**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-K**








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





For
      the
      fiscal year ended December 31, 2005





or





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





For
      the
      transition period from  to





Commission
            
            Registrant’s
                Name, State of Incorporation,
            
            IRS
                EmployerFile
                Number
            
            Address
                and Telephone Number
            
            Identification No.**333-90553**
            
            **MIDAMERICAN
                FUNDING, LLC**
            
            **47-0819200****(An
                Iowa Limited Liability Company)****666
                Grand Ave. PO Box 657****Des
                Moines, Iowa 50303****515-242-4300****333-15387**
            
            **MIDAMERICAN
                ENERGY COMPANY**
            
            **42-1425214****(An
                Iowa Corporation)****666
                Grand Ave. PO Box 657****Des
                Moines, Iowa 50303****515-242-4300**





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


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





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





Indicate
      by check mark if either registrant is a well-known seasoned issuer, as defined
      in Rule 405 of the Securities Act.


Yes  ̈ No T





Indicate
      by check mark if either registrant is not required to file reports pursuant
      to
      Section 13 or Section 15(d) of the Act.





MidAmerican
                Funding, LLC
            YesTNo ̈
            MidAmerican
                Energy Company
            Yes ̈NoT










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.





MidAmerican
                Funding, LLC
            Yes ̈NoT
            MidAmerican
                Energy Company
            YesTNo ̈





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. T





Indicate
      by check mark whether the registrants are large accelerated filers, accelerated
      filers, or non-accelerated filers. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large
                accelerated filer ̈
            Accelerated
                filer ̈
            Non-accelerated
                filerT





Indicate
      by check mark whether either registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes  ̈  No T





All
      of
      the member’s equity of MidAmerican Funding, LLC is held by its parent company,
      MidAmerican Energy Holdings Company, as of February 15, 2006.





All
      common stock of MidAmerican Energy Company is held by its parent company, MHC
      Inc., which is a direct, wholly owned subsidiary of MidAmerican Funding, LLC.
      As
      of February 15, 2006, 70,980,203 shares of MidAmerican Energy Company
      common stock, without par value, were outstanding.





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





2


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





**TABLE
      OF CONTENTS**








**PART
                I**Item
                1.
            Business
            4Item
                1A.
            Risk
                Factors
            17Item
                1B.
            Unresolved
                Staff Comments
            20Item
                2.
            Properties
            21Item
                3.
            Legal
                Proceedings
            21Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            22**PART
                II**Item
                5.
            Market
                for the Registrant's Common Equity, Related
                Stockholder Matters and Issuer Purchasesof
                Equity Securities
            23Item
                6.
            Selected
                Financial Data
            23Item
                7.
            Management's
                Discussion and Analysis of Financial
                Condition and Results of Operations
            25Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market
                Risk
            44Item
                8.
            Financial
                Statements and Supplementary
                Data
            45Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure
            100Item
                9A.
            Controls
                and Procedures
            100Item
                9B.
            Other
                Information
            100**PART
                III**Item
                10.
            Directors
                and Executive Officers of the
                Registrant
            101Item
                11.
            Executive
                Compensation
            103Item
                12.
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            103Item
                13.
            Certain
                Relationships and Related
                Transactions
            103Item
                14.
            Principal
                Accountant Fees and Services
            104**PART
                IV**Item
                15.
            Exhibits
                and Financial Statement
                Schedules
            105Signatures
            
            108Exhibit
                Index
            
            110







3





**PART
      I**





**Item 1.**
            **Business**





MidAmerican
      Funding, LLC (“MidAmerican Funding”), which was formed on March 12, 1999,
      is an Iowa limited liability company whose sole member is MidAmerican Energy
      Holdings Company (“MidAmerican Energy Holdings”). MidAmerican Funding owns all
      of the outstanding common stock of MHC Inc. (“MHC”), which owns all of the
      common stock of MidAmerican Energy Company (“MidAmerican Energy”); InterCoast
      Capital Company (“InterCoast Capital”); Midwest Capital Group, Inc. (“Midwest
      Capital”); MidAmerican Services Company (“MidAmerican Services”); and MEC
      Construction Services Co. (“MEC Construction”). MidAmerican Energy is a public
      utility company headquartered in Des Moines, Iowa, and incorporated in the
      state
      of Iowa. MHC, MidAmerican Funding and MidAmerican Energy Holdings are public
      utility holding companies headquartered in Des Moines, Iowa.





On
      February 9, 2006, following the effective date of the repeal of the Public
      Utility Holding Company Act of 1935, Berkshire Hathaway Inc. converted its
      41.3
      million shares of MidAmerican Energy Holdings’ no par zero-coupon convertible
      preferred stock into an equal number of shares of MidAmerican Energy Holdings’
common stock. As a result of the conversion, Berkshire Hathaway Inc. presently
      owns 83.4% (80.5% on a diluted basis) of the common stock of MidAmerican Energy
      Holdings and will consolidate MidAmerican Energy Holdings in its financial
      statements as a majority-owned subsidiary. Following the conversion, Walter
      Scott, Jr., David L. Sokol and Gregory E. Abel are the minority owners of
      MidAmerican Energy Holdings.





FORWARD-LOOKING
      STATEMENTS





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





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





·
            the
                financial condition and creditworthiness of their significant
                customers and suppliers;





·
            governmental,
                statutory, legislative, regulatory or administrative initiatives
                proceedings or decisions, including those relating to the recently
                enacted
                Energy Policy Act of 2005;





·
            weather
                effects on sales and revenues;





·
            changes
                in expected customer growth or usage of electricity or
                gas;





·
            economic
                or industry trends that could impact electricity or gas
                usage;





·
            increased
                competition in the power generation, electric or gas
                industries;





·
            fuel,
                fuel transportation and power costs and
                availability;





·
            changes
                in business strategy, development plans or customer or vendor
                relationships;





·
            availability,
                term and deployment of capital;





·
            availability
                of qualified personnel;




4




·
            unscheduled
                generation outages or repairs;





·
            risks
                relating to nuclear generation;





·
            financial
                or regulatory accounting principles or policies imposed by the Public
                Company Accounting Oversight Board, the Financial Accounting Standards
                Board, the Securities and Exchange Commission (“SEC”), the Federal Energy
                Regulatory Commission and similar entities with regulatory
                oversight;





·
            changes
                in, and compliance with, environmental laws, regulations, decisions
                and
                policies that could increase operating and capital improvement costs
                or
                affect plant output and/or delay plant
                construction;





·
            other
                risks or unforeseen events, including wars, the effects of terrorism,
                embargoes and other catastrophic events; and





·
            other
                business or investment considerations that may be disclosed from
                time to
                time in MidAmerican Funding’s or MidAmerican Energy’s SEC filings or in
                other publicly disseminated written
                documents.





Further
      details of potential risks and uncertainties affecting MidAmerican Energy or
      MidAmerican Funding are described in their filings with the SEC, including
      Item
      1A. Risk Factors and other discussions contained in this Form 10-K. MidAmerican
      Funding and MidAmerican Energy undertake no obligation to publicly update or
      revise any forward-looking statements, whether as a result of new information,
      future events or otherwise. The foregoing review of factors should not be
      construed as exclusive.





MIDAMERICAN
      FUNDING AND MHC





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





MHC
      conducts no business other than the ownership of its subsidiaries. MHC’s
      interests include 100% of the common stock of MidAmerican Energy, InterCoast
      Capital, Midwest Capital, MidAmerican Services and MEC Construction. MidAmerican
      Energy, which accounts for the predominant part of MHC’s assets and earnings, is
      primarily engaged in the business of generating, transmitting, distributing
      and
      selling electric energy and in distributing, selling and transporting natural
      gas. Substantially all of MidAmerican Funding’s operating revenues are from
      MidAmerican Energy. Financial information on MidAmerican Funding’s segments of
      business is included in Note (10) of Notes to Consolidated Financial Statements
      in Item 8.





MidAmerican
      Funding and its subsidiaries had 3,718 employees as of December 31,
      2005.





MIDAMERICAN
      ENERGY





MidAmerican
      Energy is a public utility company headquartered in Iowa with $5.9 billion
      of assets as of December 31, 2005, and operating revenues for 2005 totaling
      $3.2 billion. MidAmerican Energy is principally engaged in the business of
      generating, transmitting, distributing and selling electric energy and in
      distributing, selling and transporting natural gas. MidAmerican Energy
      distributes electricity at retail in Council Bluffs, Des Moines, Fort Dodge,
      Iowa City, Sioux City and Waterloo, Iowa; the Quad Cities (Davenport and
      Bettendorf, Iowa and Rock Island, Moline and East Moline, Illinois); and a
      number of adjacent communities and areas. It also distributes natural gas at
      retail in Cedar Rapids, Des Moines, Fort Dodge, Iowa City, Sioux City and
      Waterloo, Iowa; the Quad Cities; Sioux Falls, South Dakota; and a number of
      adjacent communities and areas. Additionally, MidAmerican Energy transports
      natural gas through its distribution system for a number of end-use customers
      who have independently secured their supply of natural gas. As of
      December 31, 2005, MidAmerican Energy had approximately 706,000 regulated
      retail electric customers and 688,000 regulated retail and transportation
      natural gas customers.





In
      addition to retail sales and natural gas transportation, MidAmerican Energy
      sells electric energy and natural gas to other utilities, marketers and
      municipalities. These sales are referred to as wholesale sales.




5




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





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





MidAmerican
      Energy also conducts a number of nonregulated business activities. Refer to
      the
“Nonregulated Operations” section later of Item I for further
      discussion.





Financial
      information on MidAmerican Energy's segments of business is included in Note
      (10) of Notes to Consolidated Financial Statements in Item 8.





MidAmerican
      Energy’s regulated gas revenues include purchased gas adjustment clauses through
      which MidAmerican Energy is allowed to recover the cost of gas sold from its
      retail gas utility customers. Accordingly, fluctuations in the cost of gas
      can
      significantly affect gas revenues and the percent of revenues from its business
      activities. For the years ended December 31, MidAmerican Energy derived its
      gross operating revenues from the following business activities.





Gross
                Operating RevenuesBy
                Business Activity2005
            
            2004
            
            2003Regulated
                electric
            
            
            47.9
            %
            
            52.7
            %
            
            53.9
            %Regulated
                gas
            
            
            41.8
            
            
            37.5
            
            
            36.5Nonregulated
            
            
            10.3
            
            
            9.8
            
            
            9.6100.0
            %
            
            100.0
            %
            
            100.0
            %





At
      December 31, 2005, MidAmerican Energy had 3,704 employees, of which 1,801
      were covered by union contracts. MidAmerican Energy has five separate contracts
      with locals of the International Brotherhood of Electrical Workers (“IBEW”), the
      United Association of Plumbers and Pipefitters and the United Paper Workers
      International Union. One contract with IBEW locals 109 and 499 expires
      February 28, 2006, and covers 1,721 employee members. On February 10,
      2006, the contract terms with locals 109 and 499 were extended through
      April 30, 2006, and the parties agreed to a 30-day notice of strike or
      lockout.




6


REGULATED
      ELECTRIC OPERATIONS





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





Total
                Regulated Electric SalesBy
                Customer Class2005
            
            2004
            
            2003Residential
            
            
            21.3
            %
            
            19.6
            %
            
            19.4
            %Small
                general service(1)
            
            
            15.0
            
            
            14.5
            
            
            14.0Large
                general service(2)
            
            
            27.9
            
            
            26.7
            
            
            25.4Wholesale(3)
            
            
            30.5
            
            
            34.2
            
            
            36.4Other
            
            
            5.3
            
            
            5.0
            
            
            4.8100.0
            %
            
            100.0
            %
            
            100.0
            %





(1)
            Small
                general service generally includes commercial and industrial customers
                with a demand of 200 kilowatts or less.(2)
            Large
                general service generally includes commercial and industrial customers
                with a demand of more than 200 kilowatts.(3)
            Wholesale
                generally includes other utilities, marketers and municipalities
                to whom
                electric energy is sold at wholesale for resale to ultimate
                customers.








Regulated
                Retail Electric Sales By State2005
            
            2004
            
            2003Iowa
            
            
            89.0
            %
            
            88.7
            %
            
            88.8
            %Illinois
            
            
            10.1
            
            
            10.3
            
            
            10.4South
                Dakota
            
            
            0.9
            
            
            1.0
            
            
            0.8100.0
            %
            
            100.0
            %
            
            100.0
            %





There
      are
      seasonal variations in MidAmerican Energy's electric business that are
      principally related to the use of electricity for air conditioning. In general,
      35-40% of MidAmerican Energy's regulated electric revenues are reported in
      the
      months of June, July, August and September.





The
      annual hourly peak demand on MidAmerican Energy’s electric system usually occurs
      as a result of air conditioning use during the cooling season. On July 20,
      2005, retail customer usage of electricity caused a new record hourly peak
      demand of 4,040 megawatts (“MW”) on MidAmerican Energy’s electric system, an
      increase of 105 MW from the previous record of 3,935 MW set in August
      2003.





MidAmerican
      Energy's total accredited net generating capability in the summer of 2005 was
      5,098 MW. Accredited net generating capability represents the amount of
      generation available to meet the requirements on MidAmerican Energy’s system and
      consists of MidAmerican Energy-owned generation and the net amount of capacity
      purchases and sales. Accredited capacity may vary from the nameplate capacity
      ratings, particularly for wind turbines whose output is dependent upon wind
      levels at any given time. Additionally, the actual amount of generating capacity
      available at any time may be less than the accredited capacity due to regulatory
      restrictions, transmission constraints, fuel restrictions and generating units
      being temporarily out of service for inspection, maintenance, refueling,
      modifications or other reasons.





7


The
      following table details accredited generating capacity of MidAmerican Energy,
      along with participation purchases and sales, net, for summer 2005
      accreditation.




Company'sShare
                    ofAccreditedGenerating
                
                
                Percent
                
                
                Energy
                
                
                Year
                    InPlant
                
                Capability
                    (MW)
                
                
                Ownership
                
                
                Source
                
                
                ServiceSteam
                    electric generating plants:Council
                    Bluffs Energy CenterUnit
                    No. 1
                
                
                45
                
                
                
                100.0
                %
                
                Coal
                
                
                1954Unit
                    No. 2
                
                
                88
                
                
                
                100.0
                
                
                Coal
                
                
                1958Unit
                    No. 3
                
                
                546
                
                
                
                79.1
                
                
                Coal
                
                
                1978Neal
                    Energy CenterUnit
                    No. 1
                
                
                135
                
                
                
                100.0
                
                
                Coal
                
                
                1964Unit
                    No. 2
                
                
                300
                
                
                
                100.0
                
                
                Coal
                
                
                1972Unit
                    No. 3
                
                
                371
                
                
                
                72.0
                
                
                Coal
                
                
                1975Unit
                    No. 4
                
                
                261
                
                
                
                40.6
                
                
                Coal
                
                
                1979Louisa
                    Generating Station
                
                
                616
                
                
                
                88.0
                
                
                Coal
                
                
                1983Ottumwa
                    Generating Station
                
                
                350
                
                
                
                52.0
                
                
                Coal
                
                
                1981Riverside
                    Generating StationUnit
                    No. 3
                
                
                5
                
                
                
                100.0
                
                
                Coal
                
                
                1925Unit
                    No. 5
                
                
                130
                
                
                
                100.0
                
                
                Coal
                
                
                19612,847Combined
                    cycle:Greater
                    Des Moines - 3 units
                
                
                491
                
                
                
                100.0
                
                
                Gas
                
                
                2003-04Combustion
                    turbines:Coralville
                    - 4 units
                
                
                64
                
                
                
                100.0
                
                
                Gas/Oil
                
                
                1970Electrifarm
                    - 3 units
                
                
                200
                
                
                
                100.0
                
                
                Gas/Oil
                
                
                1975-78Moline
                    - 4 units
                
                
                64
                
                
                
                100.0
                
                
                Gas/Oil
                
                
                1970Parr
                    - 2 units
                
                
                32
                
                
                
                100.0
                
                
                Gas/Oil
                
                
                1969Pleasant
                    Hill - 3 units
                
                
                163
                
                
                
                100.0
                
                
                Gas/Oil
                
                
                1990-94River
                    Hills - 8 units
                
                
                120
                
                
                
                100.0
                
                
                Gas/Oil
                
                
                1966-67Sycamore
                    - 2 units
                
                
                149
                
                
                
                100.0
                
                
                Gas/Oil
                
                
                1974792Nuclear:
                    Quad Cities StationUnit
                    No. 1
                
                
                218
                
                
                
                25.0
                
                
                Nuclear
                
                
                1972Unit
                    No. 2
                
                
                219
                
                
                
                25.0
                
                
                Nuclear
                
                
                1972437Wind:
                    Intrepid
                
                
                33
                
                
                
                100.0
                
                
                Wind
                
                
                2004-05Hydro:
                    Moline - 4 units
                
                
                3
                
                
                
                100.0
                
                
                Water
                
                
                1970Portable
                    power modules - 28 units
                
                
                56
                
                
                
                100.0
                
                
                Oil
                
                
                2000Accredited
                    generating capacity
                
                
                4,659Participation
                    purchases and (sales), netPurchases
                
                
                694Sales
                
                
                (255
                )439Accredited
                    net generating capability
                
                
                5,098




8





In
       2005, MidAmerican Energy completed construction of its 360.5-MW (nameplate
      rating) wind power project that consists of facilities located at two sites
      in
      north central Iowa. As of December 31, 2004, wind turbines totaling 160.5
      MW at the Intrepid site were completed and in service, and in the third quarter
      2005, wind turbines totaling 150.0 MW at the Century site were placed in
      service. The remaining 50.0 MW of wind turbines were completed in December
      2005,
      of which 35.0 MW are located at the Century site and 15.0 MW are at the Intrepid
      site. Generally speaking, accredited capacity ratings for wind power facilities
      are considerably less than the nameplate ratings due to the varying nature
      of
      wind. The current total projected accredited capacity for these wind power
      facilities is approximately 61 MW. MidAmerican Energy owns and operates these
      facilities. On December 16, 2005, MidAmerican Energy made a filing with the
      Iowa
      Utilities Board (“IUB”) for approval to add up to 545 MW (nameplate rating) of
      wind generation capacity in Iowa. Refer to the “Utility Construction
      Expenditures” section of Item 7 for information.





MidAmerican
      Energy is currently constructing Council Bluffs Energy Center Unit No. 4 (“CBEC
      Unit 4”), a 790-MW (based on expected accreditation) super-critical-temperature,
      low-sulfur coal-fired generating plant. MidAmerican Energy will operate the
      plant and hold an undivided ownership interest as a tenant in common with the
      other owners of the plant. MidAmerican Energy's current ownership interest
      is
      60.67%, equating to 479 MW of output. Municipal, cooperative and public power
      utilities will own the remainder, which is a typical ownership arrangement
      for
      large base-load plants in Iowa. The facility will provide service to regulated
      retail electricity customers. Wholesale sales may also be made from the project
      to the extent the power is not immediately needed for regulated retail service.
      MidAmerican Energy has obtained regulatory approval to include the Iowa portion
      of the actual cost of the generation project in its Iowa rate base as long
      as
      the actual cost does not exceed the agreed cap that MidAmerican Energy has
      deemed to be reasonable. If the cap is exceeded, MidAmerican Energy has the
      right to demonstrate the prudence of the expenditures above the cap, subject
      to
      regulatory review. MidAmerican Energy expects to invest approximately
      $737 million in CBEC Unit 4, including transmission facilities and
      excluding allowance for funds used during construction. Through
      December 31, 2005, MidAmerican Energy has invested $502.0 million in
      the project, including $121.3 million for MidAmerican Energy’s share of
      deferred payments allowed by the construction contract.





MidAmerican
      Energy is interconnected with Iowa utilities and utilities in neighboring
      states. MidAmerican Energy is also a party to an electric generation reserve
      sharing pool and regional transmission group administered by the Mid-Continent
      Area Power Pool (“MAPP”). The MAPP is a voluntary association of electric
      utilities doing business in Minnesota, Nebraska, North Dakota and the Canadian
      provinces of Saskatchewan and Manitoba and portions of Iowa, Montana, South
      Dakota and Wisconsin. Its membership also includes power marketers, regulatory
      agencies and independent power producers. The MAPP performs functions including
      administration of its short-term regional Open-Access Transmission Tariff,
      coordination of regional planning and operations, and operation of the
      generation reserve sharing pool.





Each
      MAPP
      generation reserve participant is required to maintain for emergency purposes
      a
      net generating capability reserve of at least 15% above its system peak demand
      on a 12-month rolling basis. MidAmerican Energy’s reserve margin at peak demand
      for 2005 was approximately 26%. MidAmerican Energy believes it has adequate
      electric capacity reserve through 2009, including capacity provided by the
      generating projects discussed above. However, significantly higher-than-normal
      temperatures during the cooling season could cause MidAmerican Energy’s reserve
      to fall below the 15% minimum. If MidAmerican Energy fails to maintain the
      required minimum reserve, significant penalties could be contractually imposed
      by the MAPP.





MidAmerican
      Energy's transmission system connects its generating facilities with
      distribution substations and interconnects with 14 **** other
      transmission providers in Iowa and five adjacent states. Under normal operating
      conditions, MidAmerican Energy’s transmission system has adequate capacity to
      deliver energy to MidAmerican Energy’s distribution system and to export and
      import energy with other interconnected systems.




9


Energy
      Supply for Electric Operations





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





2005
            
            2004
            
            2003MidAmerican
                Energy-owned generation
            
            
            78.9
            %
            
            76.5
            %
            
            77.9
            %Energy
                purchased under long-term contracts
            
            
            7.9
            
            
            12.6
            
            
            11.5Energy
                purchased - other
            
            
            13.2
            
            
            10.9
            
            
            10.6100.0
            %
            
            100.0
            %
            
            100.0
            %





Sources
      of fuel for energy supplied by MidAmerican Energy-owned electric generation
      were
      as follows for the years ended December 31:





2005
            
            2004
            
            2003Coal
            
            
            79.3
            %
            
            84.2
            %
            
            83.9
            %Nuclear
            
            
            14.7
            
            
            14.8
            
            
            15.5Wind
            
            
            2.7
            
            
            -
            
            
            -Gas
            
            
            3.2
            
            
            0.9
            
            
            0.5Oil/Hydro
            
            
            0.1
            
            
            0.1
            
            
            0.1100.0
            %
            
            100.0
            %
            
            100.0
            %





MidAmerican
      Energy is exposed to fluctuations in energy costs relating to retail sales
      in
      Iowa as it does not have an energy adjustment clause. Under its Illinois and
      South Dakota electric tariffs, MidAmerican Energy is allowed to recover
      fluctuations in the cost of all fuels and purchased energy used for retail
      electric generation through a fuel cost adjustment clause.





All
      of
      the coal-fired generating stations operated by MidAmerican Energy are fueled
      by
      low-sulfur, western coal from the Powder River Basin. MidAmerican Energy’s coal
      supply portfolio includes multiple suppliers and mines under agreements of
      varying terms and quantities. MidAmerican Energy typically has one to two years
      of coal supply under contract and regularly monitors the western coal market,
      looking for opportunities to enhance its coal supply portfolio. Operational
      delays in rail transportation out of the Powder River Basin during 2005 resulted
      in the reduction of coal inventories to suboptimum levels at December 31, 2005.
      MidAmerican Energy believes the transportation issues are temporary and that
      its
      coal inventories will be restored to preferred levels by mid-2007. Additional
      information regarding MidAmerican Energy’s coal supply contracts is included in
      Note (4)(e) of Notes to Consolidated Financial Statements in Item
      8.





MidAmerican
      Energy has a long-term coal transportation agreement with Union Pacific Railroad
      Company (“Union Pacific”). Under this agreement, Union Pacific delivers coal
      directly to MidAmerican Energy’s Neal and Council Bluffs Energy Centers and to
      an interchange point with the Iowa, Chicago & Eastern Railroad Corporation
      for delivery to the Louisa and Riverside Energy Centers. MidAmerican Energy
      has
      the ability to use The Burlington Northern and Santa Fe Railway Company for
      delivery of a small amount of coal to the Council Bluffs, Louisa and Riverside
      Energy Centers should the need arise.





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





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





Approximately
      one-third of the nuclear fuel assemblies in the core at Quad Cities Station
      Units 1 and 2 are replaced every 24 months. MidAmerican Energy has been advised
      by Exelon Generation that its uranium requirements for Quad Cities Station
      through 2008 and part of the requirements through 2011 can be met under existing
      supplies or commitments. Additionally, under existing supplies and commitments,
      uranium conversion requirements can be met through 2009 and part of 2010 and
      enrichment requirements can be met through 2011. Commitments for fuel
      fabrication have been obtained for the next four reloads, or eight years.
      MidAmerican Energy has been advised by Exelon Generation that it does not
      anticipate that it will have difficulty in contracting for uranium, conversion,
      enrichment or fabrication of nuclear fuel needed to operate Quad Cities Station.




10




REGULATED
      NATURAL GAS OPERATIONS





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





MidAmerican
      Energy sells natural gas and transportation services to end-use, or retail,
      customers and natural gas to other utilities, marketers and municipalities.
      MidAmerican Energy also transports through its distribution system natural
      gas
      purchased independently by a number of end-use customers. During 2005, 46%
      of
      total gas delivered through MidAmerican Energy’s system for end-use customers
      was under gas transportation service.





There
      are
      seasonal variations in MidAmerican Energy’s gas business that are principally
      due to the use of natural gas for heating. In general, 45-55% of MidAmerican
      Energy’s regulated gas revenues are reported in the months of January, February,
      March, and December.





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





Total
                Regulated Gas SalesBy
                Customer Class2005
            
            2004
            
            2003Residential
            
            
            37.5
            %
            
            40.0
            %
            
            44.1
            %Small
                general service(1)
            
            
            18.2
            
            
            19.6
            
            
            21.0Large
                general service(1)
            
            
            4.1
            
            
            2.2
            
            
            1.9Wholesale(2)
            
            
            40.2
            
            
            38.0
            
            
            32.7Other
            
            
            -
            
            
            0.2
            
            
            0.3100.0
            %
            
            100.0
            %
            
            100.0
            %





(1)
            Small
                and large general service customers are classified primarily based
                on the
                nature of their business and gas usage. Small general service customers
                are business customers whose gas usage is principally for heating.
                Large
                general service customers are business customers whose principal
                gas usage
                is for their manufacturing processes.(2)
            Wholesale
                generally includes other utilities, marketers and municipalities
                to whom
                natural gas is sold at wholesale for eventual resale to end-use
                customers.








Regulated
                Retail Gas Sales By State2005
            
            2004
            
            2003Iowa
            
            
            77.4
            %
            
            77.7
            %
            
            77.9
            %South
                Dakota
            
            
            11.7
            
            
            11.5
            
            
            11.3Illinois
            
            
            10.0
            
            
            9.9
            
            
            10.0Nebraska
            
            
            0.9
            
            
            0.9
            
            
            0.8100.0
            %
            
            100.0
            %
            
            100.0
            %







11




Fuel
      Supply and Capacity





MidAmerican
      Energy purchases gas supplies from producers and third party marketers. To
      enhance system reliability, a geographically diverse supply portfolio with
      varying terms and contract conditions is utilized for the gas supplies.
      MidAmerican Energy attempts to optimize the value of its regulated assets by
      engaging in sales for resale transactions. IUB and South Dakota Public Utilities
      Commission (“SDPUC”) rulings have allowed MidAmerican Energy to retain 50% of
      the respective jurisdictional margins earned on wholesales sales of natural
      gas,
      with the remaining 50% being returned to customers through the purchased gas
      adjustment clauses discussed below.





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





MidAmerican
      Energy is allowed to recover its cost of gas from all of its regulated gas
      customers through purchased gas adjustment clauses. Accordingly, as long as
      MidAmerican Energy is prudent in its procurement practices, MidAmerican Energy’s
      regulated gas customers retain the risk associated with the market price of
      gas.
      MidAmerican Energy uses several strategies to reduce the market price risk
      for
      its gas customers, including the use of storage gas and peak shaving facilities,
      sharing arrangements to share savings and costs with customers, and short-term
      and long-term financial and physical gas purchase agreements.





MidAmerican
      Energy utilizes leased gas storage to meet peak day requirements and to manage
      the daily changes in demand due to changes in weather. The storage gas is
      typically replaced during off-peak months when the demand for gas is
      historically lower than during the heating season. In addition, MidAmerican
      Energy also utilizes three liquefied natural gas plants and two propane-air
      plants to meet peak day demands in the winter. The storage and peak shaving
      facilities reduce MidAmerican Energy's dependence on gas purchases during the
      volatile winter heating season. MidAmerican Energy can deliver approximately
      50%
      of its design day sales requirements from its storage and peak shaving supply
      sources.





In
      1995,
      the IUB gave initial approval of MidAmerican Energy’s Incentive Gas Supply
      Procurement Program. In November 2004, the IUB extended the program through
      October 31, 2006. Under the program, as amended, MidAmerican Energy is
      required to file with the IUB every six months a comparison of its gas
      procurement costs to a reference price. If MidAmerican Energy’s cost of gas for
      the period is less or greater than an established tolerance band around the
      reference price, then MidAmerican Energy shares a portion of the savings or
      costs with customers. A similar program is currently in effect in South Dakota
      through October 31, 2010. Since the implementation of the program,
      MidAmerican Energy has successfully achieved and shared savings with its natural
      gas customers. Refer to the “Nonregulated Operations” section for additional
      information.





On
      February 2, 1996, MidAmerican Energy had its highest peak-day delivery of
      1,143,026 decatherms (“Dths”). This peak-day delivery consisted of approximately
      88% traditional sales service and 12% transportation service of customer-owned
      gas. As of March 1, 2006, MidAmerican Energy’s 2005/2006 winter heating season
      peak-day delivery of 1,004,109 Dths was reached on February 17, 2006. This
      peak-day delivery included 74% traditional sales service and 26% transportation
      service.





The
      supply sources utilized by MidAmerican Energy to meet its 2005/2006 winter
      heating season peak-day deliveries to its traditional sales service customers
      were:





Thousands
            
            Percentof
            
            ofDths
            
            TotalLeased
                storage and peak shaving plants
            
            
            211.1
            
            
            28.4
            %Firm
                supply
            
            
            533.0
            
            
            71.6744.1
            
            
            100.0
            %







12




MidAmerican
      Energy has strategically built multiple pipeline interconnections into several
      of its larger communities. Multiple pipeline interconnects create competition
      among pipeline suppliers for transportation capacity to serve those communities,
      thus reducing costs. In addition, multiple pipeline interconnects give
      MidAmerican Energy the ability to optimize delivery of the lowest cost supply
      from the various supply basins into these communities and increase delivery
      reliability. Benefits to MidAmerican Energy’s system customers are shared with
      all jurisdictions through a consolidated purchased gas adjustment
      clause.





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





NONREGULATED
      OPERATIONS





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




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





2005
            
            2004
            
            2003Nonregulated
                electric
            
            $
            12.9
            
            $
            16.8
            
            $
            15.0Nonregulated
                gas
            
            
            7.5
            
            
            7.2
            
            
            7.9Income
                sharing arrangements under regulated gas tariffs
            
            
            5.6
            
            
            3.7
            
            
            5.0Incentive
                gas supply procurement program award
            
            
            3.4
            
            
            2.4
            
            
            3.7Other
            
            
            4.1
            
            
            3.0
            
            
            3.1$
            33.5
            
            $
            33.1
            
            $
            34.7





Nonregulated
      electric includes nonregulated retail and wholesale operations. MidAmerican
      Energy’s nonregulated retail electric marketing services provide electric supply
      services to retail customers in Illinois, Ohio and, beginning in September
      2004,
      Michigan. Nonregulated wholesale operations buy from, and sell to, other
      utilities and marketers.





Nonregulated
      gas consists primarily of nonregulated retail gas operations. MidAmerican
      Energy’s nonregulated retail gas marketing services operate in Iowa, Illinois,
      Michigan, Ohio and South Dakota. MidAmerican Energy purchases gas from producers
      and third party marketers and sells it directly to large commercial end-users.
      In addition, MidAmerican Energy manages gas supplies for a number of smaller
      commercial end-users, which includes the sale of gas to these customers to
      meet
      their supply requirements. MidAmerican Energy’s wholesale gas consists of
      nonregulated wholesale natural gas marketing operations through which it buys
      from, and sells to, other utilities and marketers.





Nonregulated
      operations also include earnings from sharing arrangements under applicable
      state regulations and tariffs filed with the IUB and the SDPUC, for MidAmerican
      Energy’s regulated natural gas operations. Under these arrangements, MidAmerican
      Energy is allowed to keep a portion of the benefits of gas sales for resale
      and
      capacity release transactions. MidAmerican Energy also has an Incentive Gas
      Supply Procurement Program, under which it can receive awards for successful
      performance of gas supply procurement. Refer to the preceding “Regulated Natural
      Gas Operations” section of Item 1 for further discussion of the sharing
      arrangements and the gas procurement program.





REGULATION





General
      Utility Regulation





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






13




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





Rate
      Regulation





In
      accordance with a series of electric settlement agreements between MidAmerican
      Energy, the Iowa Office of Consumer Advocate (“OCA”) and other intervenors
      approved by the IUB in 2001, 2003 and 2005, MidAmerican Energy has agreed not
      to
      seek a general increase in electric rates to become effective prior to
      January 1, 2012 unless its Iowa jurisdictional electric return on equity in
      any year falls below 10%. Prior to filing for a general increase in electric
      rates, MidAmerican Energy is required to conduct 30 days of good faith
      negotiations with the signatories to the settlement agreements to attempt to
      avoid a general increase in rates. As a party to the settlement agreements,
      the
      OCA has agreed not to seek any decrease in MidAmerican Energy’s Iowa electric
      rates prior to January 1, 2012. The settlement agreements specifically
      allow the IUB to approve or order electric rate design or cost of service rate
      changes that could result in changes to rates for specific customers as long
      as
      such changes do not result in an overall increase in revenues for MidAmerican
      Energy. Additionally, under the incentive regulation aspects of the settlements,
      earnings exceeding a return on equity of 12% through December 31, 2005, and
      11.75% for January 1, 2006 through December 31, 2011, are recorded as
      a regulatory liability and shared with customers. On December 16, 2005,
      MidAmerican Energy filed with the IUB a settlement agreement between MidAmerican
      Energy and the OCA regarding ratemaking principles for up to 545 MW of
      additional wind generation capacity in Iowa that would extend through 2012
      both
      MidAmerican Energy's commitment not to seek a general increase in electric
      rates
      and the revenue sharing mechanism with ratepayers. See Note (5) of Notes to
      Consolidated Financial Statements in Item 8 for additional discussion of these
      settlements.





Under
      Iowa law, there are two options for temporary collection of higher rates
      following the filing of a request for a rate increase. Collection can begin,
      subject to refund, either within 10 days of filing, without IUB review, or
      90
      days after filing, with approval by the IUB. If the 10-day option is selected,
      Iowa law provides that if the utility is required to make refunds, the refunds
      may be based on overpayments made by each customer class, group or rate zone
      of
      the difference between final rates and the rates that would have been collected
      if temporary rates had been based upon prior regulatory principles. If the
      90-day option is selected, Iowa law provides that the IUB shall prescribe the
      manner of refunding the difference between final rates and the rates based
      on
      prior ratemaking principles and a rate of return on common equity previously
      approved by the IUB. In either case, if the IUB has not issued a final order
      within ten months after the filing date, the temporary rates become final and
      any difference between the requested rate increase and the temporary
      rates may then be collected subject to refund until receipt of a final
      order. Exceptions to the ten-month limitation provide for extensions due to
      a
      utility's lack of due diligence in the rate proceeding, judicial appeals and
      situations involving new generating units being placed in service. MidAmerican
      Energy's cost of gas is collected in its Iowa gas rates through the Iowa Uniform
      Purchased Gas Adjustment Clause, which is updated monthly to reflect changes
      in
      actual costs.





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 become effective 45 days after filing with the
      ICC,
      or on such earlier date as the ICC may approve, subject to its authority to
      suspend the proposed new rates, subject to hearing, for a period not to exceed
      approximately eleven months after filing. Under Illinois electric tariffs,
      MidAmerican Energy's Fuel Cost Adjustment Clause reflects changes in the cost
      of
      all fuels used for retail electric generation, including certain fuel
      transportation costs, nuclear fuel disposition costs and the cost of energy
      purchased from other utilities. MidAmerican Energy's cost of gas is reflected
      in
      its Illinois gas rates through the Illinois Uniform Purchased Gas Adjustment
      Clause. Both of the adjustment clauses are updated on a monthly basis to reflect
      changes in actual costs.





In
      December 1997, Illinois enacted a law to restructure Illinois’ electric utility
      industry. The law changed how and what electric services are regulated by the
      ICC and transitions portions of the traditional electric services to a
      competitive environment. In general for the transition period that extends
      through 2006, the law allows for certain limits on the ICC’s regulatory
      authority over a utility’s generation and also relaxes its regulatory authority
      over many corporate transactions, such as the transfer of generation assets
      to
      affiliates. Special authority and limitations of authority apply during the
      transition to a competitive marketplace. Also, the law permits utilities to
      eliminate their fuel adjustment clauses and incorporates provisions by which
      earnings in excess of allowed amounts are either partially refunded to customers
      or are used to accelerate a company's asset recovery. Electric rates in Illinois
      are frozen until January 1, 2007, subject to certain exceptions allowing
      for increases, at which time bundled rates are subject to cost-based
      ratemaking.






