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, 2000
                                             -----------------

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
February 20, 2001,  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

                         2000 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 ................................................................ 75
Exhibit Index.............................................................. 76

                                      -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, whose sole member is
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  Holdings,
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  retail  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.

                                      -4-

<PAGE>


     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,  provides customer service
and conducts related activities. Retail includes marketing and related functions
for core and complementary products and services.

(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  2000  revenues   totaling  $3.8  billion  and  $2.3  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,  2000,  MidAmerican  Energy had  669,000  retail
electric customers and 646,500 retail natural gas customers.

     In addition to retail sales,  MidAmerican  Energy sells electric energy and
natural  gas  to  other  utilities,  marketers  and  municipalities  outside  of
MidAmerican  Energy's delivery system.  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 4% of its total 2000 electric  operating  revenues or 2%
of its total 2000 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,  2000,   MidAmerican   Energy  derived
approximately  52% of its gross operating  revenues from its regulated  electric
business,  28% from its  regulated  gas business  and 20% from its  nonregulated
business activities.  For 1999 and 1998, the corresponding  percentages were 66%
electric, 25% gas and 9% nonregulated; and 69% electric, 25% gas and 6%

                                      -5-
<PAGE>

nonregulated,  respectively. The change in revenue mix for 2000 was driven by an
increase in natural gas prices and in nonregulated natural gas sales activity.

     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

                                      2000         1999          1998
                                      ----         ----          ----
Residential                           20.7%        21.0%        22.2%
Small General Service                 15.9         16.7         17.5
Large General Service                 28.6         26.9         28.1
Other                                  5.4          4.5          4.4
Sales for Resale                      29.4         30.9         27.8
                                    ------       ------       ------

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

                                           Retail Electric Sales
                                                 By State

                                      2000         1999          1998
                                      ----         ----          ----
Iowa                                  89.3%        88.9%        88.4%
Illinois                              10.0         10.4         10.9
South Dakota                           0.7          0.7          0.7
                                     -----        -----        -----

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

     Refer to  Nonregulated  Operations  for a discussion  of electric  supplier
choice in Illinois.

     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

                                      2000         1999          1998
                                      ----         ----          ----
Residential                           64.0%        63.5%        62.0%
Small General Service                 31.8         32.2         33.2
Large General Service                  4.0          4.0          3.8
Other                                  0.2          0.3          1.0
                                     -----        -----        -----

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

                                      -6-
<PAGE>



                                             Retail Gas Sales
                                                 By State

                                      2000         1999          1998
                                      ----         ----          ----
Iowa                                  78.0%        78.8%        79.0%
Illinois                              10.2         10.3         10.2
South Dakota                          11.0         10.1         10.1
Nebraska                               0.8          0.8          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 2000, 38% of MidAmerican Energy's electric revenues
were  reported in the months of June,  July,  August and  September,  and 56% of
MidAmerican  Energy's  gas  revenues  were  reported  in the months of  January,
February, March and December.

     At December 31, 2000,  MidAmerican Energy had 3,720 full-time  employees of
which  1,740  were  covered  by union  contracts.  MidAmerican  Energy  has five
separate  contracts with locals of the  International  Brotherhood of Electrical
Workers  (IBEW),  the United  Association  of Plumbers and  Pipefitters  and the
United Paper Workers  International Union. One contract with IBEW locals 109 and
499 expires February 29, 2004, and covers 1,664 employee members.

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 September 2000,  MidAmerican Energy recorded an hourly peak demand of
3,648 MW, which was 185 MW less than MidAmerican  Energy's record hourly peak of
3,833 MW set in July 1999.

     MidAmerican Energy's accredited net generating  capability in the summer of
2000 was 4,507 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 2000.

     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 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

                                      -7-
<PAGE>


below the 15% minimum,  significant  penalties could be contractually imposed by
the Power Pool.  MidAmerican Energy's reserve margin at peak demand for 2000 was
approximately 25%.

     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.  MidAmerican Energy
believes   its   interconnections   and  central   location   provide   numerous
opportunities to serve other markets. Refer to Item 2, Properties, for detail of
transmission lines.

     The Federal  Energy  Regulatory  Commission  in its Order No. 2000 requires
transmission   owners,   like  MidAmerican   Energy,   to  transfer  control  of
transmission operations to a regional transmission organization.  On October 16,
2000, MidAmerican Energy filed with FERC a plan for MidAmerican Energy to comply
with  Order  No.  2000  by  participating  in  the  formation  of  a  for-profit
independent transmission company.  MidAmerican Energy continues in its effort to
form such a company.

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,
                                      2000         1999          1998
                                      -----        -----         -----

         Coal                         75.9%        70.9%        79.2%
         Nuclear*                     23.6         28.2         19.5
         Gas                           0.3          0.7          1.1
         Oil/Hydro                     0.2          0.2          0.2
                                     -----        -----        -----
             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  relating to retail  sales from 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 current acid rain  provisions of the Clean Air Act Amendments of
1990 without having to install  additional costly emissions control equipment at
its generating  stations or purchase additional  emissions credits.  MidAmerican
Energy's  coal supply  portfolio  includes  multiple  suppliers  and mines under
agreements  of  varying  term  and  quantity  flexibility.   MidAmerican  Energy
regularly monitors the 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.

                                      -8-
<PAGE>


     MidAmerican  Energy  can use 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 either Union  Pacific or Burlington  Northern.  Coal for
MidAmerican  Energy's  Louisa and  Riverside  Energy  Centers is delivered to an
interchange   point  by  either   Burlington   Northern  or  Union  Pacific  for
transportation  to its  destination  by the I&M Rail  Link.  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 Generating  Station,
a nuclear power plant. Exelon Generation Company, LLC, the other joint owner and
the  operator of Quad Cities  Station,  is a subsidiary  of Exelon  Corporation.
Exelon is the result of a merger in October 2000 of Unicom  Corporation and PECO
Energy  Company.  Commonwealth  Edison,  a subsidiary of Unicom,  was the former
operator and joint owner of Quad Cities Station.

     Approximately  one-third  of the  nuclear  fuel in the core at Quad  Cities
Station Units 1 and 2 is replaced  every 24 months.  Units 1 and 2 had refueling
outages in October and January 2000, respectively.

     MidAmerican  Energy has been advised by Exelon Generation 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.  Exelon
Generation  foresees no problem in obtaining the remaining  requirements  now or
obtaining  future  requirements.  Exelon  Generation  further  advises  that all
enrichment  requirements have been contracted through 2004. Commitments for fuel
fabrication have been obtained at least through 2006. Exelon Generation 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  25% of the fuel in the core at  Cooper  must be
replaced every 18 months.  A refueling  outage occurred 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.
Exelon Generation 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.  Exelon Generation 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  requirements  at Quad Cities  Station  beyond  such time could  require
modifications  to the  spent

                                      -9-
<PAGE>


fuel  storage  pools or new and  separate  storage  facilities.  For Quad Cities
Station,  Exelon  Generation 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  2000,
approximately  44% 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 and
South Dakota Public Utility Commission  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 gave initial
approval of MidAmerican Energy's Incentive Gas Supply Procurement Program, which
currently is extended  through 2002.  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.  A similar program is in
effect in South Dakota.  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.

     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  2000/2001  winter  heating  season

                                      -10-
<PAGE>


peak-day  delivery of 1,037,287  MMBtus was reached on December  21, 2000.  This
peak-day delivery  included  approximately 76% traditional sales service and 24%
transportation service.

     The supply  sources  utilized by  MidAmerican  Energy to meet its 2000/2001
peak-day deliveries to its traditional sales service customers were:

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

     Leased Storage and Peak Shaving Plants       217.6         27.6%
     Firm Supply                                  569.5         72.4
                                                  -----        -----
     Total                                        787.1        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 to serve those  communities,  thus reducing  costs.  In
addition, multiple pipeline interconnects give MidAmerican Energy the ability to
optimize  delivery of the lowest cost  supply from the various  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  commercial
end-users and sells these customers gas to meet their supply requirements. Sales
volumes for these nonregulated gas marketing services totaled 90 million MMBtus,
58 million MMBtus and 39 million MMBtus for 2000, 1999 and 1998, respectively.

     MidAmerican Energy's nonregulated revenues reflect revenues from its market
access  service  project,  which began in the third  quarter of 1999.  The pilot
project allows larger Iowa customers  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.

     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 were
allowed supplier choice starting  December 31, 2000.  Residential  customers all

                                      -11-
<PAGE>

receive the opportunity to select their electric supplier beginning May 1, 2002.
MidAmerican  Energy's  nonregulated  revenues  include  agency  fees  and  other
revenues related to these supply services.

     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.

     Historical nonregulated revenues for MidAmerican Energy are shown below (in
millions):

                                            2000         1999         1998
                                            ----         ----         ----

     Nonregulated wholesale gas             $337         $135         $ 89
     Nonregulated retail gas                  71            1            1
     Nonregulated retail electric             21           11            -
     Other                                    20           11           18
                                            ----         ----         ----
                                            $449         $158         $108
                                            ====         ====         ====

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,  electricity  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,  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,  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.

                                      -12-
<PAGE>

     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 law to restructure  Illinois' electric
utility  industry.  The law changes how and what electric services are regulated
by the Illinois Commerce Commission and transitions  portions of the traditional
electric services to a competitive  environment.  In general, the law limits the
Illinois Commerce 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. Exelon  Generation 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.

                                      -13-
<PAGE>

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.  Exelon
Generation and Nebraska  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.  Exelon
Generation  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.

