot program, which is subject to approval by the
IUB and the FERC, is limited to 60 MW of participation the first year and can be
expanded by 15 MW annually  until the  conclusion  of the  program.  Any loss of
revenues  associated  with the pilot program will be considered  part of the $10
million annual reduction for commercial and industrial  customers but may not be
recovered from other customer  classes.  MidAmerican  filed its proposed program
with the IUB and the FERC in September 1997.  MidAmerican  anticipates  that the
necessary  approvals  will be received  before the end of the second  quarter of
1998.

     In December 1997, an Iowa industrial customer located within  MidAmerican's
IUB-approved  exclusive  electric  service  territory,  filed a lawsuit  against
Holdings and MidAmerican in the United States District Court for the District of
Iowa alleging  various  violations of federal  antitrust laws. The lawsuit stems
from a claim that because the customer is not free to choose its retail  energy,
MidAmerican  is  engaging  in illegal  monopolistic  behavior.  In  addition  to
damages,  the  customer  is  seeking  the right to choose  its  electric  retail
supplier. MidAmerican maintains that its provision of retail electric service is
in  accordance  with  Iowa  laws  and  regulations  governing  electric  service
territories,  and all other applicable legal requirements.  A ruling in favor of
the  plaintiff  could  have the effect of  accelerating  retail  competition  in
MidAmerican's Iowa service territory.

     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 26 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.

                                      -55-

<PAGE>



     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.

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

     The  impact  of  the  new  standards  on  MidAmerican  will  depend  on the
attainment  status  of  the  areas  surrounding   MidAmerican's  operations  and
MidAmerican's   relative   contribution   to  the   nonattainment   status.   If
MidAmerican's  operations  contribute  to  nonattainment  and  modifications  to
MidAmerican's  operations  or  facilities  are  necessary,  the  cost of  making
emissions  reductions to meet the air quality  standards  will be dependent upon
the  level  of  emissions  reductions  required  and the  available  technology.
MidAmerican   will  continue  to  evaluate  the  potential  impact  of  the  new
regulations.

     Following recommendations provided by the Ozone Transport Assessment Group,
the EPA, in November 1997,  issued a Notice of Proposed  Rulemaking (NOPR) which
identified  22  states  and the  District  of  Columbia  as  making  significant
contribution to nonattainment  of NAAQS for ozone.  Iowa is not subject to these
emissions  reduction  requirements as EPA's rule is currently  drafted,  and, as
such,  MidAmerican  does not anticipate  that its facilities  will be subject to
additional  emissions  reductions  as a  result  of  this  initiative.  The  EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.

     Coal Deliveries -

     A  coal  transportation  provider  of  MidAmerican  has  been  experiencing
nationwide operational problems.  Consequently, coal deliveries to MidAmerican's
Neal  station in the fourth  quarter of 1997 were  delayed  resulting in reduced
coal inventory at that site. The Neal Station  represents  approximately  37% of
MidAmerican's  coal-fired  generating  capacity.  Following  discussions between
MidAmerican and the transportation provider, increased deliveries have been made
to the four Neal  units.  In order to  preserve  coal  inventories,  MidAmerican
reduced its sales of energy to other  utilities,  which reduced electric margins
in the fourth quarter.

     Quad Cities Nuclear Station Outage -

     In September 1997,  Commonwealth  Edison Company (ComEd),  operator and 75%
owner of Quad Cities Station Units 1 and 2, shut down Unit 2 and entered early a
scheduled outage to address safety system concerns. In December 1997, Unit 1 was
also taken off-line for the same reason.  ComEd has indicated that the units may
be  unavailable  until the first half of May 1998.  During this time,  it may be
necessary for MidAmerican to forego off-system sales opportunities, operate more
expensive units,  and/or purchase more off-system energy. In January 1998, ComEd
received  a  Confirmatory  Action  Letter  (CAL)  from  the  Nuclear  Regulatory
Commission  (NRC).  The CAL  details  actions  that must be taken to correct the
problems  described above.  Also in January,  ComEd was informed by the NRC that
the performance of Quad Cities Station is trending adversely. The Company cannot
at this time  predict  the cost of these  actions  nor the  impact on results of
operations of the plant's outage.

                                      -56-

<PAGE>


YEAR 2000

     The Company has  undertaken  an extensive  project to ensure the ability of
its  information   technology   systems,   including   hardware,   software  and
applications  programs, to perform correctly on January 1, 2000. The Company, in
addition to its  internal  resources,  has engaged  independent  contractors  to
assist with the conversion project.  The project timetable specifies  completion
of all conversion  work and testing  sufficiently in advance of January 1, 2000,
to identify any residual  concerns.  The Company estimates the remaining cost to
remediate year 2000 flaws in its principal  business systems to be approximately
$5 million.  Potential  concerns  regarding  other systems used  throughout  the
Company's  operations  continues to be evaluated.  Although  management believes
that the project will be completed  within the required  time frame,  unforeseen
and other factors,  including failure of the contractors to perform, could cause
delays in the project, the results of which could be material to the Company.

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 the
current  level,  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.

     The Financial Accounting Standards Board has issued SFAS No. 130 addressing
the issue of comprehensive  income. SFAS 130 requires that all items required to
be recognized as changes in equity during a period,  except those resulting from
investments by owners and distributions to owners, (i.e., comprehensive income),
be reported in a financial  statement that is displayed with the same prominence
as the other financial statements. The display can be a separate statement or an
addition to an existing  statement.  The material  components  of the  Company's
comprehensive income will include net income and the after-tax effect of changes
in the fair value of investments classified as available for resale. SFAS 130 is
effective for fiscal years beginning after December 15, 1997.

                                      -57-

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

                                                                            YEARS ENDED DECEMBER 31
                                                                   -----------------------------------------
                                                                      1997           1996            1995
                                                                   -----------    -----------    -----------
<S>                                                                <C>            <C>            <C>
OPERATING REVENUES
Electric utility ...............................................   $ 1,126,300    $ 1,099,008    $ 1,094,647
Gas utility ....................................................       536,306        536,753        459,588
Nonregulated ...................................................       259,675        236,851         95,106
                                                                   -----------    -----------    -----------
                                                                     1,922,281      1,872,612      1,649,341
                                                                   -----------    -----------    -----------
OPERATING EXPENSES
Utility:
  Cost of fuel, energy and capacity ............................       235,760        234,317        230,261
  Cost of gas sold .............................................       346,016        345,014        279,025
  Other operating expenses .....................................       429,794        350,174        399,648
  Maintenance ..................................................        98,090         88,621         85,363
  Depreciation and amortization ................................       170,540        164,592        158,950
  Property and other taxes .....................................       101,317         92,630         96,350
                                                                   -----------    -----------    -----------
                                                                     1,381,517      1,275,348      1,249,597
                                                                   -----------    -----------    -----------
Nonregulated:
  Cost of sales ................................................       240,182        218,256         70,209
  Other ........................................................        30,076         35,370         37,181
                                                                   -----------    -----------    -----------
                                                                       270,258        253,626        107,390
                                                                   -----------    -----------    -----------
  Total operating expenses .....................................     1,651,775      1,528,974      1,356,987
                                                                   -----------    -----------    -----------

OPERATING INCOME ...............................................       270,506        343,638        292,354
                                                                   -----------    -----------    -----------

NON-OPERATING INCOME
Interest income ................................................         5,318          4,012          4,485
Dividend income ................................................        13,792         16,985         16,954
Realized gains and losses on securities, net ...................         7,798          1,895            688
Other, net .....................................................        22,111         (4,020)       (10,467)
                                                                   -----------    -----------    -----------
                                                                        49,019         18,872         11,660
                                                                   -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt .....................................        89,898        102,909        105,550
Other interest expense .........................................        10,034         10,941          9,449
Preferred dividends of subsidiaries ............................        14,468         10,689          8,059
Allowance for borrowed funds ...................................        (2,597)        (4,212)        (5,552)
                                                                   -----------    -----------    -----------
                                                                       111,803        120,327        117,506
                                                                   -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES ..........       207,722        242,183        186,508
INCOME TAXES ...................................................        68,390         98,422         66,803
                                                                   -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS ..............................       139,332        143,761        119,705
                                                                   -----------    -----------    -----------

DISCONTINUED OPERATIONS
Income (Loss) from operations (net of income taxes) ............          (118)         2,117          3,059
Loss on disposal (net of income taxes) .........................        (4,110)       (14,832)             -
                                                                   -----------    -----------    -----------
                                                                        (4,228)       (12,715)         3,059
                                                                   -----------    -----------    -----------

NET INCOME .....................................................   $   135,104    $   131,046    $   122,764
                                                                   ===========    ===========    ===========

AVERAGE COMMON SHARES OUTSTANDING ..............................        98,058        100,752        100,401

EARNINGS PER COMMON SHARE
Continuing operations ..........................................   $      1.42    $      1.43    $      1.19
Discontinued operations ........................................         (0.04)         (0.13)          0.03
                                                                   -----------    -----------    -----------
Earnings per average common share ..............................   $      1.38    $      1.30    $      1.22
                                                                   ===========    ===========    ===========

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

The accompanying notes are an integral part of these statements  

                                      -58-

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

                                                                        AS OF DECEMBER 31
                                                                     -----------------------
                                                                        1997         1996
                                                                     -----------  ----------
<S>                                                                  <C>          <C>   
ASSETS
UTILITY PLANT
Electric .........................................................   $4,084,920   $4,010,847
Gas ..............................................................      756,874      723,491
                                                                     ----------   ----------
                                                                      4,841,794    4,734,338
Less accumulated depreciation and amortization ...................    2,275,099    2,153,058
                                                                     ----------   ----------
                                                                      2,566,695    2,581,280
Construction work in progress ....................................       55,418       49,305
                                                                     ----------   ----------
                                                                      2,622,113    2,630,585
                                                                     ----------   ----------

POWER PURCHASE CONTRACT ..........................................      173,107      190,897
                                                                     ----------   ----------

INVESTMENT IN DISCONTINUED OPERATIONS ............................            -      166,320
                                                                     ----------   ----------

CURRENT ASSETS
Cash and cash equivalents ........................................       10,468       97,749
Receivables, less reserves of $347 and $2,093, respectively ......      207,471      312,015
Inventories ......................................................       86,091       90,864
Other ............................................................       18,452       11,031
                                                                     ----------   ----------
                                                                        322,482      511,659
                                                                     ----------   ----------

INVESTMENTS ......................................................      799,524      622,972
                                                                     ----------   ----------

OTHER ASSETS .....................................................      360,865      399,415
                                                                     ----------   ----------

TOTAL ASSETS .....................................................   $4,278,091   $4,521,848
                                                                     ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity ......................................   $1,301,286   $1,239,946
MidAmerican preferred securities, not subject to
   mandatory redemption ..........................................       31,763       31,769
Preferred securities, subject to mandatory redemption:
   MidAmerican preferred securities ..............................       50,000       50,000
   MidAmerican-obligated preferred securities of subsidiary trust
     holding solely MidAmerican junior subordinated debentures ...      100,000      100,000
Long-term debt (excluding current portion) .......................    1,034,211    1,395,103
                                                                     ----------   ----------
                                                                      2,517,260    2,816,818
                                                                     ----------   ----------

CURRENT LIABILITIES
Notes payable ....................................................      138,054      161,990
Current portion of long-term debt ................................      144,558       79,598
Current portion of power purchase contract .......................       14,361       13,718
Accounts payable .................................................      145,855      169,806
Taxes accrued ....................................................       92,629       82,254
Interest accrued .................................................       22,355       28,513
Other ............................................................       38,766       22,830
                                                                     ----------   ----------
                                                                        596,578      558,709
                                                                     ----------   ----------
OTHER LIABILITIES
Power purchase contract ..........................................       83,143       97,504
Deferred income taxes ............................................      761,795      722,300
Investment tax credit ............................................       83,127       88,842
Other ............................................................      236,188      237,675
                                                                     ----------   ----------
                                                                      1,164,253    1,146,321
                                                                     ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES .............................   $4,278,091   $4,521,848
                                                                     ==========   ==========
</TABLE>

The accompanying notes are an integral part of these statements

                                      -59-

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

                                                                           YEARS ENDED DECEMBER 31
                                                                   ---------------------------------------
                                                                     1997           1996           1995
                                                                   ---------      ---------      ---------

<S>                                                                <C>            <C>            <C>       
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income.....................................................    $ 135,104      $ 131,046      $ 122,764
Adjustments to reconcile net income to net cash provided:
   Depreciation and amortization...............................      197,454        190,511        181,636
   Net decrease in deferred income taxes and
     investment tax credit, net................................      (71,191)        (7,894)          (961)
   Amortization of other assets................................       33,761         20,541         19,630
   Cash proceeds form accounts receivable sale.................       70,000              -              -
   Capitalized cost of real estate sold........................        1,859          3,568          1,744
   Loss (income) from discontinued operations..................        4,228         12,715         (3,059)
   Gain on sale of securities, assets and other investments....       (9,996)       (10,132)        (1,050)
   Other-than-temporary decline in value of investments........        3,795         15,566         17,971
   Impact of changes in working capital, net of effects
     from discontinued operations..............................       28,098        (53,752)       (21,024)
   Other.......................................................         (867)        19,218         19,369
                                                                   ---------       ---------      ---------
     Net cash provided.........................................      392,245        321,387        337,020
                                                                   ---------       ---------      ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures..............................     (166,932)      (154,198)      (190,771)
Quad Cities Nuclear Power Station decommissioning trust fund...       (9,819)        (8,607)        (8,636)
Deferred energy efficiency expenditures........................      (12,258)       (20,390)       (35,841)
Nonregulated capital expenditures..............................      (14,066)       (55,788)       (12,881)
Purchase of securities.........................................     (159,770)      (198,947)      (164,521)
Proceeds from sale of securities...............................      180,890        243,290         94,493
Proceeds from sale of assets and other investments.............       57,433         33,285         34,263
Investment in discontinued operations..........................      181,321         (5,984)        (9,752)
Other investing activities, net................................       (1,360)         8,308          6,946
                                                                   ---------      ---------      ---------
   Net cash provided (used)....................................       55,439       (159,031)      (286,700)
                                                                   ---------       ---------      ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid..........................................     (117,605)      (120,770)      (118,828)
Issuance of long-term debt, net of issuance cost...............            -         99,500         12,750
Retirement of long-term debt, including reacquisition cost.....     (122,300)      (136,616)      (110,351)
Reacquisition of preferred shares..............................           (6)       (58,176)           (10)
Reacquisition of common shares.................................      (96,618)             -              -
Issuance of preferred shares, net of issuance cost.............            -         96,850              -
Increase (decrease) in MidAmerican Capital Company
   unsecured revolving credit facility.........................     (174,500)        44,500         95,000
Issuance of common shares......................................            -              -         15,083
Net increase (decrease) in notes payable.......................      (23,936)       (22,810)        60,300
                                                                   ---------      ---------      ---------
   Net cash used...............................................     (534,965)       (97,522)       (46,056)
                                                                   ---------      ---------      ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...........      (87,281)        64,834          4,264
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.................       97,749         32,915         28,651
                                                                   ---------      ---------      ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......................    $  10,468      $  97,749      $  32,915
                                                                   =========      =========      =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized......................    $  96,805      $ 107,179      $ 116,843
                                                                   =========      =========      =========
Income taxes paid..............................................    $ 130,521      $  85,894      $  69,319
                                                                   =========      =========      =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -60-
<PAGE>
<TABLE>
<CAPTION>
                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                                                                   AS OF DECEMBER 31
                                                                         ------------------------------------
                                                                              1997                   1996
                                                                          -----------             ----------
<S>                                                                        <C>           <C>      <C>           <C>
COMMON SHAREHOLDERS' EQUITY
Common shares, no par; 350,000,000 shares authorized;
  95,300,882 and 100,751,713 shares outstanding, respectively..........    $  753,873             $  801,431
Retained earnings......................................................       409,296                440,971
Valuation allowance, net of income taxes...............................       138,117                 (2,456)
                                                                           ----------             ----------
                                                                            1,301,286     51.7%    1,239,946     44.0%
                                                                           ----------    ------   ----------    ------
MIDAMERICAN  PREFERRED  SECURITIES  (100,000,000  SHARES AUTHORIZED) 
Cumulative shares outstanding not subject to mandatory redemption:
    $3.30 Series, 49,481 and 49,523 shares, respectively...............         4,948                  4,952
    $3.75 Series, 38,310 and 38,320 shares, respectively...............         3,831                  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, 49,945 and 49,950 shares, respectively...............         4,994                  4,995
    $4.40 Series, 50,000 shares........................................         5,000                  5,000
    $4.80 Series, 49,898 shares........................................         4,990                  4,990
                                                                           ----------             ----------
                                                                               31,763      1.2%       31,769      1.1%
                                                                           ----------    ------   ----------    ------
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      2.0%       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 shares....................................        100,000      4.0%      100,000      3.6%
                                                                           ----------    ------   ----------    ------

LONG-TERM DEBT
MidAmerican mortgage bonds:
    5.05% Series, due 1998............................................              -                 49,100
    6.25% Series, due 1998............................................              -                 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
    7.125% Series, due 2003...........................................        100,000                100,000
    7.70% Series, due 2004............................................         55,630                 60,000
    7% Series, due 2005...............................................         90,500                100,000
    7.375% Series, due 2008...........................................         75,000                 75,000
    8% Series, due 2022...............................................         50,000                 50,000
    7.45% Series, due 2023............................................          6,940                 26,500
    8.125% Series, due 2023...........................................        100,000                100,000
    6.95% Series, due 2025............................................         12,500                 21,500
MidAmerican pollution control revenue obligations:
    5.15% to 5.75% Series, due periodically through 2003..............          8,064                  8,424
    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.