14




The
      FERC
      regulates MidAmerican Energy’s rates charged to wholesale customers for energy
      and transmission services. Most of MidAmerican Energy’s electric wholesale sales
      and purchases take place under market-based pricing allowed by the FERC and
      are
      therefore subject to market volatility. The FERC conducts a triennial review
      of
      MidAmerican Energy’s market-based pricing authority. Margins earned on wholesale
      sales have historically been included as a component of retail cost of service
      upon which retail rates are based.





On
      July 22, 2005, MidAmerican Energy made a filing with the FERC requesting
      its approval to establish a transmission service coordinator (“TSC”). The TSC
      would be a third party administrator of various MidAmerican Energy Open Access
      Transmission Tariff (“OATT”) functions for transmission service. On
      December 16, 2005, the FERC issued an order conditionally accepting
      MidAmerican Energy’s request to establish a TSC. The order requires MidAmerican
      Energy to make modifications to the draft TSC agreement filed with the FERC
      as
      part of the request and to file a final executed TSC agreement with the FERC
      for
      its review prior to the agreement becoming effective. MidAmerican Energy has
      entered into a contract with a third party vendor to administer MidAmerican
      Energy’s OATT. MidAmerican Energy does not believe that the incremental costs
      will have a material impact on its results of operations, financial position
      or
      cash flows. Subject to FERC approval, the TSC is scheduled to commence
      operations in the third quarter of 2006. Under the contract, the vendor would
      provide its tariff administration and planning services into the fall of
      2009.





Refer
      to
      the “Utility Regulatory Matters” section of Management’s Discussion and Analysis
      in Item 7 for additional discussion of matters affecting utility
      regulation.





Nuclear
      Regulation





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





The
      NRC
      regulations control the granting of permits and licenses for the construction
      and operation of nuclear generating stations and subject such stations to
      continuing review and regulation. On October 29, 2004, the NRC granted
      renewed licenses for both Quad Cities Station Unit 1 and Unit 2 that provide
      for
      operation until December 14, 2032, which is in effect a 20-year extension
      of the licenses. The NRC review and regulatory process covers, among other
      things, operations, maintenance, and environmental and radiological aspects
      of
      such stations. The NRC may modify, suspend or revoke licenses and impose civil
      penalties for failure to comply with the Atomic Energy Act, the regulations
      under such Act or the terms of such licenses.





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





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





Under
      the
      Nuclear Waste Policy Act of 1982 (“NWPA”), the U.S. Department of Energy (“DOE”)
      is responsible for the selection and development of repositories for, and the
      permanent disposal of, spent nuclear fuel and high-level radioactive wastes.
      Exelon Generation, as required by the NWPA, signed a contract with the DOE
      under
      which the DOE was to receive spent nuclear fuel and high-level radioactive
      waste
      for disposal beginning not later than January 1998. The DOE did not begin
      receiving spent nuclear fuel on the scheduled date and remains unable to receive
      such fuel and waste. The earliest the DOE currently is expected to be able
      to
      receive such fuel and waste is 2010. The costs to be incurred by the DOE for
      disposal activities are being financed by fees charged to owners and generators
      of the waste. In 2004, Exelon Generation reached a settlement with the DOE
      concerning the DOE’s failure to begin accepting spent nuclear fuel in 1998. As a
      result, Quad Cities Station will be billing the DOE, and the DOE will be
      obligated to reimburse the station for all station costs incurred due to the
      DOE’s delay. Exelon Generation has completed construction of an interim spent
      fuel storage installation (“ISFSI”) at Quad Cities Station to store spent
      nuclear fuel in dry casks in order to free space in the storage pool. The first
      pad at the ISFSI is expected to facilitate storage of casks to support
      operations at Quad Cities Station until at least 2017. The first storage in
      a
      dry cask commenced in November 2005. In the 2017 to 2022 timeframe, Exelon
      Generation plans to add a second pad to the ISFSI to accommodate storage of
      spent nuclear fuel through the end of operations at Quad Cities
      Station.




15




MidAmerican
      Energy has established trusts for the investment of funds collected for nuclear
      decommissioning associated with Quad Cities Station. Electric tariffs currently
      in effect include provisions for annualized collection of estimated
      decommissioning costs at Quad Cities Station. In Iowa, estimated Quad Cities
      Station decommissioning costs are reflected in base rates. MidAmerican Energy’s
      cost related to decommissioning funding in 2005 was $8.3 million.





Environmental
      Regulations





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





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





Air
      Quality -





MidAmerican
      Energy's generating facilities are subject to applicable provisions of the
      Clean
      Air Act and related air quality standards promulgated by the U.S. Environmental
      Protection Agency (“EPA”). MidAmerican Energy has five jointly owned, and six
      wholly owned, coal-fired generating units, which represent 55.8% of MidAmerican
      Energy's electric accredited net generating capability and the source of 79.3%
      of the electric energy generated in 2005. MidAmerican Energy believes it is
      in
      material compliance with current air quality requirements. Refer to
“Environmental Matters” in Item 7 and Note (4)(a) of Notes to Consolidated
      Financial Statements in Item 8 for additional information regarding air
      quality regulation.





Clean
      Water Act -





Section
      316(b) of the Clean Water Act requires that cooling water intake structures
      reflect the best technology available for minimizing "adverse environmental
      impacts" to aquatic organisms. On February 16, 2004, EPA Administrator Michael
      Leavitt signed the final Phase II rule for existing electric generating
      facilities. The rule sets significant new national technology-based performance
      standards aimed at minimizing the adverse environmental impacts of cooling
      water
      intake structures by reducing the number of aquatic organisms lost as a result
      of water withdrawals. MidAmerican Energy has completed a review of its
      historical 316(b) studies, as well as filed Proposals for Information Collection
      describing the utility's plans for conducting biological field studies adjacent
      to its cooling water intake structures over the next two years. Although the
      impact of the MidAmerican Energy intake structures on aquatic organisms is
      unknown at this time, the previous 316(b) studies suggest that the impingement
      impact at the facility intake structures is minimal and that little, if any,
      intake structure expenditures will be necessary to meet the 316(b) impingement
      standard. Because of the high flow rate of the Missouri and Mississippi Rivers
      as compared to the withdrawal rates of the intake structures, the entrainment
      criteria of the 316(b) rule is not applicable to the MidAmerican Energy
      facilities. However, should the new impingement studies show that the intakes
      are impacting the fish species, the intake structures may need to be modified
      to
      meet best technology standards. This could include significant expenditures
      involved with limiting the amount of water withdrawn from the Missouri or
      Mississippi Rivers, and restrictions on the intake flow velocity.





INTERCOAST
      CAPITAL





InterCoast
      Capital is a wholly owned nonregulated subsidiary of MHC primarily engaged
      in
      investment activities, which it manages through its nonregulated investment
      subsidiaries. As of December 31, 2005, InterCoast Capital had total assets
      of $10.1 million.





InterCoast
      Capital had equity participations in equipment leases totaling $7.4 million
      and $25.9 million at December 31, 2005 and 2004, respectively.
      Approximately $6.4 million of the December 31, 2005, investment in
      equipment leases related to a seven percent undivided interest in an electric
      generating station leased to a utility located in Arizona. Refer to Note (1)(f)
      of MidAmerican Funding’s Notes to Consolidated Financial Statements in Item 8
      for additional discussion of equipment leases.




16




In
      addition, InterCoast Capital and its subsidiaries had direct investments in
      energy projects and indirect investments, through venture capital funds, in
      a
      variety of nonregulated energy production technologies.





MIDWEST
      CAPITAL





Midwest
      Capital is a wholly owned nonregulated subsidiary of MHC with total assets
      of
      $7.7 million as of December 31, 2005. Midwest Capital's primary
      activity is the management of utility service area investments to support
      economic development. Midwest Capital's principal interest is a 1,920-acre
      planned residential and commercial development 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. As
      of
      December 31, 2005, 50.4% of the development available for sale had been
      sold.





**Item****1A.**
            **Risk
                Factors**





Investors,
      or potential investors, in MidAmerican Energy or MidAmerican Funding should
      be
      aware of the significant risks described below. These risks should be carefully
      considered, together with all of the other information included in this annual
      report and the other public information filed by either company.





MidAmerican
      Energy Is Actively Pursuing, Developing and Constructing New Facilities, the
      Completion and Expected Cost of Which Is Subject to Significant
      Risk.





MidAmerican
      Energy is constructing a new coal-fired electric generating plant in Iowa.
      In
      the future, MidAmerican Energy expects to pursue the development, construction,
      ownership and operation of additional new or expanded facilities, the completion
      of any of which is subject to substantial risk and may expose it to significant
      costs. MidAmerican Energy cannot assure that the development or construction
      efforts on any particular project, or the efforts generally, will be successful.
      Also, a proposed new or expanded facility may cost more than planned to
      complete, and such excess costs, if found to be imprudent, may not be
      recoverable in rates. It is also possible that additional generation needs
      may
      be obtained through power purchase agreements, which could impose long-term
      purchase obligations on MidAmerican Energy and force it to rely on the operating
      performance of a third party. The inability to recover any costs through
      ratemaking decisions may materially affect MidAmerican Energy’s business,
      financial position, results of operations and ability to service its
      obligations.





MidAmerican
      Energy Is Subject to Operating Uncertainties Which May Adversely Affect Its
      Financial Position, Results of Operations and Ability to Service Its
      Securities.





The
      operation of a complex electric and gas utility (including generating,
      transmission and distribution systems) involves many risks associated with
      operating uncertainties and events beyond MidAmerican Energy’s control. These
      risks include the breakdown or failure of power generation equipment,
      compressors, pipelines, transmission and distribution lines or other equipment
      or processes, fuel interruption, performance below expected levels of output,
      capacity or efficiency, operator error, operating limitations imposed by
      environmental or other regulatory requirements, labor disputes, sustained mild
      weather patterns and catastrophic events such as severe storms, fires,
      earthquakes or explosions. A casualty occurrence might result in injury or
      loss
      of life, extensive property damage or environmental damage. The realization
      of
      any of these risks could significantly reduce or eliminate revenues or
      significantly increase expenses. For example, if MidAmerican Energy cannot
      operate its electric facilities at full capacity due to restrictions imposed
      by
      environmental regulations, revenues could decrease due to decreased wholesale
      sales and/or expenses could increase due to the need to obtain energy from
      higher cost sources. Any reduction of revenues for such reason or any other
      reduction of revenues or increase in expenses resulting from the risks described
      above could decrease MidAmerican Energy’s net cash flow and provide fewer funds
      to service its obligations. Further, MidAmerican Energy cannot assure that
      its
      current and future insurance coverage will be sufficient to replace lost revenue
      or cover repair and replacement costs, especially in light of the recent
      catastrophic events in the insurance markets that make it more difficult or
      costly to obtain certain types of insurance.




17




Acts
      of Sabotage and Terrorism Aimed at MidAmerican Energy’s Facilities, the
      Facilities of Its Fuel Suppliers or Customers, or at Regional Transmission
      Facilities Could Adversely Affect Its Business.





Since
      the
      September 11, 2001 terrorist attacks, the United States government has
      issued warnings that energy assets, specifically the nation’s electric utility
      infrastructure, may be the future targets of terrorist organizations. These
      developments have subjected MidAmerican Energy’s operations to increased risks.
      Damage to the assets of fuel suppliers, customer’s assets, MidAmerican Energy’s
      assets or at regional transmission facilities inflicted by terrorist groups
      or
      saboteurs could result in a significant decrease in revenues and significant
      repair costs, force an increase in security measures, cause changes in the
      insurance markets, and cause disruptions of fuel supplies, energy consumption
      and energy markets, particularly with respect to natural gas and electric
      energy. Any of these consequences from acts of terrorism could materially affect
      MidAmerican Energy’s results of operations and decrease the amount of funds
      available to make payments on its securities. Instability in the financial
      markets as a result of terrorism or war could also materially adversely affect
      the ability to raise capital.





MidAmerican
      Energy Is Subject to Comprehensive Energy Regulation, and Changes in Regulation
      and Rates May Adversely Affect Its Business, Financial Condition, Results of
      Operations and Ability to Service Its Securities.





MidAmerican
      Energy is subject to comprehensive regulation by various United States federal,
      state and local regulatory agencies, all of which significantly influence its
      operating environment, rates, capital structure, costs and ability to recover
      costs from customers. These regulatory agencies include, among others, the
      FERC,
      the EPA, the NRC, the IUB, the ICC, other state utility boards and numerous
      local agencies. Changes in regulations or the imposition of additional
      regulations by any of these entities or new legislation could have a material
      adverse impact on MidAmerican Energy’s results of operations. For example, such
      changes could result in increased retail competition in its service territory,
      the acquisition by a municipality (by negotiation or condemnation) of its
      distribution facilities or a negative impact on current transportation and
      cost
      recovery arrangements.





The
      structure of federal and state energy regulation is currently undergoing change
      and has in the past, and may in the future, be the subject of various
      challenges, initiatives and restructuring proposals by policy makers, utilities
      and other industry participants. Following the cascading blackouts that occurred
      in parts of the Midwest and Northeast United States and Eastern Canada on
      August 14, 2003, federal, state and Canadian officials, as well as
      non-governmental organizations charged with electric reliability
      responsibilities, are considering measures designed to promote the reliability
      of the electric transmission and distribution systems. The implementation of
      regulatory changes in response to such challenges, initiatives and restructuring
      proposals could result in the imposition of more comprehensive or stringent
      requirements on industry participants, which could result in increased
      compliance costs and could have a material adverse effect on MidAmerican
      Energy’s business, financial condition, results of operations and ability to
      service its obligations.





MidAmerican
      Energy May Be Adversely Affected by Environmental, Health, Safety and Other
      Laws
      and Regulations.





MidAmerican
      Energy is subject to a number of environmental, health, safety and other laws
      and regulations affecting many aspects of its present and future operations,
      including air emissions, water quality, wastewater discharges, solid wastes,
      hazardous substances and safety matters. MidAmerican Energy may incur
      substantial costs and liabilities in connection with its operations as a result
      of these regulations. In particular, the cost of future compliance with federal,
      state and local clean air laws, such as those that require certain generators,
      including some of MidAmerican Energy’s electric generating facilities, to limit
      nitrogen oxide, sulfur dioxide, carbon dioxide, mercury emissions and other
      potential pollutants or emissions, may require significant capital expenditures
      which may not be recoverable through future rates. In addition, these costs
      and
      liabilities may include those relating to claims for damages to property and
      persons resulting from MidAmerican Energy’s operations. The implementation of
      regulatory changes imposing more comprehensive or stringent requirements, to
      the
      extent such changes would result in increased compliance costs or additional
      operating restrictions, could have a material adverse effect on MidAmerican
      Energy’s business, financial condition, results of operations and ability to
      service its obligations.





In
      addition, regulatory compliance for existing facilities and the construction
      of
      new facilities is a costly and time-consuming process, and intricate and rapidly
      changing environmental regulations may require major expenditures for permitting
      and create the risk of expensive delays or material impairment of value if
      projects cannot function as planned due to changing regulatory requirements
      or
      local opposition.




18




In
      addition to operational standards, environmental laws also impose obligations
      to
      clean up or remediate contaminated properties or to pay for the cost of such
      remediation, often upon parties that did not actually cause the contamination.
      Accordingly, MidAmerican Energy may become liable, either contractually or
      by
      operation of law, for remediation costs even if the contaminated property is
      not
      presently owned or operated by it, or if the contamination was caused by third
      parties during or prior to MidAmerican Energy’s ownership or operation of the
      property. Given the nature of the past industrial operations conducted by
      MidAmerican Energy and others at its properties, there can be no assurance
      that
      all potential instances of soil or groundwater contamination have been
      identified, even for those properties where an environmental site assessment
      or
      other investigation has been conducted. Although, MidAmerican Energy has accrued
      reserves, where appropriate, for known remediation liabilities, future events,
      such as changes in existing laws or policies or their enforcement, or the
      discovery of currently unknown contamination, may give rise to additional
      remediation liabilities which may be material. Any failure to recover increased
      environmental or safety costs incurred by MidAmerican Energy may have a material
      adverse effect on its business, financial condition, results of operations
      and
      ability to service its obligations.





Increased
      Competition Resulting From Legislative, Regulatory and Restructuring Efforts
      Could Have a Significant Financial Impact on MidAmerican Energy and Consequently
      Decrease Revenue.





The
      wholesale generation segment of the electric industry has been and will continue
      to be significantly affected by competition. Competition in the wholesale market
      has resulted in a proliferation of power marketers and a substantial increase
      in
      market activity. Many of these marketers have experienced financial difficulties
      and the market continues to be volatile. Margins from wholesale electric
      transactions have a material impact on MidAmerican Energy’s results of
      operations. Accordingly, significant changes in the wholesale electric markets,
      including those arising from regulatory and legislative decisions, could have
      a
      material adverse effect on its financial position, results of operations and
      ability to service its obligations.





MidAmerican
      Energy’s Operations Are Subject to Power and Fuel Price Fluctuations, Other
      Weather Risks, Commodity Price Risks and Credit Risks That Could Adversely
      Affect Its Results of Operations.





MidAmerican
      Energy is exposed to commodity price risks, energy transmission price risks
      and
      credit risks in its operations. Specifically, such possible risks include
      commodity price changes, market supply shortages, interest rate changes and
      counterparty defaults, all of which could have an adverse effect on its
      financial condition, results of operation and ability to service its
      obligations. In addition, the sale of electric power and natural gas is
      generally a seasonal business, which seasonality results in commodity price
      fluctuations. Revenues are negatively impacted by low commodity prices resulting
      from low demand for electricity. Demand for electricity often peaks during
      the
      hottest summer months and coldest winter months and declines during the other
      months. As a result of these variations in demand and resulting price
      fluctuations, MidAmerican Energy’s overall operating results in the future may
      fluctuate substantially on a seasonal basis. MidAmerican Energy historically
      earned less income when weather conditions were milder and expects that
      unusually mild weather in the future could decrease revenues and provide less
      funds to service its obligations.





Also,
      in
      Iowa, MidAmerican Energy does not have an energy adjustment clause to pass
      through fuel price increases for electricity in its rates, so any significant
      increase in fuel or purchased power costs for electricity generation could
      have
      a negative impact on its results of operations despite efforts to minimize
      this
      negative impact through the use of hedging instruments. The effect of these
      risks could result in the inability to fulfill contractual obligations,
      significantly higher energy or fuel costs relative to corresponding sales
      contracts, or increased interest expense. Any of these consequences could
      decrease net cash flow and impair MidAmerican Energy’s ability to make payments
      on its obligations.





Due
      to
      the Limited Number of Suppliers and Service Providers Engaged by MidAmerican
      Energy, the Failure of Any of These Third Parties to Fulfill Its Contractual
      Obligation May Materially Increase MidAmerican Energy’s Costs.





MidAmerican
      Energy’s electric generating facilities are often dependent on a single or
      limited number of entities to supply or transport gas, coal or other fuels,
      to
      dispose of wastes or to deliver electricity. The failure of any of these third
      parties to fulfill its contractual obligations could increase the costs to
      provide electric service to MidAmerican Energy’s customers.





MidAmerican
      Energy Is Subject to the Unique Risks Associated With Nuclear
      Generation.





Regulatory
      requirements applicable in the future to nuclear generating facilities could
      adversely affect MidAmerican Energy’s results of operations. MidAmerican Energy
      is subject to certain generic risks associated with utility nuclear generation,
      which include the following:




19





(1)
            the
                potential harmful effects on the environment and human health resulting
                from the operation of nuclear facilities and the storage, handling
                and
                disposal of radioactive materials;





(2)
            limitations
                on the amounts and types of insurance commercially available to cover
                losses that might arise in connection with nuclear operations;
                and





(3)
            uncertainties
                with respect to the technological and financial aspects of decommissioning
                nuclear plants at the end of their licensed
                lives.





The
      NRC
      has broad authority under federal law to impose licensing and safety-related
      requirements for the operation of nuclear generating facilities. In the event
      of
      noncompliance, the NRC has the authority to impose fines or shut down a unit,
      or
      both, depending upon its assessment of the severity of the situation, until
      compliance is achieved. Revised safety requirements promulgated by the NRC
      have,
      in the past, necessitated substantial capital expenditures at nuclear plants,
      including the Quad Cities Station, and additional expenditures could be required
      in the future. In addition, although MidAmerican Energy has no reason to
      anticipate a serious nuclear incident at the Quad Cities Station, if an incident
      did occur, it could have a material but presently undeterminable adverse effect
      on MidAmerican Energy’s financial condition, results of operations and ability
      to service its obligations.





MidAmerican
      Energy Holdings May Exercise Its Significant Influence Over MidAmerican Energy
      in a Manner That Would Benefit MidAmerican Energy Holdings to the Detriment
      of
      MidAmerican Energy’s Creditors and Preferred Stockholders.





MidAmerican
      Energy is an indirect wholly owned subsidiary of MidAmerican Energy Holdings
      and, therefore, MidAmerican Energy Holdings has significant influence over
      the
      decision of all matters submitted for shareholder approval and its management
      and affairs. In circumstances involving a conflict of interest between
      MidAmerican Energy Holdings, on the one hand, and MidAmerican Energy’s creditors
      and preferred stockholders, on the other, MidAmerican Energy Holdings could
      exercise its influence in a manner that would benefit MidAmerican Energy
      Holdings to the detriment of MidAmerican Energy’s creditors and preferred
      stockholders.





**Item 1B.**
            **Unresolved
                Staff Comments**





Not
      applicable.







20




**Item2****.**********
            **Properties**





MidAmerican
      Energy’s utility properties consist of physical assets necessary and appropriate
      to render electric and gas service in its service territories. It is the opinion
      of management that the principal depreciable properties owned by MidAmerican
      Energy are in good operating condition and well maintained. MidAmerican Energy’s
      most significant properties are its electric generation facilities. For
      information regarding these facilities, please refer to the “Regulated Electric
      Operations” discussion in Item 1. Additional electric property consists
      primarily of transmission and distribution facilities.





The
      electric transmission system of MidAmerican Energy at December 31, 2005,
      included 911 miles of 345-kilovolt (“kV”) lines and 1,128 miles of 161-kV lines.
      MidAmerican Energy’s electric distribution system included approximately 226,900
      transformers and 395 substations at December 31, 2005.





Gas
      property consists primarily of natural gas mains and services pipelines, meters
      and related distribution equipment, including feeder lines to communities served
      from natural gas pipelines owned by others. The gas distribution facilities
      of
      MidAmerican Energy at December 31, 2005, included approximately 21,890
      miles of gas mains and service pipelines. In addition, gas property includes
      three liquefied natural gas plants and two propane-air plants. Refer to the
      “Regulated Natural Gas Operations” discussion in Item 1 for information
      regarding these facilities.





Utility
      plant, including construction work in progress and net of accumulated
      depreciation, by operating segment is as follows as of December 31 (in
      thousands):





2005
            
            
            2004Generation
            
            $
            2,089,369
            
            $
            1,671,872Energy
                delivery -Electric
                distribution
            
            
            1,356,413
            
            
            1,316,390Gas
                distribution
            
            
            646,311
            
            
            623,949Transmission
            
            
            333,653
            
            
            256,228$
            4,425,746
            
            $
            3,868,439





Refer
      to
      Note (10) of MidAmerican Energy’s Notes to Consolidated Financial Statements in
      Item 8 for a discussion of operating segments.





**Item 3.**
            **Legal
                Proceedings**





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





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




21




On
      September 9, 2005, MidAmerican Energy and counsel for the plaintiffs
      executed a stipulation and agreement of settlement, which upon final approval
      by
      the court following notice to all class members, MidAmerican Energy will be
      dismissed from the lawsuit. MidAmerican Energy agreed to the settlement, which
      was filed with the court on February 2, 2006, in order to avoid the expense
      and
      uncertainty associated with the ongoing litigation. If accepted by the court,
      the settlement will not have a material impact upon MidAmerican Energy.
      Additionally, the court issued an order on September 29, 2005, granting the
      plaintiffs’ motion for class certification.





On
      December 28, 2004, an apparent gas explosion and fire resulted in three
      fatalities, one serious injury and property damage at a commercial building
      in
      Ramsey, Minnesota. According to the Minnesota Office of Pipeline Safety, an
      improper installation of a pipeline connection may have been a cause of the
      explosion and fire. A predecessor company to MidAmerican Energy provided gas
      service in Ramsey, Minnesota, at the time of the original installation in 1980.
      In 1993, a predecessor of CenterPoint Energy, Inc. (“CenterPoint”) acquired all
      of the Minnesota gas properties owned by the MidAmerican Energy predecessor
      company.





A s
      a
      result of the explosion and fire, MidAmerican Energy and CenterPoint have
      received settlement demands which total $15.5 million. MidAmerican Energy’s
      exposure, if any, to these demands are covered under its liability insurance
      coverage to which a $2.0 million retention applies. In addition, counsel
      for CenterPoint stated that a replacement program has been initiated for the
      purpose of locating and replacing all mechanical couplings in the former North
      Central Public Service Company properties located in Minnesota. Counsel for
      CenterPoint has represented that it is anticipated that the value of the
      replacement claim may be in the range of $35-45 million.





On
      February 8, 2006, MidAmerican Energy was served with a Third Party
      Complaint filed in U.S. District Court, District of Minnesota by CenterPoint
      Resources Corp. d/b/a CenterPoint Energy. The Third Party Complaint seeks
      contribution and indemnity on a wrongful death claim filed by the estate of
      Lorraine Melton, one of the fatalities, and all sums associated with
      CenterPoint’s replacement program. An additional complaint filed by the estate
      of Ann Talle seeks damages from MidAmerican Energy Holdings and other
      defendants, including CenterPoint Energy, on a wrongful death claim arising
      from
      this incident. MidAmerican Energy intends to vigorously defend its position
      in
      these claims and believes their ultimate outcome will not have a material impact
      on its results of operations, financial position or cash flows.





Other
      than the litigation described above, MidAmerican Funding and its subsidiaries
      currently have no material legal proceedings. Information on MidAmerican
      Energy’s environmental matters is included in Item 1 - Business and in the
“Environmental Matters” section of Management’s Discussion and Analysis in Item
      7.





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





None.




22





**PART
      II**





**Item 5.**
            **Market
                for the Registrant's Common Equity, Related Stockholder Matters and
                Issuer
                Purchases of Equity
                Securities**





All
      common stock of MidAmerican Energy is held by its parent company, MHC, which
      is
      a direct, wholly owned subsidiary of MidAmerican Funding. MidAmerican Funding
      is
      an Iowa limited liability company whose membership interest is held solely
      by
      MidAmerican Energy Holdings.





**Item 6.**
            **Selected
                Financial Data**





The
      following tables set forth selected financial data of MidAmerican Energy and
      MidAmerican Funding, which should be read in conjunction with their respective
      consolidated financial statements and the related notes to those statements
      included in Item 8 and with Management’s Discussion and Analysis of Financial
      Condition and Results of Operations in Item 7.





**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**SELECTED
      FINANCIAL DATA**


**(In
      thousands)**





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****Statement
                of Operations Data:**Revenues
            
            $
            3,160,337
            
            $
            2,696,353
            
            $
            2,595,812
            
            $
            2,236,159
            
            $
            2,367,249Operating
                income
            
            
            381,124
            
            
            356,396
            
            
            370,820
            
            
            354,997
            
            
            333,574Net
                income
            
            
            221,297
            
            
            210,455
            
            
            188,597
            
            
            175,821
            
            
            152,778Earnings
                on common stock
            
            
            220,050
            
            
            209,210
            
            
            187,181
            
            
            172,888
            
            
            148,234**As
                of December 31,****2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001****Balance
                Sheet Data:**Total
                assets
            
            $
            5,864,137
            
            $
            5,111,951
            
            $
            4,404,434
            
            $
            4,209,642
            
            $
            3,953,060Long-term
                debt (a)
            
            
            1,631,760
            
            
            1,422,527
            
            
            1,128,647
            
            
            1,053,418
            
            
            820,594Power
                purchase obligation (b)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            25,867Short-term
                borrowings
            
            
            -
            
            
            -
            
            
            48,000
            
            
            55,000
            
            
            89,350Preferred
                securities not subjectto
                mandatory redemption
            
            
            30,329
            
            
            30,329
            
            
            31,759
            
            
            31,759
            
            
            31,759Preferred
                securities subject tomandatory
                redemption
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            126,680Common
                shareholder’s equity
            
            
            1,744,882
            
            
            1,527,468
            
            
            1,318,519
            
            
            1,319,139
            
            
            1,226,292





(a)
            Includes
                amounts due within one year.(b)
            On
                August 1, 2002, MidAmerican Energy’s contract with the Nebraska
                Public Power District regarding Cooper Nuclear Station was restructured.
                As a result, the power purchase obligation and the related asset
                were
                removed from the balance sheet. The contract expired December 31,
                2004.








23


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**SELECTED
      FINANCIAL DATA**


**(In
      thousands)**





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001****Statement
                of Operations Data:**Revenues
            
            $
            3,166,084
            
            $
            2,701,700
            
            $
            2,600,239
            
            $
            2,240,879
            
            $
            2,388,650Operating
                income
            
            
            381,083
            
            
            355,947
            
            
            367,868
            
            
            349,988
            
            
            300,085Net
                income (a)
            
            
            195,069
            
            
            179,257
            
            
            157,176
            
            
            136,716
            
            
            103,087**As
                of December 31,****2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002**
            
            
            **2001****Balance
                Sheet Data:**Total
                assets
            
            $
            7,157,416
            
            $
            6,427,244
            
            $
            5,737,614
            
            $
            5,551,747
            
            $
            5,550,640Long-term
                debt (b)
            
            
            2,331,760
            
            
            2,122,527
            
            
            1,828,647
            
            
            1,753,418
            
            
            1,544,969Power
                purchase obligation (c)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            25,867Short-term
                borrowings
            
            
            -
            
            
            -
            
            
            48,000
            
            
            55,000
            
            
            91,780Preferred
                securities not subjectto
                mandatory redemption
            
            
            30,329
            
            
            30,329
            
            
            31,759
            
            
            31,759
            
            
            31,759Preferred
                securities subject tomandatory
                redemption
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            126,680Member’s
                equity
            
            
            2,234,837
            
            
            2,042,403
            
            
            1,863,769
            
            
            1,879,191
            
            
            1,981,840





(a)
            In
                accordance with Statement of Financial Accounting Standards No. 142,
                “Goodwill and Other Intangible Assets,” beginning January 1, 2002,
                MidAmerican Funding’s goodwill is no longer amortized. Amortization of
                goodwill reduced MidAmerican Fundings’ Net Income by $34.4 million in
                2001. In 2002, MidAmerican Funding recorded after-tax losses of
                $14.3 million for write-downs of impaired assets and investments,
                including an $8.2 million after-tax write-down of airplane leases. In
                2005, MidAmerican Funding recorded after-tax losses totaling $7.0
                million
                for write-downs of impaired airplane leases and $8.4 million of after-tax
                gains on the sales of assets and investments.(b)
            Includes
                amounts due within one year.(c)
            On
                August 1, 2002, MidAmerican Energy’s contract with the Nebraska
                Public Power District regarding Cooper Nuclear Station was restructured.
                As a result, the power purchase obligation and the related asset
                were
                removed from the balance sheet. The contract expired December 31,
                2004.








24


**Item 7.**
            **Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations**





**INDEX**








General
            26Executive
                Summary
            26Results
                of Operations for the Years Ended
                December 31, 2005 and 2004
            27Results
                of Operations for the Years Ended December 31,
                2004 and 2003
            31Liquidity
                and Capital Resources
            36Credit
                Ratings Risks
            38Utility
                Regulatory Matters
            39Environmental
                Matters
            41Generating
                Capability
            41Critical
                Accounting Policies and
                Estimates
            42








25


**MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL**


**CONDITION
      AND RESULTS OF OPERATIONS**





**General**





MidAmerican
      Funding, LLC (“MidAmerican Funding”), is an Iowa limited liability company that
      was formed in March 1999. The sole member of MidAmerican Funding is MidAmerican
      Energy Holdings Company (“MidAmerican Energy Holdings”). MidAmerican Funding
      owns all of the outstanding common stock of MHC Inc. (“MHC”), which owns all of
      the common stock of MidAmerican Energy Company (“MidAmerican Energy”),
      InterCoast Capital Company, Midwest Capital Group, Inc., MidAmerican Services
      Company and MEC Construction Services Co. MHC, MidAmerican Funding and
      MidAmerican Energy Holdings are public utility holding companies headquartered
      in Des Moines, Iowa.





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





**Executive
      Summary**





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





·
            MidAmerican
                Energy is currently constructing a 790 megawatt (“MW”) (expected
                accreditation) super-critical-temperature, coal-fired generation
                project
                and expects to invest approximately $737 million in the project
                through 2007. Through December 31, 2005, $502.0 million had been
                invested, including $121.3 million for MidAmerican Energy’s share of
                deferred payments allowed by contract.





·
            From
                December 2004 through December 2005, MidAmerican Energy placed into
                service 360.5 MW (nameplate capacity) of wind turbines, of which
                50.0 MW
                were completed in December 2005, 150.0 MW were completed and placed
                in
                service in the third quarter of 2005 and 160.5 MW were completed
                and
                placed in service in December 2004.





·
            On
                November 1, 2005, MidAmerican Energy issued $300 million of
                5.75% medium-term notes due November 1, 2035. The proceeds are being
                used to support construction of the electric generation projects
                and for
                general corporate purposes.





·
            Electric
                retail gross margin increased $24.5 million in 2005 compared to 2004
                due
                to warmer temperature conditions in the 2005 cooling season, offset
                partially by higher fuel and energy prices. The improvement in electric
                retail gross margin substantially offset unfavorable variances in
                electric
                wholesale margins in the first quarter of 2005, which were due primarily
                to the unavailability of certain base load generation resources and
                resulted in lost sale opportunities and more costly replacement power
                costs.





·
            During
                2005, MidAmerican Funding recognized pre-tax losses of $15.6 million,
                or $7.0 million after-tax, on its commercial aircraft leveraged
                leases, reflecting continued deterioration in the airline industry.
                These
                losses more than offset $9.9 million of gains, or $6.2 million
                after-tax, recognized on the sale of non-strategic nonregulated
                investments. The remaining carrying values of MidAmerican Funding’s
                commercial aircraft leveraged leases are not
                material.





Following
      is a discussion of various factors that affected earnings for the periods
      presented on the Consolidated Statement of Operations. Explanations include
      management’s best estimate of the impact of weather, customer growth and other
      factors.


26




**Results
      of Operationsfor the Years Ended December 31,
      2005 and 2004**





Earnings
      Overview





MidAmerican
      Energy -





MidAmerican
      Energy’s earnings on common stock improved $10.8 million to
      $220.0 million for 2005 compared to $209.2 million for 2004. Operating
      income increased $24.7 million due primarily to improved margins. The
      improvement in operating income was partially offset by a comparative increase
      in income taxes due to benefits recognized in 2004 as a result of changes in
      state and federal income tax laws in 2004 and the benefits from a settlement
      with the Internal Revenue Service of an income tax audit issue in
      2004.





MidAmerican
      Funding -





MidAmerican
      Funding’s net income for 2005 increased $15.8 million to
      $195.1 million for 2005 compared to $179.3 million for 2004. In
      addition to the items discussed for MidAmerican Energy, MidAmerican Funding’s
      net income for 2004 reflects additional income tax expense due to an adjustment
      to goodwill as a result of the settlement of the income tax audit issue
      above.





Regulated
      Electric Gross Margin





2005
            
            
            2004Gross
                margin (in millions):Operating
                revenues
            
            $
            1,513.2
            
            $
            1,421.7Less
                cost of fuel, energy and capacity
            
            
            468.1
            
            
            398.6Electric
                gross margin
            
            $
            1,045.1
            
            $
            1,023.1Sales
                (GWh):Residential
            
            
            5,831
            
            
            5,321Small
                general service
            
            
            4,111
            
            
            3,944Large
                general service
            
            
            7,649
            
            
            7,243Wholesale
            
            
            8,378
            
            
            9,260Other
            
            
            1,453
            
            
            1,357Total
            
            
            27,422
            
            
            27,125





Electric
      gross margin for 2005 increased $22.0 million compared to 2004 due to a
      $24.5 million increase in retail gross margin as a result of warmer weather
      in the third quarter of 2005 and customer growth. A $17.1 million decrease
      in
      MidAmerican Energy’s cost of sales for electric capacity purchases and a
      $7.9 million increase in transmission revenues also contributed to the
      increase in electric gross margin. The improvement in gross margin as a result
      of these factors was partially offset by a $26.9 million decrease in gross
      margin on wholesale sales, primarily as a result of generation outages in the
      first quarter of 2005.





Gross
      margin on electric retail sales increased $24.5 million, with electric
      retail sales volumes increasing 6.6% compared to 2004. The effect of temperature
      conditions during 2005 compared to 2004 resulted in a $38.2 million
      increase in electric retail gross margin. A 1.3% increase in the average number
      of retail customers improved electric retail gross margin by $14.7 million
      compared to 2004, while electricity usage factors not dependent on weather,
      such
      as changes in individual customer usage patterns, increased electric margin
      by
      $6.0 million. Revenues from the recovery of energy efficiency program costs
      increased $3.4 million compared to 2004. Changes in these revenues are
      substantially matched with corresponding changes in other operating expenses.
      An
      increase in fuel costs related to Iowa retail electric sales decreased electric
      retail gross margin by $37.2 million compared to 2004 due in part to the
      cost of replacement power as a result of the generating station outages
      mentioned below.