     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, and
every two years thereafter,  providing "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 to 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 to which  MidAmerican
Energy has made  contributions.  Electric  tariffs  currently in effect  include
provisions for annualized collection of estimated  decommissioning costs at Quad
Cities Station and Cooper. In Illinois, Cooper nuclear decommissioning costs are
included  in  customer   billings   through  a  mechanism  that  permits  annual
adjustments.  In Iowa, Quad Cities Station and Cooper  decommissioning costs are
reflected in base rates.  MidAmerican  Energy's cost related to  decommissioning
funding in 2000 was $19.8  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

                                      -14-
<PAGE>

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.

     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 Clean Air Act Amendments of 1990.  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 Note (4)(c) in Notes to Consolidated  Financial Statements 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.

     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,  2000,  was $24  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

                                      -15-
<PAGE>

equipment  are being  purchased  with a non-PCB  dielectric  fluid.  MidAmerican
Energy's  exposure  to PCB  liability  has  been  reduced  through  the  orderly
replacement  of a  number  of  such  electrical  devices  with  similar  non-PCB
electrical devices.

     Other -

     A number of studies have examined the possibility of adverse health effects
from  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 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.

     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 Clean 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 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. In December  2000,  the EPA concluded that it is appropriate
and necessary to regulate mercury emissions from coal-fired generating units. It
is anticipated  that rules will be developed to regulate these emissions in 2003
to 2004. 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
participation purchases and sales, net are shown for summer 2000 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         261
       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
                                                                    -----
                                                                    2,855
                                                                    -----
     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      379
       Quad Cities Station
         Unit No. 1                               25.0   Nuclear      190
         Unit No. 2                               25.0   Nuclear      193
                                                                    -----
                                                                      762
                                                                    -----
     Hydro:
       Moline - 4 units                          100.0   Water          3

     Portable Power Modules - 28 units           100.0   Oil           56
                                                                    -----

     Net Accredited Generating Capacity                             4,465

     Participation Purchases and Sales, Net                            42
                                                                    -----
     Total Net Accredited Generating Capability                     4,507
                                                                    =====


     (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,
2000, included 897 miles of 345-kV lines and 1,110 miles of 161-kV lines.

     The gas distribution facilities of MidAmerican Energy at December 31, 2000,
included 20,259 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;

     (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;

                                      -18-

<PAGE>

     (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  appealed  the  court's  summary  judgment  ruling.  On
December 12,  2000,  the United  States Court of Appeals for the Eighth  Circuit
reversed the ruling of the district court and granted summary  judgment in favor
of  MidAmerican  Energy  issues  one and  five in the  second  paragraph  above.
Additionally,   it  remanded  the  case  for  trial  on  all  other  claims  and
counterclaims.  It is not likely that a trial will occur prior to late spring or
early summer of 2001.

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.

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

     None.



                                      -20-

<PAGE>


                                    PART III

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

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

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


     David L. Sokol       44   Chairman and Director         1999         1999

     Gregory E. Abel      38   Chief Executive Officer
                                   and Director              1999         1999

     Ronald W. Stepien    54   President and Director        1999         1996

     Jack L. Alexander    53   Senior Vice President         1998

     Patrick J. Goodman   34   Senior Vice President,
                                 Chief Financial Officer
                                 and Director                1999         1999

     Keith D. Hartje      51   Senior Vice President         1999

     Steven A. McArthur   43   Senior Vice President
                                  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.

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

                                      -21-
<PAGE>

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 and Director since
1996. Mr. Stepien served as Executive Vice President of MidAmerican  Energy from
November 1, 1996,  to October 31, 1998,  and Group Vice  President  from 1995 to
November  1,  1996.   Formerly,   Mr.   Stepien  served  as  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. Mr.
Alexander served as Vice President of MidAmerican  Energy from November 1, 1996,
to October 31, 1998, and held various  executive and  management  positions with
MidAmerican Energy and its predecessors 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 in various accounting positions including Senior Vice President
and Chief Accounting Officer.  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. Mr. Hartje
served as Vice  President of  MidAmerican  Energy from March 1996 to March 1999,
and held various executive and management  positions with MidAmerican Energy and
its predecessors for more than five years prior thereto.

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.

                                      -22-

<PAGE>


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 Years Ended December 31, 2000, 1999 and 1998........    43
       Consolidated Statements of Comprehensive Income
          For the Years Ended December 31, 2000, 1999 and 1998........    44
       Consolidated Balance Sheets
          As of December 31, 2000 and 1999 ...........................    45
       Consolidated Statements of Cash Flows
          For the Years Ended December 31, 2000, 1999 and 1998........    46
       Consolidated Statements of Capitalization
          As of December 31, 2000 and 1999 ...........................    47
       Consolidated Statements of Retained Earnings
          For the Years Ended December 31, 2000, 1999 and 1998........    48
       Notes to Consolidated Financial Statements.....................    49
       Independent Auditors' Report...................................    73


(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) .........................    74

     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 76.

(B)  REPORTS ON FORM 8-K

     None.

                                      -24-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                      SELECTED CONSOLIDATED FINANCIAL DATA
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                       DECEMBER 31
                                           -------------------------------------------------------------------
                                              2000          1999          1998          1997          1996
                                           ----------    ----------    ----------    ----------    -----------

<S>                                        <C>           <C>           <C>           <C>           <C>
INCOME STATEMENT DATA:
Revenues ..............................    $2,318,189    $1,791,036    $1,707,189    $1,727,855    $1,674,353
Operating income ......................       338,756       300,064       280,920       287,309       366,174
Net income from continuing operations .       165,456       127,331       115,593       125,941       165,132
Earnings on common from
  continuing operations ...............       160,501       122,376       110,641       119,453       154,731

BALANCE SHEET DATA:
Total assets ..........................    $3,823,566    $3,609,591    $3,585,530    $3,542,307    $3,774,653
Long-term debt (a) ....................       921,682       870,499       930,966     1,044,663     1,136,515
Power purchase obligation (a) .........        52,282        68,049        83,127        97,504       111,222
Short-term borrowings .................        81,600       204,000       206,221       122,500       161,700
Preferred stock:
  Not subject to mandatory redemption          31,759        31,759        31,759        31,763        31,769
  Subject to mandatory redemption (b)         150,000       150,000       150,000       150,000       150,000
Common shareholder's equity ...........     1,161,968     1,057,855       972,278       985,744       986,825

</TABLE>

    (a) Includes amounts due within one year.
    (b) Includes MidAmerican  Energy-obligated  mandatorily redeemable preferred
        securities of subsidiary trust holding solely  MidAmerican Energy junior
        subordinated debentures.


                                      -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.  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, whose sole member is
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
                              ---------------------

     Following  is a discussion  of the various  factors  affecting  MidAmerican
Energy's results of operations.


                                      -26-

<PAGE>


REGULATED GROSS MARGIN

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

                                            2000        1999        1998
                                           ------      ------      ------
                                                    (In millions)
     Operating revenues                    $1,212      $1,179      $1,170
     Cost of fuel, energy and capacity        249         223         228
                                           ------      ------      ------
         Electric gross margin             $  963      $  956      $  942
                                           ======      ======      ======

     2000 vs. 1999 -

     Electric gross margin for 2000,  increased $7 million  compared to 1999 due
principally to an improvement in off-system sales margins.

     MidAmerican  Energy's  margins on off-system  sales increased $13.4 million
compared to 1999.  An  increase  in the  average  margin per unit sold more than
offset a 3.2% decrease in sales volumes  compared to 1999.  Off-system sales are
the delivery of energy to other utilities,  municipalities and marketers outside
of MidAmerican Energy's delivery system.

     The impact of temperatures increased electric gross margin approximately $5
million compared to 1999. Although  temperatures during the first nine months of
2000 were more moderate than the comparable period in 1999,  temperatures during
fourth quarter of 2000 were significantly colder than temperatures in the fourth
quarter of 1999,  resulting in the overall  positive effect on electric  margin.
Other usage factors not dependent on weather  increased  electric margin by $3.5
million compared to 1999. In total,  retail sales of electricity  increased 4.2%
in 2000.

     Revenues from electric transmission services increased $1.3 million in 2000
compared to 1999 due to additional revenues from Mid-Continent Area Power Pool.

     A refund accrual for a revenue sharing arrangement in Iowa was $5.2 million
greater in 2000 than in 1999,  resulting  in a decrease in electric  margin.  An
increase in the cost of energy per unit sold  reduced  electric  gross margin by
$6.2 million compared to 1999.

     Electric  revenues  from the recovery of energy  efficiency  program  costs
decreased  $2.3  million  compared  to  1999.  Changes  in  these  revenues  are
substantially  matched with corresponding  changes 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.
The decrease in 2000 of the recovery of energy  efficiency  program costs is due
to completion in 1999 of two of the recovery phases.  One phase remains and will
be completed in 2001.  Approximately $34.8 million of MidAmerican  Energy's 2000
electric  revenues  were from the recovery of energy  efficiency  program  costs
compared  to $37.1  million  in  1999.  Refer to the  discussion  under  "Energy
Efficiency" in the "Operating  Activities And Other Matters" section of MD&A for
further discussion of energy efficiency cost recovery.

     Additionally,  electric revenues from recovery mechanisms related to Cooper
Nuclear Station costs,  decommissioning  costs and  manufactured gas plant costs
decreased  $2.1 million  compared to 1999. The

                                      -27-
<PAGE>

decreases relate  principally to corresponding  decreases in costs for which the
recovery mechanisms were established.

     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.  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.  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.  Collection of deferred energy efficiency costs decreased
in 1999  due to the  completion  in 1998 of one of the  four  recovery  periods.
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.

     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.

