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

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                   THE SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended DECEMBER 31, 1999
                                            -----------------

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

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

                                  515-242-4300

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

                                                        Name of each Exchange
     Title of Each Class                                On which Registered
     -------------------                                ---------------------
7.98% MidAmerican Energy Company - Obligated
  Preferred Securities of Subsidiary Trust              New York Stock Exchange

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

                   Preferred Stock, $3.30 Series, no par value
                   Preferred Stock, $3.75 Series, no par value
                   Preferred Stock, $3.90 Series, no par value
                   Preferred Stock, $4.20 Series, no par value
                   Preferred Stock, $4.35 Series, no par value
                   Preferred Stock, $4.40 Series, no par value
                   Preferred Stock, $4.80 Series, no par value
                   Preferred Stock, $5.25 Series, no par value
                   Preferred Stock, $7.80 Series, no par value
______________________________________________________________________________
                               Title of each Class

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter  period that the  registrants  were
required  to file  such  reports),  and (2) have  been  subject  to such  filing
requirements for the past 90 days. Yes X    No
                                      ---
Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].

All common stock of  MidAmerican  Energy Company is held by MHC Inc. As of March
1, 2000, 70,980,203 shares of common stock, without par value, were outstanding.

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


<PAGE>


                           MIDAMERICAN ENERGY COMPANY
                         1999 Annual Report on Form 10-K
                                TABLE OF CONTENTS

                                     Part I                                Page

Item 1   Business
             General Overview.............................................   3
             Financial Information About Industry Segments................   5
             Description of Business......................................   5
               Regulated Electric Operations .............................   7
               Regulated Natural Gas Operations...........................  10
               Nonregulated Operations....................................  11
               Regulation.................................................  12
Item 2   Properties.......................................................  16
Item 3   Legal Proceedings................................................  18
Item 4   Submission of Matters to a Vote of Security Holders..............  19

                                   Part II

Item 5   Market for the Registrant's Common Equity and
             Related Stockholder Matters..................................  20
Item 6   Selected Financial Data..........................................  20
Item 7   Management's Discussion and Analysis of Financial
             Condition and Results of Operations..........................  20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......  20
Item 8   Financial Statements and Supplementary Data......................  20
Item 9   Changes in and Disagreements with Accountants
             on Accounting and Financial Disclosure.......................  20

                                  Part III

Item 10  Directors and Executive Officers of the Registrant...............  21
Item 11  Executive Compensation...........................................  23
Item 12  Security Ownership of Certain Beneficial Owners
             and Management...............................................  23
Item 13  Certain Relationships and Related Transactions...................  23

                                     Part IV

Item 14  Exhibits, Financial Statement Schedules and Reports on Form 8-K..  24
Signatures ...............................................................  72
Exhibits Index............................................................  73



                                      -2-
<PAGE>


                                     PART I

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

(A)  GENERAL OVERVIEW

     MidAmerican Energy Company is a public utility company headquartered in Des
Moines,  Iowa, and  incorporated  in the state of Iowa.  MidAmerican  Energy was
formed on July 1,  1995,  as a result of the  merger  of  Iowa-Illinois  Gas and
Electric  Company,  Midwest  Resources  Inc. and Midwest  Power  Systems Inc. On
December 1, 1996, MidAmerican Energy became, through a corporate reorganization,
a wholly owned  subsidiary of MHC Inc.,  formerly  known as  MidAmerican  Energy
Holdings Company.

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

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



                                      -3-
<PAGE>

CHANGES IN THE UTILITY INDUSTRY AND MIDAMERICAN ENERGY

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

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

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

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



                                      -4-
<PAGE>

(B)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

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

(C)  DESCRIPTION OF BUSINESS

     MidAmerican  Energy is the largest  energy company  headquartered  in Iowa,
with  assets  and  1999  revenues   totaling  $3.6  billion  and  $1.8  billion,
respectively.  MidAmerican  Energy is  principally  engaged in the  business  of
generating,  transmitting,  distributing  and  selling  electric  energy  and in
distributing,   selling  and  transporting   natural  gas.   MidAmerican  Energy
distributes  electricity at retail in Council  Bluffs,  Des Moines,  Fort Dodge,
Iowa  City,  Sioux City and  Waterloo,  Iowa,  the Quad  Cities  (Davenport  and
Bettendorf, Iowa and Rock Island, Moline and East Moline, Illinois) and a number
of adjacent  communities and areas. It also distributes natural gas at retail in
Cedar Rapids, Des Moines, Fort Dodge, Iowa City, Sioux City and Waterloo,  Iowa;
the Quad Cities; Sioux Falls, South Dakota; and a number of adjacent communities
and areas.  As of December  31,  1999,  MidAmerican  Energy had  663,500  retail
electric customers and 638,000 retail natural gas customers.

     In addition to retail sales, MidAmerican Energy delivers electric energy to
other  utilities,  marketers  and  municipalities  who  distribute it to end-use
customers.  These sales are referred to as sales for resale or off-system sales.
It also transports  natural gas through its distribution  system for a number of
end-use customers who have independently secured their supply of natural gas.

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

     MidAmerican  Energy  has  a  residential,   agricultural,   commercial  and
diversified  industrial  customer group, in which no single industry or customer
accounted for more than 5% of its total 1999 electric  operating  revenues or 3%
of its total 1999 gas operating margin.  Among the primary  industries served by
MidAmerican  Energy  are  those  which  are  concerned  with the  manufacturing,
processing and fabrication of primary metals, real estate,  food products,  farm
and other non-electrical machinery, and cement and gypsum products.

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

     For  the  year  ended  December  31,  1999,   MidAmerican   Energy  derived
approximately  66% of its gross operating  revenues from its regulated  electric
business,  25% from its  regulated  gas  business  and 9% from its  nonregulated
business activities.  For 1998 and 1997, the corresponding  percentages were 69%
electric,  25%  gas  and 6%  nonregulated;  and  65%  electric,  31%  gas and 4%
nonregulated, respectively.



                                      -5-
<PAGE>

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

                                           Total Electric Sales
                                             By Customer Class

                                      1999         1998         1997
                                     -----        -----        -----
Residential                           21.0%        22.2%        20.9%
Small General Service                 16.7         17.5         16.5
Large General Service                 26.9         28.1         27.4
Other                                  4.5          4.4          4.4
Sales for Resale                      30.9         27.8         30.8
                                     -----        -----        -----

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

                                           Retail Electric Sales
                                                 By State

                                      1999         1998         1997
                                     -----        -----        -----
Iowa                                  88.9%        88.4%        88.6%
Illinois                              10.4         10.9         10.7
South Dakota                           0.7          0.7          0.7
                                     -----        -----        -----

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

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

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

                                         Total Regulated Gas Sales
                                             By Customer Class

                                      1999         1998          1997
                                     -----        -----         -----
Residential                           62.0%        59.9%         60.8%
Small General Service                 31.4         32.1          33.1
Large General Service                  3.9          3.7           4.2
Other                                  2.7          4.3           1.9
                                     -----        -----         -----

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



                                      -6-
<PAGE>


                                             Retail Gas Sales
                                                 By State

                                      1999         1998          1997
                                     -----        -----         -----
Iowa                                  78.8%        79.0%         79.1%
Illinois                              10.3         10.2          10.4
South Dakota                          10.1         10.1           9.8
Nebraska                               0.8          0.7           0.7
                                     -----        ------        -----

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

     There are seasonal  variations  in  MidAmerican  Energy's  electric and gas
businesses  which  are  principally  related  to  the  use  of  energy  for  air
conditioning and heating. In 1999, 39% of MidAmerican Energy's electric revenues
were  reported in the months of June,  July,  August and  September,  and 55% of
MidAmerican  Energy's  gas  revenues  were  reported  in the months of  January,
February, March and December.

     At December 31, 1999,  MidAmerican Energy had 3,690 full-time  employees of
which  1,710  were  covered  by union  contracts.  MidAmerican  Energy has eight
separate  contracts with locals of the  International  Brotherhood of Electrical
Workers  (IBEW),  the United  Association  of Plumbers and  Pipefitters  and the
United Paper Workers  International  Union.  The  contracts  covering most union
employees are as follows:

                                 Employee      Contract
        Union       Local        Members    Expiration Date
        -----       -----       --------    ---------------
        IBEW          109          480         3/01/2000
        IBEW          499        1,140         3/01/2000

     The Local 499  members  numbered  above are covered  under  three  separate
contracts  based on the  location  of the Local 499 of which  they are a member.
Negotiations  for new contracts are in progress,  and union members  continue to
work under the terms of the expired contracts for a 90-day period.

REGULATED ELECTRIC OPERATIONS

     The annual  hourly  peak demand on  MidAmerican  Energy's  electric  system
occurs  principally  as a result of air  conditioning  use  during  the  cooling
season. In July 1999, MidAmerican Energy recorded an hourly peak demand of 3,833
MW, which was 190 MW more than MidAmerican  Energy's previous record hourly peak
of 3,643 MW set in 1998.

     MidAmerican Energy's accredited net generating  capability in the summer of
1999 was 4,466 MW. Accredited net generating capability represents the amount of
generation  available to meet the  requirements on MidAmerican  Energy's system,
net of the effect of capacity  purchases and sales,  and consists of MidAmerican
Energy-owned   generation  and  generation  under  a  long-term  power  purchase
contract.  The net  generating  capability at any time may be less than it would
otherwise be due to regulatory  restrictions,  fuel  restrictions and generating
units being temporarily out of service for inspection, maintenance, refueling or
modifications.  Refer to Item 2,  Properties,  for detail of the  accredited net
generating capability for the summer of 1999.


                                      -7-
<PAGE>


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

     Each Power Pool participant is required to maintain for emergency  purposes
a net  generating  capability  reserve  of at least 15% above  its  system  peak
demand.  If a  participant's  capability  reserve  falls below the 15%  minimum,
significant  penalties  could  be  contractually  imposed  by  the  Power  Pool.
MidAmerican Energy's reserve margin for 1999 was approximately 16.5%.

     MidAmerican Energy's transmission system connects its generating facilities
with  distribution  substations  and  interconnects  with 14 other  transmission
providers in Iowa and five adjacent states.  Under normal operating  conditions,
MidAmerican  Energy's  transmission  system is  unconstrained  and has  adequate
capacity to deliver energy to MidAmerican  Energy's  distribution  system and to
export and import energy with other  interconnected  systems.  As energy markets
open to  competition,  MidAmerican  Energy  believes  its  interconnections  and
central  location will provide  valuable  opportunities  to serve other markets.
Refer to Item 2, Properties, for detail of transmission lines.

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

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

                                       Year Ended December 31,
                                      1999         1998          1997
                                     -----        -----         ----

         Coal                         70.9%        79.2%        76.3%
         Nuclear*                     28.2         19.5         23.0
         Gas                           0.7          1.1          0.6
         Oil/Hydro                     0.2          0.2          0.1
                                     -----        -----        -----
             Total                   100.0%       100.0%       100.0%
                                     =====        =====        =====

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

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

     All of the coal-fired  generating  stations operated by MidAmerican  Energy
are fueled by  low-sulfur,  western  coal from the Powder  River Basin and Hanna
Basin mines. The use of low-sulfur  western coal enables  MidAmerican  Energy to
comply with the acid rain  provisions  of the Clean Air Act  Amendments  of 1990
without having to install  additional  costly emissions control equipment at its
generating  stations.   MidAmerican  Energy's  coal  supply  portfolio  includes
multiple  suppliers  and mines under  agreements  of varying  term and  quantity
flexibility.  MidAmerican  Energy  regularly  monitors  the


                                      -8-
<PAGE>



western  coal  market,  looking  for  opportunities  to improve  its coal supply
portfolio.  MidAmerican  Energy believes its sources of coal supply are and will
continue  to  be  satisfactory.  Additional  information  regarding  MidAmerican
Energy's  coal  supply  contracts  is  included  in  Note  (4)(g)  of  Notes  to
Consolidated Financial Statements in Part IV, Item 14, of this Form 10-K.

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

     MidAmerican  Energy  uses  natural  gas  and oil as fuel  for  peak  demand
electric generation,  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  Nuclear  Power
Station.  Approximately  one-third  of the fuel in the  core at the Quad  Cities
Station units is replaced  every 24 months.  One unit had a refueling  outage in
January 2000, and a refueling  outage is scheduled for October 2000 at the other
unit.

     MidAmerican Energy has been advised by Commonwealth Edison, the joint owner
and  operator  of  Quad  Cities  Station,  that  the  majority  of  its  uranium
concentrate and uranium conversion  requirements for Quad Cities Station through
2001 can be met under  existing  supplies  or  commitments.  ComEd  foresees  no
problem  in  obtaining  the  remaining  requirements  now  or  obtaining  future
requirements.  ComEd further advises that all enrichment  requirements have been
contracted through 2003.  Commitments for fuel fabrication have been obtained at
least through 2005.  ComEd does not anticipate  that it will have  difficulty in
contracting for uranium  concentrates for conversion,  enrichment or fabrication
of nuclear fuel needed to operate Quad Cities Station.

     MidAmerican  Energy  purchases  one-half  of the power and energy of Cooper
Nuclear Station through a long-term power purchase contract with Nebraska Public
Power  District.  Approximately  30% of the fuel in the core at  Cooper  must be
replaced  every 18 months.  A refueling  outage  began in March  2000.  Nebraska
Public  Power  District  has  informed  MidAmerican  Energy  that it either  has
sufficient   materials  and  services   available  to  meet  foreseeable  Cooper
requirements  or that such  materials  and services are readily  available  from
suppliers.

     Under the Nuclear Waste Policy Act of 1982,  the U.S.  Department of Energy
is responsible for the selection and  development of  repositories  for, and the
permanent  disposal of, spent nuclear fuel and  high-level  radioactive  wastes.
ComEd and Nebraska Public Power District,  as required by the Nuclear Waste Act,
each signed a contract with the Department of Energy to provide for the disposal
of spent nuclear fuel and high-level  radioactive waste beginning not later than
January 1998.  The  Department of Energy did not begin  receiving  spent nuclear
fuel on the  scheduled  date,  and it is  expected  that  the  schedule  will be
significantly  delayed.  The costs  incurred  by the  Department  of Energy  for
disposal  activities are being financed by fees charged to owners and generators
of the waste. The Nebraska Public Power District has informed MidAmerican Energy
that there is on-site  storage  capability  at Cooper  sufficient to permit such
interim storage at least through 2004, the remaining term of the long-term power
purchase contract.  ComEd has informed  MidAmerican Energy that existing on-site
storage  capability  at Quad  Cities  Station is  sufficient  to permit  interim
storage into 2006.  Meeting  spent  nuclear fuel  storage


                                      -9-
<PAGE>


requirements at Quad Cities Station beyond such time could require modifications
to the spent fuel storage pools or new and separate storage facilities. For Quad
Cities Station,  ComEd has informed MidAmerican Energy that they plan to develop
interim  spent  fuel  storage  installation  at Quad  Cities  Station  to  store
additional spent nuclear fuel in dry casks.

REGULATED NATURAL GAS OPERATIONS

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

     MidAmerican Energy also transports through its distribution  system natural
gas  purchased  independently  by a number of end-use  customers.  During  1999,
approximately  43% of total gas  delivered on  MidAmerican  Energy's  system was
under gas transportation service.

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

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

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

     MidAmerican  Energy's  cost  of gas is  recovered  from  customers  through
purchased gas adjustment  clauses.  In 1995,  the Iowa Utilities  Board approved
MidAmerican  Energy's Incentive Gas Supply Procurement  Program for a three-year
test period which expired in November  1998. On May 28, 1999, the Iowa Utilities
Board approved a settlement that continues the program through October 31, 2000.
Under the  program as amended,  MidAmerican  Energy is required to file with the
Iowa Utilities Board every six months a comparison of its gas procurement  costs
to an index-based  reference price. If MidAmerican  Energy's cost of gas for the
period  is less or  greater  than  an  established  tolerance  band  around  the
reference price, then MidAmerican Energy shares a portion of the savings or cost
with customers. Since the implementation of the program,  MidAmerican Energy has
successfully achieved and shared in savings for its natural gas customers.

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


                                      -10-
<PAGE>



     On February 2, 1996,  MidAmerican  Energy had its highest peak-day delivery
of 1,143,026  MMBtus.  This peak-day  delivery  consisted of  approximately  88%
traditional sales service and 12% transportation  service of customer-owned gas.
MidAmerican  Energy's  1999/2000  winter  heating  season  peak-day  delivery of
931,518 MMBtus was reached on December 20, 1999. This peak-day delivery included
approximately 74% traditional sales service and 26% transportation service.

     The supply  sources  utilized by  MidAmerican  Energy to meet its 1999/2000
peak-day deliveries to its sales service customers were:

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

        Leased Storage and Peak Shaving Plants        303.1         43.1%
        Firm Supply                                   400.3         56.9
                                                      -----         ----
        Total                                         703.4        100.0%
                                                      =====        =====

     MidAmerican    Energy   has    strategically    built   multiple   pipeline
interconnections  into  several of its larger  communities.  MidAmerican  Energy
operates interconnects with Northern Natural Gas, Natural Gas Pipeline, Northern
Border,  and ANR Pipeline  Company into the Quad Cities;  with Northern  Natural
Gas, Natural Gas Pipeline,  and Northern Border into Cedar Rapids/Iowa City; and
with  Northern  Natural Gas and Natural Gas Pipeline  into Des Moines.  Multiple
pipeline   interconnects   create   competition  among  pipeline  suppliers  for
transportation capacity in 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  pipeline 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.  A
majority  of  MidAmerican  Energy's  nonregulated  revenue is  generated  by its
nonregulated  natural gas marketing  services.  MidAmerican Energy purchases gas
from  producers  and  third  party  marketers  and sells it to  wholesalers  and
end-users.   Beginning  in  May  1998,   contracts   previously  serviced  by  a
nonregulated  subsidiary of MHC were renewed as  MidAmerican  Energy  contracts,
creating a significant  increase in these operations at MidAmerican  Energy.  In
addition,  MidAmerican  Energy  manages  gas  supplies  for a  number  of  small
commercial  end-users  and  sells  these  customers  gas to  meet  their  supply
requirements.  Sales  volumes  for these  nonregulated  gas  marketing  services
totaled 58 million  MMBtus,  39 million  MMBtus and 21 million  MMBtus for 1999,
1998 and 1997, respectively.

     MidAmerican Energy's  nonregulated  revenues for 1999 reflect revenues from
its market access service project, which began in the third quarter of 1999. The
pilot  project  allows  Iowa  customers  with at  least 4 MW of  load  that  are
participating   in  the  project  to  choose  their  electric  power   supplier.
MidAmerican  Energy's revenues from project  participants  related to non-supply
services,  such as distribution  and  transmission,  continue to be reflected in
regulated electric revenues.


                                      -11-
<PAGE>


     Nonregulated  revenues of MidAmerican  Energy also include awards  received
for  successful  performance  under its  Incentive Gas Supply  Procurement  Plan
discussed in the "Regulated Natural Gas Operations" section.