                                      -61-

<PAGE>
<TABLE>
<CAPTION>

                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                                                                   AS OF DECEMBER 31
                                                                           ----------------------------------
                                                                              1997                   1996
                                                                           ----------             -----------
<S>                                                                        <C>           <C>      <C>           <C>
LONG-TERM DEBT (CONTINUED)
    Variable rate series -
       Due 2016 and 2017 (3.7% and 3.5%, respectively)................     $   37,600             $   37,600
       Due 2023 (secured by general mortgage
            bonds, 3.7% and 3.5%, respectively).......................         28,295                 28,295
       Due 2023 (3.7% and 3.5%, respectively).........................          6,850                  6,850
       Due 2024 (3.7% and 3.6%, respectively).........................         34,900                 34,900
       Due 2025 (3.7% and 3.5%, respectively).........................         12,750                 12,750
MidAmerican notes:
    8.75% Series, due 2002............................................            240                    240
    6.5% Series, due 2001.............................................        100,000                100,000
    6.4% Series, due 2003 through 2007................................          2,000                  2,000
    Obligation under capital lease....................................          2,104                  2,218
    Unamortized debt premium and discount, net........................         (3,192)                (4,009)
                                                                           ----------             ----------
       Total utility..................................................        919,211              1,085,398
                                                                           ----------             ----------

Nonregulated Subsidiaries Notes:
    7.34% Series, due 1998............................................              -                 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
    Borrowings under unsecured revolving credit facility (6.2%).......              -                 64,000
    Borrowings under unsecured revolving credit facility (6.1%).......              -                 26,000
    Borrowings under unsecured revolving credit facility (6.1%).......              -                 84,500
                                                                           ----------             ----------
       Total nonregulated subsidiaries................................        115,000                309,705
                                                                           ----------             ----------
                                                                            1,034,211     41.1%    1,395,103     49.5%
                                                                           ----------    ------   ----------    ------

TOTAL CAPITALIZATION..................................................     $2,517,260    100.0%   $2,816,818    100.0%
                                                                           ==========    ======   ==========    ======
</TABLE>

<TABLE>
<CAPTION>

                       MIDAMERICAN ENERGY HOLDINGS COMPANY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                                 YEARS ENDED DECEMBER 31
                                                                          -------------------------------------
                                                                             1997         1996         1995
                                                                           ---------    ---------   ---------
                                                                     

<S>                                                                        <C>          <C>         <C>       
BEGINNING OF YEAR....................................................      $ 440,971    $ 430,589   $ 426,683
                                                                           ---------    ---------   ---------

NET INCOME...........................................................        135,104      131,046     122,764
                                                                           ---------    ---------   ---------

DEDUCT (ADD):
Loss on repurchase of common shares..................................         49,174            -           -
Dividends declared on common shares of $1.20, $1.20 and
  $1.18 per share, respectively......................................        117,605      120,770     118,828
Other................................................................              -         (106)         30
                                                                           ---------    ---------   ----------
                                                                             166,779      120,664     118,858
                                                                           ---------    ---------   ---------

END OF YEAR..........................................................      $ 409,296    $ 440,971   $ 430,589
                                                                           =========    =========   =========
</TABLE>

The accompanying notes are an integral part of these statements.


                                      -62-
<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).
Prior to December 1, 1996,  MidAmerican  held the capital  stock of  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. The majority of MidAmerican's electric and gas utility
operations  currently  meet the  criteria of SFAS 71, but its  applicability  is
periodically   reexamined.   On  December  16,  1997,  MidAmerican's  generation
operations serving Illinois

                                      -63-

<PAGE>



were  no  longer  subject  to the  provisions  of  SFAS  71 due  to  passage  of
restructuring  legislation in Illinois.  Thus, MidAmerican was required to write
off  regulatory  assets and  liabilities  from its balance  sheet related to its
Illinois  generation  operations.  The  net  amount  of  such  write-off's  were
immaterial.  If other utility operations no longer meet the criteria of SFAS 71,
MidAmerican  would be required to write off the  related  regulatory  assets and
liabilities  from its balance sheet and thus, a material  adjustment to earnings
in that period could result. The following regulatory assets, primarily included
in Other Assets in the Consolidated  Balance Sheets,  represent  probable future
revenue to  MidAmerican  because  these costs are  expected to be  recovered  in
charges to utility customers (in thousands):

<TABLE>
<CAPTION>

                                                    1997                 1996
                                                  --------             --------

     <S>                                          <C>                  <C>     
     Deferred income taxes................        $143,851             $140,649
     Energy efficiency costs..............         111,471              112,244
     Debt refinancing costs...............          34,923               40,230
     FERC Order 636 transition costs.......          9,279               25,033
     Environmental costs...................         20,417               22,577
     Retirement benefit costs..............            595               11,025
     Enrichment facilities decommissioning.          8,781               11,089
     Unamortized costs of retired plant ...          5,771                8,953
     Other.................................          4,201                2,655
                                                  --------             --------
       Total...............................       $339,289             $374,455
                                                  ========             ========
</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
were  $80.2   million  and  $70.1   million  at  December  31,  1997  and  1996,
respectively,  and are  included  in  Receivables  on the  Consolidated  Balance
Sheets.

     MidAmerican's   Illinois  and  South  Dakota   jurisdictional   sales,   or
approximately  11% of total retail electric sales, and the majority of its total
retail  gas sales  are  subject  to  adjustment  clauses.  These  clauses  allow
MidAmerican  to adjust the amounts  charged for  electric and gas service as the
costs of gas, fuel for generation or purchased power change. The costs recovered
in revenues through use of the adjustment  clauses are charged to expense in the
same period.

     (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>

                                      1997       1996          1995
                                      ----       ----          ----

     <S>                              <C>        <C>           <C> 
     Electric....................     3.8%       3.8%          3.9%
     Gas.........................     3.4%       3.7%          3.7%

</TABLE>

                                      -64-

<PAGE>



     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.

     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(e) 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>

                                                    1997         1996
                                                  --------     --------
     <S>                                          <C>          <C>
     Investments:
     Marketable securities..................      $467,207     $219,890
     Equipment leases.......................        73,928       89,791
     Nuclear decommissioning trust fund.....        93,251       76,304
     Energy projects........................        21,180       24,467
     Special-purpose funds..................        10,057       44,863
     Real estate............................        42,424       45,457
     Corporate owned life insurance.........        33,471       27,395
     Coal transportation....................        14,516       18,623
     Communications.........................        10,000       56,333
     Security ..............................         8,551        5,367
     Other..................................        24,939       14,482
                                                  --------     --------
       Total.................................     $799,524     $622,972
                                                  ========     ========
</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.

                                      -65-

<PAGE>

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

<TABLE>
<CAPTION>

                                             1997          1996          1995
                                           --------      --------      --------

     <S>                                   <C>           <C>           <C>      
     Receivables.......................    $ 34,544      $(84,802)     $(31,314)
     Inventories.......................       4,773        (5,629)        7,013
     Other current assets .............      (7,421)        6,732        (4,140)
     Accounts payable..................     (23,950)       47,751        15,903
     Taxes accrued.....................      10,375           356        (9,755)
     Interest accrued..................      (6,158)       (2,122)          (24)
     Other current liabilities.........      15,935       (16,038)        1,293
                                           --------     ---------      --------
       Total...........................    $ 28,098     $ (53,752)     $(21,024)
                                           ========     =========      ========
</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 prior to July 11, 1997, including carrying costs,
were  deferred,  and are being  amortized  and  recovered in rates over either a
five-year  period or the term of the NPPD  contract.  Beginning  July 11,  1997,
capital  improvement  costs  are  recovered  currently  from  customers  and are
expensed as incurred.

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

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

     (I) ACCOUNTING FOR DERIVATIVES:

         1) Preferred Stock Hedge Instruments:

     The Company is exposed to market value risk from changes in interest  rates
for certain fixed rate sinking fund  preferred and  perpetual  preferred  stocks
(fixed rate  preferred  stocks)  included  in  Investments  on the  Consolidated
Balance  Sheets.  The Company  reviews the interest  rate  sensitivity  of these
securities and purchases put options on U.S.  Treasury  securities (put options)
to reduce interest rate risk on preferred stocks.  The Company does not purchase
or sell put  options  for  speculative  purposes.  The  Company's  intent  is to
substantially  offset  any change in market  value of the fixed  rate  preferred
stocks due to a change in  interest  rates with a change in market  value of the
put options.



                                      -66-

<PAGE>



     The preferred stocks are publicly traded  securities and, as such,  changes
in their fair value are reported,  net of income taxes, as a valuation allowance
in  shareholders'  equity.  Unrealized  gains and losses on the  associated  put
options are  included in the  determination  of the fair value of the  preferred
stocks.  The fair  value of the put  options,  including  unrealized  gains  and
losses,  included  in the  determination  of the  fair  value  of the  preferred
securities  as of December 31, 1997 and 1996 was $1.9 million and $5.1  million,
respectively.  Realized  gains and losses on the put  options  are  included  in
Realized  Gains and Losses on  Securities,  Net in the  Consolidated  Statements
Income in the period the underlying hedged fixed rate preferred stocks are sold.
At December 31, 1997, the Company held put options with a notional value of $3.2
million.

     2) Gas Futures Contracts and Swaps:

     The Company  uses gas futures  contracts  and swap  contracts to reduce its
exposure to changes in the price of natural gas  purchased  to meet the needs of
its  customers  and to manage  margins on  natural  gas  storage  opportunities.
Investments in natural gas futures contracts,  which total $1.6 million and $0.8
million as of December  31, 1997 and 1996,  are included in  Receivables  on the
Consolidated  Balance  Sheets.  Gains and losses on gas futures  contracts  that
qualify for hedge  accounting  are deferred and reflected as  adjustments to the
carrying  value  of  the  hedged  item  or  included  in  Other  Assets  on  the
Consolidated  Balance  Sheets  until  the  underlying  physical  transaction  is
recorded if the instrument is used to hedge an anticipated  future  transaction.
The net gain or loss on gas futures  contracts is included in the  determination
of income in the same  period as the expense  for the  physical  delivery of the
natural  gas.  Realized  gains and losses on gas futures  contracts  and the net
amounts  exchanged or accrued under the natural gas swap  contracts are included
in Cost of Gas Sold,  Other Net or  Nonregulated-Costs  of Sales consistent with
the expense for the physical  commodity.  Deferred net gains (losses) related to
the  Company's gas futures  contracts are $(0.4)  million and $0.8 million as of
December 31, 1997 and 1996, respectively.

     The Company periodically evaluates the effectiveness of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved,  the contracts
are  recorded  at fair  value  and the  gains  or  losses  are  included  in the
determination  of income.  At December 31, 1997 the Company  held the  following
hedging instruments:

<TABLE>
<CAPTION>

                                                               Weighted average
                                              Notional volume    Market Value
                                                  (MMBtu)         (Per MMBtu)
                                              ---------------  ----------------
     <S>                                         <C>                <C>   
     Natural Gas Futures (Long)                  3,670,000          $2.277
     Natural Gas Futures (Short)                 1,670,000          $2.305
     Natural Gas Swaps (Fixed to Variable)       2,497,400
         Weighted average variable price                            $2.558
         Weighted average fixed price                               $3.114
     Natural Gas Swaps (Variable to Fixed)       6,806,952
         Weighted average variable price                            $2.536
         Weighted average fixed price                               $2.473

</TABLE>


                                      -67-

<PAGE>


(2) LONG-TERM DEBT:

     The Company's  sinking fund  requirements  and maturities of long-term debt
for 1998 through 2002 are $145 million, $106 million, $134 million, $125 million
and $25 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 1997.

     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,  1997  and  1996.  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.
All  subsidiary  long-term  borrowings  outstanding  at December 31,  1997,  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, 1997, 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      $ 240      $ 128    $ 298    $ 159     $ 210    $ 531
     Accumulated depreciation      $  87      $  78    $ 164    $  87     $ 103    $ 235
     Unit capacity-MW              1,529        515      675      624       716      700
     Percent ownership             25.0%      72.0%    79.1%    40.6%     52.0%    88.0%

</TABLE>


                                      -68-

<PAGE>

(4) COMMITMENTS AND CONTINGENCIES:

     (A) CAPITAL EXPENDITURES:

     Utility  construction  expenditures  for  1998  are  estimated  to be  $201
million,  including  $13  million  for Quad Cities  nuclear  fuel.  Nonregulated
capital  expenditures  depend upon the availability of investment  opportunities
and  other  factors.   During  1998,  such  expenditures  are  estimated  to  be
approximately $10 million.

     (B) MANUFACTURED GAS PLANT FACILITIES:

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

     MidAmerican is evaluating 26 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 seventeen of the sites and has
completed  investigations  at one of the sites.  In  addition,  MidAmerican  has
completed removals at three 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 as of December 31, 1997 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
and  the  costs  of  removing  known  contaminated  soil  are  accrued.  As  the
investigation is performed and if it is determined  remedial action is required,
the best estimate of remediation costs is accrued. If necessary, the estimate is
revised when a consent order is issued. The estimated  recorded  liabilities for
these properties  include  incremental  direct costs of the remediation  effort,
costs for future  monitoring at sites and costs of compensation to employees for
time  expected to be spent  directly on the  remediation  effort.  The estimated
recorded liabilities for these properties are based upon preliminary data. Thus,
actual costs could vary  significantly  from the  estimates.  The estimate could
change   materially  based  on  facts  and   circumstances   derived  from  site
investigations,  changes in required  remedial  action and changes in technology
relating to remedial alternatives. In addition, insurance recoveries for some or
all of the costs may be possible,  but the  liabilities  recorded  have not been
reduced by any estimate of such recoveries.


                                      -69-

<PAGE>



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

     (C) CLEAN AIR ACT:

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

     The  impact  of  the  new  standards  on  MidAmerican  will  depend  on the
attainment  status  of  the  areas  surrounding   MidAmerican's  operations  and
MidAmerican's   relative   contribution   to  the   nonattainment   status.   If
MidAmerican's  operations  contribute  to  nonattainment  and  modifications  to
MidAmerican's  operations  or  facilities  are  necessary,  the  cost of  making
emissions  reductions to meet the air quality  standards  will be dependent upon
the  level  of  emissions  reductions  required  and the  available  technology.
MidAmerican   will  continue  to  evaluate  the  potential  impact  of  the  new
regulations.

     Following recommendations provided by the Ozone Transport Assessment Group,
the EPA,  in  November  1997,  issued  a Notice  of  Proposed  Rulemaking  which
identified  22  states  and the  District  of  Columbia  as  making  significant
contribution to nonattainment  of NAAQS for ozone.  Iowa is not subject to these
emissions  reduction  requirements as EPA's rule is currently  drafted,  and, as
such,  MidAmerican  does not anticipate  that its facilities  will be subject to
additional  emissions  reductions  as a  result  of  this  initiative.  The  EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.

     (D) LONG-TERM POWER PURCHASE CONTRACT:

     Payments to NPPD cover one-half of the fixed and operating  costs of Cooper
(excluding  depreciation but including debt service) and MidAmerican's  share of
nuclear fuel cost (including  nuclear fuel disposal) based on energy  delivered.
The debt service portion is approximately $1.5 million per month for 1998 and is
not contingent upon the plant being in service.  In addition,  MidAmerican  pays
one-half of NPPD's decommissioning funding related to Cooper.

     The debt  amortization  and  Department  of Energy (DOE)  enrichment  plant
decontamination and decommissioning  component of MidAmerican's payments to NPPD
were  $13.8  million,  $14.5  million  and $12.0  million  and the net  interest
component  was $3.8  million,  $3.6  million and $4.6 million each for the years
1997, 1996 and 1995, 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 $14.4 million, $15.0 million, $15.8 million, $16.6
million, $17.4 million and $18.3 million for 1998 through 2003, respectively.