                                      -28-

<PAGE>


Regulated Gas Gross Margin:
---------------------------
                                2000          1999           1998
                               -----         -----          -----
                                         (In millions)
     Operating revenues        $ 656         $ 455          $ 430
     Cost of gas sold            448           259            243
                               -----         -----          -----
         Gas gross margin      $ 208         $ 196          $ 187
                               =====         =====          =====

     2000 vs. 1999

     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 2000,  MidAmerican  Energy's per-unit cost of gas increased compared
to 1999 which  resulted in a $175  million  increase in revenues and cost of gas
sold for 2000.

     Colder  temperatures  in 2000 compared to 1999, due primarily to the fourth
quarter of 2000,  resulted in a $5 million  increase  in gas margin  compared to
1999.  Customer growth and other usage factors not dependent on weather resulted
in a $4.2  million  increase in gas margin  compared to 1999.  In total,  retail
sales of natural gas increased 5.8% compared to 1999.

     Changes in retail gas rates  increased  gas  margin by  approximately  $4.3
million compared to 1999. On January 22, 1999, the Iowa Utilities Board approved
a $6.7 million annual interim  increase in gas rates for Iowa retail  customers.
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.  On July 11, 2000,  the Illinois  Commerce  Commission  issued an order
approving a gas rate increase totaling $2.1 million annually  effective July 18,
2000.

     Recovery of gas energy  efficiency  costs  decreased  $2.5 million for 2000
compared to 1999.  Consistent  with electric  revenues,  changes in gas revenues
from energy efficiency cost recovery are  substantially  offset by corresponding
changes in other operating expenses.

     1999 vs. 1998 -

     In 1999,  MidAmerican  Energy's per-unit cost of gas increased  compared to
1998  resulting in an $18 million  increase in revenues and cost of gas sold for
1999.

     As discussed  above,  retail gas rates  increased in 1999.  These increases
contributed  approximately  $10.3  million to the  comparative  increase  in gas
margin for 1999. Temperatures in 1999 were colder than in 1998 resulting in a $3
million increase in gas gross margin. Customer growth resulted in a $2.8 million
improvement in gas margin in 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.

                                      -29-
<PAGE>


REGULATED OPERATING EXPENSES

     Other Operating Expenses -

     Other  operating   expenses  decreased  $26.8  million  compared  to  1999.
Information technology expenses were $8.5 million lower for 2000 due principally
to consulting and other costs in 1999 to support newly  implemented  systems and
for Y2K preparation.  During 1999,  MidAmerican Energy incurred transition costs
related  to MHC's  March 1999  merger.  The  absence  of  similar  costs in 2000
resulted  in a $13.7  million  reduction  of other  operating  expenses  in 2000
compared to 1999.  Energy  efficiency  costs decreased $3.8 million  compared to
1999  due to the  completion  of two  recovery  phases  in 1999.  Other  factors
contributing  to the decrease in other  operating  expenses  were  reductions in
employee  incentive plan costs and injuries and damages costs and an increase in
2000  of  a  reserve  distribution  from  an  insurance  fund  compared  to  the
distribution in 1999.

     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 1998, 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. 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.

     Maintenance -

     Maintenance  expenses for 2000  increased  $11.0 million due to reliability
maintenance at generating  plants and an increase in forestry  service costs and
related overhead distribution  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.

     Depreciation and Amortization -

     Depreciation and amortization  expense  increased in 2000 compared to 1999.
Utility  plant  depreciation  expense  increased  as a result of an  increase in
utility plant.  Amortization of regulatory assets for MidAmerican  Energy's Iowa
operations  increased in accordance with an Iowa revenue sharing plan.  Refer to
"Rate Matters" in the "Operating  Activities And Other Matters" section of MD&A.
Depreciation expense related to nuclear  decommissioning funding for MidAmerican
Energy's Illinois  operations  decreased for 2000 compared to 1999. 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.

                                      -30-

<PAGE>


     Property and Other Taxes -

     Property  and other  taxes  decreased  for 2000  compared  to 1999 due to a
reduction in MidAmerican  Energy's Iowa property tax assessed  values.  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.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     Nonregulated Gas Gross Margin -

                                 2000       1999      1998
                                ------     ------     ----
                                        (In millions)
     Operating revenues.....    $407.9     $136.3     $90.0
     Cost of gas sold.......     404.7      135.1      88.4
                                ------     ------     -----
       Gross margin.........    $  3.2     $  1.2     $ 1.6
                                ======     ======     =====

     Revenues  from  nonregulated  natural gas  marketing  operations  increased
$271.6  million for 2000  compared to 1999. An increase in the average price per
unit sold,  reflective  of a 93% increase in the average cost of gas,  accounted
for $195.7  million of the  increase in  revenues.  Sales  volumes  increased 32
million  MMBtus (56%)  resulting in a $75.9  million  increase in revenues.  The
increase in sales volumes was driven  principally  by the addition of larger-use
wholesale  customers and the addition of retail  customer  activity.  The $269.6
million  increase in related cost of sales  reflects  the  increases in cost per
unit sold and sales volumes.

     Revenues from nonregulated natural gas marketing operations increased $46.3
million 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 1999 reflecting a full-year effect of an increase in customers in
the last half of 1998. The increase was due to MidAmerican  Energy  beginning in
May 1998 to service contracts  previously serviced by another subsidiary of MHC.
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
affecting revenues.

     Other Nonregulated Revenues and Cost of Sales -

     Nonregulated  revenues for 2000  include  $17.9  million  from  MidAmerican
Energy's market access service  project,  compared to $10.9 million in 1999. The
pilot  project,  which began in the third  quarter of 1999,  allows  larger Iowa
customers 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 related to the market access service
project increased from $9.7 million for 1999 to $17.3 million for 2000.

                                      -31-
<PAGE>

     Beginning October 1, 1999, some  non-residential  customers in Illinois are
allowed  to  select  their  electric  power   supplier.   MidAmerican   Energy's
nonregulated  revenues  for 2000  include  $3.6 million in agency fees and other
revenues  related to these supply  services.  Related cost of sales totaled $4.3
million.  No revenues or costs of sales were incurred in 1999 or 1998 related to
these activities.

     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 $3.9 million,  $1.6 million and
$4.3 million in 2000, 1999 and 1998, respectively.

     MidAmerican  Energy  performs work for its customers that is not regulated,
including distribution  maintenance and forestry services.  Increased efforts in
these  services also  contributed to the increase in  nonregulated  revenues for
2000 compared to 1999.  Revenues from work for other utilities in 1999 decreased
$3.6 million compared to 1998.

     Nonregulated Operating Expenses: Other -

     Other operating  expenses for MidAmerican  Energy's  nonregulated  services
increased  $3.5  million  for  2000  compared  to  1999.  The  increase  was due
principally to costs related to nonregulated distribution services performed for
customers.

     Other operating expenses for MidAmerican Energy's nonregulated services 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.

NON-OPERATING INCOME AND INTEREST EXPENSE

     Interest and Dividend Income-

     The increase in interest  income for 2000  compared to 1999 was due to $6.1
million of interest  income from income tax  refunds,  $2.9  million of interest
from a joint plant  operator for funds held by them and a $2.5 million  increase
in  interest  on  a  note  receivable  related  to  sold  accounts   receivable.
Additionally,  MidAmerican Energy had a more favorable cash position from August
to December 2000.  Interest  income in 1999 decreased  compared to 1998 due to a
reduction in short-term  investments and in the note receivable  related to sold
accounts receivable.

     Other, Net -

     Other,  Net  includes  a 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  service  for  regulatory
purposes.  The discount,  net of the subservicer fee, reduced Other, Net by $8.3
million, $7.9 million and $7.0 million in 2000, 1999 and 1998, respectively.

     Income  related  to  the  cash  surrender  value  of  corporate-owned  life
insurance policies totaled $9.3 million, $0.3 million and $1.5 million for 2000,
1999 and 1998,  respectively.  Income for 2000 includes $7.4 million  related to
benefits paid on several policies.

                                      -32-
<PAGE>

     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.

     Fixed Charges and Preferred Dividends -

     MidAmerican Energy's interest on long-term debt decreased in 2000 and
in  1999  compared  to  their  respective  prior  years  due to  long-term  debt
refinancing in 1998 and debt maturities in each year.



                                      -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 $359 million,  $330
million and $371 million in 2000, 1999 and 1998, respectively.

INVESTING ACTIVITIES AND PLANS

     Utility Construction Expenditures -

     MidAmerican  Energy's  primary  need for  capital is  utility  construction
expenditures.  For 2000, utility construction expenditures totaled $216 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  are $223  million for 2001 and $871  million for 2002
through 2005. 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  $41 million during the
period 2001 through 2005 to external  trusts  established  for the investment of
funds for decommissioning Quad Cities Station.  Approximately 60% of the trusts'
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,  during the year 2000, MidAmerican Energy made payments to the
Nebraska Public Power District related to  decommissioning  Cooper,  based on an
assumed  shutdown of Cooper in September  2004.  These payments are reflected in
other  operating  expenses in the  Consolidated  Statements of Income.  Based on
Nebraska  Public  Power  District  decommissioning  cost  estimates,  assuming a
September  2004  shutdown  of  Cooper,  MidAmerican  Energy  expects  to  accrue
approximately  $55  million  for Cooper  decommissioning  during the period 2001
through  2004.  The funds  that have been  provided  to  Nebraska  Public  Power
District, with the understanding that Cooper will be shutdown in September 2004,
are invested  predominately  in U.S.  Treasury  Bonds and other U.S.  Government
securities.  Approximately  30% of the funds are invested in domestic  corporate
debt.  MidAmerican Energy's obligation,  if any, for Cooper decommissioning will
be affected by the actual plant  shutdown  date. 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

                                      -34-
<PAGE>

obligations in connection with Cooper nuclear decommissioning  funding. Refer to
Part I, Item 3. Legal Proceedings, for further discussion of the litigation.