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

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

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

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

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

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

     In  December  1997,  Illinois  enacted a new law to  restructure  Illinois'
electric utility  industry.  The law changes how and what electric  services are
regulated by the Illinois Commission and transitions


                                      -12-
<PAGE>


portions of the traditional electric services to a competitive  environment.  In
general, the new law limits the Illinois Commission's  regulatory authority over
a utility's  generation  and also  relaxes its  regulatory  authority  over many
corporate transactions, such as the transfer of generation assets to affiliates.
Special  authority and limitations of authority apply during the transition to a
competitive marketplace. Also, the law permits utilities to eliminate their fuel
adjustment  clauses and  incorporates  provisions by which earnings in excess of
allowed  amounts  are either  partially  refunded  to  customers  or are used to
accelerate  a  company's  regulatory  asset cost  recovery.  Electric  rates are
frozen, subject to certain exceptions, until 2005.

     Refer to the  information  under the caption  "Legislative  and  Regulatory
Evolution" in the "Operating  Activities  and Other Matters"  section of MD&A in
Part  IV,  Item 14 of this  Form  10-K  for  additional  discussion  of  matters
affecting utility regulation.

     Iowa law requires  electric  and gas  utilities to spend a portion of their
annual Iowa jurisdictional revenues on energy efficiency programs. Utilities are
allowed to recover the cost of energy efficiency  programs from their customers,
subject to Iowa  Utilities  Board review.  MidAmerican  Energy is recovering its
historical energy efficiency  program costs,  which were deferred until recovery
in accordance with prior energy efficiency  regulations.  MidAmerican  Energy is
also  recovering  the current costs of its ongoing energy  efficiency  programs.
Refer to the discussion under "Energy  Efficiency" in the "Operating  Activities
and Other Matters" section of MD&A in Part IV, Item 14 of this Form 10-K.

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

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

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

     The Nuclear  Regulatory  Commission's  regulations  control the granting of
permits and licenses for the  construction  and operation of nuclear  generating
stations and subject such  stations to  continuing  review and  regulation.  The
Nuclear Regulatory  Commission review and regulatory process covers, among other
things, operations,  maintenance,  and environmental and radiological aspects of
such stations.  The Nuclear Regulatory Commission 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 Nuclear  Regulatory  Commission  determines
there are deficiencies in state,  local or utility emergency  preparedness plans
relating to such facility,  and the  deficiencies  are not corrected.  ComEd and
Nebraska


                                      -13-
<PAGE>


Public  Power   District  have  advised   MidAmerican   Energy  that   emergency
preparedness plans for Quad Cities Station and Cooper,  respectively,  have been
approved by the Nuclear Regulatory  Commission.  ComEd and Nebraska Public Power
District  have also  advised  MidAmerican  Energy  that  state  and local  plans
relating to Quad Cities Station and Cooper, respectively,  have been approved by
the Federal Emergency Management Agency.

     On May 3, 1999, the Nuclear Regulatory Commission advised ComEd that it had
classified  Quad Cities  Station in its Routine  Oversight  category for nuclear
power plants, which is the best of the Nuclear Regulatory Commission's three new
categories,  removing the station from the Trending  (adversely)  Letter  status
initiated in January 1998.  During 1999, the station's  capacity factor based on
maximum  dependable  capacity was in excess of 96.0% compared to 51.7% for 1998.
The lower capacity  factor in 1998 reflects the extended  outages at both of the
Quad Cities Station units during the first five months of 1998.

     The Nuclear  Regulatory  Commission also regulates the  decommissioning  of
nuclear  power  plants  including  the  planning  and funding  for the  eventual
decommissioning  of the plants.  In response to these  regulations,  MidAmerican
Energy  submitted a report to the  Nuclear  Regulatory  Commission  in July 1990
indicating  that it will  provide  "reasonable  assurance"  that  funds  will be
available to pay the costs of decommissioning  its share of Quad Cities Station.
Nebraska  Public  Power  District has advised  MidAmerican  Energy that a report
addressing decommissioning funding for Cooper has been submitted and approved by
the Nuclear Regulatory Commission.

     MidAmerican  Energy has  established  external trusts for the investment of
funds collected for nuclear decommissioning associated with Quad Cities Station.
Nebraska  Public Power  District  maintains an internal  account and an external
trust for decommissioning funds associated with Cooper. MidAmerican Energy makes
contributions to Nebraska Public Power District related to  decommissioning  and
reflects  those  contributions  in MidAmerican  Energy's  power purchase  costs.
Electric  tariffs   currently  in  effect  include   provisions  for  annualized
collection of estimated decommissioning costs at Quad Cities Station and Cooper.
In Illinois,  nuclear  decommissioning  costs are included in customer  billings
through a mechanism that permits  annual  adjustments.  In Iowa,  such costs are
reflected in base rates.  MidAmerican  Energy's cost related to  decommissioning
funding in 1999 was $21.7  million.  Refer to "Cooper  Litigation"  under "Legal
Proceedings"  in Part I, Item 3 of this form 10-K for discussion of a proceeding
related to the Cooper power purchase agreement.

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

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

     State and federal  environmental  laws and regulations  currently have, and
future  modifications  may have,  the effect of (i) increasing the lead time for
the construction of new facilities, (ii) significantly increasing the total cost
of new facilities, (iii) requiring modification of 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 such items could have a
substantial  impact on amounts required to be expended by MidAmerican  Energy in
the future.


                                      -14-
<PAGE>

     Air Quality -

     The Clean Air Act Amendments of 1990 were signed into law in November 1990.
Essentially all utility  generating units are subject to the provisions of those
amendments which address continuous  emissions  monitoring,  permit requirements
and fees and  emissions  of  certain  substances.  MidAmerican  Energy  has five
jointly owned and six wholly owned coal-fired  generating units, which represent
approximately  65%  of  MidAmerican  Energy's  electric  generating  capability.
MidAmerican  Energy's  generating units meet all requirements  under Title IV of
the Clear Air Act Amendments of 1990 through 2007. Title IV, which is also known
as the Acid Rain  Program,  sets forth  requirements  for the emission of sulfur
dioxide and nitrogen oxides at electric utility generating stations.

     Refer to the discussion  under the caption  "Environmental  Matters" in the
"Operating Activities and Other Matters" section of MD&A in Part IV, Item 14, of
this Form 10-K for additional information regarding air quality regulation.

     Water Quality -

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

     Hazardous Materials and Waste Management -

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

     MidAmerican Energy estimates the range of possible costs for investigation,
remediation  and  monitoring  for these sites to be $22 million to $68  million.
MidAmerican  Energy is evaluating or has evaluated 27 properties  which were, at
one time, sites of gas manufacturing plants in which MidAmerican Energy may be a
potentially  responsible  party.  MidAmerican  Energy's estimate of the probable
cost for these sites as of December  31,  1999,  was $28  million.  The Illinois
Commerce  Commission  has  approved  the use of a  tariff  rider  which  permits
recovery  of the  actual  costs of  litigation,  investigation  and  remediation
relating to former  manufactured gas plant sites.  MidAmerican  Energy's present
rates in Iowa  provide for a fixed  annual  recovery of  manufactured  gas plant
costs.

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

     Pursuant to the Toxic Substances Control Act, a federal law administered by
the EPA,  MidAmerican  Energy  developed  a  comprehensive  program for the use,
handling,  control and disposal of all  polychlorinated  biphenyls,  referred to
herein as PCBs, contained in electrical  equipment.  The future use of equipment
containing  PCBs  will  be  minimized.   Capacitors,   transformers   and  other
miscellaneous  equipment are being  purchased with a non-PCB  dielectric  fluid.
MidAmerican  Energy's  exposure to PCB



                                      -15-
<PAGE>


liability has been reduced  through the orderly  replacement of a number of such
electrical devices with similar non-PCB electrical devices.

     Other -

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

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

     In  accordance  with the  requirements  of Section 112 of the Clear Air Act
Amendments  of 1990,  the EPA has  performed  a study of the  hazards  to public
health reasonably anticipated to occur as a result of emissions of hazardous air
pollutants by electric  utility steam  generating  units.  In February 1998, EPA
issued its Final Report to Congress,  indicating  that mercury is the  hazardous
air pollutant of greatest potential concern from coal-fired generating units and
that  additional  research and  monitoring  are  necessary.  As such the EPA has
issued a request  under  Section  114 of the Clean  Air Act  Amendments  of 1990
requiring all electric utilities to provide  information that will allow the EPA
to calculate the annual mercury  emissions from each coal-fired  generating unit
for the calendar year 1999. This  information  will be used to assist the EPA in
determining  whether  it  is  appropriate  and  necessary  to  regulate  mercury
emissions from coal-fired  generating  units. The cost to MidAmerican  Energy of
reducing its mercury emissions would depend on available technology at the time,
but could be material.

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

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


                                      -16-
<PAGE>

     The net accredited  generating capacity of MidAmerican  Energy,  along with
the  participation  purchases and sales, net, and firm purchases and sales, net,
are shown for summer 1999 accreditation.

                                                                Company's Share
                                                                 of Accredited
                                                Percent           Generating
            Plant                              Ownership  Fuel  Capability (MW)
  ------------------------------------------   ---------  ----  --------------
  Steam Electric Generating Plants:
    Council Bluffs Energy Center

       Unit No. 1                                 100.0   Coal          43
       Unit No. 2                                 100.0   Coal          88
       Unit No. 3                                  79.1   Coal         534
    George Neal Station

       Unit No. 1                                 100.0   Coal         135
       Unit No. 2                                 100.0   Coal         300
       Unit No. 3                                  72.0   Coal         371
       Unit No. 4                                  40.6   Coal         253
    Louisa Unit                                    88.0   Coal         616
    Ottumwa Unit                                   52.0   Coal         372
    Riverside Station
       Unit No. 3                                 100.0   Coal           5
       Unit No. 5                                 100.0   Coal         130
                                                                     -----
                                                                     2,847
                                                                     -----

  Combustion Turbines:
    Coralville - 4 units                          100.0   Gas/Oil       64
    Electrifarm - 3 units                         100.0   Gas/Oil      200
    Moline - 4 units                              100.0   Gas/Oil       64
    Parr - 2 units                                100.0   Gas/Oil       32
    Pleasant Hill Energy Center - 3 units         100.0   Oil          160
    River Hills Energy Center - 8 units           100.0   Gas/Oil      120
    Sycamore Energy Center - 2 units              100.0   Gas/Oil      149
                                                                     -----
                                                                       789
                                                                     -----

  Nuclear:
    Cooper (1)                                     (1)    Nuclear      387
    Quad-Cities Station
       Unit No. 1                                  25.0   Nuclear      192
       Unit No. 2                                  25.0   Nuclear      190
                                                                     -----
                                                                       769
                                                                     -----

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

  Net Accredited Generating Capacity                                 4,408

  Participation Purchases and Sales, Net                                58
                                                                     -----
  Total Net Accredited Generating
    Capability                                                       4,466
                                                                     =====


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



                                      -17-
<PAGE>


     The  electric  transmission  system of  MidAmerican  Energy at December 31,
1999,  included 897 miles of 345-kV lines,  1,299 miles of 161-kV  lines,  1,806
miles of 69-kV lines and 219 miles of 34.5-kV lines.

     The gas distribution facilities of MidAmerican Energy at December 31, 1999,
included 19,907 miles of gas mains and services.

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

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

     MidAmerican  Energy and its subsidiaries have no material legal proceedings
except for the following:

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

     Information on MidAmerican  Energy's  environmental  matters is included in
Item 1 - Business under "Environmental Matters" within "Operating Activities and
Other  Matters" in  Management's  Discussion and Analysis in Part IV, Item 14 of
this Form 10-K.

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

     On July 23, 1997, Nebraska Public Power District filed a complaint,  in the
United States  District Court for the District of Nebraska,  naming  MidAmerican
Energy as the  defendant  and seeking  declaratory  judgment as to three  issues
under the parties'  long-term  power purchase  agreement for Cooper capacity and
energy.  More specifically,  Nebraska Public Power District sought a declaratory
judgment in the following respects:

(1)  that  MidAmerican  Energy is obligated to pay 50% of all costs and expenses
     associated  with  decommissioning  Cooper,  and that in the event  Nebraska
     Public Power District  continues to operate Cooper after  expiration of the
     power  purchase  agreement  (September  2004),  MidAmerican  Energy  is not
     entitled to reimbursement of any decommissioning  funds it has paid to date
     or will pay in the future;

(2)  that the current  method of  allocating  transition  costs as a part of the
     decommissioning cost is proper under the power purchase agreement; and


(3)  that the current method of investing  decommissioning funds is proper under
     the power purchase agreement.

     MidAmerican  Energy  filed its answer  and  contingent  counterclaims.  The
contingent counterclaims filed by MidAmerican Energy are generally as follows:

(1)  that MidAmerican  Energy has no duty under the power purchase  agreement to
     reimburse  or pay 50% of the  decommissioning  costs unless  conditions  to
     reimbursement occur;


                                      -18-
<PAGE>


(2)  that Nebraska  Public Power District has the duty to repay all amounts that
     MidAmerican  Energy  has  prefunded  for  decommissioning  in the event the
     Nebraska  Public  Power  District  operates the plant after the term of the
     power purchase agreement;

(3)  that Nebraska  Public Power District is equitably  estopped from continuing
     to operate the plant after the term of the power purchase agreement;

(4)  that  Nebraska  Public  Power  District has granted  MidAmerican  Energy an
     option to continue taking 50% of the power from the plant;

(5)  that the term  "monthly  power  costs" as  defined  in the  power  purchase
     agreement   does  not   include   costs  and   expenses   associated   with
     decommissioning the plant;

(6)  that MidAmerican Energy has no duty to pay for nuclear fuel, operations and
     maintenance  projects or capital  improvements that have useful lives after
     the term of the power purchase agreement;

(7)  that  transition  costs are not included in any  decommissioning  costs and
     expenses;

(8)  that Nebraska  Public Power  District has breached its duty to  MidAmerican
     Energy in making investments of decommissioning funds;

(9)  that  reserves in named  accounts are  excessive  and should be refunded to
     MidAmerican Energy; and

(10) that  Nebraska  Public Power  District must credit  MidAmerican  Energy for
     payments by MidAmerican Energy for low-level radioactive waste disposal.

     On October 6, 1999, the court rendered summary judgment for Nebraska Public
Power  District  on  the   above-mentioned   issue   concerning   liability  for
decommissioning  (issue  one in the  first  paragraph  above)  and  the  related
contingent counterclaims filed by MidAmerican Energy (issues one, two, three and
five in the second paragraph above).  The court referred all remaining issues in
the case to mediation,  and cancelled the November 1999 trial date.  MidAmerican
Energy has appealed the court's summary  judgment ruling and is participating in
ongoing mediation efforts.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
----------------------------------------------------------
None.



                                      -19-
<PAGE>


                                     PART II

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

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

                          1999            1998
                        -------          -------

  4th Quarter           $    --          $33,500
  3rd Quarter                --           33,500
  2nd Quarter                --           28,600
  1st Quarter            36,706           28,600

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

     Reference is made to Part IV of this report.

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

     Reference is made to Part IV of this report.

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

     Reference is made to the  "Quantitative  and Qualitative  Disclosure  About
Market Risk" Section of MD&A in Part IV, Item 14, of this report.

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

     Reference is made to Part IV of this report.

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

     As a result of the merger  transaction  with  CalEnergy  on March 12, 1999,
Deloitte  &  Touche  LLP is  MidAmerican  Energy's  independent  accountant  for
accounting periods subsequent to the fiscal year ended December 31, 1998.


                                      -20-
<PAGE>



                                    PART III

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

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

(A)  IDENTIFICATION

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

  David L. Sokol          43    Chairman and Director        1999        1999

  Gregory E. Abel         37    Chief Executive Officer
                                  and Director               1999        1999

  Ronald W. Stepien       52    President and Director       1999        1996

  Jack L. Alexander       51    Senior Vice President        1998

  Patrick J. Goodman      33    Senior Vice President,
                                  Chief Financial Officer
                                  and Director               1999        1999

  Keith D. Hartje         50    Senior Vice President        1999


  Steven A. McArthur      42    Senior Vice President
                                  and Director               1999        1999

  John A. Rasmussen, Jr.  54    Senior Vice President,
                                  General Counsel
                                  and Director               1999        1999

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

(B) BUSINESS EXPERIENCE

DAVID L. SOKOL

     Chairman and Director of MidAmerican Energy since March 1999. Mr. Sokol has
been Chief Executive Officer of MidAmerican Energy Holdings since April 19, 1993
and served as President of MidAmerican Energy Holdings from April 19, 1993 until
January 21, 1995. He has been Chairman of the Board of Directors of  MidAmerican
Energy Holdings since May 1994 and a director since March 1991. Formerly,  among
other  positions held in the  independent  power  industry,  Mr. Sokol served as
President  and Chief  Executive  Officer  of  Kiewit  Energy  Company  and Ogden
Projects, Inc.


                                      -21-
<PAGE>


GREGORY E. ABEL

     Chief  Executive  Officer and  Director of  MidAmerican  Energy since March
1999.  Mr.  Abel  joined  MidAmerican  Energy  Holdings  in 1992.  Mr. Abel is a
Chartered  Accountant and from 1984 to 1992 he was employed by  PriceWaterhouse.
As a Manager in the San Francisco office of PriceWaterhouse,  he was responsible
for clients in the energy industry.

RONALD W. STEPIEN

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

JACK L. ALEXANDER

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

PATRICK J. GOODMAN

     Senior Vice President,  Chief Financial Officer and Director of MidAmerican
Energy since April 1999. Mr. Goodman joined  MidAmerican Energy Holdings in June
1995, and served as Manager of  Consolidation  Accounting  until  September 1996
when  he was  promoted  to  Controller.  Prior  to  joining  MidAmerican  Energy
Holdings, Mr. Goodman was a financial manager for National Indemnity Company and
a senior associate at Coopers & Lybrand.

KEITH D. HARTJE

     Senior  Vice  President  of  MidAmerican  Energy  since  March  1999.  Vice
President of  MidAmerican  Energy from March 1996 to March 1999. Mr. Hartje held
various  executive and  management  positions  with  MidAmerican  Energy and its
predecessors for more than five years prior.


                                      -22-
<PAGE>


STEVEN A. MCARTHUR

     Senior Vice President and Director of MidAmerican  Energy since March 1999.
Mr. McArthur joined  MidAmerican  Energy Holdings in February 1991. From 1988 to
1991 he was an attorney in the Corporate Finance Group at Shearman & Sterling in
San  Francisco.  From 1984 to 1988 he was an attorney in the  Corporate  Finance
Group at Winthrop, Stimson, Putnam & Roberts in New York.

JOHN A. RASMUSSEN, JR.

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

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

     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.