27




Sales
      of
      energy to other utilities, municipalities and marketers inside and outside
      of
      MidAmerican Energy's delivery system are classified as wholesale. A change
      in
      the mix of higher-priced on-peak and lower-priced off-peak sales and a higher
      average cost of energy caused a decrease in the average electric wholesale
      margin per megawatt hour sold, reducing electric wholesale gross margin by
      $15.9 million compared to 2004. Additionally, a 9.5% decrease in wholesale
      sales volumes reduced electric wholesale gross margin by $11.0 million. The
      timing of planned generation outages, mainly for the Louisa Generating Station,
      and the loss of generating capacity at the Ottumwa Generating Station Unit
      No. 1
      (“OGS Unit No. 1”), which experienced a failure of its step-up transformer
      on February 20, 2005, resulted in lost wholesale sales opportunities. OGS
      Unit No. 1 returned to service on May 3, 2005. An increase in electric
      retail sales also reduced the availability of competitively priced generation,
      contributing to the decrease in wholesale sales volumes.





Regulated
      Gas Gross Margin





2005
            
            
            2004Gross
                margin (in millions):Operating
                revenues
            
            $
            1,322.7
            
            $
            1,010.9Less
                cost of gas sold
            
            
            1,098.4
            
            
            790.0Gas
                gross margin
            
            $
            224.3
            
            $
            220.9Sales
                (000’s Dths):Residential
            
            
            48,229
            
            
            49,170Small
                general service
            
            
            23,381
            
            
            24,146Large
                general service
            
            
            5,279
            
            
            2,680Wholesale
            
            
            51,655
            
            
            46,630Other
            
            
            53
            
            
            246Total
            
            
            128,597
            
            
            122,872





Gas
      gross
      margin for 2005 increased $3.4 million compared to 2004.





Regulated
      gas revenues include purchased gas adjustment clauses through which MidAmerican
      Energy is allowed to recover the cost of gas sold from its retail gas utility
      customers. Consequently, fluctuations in the cost of gas sold do not affect
      gross margin or net income because revenues reflect comparable fluctuations
      through the purchased gas adjustment clauses. MidAmerican Energy’s average
      per-unit cost of gas increased 32.8% compared to 2004 resulting in a
      $271.6 million increase in cost of gas sold. The remainder of the increase
      in cost of gas sold was due to an increase in sales volumes related to wholesale
      customers.





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





2005
                vs. 2004(In
                millions)Change
                in cost of gas sold:Average
                cost per unit
            
            $
            271.6Sales
                volumes
            
            
            36.8Total
                change in cost of gas sold
            
            
            308.4Weather
            
            
            0.8Energy
                efficiency cost recovery
            
            
            2.5Customer
                growth
            
            
            3.2Other
                usage factors
            
            
            (3.9
            )Other
            
            
            0.8Total
                revenue variance
            
            $
            311.8





Overall
      weather conditions during the heating seasons of 2005 were relatively unchanged
      compared to 2004. MidAmerican Energy's average number of gas retail customers
      increased 1.4% compared to 2004. Other gas usage factors, such as changes in
      individual customer usage patterns and reaction to historically high prices,
      decreased gas margin. Changes in revenues from the recovery of energy efficiency
      program costs are substantially matched with corresponding changes in other
      operating expenses. Total natural gas retail sales volumes increased 0.9%.




28




Regulated
      Operating Expenses





Other
      operating expenses increased $8.5 million compared to 2004 due to a
      $5.9 million increase in costs related to energy efficiency programs, a
      $5.6 million increase in health care benefits and pension costs, and a
      $3.0 million increase in transmission operations expense. These increases
      were partially offset by a $6.0 million decrease in postretirement benefit
      expense compared to 2004 due to the impact of the Medicare Prescription Drug,
      Improvement and Modernization Act of 2003 and a plan amendment effective
      July 1, 2004. Increases in energy efficiency programs costs are
      substantially matched by increases in related electric and gas
      revenues.





Maintenance
      expenses for 2005 decreased $14.1 million compared to 2004 due principally
      to a $19.4 million decrease in steam generating maintenance, mostly as a
      result of additional preventive maintenance in 2004. The decrease was offset
      partially by a $3.3 million increase in other generating maintenance
      related to wind facilities and combustion turbines.





Depreciation
      and amortization expense for 2005 increased $2.7 million compared to 2004
      due to an $11.7 million increase in utility plant depreciation due in part
      to the second phase of the Greater Des Moines Energy Center and wind power
      facilities placed in service in December 2004, and wind power facilities placed
      in service in the third quarter of 2005. These and other increases in utility
      plant depreciation were partially offset by a decrease in utility plant
      depreciation that began in November 2004 as a result of a 20-year extension
      to
      the operating license for the Quad Cities Station. The increase in utility
      plant
      depreciation was partially offset by a $9.9 million decrease in regulatory
      expense related to a revenue sharing arrangement in Iowa due to lower Iowa
      electric equity returns. Refer to the “Utility Regulatory Matters” section for
      an explanation of the revenue sharing arrangement.





Nonregulated
      Gross Margin





2005
            
            2004(In
                millions)MidAmerican
                Energy -Nonregulated
                operating revenues
            
            $
            324.4
            
            $
            263.7Less
                nonregulated cost of sales
            
            
            290.9
            
            
            230.6Nonregulated
                gross margin
            
            $
            33.5
            
            $
            33.1MidAmerican
                Funding Consolidated -Nonregulated
                operating revenues
            
            $
            330.1
            
            $
            269.1Less
                nonregulated cost of sales
            
            
            292.5
            
            
            232.0Nonregulated
                gross margin
            
            $
            37.6
            
            $
            37.1





MidAmerican
      Energy’s nonregulated gross margin for 2005 increased $0.4 million compared
      to 2004. The following table presents the margins related to various
      nonregulated activities (in millions):





2005
            
            2004Nonregulated
                electric
            
            $
            12.9
            
            $
            16.8Nonregulated
                gas
            
            
            7.5
            
            
            7.2Income
                sharing arrangements under regulated gas tariffs
            
            
            5.6
            
            
            3.7Incentive
                gas supply procurement program award
            
            
            3.4
            
            
            2.4Other
            
            
            4.1
            
            
            3.0$
            33.5
            
            $
            33.1





Gross
      margin for nonregulated electric marketing services decreased due to a reduction
      in the margin per unit sold in 2005 compared to 2004, partially offset by an
      increase in related sales volumes. The margin per unit decreased in 2005
      compared to 2004 due to higher costs for wholesale energy and limited ability
      to
      pass such costs on to customers due to the level of bundled rates offered by
      the
      local utility companies. Nonregulated gas gross margin increased due to an
      increase in the margin per unit sold compared to 2004. A small decrease in
      nonregulated gas sales volumes was due in large part to the non-renewal of
      the
      sales contracts as a result of a related regulatory issue in Illinois. Refer
      to
“Utility Regulatory Matters” for a discussion of the issue.




29




Nonregulated
      operations also include earnings from sharing arrangements under applicable
      state regulations and tariffs filed with the Iowa Utilities Board (“IUB”) and
      the South Dakota Public Utilities Commission (“SDPUC”) for MidAmerican Energy’s
      regulated natural gas operations. Under these arrangements, MidAmerican Energy
      is allowed to keep a portion of the benefits of gas sales for resale and
      capacity release transactions. MidAmerican Energy also has an Incentive Gas
      Supply Procurement Program (“IGSPP”) in Iowa and a similar program in South
      Dakota, under which it can receive awards for successful performance of gas
      supply procurement. Under the IGSPP, if MidAmerican Energy's cost of gas varies
      from an established reference price range, then the savings or cost is shared
      between customers and shareholders. The IGSPP extends through October 31,
      2006, and the South Dakota program extends through October 31,
      2010.





Allowance
      for Equity Funds





As
      a
      regulated public utility, MidAmerican Energy is allowed to capitalize, and
      record as income, a cost of construction for equity funds used, based on
      guidelines set forth by the Federal Energy Regulatory Commission (“FERC”). The
      increase in income for capitalized allowance on equity funds used during
      construction in 2005 was due to the increase in construction work in progress
      compared to 2004. MidAmerican Energy expects to continue to record
      higher-than-normal income for the allowance on equity funds used during
      construction through 2007 while the announced generating facilities are
      constructed.





Other
      Income and Expense





MidAmerican
      Funding -





Other
      income for 2005 includes $13.3 million of gains from the sale of three
      non-strategic, passive investments. During 2005 and 2004, MidAmerican Funding
      received distributions totaling $1.2 million and $2.5 million,
      respectively, from several of its investments in energy projects and venture
      capital funds.





Other
      expense for 2005 includes write-downs of MidAmerican Funding’s investments in
      commercial passenger aircraft, which it accounts for as leveraged leases.
      MidAmerican Funding’s evaluation of its investments in these aircraft resulted
      in $15.6 million of pre-tax write-downs in 2005. The write-downs reflect a
      continued deterioration in the airline industry, including the bankruptcy
      filings of two major carriers during 2005. The remaining carrying values of
      MidAmerican Funding’s commercial aircraft leveraged leases are not material.
      Other expense for 2004 includes losses totaling $1.7 million for
      write-downs related to two commercial passenger aircraft investments.





Fixed
      Charges





The
      increase in interest on long-term debt was due to interest on MidAmerican Energy
      long-term debt issuances of $350.0 million on October 1, 2004 and
      $300.0 million on November 1, 2005, offset partially by maturities of
      higher rate debt, totaling $90.5 million and $55.6 million in 2005 and
      2004, respectively. Other interest expense increased due to a higher balance
      of
      the Iowa revenue sharing liability. MidAmerican Energy is allowed to capitalize,
      and record as a reduction to fixed charges, a cost of construction for debt
      funds used, based on guidelines set forth by the FERC. Allowance for borrowed
      funds increased due to increased utility construction expenditures. MidAmerican
      Energy expects to continue to record higher-than-normal allowance for borrowed
      funds used during construction through 2007 while the announced generating
      facilities are constructed.





Income
      Taxes





MidAmerican
      Energy -





In
      September 2004, the Iowa legislature passed legislation adopting a federal
      tax
      provision into Iowa law that provides accelerated tax depreciation for certain
      assets acquired after May 5, 2003 and before January 1, 2005. As a
      result of Iowa regulatory rules for utility income taxes, MidAmerican Energy’s
      income taxes for 2004 were reduced by approximately $15.7 million,
      including the retroactive adjustment for 2003.





In
      October 2004, federal law was enacted that extended the federal production
      tax
      credit for electricity produced by wind energy facilities. Accordingly, in
      2005,
      MidAmerican Energy’s income taxes were reduced $11.1 million by the
      production tax credits related to energy produced by its wind power facilities,
      the first of which were placed in service December 31, 2004.




30




State
      utility rate recognition in Iowa requires that the tax effect of certain timing
      differences be flowed through immediately to customers. Therefore, amounts
      that
      would otherwise have been recognized in income tax expense have been included
      as
      changes in regulatory assets. This flow-through treatment of such timing
      differences impacts the effective tax rates from year to year.





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





MidAmerican
      Funding -





A
      significant portion of MidAmerican Energy’s tax liability for the settled issue
      above was originally established in 1999 when MidAmerican Energy’s parent
      company, MHC Inc., was acquired by MidAmerican Funding. This change in estimate
      of an income tax uncertainty that resulted from a purchase business combination
      was accounted for as an adjustment to the remaining balance of goodwill
      attributable to the acquisition. Accordingly, in 2004, MidAmerican Funding
      decreased goodwill and increased income tax expense by $4.7 million to
      reflect the settlement of that portion of the income tax liability recognized
      at
      the time of the acquisition of MHC. The net result of the reduction at
      MidAmerican Energy and the goodwill adjustment at MidAmerican Funding was a
      $3.8
      million decrease in consolidated income tax expense for 2004.





**Results
      of Operationsfor the Years Ended December 31, 2004
      and 2003**





Earnings
      Overview





MidAmerican
      Energy -





MidAmerican
      Energy’s earnings on common stock improved $22.0 million to
      $209.2 million for 2004 compared to $187.2 million for 2003. Operating
      income decreased $14.4 million due primarily to increases in other
      operating and maintenance expenses. These increases were partially offset by
      increased margins and a decrease in a regulatory charge related to the Iowa
      revenue sharing arrangement. Refer to “Rate Matters” later in MD&A for
      further discussion of the revenue sharing arrangement. The decrease in operating
      income was more than offset by an increase in other income related to
      MidAmerican Energy’s construction projects and a reduction in income taxes due
      to a change in Iowa’s income tax laws and the settlement of an income tax audit
      issue with the Internal Revenue Service.





MidAmerican
      Funding -





MidAmerican
      Funding’s net income for 2004 increased $22.1 million to
      $179.3 million for 2004 compared to $157.2 million for 2003.





31


Regulated
      Electric Gross Margin





2004
            
            
            2003Gross
                margin (in millions):Operating
                revenues
            
            $
            1,421.7
            
            $
            1,398.0Less
                cost of fuel, energy and capacity
            
            
            398.6
            
            
            396.3Electric
                gross margin
            
            $
            1,023.1
            
            $
            1,001.7Sales
                (GWh):Residential
            
            
            5,321
            
            
            5,303Small
                general service
            
            
            3,944
            
            
            3,845Large
                general service
            
            
            7,243
            
            
            6,951Wholesale
            
            
            9,260
            
            
            9,963Other
            
            
            1,357
            
            
            1,323Total
            
            
            27,125
            
            
            27,385





Electric
      gross margin for 2004 increased $21.4 million compared to 2003 due to a
      $16.5 million increase in net margin on MidAmerican Energy’s sales and
      purchases of electric capacity and a $9.2 million increase in electric
      wholesale gross margin. Additionally, revenues from transmission services
      increased $3.2 million compared to 2003. An increase in electric retail
      sales volumes improved electric retail gross margin but was more than offset
      by
      higher fuel costs for those sales. Accordingly, in total, electric retail gross
      margin decreased $7.3 million compared to 2003.





Sales
      of
      energy to other utilities, municipalities and marketers inside and outside
      of
      MidAmerican Energy's delivery system are classified as wholesale. The increase
      in gross margin on electric wholesale energy sales compared to 2003 was due
      to
      improved margins per unit sold, which increased electric wholesale gross margin
      by $16.9 million, offset partially by a $7.7 million decrease from
      reduced sales volumes.





In
      total,
      electric retail sales volumes increased 2.5% for 2004 compared to 2003.
      Electricity usage factors not dependent on weather, such as changes in
      individual customer usage patterns, increased electric margin by
      $18.3 million compared to 2003. A 1.2% increase in the average number of
      retail customers improved electric gross margin by $17.0 million. The
      effect of temperature conditions, principally during the third quarter of 2004,
      resulted in a $23.8 million decrease in electric retail gross margin.
      Additionally, electric revenues from the recovery of energy efficiency program
      costs increased $3.0 million compared to 2003. Changes in these revenues
      are substantially matched with corresponding changes in other operating
      expenses.





Higher
      fuel costs related to Iowa retail electric sales decreased electric retail
      gross
      margin by $21.5 million compared to 2003. A majority of the increase in
      fuel costs was for purchases of higher priced power to replace energy from
      plants taken out of service in 2004 for preventive maintenance. Additionally,
      fuel costs in 2003 were reduced by the recognition of $10.9 million of cost
      recovery for MidAmerican Energy’s coal purchase contract with Enron Corp.
      (“Enron”) following resolution of related Enron bankruptcy proceedings. That
      reduction in 2003 fuel costs was partially offset by $5.1 million of
      expense recognized in 2003 related to the write-off of the remaining value
      of
      failed nuclear fuel assemblies at Quad Cities Station.





32


Regulated
      Gas Gross Margin





2004
            
            
            2003Gross
                margin (in millions):Operating
                revenues
            
            $
            1,010.9
            
            $
            947.4Less
                cost of gas sold
            
            
            790.0
            
            
            720.6Gas
                gross margin
            
            $
            220.9
            
            $
            226.8Sales
                (000’s Dths):Residential
            
            
            49,170
            
            
            53,120Small
                general service
            
            
            24,146
            
            
            25,296Large
                general service
            
            
            2,680
            
            
            2,324Wholesale
            
            
            46,630
            
            
            39,329Other
            
            
            246
            
            
            285Total
            
            
            122,872
            
            
            120,354





Gas
      gross
      margin for 2004 decreased $5.9 million compared to 2003.





Regulated
      gas revenues include purchased gas adjustment clauses through which MidAmerican
      Energy is allowed to recover the cost of gas sold from its retail gas utility
      customers. Consequently, fluctuations in the cost of gas sold do not affect
      gross margin or net income because revenues reflect comparable fluctuations
      through the purchased gas adjustment clauses. MidAmerican Energy’s average
      per-unit cost of gas increased 7.4% compared to 2003 resulting in a
      $54.3 million increase in cost of gas sold. The remainder of the increase
      in cost of gas sold was due to an increase in sales volumes related to wholesale
      customers.





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





2004
                vs. 2003(In
                millions)Change
                in cost of gas sold:Average
                cost per unit
            
            $
            54.3Sales
                volumes
            
            
            15.1Total
                change in cost of gas sold
            
            
            69.4Weather
            
            
            (5.4
            )Weather
                derivative
            
            
            2.1Energy
                efficiency cost recovery
            
            
            0.5Customer
                growth
            
            
            4.3Other
                usage factors
            
            
            (6.3
            )Other
            
            
            (1.1
            )Total
                revenue variance
            
            $
            63.5





The
      decrease in gas gross margin due to weather was the result of milder temperature
      conditions in 2004 compared to 2003. The weather decrease was partially offset
      by a 2003 weather derivative loss that did not recur in 2004. MidAmerican
      Energy's average number of gas retail customers increased 1.3% compared to
      2003.
      Other usage factors includes items such as changes in individual customer usage
      patterns and reaction to higher prices. Total natural gas retail sales volumes
      decreased 5.9%.





Regulated
      Operating Expenses





Regulated
      other operating expenses for 2004 increased $16.8 million compared to 2003.
      Electric transmission and distribution operating expenses increased
      $7.9 million due in part to payments to other utilities for the
      transmission of energy, the write-off of computer software deemed unusable,
      and
      increased storm damage repair costs. Quad Cities Station and fossil fuel
      generation operating expenses increased $10.3 million. Costs of energy
      efficiency programs increased $3.3 million compared to 2003 and were offset
      by a comparable increase in energy efficiency cost recovery in revenues.
      Decreases of $3.4 million and $3.3 million, respectively, in deferred
      compensation expenses and other postretirement costs partially offset these
      increases.




33




Maintenance
      expenses increased $25.4 million compared to 2003 due principally to a
      $19.3 million increase in steam generation maintenance, substantially for
      preventive maintenance. Additionally, distribution maintenance costs increased
      $5.0 million.





Depreciation
      and amortization expense decreased $14.7 million compared to 2003 due
      primarily to a $9.8 million decrease related to revenue sharing
      arrangements in Illinois and Iowa. Additionally, utility plant depreciation
      and
      amortization decreased in part due to software assets that were fully
      depreciated in 2003.





Nonregulated
      Gross Margin





2004
            
            2003(In
                millions)MidAmerican
                Energy -Nonregulated
                operating revenues
            
            $
            263.7
            
            $
            250.4Less
                nonregulated cost of sales
            
            
            230.6
            
            
            215.7Nonregulated
                gross margin
            
            $
            33.1
            
            $
            34.7MidAmerican
                Funding Consolidated -Nonregulated
                operating revenues
            
            $
            269.1
            
            $
            254.8Less
                nonregulated cost of sales
            
            
            232.0
            
            
            216.2Nonregulated
                gross margin
            
            $
            37.1
            
            $
            38.6





MidAmerican
      Energy’s nonregulated gross margin for 2004 decreased $1.6 million compared
      to 2003. The following table presents the margins related to various
      nonregulated activities (in millions):





2004
            
            2003Nonregulated
                electric
            
            $
            16.8
            
            $
            15.0Nonregulated
                gas
            
            
            7.2
            
            
            7.9Income
                sharing arrangements under regulated gas tariffs
            
            
            3.7
            
            
            5.0Incentive
                gas supply procurement program award
            
            
            2.4
            
            
            3.7Other
            
            
            3.0
            
            
            3.1$
            33.1
            
            $
            34.7





The
      improvement in nonregulated electric gross margin was due to an increase in
      sales volumes partially offset by a decrease in the related margin per unit
      sold. The decrease in nonregulated gas gross margin was due to a decrease in
      sales volumes compared to 2003, offset partially by an increase in the margin
      per unit sold.





Nonregulated
      operations also include earnings from sharing arrangements under applicable
      state regulations and tariffs filed with the IUB and the SDPUC for MidAmerican
      Energy’s regulated natural gas operations. Under these arrangements, MidAmerican
      Energy is allowed to keep a portion of the benefits of gas sales for resale
      and
      capacity release transactions. MidAmerican Energy also has an Incentive Gas
      Supply Procurement Program (“IGSPP”) in Iowa and a similar program in South
      Dakota, under which it can receive awards for successful performance of gas
      supply procurement. Under the IGSPP, if MidAmerican Energy's cost of gas varies
      from an established reference price range, then the savings or cost is shared
      between customers and shareholders. The IGSPP extends through October 31,
      2006, and the South Dakota program extends through October 31,
      2010.





Allowance
      for Equity Funds





As
      a
      regulated public utility, MidAmerican Energy is allowed to capitalize, and
      record as income, a cost of construction for equity funds used, based on
      guidelines set forth by the FERC. The increase in income for the capitalized
      allowance on equity funds used during construction in 2004 was due to the
      increase in construction work in progress compared to 2003. MidAmerican Energy
      expects to continue to record higher-than-normal income for the allowance on
      equity funds used during construction through 2007 while the announced
      generating facilities are constructed.




34




Other
      Income and Expense





MidAmerican
      Funding -





During
      2004, MidAmerican Funding received distributions totaling $2.5 million from
      several of its investments in energy projects and venture capital funds.





Other
      income for 2003 includes $1.8 million of income from equity method
      investments and $3.1 million of income related to the settlement of a
      lawsuit.





Other
      expense for MidAmerican Funding in 2004 includes losses totaling
      $1.7 million for write-downs related to two aircraft leases accounted for
      as leveraged leases. Other expense for MidAmerican Funding in 2003 includes
      losses of $4.3 million for the write-down of an impaired energy project and
      $2.1 million for the write-off of a receivable from a venture capital
      investment.





Fixed
      Charges and Preferred Dividends





MidAmerican
      Energy -





Other
      interest expense increased due to interest on the Iowa revenue sharing
      regulatory liability. MidAmerican Energy is allowed to capitalize, and record
      as
      a reduction to fixed charges, a cost of construction for debt funds used, based
      on guidelines set forth by the FERC. The increase in allowance for borrowed
      funds is the result of MidAmerican Energy’s increased construction expenditures.
      MidAmerican Energy expects to continue to record higher-than-normal allowance
      for borrowed funds used during construction through 2007 while the announced
      generating facilities are constructed. Dividends for MidAmerican Energy’s
      preferred securities, which are reflected after Net Income on MidAmerican
      Energy’s Consolidated Statements of Operations, decreased due to preferred
      securities reacquired in January 2004.





Income
      Taxes





MidAmerican
      Energy -





In
      September 2004, the Iowa legislature passed legislation adopting a federal
      tax
      provision into Iowa law that provides accelerated tax depreciation for certain
      assets acquired after May 5, 2003 and before January 1, 2005. As a
      result of Iowa regulatory rules for utility income taxes, MidAmerican Energy’s
      income taxes for 2004 were reduced by approximately $15.7 million,
      including the retroactive adjustment for 2003.





State
      utility rate recognition in Iowa requires that the tax effect of certain timing
      differences be flowed through immediately to customers. Therefore, amounts
      that
      would otherwise have been recognized in income tax expense have been included
      as
      changes in regulatory assets. This flow-through treatment of such timing
      differences impacts the effective tax rates from year to year.





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





MidAmerican
      Funding -





A
      significant portion of MidAmerican Energy’s tax liability for the settled issue
      above was originally established in 1999 when MidAmerican Energy's parent
      company, MHC Inc., was acquired by MidAmerican Funding. This change in estimate
      of an income tax uncertainty that resulted from a purchase business combination
      was accounted for as an adjustment to the remaining balance of goodwill
      attributable to the acquisition. Accordingly, in 2004, MidAmerican Funding
      decreased goodwill and increased income tax expense by $4.7 million to
      reflect the settlement of that portion of the income tax liability recognized
      at
      the time of the acquisition of MHC. The net result of the reduction at
      MidAmerican Energy and the goodwill adjustment at MidAmerican Funding was a
      $3.8
      million decrease in consolidated income tax expense for 2004.




35




**Liquidityand
      Capital Resources**





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





As
      reflected on the Consolidated Statements of Cash Flows, MidAmerican Energy’s net
      cash provided by operating activities was $463.2 million,
      $523.5 million and $441.3 million for 2005, 2004 and 2003,
      respectively. MidAmerican Funding’s net cash provided by operating activities
      was $423.7 million, $493.6 million and $416.7 million for 2005,
      2004 and 2003, respectively. The decrease in cash provided by operating
      activities for 2005 compared to 2004 was principally due to an increase in
      income taxes paid as tax depreciation was unusually high due to benefits from
      bonus depreciation in 2004. Similarly, cash provided by operating activities
      for
      2004 was greater than in 2003 due to the reduction of income taxes paid in
      2004
      primarily as a result of the benefits of bonus depreciation in
      2004.





Utility
      Construction Expenditures





MidAmerican
      Energy’s primary need for capital is utility construction expenditures. For
      2005, utility construction expenditures incurred totaled $766.2 million,
      including allowance for funds used during construction and Quad Cities Station
      nuclear fuel purchases. Utility construction expenditures include non-cash
      and
      accrued amounts, which include $29.0 million in 2005 for MidAmerican
      Energy’s share of deferred payments related to the Council Bluffs Energy Center
      Unit No. 4 (“CBEC Unit 4”) generation project. Under a contract with the
      general contractor on that project, MidAmerican Energy is allowed to defer
      payments, including the other owners’ shares, for up to $200.0 million of
      billed construction costs through the end of the project. Another non-cash
      expenditure included in utility construction expenditures relates to a computed
      cost of equity funds. As a regulated public utility, MidAmerican Energy is
      allowed to capitalize, and record as income, a cost of equity funds used for
      construction, based on guidelines set forth by the FERC.





Forecasted
      utility construction expenditures, including allowance for funds used during
      construction and the wind power project discussed below, are $797 million
      for 2006. Capital expenditure needs are reviewed regularly by management and
      may
      change significantly as a result of such reviews. MidAmerican Energy expects
      to
      meet these capital expenditures with cash flows from operations and the issuance
      of long-term debt.





MidAmerican
      Energy anticipates a continuing increase in demand for electricity from its
      regulated customers. To meet anticipated demand and ensure adequate electric
      generation in its service territory, MidAmerican Energy is currently
      constructing CBEC Unit 4, a 790-MW (expected accreditation)
      super-critical-temperature, coal-fired generating plant. MidAmerican Energy
      will
      operate the plant and hold an undivided ownership interest as a tenant in common
      with the other owners of the plant. MidAmerican Energy's current ownership
      interest is 60.67%, equating to 479 MW of output. Municipal, cooperative and
      public power utilities will own the remainder, which is a typical ownership
      arrangement for large base-load plants in Iowa. The facility will provide
      service to regulated retail electricity customers. Wholesale sales may also
      be
      made from the facility to the extent the power is not immediately needed for
      regulated retail service. MidAmerican Energy has obtained regulatory approval
      to
      include the Iowa portion of the actual cost of the generation project in its
      Iowa rate base as long as the actual cost does not exceed the agreed cap that
      MidAmerican Energy has deemed to be reasonable. If the cap is exceeded,
      MidAmerican Energy has the right to demonstrate the prudence of the expenditures
      above the cap, subject to regulatory review. MidAmerican Energy expects to
      invest approximately $737 million in CBEC Unit 4, including transmission
      facilities and excluding allowance for funds used during construction. Through
      December 31, 2005, MidAmerican Energy has invested $502.0 million in the
      project, including $121.3 million for MidAmerican Energy’s share of deferred
      payments allowed by the construction contract.





On
      December 16, 2005, MidAmerican Energy filed with the IUB a settlement
      agreement between MidAmerican Energy and the Iowa Office of Consumer Advocate
      (“OCA”) regarding ratemaking principles for up to 545 MW (nameplate ratings) of
      additional wind generation capacity in Iowa. Generally speaking, accredited
      capacity ratings for wind power facilities are considerably less than the
      nameplate ratings due to the varying nature of wind. The settlement agreement
      is
      subject to approval by the IUB. Refer to “Utility Regulatory Matters” below for
      more information regarding the rate aspects of the settlement
      agreement.




36




In
      February 2006, MidAmerican Energy executed an agreement with a developer for
      the
      development of a wind power project in Iowa. MidAmerican Energy also entered
      into an agreement with a second company for the construction of approximately
      99
      MW (nameplate rating) of wind turbines at that site.





Nuclear
      Decommissioning





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





MidAmerican
      Energy currently contributes $8.3 million annually to trusts established
      for the investment of funds for decommissioning Quad Cities Station. As of
      December 31, 2005, approximately 56.0% of the fair value of the trusts’
funds was invested in domestic common equity securities, 13.7% in domestic
      corporate debt and the remainder in investment grade municipal and U.S. Treasury
      bonds. Funding for Quad Cities Station nuclear decommissioning is reflected
      as
      depreciation expense in the Consolidated Statements of Operations. Quad Cities
      Station decommissioning costs charged to Iowa customers are included in base
      rates, and recovery of increases in those amounts must be sought through the
      normal ratemaking process.





Contractual
      Obligations and Commercial Commitments





MidAmerican
      Energy and MidAmerican Funding have various contractual obligations and
      commercial commitments. The following table summarizes as of December 31,
      2005, the material cash obligations of MidAmerican Energy and MidAmerican
      Funding (in millions).





Period
                Payments are Due2007-
            
            
            2009-
            
            
            AfterType
                of Obligation
            
            
            Total
            
            
            2006
            
            
            2008
            
            
            2010
            
            
            2010MidAmerican
                Energy:Long-term
                debt, excluding unamortized debtpremium
                and discount, net
            
            $
            1,637.1
            
            $
            160.5
            
            $
            2.1
            
            $
            -
            
            $
            1,474.5Operating
                leases (1)
            
            
            28.9
            
            
            6.9
            
            
            10.5
            
            
            4.1
            
            
            7.4Coal,
                electricity and natural gas contractcommitments
                (1)
            
            
            742.3
            
            
            181.1
            
            
            248.6
            
            
            118.3
            
            
            194.3Deferred
                costs on construction contract (2)
            
            
            200.0
            
            
            -
            
            
            200.0
            
            
            -
            
            
            -Interest
                payments on long-term debt (3)
            
            
            1,507.1
            
            
            81.5
            
            
            152.7
            
            
            152.7
            
            
            1,120.24,115.4
            
            
            430.0
            
            
            613.9
            
            
            275.1
            
            
            2,796.4MidAmerican
                Funding parent:Long-term
                debt
            
            
            700.0
            
            
            -
            
            
            -
            
            
            175.0
            
            
            525.0Interest
                payments on long-term debt
            
            
            642.1
            
            
            47.1
            
            
            94.2
            
            
            77.6
            
            
            423.21,342.1
            
            
            47.1
            
            
            94.2
            
            
            252.6
            
            
            948.2Total
            
            $
            5,457.5
            
            $
            477.1
            
            $
            708.1
            
            $
            527.7
            
            $
            3,744.6





(1)
            The
                operating leases and coal, energy and natural gas commitments are
                not
                reflected on the Consolidated Balance Sheets. Refer to Note (4)(d)
                in
                Notes to Consolidated Financial Statements in Item 8 for a discussion
                of
                the nature of these commitments.(2)
            MidAmerican
                Energy is allowed to defer up to $200.0 million in payments to the
                contractor under its contract to build CBEC Unit 4. Refer to Note
                (4)(f)
                in Notes to Consolidated Financial Statements in Item 8 for a discussion
                of this commitment. Approximately 39.3% of this commitment is expected
                to
                be funded by the joint owners of CBEC Unit 4.(3)
            Excludes
                interest payments on variable rate long-term
                debt.




37




MidAmerican
      Energy has other types of commitments that are subject to change and relate
      primarily to the items listed below. For additional information, refer, where
      applicable, to the respective referenced note in Notes to Consolidated Financial
      Statements in Item 8.





·
            Construction
                expenditures: Refer to the “Utility Construction Expenditures” section
                above.





·
            Nuclear
                decommissioning costs (see Note
                (4)(b))





·
            Residual
                guarantees on operating leases (see Note
                (4)(e))





·
            Pension
                and postretirement plans (see Note
                (9))





Debt
      Redemption and Issuance





MidAmerican
      Energy’s 7% series of mortgage bonds, totaling $90.5 million, matured on
      February 15, 2005. On November 1, 2005, MidAmerican Energy issued
      $300 million of 5.75% medium-term notes due November 1,
      2035.





Debt
      Authorizations and Credit Facilities





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





MidAmerican
      Energy currently has the necessary authorizations from the Securities and
      Exchange Commission, the Illinois Commerce Commission and the FERC to issue
      $230.0 million of additional long-term securities. The authorization from
      the FERC, which totals $425.0 million, expires November 30, 2006.





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





Other
      Financing Information





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





**Credit
      RatingsRisks**





Debt
      and
      preferred securities of MidAmerican Funding and MidAmerican Energy are rated
      by
      nationally recognized credit rating agencies. Assigned credit ratings are based
      on each rating agency’s assessment of MidAmerican Funding’s or MidAmerican
      Energy’s ability to, in general, meet the obligations of the debt or preferred
      securities issued by the rated company. The credit ratings are not a
      recommendation to buy, sell or hold securities, and there is no assurance that
      a
      particular credit rating will continue for any given period of time. As of
      February 3, 2006, MidAmerican Energy’s senior unsecured debt credit ratings
      were as follows: Fitch Ratings, “A-/stable;” Moody’s Investor Service, “A3/under
      review, upgrade;” and Standard and Poor’s, “A-/stable.” Other than the energy
      supply and marketing agreements discussed below, neither MidAmerican Funding
      nor
      MidAmerican Energy has any credit agreements that require termination or a
      material change in collateral requirements or payment schedule in the event
      of a
      downgrade in the credit ratings of the respective company’s
      securities.




38




In
      conjunction with its risk management activities, MidAmerican Energy must meet
      credit quality standards as required by counterparties. In accordance with
      industry practice, master agreements that govern MidAmerican Energy’s energy
      supply and marketing activities either specifically require it to maintain
      investment grade credit ratings or provide the right for counterparties to
      demand “adequate assurances” in the event of a material adverse change in
      MidAmerican Energy’s creditworthiness. If one or more of MidAmerican Energy’s
      credit ratings decline below investment grade, MidAmerican Energy may be
      required to post cash collateral, letters of credit or other similar credit
      support to facilitate ongoing wholesale energy supply and marketing activities.
      As of December 31, 2005, MidAmerican Energy’s estimated potential
      collateral requirements totaled approximately $267 million. MidAmerican
      Energy’s potential collateral requirements could fluctuate considerably due to
      seasonality, market price volatility, and a loss of key MidAmerican Energy
      generating facilities or other related factors.





**Utility
      Regulatory Matters**





Rate
      Matters





Under
      settlement agreements between MidAmerican Energy, the Iowa Office of Consumer
      Advocate (“OCA”) and other intervenors approved by the IUB, MidAmerican Energy
      has agreed not to seek a general increase in electric rates to become effective
      prior to January 1, 2012, unless its Iowa jurisdictional electric return on
      equity for any year falls below 10%. As a party to the settlement agreements,
      the OCA has agreed not to seek any decrease in MidAmerican Energy’s Iowa
      electric rates prior to January 1, 2012. Additionally, on
      December 16, 2005, MidAmerican Energy filed with the IUB a settlement
      agreement between MidAmerican Energy and the OCA that proposes extending through
      2012 the commitments by MidAmerican Energy and the OCA not to seek an increase
      or decrease, respectively, in Iowa electric base rates to become effective
      prior
      to January 1, 2013. Illinois bundled electric rates are frozen until 2007,
      subject to certain exceptions allowing for increases, at which time bundled
      rates may be increased or decreased by the ICC. Refer to Note (5) of MidAmerican
      Energy’s Notes to Consolidated Financial Statements in Item 8 for further
      discussion of these rate matters.





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





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




39


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





Transmission
      Developments





On
      June 3, 2004, the FERC’s Division of Operational Investigations of the
      Office of Market Oversight and Investigations (“OMOI”) informed MidAmerican
      Energy that it was commencing an audit to determine whether and how MidAmerican
      Energy and its subsidiaries and affiliates are complying with (1) requirements
      of the standards of conduct and open access same-time information system of
      the
      FERC’s regulations, and (2) codes of conduct. In addition, the OMOI sought to
      review MidAmerican Energy’s transmission practices. The FERC commenced several
      such audits of utilities in 2003 and 2004. On September 29, 2005, the FERC
      approved the audit findings and MidAmerican Energy agreed to take certain
      corrective actions. Accordingly, MidAmerican Energy will build $9.2 million
      in previously unscheduled transmission system upgrades. That capital expenditure
      will be excluded from MidAmerican Energy’s rate base for six years during which
      time MidAmerican Energy will not earn a return on the transmission upgrades.
      In
      addition, MidAmerican Energy has agreed to accelerate $14.7 million of
      scheduled transmission system upgrades. MidAmerican Energy has implemented
      a
      compliance plan to address certain aspects of the audit findings relating to
      transmission practices and the administration of its Open Access Transmission
      Tariff (“OATT”).