     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.  MidAmerican  Energy currently has in
place a $370.4 million  revolving credit facility that supports its $250 million
commercial  paper  program  and its  variable  rate  pollution  control  revenue
obligations. In addition, MidAmerican Energy has a $5 million line of credit.

     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 Illinois  Commerce  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.  MidAmerican  Energy  Funding  Corporation  in  turn  sells
receivable  interests  to  outside  investors.  In  consideration  for the sale,
MidAmerican  Energy received cash and a subordinated  note,  bearing interest at
8%, from MidAmerican  Energy Funding  Corporation.  As of December 31, 2000, the
revolving  cash balance was $70 million,  and the amount  outstanding  under the
subordinated  note was $114.9  million.  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.  Therefore,  the  accounts  receivable  sold  are  not  reflected  on
MidAmerican  Energy's  Consolidated  Balance  Sheets.  As of December  31, 2000,
$185.8  million of accounts  receivable,  net of  reserves,  were sold under the
agreement.

                                      -35-

<PAGE>


OPERATING ACTIVITIES AND OTHER MATTERS

     Industry Evolution -

     Legislation to initiate retail  electric  competition was introduced in the
Iowa legislature in the 2000 session,  but it did not pass.  Deregulation of the
gas supply function  related to small volume  customers is also being considered
by the Iowa Utilities Board. MidAmerican Energy has actively participated in the
legislative  and  regulatory  processes.  MidAmerican  Energy cannot predict the
timing or ultimate outcome of any potential electric  restructuring  legislation
or gas restructuring in Iowa.

     The  introduction of competition in the wholesale  market has resulted in a
proliferation of power marketers and a substantial  increase in market activity.
The wholesale  market has also increased in volatility.  As this market matures,
volatility may decline.

     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 requiring the purchase of replacement power 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, larger non-residential  customers in Illinois
and 33% of the  remaining  non-residential  Illinois  customers  were allowed to
select their provider of electric  supply  services  beginning  October 1, 1999.
Starting  December 31, 2000,  all other  non-residential  customers were allowed
supplier  choice.  Residential  customers all receive the  opportunity to select
their electric supplier beginning May 1, 2002.

     The law provides for Illinois  earnings above a computed level of return on
common equity to be shared equally  between  customers and  MidAmerican  Energy.
MidAmerican  Energy's  computed  level of return on common  equity is based on a
rolling  two-year  average of the 30-year  Treasury Bond rates plus a premium of
5.50%  for 1998  and 1999 and a  premium  of 8.5%  for 2000  through  2004.  The
two-year  average above which sharing must occur for 2000 was 12.83%.  Using the
same 30-year Treasury bond average, the computed level of return would be 14.33%
for 2001 through 2004. The law allows MidAmerican Energy to mitigate the sharing
of earnings  above the  threshold  return on common equity  through  accelerated
recovery of regulatory assets.

     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 were 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. On October
16, 2000, MidAmerican Energy filed with the Federal Energy Regulatory Commission
a plan for MidAmerican  Energy to comply with Order No. 2000 by participating in
the  formation of a for-profit  independent  transmission  company.  MidAmerican
Energy continues in its effort to form such a company.

                                      -36-

<PAGE>


     Accounting Effects of Industry Restructuring -

     A possible  consequence  of  deregulation  in the utility  industry is that
Statement  of  Financial  Accounting  Standards  No.  71 (SFAS 71) may no longer
apply.  SFAS 71  sets  forth  accounting  principles  for  operations  that  are
regulated and meet the required criteria. For operations that meet the criteria,
SFAS 71 allows, among other things, the deferral of expense or income that would
otherwise be recognized  when  incurred.  With the  exception of the  generation
operations serving the Illinois jurisdiction,  MidAmerican Energy's electric and
gas utility operations  currently meet the criteria required by SFAS 71, but its
applicability is periodically reexamined.  If 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, 2000,  MidAmerican Energy had $231.1 million of
regulatory assets, net of regulatory  liabilities,  on its Consolidated  Balance
Sheet.

     Energy Efficiency -

     MidAmerican  Energy's  regulatory assets as of December 31, 2000,  included
$22.8 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.  These costs are being  collected from customers based
on  projected  annual  expenditures  of $16.4  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.

     Rate Matters: Electric -

     Under a 1997  pricing  plan  settlement  agreement  resulting  from an Iowa
Utilities Board rate proceeding,  electric prices for MidAmerican  Energy's Iowa
industrial and commercial  customers were reduced  through a retail access pilot
project,  negotiated individual electric contracts and a tariffed rate reduction
for some non-contract commercial customers.

     The negotiated  electric  contracts have differing  terms and conditions as
well as prices. The vast majority of the contracts expire during the period 2003
through 2005,  although some large  customers have contracts  extending to 2008.
Some of the contracts have price renegotiation and early termination  provisions
exercisable  by either  party.  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.

     Under the 1997 pricing plan settlement  agreement,  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.  During 2000,  MidAmerican
Energy credited $14.8 million to its Iowa non-contract  customers related to the
return  calculation  for 1999,  which was approved by the Iowa Utilities  Board,
subject to additional refund. In 2000,  MidAmerican Energy accrued $21.6 million
for customer  credits  relating to 2000  operations.  This Iowa electric  retail
revenue  sharing  plan  remained  in effect  through  the year  2000.  The rates
established by the pricing plan settlement agreement will remain in effect

                                      -37-
<PAGE>

until  either the plan is  renegotiated  or a change in rates is approved by the
Iowa Utilities Board pursuant to a rate proceeding.

     The pricing plan  settlement  agreement also precluded  MidAmerican  Energy
from filing for increased rates prior to January 1, 2001, unless the return fell
below 9%. Other parties  signing the agreement were  prohibited  from filing for
reduced  rates  prior to 2001  unless the return,  after  reflecting  credits to
customers,  exceeded 14%. 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.

     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, 2000, was $24 million.  This estimate has been recorded
as a liability and a regulatory asset for future recovery through the regulatory
process.  Refer to Note (4)(b) of Notes to Consolidated Financial Statements for
further discussion of MidAmerican Energy's  environmental  activities related to
manufactured gas plant sites and cost recovery.

     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. 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.  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 could incur increased costs and a decrease in revenues. Refer
to Note  (4)(c)  of Notes  to  Consolidated  Financial  Statements  for  further
discussion of this issue.

     Generating Capability -

     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 MAPP  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 2000 cooling season and was not adversely affected by the
seasonal high prices in the off-system market.

                                      -38-
<PAGE>

     MidAmerican  Energy  believes it has  adequate  electric  capacity  reserve
through at least 2004 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
MAPP.

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 amended by SFAS 138. SFAS 133/138  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 implemented the new standards on January 1, 2001. The initial
adoption of SFAS133/138 did not have a material  impact on MidAmerican  Energy's
financial  position  or results of  operations  or any impact on its cash flows.
Refer to Note  (1)(i)(3)  of  Notes to  Consolidated  Financial  Statements  for
further discussion.

     The FASB's  Derivatives  Implementation  Group  continues  to identify  and
provide guidance on various  implementation  issues related to SFAS 133/138 that
are in varying stages of review and clearance by the  Derivative  Implementation
Group and FASB.  MidAmerican  Energy  believes  that the ultimate  resolution of
those issues would not have a material impact on its financial statements.

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.

                                      -39-

<PAGE>


     MidAmerican  Energy  uses  hedge  accounting  for  derivative   instruments
pertaining to its natural gas purchasing,  wholesale electricity  activities and
financing  activities.  Refer to Note (1)(i) in Notes to Consolidated  Financial
Statements for further discussion of the accounting for derivative instruments.

     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
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 uses  natural gas  derivative  instruments  for trading
purposes under strict value at risk guidelines outlined by senior management. In
accordance  with the FASB's  Emerging Issues Task Force Abstract No. 98-10 (EITF
98-10),  derivative  instruments  held for trading purposes are recorded at fair
value and any  unrealized  gains or losses are reported in earnings.  EITF 98-10
has not had a  material  effect  on  MidAmerican  Energy's  financial  position,
results of operations or cash flows.

     MidAmerican Energy uses electricity  forward contracts to hedge anticipated
sales of wholesale electric power.  Electric forward contracts are not reflected
in the financial statements until they are settled.

     MidAmerican Energy had the following financial  derivative  instruments for
its natural gas and electric operations as of December 31:

                                      -40-

<PAGE>


Derivative instruments used for other than trading purposes -
-------------------------------------------------------------

                                                  2000              1999
                                            ----------------  -----------------

Natural Gas Futures Contracts - NYMEX:
     Net Contract Volumes- Long(Short)       1,460,000 MMBtu    (550,000) MMBtu
     Unrealized Gain (Loss), in thousands       $7,554             $  (410)

Natural Gas Swap Contracts:
     Contract Volumes                       24,106,980 MMBtu  85,520,442 MMBtu
     Unrealized Gain (Loss), in thousands       $8,055             $(1,576)

Natural Gas Options:
     Contract Volumes - Long                 1,790,280 MMBtu             -
     Unrealized Gain, in thousands                $953                   -

Electric Forward Contracts:
     Contract Volumes - (Short)                (139,200) MWh             -
     Unrealized (Loss), in thousands           $(4,731)                  -

     A $1.00 increase in underlying natural gas prices would increase unrealized
gains on the futures  contracts held at December 31, 2000 by approximately  $1.5
million  and would  increase  unrealized  gains on the above swap  contracts  by
approximately  $2.3 million.  A $5.00 increase in underlying  electricity prices
would increase  unrealized  losses on the forward contracts held at December 31,
2000 by approximately $0.7 million.