                                      -23-
<PAGE>



                                     PART IV

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

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

       Selected Consolidated Financial Data..........................     25
       Management's Discussion and Analysis of Financial Condition
          And Results of Operations..................................     26
       Consolidated Statements of Income
          For the Year Ended December 31, 1999, 1998 and 1997........     42
       Consolidated Balance Sheets
          As of December 31, 1999 and 1998 ..........................     43
       Consolidated Statements of Cash Flows
          For the Year Ended December 31, 1999, 1998 and 1997........     44
       Consolidated Statements of Capitalization
          As of December 31, 1999 and 1998 ..........................     45
       Consolidated Statements of Retained Earnings
          For the Year Ended December 31, 1999, 1998 and 1997........     46
       Notes to Consolidated Financial Statements....................     47
       Report of Independent Accountants.............................     70


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

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

                                                                       Page No.
                                                                       --------
        MidAmerican Energy Company Consolidated Valuation
             and Qualifying Accounts (Schedule II) ..................     71

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

(A)3.  EXHIBITS

     See Exhibit Index on page 73.

(B)  REPORTS ON FORM 8-K

     None.


                                      -24-
<PAGE>



SELECTED CONSOLIDATED FINANCIAL DATA
------------------------------------
(IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                     DECEMBER 31
                                           --------------------------------------------------------------
                                              1999         1998         1997         1996         1995
                                           ----------   ----------   ----------   ----------   ----------

<S>                                        <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Revenues ...............................   $1,791,036   $1,707,189   $1,727,855   $1,674,353   $1,554,235
Operating income (a) ...................      300,064      280,920      287,309      366,174      304,638
Net income from continuing operations ..      127,331      115,593      125,941      165,132      132,489
Earnings on common from
  continuing operations ................      122,376      110,641      119,453      154,731      124,430

BALANCE SHEET DATA:
Total assets ...........................   $3,592,557   $3,585,530   $3,542,307   $3,774,653   $3,976,201
Long-term debt (b) .....................      870,499      930,966    1,044,663    1,136,515    1,110,525
Power purchase obligation (b) ..........       68,049       83,127       97,504      111,222      125,729
Short-term borrowings ..................      204,000      206,221      122,500      161,700      184,800
Preferred stock:
  Not subject to mandatory redemption...       31,759       31,759       31,763       31,769       89,945
  Subject to mandatory redemption (c)...      150,000      150,000      150,000      150,000       50,000
Common shareholder's equity (d) ........    1,057,855      972,278      985,744      986,825    1,225,715

</TABLE>

(a)  MidAmerican  Energy's 1995 operating income includes $31.9 million of costs
     related to a restructuring  and work force  reduction plan  implemented and
     completed in 1995.

(b)  Includes   amounts  due  within  one  year.

(c)  Post-1995 years include MidAmerican Energy-obligated mandatorily redeemable
     preferred  securities of subsidiary trust holding solely MidAmerican Energy
     junior subordinated debentures.

(d)  1996  reflects  distribution  of the capital stock of  MidAmerican  Capital
     Company and Midwest Capital Group, Inc. to MHC.



                                      -25-
<PAGE>

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

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

     MidAmerican Energy Company is a public utility company headquartered in Des
Moines,  Iowa, and  incorporated  in the state of Iowa.  MidAmerican  Energy was
formed on July 1,  1995,  as a result of the  merger  of  Iowa-Illinois  Gas and
Electric  Company,  Midwest  Resources  Inc. and Midwest  Power  Systems Inc. On
December 1, 1996, MidAmerican Energy became, through a corporate reorganization,
a wholly owned  subsidiary of MHC Inc.,  formerly  known as  MidAmerican  Energy
Holdings Company.

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

FORWARD-LOOKING STATEMENTS

     From time to time,  MidAmerican Energy may make forward-looking  statements
within the  meaning  of the  federal  securities  laws that  involve  judgments,
assumptions and other uncertainties  beyond its control.  These  forward-looking
statements may include,  among others,  statements  concerning  revenue and cost
trends,  cost recovery,  cost reduction  strategies  and  anticipated  outcomes,
pricing   strategies,   changes  in  the  utility   industry,   planned  capital
expenditures,  financing  needs  and  availability,  statements  of  MidAmerican
Energy's expectations,  beliefs, future plans and strategies, anticipated events
or trends and similar comments concerning matters that are not historical facts.
These type of forward-looking  statements are based on current  expectations and
involve a number of known and unknown risks and  uncertainties  that could cause
the actual results and  performance of MidAmerican  Energy to differ  materially
from any expected  future results or performance,  expressed or implied,  by the
forward-looking statements. In connection with the safe harbor provisions of the
Private  Securities  Litigation  Reform  Act of  1995,  MidAmerican  Energy  has
identified   important  factors  that  could  cause  actual  results  to  differ
materially  from  those  expectations,  including  weather  effects on sales and
revenues,  fuel prices, fuel  transportation and other operating  uncertainties,
acquisition  uncertainty,  uncertainties  relating  to  economic  and  political
conditions and  uncertainties  regarding the impact of  regulations,  changes in
government policy,  utility industry  deregulation and competition.  MidAmerican
Energy assumes no responsibility to update forward-looking information contained
herein.

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

EARNINGS DISCUSSION

     MidAmerican  Energy's  Earnings  on Common  Stock  for 1999,  1998 and 1997
totaled $122.4  million,  $110.6 million and $119.5 million,  respectively.  The
increase in 1999 earnings  compared to 1998 was due to improved electric and gas
margins, driven by a decrease in electric energy costs per unit and increases in
retail  gas rates.  Although  utility  earnings  for 1998 were lower than in the
prior  year,  a  reduction  was  anticipated  because  of the  electric  pricing
settlements  achieved in 1996 and 1997 in Iowa and Illinois.  Utility  operating
expenses  increased as MidAmerican  Energy continued  strengthening its customer
service and  marketing  capabilities  and adding to its  information  technology
resources.   Following  is  a  discussion  of  the  various  factors   affecting
MidAmerican Energy's results of operations.


                                      -26-
<PAGE>

REGULATED GROSS MARGIN

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

                                                 1999        1998        1997
                                                ------      ------      ------
                                                         (In millions)
  Operating revenues                            $1,179      $1,170      $1,126
  Cost of fuel, energy and capacity                223         228         236
                                                ------      ------      ------
      Electric gross margin                     $  956      $  942      $  890
                                                ======      ======      ======

     1999 vs. 1998 -

     A key  contributor to the improvement in electric gross margin for 1999 was
a $24.5  million  reduction  in the cost of energy per unit sold due to improved
performance  of MidAmerican  Energy's  nuclear power  generation  facilities and
lower overall prices on coal and purchased power.

     MidAmerican  Energy's margins on off-systems  sales increased $19.6 million
compared  to  1998.  Off-system  sales  are the  delivery  of  energy  to  other
utilities,  municipalities  and marketers which in turn distribute it to end-use
customers.  The increase in margins on  off-system  sales was due to lower costs
per unit of energy sold, which in large part was due to improved availability of
Quad Cities Nuclear Power Station in 1999.  Additionally,  favorable  off-system
sales prices during the hot  temperatures  in July 1999 and a 15.9%  increase in
related sales volumes contributed to the increase in off-system margin.

     Growth in the number of customers  increased  electric gross margin by $4.9
million compared to 1998. An increase in sales that are not dependent on weather
together  with the effect of the mix in sales  contributed  $9.5  million to the
increase.  The impact of  temperatures  resulted  in an  estimated  $12  million
reduction of electric gross margin in 1999 compared to 1998. Compared to normal,
the  temperatures in 1999 were mild,  resulting in less sales of electricity for
heating and cooling and a $14 million  reduction  of electric  margin.  Overall,
electric retail sales for 1999 decreased 0.5% compared to 1998.

     Revenues and gross margin for 1999 reflect price  reductions which were not
in effect, or were only partially in effect, during 1998. In June 1998, revenues
from Iowa  residential  customers were reduced $5 million  annually.  Since July
1997,  MidAmerican  Energy has reduced  revenues  from its Iowa  commercial  and
industrial  customers  a total of  approximately  $10 million  annually  through
negotiated  contracts and a tariffed rate reduction.  These reductions were only
partially in effect in 1998.  Revenues from Illinois customers were reduced $0.9
million in August  1998  related to  Illinois  utility  industry  restructuring.
MidAmerican  Energy  also  recorded  a  refund  accrual  for a  revenue  sharing
arrangement  in Iowa. The accrual  reduced  revenues and margin by $15.0 million
compared to 1998. Refer to "Rate Matters: Electric" in the "Operating Activities
And Other  Matters"  section of MD&A for a discussion  of revenue  sharing.  The
combined  effect of the  revenue  reductions  and the  revenue  sharing  accrual
decreased  revenues and electric  margin by $21.1  million for 1999  compared to
1998.

     Revenues from energy  efficiency  cost recovery  decreased  $7.3 million in
1999 compared to 1998. The decrease in these revenues is substantially offset by
a decrease in other operating expenses. MidAmerican Energy began recovering from
customers its remaining  deferred energy  efficiency costs and current,  ongoing
energy efficiency costs on September 29, 1997.  Deferred energy efficiency costs
are costs  previously  incurred by MidAmerican  Energy which, in accordance with
rate treatment, were not charged to expense until recovery from customers began.
Recovery of deferred energy efficiency costs occurs over a four-year period from
the date  collection  begins.  Collection of deferred  energy  efficiency


                                      -27-
<PAGE>


costs  decreased  in 1999  due to the  completion  of one of the  four  recovery
periods. MidAmerican Energy's three remaining recovery periods will be completed
by the end of 2001.  Approximately  $37.1 million of  MidAmerican  Energy's 1999
electric  revenues  were from the recovery of energy  efficiency  program  costs
compared  to $44.4  million  in  1998.  Refer to the  discussion  under  "Energy
Efficiency" in the "Operating  Activities And Other Matters" section of MD&A for
further discussion.

     Deregulation of the Illinois  electric utility industry resulted in changes
in the way  certain  taxes are  assessed  in  Illinois.  One of the taxes is now
assessed  directly  on the  energy  consumer  instead of  through  the  utility.
Accordingly,  MidAmerican Energy's electric revenues and electric margin reflect
a reduction of $1.9 million in 1999 for this tax collection change.

     Revenues from electric transmission services decreased $4.0 million in 1999
compared  to  1998  due  principally  to  a  reduction  in  transactions   under
MidAmerican  Energy's  transmission tariff. Under an order by the Federal Energy
Regulatory  Commission,  the Mid-Continent  Area Power Pool tariff was opened to
transactions  which  previously  would  have been under the  MidAmerican  Energy
tariff.

     1998 vs. 1997 -

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

     Approximately $44.4 million of MidAmerican  Energy's 1998 electric revenues
were from the  recovery of energy  efficiency  program  costs  compared to $18.3
million  in 1997.  The  increase  was due to the  additional  recovery  begun in
September 1997 discussed above.

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

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

     As  anticipated,  the effect of rate  proceedings  in 1996 and 1997 reduced
electric  gross  margin for 1998  compared  to 1997.  In  addition  to the price
reductions  discussed under the "1999 vs. 1998" section above,  revenues in 1998
reflect  the  full-year  effect  of a June 1997  price  reduction  for  Illinois
customers.  The  combined  effect of price  reductions  decreased  revenues  and
electric margin by $17.0 million for 1998 compared to 1997.

     Prior to July 11,  1997,  MidAmerican  Energy was  allowed  to recover  its
energy  costs  from  most  of its  electric  utility  customers  through  energy
adjustment  clauses  included in revenues.  Effective  July 11, 1997, the energy
adjustment  clause was  eliminated  for Iowa  customers  as part of  MidAmerican
Energy's


                                      -28-
<PAGE>


Iowa pricing plan.  Previously,  variations in energy costs did not affect gross
margin or net income due to corresponding  changes in revenues collected through
the energy adjustment clause. With the elimination of the Iowa energy adjustment
clause,  fluctuations  in energy  costs now may have an impact on gross  margin.
This change resulted in a positive impact on 1998 gross margin.

     Electric margin in 1998 reflects MidAmerican Energy's strong performance in
the off-system market relative to 1997. Margins on off-system sales, contributed
$14.2  million more to gross margin in 1998 than in 1997.  Though  related sales
volumes decreased 11.5% compared to the 1997 level,  MidAmerican Energy obtained
improved  margins  per unit for the  1998  sales.  This was due in part to price
volatility in the wholesale energy market during some periods of high demand for
energy in the Midwest.

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

                                                1999         1998         1997
                                                ----         ----         ----
                                                        (In millions)
  Operating revenues                            $455         $430         $536
  Cost of gas sold                               259          243          346
                                                ----         ----         ----
    Gas gross margin                            $196         $187         $190
                                                ====         ====         ====

     1999 vs. 1998 -

     MidAmerican Energy's regulated gas revenues include purchase gas adjustment
clauses through which  MidAmerican  Energy is allowed to recover the cost of gas
sold from most of its gas utility customers.  Consequently,  fluctuations in the
cost of gas sold do not affect gross  margin or net income  because gas revenues
reflect  comparable  fluctuations  in  revenues  from  purchase  gas  adjustment
clauses. In 1999,  MidAmerican  Energy's per-unit cost of gas increased compared
to 1998 which  resulted in an $18 million  increase in revenues  and cost of gas
sold for 1999.

     Recovery of gas energy efficiency  program costs decreased $3.5 million for
1999 compared to 1998.  Approximately $14.1 million of MidAmerican  Energy's gas
revenues in 1999 were from the recovery of gas energy efficiency  program costs.
Again,   changes  in  revenues   from  energy   efficiency   cost  recovery  are
substantially offset by corresponding changes in other operating expenses. Refer
to the discussion  under "Energy  Efficiency"  in the "Operating  Activities And
Other Matters" section of MD&A for further discussion.

     On January 22,  1999,  the Iowa  Utilities  Board  approved a $6.7  million
annual  interim  increase  in gas  rates  for Iowa  retail  customers  effective
immediately. An additional increase was implemented on May 27, 1999, as a result
of the Iowa Utilities Board's approval of a final rate increase of $13.9 million
annually.  Rates for South Dakota  customers  increased  $2.4  million  annually
effective May 1, 1999. These increases  contributed  approximately $10.3 million
to the comparative increase in gas margin for 1999.

     Temperatures  in 1999 were warmer than  normal,  resulting in a $14 million
decrease  in gas  gross  margin  for the year  compared  to  normal  temperature
conditions.  Compared to 1998,  however,  gas margin increased $3 million due to
the effect of  temperatures  in 1999,  which were colder than in 1998.  Customer
growth  resulted in a $2.8 million  improvement in gas margin in 1999. In total,
retail sales of natural gas in 1999 decreased 0.9% compared to 1998.

     1998 vs. 1997 -

     A  decrease  in the 1998  per-unit  cost of gas  compared  to 1997  reduced
revenues and cost of gas sold by approximately $59 million. Gas gross margin for
1998 decreased $3 million  compared to 1997.


                                      -29-
<PAGE>



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

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

REGULATED OPERATING EXPENSES

     Other Operating Expenses -

     Other operating  expenses decreased $9.4 million for 1999 compared to 1998.
As  mentioned  in the gross  margin  discussions,  the  recovery of one phase of
deferred energy  efficiency  costs was completed in 1999, and  accordingly,  the
costs for that phase have been fully  amortized  to  expense.  Recurring  energy
efficiency  costs also decreased in 1999. As a result,  energy  efficiency costs
decreased  $9.5  million  in 1999  compared  to 1998.  (Refer to the  "Regulated
Electric Gross Margin" section for further comments on energy efficiency costs.)

     A concerted effort to reduce operating costs resulted in reductions in
gas  distribution  costs,  marketing and  sales-related  expenses,  and customer
service costs in 1999 compared to 1998. The decreases  were partially  offset by
$13.7 million of transition costs in 1999 related to MHC's March 1999 merger and
a $3.7 million increase in nuclear operations expenses.

     Other operating expenses increased $32.3 million for 1998 compared to 1997.
An  increase  in energy  efficiency  costs  accounted  for $31.6  million of the
increase  in other  operating  expenses  compared  to 1997.  Operating  expenses
related to Cooper  increased due in part to the ratemaking  treatment for Cooper
capital  improvements,  as discussed in the  "Regulated  Electric  Gross Margin"
section.  Cooper  capital  improvement  advances are now expensed when incurred.
MidAmerican  Energy is  recovering  the Iowa portion of these costs  through the
Cooper  Tracker,  while  recovery in  Illinois  is included in base rates.  This
change  accounted  for a $1.7  million  increase  in  nuclear  operations  costs
compared to 1997.  Excluding those costs,  nuclear operations expenses decreased
$8.2  million for 1998  compared  to 1997 due to an extended  outage at the Quad
Cities Station.

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



                                      -30-
<PAGE>

     Maintenance -

     Maintenance  expenses  increased $5.7 million for 1999 compared to 1998 due
to the timing of generating plant maintenance and increased gas distribution and
maintenance.  The  increases  in these  areas  were  partially  offset by a $1.2
million decrease in 1999 for maintenance at the Quad Cities Station.

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

     Depreciation and Amortization -

     The increase in  depreciation  and  amortization  expense in 1999 is due to
several new software  systems  completed in late 1998 and 1999,  including a new
customer service system. The increase in 1998 expense compared to 1997 is due to
additional  decommissioning  funding  for Quad  Cities  Station,  an increase in
utility  plant  and  the  accelerated  amortization  of  regulatory  assets  for
MidAmerican Energy's Illinois operations.

     Property and Other Taxes -

     Property and other taxes  decreased $10.3 million in 1999 compared to 1998.
MidAmerican Energy's Iowa property tax expense decreased for 1999 due to reduced
assessed values. Deregulation of the Illinois electric utility industry resulted
in changes in the way public utility taxes are assessed in Illinois. The changes
resulted in decreases in  MidAmerican  Energy's tax expense for 1999 compared to
1998. One of the taxes is now assessed  directly on the energy consumer  instead
of through the utility.  Accordingly,  MidAmerican  Energy's  electric  revenues
reflect an equal reduction in 1999 for this tax collection  change.  The changes
in  Illinois  public  utility  taxes  resulted  in a $2.1  million  decrease  in
MidAmerican Energy's tax expense for 1998 compared to 1997.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

Revenues and Cost of Sales:
---------------------------

     1999 vs 1998 -

     An increase in revenues from nonregulated  natural gas marketing operations
accounted  for $45.8  million  of the $50.0  million  increase  in  nonregulated
revenues for 1999 compared to 1998.  Sales volumes  increased 19 million MMBtus,
or 49%,  in 1999,  contributing  $43.5  million to the  increase  in natural gas
marketing  revenues.  The  increase  in sales  volumes  was the  result of a 28%
increase in the average  number of  customers  and a 16% increase in the average
use per  customer.  The  increase in the  average  number of  customers  relates
principally  to the increase in customers in the last half of 1998, as discussed
below, which had a full-year effect on 1999. The increase in the average use per
customer was due in part to a few large-use  customers added at the end of 1998.
The remaining increase in gas marketing revenues relates to a 3% increase in the
average cost of gas. Cost of sales  related to natural gas marketing  operations
increased  $46.9 million in 1999 compared to 1998 and is reflective of the sales
volume and cost increases discussed in the preceding paragraph.