On
      July 22, 2005, MidAmerican Energy made a filing with the FERC requesting
      its approval to establish a transmission service coordinator (“TSC”). The TSC
      would be a third party administrator of various MidAmerican Energy OATT
      functions for transmission service. On December 16, 2005, the FERC issued
      an order conditionally accepting MidAmerican Energy’s request to establish a
      TSC. The order requires MidAmerican Energy to make modifications to the draft
      TSC agreement filed with the FERC as part of the request and to file a final
      executed TSC agreement with the FERC for its review prior to the agreement
      becoming effective. MidAmerican Energy has entered into a contract with a third
      party vendor to administer MidAmerican Energy’s OATT. MidAmerican Energy does
      not believe that the incremental costs will have a material impact on its
      results of operations, financial position or cash flows. Subject to FERC
      approval, the TSC is scheduled to commence operations in the third quarter
      of
      2006. Under the contract, the vendor would provide its tariff administration
      and
      planning services into the fall of 2009.





Electric
      Trading Developments





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





The
      Energy Policy Act of 2005





On
      August 8, 2005, the Energy Policy Act of 2005 (“Energy Policy Act”) was
      signed into law. That law potentially impacts many segments of the energy
      industry. A tax provision extended the federal production tax credit for new
      renewable electricity generation projects through December 31, 2007. In
      part as a result of that portion of the law, MidAmerican Energy began
      development efforts to add additional wind generation, as previously discussed
      under “Utility Construction Expenditures” above. The law also results in
      expanding FERC regulatory authority in areas such as electric system
      reliability, electric transmission expansion and pricing, regulation of utility
      holding companies, and enforcement authority to issue substantial civil
      penalties. The Energy Policy Act also repealed the Public Utility Holding
      Company Act of 1935 effective February 8, 2006. As a result of the repeal
      and a stock conversion, effective February 9, 2006, Berkshire Hathaway Inc.
      became the majority owner of MidAmerican Energy Holdings.




40




**Environmental
      Matters**





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





The
      EPA
      has in recent years implemented and proposed more stringent national ambient
      air
      quality standards. Additionally, legislation is pending, and could be proposed
      in the future, that may impact MidAmerican Energy if enacted. MidAmerican Energy
      has implemented a planning process that forecasts the site-specific controls
      and
      actions that may be required to meet emissions reductions as promulgated by
      the
      EPA. The plan allows MidAmerican Energy to more effectively manage its
      expenditures required to comply with emissions standards. MidAmerican Energy
      currently estimates that the incremental capital and operating expenditures
      to
      comply with environmental requirements will total approximately
      $470 million through 2012. Such estimates may change significantly at any
      time as a result of, among other factors, changes in related regulations, prices
      of products used to meet the requirements and management’s strategies for
      achieving compliance with the regulations.




Refer
      to
      Note (4)(a) of Notes to Consolidated Financial Statements in Item 8 for further
      discussion of air quality standards affecting MidAmerican Energy.





On
      February 16, 2005, the Kyoto Protocol became effective, requiring 35
      developed countries to reduce greenhouse gas emissions by approximately 5%
      between 2008 and 2012. While the United States did not ratify the protocol,
      the
      ratification and implementation of its requirements in other countries has
      resulted in increased attention on the climate change issue in the United
      States. The Senate has adopted a “sense of the Senate” resolution that puts the
      Senate on record that Congress should enact a comprehensive and effective
      national program of mandatory, market-based limits and incentives on emissions
      of greenhouse gases that slow, stop, and reverse the growth of such emissions
      at
      a rate and in a manner that will not significantly harm the United States
      economy; and will encourage comparable action by other nations that are major
      trading partners and key contributors to global emissions.





While
      debate continues at the national level over the direction of domestic climate
      policy, several states are developing state-specific or regional legislative
      initiatives to reduce greenhouse gas emissions. The outcome of climate change
      litigation and federal and state initiatives cannot be determined at this time;
      however, adoption of stringent limits on greenhouse gas emissions could
      significantly impact MidAmerican Energy’s fossil-fueled facilities and,
      therefore, its results of operations.





**Generating
      Capability**





On
      July 20, 2005, retail customer usage of electricity caused a new record
      hourly peak demand of 4,040 MW on MidAmerican Energy’s electric system, 105 MW
      greater than the previous record set in August 2003. MidAmerican Energy is
      interconnected with Iowa utilities and utilities in neighboring states.
      MidAmerican Energy is also a party to an electric generation reserve sharing
      pool and regional transmission group administered by the Mid-Continent Area
      Power Pool (“MAPP”). Each MAPP generation reserve participant is required to
      maintain for emergency purposes a net generating capability reserve of at least
      15% above its system peak demand on a 12-month rolling basis. MidAmerican
      Energy’s reserve margin at peak demand for 2005 was approximately
      26%.





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





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




41




The
      transmission developments may also impact MidAmerican Energy's wholesale
      electric purchases and sales. The FERC has proceedings underway which may
      influence the wholesale electric marketplace. Because of the uncertainties
      as to
      future regulatory policy governing transmission service and pricing, and
      regulation of wholesale electric sales, MidAmerican Energy is uncertain whether
      past wholesale costs and revenues will be representative of future wholesale
      costs and revenues.





**Critical
      Accounting Policies and
      Estimates**





The
      preparation of financial statements and related documents in conformity with
      Generally Accepted Accounting Principles requires management to make judgments,
      assumptions and estimates that affect the amounts reported in the consolidated
      financial statements and accompanying notes. Note (1) of Notes to Consolidated
      Financial Statements in Item 8 describes the significant accounting policies
      and
      methods used in the preparation of the consolidated financial statements.
      Estimates are used for, but not limited to, the accounting for the effects
      of
      certain types of regulation, impairment of long-lived assets and goodwill,
      contingent liabilities, accrued pension and postretirement expense, income
      taxes
      and revenue. Actual results could differ from these estimates. The following
      critical accounting policies are impacted significantly by judgments,
      assumptions and estimates used in the preparation of the consolidated financial
      statements.





Accounting
      for Regulated Entities





MidAmerican
      Funding and MidAmerican Energy apply Statement of Financial Accounting Standards
      (“SFAS”) No. 71, “Accounting for the Effects of Certain Types of Regulation,”
for MidAmerican Energy’s utility operations. A possible consequence of
      deregulation in the utility industry is that SFAS No. 71 may no longer apply.
      SFAS No. 71 sets forth accounting principles for operations that are regulated
      and meet the stated criteria. For operations that meet the criteria, SFAS No.
      71
      requires, among other things, the deferral of expense or income that would
      otherwise be recognized when incurred. MidAmerican Energy’s electric and gas
      utility operations currently meet the criteria required by SFAS No. 71, but
      its
      applicability is periodically reexamined. If portions of its utility operations
      no longer meet the criteria of SFAS No. 71, MidAmerican Energy could be required
      to write off the related regulatory assets and liabilities from its balance
      sheet, and thus, a material adjustment to earnings could result in that period
      and on an on-going basis.





Unbilled
      Revenue





Revenues
      are recorded as services are rendered to customers. MidAmerican Energy records
      unbilled revenues representing an estimate of the amount customers will be
      billed for services rendered between the meter-reading dates in a particular
      month and the end of that month. Factors that can impact the calculation include
      weather conditions, line losses, the assignment of volumes to customer groups,
      and prices applied to unbilled sales. The unbilled revenues estimate is reversed
      in the following month. To the extent the estimated amount differs from the
      amount subsequently billed, reported revenues will be affected. At
      December 31, 2005 and 2004, $91.7 million and $68.5 million,
      respectively, of unbilled revenues were included in accounts
      receivable.





Goodwill





The
      provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” which
      establishes the accounting for acquired goodwill and other intangible assets
      and
      provides that goodwill and indefinite-lived intangible assets will not be
      amortized, require allocating goodwill to each reporting unit and testing for
      impairment using a two-step approach. The goodwill impairment test is performed
      annually or whenever an event has occurred that would more likely than not
      reduce the fair value of a reporting unit below its carrying amount. MidAmerican
      Funding completed its annual review pursuant to SFAS No. 142 as of
      October 31, 2005, primarily using a discounted cash flow methodology. No
      impairment was indicated as a result of these assessments.





MidAmerican
      Funding records goodwill adjustments for (i) changes in the estimates of or
      the
      settlement of tax bases of acquired assets, liabilities and carryforwards and
      items relating to acquired entities’ prior income tax returns and (ii) the tax
      benefit associated with the excess of tax-deductible goodwill over the reported
      amount of goodwill. Determination of the fair values of the related reporting
      units involves substantial estimates, as ready markets are not available for
      all
      reporting units. Accordingly, a change in the assumptions and/or estimates
      used
      in the determination of the fair values of the reporting units, including
      forecasts of cash flows and discount rates applied to such cash flows, could
      significantly affect the outcome, possibly resulting in an impairment of related
      goodwill.




42


Contingent
      Liabilities





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





Accrued
      Pension and Postretirement Expense





Pension
      and postretirement costs are accrued throughout the year based on results of
      an
      annual study performed by external actuaries. In addition to the benefits
      granted to employees, the timing of the cost of these plans is impacted by
      assumptions used by the actuaries, including assumptions provided by MidAmerican
      Energy for the discount rate and long-term rate of return on assets. Both of
      these factors require estimates and projections by management and can fluctuate
      from period to period. Actual returns on assets are significantly affected
      by
      stock and bond markets, over which management has little control. The interest
      rate at which projected benefits are discounted also significantly affects
      amounts expensed. Refer to Note (9) of Notes to Consolidated Financial
      Statements in Item 8 for disclosures about MidAmerican Energy retirement plans
      and costs. If management changed the assumed discount rate or long-term rate
      of
      return on assets by one percentage point, the approximate effect on the
      respective plans would be as follows:





Other
                PostretirementPension
                Plans
            
            Benefit
                Plans+1.0%
            
            -1.0%
            
            +1.0%
            
            -1.0%(in
                thousands)Effect
                on December 31, 2005, benefit obligations:Discount
                rate
            
            $
            (62,128
            )
            $
            75,213
            
            $
            (28,671
            )
            $
            35,735Effect
                on periodic benefit cost:Discount
                rate
            
            
            (4,059
            )
            
            1,900
            
            
            (2,104
            )
            
            2,122Expected
                return on assets
            
            
            (5,580
            )
            
            5,579
            
            
            (1,419
            )
            
            1,417





Income
      Taxes





MidAmerican
      Energy and MidAmerican Funding recognize deferred tax assets and liabilities
      based on the difference between the financial statement and tax basis of assets
      and liabilities using estimated tax rates in effect for the year in which the
      differences are expected to reverse. Based on existing regulatory precedent,
      MidAmerican Energy is not allowed to recognize deferred income tax expense
      related to certain temporary differences resulting from accelerated tax
      depreciation and other property related basis differences. For these
      differences, MidAmerican Energy establishes deferred tax liabilities and
      regulatory assets on the consolidated balance sheets since MidAmerican Energy
      is
      allowed to recover the increased tax expense when these differences
      reverse.





MidAmerican
      Energy and MidAmerican Funding establish accruals for certain tax contingencies
      when, despite the belief that their tax return positions are fully supported,
      they also believe that certain positions may be challenged and that it is
      probable the positions may not be fully sustained. MidAmerican Energy and
      MidAmerican Funding are under continuous examination by the Internal Revenue
      Service and other tax authorities and account for potential losses of tax
      benefits in accordance with SFAS No. 5, “Accounting for Contingencies.” Tax
      contingency reserves are included in taxes accrued and other liabilities -
      other
      on the consolidated balance sheets. Considering all tax contingency reserves,
      neither company expects the resolution of these matters to have a material
      impact on its financial position or result of operations.




43




The
      calculation of current and deferred income taxes requires management to apply
      judgment related to the application of complex tax laws or interpretations
      and
      uncertainties related to the outcome of tax audits. Changes in such factors
      may
      result in changes to management’s estimates, which could require MidAmerican
      Energy or MidAmerican Funding to adjust its currently recorded tax assets and
      liabilities and record additional income tax expense or benefits.





**Item 7A.**
            **Quantitative
                and Qualitative Disclosures About Market
                Risk**





MidAmerican
      Funding, including MidAmerican Energy, is exposed to loss of net income, cash
      flows and asset values due to market risk, including: 1) changes in the market
      price of gas, electricity and fuel used in its regulated and nonregulated
      businesses, 2) variations in the severity of weather conditions from normal,
      and
      3) changes in interest rates. See also Note (13) of Notes to Consolidated
      Financial Statements in Item 8 for a discussion of MidAmerican Funding’s and
      MidAmerican Energy’s exposures to credit risk. To manage these exposures,
      MidAmerican Energy enters into various financial derivative instruments,
      including futures, swaps, options and forward physical contracts. Through the
      functioning of a risk oversight committee, senior management provides the
      overall direction, structure, conduct and control of MidAmerican Energy’s risk
      management activities, including authorization and communication of risk
      management policies and procedures, the use of financial derivative instruments,
      strategic hedging program guidelines, appropriate market and credit risk limits,
      and appropriate systems for recording, monitoring and reporting the results
      of
      transactional and risk management activities. Refer to Note (12) of Notes to
      Consolidated Financial Statements in Item 8 for a discussion of MidAmerican
      Energy’s derivative instruments and its commodity price and weather
      risks.





Interest
      Rate Risk





MidAmerican
      Energy -





As
      of
      December 31, 2005, MidAmerican Energy had fixed-rate long-term debt
      totaling $1.5 billion with a fair value of $1.6 billion. These
      instruments are fixed-rate and therefore do not expose MidAmerican Energy to
      the
      risk of earnings loss due to changes in market interest rates. However, the
      fair
      value of these instruments would decrease by approximately $78 million if
      interest rates were to increase by 10% from their levels at December 31,
      2005. In general, such a decrease in fair value would impact earnings and cash
      flows only if MidAmerican Energy were to reacquire all or a portion of these
      instruments prior to their maturity.





As
      of
      December 31, 2005, MidAmerican Energy had long-term floating rate
      obligations totaling $120 million that expose MidAmerican Energy to risk of
      increased interest expense in the event of increases in short-term interest
      rates. This market risk is not hedged. The carrying value of the long-term
      and
      floating rate obligations at December 31, 2005, approximated fair value. If
      the floating interest rates were to increase by 10% from December 31, 2005,
      levels, MidAmerican Energy’s interest expense for the floating rate obligations
      would increase by approximately $0.4 million annually based on
      December 31, 2005, principal balances.





MidAmerican
      Funding -





As
      of
      December 31, 2005, MidAmerican Funding had fixed-rate long-term debt
      totaling $700 million with a fair value of $757 million. These
      instruments are fixed-rate and therefore do not expose MidAmerican Funding
      to
      the risk of earnings loss due to changes in market interest rates. However,
      the
      fair value of these instruments would decrease by approximately $32 million
      if interest rates were to increase by 10% from their levels at December 31,
      2005. In general, such a decrease in fair value would impact earnings and cash
      flows only if MidAmerican Funding were to reacquire all or a portion of these
      instruments prior to their maturity.




44


**Item
      8.**  **Financial
      Statements and Supplementary Data**





MidAmerican
      Energy Company and Subsidiary




Report
                of
                Independent Registered Public Accounting Firm
              46Consolidated
                Balance
                Sheets
              47Consolidated
                Statements of Operations
              48Consolidated
                Statements of Comprehensive Income
              49Consolidated
                Statements of Cash Flows
              50Consolidated
                Statements of Capitalization
              51Consolidated
                Statements of Retained Earnings
              52Notes to Consolidated
                Financial Statements
              53MidAmerican
                  Funding, LLC and
                  SubsidiariesReport of Independent
                Registered Public Accounting Firm
              79Consolidated
                Balance
                Sheets
              80Consolidated
                Statements of Operations
              81Consolidated
                Statements of Comprehensive Income
              82Consolidated Statements
                of
                Cash Flows
              83Consolidated
                Statements of Capitalization
              84Consolidated
                Statements of Retained Earnings
              85Notes to Consolidated
                Financial Statements
              86








45


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**











To
      the
      Board of Directors and Shareholder


MidAmerican
      Energy Company


Des
      Moines, Iowa





We
      have
      audited the accompanying consolidated balance sheets and consolidated statements
      of capitalization of MidAmerican Energy Company and subsidiary (the “Company”)
      as of December 31, 2005 and 2004, and the related consolidated statements
      of operations, comprehensive income, retained earnings, and cash flows for
      each
      of the three years in the period ended December 31, 2005. Our audits also
      included the financial statement schedule listed in the Index at Item 15. These
      financial statements and financial statement schedule are the responsibility
      of
      the Company’s management. Our responsibility is to express an opinion on the
      financial statements and financial statement schedule based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audits included consideration of internal control
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of MidAmerican Energy Company and subsidiary
      as
      of December 31, 2005 and 2004, and the results of their operations and
      their cash flows for each of the three years in the period ended
      December 31, 2005, in conformity with accounting principles generally
      accepted in the United States of America. Also, in our opinion, such financial
      statement schedule, when considered in relation to the basic consolidated
      financial statements taken as a whole, presents fairly in all material respects
      the information set forth therein.











/s/
      Deloitte & Touche LLP





Des
      Moines, Iowa


March 3,
      2006









46


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEETS**


(In
      thousands)





**As
                of December 31,****2005**
            
            **2004****ASSETS****Utility
                Plant, Net**Electric
            
            $
            5,933,387
            
            $
            5,498,878Gas
            
            
            992,834
            
            
            957,0116,926,221
            
            
            6,455,889Accumulated
                depreciation and amortization
            
            
            (3,096,933
            )
            
            (2,956,856
            )3,829,288
            
            
            3,499,033Construction
                work in progress
            
            
            596,458
            
            
            369,4064,425,746
            
            
            3,868,439**Current
                Assets**Cash
                and cash equivalents
            
            
            70,914
            
            
            88,113Short-term
                investments
            
            
            25,425
            
            
            39,500Receivables,
                less reserves of $10,872 and $8,678, respectively
            
            
            463,630
            
            
            332,759Inventories
            
            
            84,623
            
            
            89,646Other
            
            
            61,221
            
            
            22,080705,813
            
            
            572,098**Investments
                and Nonregulated Property, Net**
            
            
            359,690
            
            
            333,360**Regulatory
                Assets**
            
            
            237,201
            
            
            227,997**Other
                Assets**
            
            
            135,687
            
            
            110,057**Total
                Assets**
            
            $
            5,864,137
            
            $
            5,111,951**CAPITALIZATION
                AND LIABILITIES****Capitalization**Common
                shareholder’s equity
            
            $
            1,744,882
            
            $
            1,527,468MidAmerican
                Energy preferred securities
            
            
            30,329
            
            
            30,329Long-term
                debt, excluding current portion
            
            
            1,471,251
            
            
            1,331,5093,246,462
            
            
            2,889,306**Current
                Liabilities**Current
                portion of long-term debt
            
            
            160,509
            
            
            91,018Accounts
                payable
            
            
            359,496
            
            
            241,836Taxes
                accrued
            
            
            84,122
            
            
            91,108Interest
                accrued
            
            
            14,488
            
            
            13,842Other
            
            
            94,501
            
            
            83,949713,116
            
            
            521,753**Other
                Liabilities**Deferred
                income taxes
            
            
            471,892
            
            
            456,581Investment
                tax credits
            
            
            43,962
            
            
            48,143Asset
                retirement obligations
            
            
            191,117
            
            
            166,845Regulatory
                liabilities
            
            
            763,155
            
            
            677,489Other
            
            
            434,433
            
            
            351,8341,904,559
            
            
            1,700,892**Total
                Capitalization and Liabilities**
            
            $
            5,864,137
            
            $
            5,111,951





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




47





**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**


(In
      thousands)





**Years
                Ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****Operating
                Revenues**Regulated
                electric
            
            $
            1,513,239
            
            $
            1,421,709
            
            $
            1,397,997Regulated
                gas
            
            
            1,322,717
            
            
            1,010,909
            
            
            947,393Nonregulated
            
            
            324,381
            
            
            263,735
            
            
            250,4223,160,337
            
            
            2,696,353
            
            
            2,595,812**Operating
                Expenses**Regulated:Cost
                of fuel, energy and capacity
            
            
            468,132
            
            
            398,610
            
            
            396,342Cost
                of gas sold
            
            
            1,098,410
            
            
            789,975
            
            
            720,633Other
                operating expenses
            
            
            389,297
            
            
            380,815
            
            
            364,043Maintenance
            
            
            150,740
            
            
            164,821
            
            
            139,377Depreciation
                and amortization
            
            
            267,628
            
            
            264,952
            
            
            279,650Property
                and other taxes
            
            
            95,064
            
            
            92,637
            
            
            91,5822,469,271
            
            
            2,091,810
            
            
            1,991,627Nonregulated:Cost
                of sales
            
            
            290,890
            
            
            230,567
            
            
            215,664Other
            
            
            19,052
            
            
            17,580
            
            
            17,701309,942
            
            
            248,147
            
            
            233,365Total
                operating expenses
            
            
            2,779,213
            
            
            2,339,957
            
            
            2,224,992**Operating
                Income**
            
            
            381,124
            
            
            356,396
            
            
            370,820**Non-Operating
                Income**Interest
                and dividend income
            
            
            6,016
            
            
            4,401
            
            
            4,956Allowance
                for equity funds
            
            
            24,433
            
            
            18,949
            
            
            11,377Other
                income
            
            
            7,128
            
            
            6,340
            
            
            7,344Other
                expense
            
            
            (4,198
            )
            
            (3,615
            )
            
            (3,205
            )33,379
            
            
            26,075
            
            
            20,472**Fixed
                Charges**Interest
                on long-term debt
            
            
            80,485
            
            
            71,949
            
            
            72,207Other
                interest expense
            
            
            8,409
            
            
            5,728
            
            
            3,813Allowance
                for borrowed funds
            
            
            (10,544
            )
            
            (7,816
            )
            
            (4,586
            )78,350
            
            
            69,861
            
            
            71,434**Income
                Before Income Taxes**
            
            
            336,153
            
            
            312,610
            
            
            319,858**Income
                Taxes**
            
            
            114,856
            
            
            102,155
            
            
            131,261**Net
                Income**
            
            
            221,297
            
            
            210,455
            
            
            188,597**Preferred
                Dividends**
            
            
            1,247
            
            
            1,245
            
            
            1,416**Earnings
                on Common Stock**
            
            $
            220,050
            
            $
            209,210
            
            $
            187,181





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




48




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE
      INCOME**


(In
      thousands)





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Earnings
                on Common Stock**
            
            $
            220,050
            
            $
            209,210
            
            $
            187,181**Other
                Comprehensive Income (Loss)**Unrealized
                gains (losses) on cash flow hedges:Unrealized
                gains (losses) during period-Before
                income taxes
            
            
            -
            
            
            -
            
            
            (7,372
            )Income
                tax (expense) benefit
            
            
            -
            
            
            -
            
            
            3,065-
            
            
            -
            
            
            (4,307
            )Less
                realized gains (losses) reflected in net income during
                period-Before
                income taxes
            
            
            -
            
            
            682
            
            
            5,513Income
                tax (expense) benefit
            
            
            -
            
            
            (283
            )
            
            (2,292
            )-
            
            
            399
            
            
            3,221Less
                net unrealized gains (losses) reclassified to regulatory
                assetsand
                liabilities -Before
                income taxes
            
            
            -
            
            
            -
            
            
            (12,369
            )Income
                tax benefit
            
            
            -
            
            
            -
            
            
            5,142-
            
            
            -
            
            
            (7,227
            )Minimum
                pension liability adjustment:Before
                income taxes
            
            
            (4,512
            )
            
            -
            
            
            -Income
                tax benefit
            
            
            1,876
            
            
            -
            
            
            -(2,636
            )
            
            -
            
            
            -Other
                comprehensive income (loss)
            
            
            (2,636
            )
            
            (399
            )
            
            (301
            )**Comprehensive
                Income**
            
            $
            217,414
            
            $
            208,811
            
            $
            186,880





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




49


**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Net
                Cash Flows From Operating Activities**Net
                income
            
            $
            221,297
            
            $
            210,455
            
            $
            188,597Adjustments
                to reconcile net income to net cash provided:Depreciation
                and amortization
            
            
            268,943
            
            
            266,207
            
            
            280,803Deferred
                income taxes and investment tax credit, net
            
            
            (569
            )
            
            35,531
            
            
            544Amortization
                of other assets and liabilities
            
            
            27,667
            
            
            18,210
            
            
            32,771Impact
                of changes in working capital-Receivables,
                net
            
            
            (116,922
            )
            
            (28,697
            )
            
            20,678Inventories
            
            
            5,023
            
            
            (4,181
            )
            
            3,027Accounts
                payable
            
            
            90,895
            
            
            29,310
            
            
            (47,765
            )Taxes
                accrued
            
            
            (5,602
            )
            
            (1,748
            )
            
            (10,505
            )Other
                current assets and liabilities
            
            
            (8,144
            )
            
            9,436
            
            
            (2,089
            )Other,
                net
            
            
            (19,422
            )
            
            (11,029
            )
            
            (24,802
            )Net
                cash provided by operating activities
            
            
            463,166
            
            
            523,494
            
            
            441,259**Net
                Cash Flows From Investing Activities**Utility
                construction expenditures
            
            
            (699,061
            )
            
            (631,962
            )
            
            (344,137
            )Quad
                Cities Station decommissioning trust fund
            
            
            (8,299
            )
            
            (8,299
            )
            
            (8,299
            )Purchases
                of available-for-sale securities
            
            
            (563,330
            )
            
            (748,801
            )
            
            (352,327
            )Proceeds
                from sales of available-for-sale securities
            
            
            564,025
            
            
            691,133
            
            
            337,169Other,
                net
            
            
            17,635
            
            
            18,004
            
            
            26,428Net
                cash used in investing activities
            
            
            (689,030
            )
            
            (679,925
            )
            
            (341,166
            )**Net
                Cash Flows From Financing Activities**Dividends
                paid
            
            
            (1,247
            )
            
            (1,245
            )
            
            (188,916
            )Issuance
                of long-term debt, net of issuance cost
            
            
            296,466
            
            
            347,769
            
            
            272,550Retirement
                of long-term debt, including reacquisition cost
            
            
            (90,850
            )
            
            (56,168
            )
            
            (202,076
            )Net
                decrease in notes payable
            
            
            -
            
            
            (48,000
            )
            
            (7,000
            )Other
            
            
            4,296
            
            
            (963
            )
            
            -Net
                cash provided by (used in) financing activities
            
            
            208,665
            
            
            241,393
            
            
            (125,442
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            (17,199
            )
            
            84,962
            
            
            (25,349
            )**Cash
                and Cash Equivalents at Beginning of Year**
            
            
            88,113
            
            
            3,151
            
            
            28,500**Cash
                and Cash Equivalents at End of Year**
            
            $
            70,914
            
            $
            88,113
            
            $
            3,151**Supplemental
                Disclosure:**Interest
                paid, net of amounts capitalized
            
            $
            66,441
            
            $
            56,985
            
            $
            63,171Income
                taxes paid
            
            $
            125,531
            
            $
            68,348
            
            $
            142,660





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




50




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF
      CAPITALIZATION**


(In
      thousands, except share amounts)





**As
                of December 31,****2005**
            
            **2004****Common
                Shareholder’s Equity**Common
              shares, no
              par; 350,000,000 shares authorized;70,980,203 shares outstanding
            
            $
            561,162
            
            
            
            
            $
            561,162Retained
                earnings
            
            
            1,186,356
            
            
            
            
            
            966,306Accumulated
                other comprehensive income:Minimum
                pension liability adjustment
            
            
            (2,636
            )
            
            
            
            
            -1,744,882
            
            
            53.8
            %
            
            1,527,468
            
            
            52.9
            %**Preferred
                Securities (100,000,000 shares authorized)**Cumulative
                shares outstanding; not subject to mandatoryredemption:$3.30
                Series, 49,451 shares
            
            
            4,945
            
            
            
            
            
            4,945$3.75
                Series, 38,305 shares
            
            
            3,831
            
            
            
            
            
            3,831$3.90
                Series, 32,630 shares
            
            
            3,263
            
            
            
            
            
            3,263$4.20
                Series, 47,362 shares
            
            
            4,736
            
            
            
            
            
            4,736$4.35
                Series, 49,945 shares
            
            
            4,994
            
            
            
            
            
            4,994$4.40
                Series, 35,697 shares
            
            
            3,570
            
            
            
            
            
            3,570$4.80
                Series, 49,898 shares
            
            
            4,990
            
            
            
            
            
            4,99030,329
            
            
            0.9
            %
            
            30,329
            
            
            1.0
            %**Long-Term
                Debt, Excluding Current Portion**Pollution
                control revenue obligations:6.1%
                Series due 2007
            
            
            1,000
            
            
            
            
            
            1,0005.95%
                Series, due 2023 (secured by general mortgagebonds)
            
            
            29,030
            
            
            
            
            
            29,030Variable
                rate series -Due
                2016 and 2017, 3.59% and 2.05%, respectively
            
            
            37,600
            
            
            
            
            
            37,600Due
                2023 (secured by general mortgage bonds),3.59%
                and 2.05%, respectively
            
            
            28,295
            
            
            
            
            
            28,295Due
                2023, 3.59% and 2.05%, respectively
            
            
            6,850
            
            
            
            
            
            6,850Due
                2024, 3.59% and 2.05%, respectively
            
            
            34,900
            
            
            
            
            
            34,900Due
                2025, 3.59% and 2.05%, respectively
            
            
            12,750
            
            
            
            
            
            12,750Notes:6.375%
                Series, due 2006
            
            
            -
            
            
            
            
            
            160,0005.125%
                Series, due 2013
            
            
            275,000
            
            
            
            
            
            275,0004.65%
                Series, due 2014
            
            
            350,000
            
            
            
            
            
            350,0006.75%
                Series, due 2031
            
            
            400,000
            
            
            
            
            
            400,0005.75%
                Series, due 2035
            
            
            300,000
            
            
            
            
            
            -Obligation
                under capital lease
            
            
            1,184
            
            
            
            
            
            1,524Unamortized
                debt premium and discount, net
            
            
            (5,358
            )
            
            
            
            
            (5,440
            )1,471,251
            
            
            45.3
            %
            
            1,331,509
            
            
            46.1
            %**Total
                Capitalization**
            
            $
            3,246,462
            
            
            100.0
            %
            $
            2,889,306
            
            
            100.0
            %





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




51




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF RETAINED
      EARNINGS**


(In
      thousands)





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Beginning
                of Year**
            
            $
            966,306
            
            $
            757,096
            
            $
            757,415**Net
                Income**
            
            
            221,297
            
            
            210,455
            
            
            188,597**Deduct:**Dividends
                declared on preferred shares
            
            
            1,247
            
            
            1,245
            
            
            1,416Dividends
                declared on common shares
            
            
            -
            
            
            -
            
            
            187,5001,247
            
            
            1,245
            
            
            188,916**End
                of Year**
            
            $
            1,186,356
            
            $
            966,306
            
            $
            757,096





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







52




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**





**INDEX**









(1)
            Summary
                of Significant Accounting Policies
            54(2)
            Jointly
                Owned Utility Plant
            58(3)
            Inventories
            58(4)
            Commitments
                and Contingencies
            58(5)
            Rate
                Matters
            62(6)
            Long-Term
                Debt
            63(7)
            Short-Term
                Borrowing
            64(8)
            Preferred
                Securities
            64(9)
            Retirement
                Plans
            64(10)
            Segment
                Information
            68(11)
            Income
                Taxes
            71(12)
            Risk
                Management
            72(13)
            Concentration
                of Credit Risk
            73(14)
            Asset
                Retirement Obligations
            74(15)
            Fair
                Value of Financial Instruments
            75(16)
            Non-Operating
                Other Income and Expense
            76(17)
            Affiliated
                Company Transactions
            77(18)
            Unaudited
                Quarterly Operating Results
            78






53




**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**(1)**
            **Summary
                of Significant Accounting
                Policies**





(a)
            Company
                Organization





MidAmerican
      Energy Company (“MidAmerican Energy”) is a public utility with electric and
      natural gas operations and is the principal subsidiary of MHC Inc. (“MHC”). MHC
      has the following nonregulated subsidiaries: InterCoast Capital Company,
      MidAmerican Services Company, Midwest Capital Group, Inc. and MEC Construction
      Services Co. MHC is the direct wholly owned subsidiary of MidAmerican Funding,
      LLC, (“MidAmerican Funding”), which is an Iowa limited liability company with
      MidAmerican Energy Holdings Company (“MidAmerican Energy Holdings”) as its sole
      member. MHC, MidAmerican Funding and MidAmerican Energy Holdings are public
      utility holding companies headquartered in Des Moines, Iowa.





(b)
            Principles
                of Consolidation and Preparation of Financial
                Statements





The
      accompanying consolidated financial statements include MidAmerican Energy and
      the subsidiary under its control. In accordance with generally accepted
      accounting principles, the subsidiary, which is less than 100% owned but greater
      than 50% owned, is consolidated with a minority interest, and all significant
      intercompany transactions have been eliminated. The preparation of financial
      statements in conformity with generally accepted accounting principles requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results may differ from those estimates.





Certain
      classifications of amounts for 2005 are different than that of prior years.
      Accordingly, historical amounts have been reclassified. The accompanying
      Consolidated Balance Sheet as of December 31, 2004, reflects the
      reclassification of $39.5 million from Cash and Cash Equivalents to
      Short-Term Investments related to auction rate securities discussed in Note
      (1)(h). In the accompanying Consolidated Statement of Cash Flows for the year
      ended December 31, 2004, Cash and Cash Equivalents was reduced by $39.5
      million. Additionally, the accompanying Consolidated Statements of Cash Flows
      for the years ended December 31, 2004 and 2003, reflect Purchases of
      Available-for-Sale Securities totaling $646.9 million and $248.7 million,
      respectively, and Proceeds from Sales of Available-for-Sale Securities totaling
      $607.4 million and $248.7 million, respectively, related to auction
      rate securities.





Additionally,
      the accompanying Consolidated Statements of Cash Flows for the years ended
      December 31, 2004 and 2003, reflect Purchases of Available-for-Sale
      Securities totaling $101.9 million and $103.7 million, respectively,
      and Proceeds from Sales of Available-for-Sale Securities totaling
      $83.7 million and $88.5 million, respectively, related to transactions
      of securities held in the Quad Cities Station nuclear decommissioning
      trusts.





(c)
            Accounting
                for the Effects of Certain Types of
                Regulation





MidAmerican
      Energy'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 Energy's accounting policies and the accompanying consolidated
      financial statements conform to generally accepted accounting principles
      applicable to rate-regulated enterprises and reflect the effects of the
      ratemaking process.





A
      possible consequence of deregulation in the utility industry is that Statement
      of Financial Accounting Standards (“SFAS”) No. 71, “Accounting for the Effects
      of Certain Types of Regulation,” may no longer apply. SFAS No. 71 sets forth
      accounting principles for operations that are regulated and meet the stated
      criteria. For operations that meet the criteria, SFAS No. 71 requires, among
      other things, the deferral of expense or income that would otherwise be
      recognized when incurred. MidAmerican Energy's electric and gas utility
      operations currently meet the criteria of SFAS No. 71, but its applicability
      is
      periodically reexamined. If portions of its utility operations no longer meet
      the criteria of SFAS No. 71, MidAmerican Energy could be required to write
      off
      the related regulatory assets and liabilities from its balance sheet, and thus,
      a material adjustment to earnings in that period could result.




54




The
      following regulatory assets represent costs that are expected to be recovered
      in
      future charges to utility customers. The regulatory liabilities represent income
      to be recognized or returned to customers in future periods.





As
                of December 31,AverageRemaining
                Life
            
            2005
            
            2004(In
                thousands)Regulatory
                assets:Deferred
                income taxes, net
            
            
            27
                years
            
            $
            145,967
            
            $
            131,770Unrealized
                loss on regulated hedges
            
            
            1
                year
            
            
            45,431
            
            
            36,794Minimum
                pension liability adjustment
            
            
            17
                years
            
            
            11,694
            
            
            18,203Debt
                refinancing costs
            
            
            8
                years
            
            
            11,998
            
            
            15,365Environmental
                costs
            
            
            1
                year
            
            
            4,907
            
            
            9,284Asset
                retirement obligations
            
            
            8
                years
            
            
            9,208
            
            
            8,273Nuclear
                generation assets
            
            
            14
                years
            
            
            6,487
            
            
            6,727Other
            
            
            Various
            
            
            1,509
            
            
            1,581Total
            
            
            
            
            $
            237,201
            
            $
            227,997Regulatory
                liabilities:Cost
                of removal accrual
            
            
            27
                years
            
            $
            448,493
            
            $
            428,719Iowa
                electric settlement accrual
            
            
            2
                years
            
            
            213,135
            
            
            181,188Asset
                retirement obligations
            
            
            32
                years
            
            
            65,966
            
            
            53,259Unrealized
                gain on regulated hedges
            
            
            1
                year
            
            
            29,648
            
            
            7,462Environmental
                insurance recovery
            
            
            1
                year
            
            
            3,494
            
            
            3,599Nuclear
                insurance reserve
            
            
            48
                years
            
            
            2,419
            
            
            3,262Total
            
            
            
            
            $
            763,155
            
            $
            677,489





Of
      the
      regulatory assets listed, only the nuclear generation assets are included in
      rate base and earn a return. Recovery of the assets is estimated to be over
      the
      periods shown above.





Refer
      to
      Note (14) for a discussion of the cost of removal accrual and asset retirement
      obligations and to Note (5) regarding the Iowa electric settlement
      accrual.