Derivative instruments used for trading purposes -
--------------------------------------------------
                                                2000                   1999
                                           ---------------             ----

Natural Gas Futures Contracts - NYMEX:
     Net Contract Volumes- (Short)          (20,000) MMBtu                -
     Unrealized (Loss), in thousands            $(79)                     -

Natural Gas Swap Contracts:
     Contract Volumes                       (10,000) MMBtu                -
     Unrealized (Loss), in thousands           $(261)                     -

     A change in  underlying  natural  gas prices  would not  materially  affect
unrealized losses on the above future and swap contracts.

     Interest Rate Risk

     At December 31, 2000,  MidAmerican Energy had fixed-rate long-term debt and
mandatorily   redeemable   preferred  securities  and  preferred  securities  of
subsidiary trust totaling $951 million with a fair value of $954 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  $28  million if
interest  rates were to increase by 10% from their  levels at December 31, 2000.
In general,  such a decrease in fair value would impact  earnings and

                                      -41-
<PAGE>


cash flows only if MidAmerican  Energy were to acquire all or a portion of these
instruments prior to their maturity.

     At December  31,  2000,  MidAmerican  Energy had  long-term  floating  rate
obligations  totaling  $120 million and  short-term  floating  rate  obligations
totaling  $82  million  which  expose  MidAmerican  Energy to risk of  increased
interest  expense in the event of increases in short-term  interest rates.  This
market risk is not hedged.  The carrying  value of the long-term and  short-term
floating rate obligations at December 31, 2000  approximated  fair value. If the
floating  interest  rates were to increase by 10% from December 31, 2000 levels,
MidAmerican  Energy's  interest expense for the floating rate obligations  would
increase by  approximately  $1.1  million  annually  based on December  31, 2000
principal balances.

     MidAmerican   Energy   has   entered   into  a   two-year,   $162   million
fixed-to-floating  interest  rate swap  agreement in  conjunction  with its $162
million,  7.375% series of  medium-term  notes due August 1, 2002.  The floating
rate of the swap is based on a three-month  LIBOR rate. As of December 31, 2000,
the market value of this swap was $6.5 million.


                                      -42-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                        CONSOLIDATED STATEMENTS OF INCOME
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                   YEARS ENDED DECEMBER 31,
                                          -----------------------------------------
                                             2000           1999           1998
                                          -----------    -----------    -----------
<S>                                       <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ....................   $ 1,212,411    $ 1,178,702    $ 1,169,810
Regulated gas .........................       656,560        454,802        429,870
Nonregulated ..........................       449,218        157,532        107,509
                                          -----------    -----------    -----------
                                            2,318,189      1,791,036      1,707,189
                                          -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity ...       249,045        223,215        227,870
  Cost of gas sold ....................       448,400        258,957        243,451
  Other operating expenses ............       434,125        460,883        470,328
  Maintenance .........................       127,076        116,089        110,387
  Depreciation and amortization .......       197,144        190,547        182,211
  Property and other taxes ............        74,778         77,017         87,276
                                          -----------    -----------    -----------
                                            1,530,568      1,326,708      1,321,523
                                          -----------    -----------    -----------
Nonregulated:
  Cost of sales .......................       427,830        146,699         88,390
  Other ...............................        21,035         17,565         16,356
                                          -----------    -----------    -----------
                                              448,865        164,264        104,746
                                          -----------    -----------    -----------
    Total operating expenses ..........     1,979,433      1,490,972      1,426,269
                                          -----------    -----------    -----------
OPERATING INCOME ......................       338,756        300,064        280,920
                                          -----------    -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ..........        15,499          3,040          6,116
Other, net ............................        (1,455)        (3,699)        (6,477)
                                          -----------    -----------    -----------
                                               14,044           (659)          (361)
                                          -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ............        61,120         65,649         70,193
Other interest expense ................         9,056         11,249         14,128
Preferred dividends of subsidiary trust         7,980          7,980          7,980
Allowance for borrowed funds ..........        (1,273)        (1,257)        (3,377)
                                          -----------    -----------    -----------
                                               76,883         83,621         88,924
                                          -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ............       275,917        215,784        191,635
INCOME TAXES ..........................       110,461         88,453         76,042
                                          -----------    -----------    -----------
NET INCOME ............................       165,456        127,331        115,593
PREFERRED DIVIDENDS ...................         4,955          4,955          4,952
                                          -----------    -----------    -----------

EARNINGS ON COMMON STOCK ..............   $   160,501    $   122,376    $   110,641
                                          ===========    ===========    ===========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -43-
<PAGE>


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

                                              YEARS ENDED DECEMBER 31,
                                        ----------------------------------
                                           2000         1999        1998
                                        ---------    ---------   ---------

<S>                                     <C>          <C>         <C>
EARNINGS ON COMMON STOCK ............   $ 160,501    $ 122,376   $ 110,641
                                        ---------    ---------   ---------

OTHER COMPREHENSIVE INCOME, NET
Minimum pension liability adjustment:
  Before income tax benefit .........      (4,087)          --          --
  Income tax benefit ................       1,699           --          --
                                        ---------    ---------   ---------
                                           (2,388)          --          --
                                        ---------    ---------   ---------

COMPREHENSIVE INCOME ................   $ 158,113    $ 122,376   $ 110,641
                                        =========    =========   =========
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      -44-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                       AS OF DECEMBER 31,
                                                                    ------------------------
                                                                       2000         1999
                                                                    ----------   -----------
<S>                                                                 <C>          <C>
ASSETS
UTILITY PLANT
Electric ........................................................   $4,471,839   $4,348,740
Gas .............................................................      831,203      809,112
                                                                    ----------   ----------
                                                                     5,303,042    5,157,852
Less accumulated depreciation and amortization ..................    2,680,420    2,548,160
                                                                    ----------   ----------
                                                                     2,622,622    2,609,692
Construction work in progress ...................................       38,584       33,739
                                                                    ----------   ----------
                                                                     2,661,206    2,643,431
                                                                    ----------   ----------

POWER PURCHASE CONTRACT .........................................       82,231      106,481
                                                                    ----------   ----------

CURRENT ASSETS
Cash and cash equivalents .......................................        9,677        5,167
Receivables, less reserves of $102 and zero, respectively .......      422,661      190,986
Inventories .....................................................       69,130       80,649
Prepaid taxes ...................................................       22,889       22,889
Other ...........................................................        9,789       10,355
                                                                    ----------   ----------
                                                                       534,146      310,046
                                                                    ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET ......................      256,053      228,105
REGULATORY ASSETS ...............................................      240,934      278,757
OTHER ASSETS ....................................................       48,996       42,771
                                                                    ----------   ----------

TOTAL ASSETS ....................................................   $3,823,566   $3,609,591
                                                                    ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity .....................................   $1,161,968   $1,057,855
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) ......................      820,082      759,638
                                                                    ----------   ----------
                                                                     2,163,809    1,999,252
                                                                    ----------   ----------
CURRENT LIABILITIES
Notes payable ...................................................       81,600      204,000
Current portion of long-term debt ...............................      101,600      110,861
Current portion of power purchase contract ......................       16,554       15,767
Accounts payable ................................................      308,784      131,186
Taxes accrued ...................................................      124,493      112,663
Interest accrued ................................................       12,016       12,925
Other ...........................................................       34,667       30,226
                                                                    ----------   ----------
                                                                       679,714      617,628
                                                                    ----------   ----------
OTHER LIABILITIES
Power purchase contract .........................................       35,728       52,281
Deferred income taxes ...........................................      540,608      561,000
Investment tax credit ...........................................       66,209       71,757
Other ...........................................................      337,498      307,673
                                                                    ----------   ----------
                                                                       980,043      992,711
                                                                    ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES ............................   $3,823,566   $3,609,591
                                                                    ==========   ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -45-
<PAGE>
                           MIDAMERICAN ENERGY COMPANY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                        YEARS ENDED DECEMBER 31,
                                                                  -------------------------------------
                                                                     2000         1999         1998
                                                                  ---------    ---------    -----------

<S>                                                               <C>          <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................................   $ 165,456    $ 127,331    $ 115,593
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ...............................     197,438      190,112      177,661
  Deferred income taxes and investment tax credit, net ........     (27,743)     (37,067)     (18,379)
  Amortization of other assets ................................      48,650       61,036       61,031
  Cash inflows (outflows) of accounts receivable securitization      12,877       (2,877)     (10,000)
  Impact of changes in working capital ........................     (39,507)     (16,688)      42,367
  Other .......................................................       2,256        8,182        2,734
                                                                  ---------    ---------    ---------
    Net cash provided .........................................     359,427      330,029      371,007
                                                                  ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures .............................    (215,727)    (203,575)    (193,354)
Quad Cities Nuclear Power Station decommissioning trust fund ..      (8,302)     (10,370)     (11,409)
Nonregulated capital expenditures .............................      (1,075)        (540)     (21,065)
Proceeds from sale of assets and other investments ............          --           --       19,854
Other investing activities, net ...............................       1,411      (10,968)         799
                                                                  ---------    ---------    ---------
  Net cash used ...............................................    (223,693)    (225,453)    (205,175)
                                                                  ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ................................................     (58,955)     (41,661)    (129,152)
Issuance of long-term debt, net of issuance cost ..............     160,992           --      158,414
Retirement of long-term debt, including reacquisition cost ....    (110,861)     (60,897)    (282,759)
Reacquisition of preferred shares .............................          --           --           (4)
Net increase (decrease) in notes payable ......................    (122,400)      (2,221)      83,721
                                                                  ---------    ---------    ---------
  Net cash used ...............................................    (131,224)    (104,779)    (169,780)
                                                                  ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..........       4,510         (203)      (3,948)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................       5,167        5,370        9,318
                                                                  ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................   $   9,677    $   5,167    $   5,370
                                                                  =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .....................   $  63,420    $  69,412    $  89,932
                                                                  =========    =========    =========
Income taxes paid .............................................   $ 133,176    $  96,711    $  89,130
                                                                  =========    =========    =========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -46-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                    CONSOLIDATED STATEMENTS OF CAPITALIZATION
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                                                    AS OF DECEMBER 31,
                                                                        --------------------------------------------
                                                                               2000                    1999
                                                                        -------------------    ---------------------
<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             $  560,563
Retained earnings..................................................         603,793                497,292
Accumulated other comprehensive loss...............................          (2,388)                     -
                                                                        -----------             ----------
                                                                          1,161,968    53.7%      1,057,855    52.9%
                                                                        -----------    ----     ----------     ----
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     1.5%         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     2.3%        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     4.6%       100,000      5.0%
                                                                        -----------   -----      ---------     ----

LONG-TERM DEBT
Mortgage bonds:
  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.....................            5,760                  7,200
  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.