     Revenues  for 1999  include  $10.9  million of  revenues  from  MidAmerican
Energy's  market  access  service  project,  which began in the third quarter of
1999.  The pilot project  allows Iowa  customers with at


                                      -31-
<PAGE>


least 4 MW of load  that  are  participating  in the  project  to  choose  their
electric power supplier. MidAmerican Energy's revenues from project participants
related to non-supply  services,  such as  distribution  and  transmission,  are
reflected in regulated electric  revenues.  Cost of sales for 1999 includes $9.6
million related to the market access service project discussed above.

     Other  increases  in  nonregulated  revenues  relate  to  growth  in two of
MidAmerican  Energy's  nonregulated  programs.  Revenues  from  work  for  other
utilities decreased $3.6 million compared to 1998.

     MidAmerican Energy's nonregulated revenues also include pre-tax income from
awards for successful  performance under its incentive gas procurement  program.
Under  the  program,  if  MidAmerican  Energy's  cost  of  gas  varies  from  an
established  reference  price range,  then the savings or cost is shared between
customers and shareholders.  The awards totaled $1.6 million and $4.3 million in
1999 and 1998, respectively.

     1998 vs 1997 -

     Revenues from natural gas marketing  operations  increased $32.5 million in
1998  compared  to 1997 due to an  increase  of 18 million  MMBtus , or 88%,  in
related sales volumes.  Approximately 10 million MMBtus of the increase were due
to  MidAmerican  Energy  providing  gas for gas marketing  contracts  previously
serviced by MHC's nonregulated gas marketing subsidiaries.  That change began in
May 1998. The remaining  increase in sales volumes was due to customer growth as
a result of MidAmerican  Energy's  increased  emphasis on the  nonregulated  gas
marketing  business.  While the increase from sales volumes alone  resulted in a
$49.8 million  increase in revenues,  it was partially offset by a $17.3 million
decrease due to a decrease in the average price per unit,  reflective of a lower
cost of gas per unit.  Cost of sales  related to natural gas  marketing for 1998
reflects  the  increase in sales and the decrease in the average cost of gas per
unit. Total gross margin, which is total price less cost of gas, on nonregulated
natural gas sales was unchanged compared to 1997.

     Other activities  contributing to the increase in nonregulated revenues for
1998 relate to work for other utilities and work beyond the meter for customers.
In addition,  the 1998 amount includes revenues of CBEC Railway, a subsidiary of
MidAmerican Energy that operates rail services on a section of railroad track it
owns.

     Pre-tax income awards from MidAmerican  Energy's  incentive gas procurement
program totaled $4.3 million and $4.9 million in 1998 and 1997, respectively.

Other Nonregulated Operating Expenses:
--------------------------------------

     Other  operating  expenses for 1999  compared to 1998 reflect  decreases in
costs related to storm repair for other utilities and appliance services of $3.4
million and $5.9 million respectively.  These decreases were more than offset by
increases  related to costs of  initiatives  for new  products  and  services in
preparation for deregulation.

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



                                      -32-
<PAGE>


NON-OPERATING INCOME AND INTEREST EXPENSE

     Interest and Dividend Income-

     Interest  income in 1999  decreased  compared to 1998 due to  reduction  in
short-term  investments  and in a  note  receivable  related  to  sold  accounts
receivable.

     In December 1997, MidAmerican Energy sold its billed accounts receivable. A
portion  of the  consideration  for the sale was a  subordinated  note  from the
purchaser.  Interest income on that note caused the increase in 1998 compared to
1997. Refer to "Financing Activities,  Plans And Availability" later in MD&A for
discussion of the sale.

     Other, Net -

     Other,  Net  reflects the discount on sold  accounts  receivable,  net of a
subservicer fee charged to MidAmerican Energy Funding  Corporation for servicing
the  accounts.  The  discount is designed to cover the  expenses of  MidAmerican
Energy  Funding  Corporation,  including  bad debt  expense,  subservicer  fees,
monthly  administrative  costs and interest.  The discount is recorded in Other,
Net  because it is not  reflected  in utility  cost of services  for  regulatory
purposes.  The discount,  net of the subservicer fee, reduced Other, Net by $7.9
million, $7.0 million and $0.3 million in 1999, 1998 and 1997, respectively.

     In 1999,  MidAmerican  Energy recorded a $5.4 million pre-tax gain from the
sale of railcars which are used to service its coal-fired  generating plants and
$1.5 million of costs related to potential business opportunities.

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

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

     Other,  Net for 1997  reflects a net loss on reacquired  long-term  debt of
$0.9  million  and a $0.8  million  gain  related  to its  sale of  storage  gas
supplies.

     Fixed Charges and Preferred Dividends -

     MidAmerican  Energy's  interest on long-term  debt decreased in 1999 and in
1998 compared to their  respective prior years due to long-term debt refinancing
in 1998 and debt maturities in each year.  Preferred dividends include net gains
or losses on the  reacquisition  of MidAmerican  Energy  preferred  shares.  Net
losses on reacquisitions totaled $1.4 million in 1997.



                                      -33-
<PAGE>



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

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

     As  reflected on the  Consolidated  Statements  of Cash Flows,  MidAmerican
Energy's net cash  provided from  operating  activities  was $330 million,  $371
million and $380 million in 1999, 1998 and 1997, respectively.

INVESTING ACTIVITIES AND PLANS

     Utility Construction Expenditures -

     MidAmerican  Energy's  primary  need for  capital is  utility  construction
expenditures.  For 1999, utility construction expenditures totaled $204 million,
including allowance for funds used during construction, or capitalized financing
costs,  and Quad Cities Station  nuclear fuel purchases.  All such  expenditures
were met with cash generated from utility operations, net of dividends.

     Forecasted utility construction expenditures, including allowance for funds
used during  construction  for 2000 are $211  million and $732  million for 2001
through 2004. Capital expenditure needs are reviewed regularly by management and
may  change  significantly  as a  result  of such  reviews.  MidAmerican  Energy
presently expects that all utility  construction  expenditures for the next five
years will be met with cash generated from utility operations, net of dividends.
The actual level of cash generated from utility operations is affected by, among
other things, economic conditions in the utility service territory,  weather and
federal and state regulatory actions.

     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.  Based on  information  presently  available,
MidAmerican  Energy expects to contribute  approximately  $42 million during the
period 2000 through 2004 to an external trust  established for the investment of
funds for decommissioning Quad Cities Station.  Approximately 65% of the trust's
funds are now invested in domestic  corporate debt and common equity securities.
The remainder is invested in investment grade municipal and U.S. Treasury bonds.

     In addition, MidAmerican Energy makes payments to the Nebraska Public Power
District  related to  decommissioning  Cooper.  These  payments are reflected in
other  operating  expenses in the  Consolidated  Statements of Income.  Nebraska
Public Power District estimates call for MidAmerican Energy to pay approximately
$57 million to Nebraska Public Power District for Cooper  decommissioning during
the period 2000 through 2004.  Nebraska Public Power District  invests the funds
predominately  in U.S.  Treasury  Bonds and other  U.S.  Government  securities.
Approximately 20% was invested in domestic corporate debt.  MidAmerican Energy's
obligation  for Cooper  decommissioning  may be  affected  by the  actual  plant
shutdown  date and the status of the power  purchase  contract at that time.  In
July 1997,  Nebraska  Public  Power  District  filed a lawsuit in United  States
District  Court for the District of Nebraska  naming  MidAmerican  Energy as the
defendant  and  seeking  a  declaration  of  MidAmerican   Energy's  rights  and
obligations in connection with Cooper nuclear decommissioning  funding. Refer to
Part I, Item 3. Legal Proceedings, for further discussion of the litigation.


                                      -34-
<PAGE>

     Cooper  and Quad  Cities  Station  decommissioning  costs  charged  to Iowa
customers are included in base rates, and recovery of increases in those amounts
must be sought through the normal  ratemaking  process.  Cooper  decommissioning
costs  charged  to  Illinois  customers  are  recovered  through a rate rider on
customer billings.

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

     Debt Authorization and Credit Facilities -

     MidAmerican   Energy  currently  has  authority  from  the  Federal  Energy
Regulatory  Commission to issue  short-term debt in the form of commercial paper
and bank notes  aggregating $400 million.  As of December 31, 1999,  MidAmerican
Energy had in place a $250 million  commercial  paper program which is supported
by a $250 million revolving credit facility. In addition, MidAmerican Energy has
a $5 million bank line of credit. MidAmerican Energy also has a revolving credit
facility  which is dedicated to providing  liquidity for its  obligations  under
outstanding pollution control revenue bonds that are periodically remarketed. In
March 2000, MidAmerican Energy's revolving credit facility was increased to $325
million.

     MidAmerican  Energy has  authorization  from the Federal Energy  Regulatory
Commission  to  issue up to an  additional  $500  million  in  various  forms of
long-term  debt.  MidAmerican  Energy  will  also  need  authorization  from the
Illinois Commerce Commission prior to issuing any securities.  If 90% or more of
the proceeds  from a  securities  issuance  are used for  refinancing  purposes,
MidAmerican  Energy need only  provide  the  commission  with an  "informational
statement"  prior to the issuance  which sets forth the type,  amount and use of
the proceeds of the  securities  to be issued.  If less than 90% of the proceeds
are  used  for  refinancing,   MidAmerican  Energy  must  file  a  comprehensive
application  seeking  authorization  prior to issuance.  The  Illinois  Commerce
Commission is required to hold a hearing before issuing its authorization.

     Accounts Receivable Sold -

     In 1997,  MidAmerican  Energy  entered  into a revolving  agreement,  which
expires in 2002, to sell all of its right, title and interest in the majority of
its billed  accounts  receivable to MidAmerican  Energy Funding  Corporation,  a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican Energy.  Funding Corp. in turn sells receivable interests to outside
investors.  In  consideration  for the sale,  MidAmerican  Energy  received  $70
million in cash and the remaining  balance in the form of a  subordinated  note,
bearing  interest  at 8%,  from  Funding  Corp.  As of December  31,  1999,  the
revolving  cash balance was $57 million due to a decline in accounts  receivable
available for sale. The amount  outstanding  under the subordinated note was $47
million at December 31, 1999. As part of the agreement, the creditors of Funding
Corp. will be entitled to be satisfied out of the assets of Funding Corp.  prior
to any value being returned to MidAmerican  Energy or its creditors.  Therefore,
the  accounts  receivable  sold  are  not  reflected  on  MidAmerican   Energy's
Consolidated Balance Sheets. As of December 31, 1999, $107.5 million of accounts
receivable, net of reserves, were sold under the agreement.

OPERATING ACTIVITIES AND OTHER MATTERS

     Industry Evolution -

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


                                      -35-
<PAGE>

     In  the  electric  industry,   the  traditional   vertical  integration  of
generation,  delivery and marketing is being unbundled,  with the generation and
marketing functions becoming deregulated. For local gas distribution businesses,
the supply, local delivery and marketing functions are similarly being separated
and opened to competitors  for all classes of customers.  While retail  electric
competition  is presently not permitted in Iowa,  MidAmerican  Energy's  primary
market,  legislation to do so was introduced in the Iowa legislature in the last
session.  While this legislation has not passed, it is being considered again by
the Iowa legislature in 2000. Deregulation of the gas supply function related to
small volume  customers is also being  considered by the Iowa  Utilities  Board.
MidAmerican  Energy is actively  participating in the legislative and regulatory
processes.

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

     During the  transition  to full  competition,  increased  volatility in the
marketplace  can be  expected.  With the  elimination  of the energy  adjustment
clause in Iowa, MidAmerican Energy is financially exposed to movements in energy
prices.  Although  MidAmerican  Energy has sufficient low cost generation  under
typical  operating  conditions for its retail electric needs, a loss of adequate
generation by  MidAmerican  Energy at a time of high market prices could subject
MidAmerican Energy to losses on its energy sales.

     Legislative and Regulatory Evolution -

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

     In addition to rate  reductions  implemented  in 1998, the law provides for
Illinois  earnings above a certain level of return on common equity to be shared
equally  between  customers  and  MidAmerican  Energy  beginning  in April 2000.
MidAmerican  Energy's  return on common  equity level will be based on a rolling
two-year average, with the first determination being based on an average of 1998
and 1999.  The level of return at which  MidAmerican  Energy will be required to
share  earnings is a multi-step  calculation  of average  30-year  Treasury Bond
rates plus 5.50% for 1998 and 1999.  Legislation  passed in July 1999  increases
the  benchmark  for 2000  through 2004 to 8.5% above the 30-year  Treasury  bond
rate.  The level  above  which  sharing  must occur for 1998 and 1999 is 11.21%.
Using the same 30-year Treasury bond average, the computed level of return would
be 14.21% for 2000 through 2004. The law allows  MidAmerican  Energy to mitigate
the sharing of earnings  above the  threshold  return on common  equity  through
accelerated cost recognition.

     MidAmerican  Energy  continues its involvement in proceedings  which detail
the new  competitive  environment  and to evaluate  the impact of the law on its
operations  and  the  opportunities  the  law  presents,  including  proceedings
involving the unbundling of customer billing and meter reading.


                                      -36-
<PAGE>

     In Iowa, a replacement of the prior utility property tax system,  which was
supported  by  MidAmerican  Energy,  went into  effect on January 1, 1999.  With
resolution of the utility property tax issue, MidAmerican Energy is pursuing the
adoption of electric  utility  industry  restructuring  legislation  in the 2000
legislative session.

     In December 1999, the Federal Energy Regulatory Commission issued Order No.
2000 establishing among other things minimum  characteristics  and functions for
regional transmission organizations.  Public utilities that were not a member of
an independent system operator at the time of the order are required to submit a
plan by which its  transmission  facilities  would be  transferred to a regional
transmission   organization   on  a  schedule  that  would  allow  the  regional
transmission   organization   to  commence   operating  by  December  15,  2001.
MidAmerican  Energy which was not a member of an independent  system operator is
presently analyzing the impact that the order may have on its operations.

     Accounting Effects of Industry Restructuring -

     A possible  consequence of competition in the utility industry is that SFAS
71 may no longer apply. SFAS 71 sets forth accounting  principles for operations
that are  regulated  and meet certain  criteria.  For  operations  that meet the
criteria,  SFAS 71 allows,  among other things, the deferral of costs that would
otherwise be expensed when incurred. A majority of MidAmerican Energy's electric
and gas utility operations  currently meet the criteria required by SFAS 71, but
its applicability is periodically reexamined.  On December 16, 1997, MidAmerican
Energy's  generation  operations  serving Illinois were no longer subject to the
provisions of SFAS 71 due to passage of industry  restructuring  legislation  in
Illinois.  Thus,  in 1997  MidAmerican  Energy  was  required  to write  off the
regulatory assets and liabilities from its balance sheet related to its Illinois
generation  operations.  The net amount of such write-offs was not material.  If
other portions of its utility operations no longer meet the criteria of SFAS 71,
MidAmerican  Energy could be required to write off the related regulatory assets
and  liabilities  from its balance  sheet,  and thus, a material  adjustment  to
earnings in that period could result if  regulatory  assets are not recovered in
transition  provisions  of any resulting  legislation.  As of December 31, 1999,
MidAmerican  Energy had $279 million of  regulatory  assets on its  Consolidated
Balance Sheet.

     Energy Efficiency -

     MidAmerican  Energy's  regulatory assets as of December 31, 1999,  included
$46.5 million of deferred energy efficiency costs. Based on the current level of
recovery,  MidAmerican Energy expects to recover these costs by the end of 2001.
MidAmerican  Energy is also  allowed to recover  its ongoing  energy  efficiency
costs on a  current  basis.  Recovery  of these  costs is being  collected  from
customers  based  on  projected  annual  costs of $17.4  million,  which  may be
adjusted  annually.  Amortization  of the deferred energy  efficiency  costs and
current  expenditures  for energy  efficiency  costs will be  reflected in other
operating expenses over the related periods of recovery. The total of such costs
for the years 2000 and 2001 is  estimated  to be $40  million  and $35  million,
respectively.

     Rate Matters: Electric -

     Through several steps from mid-1997 to the end of 1998, electric prices for
Iowa  industrial  customers  were  reduced  by an amount  which had a $6 million
annual impact on revenues,  and electric  prices for Iowa  commercial  customers
were reduced by an amount which had a $4 million annual impact on revenues.  The
reductions  were  achieved  through a retail  access pilot  project,  negotiated
individual  electric  contracts and a $1.5 million  tariffed rate  reduction for
certain non-contract commercial customers.


                                      -37-
<PAGE>


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

     Under a 1997  pricing  plan  settlement  agreement  resulting  from an Iowa
Utilities Board rate  proceeding,  if MidAmerican  Energy's annual Iowa electric
jurisdictional  return on common equity exceeds 12%, then earnings above the 12%
level will be shared equally between  customers and MidAmerican  Energy.  If the
return  exceeds 14%, then  two-thirds  of  MidAmerican  Energy's  share of those
earnings  above the 14% level will be used for  accelerated  recovery of certain
regulatory assets. The pricing plan settlement  agreement precludes  MidAmerican
Energy from  filing for  increased  rates prior to 2001 unless the return  falls
below 9%. Other parties  signing the agreement  are  prohibited  from filing for
reduced  rates  prior to 2001  unless the return,  after  reflecting  credits to
customers,  exceeds 14%. On April 14, 1999, the Iowa Utilities  Board  approved,
subject to  additional  refund,  MidAmerican  Energy's  calculation  of the 1998
return on common equity.  During the second quarter of 1999,  MidAmerican Energy
credited $2.2 million to its Iowa  non-contract  customers related to the return
calculation for 1998. The agreement also eliminated  MidAmerican Energy's energy
adjustment clause,  and, as a result, the cost of fuel is not directly passed on
to customers.  In 1999,  MidAmerican  Energy  accrued $15.0 million for customer
credits relating to 1999 operations.

     Rate Matters: Gas -

     On September 1, 1999,  MidAmerican  Energy filed with the Illinois Commerce
Commission  requesting a rate increase  totaling  $3.2 million  annually for its
Illinois retail gas customers. A decision by the Illinois Commerce Commission is
anticipated prior to August 2000.

     Environmental Matters -

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

     MidAmerican Energy has evaluated or is evaluating 27 properties which were,
at one time, sites of gas manufacturing  plants in which it may be a potentially
responsible  party.  The purpose of these  evaluations  is to determine  whether
waste materials are present,  whether the materials  constitute an environmental
or health  risk,  and  whether  MidAmerican  Energy has any  responsibility  for
remedial action.  MidAmerican  Energy's estimate of the probable costs for these
sites as of December 31, 1999, was $28 million.  This estimate has been recorded
as a liability and a regulatory asset for future recovery through the regulatory
process.  Refer to Note (4)(b) of Notes to Consolidated Financial Statements for
further discussion of MidAmerican Energy's  environmental  activities related to
manufactured gas plant sites and cost recovery.