                                      -70-

<PAGE>

     (E) DECOMMISSIONING COSTS:

     Based   on    site-specific    decommissioning    studies    that   include
decontamination,  dismantling,  site  restoration  and dry  fuel  storage  cost,
MidAmerican's  share of  expected  decommissioning  costs  for  Cooper  and Quad
Cities,  in 1997  dollars,  is $247 million and $230 million,  respectively.  In
Illinois,  nuclear  decommissioning  costs are  included  in  customer  billings
through a mechanism that permits annual adjustments. Such costs are reflected as
base rates in Iowa tariffs.

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

     As of December 31, 1997,  MidAmerican's share of funds set aside by NPPD in
internal  and  external  accounts  for  decommissioning  was $78.2  million.  In
addition,  the funding plan also assumes  various  funds and reserves  currently
held to satisfy NPPD bond  resolution  requirements  will be available for plant
decommissioning  costs after the bonds are  retired in early  2004.  The funding
schedule  assumes a  long-term  return on funds in the trust of 6.75%  annually.
Certain  funds  will be  required  to be  invested  on a  short-term  basis when
decommissioning begins and are assumed to earn at a rate of 4.0% annually.  NPPD
is recognizing  decommissioning costs over the life of the power sales contract.
MidAmerican  makes  payments to NPPD related to  decommissioning  Cooper.  These
payments  are  included  in  MidAmerican's  power  purchase  costs.  The  Cooper
decommissioning  component of MidAmerican's  payments to NPPD was $11.3 million,
$9.9 million and $8.9 million for the years 1997, 1996, and 1995,  respectively,
and is included in Other Operating  Expenses in the  Consolidated  Statements of
Income.  Earnings  from  the  internal  and  external  trust  funds,  which  are
recognized by NPPD as the owner of the plant, are tax exempt and serve to reduce
future funding requirements.

     External  trusts  have been  established  for the  investment  of funds for
decommissioning  the Quad Cities units. The total accrued balance as of December
31,  1997,  was $93.3  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 trusts.

     MidAmerican's  provision for  depreciation  included  costs for Quad Cities
nuclear decommissioning of $9.8 million, $8.6 million and $8.6 million for 1997,
1996 and 1995,  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  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  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 $5.0 million,  $3.5
million and $2.5 million for 1997, 1996 and 1995, respectively.

     (F) 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 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.

                                      -71-

<PAGE>



     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 $11.6 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.

     (G) COAL AND NATURAL GAS CONTRACT COMMITMENTS:

     MidAmerican  has entered into supply and related  transportation  contracts
for its fossil fueled generating stations. The contracts,  with expiration dates
ranging from 1998 to 2003,  require minimum  payments of $132.2  million,  $88.8
million,  $57.8 million, $26.3 million and $3.1 million and $3.1 million for the
years 1998 through 2003,  respectively.  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 $88 million, $63 million, $37 million, $32 million and $16 million
for the years 1998 through 2002, respectively,  and $76 million for the total of
the years  thereafter.  During 1993 FERC Order 636 became  effective,  requiring
interstate  pipelines to restructure  their services.  The pipeline 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, 1997, was $9.3 million.



                                      -72-

<PAGE>

(5)  COMMON SHAREHOLDERS' EQUITY:

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

<TABLE>

                                                            1997                     1996                   1995
                                                  ---------------------    --------------------   --------------------
                                                   Amount       Shares       Amount     Shares      Amount      Shares
                                                  ---------     -------    ---------    -------   ---------    --------

     <S>                                          <C>           <C>        <C>          <C>       <C>           <C>   
     Balance, beginning of year ...............   $ 801,431     100,752    $ 801,227    100,752   $ 786,420     99,687

     Changes due to:
       Repurchase of common shares ............     (47,444)     (5,451)           -          -           -          -
       Issuance of common shares ..............           -           -            -          -      15,083      1,065
       Stock options ..........................         210           -          623          -           -          -
       Capital stock expense ..................        (289)          -         (419)         -        (276)         -
       Other ..................................         (35)          -            -          -           -          -
                                                  ---------    --------    ---------    -------   ---------    -------
       Balance, end of year ...................   $ 753,873      95,301    $ 801,431    100,752   $ 801,227    100,752
                                                  =========    ========    =========    =======   =========    =======
</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>
                                                         1997        1996        1995
                                                       ---------   ---------   ---------
     <S>                                               <C>         <C>         <C>     
     Service cost-benefit earned during the period .   $ 10,092    $ 12,323    $  9,817
     Interest cost on projected benefit obligation .     29,623      31,109      27,934
     Decrease in pension costs from actual
      return on assets .............................    (79,580)    (58,460)    (63,593)
     Net amortization and deferral .................     39,446      26,223      32,126
     One-time charge ...............................          -           -      15,683
     Regulatory deferral of incurred cost ..........      5,423         568     (10,470)
                                                       --------    --------    --------
     Net periodic pension cost .....................   $  5,004    $ 11,763    $ 11,497
                                                       ========    ========    ========
</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 $21.5
million and $17.3 million at December 31, 1997 and 1996,

                                      -73-

<PAGE>

respectively.  The following  table presents the funding status of the plans and
amounts recognized in the Consolidated Balance Sheets as of December 31 (dollars
in thousands):

<TABLE>
<CAPTION>

                                                                Plans in Which:
                                                  ----------------------------------------------
                                                      Assets Exceed         Accumulated Benefits
                                                   Accumulated Benefits          Exceed Assets
                                                  ----------------------    --------------------
                                                     1997         1996         1997        1996
                                                  ---------    ---------    --------    --------
<S>                                               <C>          <C>          <C>         <C>
Actuarial present value of benefit obligations:
   Vested benefit obligation ..................   $(325,770)   $(298,237)   $(40,080)   $(36,574)
   Nonvested benefit obligation ...............      (3,623)      (3,454)       (242)     (1,925)
                                                  ---------    ---------    --------    --------
   Accumulated benefit obligation .............    (329,393)    (301,691)    (40,322)    (38,499)
   Provision for future pay increases .........     (52,027)     (79,790)     (8,301)     (8,733)
                                                  ---------    ---------    --------    --------
   Projected benefit obligation ...............    (381,420)    (381,481)    (48,623)    (47,232)

Plan assets at fair value .....................     483,668      427,828           -           -
                                                  ---------    ---------    --------    --------
Projected benefit obligation (greater) less
   than plan assets ...........................     102,248       46,347     (48,623)    (47,232)

Unrecognized prior service cost ...............         592       18,636      21,147      21,544
Unrecognized net loss (gain) ..................     (93,770)     (63,173)     (1,281)         --
Unrecognized net transition asset .............     (16,339)     (18,929)         --          --
   Other ......................................          --           --     (11,565)    (12,811)
                                                  ---------    ---------    --------    --------
Pension liability recognized in the
   Consolidated Balance Sheets ................   $  (7,269)   $ (17,119)   $(40,322)   $(38,499)
                                                  =========    =========    ========    ========
</TABLE>

<TABLE>
<CAPTION>

                                                        1997                    1996
                                                       -----                   -----
<S>                                                     <C>                     <C>
Assumptions used were:
Discount rate................................           7.0%                    7.5%
Rate of increase in compensation levels......           5.0%                    5.0%
Weighted average expected long-term
    rate of return on assets.................           9.0%                    9.0%
</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.



                                      -74-

<PAGE>



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

<TABLE>
<CAPTION>

                                                              1997        1996        1995
                                                            --------    --------    --------

     <S>                                                    <C>         <C>         <C>     
     Service cost-benefit earned during the period ......   $  2,680    $  2,118    $  1,583
     Interest cost ......................................      8,822       8,341       7,185
     Increase (decrease) in benefit cost from
       actual return on assets ..........................     (2,285)     (1,598)     (2,090)
     Amortization of unrecognized transition obligation .      5,291       5,291       5,291
     Amortization of unrecognized service cost ..........        650           -           -
     Amortization of unrecognized prior year (loss) .....       (298)          -           -
     Other ..............................................       (288)       (297)       (262)
     One-time charge for early retirement ...............          -           -       4,353
     Regulatory recognition of incurred cost ............      4,888       5,112       5,140
                                                            --------    --------    --------
     Net periodic postretirement benefit cost ...........   $ 19,460    $ 18,967    $ 21,200
                                                            ========    ========    ========
</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>

                                                                      1997          1996
                                                                   ---------     ---------
     <S>                                                           <C>           <C>
     Accumulated present value of benefit obligations:
        Retiree benefit obligation .............................   $ (74,534)    $ (78,935)
        Active employees fully eligible for benefits ...........      (6,466)       (2,798)
        Other active employees .................................     (46,347)      (34,772)
                                                                   ---------     ---------
        Accumulated benefit obligation .........................    (127,347)     (116,505)
      Plan assets at fair value ................................      52,174        36,783
                                                                   ---------     ---------
      Accumulated benefit obligation greater than plan assets ..     (75,173)      (79,722)
      Unrecognized net gain ....................................     (11,248)       (8,810)
      Prior service cost .......................................       8,277             -
      Unrecognized transition obligation .......................      79,370        84,662
                                                                   ---------     ---------
      Postretirement benefit liability recognized in the
        Consolidated Balance Sheets ............................   $   1,226     $  (3,870)
                                                                   =========     =========
      Assumptions used were:
        Discount rate ..........................................         7.0%          7.5%
        Weighted average expected long-term rate of return
           on assets (after taxes) .............................         6.5%          6.7%
</TABLE>


     For purposes of calculating the postretirement  benefit  obligation,  it is
assumed health care costs for covered  individuals prior to age 65 will increase
by 10.0% in 1998, and that the rate of increase  thereafter will decline by 1.0%
annually to an ultimate rate of 5.5% by the year 2003.  For covered  individuals
age 65 and older, it is assumed health care costs will increase by 7.0% in 1998,
and that the rate of increase  thereafter  will  decline by 1.0%  annually to an
ultimate rate of 5.5% by the year 2000.

                                      -75-

<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 $1.8 million and the accumulated  postretirement
benefit obligation would increase by $15.4 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 $4.6 million,  $4.4
million and $3.7 million for 1997, 1996 and 1995, respectively.

(7)  STOCK-BASED COMPENSATION PLANS:

     The company has stock-based  compensation  arrangements as described below.
The company accounts for these plans under  Accounting  Principles Board Opinion
No. 25 and the related  interpretations.  The total compensation cost recognized
in income for stock-based  compensation  awards was $1.3 million,  $0.6 million,
and $1.8 million for 1997,  1996,  and 1995  respectively.  Had the company used
Statement  of  Accounting   Standards  No.  123,   "Accounting  for  Stock-Based
Compensation" (SFAS 123),  pro-forma net income for common stock would be $135.3
million,  $130.9 million, and $122.6 million,  while earnings per share would be
$1.38, $1.30, and $1.22 for the years ended 1997, 1996, and 1995 respectively.

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

STOCK OPTIONS - Under the Plan, the Board of Directors  have granted  options to
purchase shares of MidAmerican Holdings common stock (the "Options") at the fair
market  value of the shares on the date of the grant.  The  options  vest over a
4-year  period at a rate of 25% per year and expire ten years  after the date of
grant. Stock option activity for 1997, 1996, and 1995 is summarized as follows:

<TABLE>
<CAPTION>

                                          1997                      1996                      1995
                                  ----------------------   -----------------------   -------------------------
                                                Weighted                  Weighted                   Weighted
                                                Average                   Average                    Average
                                                Exercise                  Exercise                   Exercise
                                   Number        Price       Number        Price       Number          Price
                                  -------       --------    -------       --------    -------         -------
<S>                               <C>      <C>    <C>       <C>      <C>    <C>       <C>       <C>   <C>           
Outstanding, beginning of year    800,000         $14.66    700,000         $14.50          -              -
Granted                            46,666         $17.36    100,000         $15.75    700,000         $14.50
Exercised                         165,000         $14.58          -              -          -              -
Forfeited                         115,000         $14.93          -              -          -              -
Expired                                 -              -          -              -          -
Outstanding, end of year          566,666         $15.12    800,000         $14.66    700,000         $14.50
Exercisable, end of year          315,000         $14.54    175,000         $14.50          -              -

Weighted average fair value of
  options granted during year              $1.66                     $1.48                     $1.58

</TABLE>

                                      -76-

<PAGE>



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

<TABLE>
<CAPTION>

                                      1997          1996           1995
                                   ---------     ----------     ----------

<S>                                <C>           <C>            <C>      
Dividend rate per share            $   1.20      $    1.20      $    1.20
Expected volatility                   16.55%         17.62%           23%
Expected life                      10 Years       10 Years      10 Years
Risk free interest rate                6.14%          6.53%         6.28%

</TABLE>

The options  outstanding  at December  31, 1997 have an exercise  price range of
$14.50 to $17.785, with a weighted average contractual life of 8.25 years.

PERFORMANCE SHARES - Under the Plan,  participants are granted contingent shares
of common  stock.  The shares are  contingent  upon the  attainment of specified
performance measures within a 3-year performance period.  During the performance
period, the participant is entitled to receive dividends and vote the stock. The
stock is vested upon achievement of the performance  measures.  If the specified
criteria  is not met  within  the  3-year  performance  period,  the  shares are
forfeited. The following table provides certain information regarding contingent
performance incentive shares granted under the Plan:

<TABLE>
<CAPTION>

                                               1997          1996        1995
                                            ---------     ---------    ---------
<S>                                         <C>           <C>          <C>   
Number of performance shares granted           77,105        68,189       86,277
Fair value at date of grant (in thousands)  $   1,335     $   1,176    $   1,251
Weighted average per share amounts          $ 17.3125     $ 17.2500    $ 14.5000
End of performance period                   6/30/2000       6/30/99      6/30/98
</TABLE>

In addition,  the company has granted 800 restricted shares to each non-employee
director in 1997,  1996 and 1995.  Non-employee  directors are  restricted  from
disposing  of granted  shares  until such time as they cease to be a director of
the company.  The following  table provides  certain  information  regarding the
directors restricted shares granted under the Plan.

<TABLE>
<CAPTION>
                                               1997        1996        1995
                                             --------    --------    --------
<S>                                          <C>         <C>         <C>   
Number of shares granted                       11,200      12,000      13,600
Fair value at date of grant (in thousands)   $    194    $    207    $    197
Weighted average price per share amounts     $17.3125    $17.2500    $14.5000
</TABLE>

EMPLOYEE STOCK OWNERSHIP PLAN - Employees of the Company are allowed to purchase
company stock up to the lesser of 15% or $25,000 of their annual compensation at
a 15% discount.  The number of shares  acquired by employees under the plan were
140,943, 150,899, and 182,707 in 1997, 1996 and 1995, respectively.  The Company
currently  acquires  shares in the open market for this plan.  Participants  who
purchase  shares  under the Plan are required to hold  purchased  shares for 180
days.

                                      -77-

<PAGE>

(8)  SHORT-TERM BORROWING:

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

<TABLE>
<CAPTION>
                                                              1997        1996        1995
                                                            ---------   ---------   ----------
     <S>                                                    <C>         <C>         <C>     
     Balance at year-end                                    $138,054    $161,990    $184,800
     Weighted average interest rate
      on year-end balance                                        5.9%        5.4%        5.7%
     Average daily amount outstanding
      during the year                                       $117,482    $151,318    $114,036
     Weighted average interest rate on average daily
      amount outstanding during the year                         5.7%        5.5%        6.0%
</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,
1997,  MidAmerican had a $250 million revolving credit facility  agreement and a
$10  million  line of credit  and  Holdings  had lines of credit  totaling  $120
million.   MidAmerican's  commercial  paper  borrowings  are  supported  by  the
revolving credit facility and the line of credit.

(9)  RATE MATTERS:

     As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois  electric  service  rates by annual  amounts of $13.1  million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.

     On June 27,  1997,  the Iowa  Utilities  Board  (IUB)  issued an order in a
consolidated  rate proceeding  involving  MidAmerican's  pricing  proposal and a
filing by the Iowa Office of Consumer Advocate (OCA). The order approved a March
1997 settlement agreement between MidAmerican,  the OCA and other parties to the
proceeding.  The agreement includes a number of characteristics of MidAmerican's
pricing  proposal.  Prices for  residential  customers were reduced $8.5 million
annually and $10.0 million  annually,  effective  November 1, 1996, and July 11,
1997,  respectively,  and will be reduced an additional $5.0 million annually on
June 1, 1998, for a total annual decrease of $23.5 million. Rates for commercial
and industrial customers will 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. The agreement includes
a tracking  mechanism  to  currently  recover  the cost of capital  improvements
required by the Cooper  Nuclear  Station Power Purchase  Contract.  The tracking
mechanism will offset approximately $9 million of these reductions.