                                      -47-
<PAGE>

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

                                                                                 AS OF DECEMBER 31,
                                                                         --------------------------------------------
                                                                               2000                    1999
                                                                         -------------------      -------------------
<S>                                                                      <C>          <C>         <C>          <C>
LONG-TERM DEBT (CONTINUED)
  Variable rate series -
    Due 2016 and 2017, 4.56% and 3.95%, respectively...............      $   37,600               $  37,600
    Due 2023 (secured by general mortgage bond,
      4.56% and 3.95%, respectively)...............................          28,295                  28,295
    Due 2023, 4.56% and 3.95%, respectively........................           6,850                   6,850
    Due 2024, 4.56% and 3.95%, respectively........................          34,900                  34,900
    Due 2025, 4.56% and 3.95%, respectively........................          12,750                  12,750
Notes:
  8.75% Series, due 2002...........................................             240                     240
  7.375% Series due 2002...........................................         162,000                       -
  6.5% Series, due 2001............................................               -                 100,000
  6.375% Series, due 2006..........................................         160,000                 160,000
Obligation under capital lease.....................................           1,538                   1,698
Unamortized debt premium and discount, net.........................          (1,451)                 (1,495)
                                                                         ----------               ---------
                                                                            820,082    37.9%         759,638    38.0%
                                                                         ----------   -----       ---------    -----

TOTAL CAPITALIZATION...............................................      $2,163,809   100.0%      $1,999,252   100.0%
                                                                         ==========   =====       =========    =====
</TABLE>


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

                                                  YEARS ENDED DECEMBER 31,
                                             -----------------------------------
                                               2000         1999         1998
                                             ---------    ---------    ---------

<S>                                          <C>          <C>          <C>
BEGINNING OF YEAR .......................    $ 497,292    $ 411,622    $ 425,181
                                             ---------    ---------    ---------

NET INCOME ..............................      165,456      127,331      115,593
                                             ---------    ---------    ---------

DEDUCT (ADD):
Gain on reacquisition of preferred shares           --           --           (3)
Dividends declared on preferred shares ..        4,955        4,955        4,955
Dividends declared on common shares .....       54,000       36,706      124,200
                                             ---------    ---------    ---------
                                                58,955       41,661      129,152
                                             ---------    ---------    ---------

END OF YEAR .............................    $ 603,793    $ 497,292    $ 411,622
                                             =========    =========    =========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -48-
<PAGE>

                           MIDAMERICAN ENERGY COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (A) COMPANY STRUCTURE:

     MidAmerican  Energy  Company is a public  utility with electric and natural
gas operations and is the principal subsidiary of MHC Inc. MHC 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,  whose sole member is  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 was  reincorporated as an Iowa
corporation and changed its name to MidAmerican  Energy Holdings  Company.  MHC,
MidAmerican  Funding and  MidAmerican  Energy Holdings are exempt public utility
holding companies headquartered in Des Moines, Iowa.

     (B) CONSOLIDATION POLICY AND PREPARATION OF FINANCIAL STATEMENTS:

     The accompanying  Consolidated  Financial  Statements  include  MidAmerican
Energy  and  subsidiaries  under  its  control.  All  significant   intercompany
transactions  have been eliminated.  The preparation of financial  statements in
conformity with generally accepted accounting  principles requires management to
make estimates and  assumptions  that affect the reported  amounts of assets and
liabilities  and  disclosure  of  contingent  liabilities  at  the  date  of the
financial  statements and the reported  amounts of revenues and expenses  during
the reporting  period.  Actual results may differ from those estimates.  Certain
classification  of  amounts  for 2000 are  different  than that of prior  years.
Accordingly, historical amounts have been reclassified.

     (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.

     A possible  consequence  of  deregulation  in the utility  industry is that
Statement  of  Financial  Accounting  Standards  No.  71 (SFAS 71) may no longer
apply.  SFAS 71  sets  forth  accounting  principles  for  operations  that  are
regulated and meet the stated  criteria.  For operations that meet the criteria,
SFAS 71 allows, among other things, the deferral of expense or income that would
otherwise be recognized  when  incurred.  With the  exception of the  generation
operations serving the Illinois jurisdiction,  MidAmerican Energy's electric and
gas  utility  operations  currently  meet  the  criteria  of  SFAS  71,  but its
applicability is periodically reexamined.  If 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  regulatory assets represent probable future revenue
to  MidAmerican  Energy  because  these costs are  expected to be

                                      -49-
<PAGE>


recovered  in  charges  to  utility  customers,  and  the  regulatory  liability
represents future income to offset specified expenses to be incurred:


                                         Weighted Average         As of
                                         Future Recovery      December 31,
                                              Period        2000         1999
                                         ---------------- --------  ----------
                                                             (In thousands)
     Regulatory Assets
     Deferred income taxes, net ..........     13 years   $143,287     $140,658
     Energy efficiency costs .............     1 year       22,846       46,514
     Debt refinancing costs ..............     5 years      29,416       34,650
     Nuclear generation assets ...........     5 years      14,675       19,581
     Environmental costs .................     10 years     24,001       27,837
     Enrichment facilities decommissioning     5 years       1,930        6,953
     Unamortized costs of retired plant ..           --         --        1,303
     Other ...............................     Various       4,779        1,261
                                                          --------     --------
         Total ...........................                $240,934     $278,757
                                                          ========     ========

     Regulatory Liability
     --------------------
     Environmental insurance recovery ....     3 years    $  9,787     $     --
                                                          ========     ========

     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 that  month.  Accrued  unbilled  revenues  were
$191.8  million and $93.4  million at December 31, 2000 and 1999,  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:

                           2000     1999     1998
                           ----     ----     ----

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


                                      -50-
<PAGE>

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

     The cost of  repairs  and minor  replacements  is  charged  to  maintenance
expense. Property additions and major property replacements are charged to plant
accounts.  The cost of depreciable units of utility plant retired or disposed of
in the normal course of business 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):

                                                 2000          1999
                                               --------      --------

     Nuclear decommissioning trust fund....    $153,100      $141,646
     Corporate-owned life insurance........      77,029        63,244
     Coal transportation property..........      10,824        11,102
     Other.................................      15,100        12,113
                                               --------      --------
       Total...............................    $256,053      $228,105
                                               ========      ========

     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.   The   investment  in
corporate-owned  life  insurance  represents  the cash  value of life  insurance
policies on certain key executives and other related investments.

     (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):

                                       2000            1999           1998
                                     ---------       --------       --------

     Receivables ..............      $(244,552)      $(19,345)      $ 25,389
     Inventories ..............         11,519         12,096         (8,447)
     Prepaid taxes ............             --             --        (22,889)
     Other current assets .....            566         (1,118)        (3,063)
     Accounts payable .........        177,598        (28,234)        31,030
     Taxes accrued ............         11,830         21,637         14,683
     Interest accrued .........           (909)          (548)        (7,143)
     Other current liabilities           4,441         (1,176)        12,807
                                     ---------       --------       --------
       Total ..................      $ (39,507)      $(16,688)      $ 42,367
                                     =========       ========       ========

                                    -51-
<PAGE>

     (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 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.  For  jurisdictions  other than  Iowa,  MidAmerican  Energy  began
charging  Cooper capital  improvement  costs to expense,  as incurred in January
1997.

     The fuel cost portion of the power purchase contract is included in Cost of
Fuel,  Energy and Capacity on the Consolidated  Statements of Income.  All other
costs  MidAmerican  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:

     (1) Gas Futures Contracts and Swaps and Electric Forward Contracts:

     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
regulated  customers,  to hedge the impact of changing  prices on margins earned
from nonregulated gas sales and to take trading positions at levels permitted by
its risk management policy.  Investments in natural gas futures contracts, which
total  $4.8  million  and  $0.6  million  as of  December  31,  2000  and  1999,
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
gains/(losses)  related to MidAmerican  Energy's gas futures  contracts are $7.6
million and $(0.4) million as of December 31, 2000 and 1999, respectively.

     MidAmerican  Energy uses  natural gas  derivative  instruments  for trading
purposes under strict value at risk guidelines outlined by senior management. In
accordance  with the FASB's  Emerging Issues Task Force Abstract No. 98-10 (EITF
98-10),  derivative  instruments  held for trading purposes are recorded at fair
value and any  unrealized  gains or losses are reported in earnings.  EITF 98-10
has not had a  material  effect  on  MidAmerican  Energy's  financial  position,
results of operations or cash flows.

                                      -52-

<PAGE>

     MidAmerican   Energy  also  uses  electric   forward   contracts  to  hedge
anticipated  future sales of  electricity.  Realized gains or losses on electric
derivative  products  are  included in Cost of Fuel,  Energy and Capacity on the
Consolidated   Statements  of  Income.   Unrecognized   net  losses  related  to
MidAmerican  Energy's  electric  derivatives  total $4.7  million and zero as of
December 31, 2000 and 1999, respectively.