                                      -38-
<PAGE>

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

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

     In May 1999, the U.S. Court of Appeals for the District of Columbia Circuit
remanded the standards  adopted in July 1997 back to the EPA  indicating the EPA
had not expressed  sufficient  justification  for the basis of establishing  the
standards  and ruling that the EPA has exceeded  its  constitutionally-delegated
authority in setting the  standards.  The EPA's appeal of the court's  ruling to
the full  panel of the  U.S.  District  Court of  Appeals  for the  District  of
Columbia Circuit was denied. As a result of the court's initial decision and the
current status of the standards,  the impact of any new standards on MidAmerican
Energy  is  currently  unknown.  If the EPA  successfully  appeals  the  court's
decision,  however,  and the new standards  are  implemented,  then  MidAmerican
Energy's fossil fuel generating  stations may be subject to emission  reductions
if the stations are located in nonattainment  areas. As part of an overall state
plan to  achieve  attainment  of the  standards,  MidAmerican  Energy  could  be
required to install control equipment on its fossil fuel generating  stations or
decrease the number of hours during which these stations operate.  The degree to
which  MidAmerican  Energy may be  required  to  install  control  equipment  or
decrease  operating hours under a nonattainment  scenario would be determined by
the state's assessment of MidAmerican Energy's relative contribution, along with
other emission sources, to the nonattainment status. The installation of control
equipment could result in increased costs to MidAmerican  Energy.  A decrease in
the number of hours during which the affected  stations  operate would  decrease
the revenues of MidAmerican Energy.

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

     Quad Cities Nuclear Power Station -

     Quad Cities Station is operated by, and 75% owned by,  Commonwealth  Edison
Company . On May 3, 1999, the Nuclear  Regulatory  Commission advised ComEd that
it had  classified  Quad Cities  Station in its Routine  Oversight  category for
nuclear  power  plants,  which  is  the  best  of  the  commission's  three  new
categories,  removing the station from the Trending  (adversely)  Letter  status
initiated in January 1998.  During 1999, Quad Cities  Station's  capacity factor
based on maximum  dependable  capacity was in excess of 96.0%  compared to 51.7%
for 1998.  The lower  capacity  factor in 1998 reflects the extended  outages at
both of the Quad Cities Station units during the first five months of 1998.


                                      -39-
<PAGE>


     Generating Capability -

     In July 1999,  retail  customer usage of electricity  caused an hourly peak
demand of 3,833 MW on MidAmerican Energy's energy system.  MidAmerican Energy is
interconnected  with  Iowa  and  neighboring  utilities  and is  involved  in an
electric power pooling  agreement known as  Mid-Continent  Area Power Pool. Each
Power Pool  participant  is required to maintain  for  emergency  purposes a net
generating  capability  reserve  of at least 15% above its system  peak  demand.
MidAmerican Energy was able to maintain its capacity reserve  requirement during
the hot weather in July 1999 and was not  adversely  affected  by the  resultant
high prices in the off-system market.

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

ACCOUNTING ISSUES

     In June 1998, the Financial  Accounting  Standards Board (FASB) issued SFAS
133, "Accounting for Derivative  Instruments and Hedging Activities",  which was
delayed by SFAS 137 and is effective for fiscal years  beginning  after June 15,
2000.  SFAS 133 requires an entity to recognize all of its derivatives as either
assets or liabilities  in its statement of financial  position and measure those
instruments  at fair value.  MidAmerican  Energy is in the process of evaluating
the impact of this accounting standard.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     MidAmerican  Energy is exposed  to market  risk,  including  changes in the
market  price of certain  commodities  and interest  rates.  To manage the price
volatility  relating to these exposures,  MidAmerican Energy enters into various
financial derivative instruments.  Senior management provides overall direction,
structure,   conduct  and  control  of  MidAmerican   Energy's  risk  management
activities, including the use of financial derivative instruments, authorization
and communication of risk management policies and procedures,  strategic hedging
program  guidelines,  appropriate market and credit risk limits, and appropriate
systems for recording, monitoring and reporting the results of transactional and
risk management activities.

     MidAmerican  Energy  uses  hedge  accounting  for  derivative   instruments
pertaining to its natural gas purchasing.

     Commodity Price Risk -

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

     MidAmerican  Energy enters into natural gas futures and swap  agreements to
mitigate a portion of the market risk  retained by its  regulated  gas customers
through  the  purchased  gas  adjustment  clause.   These  financial  derivative
activities  are  recorded  as hedge  accounting  transactions,  with net amounts


                                      -40-
<PAGE>


exchanged  or accrued  under swap  agreements  and  realized  gains or losses on
futures  contracts  included in the cost of gas sold and  recovered  in revenues
from regulated gas customers.

     MidAmerican Energy also derives revenues from nonregulated sales of natural
gas. Pricing provisions are individually negotiated with these customers and may
include  fixed  prices  or  prices  based on a daily or  monthly  market  index.
MidAmerican Energy enters into natural gas futures and swap agreements to offset
the financial  impact of variations in natural gas commodity prices for physical
delivery to nonregulated  customers.  These financial derivative  activities are
also  recorded  as hedge  accounting  transactions.  MidAmerican  Energy had the
following financial derivative  instruments for its natural gas operations as of
December 31:

                                               1999                1998
                                               ----                ----

Futures Contracts:
     Net Contract Volumes- Short          (550,000) MMBtu     (350,000) MMBtu
     Unrealized Loss, in thousands        $  (410)             $(1,815)

Swap Contracts:
     Contract Volumes                    85,520,442 MMBtu    16,322,181 MMBtu
     Unrealized Loss, in thousands        $(1,576)             $(2,896)

     A $0.05 increase in underlying natural gas prices would increase unrealized
losses on the  futures  contracts  held at December  31,  1999 by  approximately
$28,000  and would  reduce  unrealized  losses on the above  swap  contracts  by
approximately $79,000.

     Interest Rate Risk

     At December 31, 1999,  MidAmerican Energy had fixed-rate long-term debt and
mandatorily   redeemable   preferred  securities  and  preferred  securities  of
subsidiary trust totaling $900 million with a fair value of $871 million.  These
instruments are fixed rate and therefore do not expose MidAmerican Energy to the
risk of earnings loss due to changes in market interest rates. However, the fair
value of these  instruments  would  decrease  by  approximately  $30  million if
interest  rates were to increase by 10% from their  levels at December 31, 1999.
In general,  such a decrease in fair value would impact  earnings and cash flows
only if MidAmerican Energy were to acquire all or a portion of these instruments
prior to their maturity.

     At December  31,  1999,  MidAmerican  Energy had  long-term  floating  rate
obligations  totaling  $120 million and  short-term  floating  rate  obligations
totaling  $204 million  which  expose the company to risk of increased  interest
expense in the event of increases in short-term interest rates. This market risk
is not hedged. The carrying value of the long-term and short-term  floating rate
obligations  at December  31, 1999  approximated  fair  value.  If the  floating
interest  rates  were  to  increase  by  10%  from  December  31,  1999  levels,
MidAmerican  Energy's  interest expense for the floating rate obligations  would
increase by  approximately  $1.8  million  annually  based on December  31, 1999
principal balances.


                                      -41-
<PAGE>

<TABLE>
<CAPTION>

                          MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)

                                                   YEARS ENDED DECEMBER 31
                                          -----------------------------------------
                                              1999           1998           1997
                                          -----------    -----------    -----------
<S>                                       <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ....................   $ 1,178,702    $ 1,169,810    $ 1,126,300
Regulated gas .........................       454,802        429,870        536,306
Nonregulated ..........................       157,532        107,509         65,249
                                          -----------    -----------    -----------
                                            1,791,036      1,707,189      1,727,855
                                          -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity ...       223,215        227,870        235,760
  Cost of gas sold ....................       258,957        243,451        346,016
  Other operating expenses ............       460,883        470,328        438,007
  Maintenance .........................       116,089        110,387        100,543
  Depreciation and amortization .......       190,547        182,211        170,540
  Property and other taxes ............        77,017         87,276         90,651
                                          -----------    -----------    -----------
                                            1,326,708      1,321,523      1,381,517
                                          -----------    -----------    -----------
Nonregulated:
  Cost of sales .......................       146,699         88,390         54,522
  Other ...............................        17,565         16,356          4,507
                                          -----------    -----------    -----------
                                              164,264        104,746         59,029
                                          -----------    -----------    -----------
  Total operating expenses ............     1,490,972      1,426,269      1,440,546
                                          -----------    -----------    -----------
OPERATING INCOME ......................       300,064        280,920        287,309
                                          -----------    -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ..........         3,040          6,116          2,332
Other, net ............................        (3,699)        (6,477)         6,147
                                          -----------    -----------    -----------
                                                 (659)          (361)         8,479
                                          -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ............        65,649         70,193         78,120
Other interest expense ................        11,249         14,128         10,027
Preferred dividends of subsidiary trust         7,980          7,980          7,980
Allowance for borrowed funds ..........        (1,257)        (3,377)        (2,597)
                                          -----------    -----------    -----------
                                               83,621         88,924         93,530
                                          -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ............       215,784        191,635        202,258
INCOME TAXES ..........................        88,453         76,042         76,317
                                          -----------    -----------    -----------
NET INCOME ............................       127,331        115,593        125,941
PREFERRED DIVIDENDS ...................         4,955          4,952          6,488
                                          -----------    -----------    -----------

EARNINGS ON COMMON STOCK ..............   $   122,376    $   110,641    $   119,453
                                          ===========    ===========    ===========

</TABLE>
The accompanying notes are an integral part of these statements.

                                      -42-


<PAGE>

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

                                                            AS OF DECEMBER 31
                                                         -----------------------
                                                            1999         1998
                                                         ----------   ----------
<S>                                                      <C>          <C>
ASSETS
UTILITY PLANT
Electric ..............................................  $4,348,740   $4,258,061
Gas ...................................................     809,112      786,169
                                                         ----------   ----------
                                                          5,157,852    5,044,230
Less accumulated depreciation and amortization ........   2,548,160    2,428,954
                                                         ----------   ----------
                                                          2,609,692    2,615,276
Construction work in progress .........................      33,739       26,369
                                                         ----------   ----------
                                                          2,643,431    2,641,645
                                                         ----------   ----------

POWER PURCHASE CONTRACT ...............................     106,481      144,875
                                                         ----------   ----------

CURRENT ASSETS
Cash and cash equivalents .............................       5,167        5,370
Receivables ...........................................     190,986      168,764
Inventories ...........................................      80,649       92,745
Other .................................................      33,244       32,126
                                                         ----------   ----------
                                                            310,046      299,005
                                                         ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ............     228,105      183,279
REGULATORY ASSETS .....................................     278,757      305,489
OTHER ASSETS ..........................................      25,737       11,237
                                                         ----------   ----------

TOTAL ASSETS ..........................................  $3,592,557   $3,585,530
                                                         ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ...........................  $1,057,855   $  972,278
MidAmerican Energy preferred securities,
  not subject to mandatory redemption .................      31,759       31,759
Preferred securities, subject to mandatory redemption:
  MidAmerican Energy preferred securities .............      50,000       50,000
  MidAmerican Energy-obligated preferred securities
    of subsidiary trust holding solely MidAmerican
    Energy junior subordinated debentures .............     100,000      100,000
Long-term debt (excluding current portion) ............     759,638      870,069
                                                         ----------   ----------
                                                          1,999,252    2,024,106
                                                         ----------   ----------
CURRENT LIABILITIES
Notes payable .........................................     204,000      206,221
Current portion of long-term debt .....................     110,861       60,897
Current portion of power purchase contract ............      15,767       15,034
Accounts payable ......................................     131,186      159,420
Taxes accrued .........................................     112,663      106,132
Interest accrued ......................................      12,925       13,473
Other .................................................      30,226       35,405
                                                         ----------   ----------
                                                            617,628      596,582
                                                         ----------   ----------
OTHER LIABILITIES
Power purchase contract ...............................      52,281       68,093
Deferred income taxes .................................     561,000      584,675
Investment tax credit .................................      71,757       77,421
Other .................................................     290,639      234,653
                                                         ----------   ----------
                                                            975,677      964,842
                                                         ----------   ----------
TOTAL CAPITALIZATION AND LIABILITIES ..................  $3,592,557   $3,585,530
                                                         ==========   ==========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -43-

<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                       YEARS ENDED DECEMBER 31
                                                                   --------------------------------
                                                                     1999       1998         1997
                                                                   ---------  ---------    --------

<S>                                                                <C>          <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income .....................................................   $ 127,331    $ 115,593    $ 125,941
Adjustments to reconcile net income to net cash provided:
   Depreciation and amortization ...............................     190,112      177,661      170,586
   Net decrease in deferred income taxes and
     investment tax credit, net ................................     (37,067)     (18,379)     (32,645)
   Amortization of other assets ................................      61,036       61,031       56,813
   Cash inflows (outflows) of accounts
     receivable securitization .................................      (2,877)     (10,000)      70,000
   Impact of changes in working capital ........................     (16,688)      42,367       17,003
   Other .......................................................       8,182        2,734      (28,160)
                                                                   ---------    ---------    ---------
     Net cash provided .........................................     330,029      371,007      379,538
                                                                   ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures ..............................    (203,575)    (193,354)    (166,932)
Quad Cities Nuclear Power Station decommissioning trust fund ...     (10,370)     (11,409)      (9,819)
Deferred energy efficiency expenditures ........................          --           --      (12,258)
Nonregulated capital expenditures ..............................        (540)     (21,065)      (5,920)
Proceeds from sale of assets and other investments .............          --       19,854           --
Other investing activities, net ................................     (10,968)         799         (788)
                                                                   ---------    ---------    ---------
   Net cash used ...............................................    (225,453)    (205,175)    (195,717)
                                                                   ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid .................................................     (41,661)    (129,152)    (126,988)
Issuance of long-term debt, net of issuance cost ...............          --      158,414           --
Retirement of long-term debt, including reacquisition cost .....     (60,897)    (282,759)     (92,524)
Reacquisition of preferred shares ..............................          --           (4)          (6)
Net increase (decrease) in notes payable .......................      (2,221)      83,721      (39,200)
                                                                   ---------    ---------    ---------
   Net cash used ...............................................    (104,779)    (169,780)    (258,718)
                                                                   ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...........        (203)      (3,948)     (74,897)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................       5,370        9,318       84,215
                                                                   ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR .......................   $   5,167    $   5,370    $   9,318
                                                                   =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized......................    $  69,412    $  89,932    $  90,718
                                                                   =========    =========    =========
Income taxes paid..............................................    $  95,646    $  89,130    $ 112,492
                                                                   =========    =========    =========
</TABLE>

The accompanying notes are an integral part of these statements.

                                      -44-

<PAGE>

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

                                                                                  AS OF DECEMBER 31
                                                                       -----------------------------------------
                                                                             1999                    1998
                                                                       ------------------    -------------------
<S>                                                                    <C>          <C>      <C>            <C>
COMMON SHAREHOLDER'S EQUITY
Common shares, no par; 350,000,000 shares authorized;
  70,980,203 shares outstanding....................................    $  560,563            $  560,656
Retained earnings..................................................       497,292               411,622
                                                                       ----------            ----------
                                                                       $1,057,855   52.9%       972,278    48.0%
                                                                       ----------   -----    ----------    -----
PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding not subject to mandatory redemption:
  $3.30 Series, 49,451 shares......................................         4,945                 4,945
  $3.75 Series, 38,305 shares......................................         3,831                 3,831
  $3.90 Series, 32,630 shares......................................         3,263                 3,263
  $4.20 Series, 47,362 shares......................................         4,736                 4,736
  $4.35 Series, 49,945 shares......................................         4,994                 4,994
  $4.40 Series, 50,000 shares......................................         5,000                 5,000
  $4.80 Series, 49,898 shares......................................         4,990                 4,990
                                                                       ----------            ----------
                                                                           31,759    1.6%        31,759     1.6%
                                                                       ----------   -----    ----------    -----
Cumulative shares outstanding; subject to mandatory redemption:
  $5.25 Series, 100,000 shares.....................................        10,000                10,000
  $7.80 Series, 400,000 shares.....................................        40,000                40,000
                                                                       ----------            ----------
                                                                           50,000    2.5%        50,000     2.5%
                                                                       ----------   -----    ----------    -----
MIDAMERICAN ENERGY-OBLIGATED PREFERRED SECURITIES
MidAmerican Energy-obligated mandatorily redeemable cumulative
 preferred securities of subsidiary trust holding solely
 MidAmerican Energy junior subordinated debentures:
   7.98% series, 4,000,000 shares outstanding......................       100,000    5.0%       100,000     4.9%
                                                                       ----------   -----    ----------    -----

LONG-TERM DEBT
Mortgage bonds:
  6% Series, due 2000..............................................             -                35,000
  6.75% Series, due 2000...........................................             -                75,000
  7.125% Series, due 2003..........................................       100,000               100,000
  7.70% Series, due 2004...........................................        55,630                55,630
  7% Series, due 2005..............................................        90,500                90,500
  7.375% Series, due 2008..........................................        75,000                75,000
  7.45% Series, due 2023...........................................         6,940                 6,940
  6.95% Series, due 2025...........................................        12,500                12,500
Pollution control revenue obligations:
  5.75% Series, due periodically through 2003......................         7,200                 7,704
  6.7% Series, due 2003............................................         1,000                 1,000
  6.1% Series, due 2007............................................         1,000                 1,000
  5.95% Series, due 2023 (secured by general mortgage bonds).......        29,030                29,030

</TABLE>

The accompanying notes are an integral part of these statements.

                                      -45-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                    (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                 AS OF DECEMBER 31
                                                                       -----------------------------------------
                                                                            1999                   1998
                                                                       ------------------    -------------------

<S>                                                                    <C>          <C>      <C>           <C>
LONG-TERM DEBT (CONTINUED)
  Variable rate series -
    Due 2016 and 2017, 3.95% and 3.7%, respectively................    $   37,600            $   37,600
    Due 2023 (secured by general mortgage bond,
      5.45% and 3.7%, respectively)................................        28,295                28,295
    Due 2023, 3.95% and 3.7%, respectively.........................         6,850                 6,850
    Due 2024, 3.95% and 3.7%, respectively.........................        34,900                34,900
    Due 2025, 3.95% and 3.7%, respectively.........................        12,750                12,750
Notes:
  8.75% Series, due 2002...........................................           240                   240
  6.5% Series, due 2001............................................       100,000               100,000
  6.375% Series, due 2006..........................................       160,000               160,000
Obligation under capital lease.....................................         1,698                 2,055
Unamortized debt premium and discount, net.........................        (1,495)               (1,925)
                                                                       ----------            ----------
                                                                          759,638   38.0%       870,069    43.0%
                                                                       ----------  ------    ----------   ------

TOTAL CAPITALIZATION...............................................    $1,999,252  100.0%    $2,024,106   100.0%
                                                                       ==========  ======    ==========   ======
</TABLE>


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

                                                                             YEARS ENDED DECEMBER 31
                                                                        ---------------------------------
                                                                           1999        1998       1997
                                                                        ---------   ---------  ----------

<S>                                                                     <C>         <C>         <C>
BEGINNING OF YEAR..................................................     $ 411,622   $ 425,181   $ 426,228
                                                                        ---------   ---------   ---------

NET INCOME.........................................................       127,331     115,593     125,941
                                                                        ---------   ---------   ---------

DEDUCT (ADD):
(Gain) loss on reacquisition of preferred shares...................             -          (3)      1,433
Dividends declared on preferred shares.............................         4,955       4,955       5,055
Dividends declared on common shares................................        36,706     124,200     120,500
                                                                        ---------   ---------   ---------
                                                                           41,661     129,152     126,988
                                                                        ---------   ---------   ---------

End of Year.......................................................      $ 497,292   $ 411,622   $ 425,181
                                                                        =========   =========   =========

</TABLE>

The accompanying notes are an integral part of these statements.