     In addition, the agreement accepted MidAmerican's proposal to eliminate the
Iowa energy  adjustment  clause (EAC) which was the mechanism through which fuel
costs were collected  from Iowa customers  prior to July 11, 1997. The EAC flows
the cost of fuel to  customers  on a current  basis,  and thus,  fuel  costs had
little impact on net income.  Prospectively,  base rates for Iowa customers will
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  will be
impacted.  The fuel cost factor will be reviewed in February  1999 and  adjusted
prospectively  if actual  1998  fuel  costs  vary 15% above or below the  factor
included in base rates.


                                      -78-

<PAGE>



        Under   the   agreement,   if   MidAmerican's   annual   Iowa   electric
     jurisdictional return on common equity exceeds 12%, then an equal sharing
between customers and shareholders of earnings above the 12% level begins; if it
exceeds 14%, then  two-thirds of  MidAmerican's  share of those earnings will be
used for  accelerated  recovery  of certain  regulatory  assets.  The  agreement
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%.

     The agreement also provides that  MidAmerican  will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers.  The pilot program, which is subject to approval by the
IUB and the Federal Energy Regulatory  Commission (FERC), is limited to 60 MW of
participation  the first year and can be expanded  by 15 MW  annually  until the
conclusion  of the  program.  Any loss of  revenues  associated  with the  pilot
program  will be  considered  part  of the  $10  million  annual  reduction  for
commercial and industrial customers as described above, but may not be recovered
from other customer classes.  The program was filed with the IUB and the FERC in
September  1997. The Company  anticipates  that the necessary  approvals will be
received before the end of the second quarter of 1998.

(10)  DISCONTINUED OPERATIONS:

     In the third quarter of 1996, the Company announced the discontinuation
of certain  nonstrategic  businesses  in support of its strategy of becoming the
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 and an additional  $0.9 million in 1997. In October
1997, the company sold its subsidiary  that developed and continues to operate a
computerized  information system facilitating the real-time exchange of power in
the electric industry.  The Company recorded a $4.0 million estimated  after-tax
loss on disposal in the third quarter of 1996 and an additional  $3.2 million in
September 1997. 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.

     Proceeds  received  from  the  disposition  of the oil  and gas  subsidiary
included $210 million in cash and 870,000 warrants, after a stock split in 1997,
to purchase KCS common stock.  The warrants were valued at $6 million.  Proceeds
received from the  disposition  of the  subsidiary  that operates a computerized
information  system for the exchange of power in the electric  industry included
an unsecured note  receivable  for $0.7 million and warrants to purchase  twenty
percent of the acquirer which have been valued at zero.  Proceeds  received from
the disposition of the coal mining subsidiary  settlement were $15 million.  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):


                                      -79-

<PAGE>


<TABLE>
<CAPTION>
                                              1997        1996         1995
                                            --------    ---------    --------

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

     INCOME FROM OPERATIONS
     Income (loss) before income taxes ..   $   (200)   $   1,638    $  4,704
     Income tax benefit (expense) .......         82          479      (1,645)
                                            --------    ---------    --------
     Income (loss) from Operations ......   $   (118)   $   2,117    $  3,059
                                            ========    =========    ========

     LOSS ON DISPOSAL
     Income (loss) before income taxes ..   $(10,106)   $   9,047    $      -
     Income tax benefit (expense) .......      5,996      (23,879)          -
                                            --------    ---------    --------
     Loss on disposal ...................   $ (4,110)   $ (14,832    $      -
                                            ========    =========    ========
</TABLE>

(11)  CONCENTRATION OF CREDIT RISK:

     The Company's  electric utility operations serve 560,000 customers in Iowa,
85,000 customers in western  Illinois and 3,000 customers in southeastern  South
Dakota.  The Company's gas utility  operations serve 486,000  customers in Iowa,
65,000 customers in western  Illinois,  63,000  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, 1997,  billed  receivables  from the  Company's  utility  customers
totalled $14.8 million.  As described in Note 18, billed receivables  related to
utility services have been sold to a wholly owned unconsolidated subsidiary.

     MidAmerican Capital has investments in preferred stocks of companies in the
utility  industry.  As of December 31, 1997, the total cost of these investments
was $96 million.

     MidAmerican  Capital has  entered  into  leveraged  lease  agreements  with
companies in the airline  industry.  As of December 31,  1997,  the  receivables
under these agreements totalled $35 million.

(12)  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.

     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.

     The total outstanding cumulative preferred stock of MidAmerican not subject
to  mandatory  redemption  requirements  may be  redeemed  at the  option of the
Company at prices which,  in the aggregate,  total $31.8 million.  The aggregate
total the holders of all preferred  stock  outstanding at December 31, 1997, are
entitled  to  upon  involuntary   bankruptcy  is  $181.8  million  plus  accrued
dividends.  Annual dividend  requirements for all preferred stock outstanding at
December 31, 1997, total $12.9 million.


                                      -80-

<PAGE>



(13)  SEGMENT INFORMATION:

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

<TABLE>
<CAPTION>

                                                        1997         1996         1995
                                                     ----------   ----------   -----------
     <S>                                             <C>          <C>          <C>        
     UTILITY
     Electric:
       Operating revenues ........................   $1,126,300   $1,099,008   $ 1,094,647
       Cost of fuel, energy and capacity .........      235,760      234,317       230,261
       Depreciation and amortization expense .....      145,931      140,939       136,324
       Other operating expenses ..................      502,109      424,594       459,344
                                                     ----------   ----------   -----------
       Operating income ..........................   $  242,500   $  299,158   $   268,718
                                                     ==========   ==========   ===========
     Gas:
       Operating revenues ........................   $  536,306   $  536,753   $   459,588
       Cost of gas sold ..........................      346,016      345,014       279,025
       Depreciation and amortization expense .....       24,609       23,653        22,626
       Other operating expenses ..................      127,092      106,831       122,017
                                                     ----------   ----------   -----------
       Operating income ..........................   $   38,589   $   61,255   $    35,920
                                                     ==========   ==========   ===========

     Operating income ............................   $  281,089   $  360,413   $   304,638
     Other income (expense) ......................       14,699        3,998        (4,074)
     Fixed charges ...............................      100,018       96,753        92,036
                                                     ----------   ----------   -----------
     Income from continuing operations
      before income taxes ........................      195,770      267,658       208,528
     Income taxes ................................       76,317      112,927        84,098
                                                     ----------   ----------   -----------
     Income from continuing operations ...........   $  119,453   $  154,731   $   124,430
                                                     ==========   ==========   ===========

     Capital Expenditures-
      Electric ...................................   $  128,544   $  116,243   $   133,490
      Gas ........................................   $   38,388   $   37,955   $    57,281


                                                        1997         1996         1995
                                                     ----------   ----------   -----------
     NONREGULATED
      Revenues ...................................   $  259,675   $  236,851   $    95,106
      Cost of sales ..............................      240,182      218,256        70,351
      Depreciation and amortization ..............        3,436        4,854         6,010
      Other operating expenses ...................       26,640       30,516        31,029
                                                     ----------   ----------   -----------
      Operating income (loss) ....................      (10,583)     (16,775)      (12,284)
      Other income ...............................       34,320       14,874        15,734
      Fixed charges ..............................       11,785       23,574        25,470
                                                     ----------   ----------   -----------
      Income (loss) from continuing operations
        before income taxes ......................       11,952      (25,475)      (22,020)
      Income taxes ...............................       (7,927)     (14,505)      (17,295)
                                                     ----------   ----------   -----------
      Income (loss) from continuing operations ...   $   19,879   $  (10,970)  $    (4,725)
                                                     ==========   ==========   ===========

      Capital expenditures .......................   $   14,066   $   55,788   $    12,881
</TABLE>

                                      -81-

<PAGE>

<TABLE>
<CAPTION>
                                                        1997         1996         1995
                                                     ----------   ----------   -----------
     <S>                                             <C>          <C>          <C>       
     ASSET INFORMATION 
     Identifiable utility assets:
       Electric (a) ..............................   $2,825,573   $2,954,324   $ 2,947,832
       Gas (a) ...................................      677,991      692,993       699,539
     Used in overall utility operations ..........       11,341      114,545        30,084
     Nonregulated ................................      763,186      593,666       615,342
     Investment in discontinued operations .......            -      166,320       177,300
                                                     ----------   ----------   -----------
        Total assets .............................   $4,278,091   $4,521,848   $ 4,470,097
                                                     ==========   ==========   ===========
</TABLE>


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

(14) FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The following  methods and assumptions were used to estimate the fair value
of each  class of  financial  instruments.  Tariffs  for 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.

     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.


                                      -82-

<PAGE>



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

<TABLE>
<CAPTION>

                                                                    1997                      1996
                                                          -----------------------   ---------------------------
                                                           Carrying      Fair        Carrying       Fair
                                                            Amount       Value        Amount       Value
                                                          ----------   ----------   ----------   ----------
     <S>                                                  <C>          <C>          <C>          <C>       
     Financial Instruments Owned by the Company:
       Equity investments carried at cost .............   $   33,979   $   36,491   $   95,339   $  273,311

     Financial Instruments Issued by the Company:
       MidAmerican preferred securities; subject
          to mandatory redemption .....................   $   50,000   $   53,650   $   50,000   $   52,920
       MidAmerican-obligated preferred securities;
          subject to mandatory redemption .............   $  100,000   $  104,250   $  100,000   $  100,490
       Long-term debt, including current portion ......   $1,178,769   $1,214,951   $1,474,701   $1,522,500
</TABLE>

     Included in investments on the Consolidated Balance Sheets is the Company's
investment  in common stock of  McLeodUSA  Incorporated  (McLeodUSA).  McLeodUSA
common stock has been publicly traded since June 14, 1996.  Investor  agreements
related to  McLeodUSA's  initial  public  offering  and  subsequent  merger with
Consolidated  Communications Inc. prohibit the Company from selling or otherwise
disposing of any of the common stock of McLeodUSA  prior to September  24, 1998,
without  approval  of  McLeodUSA's  board  of  directors.  As a  result  of  the
agreements,  the Company's  investment  was considered  restricted  stock and as
such, was recorded at cost in all periods prior to September 1997.  Beginning in
September 1997, the investment is no longer considered restricted for accounting
purposes  and is recorded at fair value.  At December 31, 1997 the cost and fair
value of the  McLeodUSA  investment  were  $45.2  million  and  $257.9  million,
respectively.  The  unrealized  gain is  recorded,  net of  income  taxes,  as a
valuation  allowance in common  shareholders'  equity. At December 31, 1997, the
net unrealized  gain and deferred  income taxes for this  investment were $212.7
million and $74.4 million, respectively.

     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):

<TABLE>
<CAPTION>

                                                             1997
                                        Amortized   Unrealized   Unrealized    Fair
                                          Cost        Gains       Losses      Value
                                        ---------   ----------   ----------   --------
     <S>                                <C>        <C>          <C>          <C>
     Available-for-sale:
      Equity securities .............   $257,316   $ 226,747    $ (10,522)   $473,541
      Municipal bonds ...............     35,217       2,116           (1)     37,332
      U. S. Government securities ...     18,753         800           (4)     19,549
      Corporate securities ..........     13,579         222           (3)     13,798
      Cash equivalents ..............      9,862           -            -       9,862
                                        --------   ---------    ---------    --------
                                        $334,727   $ 229,885    $ (10,530)   $554,082
                                        ========   =========    =========    ========
     Held-to-maturity:
      Equity securities .............   $  6,376     $     -     $      -    $  6,376
      Debt securities ...............      4,567         345            -       4,912
                                        --------   ---------    ---------    --------
                                        $ 10,943   $     345     $      -    $ 11,288
                                        ========   =========    =========    ========
     </TABLE>

                                      -83-

<PAGE>


<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>

     At December 31, 1997, 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                    $ 2,971        $ 2,987        $1,718        $2,014
     1 through 5 years                 14,057         14,377         2,137         2,143
     5 through 10 years                26,821         28,119           139           147
     Over 10 years                     23,700         25,196           573           608
</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.

     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>

                                            1997          1996          1995
                                          --------      --------      --------

     <S>                                  <C>           <C>           <C>     
     Proceeds from sales...............   $211,691      $250,772      $106,910
     Gross realized gains..............     14,320         9,920         3,923
     Gross realized losses.............     (6,480)       (7,950)       (3,082)
</TABLE>


                                      -84-

<PAGE>



(15)  INCOME TAX EXPENSE:

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

<TABLE>
<CAPTION>

                                         1997          1996          1995
                                       ---------     ---------     --------
     <S>                               <C>           <C>           <C>
     Current
      Federal .....................    $  91,627     $  80,165     $ 54,430
      State .......................       21,619        22,100       13,330
                                       ---------     ---------     --------
                                         113,246       102,265       67,760
                                       ---------     ---------     --------
     Deferred
      Federal .....................      (29,257)        2,627        5,750
      State .......................       (8,242)         (264)       1,470
                                       ---------     ---------     --------
                                         (37,499)        2,363        7,220

     Investment tax credit, net ...       (7,357)       (6,206)      (8,177)
                                       ---------     ---------     --------
       Total ......................    $  68,390     $  98,422     $ 66,803
                                       =========     =========     ========
</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>
                                                        1997        1996
                                                      --------    --------
     <S>                                              <C>         <C>
     Deferred tax assets
      Related to:
        Investment tax credits ................       $ 55,998    $ 61,349
        Unrealized losses .....................          7,880      12,034
        Pensions ..............................         17,339      17,648
        AMT credit carry forward ..............              -      10,188
        Nuclear reserves and decommissioning ..         15,287       8,233
        Other .................................          1,589       5,839
                                                      --------    --------

           Total ..............................       $ 98,093    $115,291
                                                      ========    ========
</TABLE>


<TABLE>
<CAPTION>
                                                        1997        1996
                                                      --------    --------
     <S>                                              <C>         <C>
     Deferred tax liabilities
      Related to:
        Depreciable property ..................       $504,594    $545,459
        Income taxes recoverable
           through future rates ...............        197,877     201,998
        Unrealized gains ......................         81,501           -
        Energy efficiency .....................         40,902      44,734
        Reacquired debt .......................         15,346      14,265
        FERC Order 636 ........................          2,857       9,023
        Other .................................         16,811      22,112
                                                      --------    --------
          Total ...............................       $859,888    $837,591
                                                      ========    ========
</TABLE>

                                      -85-

<PAGE>



     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>

                                                     1997       1996       1995
                                                     ----       ----       ----
     <S>                                             <C>        <C>        <C>
     Effective federal and state
      income tax rate ..........................       31%        39%        34%
     Amortization of investment tax credit .....        3          2          4
     State income tax, net of federal income
      tax benefit ..............................       (4)        (6)        (5)
     Dividends received deduction ..............        2          2          2
     Other .....................................        3         (2)         -
                                                     ----       ----       ----
     Statutory federal income tax rate .........       35%        35%        35%
                                                     ====       ====       ====
</TABLE>

(16)  INVENTORIES:

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

<TABLE>
<CAPTION>

                                                    1997          1996
                                                   -------       -------

     <S>                                           <C>           <C>    
     Materials and supplies, at average cost..     $31,425       $32,222
     Coal stocks, at average cost.............      14,225        32,293
     Gas in storage, at LIFO cost.............      35,430        23,915
     Fuel oil, at average cost................       2,344         1,264
     Other....................................       2,667         1,170
                                                   -------       --------
      Total...................................     $86,091       $90,864
                                                   =======       =======
</TABLE>

     At December 31, 1997  prices,  the current cost of gas in storage was $50.3
million.

(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

                                      -86-

<PAGE>



holders of the Preferred  Securities a like amount of the Debentures unless such
a distribution is determined not to be  practicable.  If such  determination  is
made, the holders of the Preferred  Securities will be entitled to receive,  out
of the assets of the trust after satisfaction of its liabilities,  a liquidation
amount  of $25  for  each  Preferred  Security  held  plus  accrued  and  unpaid
distributions.

(18)  SALE OF ACCOUNTS RECEIVABLE:

     In 1997 MidAmerican  entered into a revolving  agreement,  which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican.  Funding  Corp.  in turn has sold  receivable  interests to outside
investors.  In  consideration of the sale,  MidAmerican  received $70 million in
cash and the remaining  balance in the form of a subordinated  note from Funding
Corp.  The  agreement is  structured as a true sale under which the creditors of
Funding  Corp.  will be  entitled to be  satisfied  out of the assets of Funding
Corp.  prior to any value being returned to MidAmerican or its creditors and, as
such,  the  accounts   receivable   sold  are  not  reflected  on  Holdings'  or
MidAmerican's Consolidated Balance Sheets. At December 31, 1997, $130.0 million,
net of reserves, was sold under the agreement.