(d)
            Revenue
                Recognition





Revenues
      are recorded in the period services are rendered to customers. MidAmerican
      Energy records unbilled revenues representing the estimated amount customers
      will be billed for services rendered between the meter reading dates in a
      particular month and the end of that month. Accrued unbilled revenues were
      $91.7 million and $68.5 million at December 31, 2005 and 2004,
      respectively, and are included in Receivables on the Consolidated Balance
      Sheets.





MidAmerican
      Energy's Illinois and South Dakota jurisdictional sales, or approximately 11%
      of
      total retail electric sales, and all of its retail gas sales are subject to
      energy adjustment clauses. MidAmerican Energy also has costs that are recovered,
      at least in part, through bill riders, including energy efficiency costs. The
      clauses and riders allow MidAmerican Energy to adjust the amounts charged for
      electric and gas service as the related costs change. The costs recovered in
      revenues through use of the adjustment clauses and bill riders are charged
      to
      expense in the same period the related revenues are recognized. At any given
      time, these costs may be over or under collected from customers. The total
      under
      collection included in Receivables at December 31, 2005 and 2004, was
      $89.5 million and $49.9 million, respectively.




55




(e)
            Depreciation
                and Amortization





MidAmerican
      Energy's provisions for depreciation and amortization for its utility operations
      are based on straight-line composite rates. In November 2004, MidAmerican Energy
      changed the assumed life of Quad Cities Station pursuant to a 20-year extension
      to the operating license of the plant by the Nuclear Regulatory Commission.
      As a
      result of the change in estimated
      useful life, net income for 2005 was increased by $6.7 million, prior to
      the effect of the Iowa revenue sharing arrangement. The average depreciation
      and
      amortization rates applied to depreciable utility plant for the years ended
      December 31 were as follows:





2005
            
            2004
            
            2003Electric
            3.8%
            
            4.0%
            
            4.3%Gas
            3.4%
            
            3.4%
            
            3.5%





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





The
      cost
      of repairs and minor replacements is charged to maintenance expense. Property
      additions and major property replacements are charged to plant accounts. In
      addition to asset retirement obligations required by SFAS No. 143, as discussed
      in Note (14), MidAmerican Energy accrues for the cost of removing electric
      and
      gas assets through its depreciation rates. The estimated accumulated amount
      of
      such accruals is included in regulatory liabilities. The original 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 a similar amount
      is charged to accumulated depreciation.





Additionally,
      depreciation and amortization expense for 2005, 2004 and 2003 includes
      $40.9 million, $50.8 million and $54.1 million, respectively, for
      a regulatory charge pursuant to the terms of an electric rate settlement
      agreement in Iowa. Refer to Note (5) for a discussion of the settlement
      agreement.





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





(f)
            Investments
                and Nonregulated Property, Net





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





2005
            
            2004Nuclear
                decommissioning trusts
            
            $
            228,070
            
            $
            207,464Rabbi
                trusts
            
            
            115,267
            
            
            108,156Coal
                transportation property, net of accumulated depreciationof
                $2,579 and $2,287, respectively
            
            
            9,340
            
            
            9,632Non-utility
                property, net of accumulated depreciation of $4,058and
                $3,124, respectively
            
            
            6,967
            
            
            8,063Other
            
            
            46
            
            
            45Total
            
            $
            359,690
            
            $
            333,360





Investments
      held by the nuclear decommissioning trusts for the Quad Cities Station units
      are
      classified as available-for-sale and are reported at fair value. An amount
      equal
      to the net unrealized gains and losses on those investments is recorded as
      an
      adjustment to Regulatory Liabilities on the Consolidated Balance Sheets. Funds
      are invested in the trusts in accordance with applicable federal investment
      guidelines and are restricted for use as reimbursement for costs of
      decommissioning MidAmerican Energy’s Quad Cities Station.





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





The
      coal
      transportation property is owned and operated by CBEC Railway Inc., a subsidiary
      of MidAmerican Energy. The property is depreciated on a straight-line basis
      over
      37 years.




56




Non-utility
      property consists of property such as land, computer software and other assets
      not used for regulated utility purposes. The depreciable property consists
      primarily of computer software, which is amortized on a straight-line basis
      over
      five years.





(g)
            Consolidated
                Statements of Cash Flows





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





(h)
            Short-term
                Investments





Short-term
      Investments consists of auction rate securities, which are classified as
      available-for-sale securities as management does not intend to hold them to
      maturity nor are they bought and sold with the objective of generating profits
      on short-term differences in price. Auction rate securities are not considered
      cash equivalents due to their stated maturities. The carrying value of these
      instruments approximates their fair value.





(i)
            Accounting
                for Derivatives





MidAmerican
      Energy uses a variety of financial derivative instruments to help manage its
      exposure to market risk. Derivatives that qualify and are designated as “normal”
purchases or sales contracts are accounted for when settled. All other
      derivatives are recorded as either assets or liabilities on the Consolidated
      Balance Sheets and are measured at fair value. Changes in the value of
      derivative instruments used for regulated utility hedging purposes are recorded
      as regulatory assets or liabilities and, therefore, would not impact earnings
      until realized. Revenue and cost of sales from derivative instruments used
      for
      trading purposes are presented as net nonregulated revenue on the consolidated
      statement of operations.





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





(j)
            Income
                Taxes





MidAmerican
      Energy and MidAmerican Funding recognize deferred tax assets and liabilities
      based on the difference between the financial statement and tax basis of assets
      and liabilities using estimated tax rates in effect for the year in which the
      differences are expected to reverse. Based on existing regulatory precedent,
      MidAmerican Energy is not allowed to recognize deferred income tax expense
      related to certain temporary differences resulting from accelerated tax
      depreciation and other property related basis differences. For these
      differences, MidAmerican Energy establishes deferred tax liabilities and
      regulatory assets on the consolidated balance sheets since MidAmerican Energy
      is
      allowed to recover the increased tax expense when these differences
      reverse.





MidAmerican
      Energy and MidAmerican Funding establish accruals for certain tax contingencies
      when, despite the belief that their tax return positions are fully supported,
      they also believe that certain positions may be challenged and that it is
      probable the positions may not be fully sustained. MidAmerican Energy and
      MidAmerican Funding are under continuous examination by the Internal Revenue
      Service and other tax authorities and account for potential losses of tax
      benefits in accordance with SFAS No. 5, “Accounting for Contingencies.” Tax
      contingency reserves included in Taxes Accrued and Other Liabilities - Other
      on
      the Consolidated Balance Sheets. Considering all tax contingency reserves,
      neither company expects the resolution of these matters to have a material
      impact on its financial position or result of operations.





The
      calculation of current and deferred income taxes requires management to apply
      judgment related to the application of complex tax laws or reverse
      interpretations and uncertainties related to the outcome of tax audits. Changes
      in such factors may result in changes to management’s estimates, which could
      require MidAmerican Energy or MidAmerican Funding to adjust its currently
      recorded tax assets and liabilities and record additional income tax expense
      or
      benefits.





(k)
            Allowance
                for Funds Used During
                Construction





Allowance
      for funds used during construction (“AFUDC”) represents the cost of debt and
      equity funds used to finance utility plant construction and is computed based
      on
      guidelines set forth by the FERC. MidAmerican Energy is allowed to capitalize
      AFUDC as a cost of utility plant construction and record a corresponding amount
      of income. The amount related to debt funds is reflected as a reduction of
      Fixed
      Charges in the Consolidated Statements of Income, and the amount related to
      equity funds is reflected in Non-Operating Income. The capitalized AFUDC is
      depreciated as a cost of the related property and is included in rate base
      and
      earns a return. Refer to Note (5) for a discussion of the impact of Iowa revenue
      sharing arrangements on capitalized AFUDC.




57




**(2)**
            **JointlyOwned
                Utility
                Plant**





Under
      joint plant ownership agreements with other utilities, MidAmerican Energy as
      a
      tenant in common had undivided interests at December 31, 2005, in jointly
      owned generating plants as shown in the table below. Accumulated depreciation
      amounts are exclusive of related cost of removal reflected in Regulatory
      Liabilities on the Consolidated Balance Sheet.





MidAmerican
      Energy accounts for its proportional share of each facility. The amounts below
      represent MidAmerican Energy’s share in each jointly owned unit. Each
      participant has provided financing for its share of each unit. Operating costs
      of each facility are assigned to joint owners based on ownership percentage
      or
      energy purchased, depending on the nature of the cost. Operating Expenses on
      the
      Consolidated Statements of Operations include MidAmerican Energy’s share of the
      expenses of these units.





Nuclear
            
            Coal-firedCouncilQuad Cities
            
            Neal
            
            Bluffs
            
            Neal
            
            Ottumwa
            
            LouisaUnits
            
            Unit
            
            Unit
            
            Unit
            
            Unit
            
            UnitNo.
                1 & 2
            
            No.
                3
            
            No.
                3
            
            No.
                4
            
            No.
                1
            
            No.
                1(dollars
                in millions)In
                service date
            
            
            1972
            
            
            1975
            
            
            1978
            
            
            1979
            
            
            1981
            
            
            1983Percent
                ownership
            
            
            25.0
            %
            
            72.0
            %
            
            79.1
            %
            
            40.6
            %
            
            52.0
            %
            
            88.0
            %Utility
                plant in service
            
            $
            282
            
            $
            143
            
            $
            307
            
            $
            181
            
            $
            226
            
            $
            575Accumulated depreciation
            
            $
            142
            
            $
            94
            
            $
            208
            
            $
            117
            
            $
            136
            
            $
            322Accredited
                capacity at MidAmericanEnergy
                2005 peak (megawatts)
            
            
            437
            
            
            371
            
            
            546
            
            
            261
            
            
            350
            
            
            616





MidAmerican
      Energy is also a joint owner of certain 345 and 161 kilovolt transmission lines.
      As of December 31, 2005, MidAmerican Energy’s share of jointly owned
      transmission facilities totaled $86 million of utility plant in service and
      $40 million of related accumulated depreciation.





**(3)**
            **Inventories**





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





2005
            
            2004Materials
                and supplies, at average cost
            
            $
            41,034
            
            $
            36,998Coal
                stocks, at average cost
            
            
            17,668
            
            
            26,659Gas
                in storage, at LIFO cost
            
            
            23,174
            
            
            24,104Fuel
                oil, at average cost
            
            
            2,747
            
            
            1,885Total
            
            $
            84,623
            
            $
            89,646





At
      December 31, 2005 and 2004 prices, the current cost of gas in storage was
      $148.2 million and $93.4 million, respectively.





**(4)**  **Commitments
      and Contingencies**





(a)
            Air
                Quality





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




58




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





On
      December 20, 2005, the EPA proposed strengthening the ambient air quality
      standard for fine particles, suggesting a range of prospective new levels for
      fine particulate matter and suggesting maintaining the annual standard at the
      current level while reducing the 24-hour standard. The EPA established a 90-day
      public comment period on its plan, which closes April 17, 2006, and final
      rules are anticipated to be issued in September 2006 *.* Until
      the public comment period closes and the EPA takes final action on the proposal,
      the impact of the proposed rules on MidAmerican Energy cannot be
      determined.





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





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





The
      CAIR
      or the CAMR could, in whole or in part, be superseded or made more stringent
      by
      one of a number of multi-pollutant emission reduction proposals currently under
      consideration at the federal level, including pending legislative proposals
      that
      contemplate 70% to 90% reductions of SO 2 ,
      NO X and
      mercury, as well as possible new federal regulation of carbon dioxide and other
      gases that may affect global climate change. In addition to any federal
      legislation that could be enacted by Congress to supersede the CAIR and the
      CAMR, the rules could be changed or overturned as a result of litigation. The
      sufficiency of the standards established by both the CAIR and CAMR has been
      legally challenged in the United States District Court for the District of
      Columbia. Until the court makes a determination regarding the merits of the
      challenges to the CAIR and CAMR, the full impact of the rules on MidAmerican
      Energy cannot be determined.





MidAmerican
      Energy has implemented a planning process that forecasts the site-specific
      controls and actions that may be required to meet emissions reductions as
      promulgated by the EPA. In accordance with an Iowa law passed in 2001,
      MidAmerican Energy has on file with the IUB its current multi-year plan and
      budget for managing SO 2 and
      NO X from its
      generating facilities in a cost-effective manner. The plan, which is required
      to
      be updated every two years, provides specific actions to be taken at each
      coal-fired generating facility and the related costs and timing for each action.
      On July 17, 2003, the IUB issued an order that affirmed an
      administrative law judge’s approval of the initial plan filed April 1,
      2002, as amended. On October 4, 2004, the IUB issued an order approving
      MidAmerican Energy’s second biennial plan as revised in a settlement MidAmerican
      Energy entered into with the Iowa Office of Consumer Advocate (“OCA”). That plan
      covers the time period from April 1, 2004 through December 31, 2006.
      Neither IUB order resulted in any changes to electric rates for MidAmerican
      Energy. The effect of the orders is to approve the prudence of expenditures
      made
      consistent with the plans. Pursuant to an unrelated rate settlement agreement
      approved by the IUB on October 17, 2003, if prior to January 1, 2011,
      capital and operating expenditures to comply with environmental requirements
      cumulatively exceed $325 million, then MidAmerican Energy may seek to
      recover the additional expenditures from customers.




59




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





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





In
      2002
      and 2003, the EPA proposed various changes to its NSR rules that clarify what
      constitutes routine repair, maintenance and replacement for purposes of
      triggering NSR requirements. These changes have been subject to legal challenge
      and, until such time as the legal challenges are resolved and the rules are
      effective, MidAmerican Energy will continue to manage projects at its generating
      plants in accordance with the rules in effect prior to 2002. On June 24,
      2005, the Washington D.C. Circuit Court upheld major portions of the EPA’s 2002
      NSR Rule but invalidated other portions. On October 13, 2005, the EPA
      proposed a rule that would change or clarify how emission increases are to
      be
      calculated for purposes of determining the applicability of the NSR permitting
      program for existing power plants and opened a public comment period, which
      ended on February 17, 2006. The impact of these proposed changes on MidAmerican
      Energy cannot be determined until after the rule is finalized and implemented.





(b)
            Nuclear
                Decommissioning Costs





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





MidAmerican
      Energy's share of estimated decommissioning costs for Quad Cities Station as
      of
      December 31, 2005, was $163 million and is reflected in Asset
      Retirement Obligations on the Consolidated Balance Sheet. Refer to Note (14)
      for
      a discussion of asset retirement obligations. MidAmerican Energy has established
      trusts for the investment of funds for decommissioning the Quad Cities Station.
      The fair value of the assets held in the trusts was $228.1 million as of
      December 31, 2005, and is reflected in Investments and Nonregulated Property,
      Net on the Consolidated Balance Sheets.





MidAmerican
      Energy's depreciation and amortization expense included costs for Quad Cities
      Station nuclear decommissioning of $8.3 million for each of the years 2005,
      2004 and 2003. The regulatory provision charged to expense is equal to the
      funding that is being collected in Iowa rates.





(c)
            Nuclear
                Insurance





MidAmerican
      Energy maintains financial protection against catastrophic loss associated
      with
      its interest in Quad Cities Station through a combination of insurance purchased
      by Exelon Generation Company, LLC (the operator and joint owner of Quad Cities
      Station), insurance purchased directly by MidAmerican Energy, and the mandatory
      industry-wide loss funding mechanism afforded under the Price-Anderson
      Amendments Act of 1988, which was amended and extended by the Energy Policy
      Act
      of 2005. The general types of coverage are: nuclear liability, property coverage
      and nuclear worker liability.




60




Exelon
      Generation purchases private market nuclear liability insurance for Quad Cities
      Station in the maximum available amount of $300 million, which includes
      coverage for MidAmerican Energy's ownership. In accordance with the
      Price-Anderson Amendments Act of 1988, as amended and extended by the Energy
      Policy Act of 2005, excess liability protection above that amount is provided
      by
      a mandatory industry-wide Secondary Financial Protection program under which
      the
      licensees of nuclear generating facilities could be assessed for liability
      incurred due to a serious nuclear incident at any commercial nuclear reactor
      in
      the United States. Currently, MidAmerican Energy's aggregate maximum potential
      share of an assessment for Quad Cities Station is approximately
      $50.3 million per incident, payable in installments not to exceed
      $7.5 million annually.





The
      property insurance covers property damage, stabilization and decontamination
      of
      the facility, disposal of the decontaminated material and premature
      decommissioning arising out of a covered loss. For Quad Cities Station, Exelon
      Generation purchases primary and excess property insurance protection for the
      combined interests in Quad Cities Station, with coverage limits totaling
      $2.1 billion. MidAmerican Energy also directly purchases extra expense
      coverage for its share of replacement power and other extra expenses in the
      event of a covered accidental outage at Quad Cities Station. The property and
      related coverages purchased directly by MidAmerican Energy and by Exelon
      Generation, which includes the interests of MidAmerican Energy, are underwritten
      by an industry mutual insurance company and contain provisions for retrospective
      premium assessments should two or more full policy-limit losses occur in one
      policy year. Currently, the maximum retrospective amounts that could be assessed
      against MidAmerican Energy from industry mutual policies for its obligations
      associated with Quad Cities Station total $9.0 million.





The
      master nuclear worker liability coverage, which is purchased by Exelon
      Generation for Quad Cities Station, is an industry-wide guaranteed-cost policy
      with an aggregate limit of $300 million for the nuclear industry as a
      whole, which is in effect to cover tort claims of workers in nuclear-related
      industries.





(d)
            Purchase
                Commitments





MidAmerican
      Energy has coal supply and related transportation contracts for its fossil
      fueled generating stations. As of December 31, 2005, the contracts, with
      expiration dates ranging from 2006 to 2010, required minimum payments of
      $87.4 million, $70.0 million, $35.6 million, $35.2 million
      and $16.1 million for the years 2006 through 2010, respectively.
      MidAmerican Energy expects to supplement these coal contracts with additional
      contracts and spot market purchases to fulfill its future fossil fuel needs.
      Additionally, MidAmerican Energy has a transportation contract for a natural
      gas-fired generating plant. The contract, which expires in 2012, requires
      minimum payments of $6.0 million for each year.





MidAmerican
      Energy also has contracts to purchase electric capacity. As of December 31,
      2005, the contracts, with expiration dates ranging from 2006 to 2028, required
      minimum payments of $26.2 million, $27.5 million, $35.7 million,
      $28.9 million and $9.4 million for the years 2006 through 2010,
      respectively, and $165.3 million for the total of the years thereafter.





MidAmerican
      Energy has various natural gas supply and transportation contracts for its
      gas
      operations. As of December 31, 2005, the contracts, with expiration dates
      ranging from 2006 to 2017, required minimum payments of $61.5 million,
      $51.0 million, $16.7 million, $10.9 million and $5.7 million
      for the years 2006 through 2010, respectively, and $16.9 million for the
      total of the years thereafter.





MidAmerican
      Energy has non-cancelable operating leases primarily for computer equipment,
      office space and rail cars. Rental payments on non-cancelable operating leases
      totaled $7.8 million for 2005, $7.9 million for 2004 and
      $7.9 million for 2003. As of December 31, 2005, the minimum payments
      under these leases were $6.9 million, $6.0 million, $4.5 million,
      $2.3 million and $1.8 million for the years 2006 through 2010,
      respectively, and $7.4 million for the total of the years
      thereafter.





(e)
            Guarantees





MidAmerican
      Energy is the lessee on operating leases for coal railcars that contain
      guarantees of the residual value of such equipment throughout the term of the
      leases. Events triggering the residual guarantees include termination of the
      lease, loss of the equipment or purchase of the equipment. Lease terms are
      for
      five years with provisions for extensions. As of December 31, 2005, the
      maximum amount of such guarantees specified in these leases totaled
      $29.4 million. These guarantees are not reflected on the Consolidated
      Balance Sheets.




61




(f)
            Deferred
                Construction Costs





On
      February 12, 2003, MidAmerican Energy executed a contract with Mitsui &
Co. Energy Development, Inc. (“Mitsui”) for engineering,
      procurement and construction of a 790-MW (based on expected accreditation)
      coal-fired generating plant expected to be completed in the summer of 2007.
      MidAmerican Energy currently holds a 60.67% individual ownership interest as
      a
      tenant in common with the other owners of the plant. Under the contract,
      MidAmerican Energy is allowed to defer payments, including the other owners’
shares, for up to $200.0 million of billed construction costs through the
      end of the project. Deferred payments as of December 31, 2005 and 2004,
      totaled $200.0 million and $152.3 million, respectively, and are
      reflected in Other Liabilities - Other on the Consolidated Balance
      Sheets.





An
      asset
      representing the other owners’ share of the deferred payment is reflected in
      Other Assets on the Consolidated Balance Sheets and totaled $78.7 million
      and $59.9 million as of December 31, 2005 and 2004, respectively.
      MidAmerican Energy will bill each of the other owners for its share of the
      deferred payments when payment is made to Mitsui.





(g)
            Other
                Commitments and Contingencies





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





**(5)**
            **Rate
                Matters**





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





Under
      a
      settlement agreement approved by the IUB on December 21, 2001, which was
      effective through December 31, 2005, an amount equal to 50% of revenues
      associated with returns on equity between 12% and 14%, and 83.33% of revenues
      associated with returns on equity above 14%, in each year was recorded as a
      regulatory liability. A settlement agreement which was filed in conjunction
      with
      MidAmerican Energy’s application for ratemaking principles on its 2004/2005 wind
      power project and approved by the IUB on October 17, 2003, provides that
      during the period January 1, 2006 through December 31, 2010, an amount
      equal to 40% of revenues associated with returns on equity between 11.75% and
      13%, 50% of revenues associated with returns on equity between 13% and 14%,
      and
      83.3% of revenues associated with returns on equity above 14%, in each year
      will
      be recorded as a regulatory liability.





A
      settlement agreement approved by the IUB on January 31, 2005, in
      conjunction with MidAmerican Energy’s 2005 expansion of its wind power project
      extended through 2011 MidAmerican Energy’s commitment not to seek a general
      increase in electric rates unless its Iowa jurisdictional electric return on
      equity falls below 10%. It also extended the revenue sharing mechanism through
      2011, and the OCA agreed not to seek any decrease in Iowa electric base rates
      to
      become effective before January 1, 2012.





On
      December 16, 2005, MidAmerican Energy filed with the IUB a settlement
      agreement between MidAmerican Energy and the OCA regarding ratemaking principles
      for up to 545 MW of additional wind generation capacity in Iowa, based on
      nameplate ratings. The settlement agreement, which is subject to IUB approval,
      extends through 2012 MidAmerican Energy’s commitment not to seek a general
      increase in electric rates unless its Iowa jurisdictional electric return on
      equity for the calendar year 2011 falls below 10%. Additionally, the revenue
      sharing mechanism is extended through 2012, and the OCA agrees not to seek
      any
      decrease in Iowa electric based rates to become effective prior to January
      1,
      2013.




62


The
      regulatory liabilities created by the settlement agreements are recorded as
      a
      regulatory charge in depreciation and amortization expense when the liability
      is
      accrued. Additionally, interest expense is accrued on the portion of the
      regulatory liability balance recorded in prior years. The regulatory liabilities
      created for the years through 2010 are expected to be reduced as they are
      credited against plant in service associated with generating plant additions.
      As
      a result of the credit applied to generating plant balances from the reduction
      of the regulatory liabilities, future depreciation will be reduced. The
      regulatory liability accrued for 2011 and 2012, if any, will be credited to
      customer bills in 2012 and 2013, respectively. The change in the balance of
      the
      regulatory liability is summarized as follows (in thousands):





2005
            
            2004Balance
                January 1
            
            $
            181,188
            
            $
            144,418Current
                year revenue sharing
            
            
            40,904
            
            
            50,792Interest
                costs
            
            
            6,850
            
            
            3,970Amounts
                applied to utility plant in service
            
            
            (15,807
            )
            
            (17,992
            )Balance
                December 31
            
            $
            213,135
            
            $
            181,188





Illinois
      bundled electric rates are frozen until January 1, 2007, subject to certain
      exceptions allowing for increases, at which time bundled rates may be increased
      or decreased by the ICC. Illinois law provides that, through 2006, Illinois
      earnings above a computed level of return on common equity are to be shared
      equally between regulated retail electric customers and MidAmerican Energy.
      MidAmerican Energy’s computed level of return on common equity is based on a
      rolling two-year average of the Monthly Treasury Long-Term Average Rate, as
      published by the Federal Reserve System, plus a premium of 8.5% for 2000 through
      2004 and a premium of 12.5% for 2005 and 2006. The two-year average above which
      sharing must occur for 2005 was 15.41%, which reflects a blend of the premiums
      for 2004 and 2005. The law allows MidAmerican Energy to mitigate the sharing
      of
      earnings above the threshold return on common equity through accelerated
      recovery of electric assets.





**(6)**
            **Long-Term
                Debt**





MidAmerican
      Energy’s annual sinking fund requirements and maturities of long-term debt
      through 2010 are $160.5 million, $1.7 million and $0.4 million,
      for 2006, 2007 and 2008, respectively. Refer to MidAmerican Energy's
      Consolidated Statements of Capitalization for detail of long-term
      debt.





MidAmerican
      Energy’s Variable Rate Pollution Control Revenue Obligations bear interest at
      rates that are periodically established through remarketing of the bonds in
      the
      short-term tax-exempt market. MidAmerican Energy, at its option, may change
      the
      mode of interest calculation for these bonds by selecting from among several
      floating or fixed rate alternatives. The interest rates shown in the
      Consolidated Statements of Capitalization are the weighted average interest
      rates as of December 31, 2005 and 2004. MidAmerican Energy maintains a
      revolving credit facility agreement to provide liquidity for holders of these
      issues.





The
      indenture pertaining to MidAmerican Energy’s unsecured senior notes provides
      that if MidAmerican Energy were to issue secured debt in the future, then such
      unsecured senior notes, as may then be existing, would equally and ratably
      be
      secured thereby. As of December 31, 2005, MidAmerican Energy was in
      compliance with all of its applicable long-term debt covenants.





MidAmerican
      Energy does not guarantee any of MidAmerican Funding’s long-term debt. However,
      all of MidAmerican Energy’s common stock is security for MidAmerican Funding’s
      long-term debt. Among other sources, MidAmerican Funding may use distributions
      from MidAmerican Energy to make payments on its long-term debt. Refer to Note
      (6) of MidAmerican Funding’s Notes to Consolidated Financial
      Statements.





On
      November 1, 2005, MidAmerican Energy issued $300 million of 5.75%
      medium-term notes due in 2035. The proceeds are being used to support
      construction of electric generation projects and for general corporate
      purposes.




63


**(7)**
            **Short-Term
                Borrowing**





Interim
      financing of working capital needs and the construction program may be obtained
      with unaffiliated parties from the sale of commercial paper or short-term
      borrowing from banks. As of December 31, 2005 and 2004, MidAmerican Energy
      had no short-term debt outstanding. Information regarding short-term debt
      average daily amounts follows (dollars in thousands):





2005
            
            2004Average
                daily amount outstanding during the year
            
            $
            84
            
            $
            3,579Weighted
                average interest rate on average daily amount outstanding during
                the
                year
            
            
            4.0
            %
            
            1.1
            %





MidAmerican
      Energy has authority from the FERC to issue through April 14, 2007,
      short-term debt in the form of commercial paper and bank notes aggregating
      $500.0 million. MidAmerican Energy has in place a $425.0 million
      revolving credit facility expiring November 18, 2009, which supports its
      $304.6 million commercial paper program and its variable rate pollution
      control revenue obligations. The related credit agreement requires that
      MidAmerican Energy’s ratio of consolidated debt to total capitalization,
      including current maturities, not exceed 0.65 to 1 as of the last day of any
      quarter. In addition, MidAmerican Energy has a $5.0 million line of credit,
      which expires July 1, 2006. As of December 31, 2005, MidAmerican
      Energy had no commercial paper or bank notes outstanding, and the full amount
      of
      the revolving credit facility and line of credit was available. As of
      December 31, 2005, MidAmerican Energy was in compliance with all covenants
      related to its short-term borrowings.





**(8)**
            **Preferred
                Securities**





The
      total
      outstanding cumulative preferred securities of MidAmerican Energy are not
      subject to mandatory redemption requirements and may be redeemed at the option
      of MidAmerican Energy at prices which, in the aggregate, total
      $31.1 million. The aggregate total the holders of all preferred securities
      outstanding at December 31, 2005, are entitled to upon involuntary
      bankruptcy is $30.3 million plus accrued dividends. Annual dividend
      requirements for all preferred securities outstanding at December 31, 2005,
      total $1.2 million.





**(9)**
            **Retirement
                Plans**





MidAmerican
      Energy sponsors a noncontributory defined benefit pension plan covering
      substantially all employees of MidAmerican Energy Holdings and its domestic
      energy subsidiaries. Benefit obligations under the plan are based on a cash
      balance arrangement for salaried employees and certain union employees and
      final
      average pay formulas for most union employees. Funding to the established trust
      is based upon the actuarially determined costs of the plan and the requirements
      of the Internal Revenue Code and the Employee Retirement Income Security Act.
      MidAmerican Energy has been allowed to recover accrued pension costs related
      to
      its employees in its electric and gas service rates. MidAmerican Energy also
      maintains noncontributory, nonqualified defined benefit supplemental executive
      retirement plans for active and retired participants.





MidAmerican
      Energy also sponsors certain postretirement health care and life insurance
      benefits covering substantially all retired employees of MidAmerican Energy
      Holdings and its domestic energy subsidiaries. Under the plans, substantially
      all of MidAmerican Energy’s employees may become eligible for these benefits if
      they reach retirement age while working for MidAmerican Energy. On July 1,
      2004, the postretirement benefit plan was amended for non-union participants.
      As
      a result, non-union employees hired July 1, 2004, and after are no longer
      eligible for postretirement benefits other than pensions. The plan, as amended,
      establishes retiree medical accounts for participants to which MidAmerican
      Energy makes fixed contributions until the employee’s retirement. Participants
      will use such accounts to pay a portion of their medical premiums during
      retirement. MidAmerican Energy retains the right to change these benefits
      anytime, subject to the provisions in its collective bargaining agreements.
      MidAmerican Energy has been allowed to recover accrued postretirement benefit
      costs related to its employees in its electric and gas service rates.





MidAmerican
      Energy bills to and is reimbursed currently for affiliates’ share of the net
      periodic benefit costs from all plans such affiliates participate in, as
      determined by MidAmerican Energy’s actuaries. In 2005, 2004 and 2003,
      MidAmerican Energy’s share of pension cost was $16.8 million,
      $14.5 million and $14.2 million, respectively. MidAmerican Energy’s
      share of postretirement cost in 2005, 2004 and 2003 totaled $12.6 million,
      $18.9 million and $22.4 million, respectively. For purposes of
      calculating the expected return on pension plan assets, a market-related value
      is used. Market-related value is equal to fair value except for gains and losses
      on equity investments, which are amortized into market-related value on a
      straight-line basis over five years. Net periodic benefit cost for the pension,
      including supplemental retirement, and postretirement benefits plans of
      MidAmerican Energy and the aforementioned affiliates included the following
      components for the years ended December 31.




64




Pension
            
            Postretirement2005
            
            
            2004
            
            
            2003
            
            
            2005
            
            
            2004
            
            
            2003Components
                of net periodic benefit cost (in thousands):Service
                cost
            
            $
            25,840
            
            $
            25,568
            
            $
            24,693
            
            $
            6,669
            
            $
            7,842
            
            $
            8,175Interest
                cost
            
            
            36,518
            
            
            35,159
            
            
            34,533
            
            
            13,455
            
            
            15,716
            
            
            16,065Expected
                return on plan assets
            
            
            (38,188
            )
            
            (38,258
            )
            
            (38,396
            )
            
            (9,611
            )
            
            (8,437
            )
            
            (6,008
            )Amortization
                of net transition obligation
            
            
            -
            
            
            (792
            )
            
            (2,591
            )
            
            2,403
            
            
            3,283
            
            
            4,110Amortization
                of prior service cost
            
            
            2,766
            
            
            2,758
            
            
            2,761
            
            
            -
            
            
            296
            
            
            593Amortization
                of prior year (gain) loss
            
            
            1,271
            
            
            1,569
            
            
            1,483
            
            
            1,554
            
            
            3,299
            
            
            3,716Regulatory
                expense
            
            
            -
            
            
            -
            
            
            3,320
            
            
            -
            
            
            -
            
            
            -Net
                periodic benefit cost
            
            $
            28,207
            
            $
            26,004
            
            $
            25,803
            
            $
            14,470
            
            $
            21,999
            
            $
            26,651Weighted-average
                assumptions used todetermine
                benefit obligations as ofDecember 31:Discount
                rate
            
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %Rate
                of compensation increase
            
            
            5.00
            %
            
            5.00
            %
            
            5.00
            %
            Not
                applicableWeighted
                average assumptions used todetermine
                net benefit cost for the yearsended
                December 31:Discount
                rate
            
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %
            
            5.75
            %Expected
                return on plan assets
            
            
            7.00
            %
            
            7.00
            %
            
            7.00
            %
            
            7.00
            %
            
            7.00
            %
            
            7.00
            %Rate
                of compensation increase
            
            
            5.00
            %
            
            5.00
            %
            
            5.00
            %
            Not
                applicable





2005
            
            2004Assumed
                health care cost trend rates as of December 31:Health
                care cost trend rate assumed for next year
            
            
            9.00
            %
            
            10.00
            %Rate
                that the cost trend rate gradually declines to
            
            
            5.00
            %
            
            5.00
            %Year
                that the rate reaches the rate it is assumed to remain at
            
            
            2010
            
            
            2010





Assumed
      health care cost trend rates have a significant effect on the amounts reported
      for the health care plans. A one-percentage-point change in assumed health
      care
      cost trend rates would have the following effects (in thousands):





Increase
                (Decrease) in ExpenseOne
                Percentage-Point
            
            One
                Percentage-PointIncrease
            
            DecreaseEffect
                on total service and interest cost
            
            $
            2,418
            
            $
            (1,891
            )Effect
                on postretirement benefit obligation
            
            $
            26,434
            
            $
            (21,350
            )





65


The
      following table presents a reconciliation of the fair value of plan assets,
      benefit obligation, and funded status of the aforementioned plans to the net
      amounts measured and recognized in the Consolidated Balance Sheets as of
      December 31 (in thousands):





Pension
                Benefits
            
            Postretirement
                Benefits2005
            
            2004
            
            2005
            
            2004Reconciliation
                of the fair value of plan assets:Fair
                value of plan assets at beginning of year
            
            $
            591,628
            
            $
            551,568
            
            $
            179,375
            
            $
            157,849Employer
                contributions
            
            
            5,786
            
            
            5,083
            
            
            16,615
            
            
            23,782Participant
                contributions
            
            
            -
            
            
            -
            
            
            9,096
            
            
            7,733Actual
                return on plan assets
            
            
            46,966
            
            
            63,151
            
            
            5,958
            
            
            9,698Benefits
                paid
            
            
            (31,551
            )
            
            (28,174
            )
            
            (20,144
            )
            
            (19,687
            )Fair
                value of plan assets at end of year
            
            
            612,829
            
            
            591,628
            
            
            190,900
            
            
            179,375Reconciliation
                of benefit obligation:Benefit
                obligation at beginning of year
            
            
            657,406
            
            
            620,048
            
            
            256,044
            
            
            297,433Service
                cost
            
            
            25,840
            
            
            25,568
            
            
            6,669
            
            
            7,841Interest
                cost
            
            
            36,518
            
            
            35,159
            
            
            13,455
            
            
            15,716Participant
                contributions
            
            
            -
            
            
            -
            
            
            9,096
            
            
            7,733Plan
                change
            
            
            (3,184
            )
            
            -
            
            
            (421
            )
            
            (19,219
            )Actuarial
                (gain) loss
            
            
            (6,917
            )
            
            4,805
            
            
            (15,141
            )
            
            (33,773
            )Benefits
                paid
            
            
            (31,551
            )
            
            (28,174
            )
            
            (20,144
            )
            
            (19,687
            )Benefit
                obligation at end of year
            
            
            678,112
            
            
            657,406
            
            
            249,558
            
            
            256,044Funded
                status
            
            
            (65,283
            )
            
            (65,778
            )
            
            (58,658
            )
            
            (76,669
            )Amounts
                not recognized in the ConsolidatedBalance
              Sheets:Unrecognized
                net (gain) loss
            
            
            (51,285
            )
            
            (34,319
            )
            
            29,725
            
            
            42,768Unrecognized
                prior service cost
            
            
            9,207
            
            
            15,157
            
            
            -
            
            
            -Unrecognized
                net transition obligation (asset)
            
            
            -
            
            
            -
            
            
            16,820
            
            
            19,641Net amount
              recognized in the ConsolidatedBalance
                Sheets
            
            $
            (107,361
            )
            $
            (84,940
            )
            $
            (12,113
            )
            $
            (14,260
            )Net amount
              recognized in the ConsolidatedBalance
                Sheets
                consist of:Accrued
                benefit liability
            
            $
            (135,506
            )
            $
            (117,357
            )
            $
            (83
            )
            $
            (57
            )Intangible
                assets
            
            
            11,939
            
            
            14,653
            
            
            -
            
            
            -Regulatory
                assets
            
            
            11,694
            
            
            17,764
            
            
            -
            
            
            -Accumulated
                other comprehensive income
            
            
            4,512
            
            
            -
            
            
            -
            
            
            -Liability
                of affiliate company
            
            
            -
            
            
            -
            
            
            (12,030
            )
            
            (14,203
            )Net
                amount recognized
            
            $
            (107,361
            )
            $
            (84,940
            )
            $
            (12,113
            )
            $
            (14,260
            )





The
      portion of the pension projected benefit obligation, included in the table
      above, related to the supplemental executive retirement plan was
      $105.7 million and $106.5 million as of December 31, 2005 and
      2004, respectively. The supplemental executive retirement plan has no assets,
      and accordingly, the fair value of its plan assets was zero as of
      December 31, 2005 and 2004. The accumulated benefit obligation for all
      defined benefit pension plans was $608.4 million and $585.4 million at
      December 31, 2005 and 2004, respectively. Of those amounts, the
      supplemental executive retirement plan accumulated benefit obligation totaled
      $102.2 million and $102.3 million for 2005 and 2004, respectively.