     MidAmerican Energy periodically  evaluates the effectiveness of its natural
gas and electricity  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 also uses derivative
instruments  for  trading  purposes.   MidAmerican  Energy  held  the  following
derivative instruments at December 31:

<TABLE>
<CAPTION>

                                                        2000                          1999
                                               -----------------------------  ----------------------------
                                                               Weighted                      Weighted
                                                                Average                      Average
                                      Unit of   Notional        Market         Notional      Market
                                      Measure    Volume     Value Per Unit      Volume     Value Per Unit
                                      -------  ----------   --------------    ----------   --------------

  <S>                                  <C>      <C>             <C>            <C>              <C>
  Hedging Instruments:
    Natural Gas Futures - Long.......  MMBtu     1,630,000      $  9.46         2,700,000       $ 2.34
    Natural Gas Futures - (Short) ...  MMBtu      (170,000)     $ (9.78)       (3,250,000)      $(2.34)
    Natural Gas Swaps................  MMBtu    24,106,980      $  0.33        85,520,442       $(0.02)
    Natural Gas Options - Long.......  MMBtu     1,790,280      $  0.53                 -          -
    Electric Forwards - (Short) .....  MWh        (139,200)     $(33.99)                -          -
  Trading Instruments:
    Natural Gas Futures-NYMEX (Short)  MMBtu       (20,000)     $(15.92)                -          -
    Natural Gas Swaps................  MMBtu       (10,000)     $(26.14)                -          -
</TABLE>

     (2) Interest Rate Swap:

     MidAmerican   Energy   has   entered   into  a   two-year,   $162   million
fixed-to-floating  interest  rate swap  agreement in  conjunction  with its $162
million,  7.375% series of  medium-term  notes due August 1, 2002.  The floating
rate of the swap is based on a three-month  LIBOR rate. As of December 31, 2000,
the market value of this swap was $6.5 million.

     (3) New Accounting Pronouncement:

     On January 1, 2001,  MidAmerican  Energy  adopted  Statement  of  Financial
Accounting  Standards  Nos.  133  and  138  (SFAS  133/138)  pertaining  to  the
accounting  for  derivative  instruments  and hedging  activities.  SFAS 133/138
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  133/138  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. At January 1, 2001,  MidAmerican  Energy
recognized  $21.8  million  and  $4.9  million  of  energy-related   assets  and
liabilities, respectively, as being subject to fair value accounting pursuant to
SFAS 133/138, all of which are accounted for as hedges. Initial adoption of SFAS
133/138  did not  have a  material  impact  on the  results  of  operations  for
MidAmerican Energy.

                                     -53-
<PAGE>

     The FASB's  Derivatives  Implementation  Group  continues  to identify  and
provide guidance on various  implementation  issues related to SFAS 133/138 that
are in varying stages of review and clearance by the  Derivative  Implementation
Group and FASB.  MidAmerican  Energy  believes  that the ultimate  resolution of
those issues would not have a material impact on its financial statements.

(2)  LONG-TERM DEBT:

     MidAmerican  Energy's sinking fund requirements and maturities of long-term
debt for 2001 through 2005 are $102  million,  $164 million,  $105 million,  $56
million and $91 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, 2000 and 1999.  MidAmerican  Energy  maintains
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, 2000, 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..         $ 218        $ 143     $301      $ 174     $ 209     $ 540
     Accumulated depreciation..         $  93        $  89     $188      $ 105     $ 119     $ 287
     Unit capacity-MW (100%)...         1,529          515      675        644       708       700
     Percent ownership.........          25.0%        72.0%    79.1%      40.6%     52.0%     88.0%
</TABLE>
                                      -54-
<PAGE>

(4)  COMMITMENTS AND CONTINGENCIES:

     (A) CAPITAL EXPENDITURES:

     MidAmerican Energy's construction expenditures for 2001 are estimated to be
$223 million, including $13 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, 2000 was $24 million. The estimate consists of $3 million for
investigation   costs,  $7  million  for  remediation  costs,  $12  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.  Insurance
recoveries have been received for some of the sites under  investigation.  Those
recoveries are intended to be used principally for accelerated  remediation,  as
specified  by the  Iowa  Utilities  Board,  and  are  recorded  as a  regulatory
liability.

     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

                                      -55-

<PAGE>

plant  sites.  MidAmerican  Energy's  present  rates in Iowa provide for a fixed
annual recovery of manufactured gas 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. In May
2000, the United States  Supreme Court granted  certiorari to review the appeals
court decision. Oral arguments were heard in November 2000.

     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 the 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 2001 and is not  contingent  upon the
plant being in service.  In addition,  MidAmerican Energy has contributed toward
payment of one-half of Cooper's projected  decommissioning costs based on an
assumed September 2004 shutdown of Cooper.

                                     -56-
<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 $15.8  million,  $15.1 million and $14.4
million and the net  interest  component,  which is included in Other  Operating
Expenses  in the  Consolidated  Statements  of Income,  was $1.6  million,  $2.5
million and $2.9 million each for the years 2000, 1999 and 1998, 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 $16.6 million,  $17.4 million,
$18.3 million and zero for 2001 through 2004, respectively.

     (E) DECOMMISSIONING COSTS:

     Based   on    site-specific    decommissioning    studies    that   include
decontamination,  dismantling,  site  restoration,  dry  fuel  storage  cost and
assumed shutdown dates,  MidAmerican Energy's share of expected decommissioning
costs for Cooper and Quad Cities Station,  in 2000 dollars,  is $277 million and
$266 million,  respectively.  In Illinois,  Cooper nuclear decommissioning costs
are  recovered  through a rate rider on customer  billings  that permits  annual
adjustments.  Quad Cities Station and Cooper decommissioning 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, 2000,  MidAmerican  Energy's share of funds set aside in
internal  and external  accounts  for  decommissioning  was $128.6  million.  In
addition,  the funding plan also assumes  various  funds and reserves  currently
held to satisfy the Nebraska Public Power District bond resolution  requirements
will be available for plant decommissioning,  which is to begin with the assumed
plant  shutdown in  September  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's  expense  for Cooper
decommissioning was $11.5 million,  $11.3 million and $7.9 million for the years
2000, 1999 and 1998,  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 the 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, 2000, was $153.1 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  depreciation  expense included costs for Quad Cities
Station nuclear decommissioning of $8.3 million, $10.4 million and $11.4 million
for 2000, 1999 and 1998, 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 4.5% and the assumed annual return on funds in the trust is 6.9%.
Earnings,  net of  investment  fees,  on the  assets in the trust fund were $1.9
million,  $1.9 million and $1.7 million for 2000,  1999 and 1998,  respectively.
See Note (11) for information regarding unrealized gains and losses.

                                     -57-
<PAGE>

     (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 Exelon Generation  Company,  LLC (the operator
and  joint  owner of Quad  Cities  Station),  insurance  purchased  directly  by
MidAmerican  Energy,  and the  mandatory  industry-wide  loss funding  mechanism
afforded under the  Price-Anderson  Amendments Act of 1988. The general types of
coverage are: nuclear liability, property coverage and nuclear worker liability.

     The Nebraska  Public Power  District and Exelon  Generation  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, Exelon Generation purchases
primary and excess property  insurance  protection for the combined interests in
Quad Cities Station,  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 Exelon  Generation,  which  includes the
interests  of  MidAmerican  Energy,  are  underwritten  by  an  industry  mutual
insurance company and contain provisions for retrospective  premium  assessments
should two or more full policy-limit losses occur in one policy year. Currently,
the maximum  retrospective  amounts that could be assessed  against  MidAmerican
Energy from industry mutual policies for its obligations  associated with Cooper
and Quad Cities Station combined, total $8.5 million.

     The master nuclear  worker  liability  coverage,  which is purchased by the
Nebraska Public Power District and Exelon  Generation 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 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 2001 to 2007,  require minimum  payments of $64.0
million,  $37.1  million,  $31.8 million,  $22.0 million,  $22.7 million for the
years  2001  through  2005,  respectively,   and  $5.2  million  for  the  years
thereafter.  MidAmerican  Energy expects to supplement these coal contracts with
additional contracts and spot market purchases to fulfill its future fossil fuel
needs.

                                      -58-
<PAGE>

     MidAmerican  Energy  has  entered  into  various  natural  gas  supply  and
transportation  contracts for its gas operations.  The minimum commitments under
these contracts are $61.3 million,  $42.2 million,  $33.0 million, $12.9 million
and $12.7  million  for the years 2001  through  2005,  respectively,  and $39.2
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  also   maintains
noncontributory, nonqualified supplemental executive retirement plans for active
and retired participants.

     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.

     During 2000,  MidAmerican Energy adopted a market-related  valuation of its
pension assets for purposes of  calculating  net periodic  pension  costs.  This
change conforms  MidAmerican  Energy's accounting practices for pension costs to
those  of  MidAmerican  Energy  Holdings.  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 83%, 97%, and 99%
of the total pension and  postretirement  net periodic cost in 2000,  1999,  and
1998,  respectively.  In 2000, MidAmerican Energy was allocated an $11.1 million
pension credit and $9.0 million of postretirement cost.