                                      -46-

<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (A) COMPANY STRUCTURE AND MERGER:

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

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

     (B) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

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

     (C) REGULATION:

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

     Statement  of  Financial  Accounting  Standards  (SFAS)  No. 71 sets  forth
accounting  principles  for  operations  that are  regulated  and  meet  certain
criteria.  For operations  that meet the criteria,  SFAS 71 allows,  among other
things, the deferral of costs that would otherwise be expensed when incurred.  A
possible  consequence of the changes in the utility industry is the discontinued
applicability of SFAS 71. The majority of MidAmerican  Energy's electric and gas
utility operations currently meet the criteria of SFAS 71, but its applicability
is  periodically   reexamined.   On  December  16,  1997,  MidAmerican  Energy's
generation  operations serving Illinois were no longer subject to the provisions
of SFAS 71 due to passage of industry  restructuring  legislation  in  Illinois.
Thus in 1997, MidAmerican Energy was required to write off the regulatory assets
and  liabilities  from its  balance  sheet  related to its  Illinois  generation
operations.  The net  amount  of such  write-offs  was not  material.  If  other
portions  of its  utility  operations  no longer  meet the  criteria of SFAS 71,
MidAmerican  Energy could be required to write off the related regulatory assets
and  liabilities  from its  balance  sheet and thus,  a material  adjustment  to
earnings in that period could result if  regulatory  assets are not recovered in
transition  provisions of any resulting  legislation.  The following

                                      -47-
<PAGE>


regulatory  assets  represent  probable  future  revenue to  MidAmerican  Energy
because these costs are expected to be recovered in charges to utility customers
(in thousands):

                                         Weighted Average
                                          Future Recovery
                                               Period        1999        1998
                                         ----------------  --------    --------

  Deferred income taxes ................      13 years     $140,658    $148,036
  Energy efficiency costs ..............       3 years       46,514      74,509
  Debt refinancing costs ...............       6 years       34,650      40,233
  Nuclear generation assets ............       6 years       19,581          --
  Environmental costs ..................      10 years       27,837      23,427
  Enrichment facilities decommissioning        6 years        6,953       8,659
  Unamortized costs of retired plant ...        1 year        1,303       3,537
  Other ................................       Various        1,261       7,088
                                                           --------    --------
      Total ............................                   $278,757    $305,489
                                                           ========    ========

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

     (D) REVENUE RECOGNITION:

     Revenues are recorded as services  are rendered to  customers.  MidAmerican
Energy records  unbilled  revenues  representing  the estimated amount customers
will be billed  for  services  rendered  between  the  meter-reading  dates in a
particular month and the end of such month. Accrued unbilled revenues were $93.4
million and $79.8 million at December 31, 1999 and 1998,  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 adjustment clauses.  These clauses allow MidAmerican Energy
to adjust the amounts  charged for electric and gas service as the costs of gas,
fuel for generation or purchased  power change.  The costs recovered in revenues
through use of the adjustment clauses are charged to expense in the same period.

     (E) DEPRECIATION AND AMORTIZATION:

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

                       1999           1998            1997
                       ----           ----            ----

  Electric ........    4.0%           3.9%           3.8%
  Gas .............    3.5%           3.4%           3.4%

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


                                      -48-
<PAGE>


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

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

     (F) INVESTMENTS AND NONREGULATED PROPERTY, NET:

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

                                                   1999           1998
                                                 --------       --------

     Nuclear decommissioning trust fund .....    $141,646       $116,973
     Corporate owned life insurance .........      63,244         43,945
     Coal transportation property ...........      11,102         11,562
     Other ..................................      12,113         10,799
                                                 --------       --------
       Total ................................    $228,105       $183,279
                                                 ========       ========

     Investments  held by the  nuclear  decommissioning  trust fund for the Quad
Cities  Station units are classified as  available-for-sale  and are reported at
fair value with net unrealized  gains and losses  reported as adjustments to the
accumulated provision for nuclear decommissioning.

     (G) CONSOLIDATED STATEMENTS OF CASH FLOWS:

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

     Net cash provided (used) from changes in working capital was as follows (in
thousands):

                                           1999           1998          1997
                                         ---------      -------       --------

     Receivables ......................  $(19,345)      $25,389       $  (209)
     Inventories ......................    12,096        (8,447)        6,566
     Other current assets .............    (1,118)      (25,952)        1,602
     Accounts payable .................   (28,234)       31,030         5,416
     Taxes accrued ....................    21,637        14,683         9,111
     Interest accrued .................      (548)       (7,143)       (3,629)
     Other current liabilities ........    (1,176)       12,807        (1,854)
                                         --------      --------       -------
       Total ..........................  $(16,688)      $42,367       $17,003
                                         ========      ========       =======

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

     Under a long-term  power  purchase  contract  with  Nebraska  Public  Power
District,  expiring in 2004, MidAmerican Energy purchases one-half of the output
of the  778-megawatt  Cooper Nuclear Station.  The  Consolidated  Balance Sheets
include a liability  for  MidAmerican  Energy's  fixed  obligation to pay


                                      -49-
<PAGE>


50% of Nebraska Public Power District's Nuclear Facility Revenue Bonds and other
fixed  liabilities.  A like amount  representing  MidAmerican  Energy's right to
purchase power is shown as an asset.

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

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

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

     (I) ACCOUNTING FOR DERIVATIVES:

     MidAmerican  Energy uses gas futures contracts and swap contracts to reduce
the  volatility  in the price of natural gas  purchased to meet the needs of its
customers.  Investments  in natural  gas  futures  contracts,  which  total $0.6
million and $0.3  million as of December  31, 1999 and 1998,  respectively,  are
included in Receivables on the Consolidated  Balance Sheets. Gains and losses on
gas  futures  contracts  that  qualify for hedge  accounting  are  deferred  and
reflected as adjustments to the carrying value of the hedged item or included in
Other Assets on the  Consolidated  Balance Sheets until the underlying  physical
transaction is recorded if the instrument is used to hedge an anticipated future
transaction.  The net gain or loss on gas futures  contracts  is included in the
determination  of income  in the same  period as the  expense  for the  physical
delivery of the natural gas.  Realized gains and losses on gas futures contracts
and the net amounts  exchanged or accrued  under the natural gas swap  contracts
are included in Cost of Gas Sold, or Nonregulated  Cost of Sales consistent with
the  expense  for  the  physical  commodity.  Deferred  net  losses  related  to
MidAmerican Energy's gas futures contracts are $(0.4) million and $(1.9) million
as of December 31, 1999 and 1998, respectively.

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

<TABLE>
<CAPTION>

                                       1999                         1998
                             ----------------------------  ----------------------------
                            Notional     Weighted Average  Notional    Weighted Average
                             Volume        Market Value     Volume      Market Value
                            (MMBtu)        (Per MMBtu)     (MMBtu)      (Per MMBtu)
                            -----------  ----------------  ----------   --------------

<S>                          <C>             <C>           <C>          <C>
Natural Gas Futures (Long)    2,700,000      $ 2.340        6,970,000   $ 1.857
Natural Gas Futures (Short)   3,250,000      $ 2.342        7,320,000   $ 1.854
Natural Gas Swaps            85,520,442      $(0.018)      16,322,181   $(0.177)
</TABLE>

     In June 1998,  the Financial  Accounting  Standards  Board issued SFAS 133,
"Accounting for Derivative Financial  Instruments and Hedging Activities," which
established  accounting and reporting  standards for derivative  instruments and
hedging  activities.  SFAS 133 is effective for MidAmerican


                                      -50-
<PAGE>

Energy on January 1, 2001.  SFAS 133 requires an entity to recognize  all of its
derivatives  as either  assets or  liabilities  in its  statement  of  financial
position  and  measure  those  instruments  at  fair  value.  If the  conditions
specified in SFAS 133 are met,  those  instruments  may be designated as hedges.
Changes in the value of hedge instruments  would not impact earnings,  except to
the  extent  that  the  instrument  is  not  perfectly  effective  as  a  hedge.
MidAmerican Energy is in the process of evaluating the impact of this accounting
pronouncement.

(2)  LONG-TERM DEBT:

     MidAmerican  Energy's sinking fund requirements and maturities of long-term
debt for 2000 through 2004 are $111  million,  $102  million,  $2 million,  $106
million and $56 million, respectively.

     MidAmerican  Energy's Variable Rate Pollution  Control Revenue  Obligations
bear interest at rates that are periodically  established through remarketing of
the  bonds in the  short-term  tax-exempt  market.  MidAmerican  Energy,  at its
option, may change the mode of interest calculation for these bonds by selecting
from among several alternative  floating or fixed rate modes. The interest rates
shown in the Consolidated  Statements of Capitalization are the weighted average
interest rates as of December 31, 1999 and 1998.  MidAmerican  Energy  maintains
dedicated  revolving credit facility  agreements or renewable lines of credit to
provide liquidity for holders of these issues.

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

(3)  JOINTLY OWNED UTILITY PLANT:

     Under joint plant ownership  agreements with other  utilities,  MidAmerican
Energy had undivided interests at December 31, 1999, in jointly owned generating
plants as shown in the table below.

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

<TABLE>
<CAPTION>

                                  Nuclear                    Coal fired
                                -----------   -------------------------------------------
                                                      Council
                                Quad Cities   Neal     Bluffs     Neal    Ottumwa  Louisa
                                   Units      Unit      Unit      Unit      Unit    Unit
                                 No. 1 & 2    No. 3    No. 3     No. 4     No. 1   No. 1
                                -----------   ------  --------   ------   -------  ------
     <S>                          <C>         <C>      <C>       <C>      <C>      <C>
     In service date              1972        1975     1978      1979     1981     1983
     Utility plant in service     $ 223       $ 134    $ 298     $ 167    $ 212    $ 536
     Accumulated depreciation     $  99       $  84    $ 183     $  98    $ 115    $ 268
     Unit capacity-MW             1,523         515      675       630      708      700
     Percent ownership             25.0%       72.0%    79.1%     40.6%    52.0%    88.0%
</TABLE>


                                      -51-
<PAGE>


(4)  COMMITMENTS AND CONTINGENCIES:

     (A) CAPITAL EXPENDITURES:

     Utility  construction  expenditures  for  2000  are  estimated  to be  $211
million, including $19 million for Quad Cities Station nuclear fuel.

     (B) MANUFACTURED GAS PLANT FACILITIES:

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

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

     MidAmerican Energy estimates the range of possible costs for investigation,
remediation  and monitoring for the sites  discussed  above to be $22 million to
$68 million.  MidAmerican Energy's estimate of the probable cost for these sites
as of December 31, 1999 was $28 million. The estimate consists of $3 million for
investigation  costs,  $10  million  for  remediation  costs,  $13  million  for
groundwater  treatment  and  monitoring  costs and $2 million  for  closure  and
administrative  costs.  This  estimate  has been  recorded as a liability  and a
regulatory  asset for future  recovery.  MidAmerican  Energy projects that these
amounts will be paid or incurred over the next 10 years.

     The  estimate  of  probable  remediation  costs  is  established  on a site
specific  basis.  The costs are  accumulated in a three-step  process.  First, a
determination  is made as to  whether  MidAmerican  Energy has  potential  legal
liability  for  the  site  and  whether  information  exists  to  indicate  that
contaminated  wastes  remain  at the site.  If so,  the  costs of  performing  a
preliminary  investigation and the costs of removing known contaminated soil are
accrued.  As the  investigation  is performed and if it is  determined  remedial
action  is  required,  the  best  estimate  of  remedial  costs is  accrued.  If
necessary, the estimate is revised when a consent order is issued. The estimated
recorded  liabilities for these properties  include  incremental direct costs of
the  remediation  effort,  costs  for  future  monitoring  at sites and costs of
compensation  to  employees  for  time  expected  to be  spent  directly  on the
remediation effort. The estimated recorded  liabilities for these properties are
based upon preliminary  data. Thus, actual costs could vary  significantly  from
the  estimates.  The  estimate  could  change  materially  based  on  facts  and
circumstances  derived from site  investigations,  changes in required  remedial
action and changes in technology relating to remedial alternatives. In addition,
insurance  recoveries  for some or all of the  costs  may be  possible,  but the
liabilities recorded have not been reduced by any estimate of such recoveries.

     The  Illinois  Commerce  Commission  has approved the use of a tariff rider
which  permits  recovery of the actual costs of  litigation,  investigation  and
remediation  relating  to  former  manufactured  gas  plant  sites.  MidAmerican
Energy's  present  rates  in  Iowa  provide  for  a  fixed  annual  recovery  of
manufactured gas

                                      -52-
<PAGE>


plant costs.  MidAmerican  Energy intends to pursue  recovery of the remediation
costs from other potentially responsible parties and its insurance carriers.

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

     (C) CLEAN AIR ACT:

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

     In May 1999,  the  United  States  Court of  Appeals  for the  District  of
Columbia  Circuit  remanded  the  standards  adopted  in July  1997  back to the
Environmental  Protection Agency indicating the Environmental  Protection Agency
had not expressed  sufficient  justification  for the basis of establishing  the
standards and ruling that the  Environmental  Protection Agency has exceeded its
constitutionally-delegated authority in setting the standards. The Environmental
Protection Agency's appeal of the court's ruling to the full panel of the United
States  District  Court of Appeals for the District of Columbia was denied.  The
Environmental Protection Agency filed a petition for a writ of certiorari to the
United  States  Supreme Court on January 27, 2000,  seeking  review of the lower
court's decision.

     As a result of the court's  initial  decision and the current status of the
standards,  the impact of any new standards on  MidAmerican  Energy is currently
unknown. If the Environmental Protection Agency successfully appeals the court's
decision,  however,  and the new standards  are  implemented,  then  MidAmerican
Energy's fossil fuel generating  stations may be subject to emission  reductions
if the stations are located in nonattainment  areas. As part of an overall state
plan to  achieve  attainment  of the  standards,  MidAmerican  Energy  could  be
required to install control equipment on its fossil fuel generating  stations or
decrease the number of hours during which these stations operate.  The degree to
which  MidAmerican  Energy may be  required  to  install  control  equipment  or
decrease  operating hours under a  nonattainment  scenario will be determined by
the state's assessment of MidAmerican Energy's relative contribution, along with
other emission sources, to the nonattainment status. The installation of control
equipment would result in increased costs to MidAmerican  Energy.  A decrease in
the number of hours during which the affected  stations  operate would  decrease
the revenues of MidAmerican Energy.

     (D) LONG-TERM POWER PURCHASE CONTRACT:

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


                                      -53-
<PAGE>

     The  debt   amortization   and  Department  of  Energy   enrichment   plant
decontamination and decommissioning  component of MidAmerican  Energy's payments
to Nebraska  Public Power District were $15.1  million,  $14.4 million and $13.8
million and the net  interest  component,  which is included in Other  Operating
Expenses  in the  Consolidated  Statements  of Income,  was $2.5  million,  $2.9
million and $3.8 million each for the years 1999, 1998 and 1997, respectively.

     MidAmerican  Energy's  payments for the debt principal portion of the power
purchase  contract  obligation  and the  Department of Energy  enrichment  plant
decontamination and decommissioning  payments are $15.8 million,  $16.6 million,
$17.4 million and $18.3 million, for 2000 through 2003, respectively.

     (E) DECOMMISSIONING COSTS:

     Based   on    site-specific    decommissioning    studies    that   include
decontamination,  dismantling,  site  restoration  and dry  fuel  storage  cost,
MidAmerican Energy's share of expected decommissioning costs for Cooper and Quad
Cities Station, in 1999 dollars, is $267 million and $255 million, respectively.
In Illinois,  nuclear  decommissioning  costs are included in customer  billings
through a mechanism that permits annual  adjustments.  These costs are reflected
in base rates in Iowa tariffs.

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

     As of December 31, 1999,  MidAmerican  Energy's share of funds set aside by
Nebraska   Public  Power   District  in  internal  and  external   accounts  for
decommissioning was $109.8 million.  In addition,  the funding plan also assumes
various  funds and  reserves  currently  held to satisfy  Nebraska  Public Power
District   bond   resolution   requirements   will  be   available   for   plant
decommissioning  costs after the bonds are  retired in early  2004.  The funding
schedule  assumes a  long-term  return on funds in the trust of 6.75%  annually.
Certain  funds  will be  required  to be  invested  on a  short-term  basis when
decommissioning  begins  and are  assumed  to  earn at a rate of 4.0%  annually.
MidAmerican  Energy makes payments to Nebraska Public Power District  related to
decommissioning  Cooper.  The Cooper  decommissioning  component of  MidAmerican
Energy's  payments to Nebraska  Public Power  District was $11.3  million,  $7.9
million and $11.3 million for the years 1999, 1998, and 1997, respectively,  and
is  included  in Other  Operating  Expenses in the  Consolidated  Statements  of
Income.  Earnings from the internal  account and external trust fund,  which are
recognized by Nebraska Public Power District as the owner of the plant,  are tax
exempt and serve to reduce future funding requirements.

     External  trusts  have been  established  for the  investment  of funds for
decommissioning  the Quad  Cities  Station.  The  total  accrued  balance  as of
December 31, 1999, was $141.6 million and is included in Other Liabilities and a
like amount is reflected in  Investments  and  represents  the fair value of the
assets held in the trusts.

     MidAmerican  Energy's  provision for  depreciation  included costs for Quad
Cities Station nuclear  decommissioning of $10.4 million, $11.4 million and $9.8
million for 1999, 1998 and 1997, respectively.  The provision charged to expense
is equal to the funding that is being  collected in rates.  The  decommissioning
funding  component of  MidAmerican  Energy's  Illinois and Iowa tariffs  assumes
decommissioning  costs, related to the Quad Cities Station,  will escalate at an
annual rate of 5.0% and the assumed annual return on funds in the trust is 6.9%.
Earnings,  net of  investment  fees,  on the  assets in the

                                      -54-
<PAGE>


trust fund were $1.9 million,  $1.7 million and $4.5 million for 1999,  1998 and
1997, respectively. See Note (11) for information regarding unrealized gains and
losses.

     (F) NUCLEAR INSURANCE:

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

     The  Nebraska  Public  Power  District  and  ComEd  each  purchase  nuclear
liability  insurance for Cooper and Quad Cities  Station,  respectively,  in the
maximum available amount of $200 million.  In accordance with the Price-Anderson
Amendments  Act of 1988,  excess  liability  protection  above  that  amount  is
provided by a mandatory  industry-wide  program  under  which the  licensees  of
nuclear generating  facilities could be assessed for liability incurred due to a
serious nuclear incident at any commercial nuclear reactor in the United States.
Currently,   MidAmerican  Energy's  aggregate  maximum  potential  share  of  an
assessment  for Cooper and Quad Cities  Station  combined  is $88.1  million per
incident, payable in installments not to exceed $10 million annually.