Although
      the supplemental executive retirement plan had no assets as of December 31,
      2005, MidAmerican Energy and MidAmerican Energy Holdings have Rabbi trusts
      that
      hold corporate-owned life insurance and other investments to provide funding
      for
      the future cash requirements. Because this plan is nonqualified, the assets
      in
      the Rabbi trusts are not considered plan assets. The cash surrender value of
      all
      of the policies included in the Rabbi trusts plus the fair market value of
      other
      Rabbi trust investments was $102.9 million and $98.8 million at
      December 31, 2005 and 2004, respectively, of which $70.6 million and
      $68.7 million was held by MidAmerican Energy at December 31, 2005 and
      2004, respectively, with the remainder held by MidAmerican Energy
      Holdings.




66


Plan
      Assets





MidAmerican
      Energy’s investment policy for its pension and postretirement plans is to
      balance risk and return through a diversified portfolio of high-quality equity
      and fixed income securities. Asset allocation for the pension and postretirement
      plans are as indicated in the tables below. Maturities for fixed income
      securities are managed to targets consistent with prudent risk tolerances.
      Sufficient liquidity is maintained to meet near-term benefit payment
      obligations. The plans retain outside investment advisors to manage plan
      investments within the parameters outlined by the MidAmerican Energy Pension
      and
      Employee Benefits Plans Administrative Committee. The weighted average return
      on
      assets assumption is based on historical performance for the types of assets
      in
      which the plans invest.





MidAmerican
      Energy’s pension plan asset allocation as of December 31, was as
      follows:





Percentage
                of Plan AssetsTarget2005
            
            2004
            
            RangeEquity
                securities
            
            
            66
            %
            
            71
            %
            
            65-75
            %Debt
                securities
            
            
            26
            
            
            22
            
            
            20-30Real
                estate
            
            
            6
            
            
            6
            
            
            0-10Other
            
            
            2
            
            
            1
            
            
            0-5Total
            
            
            100
            %
            
            100
            %





MidAmerican
      Energy’s postretirement benefit plan asset allocation as of December 31,
      was as follows:





Percentage
                of Plan AssetsTarget2005
            
            2004
            
            RangeEquity
                securities
            
            
            50
            %
            
            49
            %
            
            45-55
            %Debt
                securities
            
            
            48
            
            
            47
            
            
            45-55Real
                estate
            
            
            -
            
            
            -
            
            
            -Other
            
            
            2
            
            
            4
            
            
            0-10Total
            
            
            100
            %
            
            100
            %





Cash
      Flows





Net
      periodic benefit costs assigned to MidAmerican Energy affiliates are reimbursed
      currently in accordance with its intercompany administrative services
      agreements. MidAmerican Energy’s expected benefit payments to participants for
      its pension and postretirement plans for 2006 through 2010 and for the five
      years thereafter are summarized below (in thousands):





Projected
                Benefit PaymentsPostretirementPension
            
            Gross
            
            Medicare
                Subsidy
            
            Net
                of Subsidy2006
            
            $
            32,545
            
            $
            14,054
            
            $
            2,350
            
            $
            11,7042007
            
            
            34,771
            
            
            15,336
            
            
            2,533
            
            
            12,8032008
            
            
            37,347
            
            
            16,434
            
            
            2,719
            
            
            13,7152009
            
            
            41,125
            
            
            17,419
            
            
            2,888
            
            
            14,5312010
            
            
            45,030
            
            
            18,525
            
            
            3,032
            
            
            15,4932011-15
            
            
            275,118
            
            
            107,131
            
            
            17,728
            
            
            89,403









Employer
      contributions to the pension and postretirement plans are expected to be
      $6.7 million and $14.5 million, respectively, for 2006. MidAmerican
      Energy's policy is to contribute the minimum required amount to the pension
      plan
      and the amount expensed to its postretirement plans.





MidAmerican
      Energy sponsors defined contribution pension plans (401(k) plans) covering
      substantially all employees. MidAmerican Energy’s contributions vary depending
      on the plan but are based primarily on each participant's level of contribution
      and cannot exceed the maximum allowable for tax purposes. Total MidAmerican
      Energy contributions were $9.3 million, $8.7 million and
      $8.3 million for 2005, 2004 and 2003, respectively.





In
      December 2003, the President signed into law the Medicare Prescription Drug,
      Improvement and Modernization Act of 2003 (“Medicare Act”). The Medicare Act
      introduces a prescription drug benefit under Medicare as well as a subsidy
      to
      sponsors of retiree health care plans that provide a benefit to participants
      that is at least actuarially equivalent to Medicare Part D. Detailed regulations
      pertaining to the Medicare Act were promulgated in 2004 resulting in a $23.8
      million subsidy to MidAmerican Energy to be used for any valid business purpose.
      The subsidy is reflected as an actuarial gain in benefit obligation in 2004
      in
      the table above. The impact of the Medicare Act on the net periodic
      postretirement benefit expense is reflected in 2005.





**(10)**
            **Segment
                Information**





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





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





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







68




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





2005
            
            
            2004
            
            
            2003Segment
                Profit InformationOperating
                revenues:External
                revenues -Generation
            
            $
            704,776
            
            $
            579,251
            
            $
            522,349Energy
                delivery
            
            
            2,110,390
            
            
            1,839,289
            
            
            1,812,547Transmission
            
            
            36,998
            
            
            29,088
            
            
            25,916Unregulated
                retail services
            
            
            308,173
            
            
            248,725
            
            
            235,000Total
            
            
            3,160,337
            
            
            2,696,353
            
            
            2,595,812Intersegment
                revenues -Generation
            
            
            701,922
            
            
            643,334
            
            
            629,939Energy
                delivery
            
            
            (760,647
            )
            
            (702,418
            )
            
            (690,126
            )Transmission
            
            
            58,725
            
            
            59,084
            
            
            57,946Unregulated
                retail services
            
            
            -
            
            
            -
            
            
            2,241Total
            
            
            -
            
            
            -
            
            
            -Consolidated
            
            $
            3,160,337
            
            $
            2,696,353
            
            $
            2,595,812Depreciation
                and amortization expense (a):Generation
            
            $
            144,323
            
            $
            144,643
            
            $
            145,645Energy
                delivery
            
            
            113,317
            
            
            111,172
            
            
            121,296Transmission
            
            
            10,297
            
            
            9,470
            
            
            11,641Unregulated
                retail services
            
            
            1,006
            
            
            922
            
            
            2,221Total
            
            $
            268,943
            
            $
            266,207
            
            $
            280,803Interest
                and dividend income:Generation
            
            $
            3,423
            
            $
            2,349
            
            $
            2,284Energy
                delivery
            
            
            2,269
            
            
            1,844
            
            
            2,307Transmission
            
            
            313
            
            
            204
            
            
            346Unregulated
                retail services
            
            
            11
            
            
            4
            
            
            19Total
            
            $
            6,016
            
            $
            4,401
            
            $
            4,956Fixed
                charges and preferred dividends:Generation
            
            $
            39,331
            
            $
            33,575
            
            $
            30,364Energy
                delivery
            
            
            35,498
            
            
            33,225
            
            
            37,745Transmission
            
            
            4,712
            
            
            4,252
            
            
            4,416Unregulated
                retail services
            
            
            56
            
            
            54
            
            
            325Total
            
            $
            79,597
            
            $
            71,106
            
            $
            72,850









69






2005
            
            
            2004
            
            
            2003Segment
                Profit Information (continued)Earnings
                on common stock:Generation
            
            $
            104,888
            
            $
            92,027
            
            $
            91,111Energy
                delivery
            
            
            74,453
            
            
            79,798
            
            
            65,437Transmission
            
            
            37,592
            
            
            33,443
            
            
            26,703Unregulated
                retail services
            
            
            3,117
            
            
            3,942
            
            
            3,930Consolidated
            
            $
            220,050
            
            $
            209,210
            
            $
            187,181Segment
                Asset InformationCapital
                expenditures:Generation
            
            $
            520,788
            
            $
            540,873
            
            $
            215,952Energy
                delivery
            
            
            161,220
            
            
            164,957
            
            
            143,507Transmission
            
            
            84,192
            
            
            34,095
            
            
            16,759Unregulated
                retail services
            
            
            329
            
            
            457
            
            
            1,257Total
            
            $
            766,529
            
            $
            740,382
            
            $
            377,475Total
                assets:Generation
            
            $
            2,701,964
            
            $
            2,229,909
            
            $
            1,639,541Energy
                delivery
            
            
            2,786,220
            
            
            2,625,081
            
            
            2,535,061Transmission
            
            
            356,077
            
            
            277,771
            
            
            242,435Unregulated
                retail services
            
            
            80,158
            
            
            42,725
            
            
            56,743Total
            
            
            5,924,419
            
            
            5,175,486
            
            
            4,473,780Reclassifications
                and intersegment eliminations (b)
            
            
            (60,282
            )
            
            (63,535
            )
            
            (69,346
            )Consolidated
            
            $
            5,864,137
            
            $
            5,111,951
            
            $
            4,404,434





(a)
            Depreciation
                and amortization expense above includes depreciation related to
                nonregulated operations, which is included in Nonregulated Operating
                Expense - Other on the Consolidated Statements of
                Operations.(b)
            Reclassifications
                and intersegment eliminations relate principally to the reclassification
                of income tax balances in accordance with generally accepted accounting
                principles and the elimination of intersegment accounts receivables
                and
                payables.







70


**(11)**
            **Income
                Taxes**





MidAmerican
      Energy is included in the MidAmerican Energy Holdings consolidated income tax
      return. However, MidAmerican Energy’s income tax liability is computed on a
      stand-alone basis. Accordingly, all of MidAmerican Energy’s accrued and deferred
      income taxes are payable to MidAmerican Energy Holdings.





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





2005
            
            
            2004
            
            
            2003Current:Federal
            
            $
            91,055
            
            $
            64,827
            
            $
            97,304State
            
            
            24,370
            
            
            1,797
            
            
            33,411115,425
            
            
            66,624
            
            
            130,715Deferred:Federal
            
            
            7,144
            
            
            46,848
            
            
            9,996State
            
            
            (3,532
            )
            
            (6,950
            )
            
            (5,074
            )3,612
            
            
            39,898
            
            
            4,922Investment
                tax credit, net
            
            
            (4,181
            )
            
            (4,367
            )
            
            (4,376
            )Total
            
            $
            114,856
            
            $
            102,155
            
            $
            131,261





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





2005
            
            2004
            
            2003Statutory
                federal income tax rate
            
            
            35
            %
            
            35
            %
            
            35
            %Amortization
                of investment tax credit
            
            
            (1
            )
            
            (1
            )
            
            (1
            )State
                income tax, net of federal income tax benefit
            
            
            5
            
            
            6
            
            
            6Settlement
                of income tax audits
            
            
            -
            
            
            (3
            )
            
            -Renewable
                electricity production tax credits
            
            
            (3
            )
            
            -
            
            
            -Effects
                of ratemaking
            
            
            (2
            )
            
            (2
            )
            
            2Other
            
            
            -
            
            
            (2
            )
            
            (1
            )Effective
                federal and state income tax rate
            
            
            34
            %
            
            33
            %
            
            41
            %





Deferred
      Income Taxes on the Consolidated Balance Sheets included the following as of
      December 31 (in thousands):





2005
            
            
            2004Deferred
                tax assets related to:Revenue
                sharing
            
            $
            92,040
            
            $
            79,903Pensions
            
            
            49,200
            
            
            39,817Nuclear
                reserves and decommissioning
            
            
            14,963
            
            
            27,111Accrued
                liabilities
            
            
            920
            
            
            979Other
            
            
            2,451
            
            
            4,248159,574
            
            
            152,058Deferred
                tax liabilities related to:Depreciable
                property
            
            
            473,131
            
            
            472,106Regulatory
                asset for income taxes
            
            
            145,967
            
            
            131,770Fuel
                cost recoveries
            
            
            9,896
            
            
            887Reacquired
                debt
            
            
            2,472
            
            
            3,876631,466
            
            
            608,639Net
                deferred income tax liability
            
            $
            471,892
            
            $
            456,581




71


**(12)**
            **Risk
                Management**





MidAmerican
      Energy is exposed to loss of net income, cash flows and asset values due to
      market risk, including: 1) changes in the market price of gas, electricity
      and
      fuel used in its regulated and nonregulated businesses, 2) variations in the
      severity of weather conditions from normal, and 3) changes in interest rates.
      See also Note (13) for a discussion of MidAmerican Energy’s exposure to credit
      risk. To manage these exposures, MidAmerican Energy enters into various
      financial derivative instruments, including futures, swaps, options and forward
      physical contracts. Through the functioning of a risk oversight committee,
      senior management provides the overall direction, structure, conduct and control
      of MidAmerican Energy's risk management activities, including authorization
      and
      communication of risk management policies and procedures, the use of financial
      derivative instruments, strategic hedging program guidelines, appropriate market
      and credit risk limits, and appropriate systems for recording, monitoring and
      reporting the results of transactional and risk management activities.





As
      of
      December 31, 2005, MidAmerican Energy held derivative instruments used for
      non-trading and trading purposes with the following fair values (in
      thousands):





MaturityContract
                Type
            
            
            2006
            
            
            2007-09
            
            
            After
                2009
            
            
            TotalNon-trading:Regulated
                electric assets
            
            $
            17,391
            
            $
            30
            
            $
            -
            
            $
            17,421Regulated
                electric (liabilities)
            
            
            (28,239
            )
            
            (5,963
            )
            
            -
            
            
            (34,202
            )Regulated
                gas assets
            
            
            14,394
            
            
            -
            
            
            -
            
            
            14,394Regulated
                gas (liabilities)
            
            
            (13,396
            )
            
            -
            
            
            -
            
            
            (13,396
            )Regulated
                weather assets
            
            
            895
            
            
            -
            
            
            -
            
            
            895Nonregulated
                electric assets
            
            
            2,001
            
            
            -
            
            
            -
            
            
            2,001Nonregulated
                electric (liabilities)
            
            
            (900
            )
            
            -
            
            
            -
            
            
            (900
            )Nonregulated
                gas assets
            
            
            17,813
            
            
            5,809
            
            
            56
            
            
            23,678Nonregulated
                gas (liabilities)
            
            
            (18,845
            )
            
            (5,077
            )
            
            (33
            )
            
            (23,955
            )Nonregulated
                weather assets
            
            
            31
            
            
            -
            
            
            -
            
            
            31Total
            
            
            (8,855
            )
            
            (5,201
            )
            
            23
            
            
            (14,033
            )Trading:Nonregulated
                electric assets
            
            
            116
            
            
            -
            
            
            -
            
            
            116Nonregulated
                electric (liabilities)
            
            
            (228
            )
            
            -
            
            
            -
            
            
            (228
            )Total
            
            
            (112
            )
            
            -
            
            
            -
            
            
            (112
            )Total
                MidAmerican Energy assets
            
            $
            52,641
            
            $
            5,839
            
            $
            56
            
            $
            58,536Total
                MidAmerican Energy (liabilities)
            
            $
            (61,608
            )
            $
            (11,040
            )
            $
            (33
            )
            $
            (72,681
            )





Derivative
      instruments maturing within one year are reflected in Current Assets-Other
      or
      Current Liabilities-Other on the Consolidated Balance Sheets as appropriate.
      Derivative instruments with maturities greater than one year are reflected
      in
      either Other Assets or Other Liabilities-Other.





Commodity
      Price Risk





Under
      the
      current regulatory framework, MidAmerican Energy is allowed to recover its
      cost
      of gas from all of its regulated gas customers through a purchased gas
      adjustment clause included in revenues. Accordingly, MidAmerican Energy’s
      regulated gas customers, although ensured of the availability of gas supplies,
      retain the risk associated with market price volatility. In order to mitigate
      a
      portion of the market price risk retained by its regulated gas customers through
      the purchased gas adjustment clause, MidAmerican Energy uses natural gas
      futures, options and over-the-counter agreements. The realized gains and losses
      on these derivative instruments are assigned to regulated gas customers through
      the purchased gas adjustment clause.





MidAmerican
      Energy is exposed to variations in the price of fuel for generation and the
      price of wholesale power to be purchased or sold. Under typical operating
      conditions, MidAmerican Energy has sufficient generation to supply its regulated
      retail electric needs, but may, at times, need to purchase electric power.
      MidAmerican Energy may incur a loss if the costs of fuel for generation or
      any
      purchases of electric power are higher than MidAmerican Energy is permitted
      to
      recover from its customers under current electric rates. MidAmerican Energy
      uses
      physical and financial forward contracts to mitigate these regulated electric
      price risks.




72




MidAmerican
      Energy also derives revenues from nonregulated retail sales of natural gas
      and
      electricity to commercial and industrial end users. Pricing provisions are
      individually negotiated with these customers and may include fixed prices,
      prices based on a daily or monthly market index or prices based on MidAmerican
      Energy’s actual costs. MidAmerican Energy enters into natural gas futures,
      options and swap agreements to economically hedge gas commodity prices for
      physical delivery to nonregulated customers. Forward physical supply contracts
      are generally entered into in close proximity to entering into retail electric
      contracts to offset the impact of variances in electricity prices. Nonregulated
      retail physical electric contracts are considered “normal” purchases or sales
      and gains and losses on such contracts are recognized when settled. All other
      nonregulated gas and electric contracts are recorded at fair value.





Derivative
      instruments are used to economically hedge both committed and forecasted energy
      purchases and sales. Realized gains and losses on all hedges are recognized
      in
      income as operating revenues; cost of fuel, energy and capacity; or cost of
      gas
      sold, depending upon the nature of the item being hedged. Net unrealized gains
      and losses on hedges utilized for regulated purposes are recorded as regulatory
      assets or liabilities. Unrealized gains or losses on nonregulated derivative
      financial instruments are recognized in income.





**(13)**
            **Concentration
                of Credit
                Risk**





Regulated
      Utility Operations





MidAmerican
      Energy's regulated electric utility operations serve approximately 618,000
      customers in Iowa, 84,000 customers in western Illinois and 4,000 customers
      in
      southeastern South Dakota. MidAmerican Energy's regulated gas utility operations
      serve 539,000 customers in Iowa, 66,000 customers in western Illinois, 78,000
      customers in southeastern South Dakota and 5,000 customers in northeastern
      Nebraska. The largest communities served by MidAmerican Energy are the Iowa
      and
      Illinois Quad-Cities; Des Moines, Sioux City, Cedar Rapids, Waterloo, Iowa
      City
      and Council Bluffs, Iowa; and Sioux Falls, South Dakota. MidAmerican Energy's
      utility operations grant unsecured credit to customers, substantially all of
      whom are local businesses and residents. As of December 31, 2005, billed
      receivables from MidAmerican Energy's utility customers, totaled $186.0 million.





Nonregulated
      Retail Operations





MidAmerican
      Energy's nonregulated retail operations provide energy services to approximately
      3,900 electric and gas customers in Iowa, Illinois, Ohio and Michigan. In the
      ordinary course of business, MidAmerican Energy's nonregulated retail operations
      grant unsecured credit to customers, substantially all of which are commercial,
      industrial, non-profit, or other business concerns. MidAmerican Energy analyzes
      each counterparty’s credit worthiness prior to entering into any agreement to
      provide energy services. As of December 31, 2005, billed receivables from
      MidAmerican Energy's nonregulated retail customers totaled $29.4 million.
      Billed receivables from any one customer did not exceed 1.8% of total
      nonregulated retail billed receivables.





Wholesale
      Operations





MidAmerican
      Energy extends unsecured credit to other utilities, energy marketers, financial
      institutions and certain commercial and industrial end-users in conjunction
      with
      wholesale energy marketing activities. MidAmerican Energy analyzes the financial
      condition of each wholesale counterparty before entering into any transactions,
      establishes limits on the amount of unsecured credit to be extended to each
      counterparty, and evaluates the appropriateness of unsecured credit limits
      on an
      ongoing basis. Credit exposures relative to approved limits are monitored daily,
      with all exceptions to approved limits reported to senior management.
      MidAmerican Energy defines credit exposure as the potential loss in value in
      the
      event of non-payment or non-performance by a counterparty, which includes not
      only accounts receivable, but also the replacement, or mark-to-market value
      of
      contracts for future performance. MidAmerican Energy seeks to negotiate
      contractual arrangements with wholesale counterparties to provide for net
      settlement of monthly accounts receivable and accounts payable and net
      settlement of contracts for future performance in the event of default. Accounts
      payable are deducted from calculations of credit exposure for counterparties
      with whom such contractual arrangements exist. MidAmerican Energy also seeks
      to
      negotiate contractual arrangements that provide for the exchange of collateral
      in the event that credit exposure to a particular counterparty (1) exceeds
      a
      specified threshold or (2) in the event of a material adverse change in such
      counterparty’s financial condition or downgrade in its credit ratings to below
“investment grade” by a nationally recognized statistical rating organization
      such as Moody’s or Standard & Poor’s. MidAmerican Energy periodically
      requests and receives collateral, typically in the form of cash or letters
      of
      credit, from counterparties with credit exposure in excess of established
      limits. As of December 31, 2005, 84.4% of MidAmerican Energy’s credit
      exposure, net of collateral, from wholesale operations was with counterparties
      having “investment grade” credit ratings from Moody’s or Standard & Poor’s,
      while an additional 7.4% of MidAmerican Energy’s credit exposure, net of
      collateral, from wholesale operations was with counterparties having financial
      characteristics deemed equivalent to “investment grade” by MidAmerican Energy
      based on internal review. MidAmerican Energy had credit exposure to a single
      counterparty, net of collateral, of approximately 20.2% of aggregate credit
      exposure, net of collateral, to all wholesale counterparties as of
      December 31, 2005. The counterparty has investment grade credit ratings
      from both Moody’s and Standard & Poor’s, and MidAmerican Energy is not aware
      of any factors that would likely result in a downgrade of the counterparty’s
      credit ratings to below investment grade over the remaining term of transactions
      outstanding as of December 31, 2005.




73




MidAmerican
      Energy’s credit exposure with respect to wholesale natural gas, electricity, and
      derivatives transactions is summarized below as of December 31, 2005
      (dollars in thousands).





CreditExposure,Credit
            
            Collateral
            
            Net
                of
            
            %
                ofExposure,
                Net of Collateral
            
            Exposure
            
            Held
            
            Collateral
            
            CreditAA-/Aa3
                and above
            
            $
            18,834
            
            $
            -
            
            $
            18,834
            
            
            23.1
            %A-/A3
                to A+/A1
            
            
            14,190
            
            
            -
            
            
            14,190
            
            
            17.4BBB-/Baa3
                to BBB+/Baa1
            
            
            35,806
            
            
            -
            
            
            35,806
            
            
            43.9BB-/Ba3
                to BB+/Ba1
            
            
            6,604
            
            
            -
            
            
            6,604
            
            
            8.1B+/B1
                or lower
            
            
            3,982
            
            
            5,125
            
            
            -
            
            
            -Unrated
            
            
            7,061
            
            
            2,750
            
            
            6,126
            
            
            7.5Total
                credit exposure
            
            $
            86,477
            
            $
            7,875
            
            $
            81,560
            
            
            100.0
            %





**(14)**
            **Asset
                Retirement
                Obligations**





MidAmerican
      Energy has recognized liabilities for legal obligations associated with the
      retirement of certain long-lived assets. Concurrent with the recognition of
      each
      liability, the estimated cost of the related asset retirement obligation (“ARO”)
      was capitalized and is being depreciated over the remaining life of the related
      asset. The difference between an ARO liability, the corresponding ARO net asset,
      and amounts recovered from regulated customers to satisfy such liability is
      recorded as a regulatory asset or liability.





On
      December 31, 2005, MidAmerican Energy adopted Financial Accounting
      Standards Board Interpretation No. 47, “Accounting for Conditional Asset
      Retirement Obligations, an interpretation of FASB Statement No. 143” (“FIN 47”).
      FIN 47 clarifies
      that the term *conditional
      asset retirement obligation* as used
      in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a
      legal obligation to perform an asset retirement activity in which the timing
      and/or method of settlement are conditional on a future event that may or may
      not be within the control of the entity. Accordingly, MidAmerican Energy is
      required to recognize a liability for the fair value of a conditional ARO if
      the
      fair value of the liability can be reasonably estimated. Uncertainty about
      the
      timing or method of settlement of a conditional ARO should be factored into
      the
      measurement of the liability when sufficient information exists.





In
      conjunction with the adoption of FIN 47, MidAmerican Energy recorded as of
      December 31, 2005, $10.8 million of ARO liabilities related to
      conditional ARO’s; $0.2 million of associated ARO assets, net of
      accumulated depreciation; and a $10.6 million reduction of regulatory
      liabilities. Adoption of FIN 47 did not impact net income.





As
      of
      December 31, 2005, $163.0 million of the total ARO liability pertained
      to the decommissioning of Quad Cities Station, and $228.1 million of assets
      reflected in Investments and Nonregulated Property, Net, were restricted for
      satisfying the Quad Cities Station ARO liability.





74


The
      change in the balance of the total ARO liability is summarized as follows (in
      thousands):





2005
            
            2004Balance
                January 1
            
            $
            166,845
            
            $
            269,124Adoption
                of FIN 47
            
            
            10,787
            
            
            -Revision
                to nuclear decommissioning ARO liability
            
            
            -
            
            
            (120,098
            )Addition
                for new wind power facilities
            
            
            3,897
            
            
            2,777Accretion
            
            
            9,588
            
            
            15,042Balance
                December 31
            
            $
            191,117
            
            $
            166,845





The
      2004
      revision to the nuclear decommissioning ARO liability is a result of a change
      in
      the assumed life of Quad Cities Station pursuant to a 20-year extension to
      the
      operating license of the plant by the Nuclear Regulatory Commission in October
      2004 and its impact on the timing of related cash flows.





The
      total
      ARO liability, computed on a pro forma basis as if FIN 47 had been applied
      during each of the periods presented in the consolidated financial statements,
      would have been as follows (in thousands):





As
                of January 1, 2003
            
            $
            285,196As
                of December 31, 2003
            
            
            279,358As
                of December 31, 2004
            
            
            177,354





In
      addition to the ARO liabilities, MidAmerican Energy has accrued for the cost
      of
      removing other electric and gas assets through its depreciation rates, in
      accordance with accepted regulatory practices. These accruals are reflected
      as
      regulatory liabilities and total $448.5 million and $428.7 million at
      December 31, 2005 and 2004, respectively.





**(15)**
            **Fair
                Valueof Financial
                Instruments**





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





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





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





Short-term
      investments - Consists of auction rate securities, the carrying amounts of
      which
      approximate fair value due to the frequent remarketing of these
      investments.





Notes
      payable - Fair value is estimated to be the carrying amount due to the short
      maturity of these 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
      MidAmerican Energy for debt of the same remaining maturities.





The
      following table presents the carrying amount and estimated fair value of
      MidAmerican Energy’s long-term debt, including the current portion, as of
      December 31 (in thousands):





2005
            
            2004Carrying
                amount
            
            $
            1,631,760
            
            $
            1,422,527Estimated
                fair value
            
            
            1,676,760
            
            
            1,494,385






75


MidAmerican
      Energy’s investments in debt and equity securities, other than auction rate
      securities, consist of the investments in the Quad Cities Station nuclear
      decommissioning trusts. The amortized cost, gross unrealized gains and losses
      and estimated fair value of these investments as of December 31 were as follows
      (in thousands):





2005Amortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueAvailable-for-sale:Equity
                securities
            
            $
            85,221
            
            $
            44,537
            
            $
            (2,087
            )
            $
            127,671Municipal
                bonds
            
            
            21,309
            
            
            319
            
            
            (131
            )
            
            21,497U.
                S.
                Government securities
            
            
            47,024
            
            
            520
            
            
            (402
            )
            
            47,142Corporate
                securities
            
            
            31,243
            
            
            527
            
            
            (581
            )
            
            31,189Cash
                equivalents
            
            
            571
            
            
            -
            
            
            -
            
            
            571$
            185,368
            
            $
            45,903
            
            $
            (3,201
            )
            $
            228,070





2004Amortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueAvailable-for-sale:Equity
                securities
            
            $
            79,326
            
            $
            35,714
            
            $
            (1,275
            )
            $
            113,765Municipal
                bonds
            
            
            21,649
            
            
            564
            
            
            (39
            )
            
            22,174U.
                S.
                Government securities
            
            
            38,709
            
            
            165
            
            
            (694
            )
            
            38,180Corporate
                securities
            
            
            29,845
            
            
            809
            
            
            (249
            )
            
            30,405Cash
                equivalents
            
            
            2,940
            
            
            -
            
            
            -
            
            
            2,940$
            172,469
            
            $
            37,252
            
            $
            (2,257
            )
            $
            207,464





As
      of
      December 31, 2005, the debt securities held by the Quad Cities Station
      nuclear decommissioning trusts had the following maturities (in thousands):





Available-For-SaleAmortized
            
            FairCost
            
            ValueWithin
                1 year
            
            $
            3,148
            
            $
            3,1601
                through 5 years
            
            
            38,096
            
            
            37,5295
                through 10 years
            
            
            21,962
            
            
            21,996Over
                10 years
            
            
            36,370
            
            
            37,143





The
      proceeds and gross realized gains and losses on the disposition of
      available-for-sale securities in the Quad Cities Station nuclear decommissioning
      trusts are shown in the following table (in thousands). Realized gains and
      losses in the trusts are recorded in the regulatory liability related to the
      Quad Cities Station asset retirement obligation and do not impact earnings.
      Realized gains and losses are determined by specific
      identification.





Years
                Ended December 31,2005
            
            2004
            
            2003Proceeds
                from sales
            
            $
            90,041
            
            $
            83,726
            
            $
            88,507Gross
                realized gains
            
            
            2,602
            
            
            2,725
            
            
            3,696Gross
                realized losses
            
            
            (2,174
            )
            
            (822
            )
            
            (607
            )





**(16)**
            **Non-Operating
                Other Income and
                Expense**





Non-Operating
      Income - Other Income, as shown on the Consolidated Statements of Operations,
      includes primarily corporate-owned life insurance income totaling
      $5.2 million, $5.4 million and $6.3 million for 2005, 2004 and
      2003, respectively.




76


Non-Operating
      Income - Other Expense consists primarily of items not recoverable from
      MidAmerican Energy’s regulated utility customers.





**(17)**
            **AffiliatedCompany
                Transactions**





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





MidAmerican
      Energy was reimbursed for charges incurred on behalf of its affiliates. The
      majority of these reimbursed expenses were for employee wages and benefits,
      insurance, building rent, computer costs, administrative services, travel
      expense, and general and administrative expense; including treasury, legal
      and
      accounting functions. The amount of such reimbursements was $51.8 million,
      $58.9 million and $49.1 million for 2005, 2004 and 2003,
      respectively.





MidAmerican
      Energy reimbursed MidAmerican Energy Holdings in the amount of
      $16.3 million, $11.4 million and $12.2 million in 2005, 2004 and
      2003, respectively, for its allocated share of corporate expenses.





MidAmerican
      Energy had an agreement with Cordova Energy Company, LLC, a subsidiary of
      MidAmerican Energy Holdings, to purchase electric capacity and energy from
      a
      gas-fired combined cycle generation plant. The agreement, which terminated
      in
      May 2004, provided for MidAmerican Energy to purchase up to 50% of the net
      capacity of the plant and to supply the fuel stock required to generate the
      energy purchased. MidAmerican Energy’s payments for monthly capacity charges
      totaled $12.7 million for 2004 and $26.6 million for
      2003.





Northern
      Natural Gas Company (“NNG”), a subsidiary of MidAmerican Energy Holdings, has
      been and is one of MidAmerican Energy’s suppliers of natural gas transportation
      and storage capacity. MidAmerican Energy’s net purchases of natural gas
      transportation and storage capacity from NNG totaled $52.6 million in 2005,
      $48.3 million in 2004 and $53.5 million in 2003.





MidAmerican
      Energy had accounts receivable from affiliates of $3.2 million and
      $3.1 million as of December 31, 2005 and 2004, respectively, that are
      included in Receivables on the Consolidated Balance Sheets. MidAmerican Energy
      also had accounts payable to affiliates of $7.3 million and
      $6.6 million as of December 31, 2005 and 2004, respectively, that are
      included in Accounts Payable on the Consolidated Balance Sheets.





MidAmerican
      Energy may make distributions on its capital stock subject to regulatory
      restrictions agreed to by MidAmerican Energy in March 1999. At that time,
      MidAmerican Energy committed to the IUB to use commercially reasonable efforts
      to maintain an investment grade rating on its long-term debt and to maintain
      its
      common equity level above 42% of total capitalization unless circumstances
      beyond its control result in the common equity level decreasing to below 39%
      of
      total capitalization. MidAmerican Energy must seek the approval from the IUB
      of
      a reasonable utility capital structure if its common equity level decreases
      below 42% of total capitalization, unless the decrease is beyond the control
      of
      MidAmerican Energy. MidAmerican Energy is also required to seek the approval
      of
      the IUB if MidAmerican Energy’s equity level decreases to below 39%, even if the
      decrease is due to circumstances beyond the control of MidAmerican Energy.
      A
      transfer of assets between MidAmerican Energy and any of its affiliates, subject
      to certain nonmaterial exceptions, requires the prior approval of either or
      both
      the IUB and the ICC.




77


**(18)**
            **UnauditedQuarterly
                Operating
                Results**





20051st
                Quarter
            
            2nd
                Quarter
            
            3rd
                Quarter
            
            4th
                Quarter(In
                thousands)Operating
                revenues
            
            $
            855,136
            
            $
            618,470
            
            $
            721,657
            
            $
            965,074Operating
                income
            
            
            99,461
            
            
            58,730
            
            
            130,204
            
            
            92,729Net
                income
            
            
            56,349
            
            
            32,214
            
            
            82,368
            
            
            50,366Earnings
                on common stock
            
            
            56,037
            
            
            31,903
            
            
            82,056
            
            
            50,05420041st
                Quarter
            
            
            2nd
                Quarter
            
            
            3rd
                Quarter
            
            
            4th
                Quarter(In
                thousands)Operating
                revenues
            
            $
            839,932
            
            $
            573,971
            
            $
            565,253
            
            $
            717,197Operating
                income
            
            
            111,449
            
            
            59,362
            
            
            115,259
            
            
            70,326Net
                income
            
            
            64,887
            
            
            28,571
            
            
            66,158
            
            
            50,839Earnings
                on common stock
            
            
            64,578
            
            
            28,259
            
            
            65,846
            
            
            50,527





Quarterly
      data reflect seasonal variations common in the utility industry.








78


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**








To
      the
      Board of Managers and Member


MidAmerican
      Funding, LLC


Des
      Moines, Iowa





We
      have
      audited the accompanying consolidated balance sheets and consolidated statements
      of capitalization of MidAmerican Funding, LLC and subsidiaries (the “Company”)
      as of December 31, 2005 and 2004, and the related consolidated statements
      of operations, comprehensive income, retained earnings, and cash flows for
      each
      of the three years in the period ended December 31, 2005. Our audits also
      included the financial statement schedule listed in the Index at Item 15. These
      financial statements and financial statement schedule are the responsibility
      of
      the Company’s management. Our responsibility is to express an opinion on the
      financial statements and financial statement schedule based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audits included consideration of internal control
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, assessing the accounting principles used and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of MidAmerican Funding, LLC and subsidiaries
      as
      of December 31, 2005 and 2004, and the results of their operations and
      their cash flows for each of the three years in the period ended
      December 31, 2005, in conformity with accounting principles generally
      accepted in the United States of America. Also, in our opinion, such financial
      statement schedule, when considered in relation to the basic consolidated
      financial statements taken as a whole, presents fairly in all material respects
      the information set forth therein.