(19)  EARNINGS PER SHARE

     Reconciliation for the Income and Shares of the Basic and Diluted per share
computations for income from continuing  operations for the years ended December
31 are as follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>

                                            1997                           1996
                                     ---------------------------    ----------------------------
                                                          Per                              Per
                                                         Share                            Share
                                      Income     Shares   Amount      Income     Shares    Amount
                                     --------    ------  ------     --------    -------   ------
<S>                                  <C>         <C>     <C>        <C>         <C>        <C>
INCOME FROM CONTINUING
  OPERATIONS....................     $139,332                       $143,761

BASIC EPS
Income Available to Common
  Shareholders..................     $139,332    98,058  $1.42      $143,761    100,752    $1.43
                                                         =====                             =====

EFFECT OF DILUTIVE SECURITIES
Stock Options...................            -       107                    -         89
                                     --------    ------             --------    -------

DILUTED EPS
Income Available to Common
  Shareholders..................     $139,332    98,165  $1.42      $143,761    100,841    $1.43
                                     ========    ======  =====      ========    =======    =====
</TABLE>


                                      -87-

<PAGE>

<TABLE>
<CAPTION>
                                                           1995
                                               -----------------------------
                                                                       Per
                                                                       Share
                                                Income     Shares     Amount
                                               --------    -------    ------
     <S>                                       <C>         <C>        <C>
     INCOME FROM CONTINUING OPERATIONS.....    $119,705

     BASIC EPS
     Income Available to Common
       Shareholders......................      $119,705    100,401    $1.19
                                                                      =====

     EFFECT OF DILUTIVE SECURITIES........
     Stock Options........................            -         20
                                               --------    -------
     DILUTED EPS
     Income Available to Common
       Shareholders........................    $119,705    100,421    $1.19
                                               ========    =======    =====
</TABLE>

(20)  UNAUDITED QUARTERLY OPERATING RESULTS:

<TABLE>
<CAPTION>

    1997                                              1st Quarter   2nd Quarter    3rd Quarter    4th Quarter
                                                      -----------   -----------    -----------    -----------
                                                             (In thousands, except per share amounts)

     <S>                                               <C>            <C>           <C>            <C>      
     Operating revenues ..........................     $ 584,395      $ 390,615     $ 440,698      $ 506,573
     Operating income ............................        77,233         55,395        97,948         39,930
     Income from continuing operations ...........        34,174         24,176        49,705         31,277
     Income (loss) from discontinued operations ..          (234)           408        (2,793)        (1,609)
     Earnings on common stock ....................        33,940         24,584        46,912         29,668

     Earnings per average common share and
       Earnings per average common share
          assuming dilution:
     Income from continuing operations ...........     $    0.34      $    0.24     $    0.51      $    0.33
     Income (loss) from discontinued operations ..             -           0.01         (0.03)         (0.02)
                                                       ---------      ---------     ---------      ---------
                                                       $    0.34      $    0.25     $    0.48      $    0.31
                                                       =========      =========     =========      =========
</TABLE>

                                      -88-

<PAGE>

<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 and
       Earnings per average common share
         assuming dilution:
     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)
                                                       ---------     ---------     ---------      ---------
                                                       $    0.51     $    0.29     $    0.22      $    0.28
                                                       =========     =========     =========      =========
</TABLE>

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

(21)  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>


                                                          1997        1996        1995
                                                        --------    --------    --------
     <S>                                                <C>         <C>         <C>
     Other-than-temporary declines in value
      of investments and other assets ...............   $ (3,443)   $(15,566)   $(17,971)
     IES merger costs ...............................          -      (8,689)          -
     Special purpose fund income ....................      1,989       3,301       1,863
     Energy efficiency carrying charges .............      4,993       3,255       3,092
     Gain on sale of cushion gas ....................        855       3,182           -
     Incentive gas purchase plan award ..............      4,914       2,677           -
     Agency gas sales, net ..........................      1,184       1,840         228
     Gain (loss) on reacquisition of long-term debt .       (556)      1,105           -
     Gain on sale of assets, net ....................     10,213         974       8,570
     MidAmerican merger costs .......................          -           -      (4,624)
     Allowance for equity funds used
      during construction ...........................          -           -         481
     Income (loss) from equity method investments ...      1,273       2,510        (312)
     NPPD settlement ................................      2,248           -           -
     Other ..........................................     (1,559)      1,391      (1,794)
                                                        --------    --------    --------
      Total .........................................   $ 22,111    $ (4,020)   $(10,467)
                                                        ========    ========    ========

</TABLE>



                                      -89-
<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, Coopers & Lybrand L.L.P.

     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  Coopers & Lybrand  L.L.P.  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 Coopers &
Lybrand L.L.P. each have full access to the Audit Committee,  without management
representatives present.



/s/ Stanley J. Bright
Stanley J. Bright
Chairman, President and Chief Executive Officer




/s/ Alan L. Wells
Alan L. Wells
Senior Vice President and
Chief Financial Officer



                                      -90-

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To  MidAmerican Energy Holdings Company and Subsidiaries:

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

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of MidAmerican Energy
Holdings  Company and  subsidiaries  as of December  31, 1997 and 1996,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity  with generally
accepted  accounting  principles.  In addition,  in our opinion,  the  financial
statement  schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.



                                                 /s/ COOPERS & LYBRAND L.L.P.

Kansas City, Missouri
January 23, 1998


                                      -91-

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

                                                           YEARS ENDED DECEMBER 31
                                                    ---------------------------------------
                                                       1997          1996          1995
                                                    -----------   -----------   -----------
<S>                                                 <C>           <C>           <C>
OPERATING REVENUES
Electric utility .................................  $ 1,126,300   $ 1,099,008   $ 1,094,647
Gas utility ......................................      536,306       536,753       459,588
                                                    -----------   -----------   -----------
                                                      1,662,606     1,635,761     1,554,235
                                                    -----------   -----------   -----------
OPERATING EXPENSES
Cost of fuel, energy and capacity ................      235,760       234,317       230,261
Cost of gas sold .................................      346,016       345,014       279,025
Other operating expenses .........................      429,794       350,174       399,648
Maintenance ......................................       98,090        88,621        85,363
Depreciation and amortization ....................      170,540       164,592       158,950
Property and other taxes .........................      101,317        92,630        96,350
Income taxes .....................................       74,562       111,206        85,400
                                                    -----------   -----------   -----------
                                                      1,456,079     1,386,554     1,334,997
                                                    -----------   -----------   -----------

OPERATING INCOME .................................      206,527       249,207       219,238
                                                    -----------   -----------   -----------

NON-OPERATING INCOME
Interest and dividend income .....................        2,332         1,598         1,354
Non-operating income taxes .......................       (1,755)       (1,721)        1,302
Other, net .......................................       12,367         2,400        (5,428)
                                                    -----------   -----------   -----------
                                                         12,944         2,277        (2,772)
                                                    -----------   -----------   -----------
FIXED CHARGES
Interest on long-term debt .......................       78,120        79,434        80,133
Other interest expense ...........................       10,027        10,842         9,396
Preferred dividends of subsidiary trust ..........        7,980           288            --
Allowance for borrowed funds .....................       (2,597)       (4,212)       (5,552)
                                                    -----------   -----------   -----------
                                                         93,530        86,352        83,977
                                                    -----------   -----------   -----------

INCOME FROM CONTINUING OPERATIONS ................      125,941       165,132       132,489

INCOME (LOSS) FROM DISCONTINUED OPERATIONS .......            -       (10,161)       (1,666)
                                                    -----------   -----------   -----------
NET INCOME .......................................      125,941       154,971       130,823
PREFERRED DIVIDENDS ..............................        6,488        10,401         8,059
                                                    -----------   -----------   -----------

EARNINGS ON COMMON STOCK .........................  $   119,453   $   144,570   $   122,764
                                                    ===========   ===========   ===========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -92-
<PAGE>
<TABLE>
<CAPTION>
                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                                                        AS OF DECEMBER 31
                                                                     -----------------------
                                                                        1997         1996
                                                                     ----------   ----------
<S>                                                                  <C>          <C>  
ASSETS
UTILITY PLANT
Electric .........................................................   $4,087,924   $4,013,851
Gas ..............................................................      756,874      723,491
                                                                     ----------   ----------
                                                                      4,844,798    4,737,342
Less accumulated depreciation and amortization ...................    2,277,110    2,154,505
                                                                     ----------   ----------
                                                                      2,567,688    2,582,837
Construction work in progress ....................................       55,418       49,305
                                                                     ----------   ----------
                                                                      2,623,106    2,632,142
                                                                     ----------   ----------

POWER PURCHASE CONTRACT ..........................................      173,107      190,897
                                                                     ----------   ----------

CURRENT ASSETS
Cash and cash equivalents ........................................        9,318       84,215
Receivables, less reserves of $0 and $1,845, respectively ........      184,153      253,944
Inventories ......................................................       84,298       90,864
Other ............................................................        6,174        7,776
                                                                     ----------   ----------
                                                                        283,943      436,799
                                                                     ----------   ----------

INVESTMENTS ......................................................      115,029      118,344
                                                                     ----------   ----------

OTHER ASSETS .....................................................      347,122      396,471
                                                                     ----------   ----------

TOTAL ASSETS .....................................................   $3,542,307   $3,774,653
                                                                     ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ......................................   $  985,744   $  986,825
MidAmerican preferred securities, not subject to mandatory
    redemption ...................................................       31,763       31,769
Preferred securities, subject to mandatory redemption:
  MidAmerican preferred securities ...............................       50,000       50,000
  MidAmerican-obligated preferred securities of subsidiary trust
    holding solely MidAmerican junior subordinated debentures ....      100,000      100,000
Long-term debt (excluding current portion) .......................      920,203    1,086,955
                                                                     ----------   ----------
                                                                      2,087,710    2,255,549
                                                                     ----------   ----------

CURRENT LIABILITIES
Notes payable ....................................................      122,500      161,700
Current portion of long-term debt ................................      124,460       49,560
Current portion of power purchase contract .......................       14,361       13,718
Accounts payable .................................................      128,390      122,974
Taxes accrued ....................................................       91,449       82,338
Interest accrued .................................................       20,616       24,245
Other ............................................................       22,598       24,452
                                                                     ----------   ----------
                                                                        524,374      478,987
                                                                     ----------   ----------

OTHER LIABILITIES
Power purchase contract ..........................................       83,143       97,504
Deferred income taxes ............................................      592,840      616,567
Investment tax credit ............................................       83,127       88,842
Other ............................................................      171,113      237,204
                                                                     ----------   ----------
                                                                        930,223    1,040,117
                                                                     ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES .............................   $3,542,307   $3,774,653
                                                                     ==========   ==========
</TABLE>

The accompanying notes are an integral part of these statements.


                                      -93-

<PAGE>

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

                                                                    YEARS ENDED DECEMBER 31
                                                                 1997         1996         1995
                                                               ---------    ---------    ---------

<S>                                                            <C>          <C>          <C>   
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income .................................................   $ 125,941    $ 154,971    $ 130,823
Adjustments to reconcile net income to net cash provided:
   Depreciation and amortization ...........................     194,287      185,657      175,969
   Net increase (decrease) in deferred income taxes and
     investment tax credit, net ............................     (32,645)      (3,111)       6,835
   Amortization of other assets ............................      33,112       20,541       19,630
   Cash proceeds from sale of accounts receivable...........      70,000            -            -
   Loss from discontinued operations .......................           -       10,161        1,666
   Gain on sale of assets and long-term investments.........           -       (6,104)           -
   Impact of changes in working capital, net of effects of
     discontinued operations........... ....................      17,003      (58,371)      (5,595)
   Other ...................................................     (28,160)      23,689        3,856
                                                               ---------    ---------    ---------
     Net cash provided .....................................     379,538      327,433      333,184
                                                               ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ..........................    (166,932)    (154,198)    (192,625)
Quad Cities Nuclear Power Station decommissioning trust fund      (9,819)      (8,607)      (8,636)
Deferred energy efficiency expenditures ....................     (12,258)     (20,390)     (35,841)
Nonregulated capital expenditures ..........................      (5,920)      (2,970)          --
Proceeds from sale of assets and other investments .........          --       11,620           --
Investment in discontinued operations ......................          --       10,100      (47,968)
Other investing activities, net ............................        (788)         734          203
                                                               ---------    ---------    ---------
   Net cash used ...........................................    (195,717)    (163,711)    (284,867)
                                                               ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid .............................................    (126,988)    (131,171)    (126,887)
Issuance of long-term debt, net of issuance cost ...........          --       99,500       14,604
Retirement of long-term debt, including reacquisition cost .     (92,524)     (72,111)     (14,277)
Reacquisition of preferred shares ..........................          (6)     (58,176)         (10)
Issuance of preferred securities, net of issuance cost .....          --       96,850           --
Issuance of common shares ..................................          --           --       15,083
Net increase (decrease) in notes payable ...................     (39,200)     (23,100)      60,300
                                                               ---------    ---------    ---------
   Net cash used ...........................................    (258,718)     (88,208)     (51,187)
                                                               ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......     (74,897)      75,514       (2,870)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .............      84,215        8,701       11,571
                                                               ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...................   $   9,318    $  84,215    $   8,701
                                                               =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized ..................   $  90,718    $  80,881    $  89,055
                                                               =========    =========    =========
Income taxes paid ..........................................   $ 112,492    $ 103,627    $  90,102
                                                               =========    =========    =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -94-

<PAGE>

<TABLE>
<CAPTION>
                           MIDAMERICAN ENERGY COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                                                                     AS OF DECEMBER 31
                                                                         -----------------------------------------------
                                                                                 1997                       1996
                                                                         ---------------------      --------------------
<S>                                                                      <C>            <C>         <C>           <C>    
COMMON SHAREHOLDER'S EQUITY
Common shares, no par; 350,000,000 shares authorized;
  70,980,203 and 100,751,713 shares outstanding, respectively..........  $    560,563               $   560,597
Retained earnings......................................................       425,181                   426,228
                                                                         ------------               -----------
                                                                              985,744    47.2%          986,825    43.8%
                                                                         ------------   ------      -----------   ------
PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)   
Cumulative shares outstanding not subject to mandatory redemption:
  $3.30 Series, 49,481 and 49,523 shares, respectively.................         4,948                     4,952
  $3.75 Series, 38,310 and 38,320 shares, respectively.................         3,831                     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, 49,945 and 49,950 shares, respectively.................         4,994                     4,995
  $4.40 Series, 50,000 shares..........................................         5,000                     5,000
  $4.80 Series, 49,898 shares..........................................         4,990                     4,990
                                                                         ------------               -----------
                                                                               31,763     1.5%           31,769     1.4%
                                                                         ------------   ------      -----------   ------
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     2.4%           50,000     2.2%
                                                                         ------------   ------      -----------  -------
MIDAMERICAN-OBLIGATED PREFERRED SECURITIES
MidAmerican-obligated mandatorily redeemable cumulative
  preferred  securities of subsidiary trust holding solely
  MidAmerican junior subordinated debentures:
    7.98% series, 4,000,000 shares.....................................       100,000     4.8%          100,000     4.4%
                                                                         ------------   ------      -----------  -------

LONG-TERM DEBT
Mortgage bonds:
  5.05% Series, due 1998...............................................             -                    49,100
  6.25% Series, due 1998...............................................             -                    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
  7.125% Series, due 2003..............................................       100,000                   100,000
  7.70% Series, due 2004...............................................        55,630                    60,000
  7% Series, due 2005..................................................        90,500                   100,000
  7.375% Series, due 2008..............................................        75,000                    75,000
  8% Series, due 2022..................................................        50,000                    50,000
  7.45% Series, due 2023...............................................         6,940                    26,500
  8.125% Series, due 2023..............................................       100,000                   100,000
  6.95% Series, due 2025...............................................        12,500                    21,500
Pollution control revenue obligations:
  5.15% to 5.75% Series, due periodically through 2003.................         8,064                     8,424
  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.