     The  property  coverage  provides for property  damage,  stabilization  and
decontamination  of the facility,  disposal of the  decontaminated  material and
premature decommissioning.  For Quad Cities Station, ComEd purchases primary and
excess property insurance  protection for the combined interests in Quad Cities,
with coverage limits totaling $2.1 billion.  For Cooper,  MidAmerican Energy and
the  Nebraska  Public  Power  District  separately  purchase  primary and excess
property insurance  protection for their respective  obligations,  with coverage
limits of $1.375  billion each.  This structure  provides that both  MidAmerican
Energy and the Nebraska  Public Power District are covered for their  respective
50% obligation in the event of a loss totaling up to $2.75 billion.  MidAmerican
Energy also directly purchases extra expense/business  interruption coverage for
its share of  replacement  power and/or  other extra  expenses in the event of a
covered  accidental  outage at  Cooper or Quad  Cities  Station.  The  coverages
purchased directly by MidAmerican  Energy, and the property coverages  purchased
by ComEd,  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 Cooper and Quad Cities Station combined, total $11.6 million.

     The master nuclear  worker  liability  coverage,  which is purchased by the
Nebraska  Public Power  District  and ComEd for Cooper and Quad Cities  Station,
respectively, is an industry-wide guaranteed-cost policy with an aggregate limit
of $200 million for the nuclear industry as a whole, which is in effect to cover
tort claims of workers in nuclear-related industries.

     (G) COAL AND NATURAL GAS CONTRACT COMMITMENTS:

     MidAmerican  Energy has  entered  into  supply and  related  transportation
contracts  for its  fossil  fueled  generating  stations.  The  contracts,  with
expiration  dates ranging from 2000 to 2007,  require minimum  payments of $89.4
million,  $74.5 million,  $56.3 million, $50.1 million and $48.3 million for the
years  2000  through  2004,   respectively  and  $70.0  million  for  the  years
thereafter.  MidAmerican  Energy expects to supplement these coal contracts with
spot market purchases to fulfill its future fossil fuel needs.

                                      -55-
<PAGE>

     MidAmerican  Energy  has  entered  into  various  natural  gas  supply  and
transportation  contracts for its utility  operations.  The minimum  commitments
under these contracts are $145.8 million,  $82.0 million,  $58.6 million,  $46.4
million and $26.9  million for the years 2000 through  2004,  respectively,  and
$77.3 million for the total of the years thereafter.

     (H) OPERATING LEASE COMMITMENTS:

     MidAmerican  Energy has entered into  various  operating  lease  agreements
covering facilities,  computer and transportation equipment.  Rental payments on
operating  leases were $15.5 million for 1999, $23.2 million for 1998, and $20.4
million for 1997. The approximate minimum annual commitments under all operating
leases are $11.1  million,  $6.8 million,  $5.3  million,  $3.8 million and $1.9
million for the years 2000 through 2004, respectively,  and $1.7 million for the
total of the years thereafter.

(5)  RETIREMENT PLANS:

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

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

     In 1999, the  noncontributory  cash balance  defined benefit pension plans,
the noncontributory,  nonqualified  supplemental  executive retirement plan, and
the postretirement  plans were amended to include  participants from MidAmerican
Energy  Holdings and its domestic  subsidiaries . Prior to the amendment,  these
plans  included  only  employees  and   participants   of  MidAmerican   Energy,
MidAmerican  Capital and Midwest Capital.  This inclusion  increased the benefit
obligation  by $14.8  million  for the  pension  and  nonqualified  supplemental
retirement plans and $2.8 million for the postretirement  plans and is reflected
in the Benefit Obligation of MidAmerican Energy as of December 31, 1999.

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

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

     Net periodic pension,  supplemental  retirement and postretirement  benefit
costs  included  the  following   components  for  MidAmerican  Energy  and  the
aforementioned  affiliates  for the  years  ended  December  31 (in  thousands).
MidAmerican  Energy was  allocated  97%,  99%, and 97% of the total  pension and
postretirement net periodic cost in 1999, 1998, and 1997, respectively.

                                      -56-
<PAGE>

<TABLE>
<CAPTION>
                                                         Pension Cost                  Postretirement Cost
                                               -------------------------------     ---------------------------
                                                 1999        1998        1997       1999      1998      1997
                                               -------     -------     -------     -------   -------   -------

  <S>                                          <C>         <C>         <C>         <C>       <C>       <C>
  Service cost ............................    $12,192     $11,284     $10,092     $3,066    $ 3,558   $ 2,680
  Interest cost ...........................     31,557      29,941      29,623      7,947      9,344     8,822
  Expected return on plan assets ..........    (46,265)    (42,578)    (37,617)    (4,380)    (3,651)   (2,573)
  Amortization of net transition obligation     (2,591)     (2,591)     (2,591)     4,110      5,291     5,291
  Amortization of prior service cost ......      1,428       1,871       1,871        216        650       650
  Amortization of prior year gain .........     (2,703)     (2,802)     (1,797)      (181)        --      (298)
  Curtailment loss ........................      5,283          --          --         --         --        --
  Regulatory deferral of incurred cost ....         --          --       5,423         --         --     4,888
                                              --------    --------    --------    -------    -------   -------
      Net periodic (benefit) cost .........    $(1,099)    $(4,875)     $5,004    $10,778    $15,192   $19,460
                                              ========    ========    ========    =======    =======   =======
</TABLE>

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

     Although the supplemental  executive retirement plans had no plan assets as
of  December  31,  1999,   MidAmerican   Energy  has  Rabbi  trusts  which  hold
corporate-owned   life  insurance  to  provide   funding  for  the  future  cash
requirements.  Because  these  plans are  nonqualified,  the fair value of these
assets  is not  included  in the  following  table.  The fair  value of the life
insurance  policies was $63.2 million and $43.9 million at December 31, 1999 and
1998, respectively.

     During 1999 certain  participants in the supplemental  executive retirement
plan left MidAmerican  Energy reducing the future service of active employees by
28%. As a result,  a  curtailment  loss of $5.3 million was  recognized in 1999.
Additionally,  termination benefits provided to the participants,  totaling $3.5
million, were expensed in 1999.

     The projected benefit obligation and accumulated benefit obligation for the
supplemental  executive  retirement  plans were $68.8 million and $65.5 million,
respectively,  as of December 31,  1999,  and $58.1  million and $49.9  million,
respectively, as of December 31, 1998.


                                      -57-
<PAGE>

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

                                                         Pension Benefits      Postretirement Benefits
                                                      ---------------------    -----------------------
                                                        1999         1998         1999         1998
                                                      --------     --------     --------     --------
  <S>                                                 <C>          <C>          <C>          <C>
  Reconciliation of benefit obligation:
  Benefit obligation at beginning of year ........    $456,475     $430,043     $120,188     $127,347
  Service cost ...................................      12,192       11,285        3,066        3,558
  Interest cost ..................................      31,556       29,941        7,947        9,344
  Participant contributions ......................         107          127        1,838        1,404
  Plan amendments ................................      14,823           --        2,775      (21,607)
  Actuarial (gain) loss ..........................     (41,567)      15,793      (18,248)       9,463
  Curtailment ....................................        (705)          --           --           --
  Termination benefits ...........................       3,471           --           --           --
  Benefits paid ..................................     (29,182)     (30,714)      (9,822)      (9,321)
                                                     ---------    ---------    ---------    ---------
      Benefit obligation at end of year ..........     447,170      456,475      107,744      120,188
                                                     ---------    ---------    ---------    ---------

  Reconciliation of the fair value of plan assets:
  Fair value of plan assets at beginning of year .     524,508      483,668       63,093       52,174
  Employer contributions .........................       4,201        3,445       12,405       10,095
  Participant contributions ......................         107          127        1,838        1,404
  Actual return on plan assets ...................     105,425       67,982        5,108        8,741
  Benefits paid ..................................     (29,182)     (30,714)      (9,822)      (9,321)
                                                     ---------    ---------    ---------    ---------
      Fair value of plan assets at end of year ...     605,059      524,508       72,622       63,093
                                                     ---------    ---------    ---------    ---------

  Funded status ..................................     157,889       68,033      (35,122)     (57,095)
  Unrecognized net gain ..........................    (200,591)    (101,860)     (25,669)      (6,873)
  Unrecognized prior service cost ................      27,980       19,868        5,114        2,555
  Unrecognized net transition obligation (asset) .     (11,156)     (13,748)      53,433       57,543
                                                     ---------    ---------    ---------    ---------
      Net amount recognized in the
           Consolidated Balance Sheets ...........    $(25,878)    $(27,707)     $(2,244)     $(3,870)
                                                     =========    =========    =========    =========

  Amounts recognized in the Consolidated Balance
    Sheets consist of:
  Prepaid benefit cost ...........................     $17,034       $4,350       $1,042    $      --
  Accrued benefit liability ......................     (65,533)     (49,874)      (3,286)      (3,870)
  Intangible asset ...............................      22,621       17,817           --           --
                                                     ---------    ---------    ---------    ---------
      Net amount recognized ......................    $(25,878)    $(27,707)     $(2,244)     $(3,870)
                                                     =========    =========    =========    =========
</TABLE>


                                                Pension and Postretirement
                                                         Assumptions
                                                --------------------------
                                                1999      1998      1997
                                                ----      ----      ----
  Assumptions used were:
  Discount rate .............................   7.75%     6.75%     7.00%
  Rate of increase in compensation levels ...   5.00%     5.00%     5.00%
  Weighted average expected long-term
      rate of return on assets ..............   9.00%     9.00%     9.00%

                                      -58-
<PAGE>

     For purposes of calculating the postretirement  benefit  obligation,  it is
assumed health care costs for covered  individuals prior to age 65 will increase
by 7.5% in 2000 and that the rate of increase  thereafter  will  decline by .75%
annually to an ultimate rate of 5.25% by the year 2003. For covered  individuals
age 65 and  older,  it is  assumed  health  care  costs  will  increase  by 5.5%
annually.

     If the assumed health care trend rates used to measure the expected cost of
benefits  covered by the plans were  increased  by 1.0%,  the total  service and
interest cost for 1999 would  increase by $2.0 million,  and the  postretirement
benefit obligation at December 31, 1999, would increase by $15.2 million. If the
assumed  health care trend rates were to decrease by 1.0%, the total service and
interest  cost for 1999 would  decrease by $1.6  million and the  postretirement
benefit obligation at December 31, 1999, would decrease by $12.1 million.

     MidAmerican  Energy  sponsors  defined  contribution  pension plans (401(k)
plans) covering substantially all employees.  MidAmerican Energy's contributions
vary depending on the plan but are based primarily on each  participant's  level
of contribution and cannot exceed the maximum allowable for tax purposes.  Total
contributions  were $6.2 million,  $5.6 million and $4.6 million for 1999,  1998
and 1997, respectively.

(6)  SHORT-TERM BORROWING:

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

                                               1999        1998        1997
                                            ---------    ---------   ---------

Balance at year-end   ..................... $204,000     $206,221    $122,500
Weighted average interest rate
  on year-end balance......................      6.3%         5.9%        5.9%
Average daily amount outstanding
  during the year.......................... $133,792     $104,557    $110,472
Weighted average interest rate on average
  daily amount outstanding during the year.      5.2%         5.6%        5.7%

     MidAmerican  Energy  has  authority  from  the  Federal  Energy  Regulatory
Commission to issue  short-term  debt in the form of  commercial  paper and bank
notes aggregating $400 million. As of December 31, 1999,  MidAmerican Energy had
in place a $250 million  commercial paper program  which is supported by a $250
million  revolving credit  facility.  In addition,  MidAmerican  Energy has a $5
million  line of  credit.  In March  1999,  an $85  million  line of credit  was
terminated.  As of December 31, 1999,  commercial  paper and bank notes  totaled
$204.0 million for MidAmerican Energy.

(7)  RATE MATTERS:

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

                                      -59-
<PAGE>

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

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

     2) Prices for industrial  customers were reduced by $6 million annually and
prices for commercial customers were reduced by $4 million annually. MidAmerican
Energy was given  permission  to  implement  these  reductions  through a retail
access  pilot  project,   negotiated  individual  contracts  and  tariffed  rate
reductions.  On January  1,  1999,  MidAmerican  Energy  reduced  base rates for
selected  non-contract   commercial  customers  by  approximately  $1.5  million
annually,  subject  to Iowa  Utilities  Board  approval.  The  remainder  of the
commercial and industrial  price  reductions  were achieved  through  negotiated
contracts and a retail access pilot project.

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

     3) The Iowa  energy  adjustment  clause was  eliminated.  Prior to July 11,
1997,  MidAmerican  Energy collected fuel costs from Iowa customers on a current
basis  through the energy  adjustment  clause,  and thus,  fuel costs had little
impact on net income. Since then, base rates for Iowa customers include a factor
for recovery of a  representative  level of fuel costs.  If the actual  per-unit
fuel cost varies from that factor,  pre-tax earnings are affected. The fuel cost
factor was to be reviewed in February  1999 and  adjusted  prospectively  if the
actual 1998 fuel cost per unit varied by more than 15% above or below the factor
included in base rates.  Based on 1998  actual  fuel costs,  MidAmerican  Energy
reduced  the fuel cost  recovery  factor in 1999 base rates  effective  March 1,
1999. The estimated annual reduction in revenues associated with this adjustment
is $1.1 million.

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

     Under a restructuring  law enacted in 1997, a similar sharing  mechanism is
in place for Illinois  operations.  Two-year  average  returns on common  equity
greater  than a two-year  average  benchmark  will  trigger an equal  sharing of
earnings  on the excess.  The  benchmark  is a  calculation  of average  30-year
Treasury  Bond rates plus 5.5% for 1998 and 1999 and 8.5% for 2000 through 2004.
The  initial  calculation,  due March 31,  2000,  will be based on 1998 and 1999
results.

                                      -60-
<PAGE>


(8)  CONCENTRATION OF CREDIT RISK:

     MidAmerican Energy's electric utility operations serve 577,000 customers in
Iowa,  83,000  customers in western Illinois and 4,000 customers in southeastern
South  Dakota.   MidAmerican  Energy's  gas  utility  operations  serve  502,000
customers in Iowa,  65,000  customers in western  Illinois,  67,000 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,  1999,  billed
receivables from MidAmerican  Energy's utility  customers totaled $20.6 million.
As described in Note 15,  billed  receivables  related to utility  services have
been sold to a wholly owned unconsolidated subsidiary.

(9)  PREFERRED SHARES:

     The $5.25 Series  Preferred  Shares are subject to mandatory  redemption on
November  1, 2003 at $100 per share.  The $7.80  Series  Preferred  Shares  have
sinking fund requirements under which 66,600 shares will be redeemed at $100 per
share each May 1, beginning in 2001 through May 1, 2006.

     The 7.98% Series  shares were issued by a wholly owned  statutory  business
trust of MidAmerican  Energy whose sole assets are $103.1 million of MidAmerican
Energy 7.98% Series A Debentures due 2045. The preferred  shares are mandatorily
redeemable. Refer to Note (14) for additional information.

     The total outstanding cumulative preferred securities of MidAmerican Energy
not subject to mandatory  redemption  requirements may be redeemed at the option
of MidAmerican  Energy at prices which,  in the aggregate,  total $32.6 million.
The  aggregate  total the holders of all  preferred  securities  outstanding  at
December 31, 1999, are entitled to upon involuntary bankruptcy is $181.8 million
plus  accrued  dividends.   Annual  dividend   requirements  for  all  preferred
securities outstanding at December 31, 1999, total $12.9 million.

(10) SEGMENT INFORMATION:

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

                                      -61-
<PAGE>


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

                                             1999          1998          1997
                                          -----------   -----------   ----------
  SEGMENT PROFIT INFORMATION
  Revenues:
    Electric ...........................  $ 1,178,702   $ 1,169,810   $1,126,300
    Gas ................................      454,802       429,870      536,306
    Nonregulated and other .............      157,532       107,509       65,249
                                          -----------   -----------   ----------
      Total ............................    1,791,036     1,707,189    1,727,855
                                          -----------   -----------   ----------

  Depreciation and amortization expense:
    Electric ...........................      163,270       156,546      145,931
    Gas ................................       27,277        25,665       24,609
                                          -----------   -----------   ----------
      Total ............................      190,547       182,211      170,540
                                          -----------   -----------   ----------

  Interest income:
    Electric ...........................        2,916         4,945        1,820
    Gas ................................          604         1,169          501
    Nonregulated and other .............           --             2           --
    Intersegment eliminations ..........         (480)           --           --
                                          -----------   -----------   ----------
      Total ............................        3,040         6,116        2,321
                                          -----------   -----------   ----------

  Interest expense:
    Electric ...........................       62,394        66,784       71,138
    Gas ................................       13,247        14,011       14,412
    Nonregulated and other .............          480           149           --
    Intersegment eliminations ..........         (480)           --           --
                                          -----------   -----------   ----------
      Total ............................       75,641        80,944       85,550
                                          -----------   -----------   ----------

  Income tax expense:
    Electric ...........................       86,315        75,831       64,017
    Gas ................................        5,205          (800)       9,698
    Nonregulated and other .............       (3,067)        1,011        2,602
                                          -----------   -----------   ----------
      Total ............................       88,453        76,042       76,317
                                          -----------   -----------   ----------

  Earnings on common stock:
    Electric ...........................      120,083       109,539      101,534
    Gas ................................        6,521          (435)      14,177
    Nonregulated and other .............       (4,228)        1,537        3,742
                                          -----------   -----------   ----------
      Total ............................      122,376       110,641      119,453
                                          -----------   -----------   ----------


                                      -62-
<PAGE>


                                             1999          1998         1997
                                          -----------   -----------  ----------
  SEGMENT ASSET INFORMATION
  Total Assets:
      Electric .........................  $ 2,890,586   $ 2,897,657  $2,843,884
      Gas ..............................      684,983       672,072     686,238
      Nonregulated and other ...........       16,988        15,801      12,185
                                          -----------   -----------  ----------
          Total ........................    3,592,557     3,585,530   3,542,307
                                          -----------   -----------  ----------

  Capital expenditures:
      Electric .........................      169,261       158,596     128,544
      Gas ..............................       34,314        34,758      38,388
      Nonregulated and other ...........          540        21,065       5,920
                                          -----------   -----------  ----------
          Total ........................      204,115       214,419     172,852
                                          -----------   -----------  ----------

     "Nonregulated  and other"  consists of  nonregulated  gas, CBEC Railway and
      other nonregulated operations.

     The electric and gas segments  include interest income from an intersegment
loan of $389,000  and  $91,000,  respectively,  and the  nonregulated  and other
segment includes  interest expense of $480,000 related to the intersegment  loan
and have been eliminated from consolidated  interest income and interest expense
in 1999.