/s/
      Deloitte & Touche LLP





Des
      Moines, Iowa


March 3,
      2006








79


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


(In
      thousands)





**As
                of December 31,****2005**
            
            **2004****ASSETS****Utility
                Plant, Net**Electric
            
            $
            5,933,387
            
            $
            5,498,878Gas
            
            
            992,834
            
            
            957,0116,926,221
            
            
            6,455,889Accumulated
                depreciation and amortization
            
            
            (3,096,933
            )
            
            (2,956,856
            )3,829,288
            
            
            3,499,033Construction
                work in progress
            
            
            596,458
            
            
            369,4064,425,746
            
            
            3,868,439**Current
                Assets**Cash
                and cash equivalents
            
            
            71,207
            
            
            88,367Short-term
                investments
            
            
            25,425
            
            
            39,500Receivables,
                less reserves of $10,942 and $8,748, respectively
            
            
            469,128
            
            
            337,333Inventories
            
            
            84,623
            
            
            89,646Other
            
            
            61,577
            
            
            22,585711,960
            
            
            577,431**Investments
                and Nonregulated Property, Net**
            
            
            380,835
            
            
            375,230**Goodwill**
            
            
            1,265,979
            
            
            1,268,082**Regulatory
                Assets**
            
            
            237,201
            
            
            227,997**Other
                Assets**
            
            
            135,695
            
            
            110,065**Total
                Assets**
            
            $
            7,157,416
            
            $
            6,427,244**CAPITALIZATION
                AND LIABILITIES****Capitalization**Member’s
                equity
            
            $
            2,234,837
            
            $
            2,042,403MidAmerican
                Energy preferred securities
            
            
            30,329
            
            
            30,329Long-term
                debt, excluding current portion
            
            
            2,171,251
            
            
            2,031,5094,436,417
            
            
            4,104,241**Current
                Liabilities**Note
                payable to affiliate
            
            
            54,283
            
            
            31,500Current
                portion of long-term debt
            
            
            160,509
            
            
            91,018Accounts
                payable
            
            
            360,225
            
            
            242,966Taxes
                accrued
            
            
            105,029
            
            
            92,500Interest
                accrued
            
            
            30,401
            
            
            29,612Other
            
            
            94,712
            
            
            84,032805,159
            
            
            571,628**Other
                Liabilities**Deferred
                income taxes
            
            
            468,550
            
            
            468,215Investment
                tax credits
            
            
            43,962
            
            
            48,143Asset
                retirement obligations
            
            
            191,117
            
            
            166,845Regulatory
                liabilities
            
            
            763,155
            
            
            677,489Other
            
            
            449,056
            
            
            390,6831,915,840
            
            
            1,751,375**Total
                Capitalization and Liabilities**
            
            $
            7,157,416
            
            $
            6,427,244





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





80


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF
      OPERATIONS**


(In
      thousands)





**Years
                Ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****Operating
                Revenues**Regulated
                electric
            
            $
            1,513,239
            
            $
            1,421,709
            
            $
            1,397,997Regulated
                gas
            
            
            1,322,717
            
            
            1,010,909
            
            
            947,393Nonregulated
            
            
            330,128
            
            
            269,082
            
            
            254,8493,166,084
            
            
            2,701,700
            
            
            2,600,239**Operating
                Expenses**Regulated:Cost
                of fuel, energy and capacity
            
            
            468,132
            
            
            398,610
            
            
            396,342Cost
                of gas sold
            
            
            1,098,410
            
            
            789,975
            
            
            720,633Other
                operating expenses
            
            
            389,297
            
            
            380,815
            
            
            364,043Maintenance
            
            
            150,740
            
            
            164,821
            
            
            139,377Depreciation
                and amortization
            
            
            267,628
            
            
            264,952
            
            
            279,650Property
                and other taxes
            
            
            95,064
            
            
            92,637
            
            
            91,5822,469,271
            
            
            2,091,810
            
            
            1,991,627Nonregulated:Cost
                of sales
            
            
            292,454
            
            
            231,953
            
            
            216,175Other
            
            
            23,276
            
            
            21,990
            
            
            24,569315,730
            
            
            253,943
            
            
            240,744Total
                operating expenses
            
            
            2,785,001
            
            
            2,345,753
            
            
            2,232,371**Operating
                Income**
            
            
            381,083
            
            
            355,947
            
            
            367,868**Non-Operating
                Income**Interest
                and dividend income
            
            
            6,203
            
            
            4,509
            
            
            4,975Allowance
                for equity funds
            
            
            24,433
            
            
            18,949
            
            
            11,377Other
                income
            
            
            23,088
            
            
            11,072
            
            
            13,354Other
                expense
            
            
            (20,007
            )
            
            (5,267
            )
            
            (10,096
            )33,717
            
            
            29,263
            
            
            19,610**Fixed
                Charges**Interest
                on long-term debt
            
            
            127,581
            
            
            119,004
            
            
            119,333Other
                interest expense
            
            
            10,077
            
            
            6,184
            
            
            4,061Preferred
                dividends of subsidiaries
            
            
            1,247
            
            
            1,245
            
            
            1,416Allowance
                for borrowed funds
            
            
            (10,544
            )
            
            (7,816
            )
            
            (4,586
            )128,361
            
            
            118,617
            
            
            120,224**Income
                Before Income Taxes**
            
            
            286,439
            
            
            266,593
            
            
            267,254**Income
                Taxes**
            
            
            91,370
            
            
            87,336
            
            
            110,078**Net
                Income**
            
            $
            195,069
            
            $
            179,257
            
            $
            157,176





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




81


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF COMPREHENSIVE
      INCOME**


(In
      thousands)





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Net
                Income**
            
            $
            195,069
            
            $
            179,257
            
            $
            157,176**Other
                Comprehensive Income (Loss)**Unrealized
                gains (losses) on available-for-sale securities:Unrealized
                holding gains (losses) during period-Before
                income taxes
            
            
            654
            
            
            136
            
            
            384Income
                tax (expense) benefit
            
            
            (229
            )
            
            (48
            )
            
            (135
            )425
            
            
            88
            
            
            249Less
                realized gains (losses) reflected in net income during
                period-Before
                income taxes
            
            
            653
            
            
            480
            
            
            71Income
                tax benefit
            
            
            (229
            )
            
            (168
            )
            
            (25
            )424
            
            
            312
            
            
            46Net
                unrealized gains (losses)
            
            
            1
            
            
            (224
            )
            
            203Unrealized
                gains (losses) on cash flow hedges:Unrealized
                gains (losses) during period-Before
                income taxes
            
            
            -
            
            
            -
            
            
            (7,372
            )Income
                tax (expense) benefit
            
            
            -
            
            
            -
            
            
            3,065-
            
            
            -
            
            
            (4,307
            )Less
                realized gains (losses) reflected in net income during
                period-Before
                income taxes
            
            
            -
            
            
            682
            
            
            5,513Income
                tax (expense) benefit
            
            
            -
            
            
            (283
            )
            
            (2,292
            )-
            
            
            399
            
            
            3,221Less
                net unrealized gains (losses) reclassified to regulatory
                assetsand
                liabilities -Before
                income taxes
            
            
            -
            
            
            -
            
            
            (12,369
            )Income
                tax benefit
            
            
            -
            
            
            -
            
            
            5,142-
            
            
            -
            
            
            (7,227
            )Net
                unrealized gains (losses)
            
            
            -
            
            
            (399
            )
            
            (301
            )Minimum
                pension liability adjustment:Before
                income taxes
            
            
            (4,512
            )
            
            -
            
            
            -Income
                tax benefit
            
            
            1,876
            
            
            -
            
            
            -(2,636
            )
            
            -
            
            
            -Other
                comprehensive income (loss)
            
            
            (2,635
            )
            
            (623
            )
            
            (98
            )**Comprehensive
                Income**
            
            $
            192,434
            
            $
            178,634
            
            $
            157,078





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




82


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(In
      thousands)




**Years
                Ended December 31,****2005**
            
            
            **2004**
            
            
            **2003****Net
                Cash Flows From Operating Activities**Net
                income
            
            $
            195,069
            
            $
            179,257
            
            $
            157,176Adjustments
                to reconcile net income to net cash provided:Depreciation
                and amortization
            
            
            269,142
            
            
            266,409
            
            
            281,001Deferred
                income taxes and investment tax credit, net
            
            
            (15,898
            )
            
            30,434
            
            
            67Amortization
                of other assets and liabilities
            
            
            26,229
            
            
            17,199
            
            
            30,998Gain
                on sale of securities, assets and other investments
            
            
            (13,954
            )
            
            (316
            )
            
            (151
            )Loss
                from impairment of assets and other investments
            
            
            15,641
            
            
            1,735
            
            
            6,375Income
                on equity investments
            
            
            -
            
            
            -
            
            
            (1,755
            )Impact
                of changes in working capital-Marketable
                securities, trading
            
            
            -
            
            
            -
            
            
            4,939Receivables,
                net
            
            
            (117,846
            )
            
            (28,717
            )
            
            16,500Inventories
            
            
            5,023
            
            
            (4,181
            )
            
            3,027Accounts
                payable
            
            
            90,494
            
            
            28,164
            
            
            (48,691
            )Taxes
                accrued
            
            
            (6,741
            )
            
            (2,087
            )
            
            (2,192
            )Other
                current assets and liabilities
            
            
            (7,724
            )
            
            9,231
            
            
            (1,704
            )Other,
                net
            
            
            (15,744
            )
            
            (3,548
            )
            
            (28,915
            )Net
                cash provided by operating activities
            
            
            423,691
            
            
            493,580
            
            
            416,675**Net
                Cash Flows From Investing Activities**Utility
                construction expenditures
            
            
            (699,061
            )
            
            (631,962
            )
            
            (344,137
            )Quad
                Cities Station decommissioning trust fund
            
            
            (8,299
            )
            
            (8,299
            )
            
            (8,299
            )Proceeds
                from sale of assets and other investments
            
            
            15,088
            
            
            -
            
            
            326Purchases
                of available-for-sale securities
            
            
            (563,330
            )
            
            (748,801
            )
            
            (352,327
            )Proceeds
                from sales of available-for-sale securities
            
            
            565,689
            
            
            692,644
            
            
            337,240Other,
                net
            
            
            16,367
            
            
            22,959
            
            
            24,741Net
                cash used in investing activities
            
            
            (673,546
            )
            
            (673,459
            )
            
            (342,456
            )**Net
                Cash Flows From Financing Activities**Common
                dividends paid
            
            
            -
            
            
            -
            
            
            (172,500
            )Issuance
                of long-term debt, net
            
            
            296,466
            
            
            347,769
            
            
            272,550Retirement
                of long-term debt, including reacquisition cost
            
            
            (90,850
            )
            
            (56,168
            )
            
            (202,076
            )Note
                payable to affiliate
            
            
            22,783
            
            
            21,050
            
            
            10,450Net
                decrease in notes payable
            
            
            -
            
            
            (48,000
            )
            
            (7,000
            )Other
            
            
            4,296
            
            
            (963
            )
            
            -Net
                cash provided by (used in) financing activities
            
            
            232,695
            
            
            263,688
            
            
            (98,576
            )**Net
                Increase (Decrease) in Cash and Cash Equivalents**
            
            
            (17,160
            )
            
            83,809
            
            
            (24,357
            )**Cash
                and Cash Equivalents at Beginning of Year**
            
            
            88,367
            
            
            4,558
            
            
            28,915**Cash
                and Cash Equivalents at End of Year**
            
            $
            71,207
            
            $
            88,367
            
            $
            4,558**Supplemental
                Disclosure:**Interest
                paid, net of amounts capitalized
            
            $
            115,073
            
            $
            104,500
            
            $
            110,500Income
                taxes paid
            
            $
            118,499
            
            $
            54,275
            
            $
            117,566





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




83


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF
      CAPITALIZATION**


(In
      thousands, except share amounts)




**As
                of December 31,****Member’s
                Equity**
            
            
            **2005**
            
            
            **2004**Paid
                in capital
            
            $
            1,669,753
            
            
            
            
            $
            1,669,753Retained
                earnings
            
            
            567,673
            
            
            
            
            
            372,604Accumulated
                other comprehensive income, net:Unrealized
                gain on securities
            
            
            47
            
            
            
            
            
            46Minimum
                pension liability adjustment
            
            
            (2,636
            )
            
            
            
            
            -2,234,837
            
            
            50.4
            %
            
            2,042,403
            
            
            49.8
            %**MidAmerican
                Energy Preferred Securities****(100,000,000
                shares authorized)**Cumulative
                shares outstanding; not subject tomandatory
                redemption:$3.30
                Series, 49,451 shares
            
            
            4,945
            
            
            
            
            
            4,945$3.75
                Series, 38,305 shares
            
            
            3,831
            
            
            
            
            
            3,831$3.90
                Series, 32,630 shares
            
            
            3,263
            
            
            
            
            
            3,263$4.20
                Series, 47,362 shares
            
            
            4,736
            
            
            
            
            
            4,736$4.35
                Series, 49,945 shares
            
            
            4,994
            
            
            
            
            
            4,994$4.40
                Series, 35,697 shares
            
            
            3,570
            
            
            
            
            
            3,570$4.80
                Series, 49,898 shares
            
            
            4,990
            
            
            
            
            
            4,99030,329
            
            
            0.7
            %
            
            30,329
            
            
            0.7
            %**Long-Term
                Debt, Excluding Current Portion**MidAmerican
                Energy:Pollution
                control revenue obligations -6.1%
                Series due 2007
            
            
            1,000
            
            
            
            
            
            1,0005.95%
                Series, due 2023 (secured bygeneral
                mortgage bonds)
            
            
            29,030
            
            
            
            
            
            29,030Variable
                rate series -Due
                2016 and 2017, 3.59% and 2.05%, respectively
            
            
            37,600
            
            
            
            
            
            37,600Due
                2023 (secured by general mortgage bonds),3.59%
                and 2.05%, respectively
            
            
            28,295
            
            
            
            
            
            28,295Due
                2023, 3.59% and 2.05%, respectively
            
            
            6,850
            
            
            
            
            
            6,850Due
                2024, 3.59% and 2.05%, respectively
            
            
            34,900
            
            
            
            
            
            34,900Due
                2025, 3.59% and 2.05%, respectively
            
            
            12,750
            
            
            
            
            
            12,750Notes
                -6.375%
                Series, due 2006
            
            
            -
            
            
            
            
            
            160,0005.125%
                Series, due 2013
            
            
            275,000
            
            
            
            
            
            275,0004.65%
                Series, due 2014
            
            
            350,000
            
            
            
            
            
            350,0006.75%
                Series, due 2031
            
            
            400,000
            
            
            
            
            
            400,0005.75%
                Series, due 2035
            
            
            300,000
            
            
            
            
            
            -Obligation
                under capital lease
            
            
            1,184
            
            
            
            
            
            1,524Unamortized
                debt premium and discount, net
            
            
            (5,358
            )
            
            
            
            
            (5,440
            )Total
                MidAmerican Energy
            
            
            1,471,251
            
            
            33.1
            %
            
            1,331,509
            
            
            32.4
            %MidAmerican
                Funding parent:6.339%
                Senior Secured Notes Due 2009
            
            
            175,000
            
            
            
            
            
            175,0006.75%
                Senior Secured Notes Due 2011
            
            
            200,000
            
            
            
            
            
            200,0006.927%
                Senior Secured Notes Due 2029
            
            
            325,000
            
            
            
            
            
            325,000Total
                MidAmerican Funding parent
            
            
            700,000
            
            
            15.8
            %
            
            700,000
            
            
            17.1
            %2,171,251
            
            
            48.9
            %
            
            2,031,509
            
            
            49.5
            %**Total
                Capitalization**
            
            $
            4,436,417
            
            
            100.0
            %
            $
            4,104,241
            
            
            100.0
            %





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




84


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF RETAINED
      EARNINGS**


(In
      thousands)





**Years
                Ended December 31,****2005**
            
            **2004**
            
            **2003****Beginning
                of Year**
            
            $
            372,604
            
            $
            193,347
            
            $
            208,671**Net
                Income**
            
            
            195,069
            
            
            179,257
            
            
            157,176**Deduct
                Dividends Declared**
            
            
            -
            
            
            -
            
            
            172,500**End
                of Year**
            
            $
            567,673
            
            $
            372,604
            
            $
            193,347





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




85


**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL
      STATEMENTS**





**INDEX**









(1)
            Summary
                of Significant Accounting
                Policies
            87(2)
            Jointly
                Owned Utility Plant
            90(3)
            Inventories
            90(4)
            Commitments
                and Contingencies
            90(5)
            Rate
                Matters
            90(6)
            Long-Term
                Debt
            90(7)
            Short-Term
                Borrowing
            91(8)
            Preferred
                Securities
            92(9)
            Retirement
                Plans
            92(10)
            Segment
                Information
            92(11)
            Income
                Taxes
            95(12)
            Risk
                Management
            96(13)
            Concentration
                of Credit Risk
            96(14)
            Asset
                Retirement Obligations
            96(15)
            Fair
                Value of Financial Instruments
            96(16)
            Non-Operating
                Other Income and Expense
            98(17)
            Affiliated
                Company Transactions
            98(18)
            Unaudited
                Quarterly Operating Results
            99







86





**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**







**(1)**
              **Summaryof
                  Significant Accounting
                  Policies**


(a)
            Company
                Organization





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





(b)
            Principles
                of Consolidation and Preparation of Financial
                Statements





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





Certain
      classifications of amounts for 2005 are different than that of prior years.
      Accordingly, historical amounts have been reclassified. The accompanying
      Consolidated Balance Sheet as of December 31, 2004, reflects the
      reclassification of $39.5 million from Cash and Cash Equivalents to
      Short-Term Investments related to auction rate securities discussed in Note
      (1)(h). In the accompanying Consolidated Statement of Cash Flows for the year
      ended December 31, 2004, Cash and Cash Equivalents was reduced by $39.5
      million. Additionally, the accompanying Consolidated Statements of Cash Flows
      for the years ended December 31, 2004 and 2003, reflect Purchases of
      Available-for-Sale Securities totaling $646.9 million and $248.7 million,
      respectively, and Proceeds from Sales of Available-for-Sale Securities totaling
      $607.4 million and $248.7 million, respectively, related to auction
      rate securities.





Additionally,
      the accompanying Consolidated Statements of Cash Flows for the years ended
      December 31, 2004 and 2003, reflect Purchases of Available-for-Sale
      Securities totaling $101.9 million and $103.7 million, respectively,
      and Proceeds from Sales of Available-for-Sale Securities totaling
      $83.7 million and $88.5 million, respectively, related to transactions
      of securities held in the Quad Cities Station nuclear decommissioning
      trusts.





(c)
            Accounting
                for the Effects of Certain Types of
                Regulation





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





(d)
            Revenue
                Recognition





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





(e)
            Depreciation
                and Amortization





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




87


(f)
            Investments
                and Nonregulated Property, Net





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





2005
            
            2004Nuclear
                decommissioning trusts
            
            $
            228,070
            
            $
            207,464Rabbi
                trusts
            
            
            119,314
            
            
            111,944Coal transportation
              property, net of accumulated depreciation of $2,579and
                $2,287,
                respectively
            
            
            9,340
            
            
            9,632Equipment
                leases
            
            
            7,400
            
            
            25,910MidAmerican
              Energy
              non-utility property, net of accumulated depreciationof
                $4,058 and
                $3,124, respectively
            
            
            6,967
            
            
            8,063Real
                estate, net of accumulated depreciation of $603 and $562,
                respectively
            
            
            5,264
            
            
            5,605Energy
                projects
            
            
            1,275
            
            
            2,468Other
                venture capital investments
            
            
            1,508
            
            
            1,677Other
            
            
            1,697
            
            
            2,467Total
            
            $
            380,835
            
            $
            375,230





Investments
      held by the nuclear decommissioning trusts for the Quad Cities Station units
      are
      classified as available-for-sale and are reported at fair value. An amount
      equal
      to the net unrealized gains and losses on those investments is recorded as
      an
      adjustment to Regulatory Liabilities on the Consolidated Balance Sheets. Funds
      are invested in accordance with applicable federal investment guidelines and
      are
      restricted for use as reimbursement for costs of decommissioning MidAmerican
      Energy’s Quad Cities Station.





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





The
      coal
      transportation property is owned and operated by CBEC Railway Inc., a subsidiary
      of MidAmerican Energy. The property is depreciated on a straight-line basis
      over
      37 years.





Equipment
      leases at December 31, 2005, which are accounted for as leveraged leases
      and held by InterCoast Capital, consist primarily of a seven percent undivided
      interest in an electric generating station leased to a utility located in
      Arizona. That lease terminates in 2015 and had a carrying pre-tax value of
      $6.4 million and $7.3 million as of December 31, 2005 and 2004,
      respectively. The investment is exposed to the credit risk of the lessee.





Equipment
      leases also include leveraged leases related to equity financing provided for
      several commercial passenger aircraft leased to major domestic airlines. During
      2005, InterCoast Capital recorded other-than-temporary impairments of those
      investments and disposed of three of the five aircraft. As of December 31,
      2005 and 2004, the carrying values of the aircraft leases totaled $0.7 million
      and $18.3 million, respectively. The remaining aircraft leases terminate in
      2008
      and 2009. Refer to Note (16) for a discussion of the losses recognized in 2005
      related to the aircraft leases.





MidAmerican
      Energy non-utility property consists of property such as computer software,
      land
      and other assets not used for regulated utility purposes. The depreciable
      property consists primarily of computer software, which is amortized on a
      straight-line basis over five years.





The
      investment in real estate includes primarily a 1,920 acre planned residential
      and commercial development community located in the southeast corner of South
      Dakota. As of December 31, 2005, 50.4% of the development available for
      sale had been sold.





As
      of
      December 31, 2005, energy projects consisted of non-controlling interests in
      a
      gas-fired cogeneration facility and a hydroelectric generating facility. The
      investments were supported by long-term sales contracts to electric utilities
      primarily based on market price. During 2005, InterCoast Capital sold its
      investments in solar electric generating facilities. In January 2006, the
      long-term contract supporting the gas-fired cogeneration facility expired,
      and
      in February 2006, InterCoast Capital sold its partnership interest in the
      facility. Refer to Note (16) regarding the gain recognized by MidAmerican
      Funding.




88




Other
      venture capital investments include investments in independently managed funds,
      consisting principally of energy-related venture capital funds. The investments
      are accounted for using the cost or equity method of accounting, depending
      on
      MidAmerican Funding’s level of ownership and management control. Most of the
      special purpose funds have stated termination dates, ranging from 2006 through
      2007. At the time of fund termination, any remaining investments in the fund
      are
      liquidated and distributions are made to investors.





(g)
            Consolidated
                Statements of Cash Flows





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





(h)
            Short-term
                Investments





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





(i)
            Accounting
                for Derivatives





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





(j)
              Income
                  Taxes





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





(k)
            Allowance
                for Funds Used During
                Construction





Refer
      to
      Note (1)(k) of MidAmerican Energy’s Notes to Consolidated Financial
      Statements.





(l)
            **Impairment
                of Long-lived assets





MidAmerican
      Funding periodically evaluates long-lived assets, including property, plant
      and
      equipment, when events or changes in circumstances indicate that the carrying
      value of these assets may not be recoverable. Upon the occurrence of a
      triggering event, the carrying amount of a long-lived asset is reviewed to
      assess whether the recoverable amount has declined below its carrying amount.
      The recoverable amount is the estimated net future cash flows expected to be
      recovered from the future use of the asset, undiscounted and without interest,
      plus the asset’s residual value on disposal. Where the recoverable amount of the
      long-lived asset is less than the carrying value, an impairment loss is
      recognized to write down the asset to its fair value that is based on discounted
      estimated cash flows from the future use of the asset.





(m)
            Goodwill





Goodwill
      resulting from past business combinations is not amortized. Periodically, such
      balances are evaluated for possible impairment. Based on MidAmerican Funding’s
      annual goodwill impairment test completed as of October 31, 2005, no
      impairment was indicated for goodwill. In 2004 and 2005, MidAmerican Funding
      adjusted goodwill for a change in related deferred income taxes due to
      resolution of tax issues existing at the time of purchase. The following table
      shows the change in the carrying amount of goodwill by reportable segment for
      the years ended December 31, 2005 and 2004 (in thousands):





Generation
            
            Delivery
            
            Transmission
            
            TotalBalance
                at January 1, 2004
            
            $
            927,481
            
            $
            262,906
            
            $
            84,067
            
            $
            1,274,454Income
                tax adjustment
            
            
            (4,622
            )
            
            (1,331
            )
            
            (419
            )
            
            (6,372
            )Balance
                at December 31, 2004
            
            
            922,859
            
            
            261,575
            
            
            83,648
            
            
            1,268,082Income
                tax adjustment
            
            
            (1,526
            )
            
            (439
            )
            
            (138
            )
            
            (2,103
            )Balance
                at December 31, 2005
            
            $
            921,333
            
            $
            261,136
            
            $
            83,510
            
            $
            1,265,979




89


**(2)**
            **Jointly
                Owned Utility
                Plant**





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





**(3)**
            **Inventories**





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





**(4)**
            **Commitments
                and
                Contingencies**





Refer
      to
      Notes (4)(a) through (4)(f) of MidAmerican Energy’s Notes to Consolidated
      Financial Statements for MidAmerican Energy commitments and contingencies
      disclosures.





(g)
            Other
                Commitments and Contingencies





InterCoast
      Capital has issued a letter of credit totaling $6.0 million in conjunction
      with an energy project investment, $1.8 million of which was drawn as of
      December 31, 2005. The letter of credit is reflected in Other
      Liabilities-Other on MidAmerican Funding‘s Consolidated Balance
      Sheets.





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





**(5)**
            **Rate
                Matters**





Refer
      to
      Note (5) of MidAmerican Energy’s Notes to Consolidated Financial
      Statements.





**(6)**
            **Long-Term
                Debt**





MidAmerican
      Funding's annual sinking fund requirements and maturities of long-term debt
      for
      2006 through 2010 are $160.5 million, $1.7 million, $0.4 million,
      $175.0 million and $0.0 million, respectively. Refer to MidAmerican
      Funding's Consolidated Statements of Capitalization for detail of long-term
      debt.





MidAmerican
      Energy's Variable Rate Pollution Control Revenue Obligations bear interest
      at
      rates that are periodically established through remarketing of the bonds in
      the
      short-term tax-exempt market. MidAmerican Energy, at its option, may change
      the
      mode of interest calculation for these bonds by selecting from among several
      floating or fixed rate alternatives. The interest rates shown in the
      Consolidated Statements of Capitalization are the weighted average interest
      rates as of December 31, 2005 and 2004. MidAmerican Energy maintains a
      revolving credit facility agreement to provide liquidity for holders of these
      issues.





The
      indenture pertaining to MidAmerican Energy’s unsecured senior notes provides
      that if MidAmerican Energy were to issue secured debt in the future, then such
      unsecured senior notes, as may then be existing, would equally and ratably
      be
      secured thereby. As of December 31, 2005, MidAmerican Energy was in
      compliance with all of its applicable long-term debt covenants.





On
      November 1, 2005, MidAmerican Energy issued $300 million of 5.75%
      medium-term notes due in 2035. The proceeds are being used to support
      construction of electric generation projects and for general corporate
      purposes.





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





·
            are
                the direct senior secured obligations of MidAmerican
                Funding;





·
            rank
                on an equal basis with all of MidAmerican Funding’s other existing and
                future senior obligations;





·
            rank
                senior to all of MidAmerican Funding’s existing and future subordinated
                indebtedness; and





·
            effectively
                rank junior to all indebtedness and other liabilities, including
                preferred
                stock, of the direct and indirect subsidiaries of MidAmerican Funding,
                to
                the extent of the assets of these
                subsidiaries.





90




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





·
            the
                greater of the following:





(1)
            100%
                of the principal amount of the series being redeemed, and





(2)
            the
                sum of the present values of the remaining scheduled payments of
                principal
                and interest on the series being redeemed, discounted to the date
                of
                redemption on a semiannual basis at the treasury yield plus (x) 15
                basis
                points in the case of the 2009 notes (y) 20 basis points in the case
                of
                the 2011 notes , or (z) 25 basis points in the case of the 2029 Bonds,
                plus





·
            accrued
                and unpaid interest on the securities being redeemed to the date
                of
                redemption.





Subsidiaries
      of MidAmerican Funding must make payments on their own indebtedness before
      making distributions to MidAmerican Funding. The distributions are also subject
      to utility regulatory restrictions agreed to by MidAmerican Energy in March
      1999. At that time, MidAmerican Energy committed to the IUB to use commercially
      reasonable efforts to maintain an investment grade rating on its long-term
      debt
      and to maintain its common equity level above 42% of total capitalization unless
      circumstances beyond its control result in the common equity level decreasing
      to
      below 39% of total capitalization. MidAmerican Energy must seek the approval
      from the IUB of a reasonable utility capital structure if MidAmerican Energy’s
      common equity level decreases below 42% of total capitalization, unless the
      decrease is beyond the control of MidAmerican Energy. MidAmerican Energy is
      also
      required to seek the approval of the IUB if MidAmerican Energy’s equity level
      decreases to below 39%, even if the decrease is due to circumstances beyond
      the
      control of MidAmerican Energy.





As
      of
      December 31, 2005, MidAmerican Funding was in compliance with all of its
      applicable long-term debt covenants.





Each
      of
      MidAmerican Funding’s direct or indirect subsidiaries is organized as a legal
      entity separate and apart from MidAmerican Funding and its other subsidiaries.
      It should not be assumed that any asset of any subsidiary of MidAmerican Funding
      will be available to satisfy the obligations of MidAmerican Funding or any
      of
      its other subsidiaries; provided, however, that unrestricted cash or other
      assets which are available for distribution may, subject to applicable law
      and
      the terms of financing arrangements of such parties, be advanced, loaned, paid
      as dividends or otherwise distributed or contributed to MidAmerican Funding,
      one
      of its subsidiaries or affiliates thereof.





**(7)**
            **Short-Term
                Borrowing**





Interim
      financing of working capital needs and the construction program may be obtained
      with unaffiliated parties from the sale of commercial paper or short-term
      borrowing from banks. As of December 31, 2005 and 2004, MidAmerican Funding
      had no unaffiliated short-term debt outstanding. Information regarding
      short-term debt average daily amounts follows (dollars in thousands):





2005
            
            2004Average
                daily amount outstanding during the year
            
            $
            265,059
            
            $
            3,579Weighted
                average interest rate on average daily amount outstanding during
                the
                year
            
            
            4.3
            %
            
            1.1
            %





MidAmerican
      Energy has authority from the FERC to issue through April 14, 2007,
      short-term debt in the form of commercial paper and bank notes aggregating
      $500.0 million. MidAmerican Energy has in place a $425.0 million
      revolving credit facility expiring November 18, 2009, which supports its
      $304.6 million commercial paper program and its variable rate pollution
      control revenue obligations. The related credit agreement requires that
      MidAmerican Energy’s ratio of consolidated debt to total capitalization,
      including current maturities, not exceed 0.65 to 1 as of the last day of any
      quarter. In addition, MidAmerican Energy has a $5.0 million line of credit,
      which expires July 1, 2006. As of December 31, 2005, MidAmerican
      Energy had no commercial paper or bank notes outstanding, and the full amount
      of
      the revolving credit facility and line of credit was available. MHC has a
      $4.0 million line of credit, expiring July 1, 2006, under which zero
      was outstanding at December 31, 2005. As of December 31, 2005,
      InterCoast Capital had a $4.2 million line of credit expiring July 1,
      2006, to support a $4.2 million letter of credit, net of amounts drawn,
      provided to an energy project in which it has invested. A liability is reflected
      on MidAmerican Funding’s Consolidated Balance Sheets for the letter of credit,
      net of amounts drawn. As of December 31, 2005, MidAmerican Funding and its
      subsidiaries were in compliance with all covenants related to their respective
      short-term borrowings.





**(8)**
            **Preferred
                Securities**





Refer
      to
      Note (8) of MidAmerican Energy’s Notes to Consolidated Financial
      Statements.





**(9)**
            **Retirement
                Plans**





Refer
      to
      Note (9) of MidAmerican Energy’s Notes to Consolidated Financial Statements for
      additional information regarding MidAmerican Funding’s pension, supplemental
      retirement and postretirement benefit plans.





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





2005
            
            2004
            
            2003Pension
                costs
            
            $
            11.3
            
            $
            11.4
            
            $
            11.6Postretirement
                costs
            
            
            1.8
            
            
            3.1
            
            
            4.2





**(10)**
            **Segment
                Information**





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





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





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




92


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





2005
            
            
            2004
            
            
            2003Segment
                Profit InformationOperating
                revenues:External
                revenues -Generation
            
            $
            704,776
            
            $
            579,251
            
            $
            522,349Energy
                delivery
            
            
            2,110,390
            
            
            1,839,289
            
            
            1,812,547Transmission
            
            
            36,998
            
            
            29,088
            
            
            25,916Unregulated
                retail services
            
            
            308,173
            
            
            248,725
            
            
            235,000Other
            
            
            5,747
            
            
            5,347
            
            
            4,427Total
            
            
            3,166,084
            
            
            2,701,700
            
            
            2,600,239Intersegment
                revenues -Generation
            
            
            701,922
            
            
            643,334
            
            
            629,939Energy
                delivery
            
            
            (760,647
            )
            
            (702,418
            )
            
            (690,126
            )Transmission
            
            
            58,725
            
            
            59,084
            
            
            57,946Unregulated
                retail services
            
            
            -
            
            
            -
            
            
            2,241Total
            
            
            -
            
            
            -
            
            
            -Consolidated
            
            $
            3,166,084
            
            $
            2,701,700
            
            $
            2,600,239Depreciation
                and amortization expense (a):Generation
            
            $
            144,323
            
            $
            144,643
            
            $
            145,645Energy
                delivery
            
            
            113,317
            
            
            111,172
            
            
            121,296Transmission
            
            
            10,297
            
            
            9,470
            
            
            11,641Unregulated
                retail services
            
            
            1,006
            
            
            922
            
            
            2,221Other
            
            
            199
            
            
            202
            
            
            198Total
            
            $
            269,142
            
            $
            266,409
            
            $
            281,001Interest
                and dividend income:Generation
            
            $
            3,423
            
            $
            2,349
            
            $
            2,284Energy
                delivery
            
            
            2,269
            
            
            1,844
            
            
            2,307Transmission
            
            
            313
            
            
            204
            
            
            346Unregulated
                retail services
            
            
            11
            
            
            4
            
            
            19Other
            
            
            1,023
            
            
            326
            
            
            117Total
            
            
            7,039
            
            
            4,727
            
            
            5,073Intersegment
                eliminations
            
            
            (836
            )
            
            (218
            )
            
            (98
            )Consolidated
            
            $
            6,203
            
            $
            4,509
            
            $
            4,975Fixed
                charges:Generation
            
            $
            39,331
            
            $
            33,575
            
            $
            30,364Energy
                delivery
            
            
            35,498
            
            
            33,225
            
            
            37,745Transmission
            
            
            4,712
            
            
            4,252
            
            
            4,416Unregulated
                retail services
            
            
            56
            
            
            54
            
            
            325Other
            
            
            49,600
            
            
            47,729
            
            
            47,472Total
            
            
            129,197
            
            
            118,835
            
            
            120,322Intersegment
                eliminations
            
            
            (836
            )
            
            (218
            )
            
            (98
            )Consolidated
            
            $
            128,361
            
            $
            118,617
            
            $
            120,224







93





2005
            
            
            2004
            
            
            2003Segment
                Profit Information (continued)Net
                income:Generation
            
            $
            104,888
            
            $
            92,027
            
            $
            91,111Energy
                delivery
            
            
            74,453
            
            
            79,798
            
            
            65,437Transmission
            
            
            37,592
            
            
            33,443
            
            
            26,703Unregulated
                retail services
            
            
            3,117
            
            
            3,942
            
            
            3,930Other
            
            
            (24,981
            )
            
            (29,953
            )
            
            (30,005
            )Total
            
            $
            195,069
            
            $
            179,257
            
            $
            157,176Segment
                Asset InformationCapital
                expenditures:Generation
            
            $
            520,788
            
            $
            540,873
            
            $
            215,952Energy
                delivery
            
            
            161,220
            
            
            164,957
            
            
            143,507Transmission
            
            
            84,192
            
            
            34,095
            
            
            16,759Unregulated
                retail services
            
            
            329
            
            
            457
            
            
            1,257Other
            
            
            1,564
            
            
            1,388
            
            
            1,055Total
            
            $
            768,093
            
            $
            741,770
            
            $
            378,530Total
                assets (b):Generation
            
            $
            3,623,297
            
            $
            3,152,768
            
            $
            2,567,022Energy
                delivery
            
            
            3,047,356
            
            
            2,886,656
            
            
            2,797,967Transmission
            
            
            439,587
            
            
            361,419
            
            
            326,502Unregulated
                retail services
            
            
            80,158
            
            
            42,725
            
            
            56,743Other
            
            
            244,542
            
            
            227,258
            
            
            200,863Total
            
            
            7,434,940
            
            
            6,670,826
            
            
            5,949,097Reclassifications
                and intersegment eliminations (c)
            
            
            (277,524
            )
            
            (243,582
            )
            
            (211,483
            )Consolidated
            
            $
            7,157,416
            
            $
            6,427,244
            
            $
            5,737,614





(a)
            Depreciation
                and amortization expense above includes depreciation related to
                nonregulated operations, which is included in Nonregulated Operating
                Expenses - Other on the Consolidated Statements of
                Operations.(b)
            Total
                assets by operating segment reflect the assignment of goodwill to
                applicable reporting units in accordance with SFAS No.
                142.(c)
            Reclassifications
                and intersegment eliminations relate principally to the reclassification
                of income tax balances in accordance with generally accepted accounting
                principles and the elimination of intersegment accounts receivables
                and
                payables.







94





**(11)**
            **Income
                Taxes**





MidAmerican
      Funding is included in the MidAmerican Energy Holdings consolidated income
      tax
      returns. However, MidAmerican Funding’s income tax liability is computed on a
      stand-alone basis. Accordingly, all of MidAmerican Funding’s accrued and
      deferred income taxes are payable to MidAmerican Energy Holdings.