                                      -95-

<PAGE>

<TABLE>
<CAPTION>

                           MIDAMERICAN ENERGY COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                                                                     AS OF DECEMBER 31
                                                                         -----------------------------------------------
                                                                                 1997                       1996
                                                                         ---------------------      --------------------
<S>                                                                      <C>            <C>         <C>           <C>
LONG-TERM DEBT (CONTINUED)
   Variable rate series -
      Due 2016 and 2017 (3.7% and 3.5%, respectively).............       $     37,600               $    37,600
      Due 2023 (secured by general mortgage bonds,
         3.7% and 3.5%, respectively).............................             28,295                    28,295
      Due 2023 (3.7% and 3.5%, respectively)......................              6,850                     6,850
      Due 2024 (3.7% and 3.6%, respectively)......................             34,900                    34,900
      Due 2025 (3.7% and 3.5%, respectively)......................             12,750                    12,750

Notes:
   8.75% Series, due 2002.........................................                240                       240
   6.5% Series, due 2001..........................................            100,000                   100,000
   6.4% Series, due 2003 through 2007.............................              2,000                     2,000
   Obligation under capital lease.................................              3,096                     3,775
   Unamortized debt premium and discount, net.....................             (3,192)                   (4,009)
                                                                         ------------               -----------
      Total.......................................................            920,203    44.1%        1,086,955    48.2%
                                                                         ------------   ------      -----------   ------

TOTAL CAPITALIZATION..............................................       $  2,087,710   100.0%      $ 2,255,549   100.0%
                                                                         ============   ======      ===========   ======
</TABLE>
<TABLE>
<CAPTION>

                           MIDAMERICAN ENERGY COMPANY
                  CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                                                 YEARS ENDED DECEMBER 31
                                                                         ---------------------------------------
                                                                           1997           1996           1995
                                                                         ---------      ---------      ---------
                                                                          

<S>                                                                      <C>            <C>            <C>      
BEGINNING OF YEAR.................................................       $ 426,228      $ 430,589      $ 426,683
                                                                         ---------      ---------      ---------

NET INCOME........................................................         125,941        154,971        130,823
                                                                         ---------      ---------      ---------

DEDUCT (ADD):
(Gain) loss on reacquisition of preferred shares..................           1,433          1,572             (5)
Dividends declared on preferred shares............................           5,055          8,829          8,064
Dividends declared on common shares...............................         120,500        120,770        118,828
Dividend of Investment in Subsidiaries............................               -         28,161              -
Other.............................................................               -              -             30
                                                                         ---------     ----------      ---------
                                                                           126,988        159,332        126,917
                                                                         ---------     ----------      ---------

END OF YEAR.......................................................       $ 425,181     $  426,228      $ 430,589
                                                                         =========     ==========      ==========

</TABLE>


The accompanying notes are an integral part of these statements.

                                      -96-

<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) 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.

     Prior  to  December  1,  1996,   MidAmerican  held  the  capital  stock  of
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 MidAmerican  Energy Holdings Company
(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 MidAmerican 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.


                                      -97-

<PAGE>



     (F) INVESTMENTS:

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

                                                  1997              1996
                                                --------          --------
<S>                                             <C>               <C>
     Investments:
     Nuclear decommissioning trust fund.....    $ 93,251          $ 76,304
     Corporate owned life insurance.........           -            27,395
     Coal transportation....................      11,626             6,219
     Other..................................      10,152             8,426
                                                --------          --------
         Total..............................    $115,029          $118,344
                                                ========          ========
</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:

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

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

<TABLE>
<CAPTION>

                                     1997            1996             1995
                                   --------        ---------        ---------

     <S>                           <C>             <C>              <C>      
     Receivables...............    $  (209)        $(55,014)        $(19,044)
     Inventories...............      6,566           (7,311)           5,777
     Other current assets .....      1,602            9,118           (4,358)
     Accounts payable..........      5,416            6,543           21,475
     Taxes accrued.............      9,111            3,345           (8,586)
     Interest accrued..........     (3,629)             603             (289)
     Other current liabilities.     (1,854)         (15,655)            (570)
                                   -------         --------         --------
        Total..................    $17,003         $(58,371)        $ (5,595)
                                   =======         ========         ========
</TABLE>

     MidAmerican  distributed  the  capital  stock of  MidAmerican  Capital  and
Midwest Capital to Holdings. See Note (10) 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 .


                                      -98-

<PAGE>

     (I) ACCOUNTING FOR DERIVATIVES:

          1) Gas Futures Contracts and Swaps:

     MidAmerican  uses gas futures  contracts  and swap  contracts to reduce its
exposure to changes in the price of natural gas  purchased  to meet the needs of
its  customers  and to manage  margins on  natural  gas  storage  opportunities.
Investments in natural gas futures contracts,  which total $1.5 million and $0.1
million as of December  31, 1997 and 1996,  are included in  Receivables  on the
Consolidated  Balance  Sheets.  Gains and losses on gas futures  contracts  that
qualify for hedge  accounting  are deferred and reflected as  adjustments to the
carrying  value  of  the  hedged  item  or  included  in  Other  Assets  on  the
Consolidated  Balance  Sheets  until  the  underlying  physical  transaction  is
recorded if the instrument is used to hedge an anticipated  future  transaction.
The net gain or loss on gas futures  contracts is included in the  determination
of income in the same  period as the expense  for the  physical  delivery of the
natural  gas.  Realized  gains and losses on gas futures  contracts  and the net
amounts  exchanged or accrued under the natural gas swap  contracts are included
in Cost of Gas Sold,  Other Net  consistent  with the expense  for the  physical
commodity.  Deferred net gains  (losses)  related to the  Company's  gas futures
contracts are $(0.4)  million and $0.1 million as of December 31, 1997 and 1996,
respectively.

     MidAmerican  periodically  evaluates the  effectiveness  of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved,  the contracts
are  recorded  at fair  value  and the  gains  or  losses  are  included  in the
determination of income.  At December 31, 1997, MidAmerican held the following
hedging instruments:
<TABLE>
<CAPTION>

                                                              Weighted average
                                           Notional volume      Market Value
                                               (MMBtu)           (Per MMBtu)
                                           ---------------    ----------------
     <S>                                      <C>                  <C>   
     Natural Gas Futures (Long)               3,500,000            $2.278
     Natural Gas Futures (Short)              1,500,000            $2.309
     Natural Gas Swaps (Fixed to Variable)    1,150,000
          Weighted average variable price                          $2.144
          Weighted average fixed price                             $2.136
     Natural Gas Swaps (Variable to Fixed)    5,425,707
          Weighted average variable price                          $2.211
          Weighted average fixed price                             $2.376
</TABLE>

(2)  LONG-TERM DEBT:

     MidAmerican's  sinking fund  requirements  and maturities of long-term debt
for 1998 through 2002 are $125 million, $61 million,  $111 million, $102 million
and $2 million, respectively.

     The interest rate on MidAmerican'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 1997.

     MidAmerican's  Variable Rate Pollution  Control  Revenue  Obligations  bear
interest at rates that are periodically  established  through remarketing of the
bonds in the  short-term  tax-exempt  market.  MidAmerican,  at its option,  may
change the mode of interest  calculation for these bonds by selecting from among
several  alternative  floating or fixed rate modes.  The interest rates shown in
the Consolidated  Statements of 


                                      -99-

<PAGE>

Capitalization  are the weighted  average interest rates as of December 31, 1997
and 1996.  MidAmerican  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  1998  are  estimated  to be  $201
million, including $13 million for Quad Cities nuclear fuel.

     (B) MANUFACTURED GAS PLANT FACILITIES:

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

     (C) CLEAN AIR ACT:

     Refer to Note 4(c) of Holdings' Notes to Consolidated  Financial Statements
for  information  regarding  the impact of the revisions to the clean air act on
MidAmerican.

     (D) LONG-TERM POWER PURCHASE CONTRACT:

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

     (E) DECOMMISSIONING COSTS:

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

     (F) NUCLEAR INSURANCE:

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




                                      -100-

<PAGE>

     (G) COAL AND NATURAL GAS CONTRACT COMMITMENTS:

     Refer to Note 4(g) 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 SHAREHOLDER'S EQUITY:

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

                                             1997                  1996                    1995
                                     ------------------     -------------------    -------------------
                                      Amount     Shares      Amount     Shares      Amount      Shares

<S>                                  <C>         <C>        <C>         <C>        <C>          <C>   
Balance, beginning of year.......    $560,597    100,752    $801,227    100,752    $786,420     99,687

Changes due to:
Issuance of common shares........           -          -           -          -      15,083      1,065
Cancellation of common shares....           -    (29,772)          -          -           -          -
Stock options....................           -          -         623          -           -          -
Capital stock expense  ..........                               (391)         -        (276)         -
Distribution of investment in
    subsidiaries to Holdings.....           -          -    (240,862)         -           -          -
Other............................         (34)         -           -          -           -          -
                                     --------    -------    --------   --------    --------    -------
Balance, end of year.............    $560,563     70,980    $560,597    100,752    $801,227    100,752
                                     ========    =======    ========   ========    ========    =======
</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  was $4.5 million,
$7.0 million and $11.4 million for 1997, 1996 and 1995, 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 was $19.5 million, $18.7 million and $21.1 million
for 1997, 1996 and 1995, respectively.


                                      -101-

<PAGE>

(7)  STOCK-BASED COMPENSATION PLANS:

     Refer to Note 7 of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's stock-based compensation plans.


(8)  SHORT-TERM BORROWING:

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

                                                1997       1996        1995
                                              --------   --------    --------

<S>                                           <C>        <C>         <C>  
Balance at year-end   ....................... $122,500   $161,700    $184,800
Weighted average interest rate
    on year-end balance......................      5.9%       5.4%        5.7%
Average daily amount outstanding
    during the year..........................  110,472   $151,162    $114,036
Weighted average interest rate on average
    daily amount outstanding during the year.      5.7%       5.5%        6.0%
</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,
1997,  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.

(9)  RATE MATTERS:

     Refer to Note 9 of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's rate matters.

(10)  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.


                                      -102-

<PAGE>
     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>

                                          1997         1996         1995
                                        --------     --------     -------

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

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

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

(11)  CONCENTRATION OF CREDIT RISK:

     MidAmerican's  electric utility operations serve 560,000 customers in Iowa,
85,000 customers in western  Illinois and 3,000 customers in southeastern  South
Dakota.  MidAmerican's  gas utility  operations serve 486,000 customers in Iowa,
65,000 customers in western  Illinois,  63,000  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, 1997,  billed  receivables  from  MidAmerican's  utility  customers
totalled $14.8 million.  As described in Note 18, billed receivables  related to
utility services have been sold to a wholly owned unconsolidated subsidiary.

(12)  PREFERRED SHARES:

     Refer to Note 12 of Holdings'  Notes to Consolidated  Financial  Statements
for information regarding MidAmerican's preferred shares.



                                      -103-

<PAGE>



(13)  SEGMENT INFORMATION:

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

                                                   1997         1996         1995
                                                ----------   ----------   ----------
<S>                                             <C>          <C>          <C>
UTILITY
    Electric-
       Operating revenues.....................  $1,126,300   $1,099,008   $1,094,647
       Cost of fuel, energy and capacity......     235,760      234,317      230,261
       Depreciation and amortization expense..     145,931      140,939      136,324
       Other operating expenses...............     502,109      424,594      459,344
       Income taxes...........................      65,445       92,365       76,955
                                                ----------   ----------   ----------
       Operating income.......................  $  177,055   $  206,793   $  191,763
                                                ==========   ==========   ==========

    Gas-
       Operating revenues.....................  $  536,306   $  536,753   $  459,588
       Cost of gas sold.......................     346,016      345,014      279,025
       Depreciation and amortization expense..      24,609       23,653       22,626
       Other operating expenses...............     127,092      106,831      122,017
       Income taxes...........................       9,117       18,841        8,445
                                                ----------   ----------   ----------
       Operating income.......................  $   29,472   $   42,414   $   27,475
                                                ==========   ==========   ==========

    Operating income..........................  $  206,527   $  249,207   $  219,238
    Other income (expense)....................      14,699        3,998       (4,074)
    Income taxes - other (benefit)............       1,755        1,721       (1,302)
    Fixed charges.............................      93,530       86,352       83,977
                                                ----------   ----------   ----------
    Income from continuing operations.........  $  125,941   $  165,132   $  132,489
                                                ==========   ==========   ==========

    Capital Expenditures-
       Electric...............................  $  128,544   $  116,243   $  135,344
       Gas....................................      38,388       37,955       57,281

ASSET INFORMATION
    Identifiable assets-
       Electric (a)...........................  $2,832,803   $2,955,881   $2,950,285
       Gas (a)................................     680,961      692,993      699,702
    Used in overall utility operations........      16,358      119,557       38,067
    Nonregulated..............................      12,185        6,222            -
    Investment in discontinued operations.....           -            -      288,147
                                                ----------   ----------   ----------
    Total assets..............................  $3,542,307   $3,774,653   $3,976,201
                                                ==========   ==========   ==========
</TABLE>

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



                                      -104-

<PAGE>



(14)  FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

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

     Quad-Cities  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>

                                                          1997                      1996
                                                  ---------------------    -----------------------
                                                   Carrying    Fair         Carrying      Fair
                                                    Amount     Value         Amount       Value
                                                  ---------  ----------    ----------   ----------

<S>                                              <C>         <C>           <C>          <C>       
Financial Instruments Issued by MidAmerican:
   MidAmerican preferred securities; subject
      to mandatory redemption................... $   50,000  $   53,650    $   50,000   $   52,920

   MidAmerican-obligated preferred securities;
      subject to mandatory redemption........... $  100,000  $  104,250    $  100,000   $  100,000
   Long-term debt, including current portion.... $1,044,663  $1,076,167    $1,136,515   $1,177,792
</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>

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

                                      -105-

<PAGE>

<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>

     At December 31, 1997, 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...................           $  2,971       $  2,987
     1 through 5 years...............             14,057         14,377
     5 through 10 years..............             26,821         28,119
     Over 10 years...................             16,474         17,825
</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>

                                        1997         1996        1995
                                       -------      -------     -------

<S>                                    <C>          <C>         <C>    
     Proceeds from sales.....          $30,801      $ 4,106     $21,266
     Gross realized gains....              713           92         165
     Gross realized losses...             (659)         (17)       (448)
</TABLE>

(15)  INCOME TAX EXPENSE:

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

<TABLE>
<CAPTION>

                                       1997         1996         1995
                                    ----------   ----------   --------

<S>                                  <C>          <C>          <C>
     Income taxes
       Current
       Federal ...................   $  83,466    $  92,240    $ 60,312
       State .....................      25,495       23,798      16,950
                                     ---------    ---------    --------
                                       108,961      116,038      77,262
                                     ---------    ---------    --------
     Deferred
       Federal ...................     (23,143)       2,504      11,571
       State .....................      (3,786)         583       1,094
                                     ---------    ---------    --------
                                       (26,929)       3,087      12,665
     Investment tax credit, net ..      (5,715)      (6,198)     (5,829)
                                     ---------    ---------    --------
       Total income tax expense ..   $  76,317    $ 112,927    $ 84,098
                                     =========    =========    ========
</TABLE>


                                      -106-

<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>

                                                           1997        1996
                                                         -------     --------
     <S>                                                 <C>         <C>
     Deferred tax assets
       Related to:
       Investment tax credits ......................,    $55,998     $61,349
       Pensions .....................................     17,339      17,648
       Nuclear reserves and decommissioning .........     15,287       8,233
       Other ........................................        799       5,839
                                                         -------     -------
         Total ......................................    $89,423     $93,069
                                                         =======     =======
</TABLE>
<TABLE>
<CAPTION>

                                                          1997        1996
                                                        --------    --------
     <S>                                                <C>         <C>
     Deferred tax liabilities
       Related to:
       Depreciable property..........................   $417,333    $422,770
       Income taxes recoverable through future rates.    197,877     201,998
       Energy efficiency.............................     40,902      44,733
       Reacquired debt...............................     15,346      14,265
       FERC Order 636................................      2,858       9,023
       Other.........................................      7,947      16,847
                                                        --------    --------
          Total......................................   $682,263    $709,636
                                                        ========    ========
</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>

                                                       1997      1996    1995
                                                       ----      ----    ----

     <S>                                                <C>       <C>     <C>
     Effective federal and state income tax rate.....   36%       41%     39%
     Amortization of investment tax credit...........    3         2       3
     State income tax, net of federal income
       tax benefit...................................   (7)       (6)     (5)
     Other...........................................    3        (2)     (2)
                                                        ---       ---     ---
     Statutory federal income tax rate...............   35%       35%     35%
                                                        ===       ===     ===
</TABLE>

                                      -107-

<PAGE>

(16)  INVENTORIES:

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

                                                     1997              1996
                                                   --------          -------

     <S>                                           <C>               <C>     
     Materials and supplies, at average cost....   $ 31,425          $ 32,222
     Coal stocks, at average cost...............     14,225            32,293
     Gas in storage, at LIFO cost...............     35,430            23,915
     Fuel oil, at average cost..................      2,344             1,264
     Other......................................        874             1,170
                                                   --------          ---------
     Total......................................   $ 84,298          $ 90,864
                                                   ========          ========
</TABLE>

     At December 31, 1997  prices,  the current cost of gas in storage was $50.3
million.

(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.

(18)  SALE OF ACCOUNTS RECEIVABLE:

     Refer to Note 18 of Holdings'  Notes to Consolidated  Financial  Statements
for  information  regarding  the sale of  MidAmerican's  accounts  receivable to
MidAmerican Energy Funding Corporation.

(19)  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.