(11) FAIR VALUE OF FINANCIAL INSTRUMENTS:

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

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

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

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

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

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


                                      -63-
<PAGE>


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

                                                                 1999                 1998
                                                         -------------------   ------------------
                                                         Carrying     Fair     Carrying    Fair
                                                           Amount    Value      Amount     Value
                                                         --------   --------   --------   -------

<S>                                                      <C>        <C>        <C>        <C>
Financial Instruments Issued by MidAmerican Energy:
  MidAmerican Energy preferred securities; subject
    to mandatory redemption.........................     $ 50,000   $ 52,025   $ 50,000   $ 53,317
  MidAmerican Energy-obligated preferred securities;
    subject to mandatory redemption.................      100,000     87,240    100,000    102,500
  Long-term debt, including current portion.........      870,499    853,015    930,966    968,308
</TABLE>

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

                                                       1999
                                    -------------------------------------------
                                    Amortized  Unrealized  Unrealized    Fair
                                      Cost       Gains       Losses     Value
                                    ---------  ----------  ----------  --------
  Available-for-sale:
    Equity Securities ...........   $ 47,921   $ 30,343    $  (1,063)   $ 77,201
    Municipal Bonds .............     30,913        868         (355)     31,426
    U.S. Government Securities ..     14,159         78         (123)     14,114
    Corporate Securities ........     15,423          5         (492)     14,936
    Cash equivalents ............      3,969         --           --       3,969
                                    --------   --------    ---------    --------
                                    $112,385   $ 31,294    $  (2,033)   $141,646
                                    ========   ========    =========    ========


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


                                      -64-
<PAGE>


     At December 31, 1999, the debt securities,  which include  municipal bonds,
U.S.  Government  securities and corporate  securities,  held in the Quad Cities
Station  nuclear  decommissioning  trust fund had the following  maturities  (in
thousands):

                                Available for Sale
                            --------------------------
                            Amortized           Fair
                              Cost              Value
                            ---------          -------
  Within 1 year ..........   $ 4,499           $ 4,507
  1 through 5 years ......    31,222            31,580
  5 through 10 years .....     6,754             6,907
  Over 10 years ..........    18,020            17,482

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

                                         1999           1998           1997
                                       --------       --------       --------

  Proceeds from sales ...........      $ 24,684       $ 29,380       $ 30,801
  Gross realized gains ..........           615          1,073            713
  Gross realized losses .........        (2,704)        (2,690)          (659)

(12)  INCOME TAX EXPENSE:

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

                                            1999         1998         1997
                                          ---------    ---------    ---------
  Current

      Federal .........................   $  95,967    $  69,266    $  83,466
      State ...........................      29,553       25,154       25,495
                                          ---------    ---------    ---------
                                            125,520       94,420      108,961
                                          ---------    ---------    ---------
  Deferred

      Federal .........................     (25,657)      (8,666)     (23,143)
      State ...........................      (5,746)      (4,007)      (3,786)
                                          ---------    ---------    ---------
                                            (31,403)     (12,673)     (26,929)

  Investment tax credit, net ..........      (5,664)      (5,705)      (5,715)
                                          ---------    ---------    ---------
  Total income tax expense ............   $  88,453    $  76,042    $  76,317
                                          =========    =========    =========

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

                                                          1999       1998
                                                        --------   --------
  Deferred tax assets related to:
    Investment tax credits ...........................  $ 48,427   $ 52,139
    Pensions .........................................    14,595     15,677
    Nuclear reserves and decommissioning .............    20,280     17,715
                                                        --------   --------
      Total .........................................   $ 83,302   $ 85,531
                                                        ========   ========

                                      -65-
<PAGE>

  Deferred tax liabilities related to:
    Depreciable property .............................  $424,306   $419,265
    Income taxes recoverable through future rates ....   187,379    198,364
    Energy efficiency ................................    14,806     27,186
    Reacquired debt ..................................    13,117     16,385
    Other ............................................     4,694      9,006
                                                        --------   --------
      Total ..........................................  $644,302   $670,206
                                                        ========   ========

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

                                                      1999    1998    1997
                                                      ----    ----    ----

      Effective federal and state income tax rate..    40%     38%     36%
      Amortization of investment tax credit........     3       3       3
      State income tax, net of federal income......
          tax benefit..............................    (7)     (7)     (7)
      Other........................................    (1)      1       3
                                                      ---     ---     ---
      Statutory federal income tax rate............    35%     35%    35%
                                                      ===     ===     ===

(13) INVENTORIES:

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

                                                      1999       1998
                                                    -------    -------

     Materials and supplies, at average cost .....  $30,195    $30,914
     Coal stocks, at average cost ................   26,712     22,266
     Gas in storage, at LIFO cost ................   21,449     37,306
     Fuel oil, at average cost ...................    1,156      1,294
     Other .......................................    1,137        965
                                                    -------    -------
       Total .....................................  $80,649    $92,745
                                                    =======    =======

     At December 31, 1999  prices,  the current cost of gas in storage was $33.8
million.

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

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

                                      -66-
<PAGE>

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

(15)  SALE OF ACCOUNTS RECEIVABLE:

     In 1997  MidAmerican  Energy  entered  into a  revolving  agreement,  which
expires in 2002, to sell all of its right, title and interest in the majority of
its billed  accounts  receivable to MidAmerican  Energy Funding  Corporation,  a
special  purpose  entity  established  to  purchase  accounts   receivable  from
MidAmerican  Energy .  MidAmerican  Energy  Funding  Corporation  in turn  sells
receivable  interests  to  outside  investors.  In  consideration  of the  sale,
MidAmerican Energy received $70 million in cash and the remaining balance in the
form of a subordinated note from MidAmerican Energy Funding Corporation. In 1999
the  revolving  balance  was reduced to $57 million due to a decline in accounts
receivable  available for sale. The agreement is structured as a true sale under
which the creditors of MidAmerican  Energy Funding  Corporation will be entitled
to be satisfied  out of the assets of  MidAmerican  Energy  Funding  Corporation
prior to any value being  returned to MidAmerican  Energy or its  creditors.  At
December 31, 1999, $107.5 million of accounts receivable,  net of reserves,  was
sold under the agreement.

(16)  AFFILIATED COMPANY TRANSACTIONS:

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

     MHC  incurred   charges  which  are  of  general  benefit  to  all  of  its
subsidiaries.  These  costs were for  administrative  and general  salaries  and
expenses, outside services,  director fees, pension, deferred compensation,  and
retirement costs, some of which originated at MidAmerican Energy. MHC reimbursed
MidAmerican  Energy for charges  originating at MidAmerican Energy in the amount
of $7.7 million,  $12.2 million and $4.1 million for 1999,  and 1998,  and 1997,
respectively. MidAmerican Energy's allocated share of such costs and those which
originated  at MHC was $7.7  million,  $15.3 million and $13.8 million for 1999,
and 1998, and 1997, respectively.

     MidAmerican  Energy was also  reimbursed for charges  incurred on behalf of
its affiliates. The majority of these reimbursed expenses was for employee wages
and benefits, insurance, building rent, computer costs, administrative services,
travel expense,  and general and  administrative  expense;  including  treasury,
legal,  shareholder  relations  and  accounting  functions.  The  amount of such
expenses was $11.7 million,  $3.2 million,  and $6.6 million for 1999,  1998 and
1997, respectively.

     MidAmerican  Energy  purchased  a  corporate  jet from  MidAmerican  Energy
Holdings  for  $14.5  million  in  1999.   MidAmerican  Energy  also  reimbursed
MidAmerican  Energy  Holdings  in the  amount  of $5.0  million  in 1999 for its
allocated share of insurance premiums.

     MidAmerican   Energy   leases  unit  trains  from  an  affiliate   for  the
transportation of coal to MidAmerican Energy's generating  stations.  Unit train
costs, including maintenance,  were approximately


                                      -67-
<PAGE>


$1.0  million,   $2.1  million  and  $2.8  million  for  1999,  1998  and  1997,
respectively.  MidAmerican  Energy purchased railcars from MidAmerican Rail Inc.
in the amount of $1.4 million in 1999.

     MidAmerican   Energy  purchased  natural  gas  from  AmGas,  an  affiliate.
MidAmerican Energy's cost of gas related to these transactions was $4.0 million,
$2.2 million and $0.5 million for 1999, 1998 and 1997, respectively. MidAmerican
Energy also sold  natural gas to AmGas in the amount of $42.3  million and $24.8
million for 1999 and 1998, respectively.

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

     MidAmerican Energy had accounts  receivable from affiliates of $8.9 million
and $1.7  million  as of  December  31,  1999 and  1998,  respectively,  and are
included in Receivables on the Consolidated  Balance Sheets.  MidAmerican Energy
also had accounts  payable to affiliates of $12.9 million and $2.0 million as of
December 31, 1999 and 1998,  respectively,  and are included in Accounts Payable
on the Balance Sheets.

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

                                                          1999
                                     --------------------------------------------------
                                     1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
                                     -----------  -----------  -----------  -----------
                                                      (In thousands)

<S>                                    <C>          <C>         <C>          <C>
  Operating revenues ..............    $468,248     $378,341    $458,395     $486,052
  Operating income ................      69,350       55,904     116,843       57,967
  Income from continuing operations      26,184       20,352      58,995       21,800
  Earnings on common stock ........      24,945       19,114      57,756       20,561

</TABLE>

<TABLE>
<CAPTION>
                                                            1998
                                     ---------------------------------------------------
                                     1st Quarter   2nd Quarter  3rd Quarter  4th Quarter
                                     -----------   -----------  -----------  -----------
                                                        (In thousands)

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

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


                                      -68-
<PAGE>

(18)  OTHER INFORMATION:

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

                                               1999       1998        1997
                                              -------    -------    -------

  Discount on sold receivables ............   $(9,457)   $(8,716)   $ (439)
  Subservicer fee from Funding Corp. ......     1,515      1,714       153
  Gain on sale of rail cars ...............     5,357         --        --
  Energy efficiency carrying charges ......        12        197     4,993
  Loss on reacquisition of long-term debt .        --         --      (923)
  Nebraska Public Power District settlement        --         --     2,248
  Merger investigation costs ..............    (1,491)        --        --
  Other ...................................       365        328       115
                                              -------    -------    ------
    Total (expense) income ................   $(3,699)   $(6,477)   $6,147
                                              =======    =======    ======



                                      -69-
<PAGE>


INDEPENDENT AUDITORS' REPORT


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

We have audited the  accompanying  consolidated  balance sheet and  consolidated
statement of  capitalization  of  MidAmerican  Energy  Company and  subsidiaries
(Company) as of December 31, 1999,  and the related  consolidated  statements of
income,  retained  earnings,  and cash flows for the year then ended.  Our audit
also included the financial  statement  schedule listed in the Index at Item 14.
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 audit.  The financial  statements  and financial  statement  schedule of the
Company as of December 31, 1998 and for the two years then ended were audited by
other auditors whose report, dated January 22, 1999, except with respect to Note
(1)(a), as to which the date is March 12, 1999, expressed an unqualified opinion
on those financial statements and financial statement schedule.

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

In our opinion,  such 1999 consolidated  financial statements present fairly, in
all material respects,  the financial position of MidAmerican Energy Company and
subsidiaries  as of December 31, 1999,  and the results of their  operations and
their cash flows for the year then ended in conformity  with generally  accepted
accounting  principles.  Also,  in our opinion,  such 1999  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.

Des Moines, Iowa                                   DELOITTE & TOUCHE LLP
January 25, 2000



                                      -70-
<PAGE>

                                                                    SCHEDULE II

                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 1999
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

   Column A                                Column B   Column C    Column D    Column E
                                          Balance at  Additions               Balance
                                          Beginning    Charged                at End
Description                                 of Year   to Income  Deductions  of Year
-----------                               ----------  ---------  ----------  --------

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

  Reserve for uncollectible accounts:

    Year ended 1999 .................       $   --     $6,581     $(6,581)   $   --
                                            ======     ======     =======    ======

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

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


Reserves Not Deducted From Assets (1):

    Year ended 1999 .................       $4,688     $4,906     $(1,543)   $8,051
                                            ======     ======     =======    ======

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

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

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


                                      -71-
<PAGE>



                                   SIGNATURES

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

                                           MIDAMERICAN ENERGY COMPANY
                                           --------------------------
                                                    Registrant


Date: March 24, 2000                       By  /s/  Gregory E. Abel
                                             -----------------------------
                                                   (Gregory E. Abel)
                                                    Chief Executive Officer

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

         Signature                        Title                        Date
         ---------                        -----                        ----

                              *      Chairman                     March 24, 2000
-------------------------------
    (David L. Sokol)



/s/  Gregory E. Abel
-------------------------------      Chief Executive Officer      March 24, 2000
    (Gregory E. Abel)                  and Director



/s/  Patrick J. Goodman
-------------------------------      Senior Vice President and    March 24, 2000
    (Patrick J. Goodman)               Chief Financial Officer



/s/  John A. Rasmussen               Director                     March 24, 2000
-------------------------------
    (John A. Rasmussen)



/s/  Ronald W. Stepien               Director                     March 24, 2000
-------------------------------
    (Ronald W. Stepien)



/s/  Steven A. McArthur              Director                     March 24, 2000
-------------------------------
    (Steven A. McArthur)



*By:  /s/   Steven A. McArthur       Attorney-in-Fact             March 24, 2000
   ----------------------------
           (Steven A. McArthur)



                                      -72-
<PAGE>


                                  EXHIBIT INDEX

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

10.16  Iowa Utilities Board Settlement Agreement

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

23     Consent of Deloitte & Touche LLP

27     Financial Data Schedules (electronic filing only)

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

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.)

4.1    General Mortgage Indenture and Deed of Trust dated as of January 1, 1993,
       between Midwest Power Systems Inc. and Morgan Guaranty Trust Company of
       New York, Trustee.  (Filed as Exhibit 4(b)-1 to Midwest Resources Inc.'s
       Annual Report on Form 10-K for the year ended December 31, 1992,
       Commission File No. 1-10654.)

4.2    First Supplemental Indenture dated as of January 1, 1993, between Midwest
       Power Systems Inc. and Morgan Guaranty Trust Company of New York,
       Trustee.  (Filed as Exhibit 4(b)-2 to Midwest Resources' Annual Report on
       Form 10-K for the year ended December 31, 1992, Commission File
       No. 1-10654.)

4.3    Second Supplemental Indenture dated as of January 15, 1993, between
       Midwest Power Systems Inc. and Morgan Guaranty Trust Company of New York,
       Trustee.  (Filed as Exhibit 4(b)-3 to Midwest Resources' Annual Report on
       Form 10-K for the year ended December 31, 1992, Commission File No.
       1-10654.)

4.4    Third Supplemental Indenture dated as of May 1, 1993, between Midwest
       Power Systems Inc. and Morgan Guaranty Trust Company of New York,
       Trustee.  (Filed as Exhibit 4.4 to Midwest Resources' Annual Report on
       Form 10-K for the year ended December 31, 1993, Commission File No.
       1-10654.)

4.5    Fourth Supplemental Indenture dated as of October 1, 1994, between
       Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee.
       (Filed as Exhibit 4.5 to Midwest Resources' Annual Report on Form 10-K
       for the year ended December 31, 1994, Commission File No. 1-10654.)

4.6    Fifth Supplemental Indenture dated as of November 1, 1994, between
       Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee.
       (Filed as Exhibit 4.6 to Midwest  Resources'


                                      -73-
<PAGE>


       Annual Report on Form 10-K for the year ended December 31, 1994,
       Commission File No. 1-10654.)

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

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

4.9    Twentieth Supplemental Indenture dated as of May 1, 1982.  (Filed as
       Exhibit 4.B.23 to Iowa-Illinois' Quarterly Report on Form 10-Q for the
       period ended June 30, 1982, Commission File No. 1-3573.)

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

4.11   Twenty-Eighth Supplemental Indenture dated as of May 15, 1992.  (Filed as
       Exhibit 4.31.B to Iowa-Illinois' Current Report on Form 8-K dated May 21,
       1992, Commission File No. 1-3573.)

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

4.13   Thirtieth Supplemental Indenture dated as of October 1, 1993.  (Filed as
       Exhibit 4.34.A to Iowa-Illinois' Current Report on Form 8-K dated
       October 7, 1993, Commission File No. 1-3573.)

4.14   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.)

4.15   Thirty-First Supplemental Indenture dated as of July 1, 1995, between
       Iowa-Illinois Gas and Electric Company and Harris Trust and Savings Bank,
       Trustee.  (Filed as Exhibit 4.16 to MidAmerican Energy's Annual Report on
       Form 10-K dated December 31, 1995, Commission File No. 1-11505.)

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

10.2   MidAmerican Energy Company 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.)

10.3   MidAmerican Energy Company Combined Midwest Resources/Iowa Resources
       Restated Deferred Compensation Plan for 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.)

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


                                      -74-
<PAGE>

10.5   Midwest Resources Inc. Supplemental Retirement Plan (formerly the Midwest
       Energy Company Supplemental Retirement Plan).  (Filed as Exhibit 10.10 to
       Midwest Resources' Annual Report on Form 10-K for the year ended December
       31, 1993, Commission File No. 1-10654.)

10.6   Power Sales Contract between Iowa Power Inc. and Nebraska Public Power
       District, dated September 22, 1967.  (Filed as Exhibit 4-C-2 to Iowa
       Power Inc.'s (IPR) Registration Statement, Registration No. 2-27681.)

10.7   Amendments Nos. 1 and 2 to Power Sales Contract between Iowa Power Inc.
       and Nebraska Public Power District.  (Filed as Exhibit 4-C-2a to IPR's
       Registration Statement, Registration No. 2-35624.)

10.8   Amendment No. 3 dated August 31, 1970, to the Power Sales Contract
       between Iowa Power Inc. and Nebraska Public Power District, dated
       September 22, 1967.  (Filed as Exhibit 5-C-2-b to IPR's Registration
       Statement, Registration No. 2-42191.)

10.9   Amendment No. 4 dated March 28, 1974, to the Power Sales Contract between
       Iowa Power Inc. and Nebraska Public Power District, dated September 22,
       1967.  (Filed as Exhibit 5-C-2-c to IPR's Registration Statement,
       Registration No. 2-51540.)

10.10  Supplemental Retirement Plan for Principal Officers, as amended as of
       July 1, 1993.  (Filed as Exhibit 10.K.2 to Iowa-Illinois' Annual Report
       on Form 10-K for the year ended December 31, 1993, Commission File
       No. 1-3573.)

10.11  Compensation Deferral Plan for Principal Officers, as amended as of
       July 1, 1993.  (Filed as Exhibit 10.K.2 to Iowa-Illinois' Annual Report
       on Form 10-K for the year ended December 31, 1993, Commission File
       No. 1-3573.)

10.12  Board of Directors' Compensation Deferral Plan.  (Filed as Exhibit
       10.K.4 to Iowa-Illinois' Annual Report on Form 10-K for the year ended
       December 31, 1992, Commission File No. 1-3573.)

10.13  Amendment No. 1 to the Midwest Resources Inc. Supplemental Retirement
       Plan.  (Filed as Exhibit 10.24 to Midwest Resources' Annual Report on
       Form 10-K for the year ended December 31, 1994, Commission File No.
       1-10654.)

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

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

Note:  Pursuant to (b) (4) (iii)(A) of Item 601 of Regulation S-K, the Company
       has not filed as an exhibit to this Form 10-K certain  instruments with
       respect to long-term  debt not  registered in which the total amount of
       securities authorized thereunder does not exceed 10% of total assets of
       the Company,  but hereby agrees to furnish to the Commission on request
       any such instruments.


                                      -75-