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





2005
            
            
            2004
            
            
            2003Current:Federal
            
            $
            86,774
            
            $
            62,278
            
            $
            79,848State
            
            
            20,494
            
            
            (5,376
            )
            
            30,163107,268
            
            
            56,902
            
            
            110,011Deferred:Federal
            
            
            (9,342
            )
            
            40,023
            
            
            8,471State
            
            
            (2,375
            )
            
            (5,222
            )
            
            (4,028
            )(11,717
            )
            
            34,801
            
            
            4,443Investment
                tax credit, net
            
            
            (4,181
            )
            
            (4,367
            )
            
            (4,376
            )Total
            
            $
            91,370
            
            $
            87,336
            
            $
            110,078





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





2005
            
            2004
            
            2003Statutory
                federal income tax rate
            
            
            35
            %
            
            35
            %
            
            35
            %Amortization
                of investment tax credit
            
            
            (2
            )
            
            (2
            )
            
            (2
            )State
                income tax, net of federal income tax benefit
            
            
            5
            
            
            6
            
            
            7Renewable
                electricity production tax credits
            
            
            (4
            )
            
            -
            
            
            -Effects
                of ratemaking
            
            
            (2
            )
            
            (3
            )
            
            3Other
            
            
            -
            
            
            (3
            )
            
            (2
            )Effective
                federal and state income tax rate
            
            
            32
            %
            
            33
            %
            
            41
            %





Deferred
      Income Taxes on the Consolidated Balance Sheets included the following as of
      December 31 (in thousands):





2005
            
            2004Deferred
                tax assets related to:Revenue
                sharing
            
            $
            92,040
            
            $
            79,903Pensions
            
            
            49,181
            
            
            39,799Nuclear
                reserves and decommissioning
            
            
            14,962
            
            
            27,111Unrealized
                losses, net
            
            
            16,653
            
            
            20,560Accrued
                liabilities
            
            
            920
            
            
            979Other
            
            
            8,535
            
            
            9,963182,291
            
            
            178,315Deferred
                tax liabilities related to:Depreciable
                property
            
            
            492,506
            
            
            509,997Regulatory
                asset for income taxes
            
            
            145,967
            
            
            131,770Fuel
                cost recoveries
            
            
            9,896
            
            
            887Reacquired
                debt
            
            
            2,472
            
            
            3,876650,841
            
            
            646,530Net
                deferred income tax liability
            
            $
            468,550
            
            $
            468,215





95


**(12)**
            **Risk
                Management**





Refer
      to
      Note (12) of MidAmerican Energy’s Notes to Consolidated Financial Statements for
      a discussion of MidAmerican Funding’s commodity price, and weather
      risks.





**(13)**
            **Concentration
                of Credit
                Risk**





Refer
      to
      Note (13) of MidAmerican Energy’s Notes to Consolidated Financial Statements for
      information regarding concentration of credit risk for MidAmerican
      Energy.





**(14)**
            **Asset
                Retirement
                Obligations**





Refer
      to
      Note (14) of MidAmerican Energy’s Notes to Consolidated Financial
      Statements.





**(15)**
            **Fair
                Value of Financial
                Instruments**





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





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





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





Short-term
      investments - Consists of auction rate securities, the carrying amounts of
      which
      approximate fair value due to the frequent remarketing of these
      investments.





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





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





Notes
      payable - Fair value is estimated to be the carrying amount due to the short
      maturity of these 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
      MidAmerican Energy for debt of the same remaining maturities.





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





2005
            
            2004Carrying
            
            Fair
            
            Carrying
            
            FairAmount
            
            Value
            
            Amount
            
            ValueFinancial
                instruments owned:Equity
                investments carried at cost
            
            $
            2,138
            
            $
            21,690
            
            $
            3,404
            
            $
            11,015Financial
                instruments issued:Long-term
                debt, including current portion
            
            $
            2,331,760
            
            $
            2,433,348
            
            $
            2,122,527
            
            $
            2,264,706






96


Substantially
      all of MidAmerican Funding’s investments in debt and equity securities, other
      than auction rate securities, consist of the investments in the Quad Cities
      Station nuclear decommissioning trusts. Refer to Note (15) of MidAmerican
      Energy’s Notes to Consolidated Financial Statements. The amortized cost, gross
      unrealized gains and losses and estimated fair value of MidAmerican Funding’s
      investments in debt and equity securities as of December 31 were as follows
      (in
      thousands):





2005Amortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueAvailable-for-sale:Equity
                securities
            
            $
            85,267
            
            $
            44,609
            
            $
            (2,087
            )
            $
            127,789Municipal
                bonds
            
            
            21,309
            
            
            319
            
            
            (131
            )
            
            21,497U.
                S.
                Government securities
            
            
            47,024
            
            
            520
            
            
            (402
            )
            
            47,142Corporate
                securities
            
            
            31,243
            
            
            527
            
            
            (581
            )
            
            31,189Cash
                equivalents
            
            
            571
            
            
            -
            
            
            -
            
            
            571$
            185,414
            
            $
            45,975
            
            $
            (3,201
            )
            $
            228,188





2004Amortized
            
            Unrealized
            
            Unrealized
            
            FairCost
            
            Gains
            
            Losses
            
            ValueAvailable-for-sale:Equity
                securities
            
            $
            80,192
            
            $
            35,904
            
            $
            (1,393
            )
            $
            114,703Municipal
                bonds
            
            
            21,649
            
            
            564
            
            
            (39
            )
            
            22,174U.
                S.
                Government securities
            
            
            38,709
            
            
            165
            
            
            (694
            )
            
            38,180Corporate
                securities
            
            
            29,845
            
            
            809
            
            
            (249
            )
            
            30,405Cash
                equivalents
            
            
            2,940
            
            
            -
            
            
            -
            
            
            2,940$
            173,335
            
            $
            37,442
            
            $
            (2,375
            )
            $
            208,402





As
      of
      December 31, 2005, the debt securities held by the Quad Cities Station
      nuclear decommissioning trusts had the following maturities (in thousands):





Available-For-SaleAmortized
            
            FairCost
            
            ValueWithin
                1 year
            
            $
            3,148
            
            $
            3,1601
                through 5 years
            
            
            38,096
            
            
            37,5295
                through 10 years
            
            
            21,962
            
            
            21,996Over
                10 years
            
            
            36,370
            
            
            37,143





The
      proceeds and gross realized gains and losses on the disposition of
      available-for-sale securities are shown in the following table (in thousands).
      Realized gains and losses in the Quad Cities Station nuclear decommissioning
      trusts are recorded in the regulatory liability related to the Quad Cities
      Station asset retirement obligation and do not impact earnings. Realized gains
      and losses are determined by specific identification.





Years
                Ended December 31,2005
            
            2004
            
            2003Proceeds
                from sales
            
            $
            91,733
            
            $
            85,237
            
            $
            88,578Gross
                realized gains
            
            
            3,256
            
            
            3,205
            
            
            3,696Gross
                realized losses
            
            
            (2,175
            )
            
            (822
            )
            
            (607
            )






97






**(16)**
            **Non-Operating
                Income and
                Expense**




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





2005
            
            
            2004
            
            
            2003Other
                income:Gain
                on sale of assets and other investments, net
            
            $
            13,331
            
            $
            -
            
            $
            57Corporate-owned
                life insurance income
            
            
            5,151
            
            
            5,447
            
            
            6,317Income
                from energy projects and venture capital investments
            
            
            1,211
            
            
            2,540
            
            
            332Marketable
                securities gains (losses), net
            
            
            653
            
            
            480
            
            
            204Income
                from equity method investments
            
            
            -
            
            
            513
            
            
            1,755Lawsuit
                settlement
            
            
            -
            
            
            -
            
            
            3,083Other
            
            
            2,742
            
            
            2,092
            
            
            1,606Total
            
            $
            23,088
            
            $
            11,072
            
            $
            13,354Other
                expense:Write-down
                of impaired airplane leases
            
            $
            15,641
            
            $
            1,735
            
            $
            -Write-down
                of equity method investments
            
            
            -
            
            
            -
            
            
            4,307Write-down
                of other venture capital investments
            
            
            -
            
            
            -
            
            
            2,068Other
                - primarily items not recoverable from MidAmerican Energy’s regulated
                utility customers
            
            
            4,366
            
            
            3,532
            
            
            3,721Total
            
            $
            20,007
            
            $
            5,267
            
            $
            10,096





The
      gain
      on sale of assets and other investments for 2005 is from the sale of three
      non-strategic, nonregulated passive investments. The write-downs of impaired
      airplane leases relate to MidAmerican Funding’s investments in commercial
      passenger aircraft leased to major domestic airlines, which it accounts for
      as
      leveraged leases.  During 2005, the airline industry continued to
      deteriorate and two major airline carriers filed for bankruptcy. MidAmerican
      Funding evaluated its investments in commercial passenger aircraft
      and recognized the losses for other-than-temporary impairments
      of those investments.





**(17)**
            **Affiliated
                Company
                Transactions**





The
      companies identified as affiliates of MidAmerican Funding are MidAmerican Energy
      Holdings and its subsidiaries. The basis for these charges is provided for
      in
      service agreements between MidAmerican Funding and its affiliates. MidAmerican
      Energy reimbursed MidAmerican Energy Holdings in the amount of
      $16.3 million, $11.4 million and $12.2 million in 2005, 2004 and
      2003, respectively, for its allocated share of corporate expenses.





MidAmerican
      Funding was reimbursed for charges incurred on behalf of its affiliates. The
      majority of these reimbursed expenses were for allocated employee wages and
      benefits, insurance, computer costs, administrative services, travel expenses
      and general and administrative expenses: including treasury, legal and
      accounting functions. The amount of such reimbursements was $49.2 million,
      $56.4 million and $46.2 million for 2005, 2004 and 2003,
      respectively.





MidAmerican
      Energy had an agreement with Cordova Energy Company LLC, a subsidiary of
      MidAmerican Energy Holdings, to purchase electric capacity and energy from
      a
      gas-fired combined cycle generation plant. The agreement, which terminated
      in
      May 2004, provided for MidAmerican Energy to purchase up to 50% of the net
      capacity of the plant and to supply the fuel stock required to generate the
      energy purchased. MidAmerican Energy’s payment for monthly capacity charges
      totaled $12.7 million for 2004 and $26.6 million for 2003.





Northern
      Natural Gas Company (“NNG”), a subsidiary of MidAmerican Energy Holdings, has
      been and is one of MidAmerican Energy’s suppliers of natural gas transportation
      and storage capacity. MidAmerican Energy had net purchases of natural gas
      transportation and storage capacity from NNG totaling $52.6 million in
      2005, $48.3 million in 2004 and $53.5 million in 2003.





MHC
      has a
      $200 million revolving credit arrangement carrying interest at the 30-day
      LIBOR rate plus 25 basis points to borrow from MidAmerican Energy Holdings.
      Outstanding balances are unsecured and due on demand. The outstanding balance
      was $54.3 million at an interest rate of 4.56% as of December 31,
      2005, and $31.5 million at an interest rate of 2.56% as of
      December 31, 2004, and is reflected as Note Payable to Affiliate on the
      Consolidated Balance Sheet.




98




MidAmerican
      Energy Holdings has a $100 million revolving credit arrangement, carrying
      interest at the 30-day LIBOR rate plus 25 basis points, to borrow from MHC.
      Outstanding balances are unsecured and due on demand. The outstanding balance
      was zero throughout 2005 and 2004.





MidAmerican
      Funding had accounts receivable from affiliates of $8.1 million and
      $7.3 million as of December 31, 2005 and 2004, respectively, included
      in Receivables on the Consolidated Balance Sheets. MidAmerican Funding also
      had
      accounts payable to affiliates of $7.1 million and $6.3 million as of
      December 31, 2005 and 2004, respectively, which is included in Accounts
      Payable on the Consolidated Balance Sheets.





The
      indenture pertaining to MidAmerican Funding’s long-term debt restricts
      MidAmerican Funding from paying a distribution on its equity securities, unless
      after making such distribution either its debt to total capital ratio does
      not
      exceed 0.67:1 and its interest coverage ratio is not less than 2.2:1 or its
      senior secured long term-debt rating is at least BBB or its equivalent.
      MidAmerican Funding may seek a release from this restriction upon delivery
      to
      the indenture trustee of written confirmation from the ratings agencies that
      without this restriction MidAmerican Funding’s senior secured long-term debt
      would be rated at least BBB+.





**(18)**
            **Unaudited
                Quarterly Operating
                Results**





20051st
                Quarter
            
            2nd
                Quarter
            
            3rd
                Quarter
            
            4th
                Quarter(In
                thousands)Operating
                revenues
            
            $
            856,278
            
            $
            619,714
            
            $
            723,308
            
            $
            966,784Operating
                income
            
            
            99,351
            
            
            58,570
            
            
            130,246
            
            
            92,916Net
                income
            
            
            56,357
            
            
            25,209
            
            
            66,921
            
            
            46,582








20041st
                Quarter
            
            2nd
                Quarter
            
            3rd
                Quarter
            
            4th
                Quarter(In
                thousands)Operating
                revenues
            
            $
            840,946
            
            $
            575,521
            
            $
            566,448
            
            $
            718,785Operating
                income
            
            
            111,065
            
            
            59,422
            
            
            115,235
            
            
            70,225Net
                income
            
            
            54,357
            
            
            21,754
            
            
            59,623
            
            
            43,523





Quarterly
      data reflect seasonal variations common in the utility industry.




99




**Item 9.   Changes
      in and
      Disagreements with Accountants on Accounting****and
      Financial Disclosure**




None.




**Item 9A.**
              **Controls
                  and
                  Procedures**




With
      the
      supervision and participation of MidAmerican Funding’s and MidAmerican Energy’s
      management, including their respective persons acting as chief executive officer
      and chief financial officer, each company performed an evaluation regarding
      the
      effectiveness of the design and operation of its disclosure controls and
      procedures (as defined in Rule 13a-15(e) promulgated under the Securities and
      Exchange Act of 1934, as amended) as of December 31, 2005. Based on that
      evaluation, MidAmerican Funding’s and MidAmerican Energy’s management, including
      their respective persons acting as chief executive officer and chief financial
      officer, concluded that their respective disclosure controls and procedures
      were
      effective. There have been no changes during the fourth quarter of 2005 in
      MidAmerican Funding’s or MidAmerican Energy’s internal control over financial
      reporting that has materially affected, or is reasonably likely to materially
      affect, its internal control over financial reporting.









**Item
      9B. Other
      Information**




None




100




**PART
      III**





**Item
      10.**  **Directors
      and Executive Officers of the Registrant**





MIDAMERICAN
      ENERGY





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





Identification





Served
                in
            Served
                asAge
                as of
            Present
            Present
            DirectorName
            February 15,
                2006
            Position
            Position
                Since
            SinceTodd
                M. Raba
            48
            President
                and Director
            2004
            2002Brent
                E. Gale
            54
            Senior
                Vice President
            2004Keith
                D. Hartje
            56
            Senior
                Vice President
            1999Brian
                K. Hankel
            43
            Vice
                President, Treasurer and Director
            1999
            2002Thomas
                B. Specketer
            49
            Vice
                President and Controller
            1999Steven
                R. Weiss
            51
            Vice
                President, General Counsel andDirector
            2000
            2005





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





Business
      Experience





TODD
      M.
      RABA **** has
      been
      President of MidAmerican Energy since August 2004 and Director of MidAmerican
      Energy since September 2002. Mr. Raba served as Senior Vice President of
      MidAmerican Energy from July 2001 to August 2004. Mr. Raba joined MidAmerican
      Energy in 1997 as Vice President. Prior to joining MidAmerican Energy, he was
      employed for 13 years with Rollins Environmental Services.





BRENT
      E.
      GALE has been Senior Vice President of MidAmerican Energy since July 2004.
      Mr.
      Gale has served in various legal, regulatory and strategic positions with
      MidAmerican Energy and its predecessors for more than five years prior to
      that.





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





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





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





STEVEN
      R.
      WEISS has been Director of MidAmerican Energy since January 2005 and Vice
      President and General Counsel of MidAmerican Energy since July 2000. Mr. Weiss
      served as Assistant General Counsel from July 1999 to June 2000 and held various
      other legal and management positions for MidAmerican Energy and its predecessors
      and affiliates for more than five years prior to that.







101




MIDAMERICAN
      FUNDING





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





Identification





Served
                in
            Served
                asAge
                as of
            
            Present
            ManagerName
            February 15,
                2006
            Present
                Position
            Position
                Since
            SinceGregory
                E. Abel
            43
            President
            1999
            2001Brian
                K. Hankel
            43
            Vice
                President and Treasurer
            2005Thomas
                B. Specketer
            49
            Vice
                President and Controller
            2005Douglas
                L. Anderson
            47
            Manager
            
            2005Patrick
                J. Goodman
            39
            Manager
            
            2005Ronald
                W. Roskens
            73
            Independent
                Manager
            2003
            2003





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





Business
      Experience





GREGORY
      E. ABEL has been MidAmerican Funding’s President since its formation in March
      1999. Mr. Abel served as MidAmerican Funding’s Chief Operating Officer from
      March 1999 to May 2005 and as a manager from 2001 to 2005. Mr. Abel joined
      MidAmerican Energy Holdings in 1992 and initially served as Vice President
      and
      Controller. Mr. Abel is a Chartered Accountant and from 1984 to 1992 he was
      employed by PricewaterhouseCoopers. As a Manager in the San Francisco office
      of
      PricewaterhouseCoopers, he was responsible for clients in the energy
      industry.





BRIAN
      K.
      HANKEL has been Vice President and Treasurer of MidAmerican Funding since May
      2005. Mr. Hankel joined MidAmerican Energy Holdings in 1992 and has served
      in
      various treasury positions including Treasurer. Prior to joining MidAmerican
      Energy Holdings, Mr. Hankel was a Money Position Analyst at FirsTier Bank of
      Lincoln from 1988 to 1992 and Senior Credit Analyst at FirsTier from 1987 to
      1988.





THOMAS
      B.
      SPECKETER has been Vice President and Controller of MidAmerican Funding since
      May 2005 and Vice President and Controller of MidAmerican Energy since September
      1999. Mr. Specketer served as Manager Tax Compliance of MidAmerican Energy
      from
      March 1999 to August 1999 and held various other tax and accounting management
      positions for MidAmerican Energy and its predecessors for more than five years
      prior to that.





DOUGLAS
      L. ANDERSON has been a manager of MidAmerican Funding since May 2005. Mr.
      Anderson served as MidAmerican Funding’s Vice President and General Counsel from
      May 2002 to May 2005. Mr. Anderson joined MidAmerican Energy Holdings in 1993
      and has served in various legal positions including General Counsel of
      MidAmerican Energy Holdings’ independent power affiliates. From 1990 to 1993,
      Mr. Anderson was a corporate attorney with Fraser, Stryker, Mensey, Olson,
      Boyer
& Bloch, P.C. in Omaha, NE. Prior to that, Mr. Anderson was a principal in
      the firm Anderson & Anderson in Sioux Falls, South Dakota. ****





PATRICK
      J. GOODMAN has been a manager of MidAmerican Funding since May 2005. Mr. Goodman
      served as MidAmerican Funding’s Vice President and Treasurer from April 1999 to
      May 2005. Mr. Goodman joined MidAmerican Energy Holdings in June 1995 and served
      in various financial positions including Chief Accounting Officer. Prior to
      joining MidAmerican Energy Holdings, Mr. Goodman was a financial manager for
      National Indemnity Company and a senior associate at
      PricewaterhouseCoopers.





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






102




**Audit
      Committee and Audit Committee Financial Expert**





During
      the fiscal year ended December 31, 2005, and as of the date of this Report,
      MidAmerican Funding's Board of Managers and MidAmerican Energy's Board of
      Directors had no committees, including any audit committee. Neither MidAmerican
      Funding nor MidAmerican Energy have any securities listed on any securities
      exchange and neither is required to have an audit committee. However, the audit
      committee of MEHC is acting as the audit committee for the
      companies.





**Code
      of Ethics**





MidAmerican
      Funding and MidAmerican Energy each have adopted a code of ethics that applies
      to its principal executive officer or officers, principal financial officer
      and
      to its controller, or persons acting in such capacities. The code of ethics
      is
      filed as an exhibit to this annual report on Form 10-K.





**Item
      11.**  **Executive
      Compensation**





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





**Item
      12.**  **Security
      Ownership of Certain Beneficial Owners and**  **Management
      and Related Stockholder Matters**





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





**Item
      13.**  **Certain
      Relationships and Related Transactions**





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




103


**Item
      14.**  **Principal
      Accountant Fees and Services**





Aggregate
      fees billed to MidAmerican Funding and its subsidiaries, including MidAmerican
      Energy, and to MidAmerican Energy separately, during the fiscal years ending
      December 31, 2005 and 2004, by their principal accounting firm, Deloitte
& Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their
      respective affiliates (collectively, “the Deloitte Entities”), are set forth
      below. The audit committee of MidAmerican Energy Holdings has considered whether
      the provision of the non-audit services described below is compatible with
      maintaining the principal accountant's independence and concluded that such
      services are not independence-impairing services.





MidAmerican
                Funding
            
            MidAmerican
                Energy2005
            
            2004
            
            2005
            
            2004(In
                thousands)Audit
                Fees(1)
            
            $
            570.8
            
            $
            604.6
            
            $
            513.7
            
            $
            544.1Audit-Related
                Fees(2)
            
            
            42.0
            
            
            36.6
            
            
            37.8
            
            
            32.9Tax
                Fees(3)
            
            
            135.2
            
            
            321.6
            
            
            121.7
            
            
            292.1All
                Other Fees(4)
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                aggregate fees billed
            
            $
            748.0
            
            $
            962.8
            
            $
            673.2
            
            $
            869.1





(1)
            Includes
                the aggregate fees billed for each of the last two fiscal years for
                professional services rendered by the Deloitte Entities for the audit
                of
                MidAmerican Funding’s and MidAmerican Energy’s respective annual financial
                statements and the review of their respective financial statements
                included in Form 10-Q or for services that are normally provided
                by the
                Deloitte Entities in connection with statutory and regulatory filings
                or
                engagements for those fiscal years.(2)
            Includes
                the aggregate fees billed in each of the last two fiscal years for
                assurance and related services by the Deloitte Entities that are
                reasonably related to the performance of the audit or review of each
                registrant's financial statements. Services included in this category
                include audits of benefit plans, due diligence for possible acquisitions
                and consultation pertaining to new and proposed accounting and regulatory
                rules.(3)
            Includes
                the aggregate fees billed in each of the last two fiscal years for
                professional services rendered by the Deloitte Entities for tax
                compliance, tax advice, and tax planning.(4)
            Includes
                the aggregate fees billed in each of the last two fiscal years for
                products and services provided by the Deloitte Entities, other than
                the
                services reported as “Audit Fees,” “Audit-Related Fees,” or “Tax
                Fees.”






104





**PART
      IV**





**Item
      15.**  **Exhibits
      and Financial Statement Schedules**





(a)(1)
            Financial
                Statements (included herein)Consolidated
                financial statements of MidAmerican Energy and MidAmerican Funding,
                as
                well as the Report of Independent Registered Public Accounting Firm,
                are
                included in Item 8 of this Form 10-K.(a)(2)
            Financial
                Statement SchedulesThe
                following schedules should be read in conjunction with the aforementioned
                financial statements.PageMidAmerican
                Energy Company Consolidated Valuation and Qualifying Accounts (Schedule
                II)
            106MidAmerican
                Funding, LLC Consolidated Valuation and Qualifying Accounts (Schedule
                II)
            107





Other
      schedules are omitted because they are not required or the information therein
      is not applicable, or is reflected in the consolidated financial statements
      or
      notes thereto.





(b)
            Exhibits





See
      Exhibits Index on page 110.





106


**SCHEDULE
      II**








**MIDAMERICAN
      ENERGY COMPANY AND SUBSIDIARY**


**CONSOLIDATED
      VALUATION AND QUALIFYING ACCOUNTS**


**FOR
      THE THREE YEARS ENDED DECEMBER 31, 200** **5**


**(In
      thousands)**





Column B
            
            Column C
            
            
            
            Column EBalance
                at
            
            Additions
            
            
            
            BalanceColumn A
            
            Beginning
            
            Charged
            
            Column D
            
            at
                EndDescription
            
            of
                Year
            
            to
                Income
            
            Deductions
            
            of
                YearReserves
                Deducted From Assets To Which They Apply:Reserve
                for uncollectible accounts receivable:Year
                ended 2005
            
            $
            8,678
            
            $
            11,037
            
            $
            (8,843
            )
            $
            10,872Year
                ended 2004
            
            $
            7,484
            
            $
            9,902
            
            $
            (8,708
            )
            $
            8,678Year
                ended 2003
            
            $
            7,615
            
            $
            9,909
            
            $
            (10,040
            )
            $
            7,484Reserves
                Not Deducted From Assets (1):Year
                ended 2005
            
            $
            9,404
            
            $
            4,019
            
            $
            (2,386
            )
            $
            11,037Year
                ended 2004
            
            $
            8,779
            
            $
            3,562
            
            $
            (2,937
            )
            $
            9,404Year
                ended 2003
            
            $
            8,198
            
            $
            3,427
            
            $
            (2,846
            )
            $
            8,779





(1)
            Reserves
                not deducted from assets include estimated liabilities for losses
                retained
                by MidAmerican Energy for workers compensation, public liability
                and
                property damage claims.







106


**SCHEDULE
      II**








**MIDAMERICAN
      FUNDING, LLC AND SUBSIDIARIES**


**CONSOLIDATED
      VALUATION AND QUALIFYING ACCOUNTS**


**FOR
      THE THREE YEARS ENDED DECEMBER 31, 200** **5**


**(In
      thousands)**





Column A
              Description
            
            Column B
              Balance
                at
              Beginning
              of
                Year
            
            Column C
              Additions
              Charged
              to
                Income
            
            Column
                D
              Deductions
            
            Column E
              Balance
              at
                End
              of
                YearReserves
                Deducted From Assets To Which They Apply:Reserve
                for uncollectible accounts receivable:Year
                ended 2005
            
            $
            8,748
            
            $
            11,037
            
            $
            (8,843
            )
            $
            10,942Year
                ended 2004
            
            $
            7,554
            
            $
            9,902
            
            $
            (8,708
            )
            $
            8,748Year
                ended 2003
            
            $
            7,685
            
            $
            9,909
            
            $
            (10,040
            )
            $
            7,554Reserves
                Not Deducted From Assets (1):Year
                ended 2005
            
            $
            10,848
            
            $
            4,019
            
            $
            (2,386
            )
            $
            12,481Year
                ended 2004
            
            $
            9,737
            
            $
            4,048
            
            $
            (2,937
            )
            $
            10,848Year
                ended 2003
            
            $
            9,166
            
            $
            3,427
            
            $
            (2,856
            )
            $
            9,737





(1)
            Reserves
                not deducted from assets include primarily estimated liabilities
                for
                losses retained by MHC for workers compensation, public liability
                and
                property damage claims.







106





**SIGNATURES**





MIDAMERICAN
      ENERGY





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








MIDAMERICAN
                ENERGY COMPANYRegistrantDate:
                March 3, 2006
            /s/
                Todd M. Raba(Todd
                M. Raba)President(chief
                executive officer)





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





Signatures
            
            Title
            
            Date/s/Thomas
                B. Specketer
            
            Vice
                President and Controller
            
            March 3,
                2006(Thomas
                B. Specketer)
            
            (principal
                financial and accounting officer)/s/Brian
                K. Hankel
            
            Vice
                President and Director
            
            March 3,
                2006(Brian
                K. Hankel)/s/Todd
                M. Raba
            
            President
                and Director
            
            March 3,
                2006(Todd
                M. Raba)/s/Steven
                R. Weiss
            
            Vice
                President and Director
            
            March 3,
                2006(Steven
                R. Weiss)





109





MIDAMERICAN
      FUNDING, LLC





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








MIDAMERICAN
                FUNDING, LLCRegistrantDate:
                March 3, 2006
            /s/
                Gregory E. Abel(Gregory
                E. Abel)President(chief
                executive officer)





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





Signatures
            
            Title
            
            Date/s/Thomas
                B. Specketer
            
            Vice
                President and Controller
            
            March 3,
                2006(Thomas
                B. Specketer)
            
            (principal
                financial and accounting officer)/s/Patrick
                J. Goodman
            
            Manager
            
            March 3,
                2006(Patrick
                J. Goodman)/s/Ronald
                W. Roskens
            
            Manager
            
            March 3,
                2006(Ronald
                W. Roskens)/s/Douglas
                L. Anderson
            
            Manager
            
            March 3,
                2006(Douglas
                L. Anderson)






110


**EXHIBIT
      INDEX**





**Exhibits
      Filed Herewith**





MidAmerican
      Energy





23
            Consent
                of Deloitte & Touche LLP31.1
            Chief
                executive officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2
            Chief
                financial officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1
            Chief
                executive officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.2
            Chief
                financial officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002





MidAmerican
      Funding





31.3
            Chief
                executive officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.4
            Chief
                financial officer certification pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.3
            Chief
                executive officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 200232.4
            Chief
                financial officer certification pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002





MidAmerican
      Energy and MidAmerican Funding





4.1
            Fourth
                Supplemental Indenture, dated November 1, 2005, by and between
                MidAmerican Energy Company and the Bank of New York Trust Company,
                NA, as
                Trustee.10.1
            Credit
                Agreement among MidAmerican Energy Company, the Lending Institutions
                Party
                Hereto, as Banks, Union Bank of California, N.A., as Syndication
                Agent,
                and JPMorgan Chase Bank, N.A., as Administrative Agent, dated as
                of
                November 18, 2004 Union Bank of California, N.A. and J.P. Morgan
                Securities, Inc. Co-Lead Arrangers and Co-Book Runners.





**Exhibits
      Incorporated by Reference**





MidAmerican
      Energy





3.1
            Restated
                Articles of Incorporation of MidAmerican Energy Company, as amended
                October 27, 1998. (Filed as Exhibit 3.3 to MidAmerican Energy’s
                Quarterly Report on Form 10-Q for the period ended September 30,
                1998, Commission File No. 1-11505.)3.2
            Restated
                Bylaws of MidAmerican Energy Company, as amended July 24, 1996.
                (Filed as Exhibit 3.1 to MidAmerican Energy’s Quarterly Report on Form
                10-Q for the period ended June 30, 1996, Commission File No.
                1-11505.)14
            Code
                of Ethics for Chief Executive Officer, Chief Financial Officer and
                Chief
                Accounting Officer. (Filed as Exhibit 14.1 to MidAmerican Energy's
                Annual
                Report on Form 10-K for the year ended December 31, 2003, Commission
                File No. 1-11505.)





110


MidAmerican
      Funding





3.1
            Articles
                of Organization of MidAmerican Funding, LLC3.2
            Operating
                Agreement of MidAmerican Funding, LLC4.1
            Indenture,
                dated as of March 11, 1999, by and between MidAmerican Funding, LLC
                and IBJ Whitehall Bank & Trust Company, as Trustee (Filed as Exhibit
                4.1 to MidAmerican Funding’s Registration Statement on Form S-4,
                Registration No. 333-90553)4.2
            First
                Supplemental Indenture, dated as of March 11, 1999, by and between
                MidAmerican Funding, LLC and IBJ Whitehall Bank & Trust Company, as
                Trustee (Filed as Exhibit 4.2 to MidAmerican Funding’s Registration
                Statement on Form S-4, Registration No. 333-90553)4.3
            Second
                Supplemental Indenture, dated as of March 1, 2001, by and between
                MidAmerican Funding, LLC and The Bank of New York, as Trustee (Filed
                as
                Exhibit 4.4 to MidAmerican Funding’s Registration Statement on Form S-3,
                Registration No. 333-56624)4.4
            Registration
                Rights Agreement, dated March 9, 1999, by and among MidAmerican
                Funding, LLC, Credit Suisse First Boston Corporation, Lehman Brothers,
                Inc., Goldman Sachs & Co. and Merrill Lynch & Co. (Filed as
                Exhibit 4.2 to MidAmerican Funding’s Registration Statement on Form S-4,
                Registration No. 333-90553)14
            Code
                of Ethics for Chief Executive Officer, Chief Financial Officer and
                Chief
                Accounting Officer. (Filed as Exhibit 14.2 to MidAmerican Funding's
                Annual
                Report on Form 10-K for the year ended December 31, 2003, Commission
                File No. 333-90553.)





MidAmerican
      Energy and MidAmerican Funding





4.1
            General
                Mortgage Indenture and Deed of Trust dated as of January 1, 1993,
                between Midwest Power Systems Inc. and Morgan Guaranty Trust Company
                of
                New York, Trustee. (Filed as Exhibit 4(b)-1 to Midwest Resources
                Inc.'s
                Annual Report on Form 10-K for the year ended December 31, 1992,
                Commission File No. 1-10654.)4.2
            First
                Supplemental Indenture dated as of January 1, 1993, between Midwest
                Power Systems Inc. and Morgan Guaranty Trust Company of New York,
                Trustee.
                (Filed as Exhibit 4(b)-2 to Midwest Resources' Annual Report on Form
                10-K
                for the year ended December 31, 1992, Commission File No.
                1-10654.)4.3
            Second
                Supplemental Indenture dated as of January 15, 1993, between Midwest
                Power Systems Inc. and Morgan Guaranty Trust Company of New York,
                Trustee.
                (Filed as Exhibit 4(b)-3 to Midwest Resources' Annual Report on Form
                10-K
                for the year ended December 31, 1992, Commission File No.
                1-10654.)4.4
            Third
                Supplemental Indenture dated as of May 1, 1993, between Midwest Power
                Systems Inc. and Morgan Guaranty Trust Company of New York, Trustee.
                (Filed as Exhibit 4.4 to Midwest Resources' Annual Report on Form
                10-K for
                the year ended December 31, 1993, Commission File No.
                1-10654.)4.5
            Fourth
                Supplemental Indenture dated as of October 1, 1994, between Midwest
                Power Systems Inc. and Harris Trust and Savings Bank, Trustee. (Filed
                as
                Exhibit 4.5 to Midwest Resources' Annual Report on Form 10-K for
                the year
                ended December 31, 1994, Commission File No.
                1-10654.)






111





4.6
            Fifth
                Supplemental Indenture dated as of November 1, 1994, between Midwest
                Power Systems Inc. and Harris Trust and Savings Bank, Trustee. (Filed
                as
                Exhibit 4.6 to Midwest Resources' Annual Report on Form 10-K for
                the year
                ended December 31, 1994, Commission File No.
                1-10654.)4.7
            Sixth
                Supplemental Indenture dated as of July 1, 1995, between Midwest
                Power Systems Inc. and Harris Trust and Savings Bank, Trustee. (Filed
                as
                Exhibit 4.15 to MidAmerican Energy’s Annual Report on Form 10-K dated
                December 31, 1995, Commission File No. 1-11505.)4.8
            Indenture
                dated as of December 1, 1996, between MidAmerican Energy and The
                First National Bank of Chicago, as Trustee. (Filed as Exhibit 4(l)
                to
                MidAmerican Energy’s Registration Statement on Form S-3, Registration No.
                333-15387.)4.9
            First
                Supplemental Indenture, dated as of February 8, 2002, by and between
                MidAmerican Energy Company and The Bank of New York, as Trustee.
                (Filed as
                Exhibit 4.3 to MidAmerican Energy’s Annual Report on Form 10-K for
                the year ended December 31, 2004, Commission File No.
                333-15387.)4.10
            Second
                Supplemental Indenture, dated as of January 14, 2003, by and between
                MidAmerican Energy Company and The Bank of New York, as Trustee.
                (Filed as
                Exhibit 4.2 to MidAmerican Energy’s Annual Report on Form 10-K for
                the year ended December 31, 2004, Commission File No.
                333-15387.)4.11
            Third
                Supplemental Indenture, dated as of October 1, 2004, by and between
                MidAmerican Energy Company and The Bank of New York, as Trustee.
                (Filed as
                Exhibit 4.1 to MidAmerican Energy’s Annual Report on Form 10-K for
                the year ended December 31, 2004, Commission File No.
                333-15387.)10.1
            MidAmerican
                Energy Company Restated Executive Deferred Compensation Plan. (Filed
                as
                Exhibit 10.2 to MidAmerican Energy’s Quarterly Report on Form 10-Q dated
                March 31, 1999, Commission File No. 1-11505.)10.2
            MidAmerican
                Energy Company Combined Midwest Resources/Iowa Resources Restated
                Deferred
                Compensation Plan - Board of Directors. (Filed as Exhibit 10.1 to
                MidAmerican Energy’s Quarterly Report on Form 10-Q dated March 31,
                1999, Commission File No. 1-11505.)10.3
            MidAmerican
                Energy Company First Amended and Restated Supplemental Retirement
                Plan for
                Designated Officers. (Filed as Exhibit 10.52 to MidAmerican Energy
                Holding
                Company’s Registration Statement No. 333-101699.)10.9
            Form
                of Indemnity Agreement between MidAmerican Energy Company and its
                directors and officers. (Filed as Exhibit 10.37 to MidAmerican Energy’s
                Annual Report on Form 10-K dated December 31, 1995, Commission File
                No. 1-11505.)10.10
            Iowa
                Utilities Board Order Approving Settlement With Modifications, issued
                December 21, 2001, in regards to MidAmerican Energy Company (Filed as
                Exhibit 10.7 to MidAmerican Energy’s Annual Report on Form 10-K dated
                December 31, 2001, Commission File No. 1-11505.)10.11
            Stipulation
                and Agreement in Regard to MidAmerican Energy Company Ratemaking
                Principles for Wind Energy Investment, approved by the Iowa Utilities
                Board on October 17, 2003 (Filed as Exhibit 10 to MidAmerican
                Funding’s and MidAmerican Energy’s joint Form 10-Q for the quarter ended
                September 30, 2003; Commission File Nos. 333-90553 and 1-11505,
                respectively.)Note:
            Pursuant
                to (b) (4) (iii) (A) of Item 601 of Regulation S-K, the Company has
                not
                filed as an exhibit to this Form 10-K certain instruments with respect
                to
                long-term debt not registered in which the total amount of securities
                authorized there under does not exceed 10% of total assets of the
                Company,
                but hereby agrees to furnish to the Commission on request any such
                instruments.