     During 1997,  Holdings incurred charges which are of general benefit to all
of its subsidiaries.  These costs were for  administrative  and general salaries
and expenses,  outside services,  director fees, pension, deferred compensation,
and retirement costs,  some of which originated at MidAmerican.  MidAmerican was
reimbursed   for  such   charges  in  the  amount  of  $4.1  million  for  1997.
MidAmerican's  allocated  share of such costs and their allocated share of costs
which originated at Holdings were $13.8 million.

     During 1997, MidAmerican was also reimbursed for charges incurred on behalf
of its  affiliates,  MidAmerican  Capital and Midwest  Capital.  The majority of
these  reimbursed  expenses  were for employee  wages and  benefits,  insurance,
building rental, computer costs,  administrative  services,  travel expense, and
general and  administrative  expense;  including  treasury,  legal,  shareholder
relations  and  accounting  functions.  The  amount  of such  expenses  was $6.6
million.

     Prior  to 1997,  MidAmerican,  as the  parent  company,  incurred  costs of
general benefit to itself and its subsidiaries.  In addition,  it incurred costs
for employee  wages and benefits,  insurance,  building  rent,  computer  costs,
administrative services, travel expense, and general and administrative expense;
including treasury,  legal,  shareholder relations and accounting functions,  on
behalf of MidAmerican Capital and Midwest Capital. The total

                                      -108-

<PAGE>



of such costs  charged to  MidAmerican  Capital  and Midwest  Capital  were $9.3
million and $4.6 million for 1996 and 1995, respectively

     MidAmerican  leases office facilities and other properties from affiliates.
Total lease  payments were  approximately  $0.3  million,  $0.3 million and $0.6
million for 1997, 1996 and 1995, 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 $2.8 million, $3.0 million and $3.0 million for
1997, 1996 and 1995, respectively.

     MidAmerican  purchased natural gas from Amgas, an affiliate.  MidAmerican's
costs of gas related to these  transactions  was $0.5 million,  $0.2 million and
$0.3 million for 1997, 1996 and 1995, respectively.

     In 1997,  MidAmerican  purchased  natural  gas from  InterCoast  Trade  and
Resources,  an affiliate, in the amount of $11.4 million and sold natural gas to
InterCoast Trade and Resources in the amount of $6.1 million.

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

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

<S>                                            <C>          <C>          <C>         <C>    
Operating revenues ........................    $465,881     $342,714     $394,544    $459,467
Operating income ..........................      56,407       44,604       69,777      35,739
Income from continuing operations..........      35,224       21,822       50,255      18,640
Earnings on common stock ..................      32,450       20,586       49,016      17,401
</TABLE>
<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
</TABLE>

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


                                      -109-

<PAGE>
(21) OTHER INFORMATION:

     MidAmerican  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>

                                                         1997        1996        1995
                                                        ------     -------     --------

     <S>                                               <C>         <C>         <C>    
     IES merger costs................................  $     -     $(8,689)    $     -
     Energy efficiency carrying charges..............    4,993       3,225       3,092
     Gain on sale of cushion gas.....................      855       3,182           -
     Incentive gas procurement plan award............    4,914       2,677           -
     Agency gas sales, net...........................    1,184       1,840         228
     Donations.......................................     (556)     (1,271)     (1,612)
     Gain (loss) on reacquisition of long-term debt..     (923)      1,105           -
     MidAmerican merger costs........................        -           -      (4,624)
     Allowance for equity funds used
       during construction...........................        -           -         481
     NPPD settlement.................................    2,248           -           -
     Other...........................................     (348)        331      (2,993)
                                                       -------     -------    --------
       Total.........................................  $12,367     $ 2,400    $ (5,428)
                                                       =======     =======    ========
</TABLE>



                                      -110-

<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 the  MidAmerican's  independent
public accountants, Coopers & Lybrand L.L.P.

     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  Coopers & Lybrand  L.L.P.  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
Coopers & Lybrand L.L.P.  each have full access to the Audit Committee,  without
management representatives present.



/s/ Stanley J. Bright
Stanley J. Bright
Chairman, President and Chief Executive Officer




/s/ Alan L. Wells
Alan L. Wells
Senior Vice President and
Chief Financial Officer



                                      -111-

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To MidAmerican Energy Company and Subsidiaries:

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

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the consolidated financial position of MidAmerican Energy
Company and  subsidiaries as of December 31, 1997 and 1996, and the consolidated
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1997,  in  conformity  with  generally  accepted
accounting  principles.  In addition,  in our opinion,  the financial  statement
schedule  referred to above, when considered in relation to the basic financial
statements  taken as a whole,  present  fairly,  in all material  respects,  the
information required to be included therein.



                                                /s/ COOPERS & LYBRAND L.L.P.

Kansas City, Missouri
January 23, 1998


                                      -112-


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

                                                              1997       1996       1995       1994      1993
                                                            --------   -------    --------   -------   -------

<S>                                                         <C>        <C>        <C>        <C>        <C>    
Earnings per average common share -- 
Continuing operations:
   Utility operations.....................................  $   1.22   $   1.54   $   1.24   $   1.12   $   1.29
   Nonregulated activities................................      0.20      (0.11)     (0.05)      0.13       0.09
Discontinued operations...................................     (0.04)     (0.13)      0.03      (0.03)      0.01
                                                            --------   --------   --------   --------   --------   
Earnings per average common share.........................  $   1.38   $   1.30   $   1.22   $   1.22   $   1.39
                                                            ========   ========   ========   ========   ========

Average shares of common stock
   outstanding (in thousands).............................    98,058    100,752    100,401     98,531     97,762
Return on average common equity (%).......................      10.8       10.6       10.1       10.1       11.6
Cash dividends declared per common share..................  $   1.20   $   1.20   $   1.18   $   1.17   $   1.17
Common dividend payout ratio (%)..........................        87         92         97         96         84

Ratio of earnings to fixed charges--
   Holdings...............................................       3.0        3.2        2.8        2.8        2.8
   MidAmerican............................................       3.1        4.1        3.4        3.3        3.4
Ratio of earnings to fixed charges and Cooper
   Nuclear Station debt service--
      Holdings............................................       2.9        3.1        2.7        2.7        2.8
      MidAmerican.........................................       3.0        4.0        3.3        3.2        3.3
Quarterly earnings per average common share
   outstanding  --
      1st quarter.........................................  $   0.34   $   0.51   $   0.35   $   0.45   $   0.44
      2nd quarter.........................................      0.25       0.29       0.25       0.22       0.22
      3rd quarter.........................................      0.48       0.22       0.36       0.36       0.52
      4th quarter ........................................      0.31       0.28       0.27       0.19       0.20

Total assets (in millions)................................  $  4,278   $  4,522   $  4,470   $  4,389   $  4,352

Capitalization (in millions)  --
   Common shareholders' equity............................  $  1,301   $  1,240   $  1,226   $  1,204   $  1,181
   Preferred shares, not subject to mandatory redemption..        32         32         90         90        110
   Preferred shares, subject to mandatory redemption......       150        150         50         50         50
   Long-term debt (excluding current portion).............     1,034      1,395      1,403      1,398      1,341

Capitalization ratios %  --
   Common shareholders' equity............................      51.7       44.0       44.3       43.9       44.0
   Preferred shares, not subject to mandatory redemption..       1.2        1.1        3.2        3.3        4.1
   Preferred shares, subject to mandatory redemption......       6.0        5.4        1.8        1.8        1.9
   Long-term debt (excluding current portion).............      41.1       49.5       50.7       51.0       50.0

Book value per common share at year-end...................  $  13.65   $  12.31   $  12.17   $  12.08   $  12.07
Utility construction expenditures (in thousands)..........  $166,932   $154,198   $190,771   $211,669   $215,081
Net cash from utility operations less
   dividends as a % of construction.......................       153        127        108         99         86

Number of full-time employees --
   Utility................................................     3,467      3,370      3,331      4,077      4,196
   Nonregulated...........................................       163        236        271        274        347

</TABLE>

                                      -113-

<PAGE>
<TABLE>
<CAPTION>

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

                                                                                  YEARS ENDED DECEMBER 31
                                                          -----------------------------------------------------------------------
                                                              1997           1996           1995           1994           1993
                                                          -----------    -----------    -----------    -----------    ----------- 
<S>                                                       <C>            <C>            <C>            <C>            <C>    
OPERATING REVENUES
Electric utility ......................................   $ 1,126,300    $ 1,099,008    $ 1,094,647    $ 1,021,660    $ 1,002,970
Gas utility ...........................................       536,306        536,753        459,588        492,015        538,989
Nonregulated ..........................................       259,675        236,851         95,106        117,550         85,997
                                                          -----------    -----------    -----------    -----------    -----------
                                                            1,922,281      1,872,612      1,649,341      1,631,225      1,627,956
                                                          -----------    -----------    -----------    -----------    -----------
OPERATING EXPENSES
Utility:
  Cost of fuel, energy and capacity ...................       235,760        234,317        230,261        213,987        217,385
  Cost of gas sold ....................................       346,016        345,014        279,025        326,782        366,049
  Other operating expenses ............................       429,794        350,174        399,648        354,190        340,720
  Maintenance .........................................        98,090         88,621         85,363        101,275        101,601
  Depreciation and amortization .......................       170,540        164,592        158,950        154,229        150,822
  Property and other taxes ............................       101,317         92,630         96,350         94,990         93,238
                                                           ----------    -----------    -----------    -----------    ----------
                                                            1,381,517      1,275,348      1,249,597      1,245,453      1,269,815
                                                           ----------    -----------    -----------    -----------    ----------
Nonregulated:
  Cost of sales .......................................       240,182        218,256         70,209         84,515         57,907
  Other ...............................................        30,076         35,370         37,181         36,765         32,296
                                                           ----------     ----------     ----------    -----------    -----------
                                                              270,258        253,626        107,390        121,280         90,203
                                                           ----------     ----------     ----------    -----------    -----------
Total operating expenses ..............................     1,651,775      1,528,974      1,356,987      1,366,733      1,360,018
                                                           ----------     ----------     ----------    -----------    -----------

OPERATING INCOME ......................................       270,506        343,638        292,354        264,492        267,938
                                                           ----------    -----------    -----------    -----------    ----------
NON-OPERATING INCOME
Interest income .......................................         5,318          4,012          4,485          4,334          5,805
Dividend income .......................................        13,792         16,985         16,954         17,087         17,601
Realized gains and losses on securities, net ..........         7,798          1,895            688          7,635          7,915
Other, net ............................................        22,111         (4,020)       (10,467)         4,316         20,842
                                                           ----------     ----------     ----------    -----------    -----------
                                                               49,019         18,872         11,660         33,372         52,163
                                                           ----------     ----------     ----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ............................        89,898        102,909        105,550        101,267        107,044
Other interest expense ................................        10,034         10,941          9,449          6,446          5,066
Preferred dividends of subsidiaries ...................        14,468         10,689          8,059         10,551          8,367
Allowance for borrowed funds ..........................        (2,597)        (4,212)        (5,552)        (3,955)        (2,186)
                                                          -----------    -----------    -----------    -----------    -----------
                                                              111,803        120,327        117,506        114,309        118,291
                                                          -----------    -----------    -----------    -----------    -----------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES .       207,722        242,183        186,508        183,555        201,810
INCOME TAXES ..........................................        68,390         98,422         66,803         60,457         67,485
                                                          -----------    -----------    -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS .....................       139,332        143,761        119,705        123,098        134,325
                                                          -----------    -----------    -----------    -----------    -----------

INCOME (LOSS) FROM DISCONTINUED OPERATIONS ............        (4,228)       (12,715)         3,059         (2,909)         1,159
                                                          -----------    -----------    -----------    -----------    -----------

NET INCOME ............................................   $   135,104    $   131,046    $   122,764    $   120,189    $   135,484
                                                          ===========    ===========    ===========    ===========    ===========

AVERAGE COMMON SHARES OUTSTANDING .....................        98,058        100,752        100,401         98,531         97,762

EARNINGS PER COMMON SHARE
Continuing operations .................................   $      1.42    $      1.43    $      1.19     $     1.25    $      1.38
Discontinued operations ...............................         (0.04)         (0.13)          0.03          (0.03)          0.01
                                                          -----------    -----------    -----------     ----------    -----------
Earnings per average common share .....................   $      1.38    $      1.30    $      1.22     $     1.22    $      1.39
                                                          ===========    ===========    ===========     ==========    ===========

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

</TABLE>


                                      -114-

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

                                                                                 AS OF  DECEMBER 31
                                                           --------------------------------------------------------------
                                                              1997         1996         1995         1994         1993
                                                           ----------   ----------   ----------   ----------   ----------

<S>                                                        <C>          <C>          <C>          <C>          <C>    
ASSETS
UTILITY PLANT
Electric................................................   $4,084,920   $4,010,847   $3,881,699   $3,765,004   $3,642,415
Gas.....................................................      756,874      723,491      695,741      663,792      639,276
                                                           ----------   ----------   ----------   ----------   ----------
                                                            4,841,794    4,734,338    4,577,440    4,428,796    4,281,691
Less accumulated depreciation and amortization..........    2,275,099    2,153,058    2,027,055    1,885,870    1,801,668
                                                           ----------   ----------   ----------   ----------   ----------
                                                            2,566,695    2,581,280    2,550,385    2,542,926    2,480,023
Construction work in progress...........................       55,418       49,305      104,164      101,252      111,726
                                                           ----------   ----------   ----------   ----------   ----------
                                                            2,622,113    2,630,585    2,654,549    2,644,178    2,591,749
                                                           ----------   ----------   ----------   ----------   ----------

POWER PURCHASE CONTRACT.................................      173,107      190,897      212,148      221,998      248,643
                                                           ----------   ----------   ----------   ----------   ----------

INVESTMENT IN DISCONTINUED OPERATIONS...................            -      166,320      177,300      186,246      168,907
                                                           ----------   ----------   ----------   ----------   ----------

CURRENT ASSETS
Cash and cash equivalents...............................       10,468       97,749       32,915       28,651       20,657
Receivables less reserves...............................      207,471      312,015      228,128      196,814      216,157
Inventories.............................................       86,091       90,864       85,235       92,248      100,675
Other...................................................       18,452       11,031       18,428       14,288       21,195
                                                           ----------   ----------   ----------   ----------   ----------
                                                              322,482      511,659      364,706      332,001      358,684
                                                           ----------   ----------   ----------   ----------   ----------

INVESTMENTS.............................................      799,524      622,972      646,456      595,510      614,153
                                                           ----------   ----------   ----------   ----------   ----------

OTHER ASSETS............................................      360,865      399,415      414,938      408,961      369,937
                                                           ----------   ----------   ----------   ----------   ----------

TOTAL ASSETS............................................   $4,278,091   $4,521,848   $4,470,097   $4,388,894   $4,352,073
                                                           ==========   ==========   ==========   ==========   ==========


CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity.............................   $1,301,286   $1,239,946   $1,225,715   $1,204,112   $1,180,510
Preferred shares, not subject to mandatory redemption...       31,763       31,769       89,945       89,955      109,871
Preferred shares, subject to mandatory redemption.......      150,000      150,000       50,000       50,000       50,000
Long-term debt (excluding current portion)..............    1,034,211    1,395,103    1,403,322    1,398,255    1,341,003
                                                           ----------   ----------   ----------   ----------   ----------
                                                            2,517,260    2,816,818    2,768,982    2,742,322    2,681,384
                                                           ----------   ----------   ----------   ----------   ----------

CURRENT LIABILITIES
Notes payable...........................................      138,054      161,990      184,800      124,500      173,035
Current portion of long-term debt.......................      144,558       79,598       65,295       72,872       66,371
Current portion of power purchase contract..............       14,361       13,718       13,029       12,080       10,830
Accounts payable........................................      145,855      169,806      122,055      106,152      123,618
Taxes accrued...........................................       92,629       82,254       81,898       91,653      110,923
Interest accrued........................................       22,355       28,513       30,635       30,659       31,021
Other...................................................       38,766       22,830       46,267       44,974       49,470
                                                           ----------   ----------   ----------   ----------   ----------
                                                              596,578      558,709      543,979      482,890      565,268
                                                           ----------   ----------   ----------   ----------   ----------

OTHER LIABILITIES
Power purchase contract.................................       83,143       97,504      112,700      125,729      140,655
Deferred income taxes...................................      761,795      722,300      724,587      712,307      659,753
Investment tax credit...................................       83,127       88,842       95,041      100,871      106,729
Other ..................................................      236,188      237,675      224,808      224,775      198,284
                                                           ----------   ----------   ----------   ----------   ----------
                                                            1,164,253    1,146,321    1,157,136    1,163,682    1,105,421
                                                           ----------   ----------   ----------   ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES....................   $4,278,091   $4,521,848   $4,470,097   $4,388,894   $4,352,073
                                                           ==========   ==========   ==========   ==========   ==========
</TABLE>


                                      -115-

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


YEARS ENDED DECEMBER 31                               1997         1996          1995          1994          1993
                                                   ----------   -----------   ----------    ----------    -----------

<S>                                                <C>          <C>           <C>           <C>           <C>
REVENUES (in thousands)
Residential....................................    $  417,845   $   415,954   $  434,105    $  400,346    $   386,047
Small general service..........................       246,927       237,466      252,427       253,703        242,205
Large general service..........................       249,444       241,172      219,075       204,481        193,616
Other sales....................................        62,261        60,476       60,160        57,731         56,198
Sales for resale...............................       124,741       121,452      105,472        84,260        104,461
                                                   ----------   -----------   ----------    ----------    -----------
    Total from electric sales..................     1,101,218     1,076,520    1,071,239     1,000,521        982,527
Other electric revenue.........................        25,082        22,488       23,408        21,139         20,443
                                                   ----------   -----------   ----------    ----------    -----------
    Total......................................    $1,126,300   $ 1,099,008   $1,094,647    $1,021,660    $ 1,002,970
                                                   ==========   ===========   ==========    ==========    ===========

KWH SALES (in thousands)
Residential....................................     4,740,688     4,652,031    4,767,608     4,500,265      4,475,883
Small general service..........................     3,725,873     3,565,459    3,920,792     4,062,993      3,937,360
Large general service..........................     6,204,087     6,067,325    5,351,933     5,091,685      4,851,493
Other..........................................       995,295       988,022      957,463       938,620        930,117
Sales for resale...............................     6,987,268     6,727,326    5,509,161     3,605,092      5,566,208
                                                   ----------   -----------  -----------   -----------    -----------
    Total......................................    22,653,211    22,000,163   20,506,957    18,198,655     19,761,061
                                                   ==========   ===========  ===========   ===========    ===========

REVENUES FROM SALES AS A % OF TOTAL
Residential....................................          37.9          38.6         40.5          40.0           39.3
Small general service..........................          22.4          22.1         23.6          25.4           24.7
Large general service..........................          22.7          22.4         20.5          20.4           19.7
Other..........................................           5.7           5.6          5.6           5.8            5.7
Sales for resale...............................          11.3          11.3          9.8           8.4           10.6
                                                   ----------   -----------   ----------    ----------   ------------
    Total......................................         100.0         100.0        100.0         100.0          100.0
                                                   ==========   ===========   ==========    ==========   ============

SALES AS A % OF TOTAL
Residential....................................          20.9          21.1         23.2          24.7           22.7
Small general service..........................          16.5          16.2         19.1          22.3           19.9
Large general service..........................          27.4          27.6         26.1          28.0           24.5
Other..........................................           4.4           4.5          4.7           5.2            4.7
Sales for resale...............................          30.8          30.6         26.9          19.8           28.2
                                                   ----------   -----------   ----------    ----------   ------------
    Total......................................         100.0         100.0        100.0         100.0          100.0
                                                   ==========   ===========   ==========    ==========   ============

RETAIL ELECTRIC SALES BY JURISDICTION (%)
Iowa...........................................          88.6          88.7         88.4          88.6           88.7
Illinois.......................................          10.7          10.6         11.0          10.9           10.9
South Dakota...................................           0.7           0.7          0.6           0.5            0.4
                                                   ----------   -----------   ----------    ----------   ------------
    Total .....................................         100.0         100.0        100.0         100.0          100.0
                                                   ==========   ===========   ==========    ==========   ============

CUSTOMERS (end of year)
Residential....................................       563,189       557,637      551,384       548,106        541,220
Small general service..........................        73,488        73,022       72,616        69,905         68,829
Large general service..........................         1,000           982          945           743            744
Other..........................................        10,047         9,937        9,744         9,518          9,572
Sales for resale...............................            47            55           55            59             63
                                                   ----------   -----------   ----------    ----------   ------------
    Total......................................       647,771       641,633      634,744       628,331        620,428
                                                   ==========   ===========   ==========    ==========   ============

ANNUAL AVERAGE PER RESIDENTIAL CUSTOMER
Revenue per Kwh (cents)........................          8.81          8.94         9.11          8.90           8.62
KWh sales......................................         8,463         8,392        8,670         8,265          8,310

COOLING DEGREE DAYS
Actual.........................................           883           788        1,112           912            813
Percent warmer (colder) than normal............          (7.5)        (17.5)        14.1          (6.5)         (16.4)

ELECTRIC PEAK DEMAND (net MW)..................         3,548         3,537        3,553         3,226          3,284

SUMMER NET ACCREDITED CAPABILITY (MW)..........         4,293         4,301        4,311         4,145          4,072

</TABLE>


                                      -116-

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

YEARS ENDED DECEMBER 31                                 1997        1996        1995        1994        1993
                                                     ---------   ---------   ---------   ---------   ---------

<S>                                                  <C>         <C>         <C>         <C>         <C>    
REVENUES (in thousands)
Residential.......................................   $ 339,924   $ 338,605   $ 279,819   $ 287,171   $ 319,359
Small general service.............................     152,661     153,616     128,501     142,894     150,913
Large general service.............................      15,201      17,670      23,280      36,729      37,761
Sales for resale and other........................       2,914       2,050       5,303       5,514      10,376
                                                     ---------   ---------   ---------   ---------   ---------
   Total revenue from gas sales ..................     510,700     511,941     436,903     472,308     518,409
Gas transported...................................      20.443      20,155      16,677      12,842      13,457
Other gas revenues................................       5,163       4,657       6,008       6,865       7,123
                                                     ---------   ---------   ---------   ---------   ---------
   Total..........................................   $ 536,306   $ 536,753   $ 459,588   $ 492,015   $ 538,989
                                                     =========   =========   =========   =========   =========

THROUGHPUT (MMBtu in thousands)
Sales
   Residential....................................      57,039      61,732      57,153      54,732      60,612
   Small general service..........................      31,066      33,642      32,786      32,677      34,504
   Large general service..........................       3,920       4,634       6,222       8,253       9,681
   Sales for resale and other.....................       1,800         977       3,582       3,231       4,305
                                                     ---------   ---------   ---------   ---------    --------
     Total sales..................................      93,825     100,985      99,743      98,893     109,102
Gas transported...................................      58,804      54,618      50,695      43,293      39,570
                                                     ---------   ---------   ---------   ---------    --------
   Total..........................................     152,629     155,603     150,438     142,186     148,672
                                                     =========   =========   =========   =========    ========

REVENUES FROM THROUGHPUT AS A % OF TOTAL
Residential.......................................        64.0        63.6        61.7        59.2        60.0
Small general service.............................        28.7        28.9        28.3        29.4        28.4
Large general service.............................         2.9         3.3         5.1         7.6         7.1
Sales for resale and other........................         0.5         0.4         1.2         1.1         2.0
Gas transported...................................         3.9         3.8         3.7         2.7         2.5
                                                     ---------   ---------   ---------   ---------    --------
   Total..........................................       100.0       100.0       100.0       100.0       100.0
                                                     =========   =========   =========   =========    ========

SALES AS A % OF TOTAL (excludes gas transported)
Residential.......................................        60.8        61.1        57.3        55.3        55.6
Small general service.............................        33.1        33.3        32.9        33.0        31.6
Large general service.............................         4.2         4.6         6.2         8.4         8.9
Sales for resale and other........................         1.9         1.0         3.6         3.3         3.9
                                                     ---------   ---------   ---------   ---------    --------
   Total..........................................       100.0       100.0       100.0       100.0       100.0
                                                     =========   =========   =========   =========    ========

RETAIL GAS SALES BY JURISDICTION (%)
Iowa..............................................        79.1        78.0        77.1        76.6        74.5
Illinois..........................................        10.4        11.0        11.6        11.9        11.4
South Dakota......................................         9.8        10.3        10.6        10.8         5.4
Other.............................................         0.7         0.7         0.7         0.7         8.7
                                                     ---------   ---------   ---------   ---------    --------
   Total .........................................       100.0       100.0       100.0       100.0       100.0
                                                     =========   =========   =========   =========    ========
CUSTOMERS (end of year)
Residential.......................................     558,501     550,786     541,732     535,301     526,863
Small general service.............................      58,739      58,059      57,207      55,855      54,972
Large general service.............................         767         821         830         876         868
Gas transported and other.........................         569         504       1,128         171         128
                                                     ---------   ---------   ---------   ---------    --------
   Total..........................................     618,576     610,170     600,897     592,203     582,831
                                                     =========   =========   =========   =========    ========

ANNUAL AVERAGES PER RESIDENTIAL CUSTOMER
Revenue per MMBtu.................................   $    5.96   $    5.49   $    4.90   $    5.25    $   5.27
MMBtu sales.......................................         103         113         106         103         111

HEATING DEGREE DAYS
Actual............................................       6,872       7,445       6,841       6,565       7,097
Percent colder (warmer) than normal...............         1.6        10.1         0.9        (3.5)        3.2

COST PER MMBTU....................................   $    3.69   $    3.42   $    2.80   $    3.30    $   3.36

</TABLE>

                                      -117-
<PAGE>

                                                              SCHEDULE II


              MIDAMERICAN ENERGY HOLDINGS COMPANY AND SUBSIDIARIES
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1997
                                 (In Thousands)


  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
-----------                     ----------   ---------   ----------   ---------
Reserves Deducted From Assets
  To Which They Apply:

  Reserve for uncollectible 
    accounts:

   Year ended 1997...........    $2,093      $7,683       $(9,429)     $  347
                                 ======      ======       =======      ======

   Year ended 1996...........    $2,296      $6,145       $(6,348)     $2,093
                                 ======      ======       =======      ======

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


Reserves Not Deducted 
  From Assets:


   Year ended 1997...........    $4,267      $3,971       $(1,981)     $6,257
                                 ======      ======       =======      ======

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

   Year ended 1995...........    $4,574      $2,662       $(4,059)     $3,177
                                 ======      ======       =======      ======


                                     -118-

<PAGE>
                                                                 SCHEDULE II


                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1997
                                 (In Thousands)


  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
-----------                       ----------  ---------  ----------  ----------
Reserves Deducted From Assets
  To Which They Apply:

  Reserve for uncollectible 
    accounts:

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

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

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


Reserves Not Deducted 
  From Assets:


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

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

   Year ended 1995..............     $4,574    $2,662     $(4,059)    $3,177
                                     ======    ======     =======     ======



                                     -119-
<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: March 19, 1998          By  /s/  Stanley J. Bright
                                  ---------------------------------------------
                                  (Stanley J. Bright)  Chairman, President, and
                                     Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the registrants and
in the capacities and on the date indicated:

        Signature                    Title                      Date
        ---------                    -----                      ----
MidAmerican Energy Holdings Company



/s/  Stanley J. Bright           Chairman, President and     March 19, 1998
------------------------------   Chief Executive Officer
    (Stanley J. Bright)



/s/  Alan L. Wells               Senior Vice President and   March 19, 1998
------------------------------   Chief Financial Officer 
    (Alan L. Wells)                



/s/  John W. Aalfs               Director                    March 19, 1998
------------------------------
    (John W. Aalfs)



/s/  Ross D. Christensen         Director                    March 19, 1998
------------------------------
     (Ross D. Christensen)



/s/  Russell E. Christiansen     Director                    March 19, 1998
------------------------------
    (Russell  E. Christiansen)



                                     -120-
<PAGE>



/s/  John W. Colloton            Director                    March 19, 1998
------------------------------
    (John W. Colloton)



/s/  Frank S. Cottrell           Director                    March 19, 1998
------------------------------
    (Frank S. Cottrell)



/s/  Jack W. Eugster             Director                    March 19, 1998
------------------------------
    (Jack W. Eugster)



/s/  Mel Foster, Jr.             Director                    March 19, 1998
------------------------------
    (Mel Foster, Jr.)



/s/  Nolden Gentry               Director                    March 19, 1998
------------------------------
    (Nolden Gentry)



/s/  James M. Hoak, Jr.          Director                    March 19, 1998
------------------------------
    (James M. Hoak, Jr.)



/s/  Richard L. Lawson           Director                    March 19, 1998
------------------------------
    (Richard L. Lawson)



/s/  Robert L. Peterson          Director                    March 19, 1998
------------------------------
    (Robert L. Peterson)



/s/  Nancy L. Seifert            Director                    March 19, 1998
------------------------------
    (Nancy L. Seifert)



/s/  W. Scott Tinsman            Director                    March 19, 1998
------------------------------
    (W. Scott Tinsman)



/s/  Leonard L. Woodruff         Director                    March 19, 1998
------------------------------
    (Leonard L. Woodruff)


                                     -121-
<PAGE>

MidAmerican Energy Company




/s/ Stanley J. Bright            Chairman, President and     March 19, 1998
------------------------------   Chief Executive Officer
   (Stanley  J. Bright)  


/s/  Alan L. Wells               Senior Vice President and   March 19, 1998
------------------------------   Chief Financial Officer
     (Alan L. Wells)



/s/  David J. Levy               Director                    March 19, 1998
------------------------------
    (David J. Levy)



/s/  John A. Rasmussen, Jr.      Director                    March 19, 1998
------------------------------
    (John A. Rasmussen, Jr.)



/s/  Wayne O. Smith              Director                    March 19, 1998
------------------------------
    (Wayne O. Smith)



/s/  Ronald W. Stepien           Director                    March 19, 1998
------------------------------
    (Ronald W. Stepien)



/s/  Beverly A. Wharton          Director                    March 19, 1998
------------------------------
    (Beverly A. Wharton)


                                     -122-
<PAGE>
EXHIBIT INDEX

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

     The exhibits  filed  herewith are  attached to this  combined  Form 10-K in
numerical  order.  They are listed below under the heading of the  registrant or
registrants to whom they apply.

Holdings

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

21.1     Subsidiaries of the Registrant.

23.1     Consent of Coopers & Lybrand L.L.P.


MidAmerican

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

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

21.2     Subsidiaries of the Registrant.

23.3     Consent of Coopers & Lybrand L.L.P.

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

 3.1     Restated  Articles of  Incorporation  of MidAmerican  Energy  Holdings
         Company,  as amended  December  19,  1996.  (Filed as  Exhibit  3.1 to
         Holdings'  Annual Report on Form 10-K for the year ended  December 31,
         1996, Commission File No. 1-12459.)

3.2      Bylaws of MidAmerican  Energy  Holdings  Company,  as amended July 24,
         1996.  (Filed as Exhibit 3.2 to Holdings'  Annual  Report on Form 10-K
         for the year ended December 31, 1996, Commission File No. 1-12459.)

 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.)


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<PAGE>

10.39     Form  of  Indemnity  Agreement  between  MidAmerican  Energy  Holdings
          Company and its  directors  and  officers.  (Filed as Exhibit  10.2 to
          Holdings'  Annual Report on Form 10-K for the year ended  December 31,
          1996, Commission File No. 1-12459.)

10.40     Employment  Agreement between Stanley J. Bright and MidAmerican Energy
          Holdings  Company  dated  January 24, 1996.  (Filed as Exhibit 10.3 to
          Holdings'  Annual Report on Form 10-K for the year ended  December 31,
          1996, Commission File No. 1-12459.)

10.41     Employment  Agreement  between Russell E. Christiansen and MidAmerican
          Energy Holdings Company dated January 24, 1996, as amended January 29,
          1997.  (Filed as Exhibit 10.4 to Holdings'  Annual Report on Form 10-K
          for the year ended December 31, 1996, Commission File No. 1-12459.)

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 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.)

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.)



                                      -124-

<PAGE>

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.)

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

10.2      MidAmerican  Energy Company Deferred  Compensation Plan for 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.)



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<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.)

10.42     Amendment No. 5 dated  September 2, 1997, to the Power Sales  contract
          between MidAmerican Energy Company and Nebraska Public Power District,
          dated  September  22, 1967.  (Filed as Exhibit  10.2 to Holdings'  and
          MidAmerican's  respective  Quarterly Reports on the combined Form 10-Q
          for the quarter ended September 30, 1997, Commission File Nos. 1-12459
          and 1-11505, respectively.)

10.43     Amendment  No. 1 dated  October 29, 1997,  to the  MidAmerican  Energy
          Company  1995  Long-Term  Incentive  Plan.  (Filed as Exhibit  10.1 to
          Holdings'  and  MidAmerican's  respective  Quarterly  Reports  on  the
          combined  Form  10-Q  for  the  quarter  ended   September  30,  1997,
          Commission File Nos. 1-12459 and 1-11505, respectively.)

Note:     Pursuant  to (b) (4)  (iii)(A)  of Item  601 of  Regulation  S-K,  the
          Company  has not  filed  as an  exhibit  to  this  Form  10-K  certain
          instruments with respect to long-term debt not 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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