                                      -59-
<PAGE>

<TABLE>
<CAPTION>

                                                      Pension Cost                   Postretirement Cost
                                              ------------------------------     ----------------------------
                                                2000       1999       1998        2000       1999      1998
                                              --------   --------   --------     -------   --------  --------

<S>                                           <C>        <C>        <C>          <C>       <C>       <C>
Service cost .............................    $ 16,256   $ 12,192   $ 11,284     $ 2,609   $ 3,066   $ 3,558
Interest cost ............................      35,387     31,557     29,941       8,354     7,947     9,344
Expected return on plan assets ...........     (48,132)   (46,265)   (42,578)     (4,931)   (4,380)   (3,651)
Amortization of net transition obligation       (2,591)    (2,591)    (2,591)      4,110     4,110     5,291
Amortization of prior service cost .......       2,885      1,428      1,871         425       216       650
Amortization of prior year gain ..........      (4,119)    (2,703)    (2,802)       (873)     (181)       --
Curtailment loss .........................          --      5,283         --          --        --        --
                                              --------   --------   --------     -------   -------   -------
    Net periodic (benefit) cost ..........    $   (314)  $ (1,099)  $ (4,875)    $ 9,694   $10,778   $15,192
                                              ========   ========   ========     =======   =======   =======
</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,  2000,   MidAmerican   Energy  has  Rabbi  trusts  which  hold
corporate-owned  life insurance and other investments 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
Rabbi trust investments was $44.7 million and $37.9 million at December 31, 2000
and 1999, 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 $82.7 million and $77.5 million,
respectively,  as of December 31,  2000,  and $68.8  million and $65.5  million,
respectively, as of December 31, 1999.

                                      -60-
<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
                                                   -----------------------   -----------------------
                                                      2000        1999          2000         1999
                                                   ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>
Reconciliation of benefit obligation:
Benefit obligation at beginning of year ........   $ 447,170    $ 456,475    $ 107,744    $ 120,188
Service cost ...................................      16,256       12,192        2,609        3,066
Interest cost ..................................      35,387       31,556        8,354        7,947
Participant contributions ......................          74          107        2,395        1,838
Plan amendments ................................        (132)      14,823           --        2,775
Actuarial (gain) loss ..........................       6,007      (41,567)      20,589      (18,248)
Curtailment ....................................          --         (705)          --           --
Termination benefits ...........................          --        3,471           --           --
Benefits paid ..................................     (32,413)     (29,182)      (9,869)      (9,822)
                                                   ---------    ---------    ---------    ---------
  Benefit obligation at end of year ............     472,349      447,170      131,822      107,744
                                                   ---------    ---------    ---------    ---------

Reconciliation of the fair value of plan assets:
Fair value of plan assets at beginning of year .     605,059      524,508       72,622       63,093
Employer contributions .........................       4,355        4,201       10,543       12,405
Participant contributions ......................          74          107        2,395        1,838
Actual return on plan assets ...................     (21,867)     105,425         (601)       5,108
Benefits paid ..................................     (32,413)     (29,182)      (9,869)      (9,822)
                                                   ---------    ---------    ---------    ---------
  Fair value of plan assets at end of year .....     555,208      605,059       75,090       72,622
                                                   ---------    ---------    ---------    ---------

Funded status ..................................      82,859      157,889      (56,732)     (35,122)
Unrecognized net (gain) loss ...................    (130,423)    (200,591)       1,326      (25,669)
Unrecognized prior service cost ................      24,962       27,980        4,689        5,114
Unrecognized net transition obligation (asset) .      (8,566)     (11,156)      49,322       53,433
                                                   ---------    ---------    ---------    ---------
  Net amount recognized in the
    Consolidated Balance Sheets ................   $ (31,168)   $ (25,878)   $  (1,395)   $  (2,244)
                                                   =========    =========    =========    =========

Amounts recognized in the Consolidated Balance
  Sheets consist of:
Prepaid benefit cost ...........................   $  16,773    $  17,034    $   1,493    $   1,042
Accrued benefit liability ......................     (77,538)     (65,533)      (2,888)      (3,286)
Intangible asset ...............................      25,510       22,621           --           --
Accumulated other comprehensive loss ...........       4,087           --           --           --
                                                   ---------    ---------    ---------    ---------
  Net amount recognized ........................   $ (31,168)   $ (25,878)   $  (1,395)   $  (2,244)
                                                   =========    =========    =========    =========
</TABLE>

                                      -61-

<PAGE>

<TABLE>
<CAPTION>
                                             Pension and Postretirement
                                                     Assumptions
                                             --------------------------
                                             2000       1999      1998
                                             ----       ----      ----
<S>                                          <C>        <C>       <C>
Assumptions used were:
Discount rate...........................     7.00%      7.75%     6.75%
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%
</TABLE>

     For purposes of calculating the postretirement  benefit  obligation,  it is
assumed health care costs for covered  individuals prior to age 65 will increase
by 6.65% in 2001 and that the rate of increase  thereafter  will  decrease to an
ultimate  rate of 5.50% by the year 2004.  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 2000 would  increase by $1.6 million,  and the  postretirement
benefit obligation at December 31, 2000, would increase by $16.5 million. If the
assumed  health care trend rates were to decrease by 1.0%, the total service and
interest  cost for 2000 would  decrease by $1.4  million and the  postretirement
benefit obligation at December 31, 2000, would decrease by $15.1 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 $7.4 million,  $6.2 million and $5.6 million for 2000,  1999
and 1998, 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):
<TABLE>
<CAPTION>

                                                            2000       1999       1998
                                                          --------   --------   --------
     <S>                                                  <C>        <C>        <C>
     Balance at year-end   .............................  $ 81,600   $204,000   $206,221
     Weighted average interest rate on year-end balance.       6.6%       6.3%       5.9%
     Average daily amount outstanding during the year...  $109,213   $133,792   $104,557
     Weighted average interest rate on average
        daily amount outstanding during the year........       6.2%       5.2%      5.6%
</TABLE>

     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.  MidAmerican  Energy  currently has in place a
$370.4  million  revolving  credit  facility  which  supports  its $250  million
commercial  paper  program  and its  variable  rate  pollution  control  revenue
obligations. In addition, MidAmerican Energy has a $5 million line of credit.

                                      -62-

<PAGE>

(7)  RATE MATTERS:

     Under a 1997  pricing  plan  settlement  agreement  resulting  from an Iowa
Utilities Board rate proceeding,  electric prices for MidAmerican  Energy's Iowa
industrial and commercial  customers were reduced  through a retail access pilot
project,  negotiated individual electric contracts and a tariffed rate reduction
for some non-contract commercial customers.

     The negotiated  electric  contracts have differing  terms and conditions as
well as prices. The vast majority of the contracts expire during the period 2003
through 2005,  although some large  customers have contracts  extending to 2008.
Some of the contracts have price renegotiation and early termination  provisions
exercisable  by either  party.  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.

     Under the 1997 pricing plan settlement  agreement,  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.  During 2000,  MidAmerican
Energy credited $14.8 million to its Iowa non-contract  customers related to the
return  calculation  for 1999,  which was approved by the Iowa Utilities  Board,
subject to additional refund. In 2000,  MidAmerican Energy accrued $21.6 million
for customer  credits  relating to 2000  operations.  This Iowa electric  retail
revenue  sharing  plan  remained  in effect  through  the year  2000.  The rates
established by the pricing plan settlement agreement will remain in effect until
either the plan is  renegotiated  or a change in rates is  approved  by the Iowa
Utilities Board pursuant to a rate proceeding.

     The pricing plan  settlement  agreement also precluded  MidAmerican  Energy
from filing for increased  rates prior to January 1, 2001 unless the return fell
below 9%. Other parties  signing the agreement were  prohibited  from filing for
reduced  rates  prior to 2001  unless the return,  after  reflecting  credits to
customers,  exceeded 14%. 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.

     Under an  Illinois  restructuring  law enacted in 1997,  a similar  sharing
mechanism is in place for MidAmerican Energy's Illinois electric  operations.  A
two-year  average  return on  common  equity  greater  than a  two-year  average
benchmark  will trigger an equal sharing of earnings on the excess.  MidAmerican
Energy's  computed  level of  return  on  common  equity  is based on a  rolling
two-year  average of the 30-year Treasury Bond rates plus a premium of 5.50% for
1998 and 1999 and a premium of 8.5% for 2000 through 2004. The two-year  average
above  which  sharing  must occur for 2000 was  12.83%.  Using the same  30-year
Treasury  Bond  average,  the computed  level of return would be 14.33% for 2001
through  2004.  The law allows  MidAmerican  Energy to  mitigate  the sharing of
earnings  above  the  threshold  return  on common  equity  through  accelerated
recovery of regulatory assets.

(8) CONCENTRATION OF CREDIT RISK:

     MidAmerican  Energy's  regulated  electric utility operations serve 582,000
customers in Iowa,  83,000  customers in western Illinois and 4,000 customers in
southeastern South Dakota. MidAmerican Energy's regulated gas utility operations
serve 508,000 customers in Iowa,  65,000 customers in western  Illinois,  69,000
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

                                      -63-
<PAGE>


Dakota.  MidAmerican  Energy's  utility  operations  grant  unsecured  credit to
customers,  substantially all of whom are local businesses and residents.  As of
December  31,  2000,  billed  receivables  from  MidAmerican   Energy's  utility
customers,  net of receivables sold, totaled $5.3 million.  As described in Note
(15), billed receivables  related to utility services have been sold to a wholly
owned unconsolidated subsidiary.

     MidAmerican  Energy  also  extends  unsecured  credit  to  utility  service
customers,  other  utilities  and marketers  for  nonregulated  electric and gas
transactions.   Strict  guidelines  are  established  regarding  the  amount  of
unsecured credit extended to individual  customers.  MidAmerican Energy's credit
exposure  to any  individual  did not exceed 7% of the $83.6  million of related
receivables outstanding at December 31, 2000.

(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  Preferred  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, 2000, are entitled to upon involuntary bankruptcy is $181.8 million
plus  accrued  dividends.   Annual  dividend   requirements  for  all  preferred
securities outstanding at December 31, 2000, total $12.9 million.

(10)  SEGMENT INFORMATION:

     MidAmerican  Energy  has  two  reportable  operating  segments:   regulated
electric and regulated  gas,  referred to as the electric and gas segments.  The
electric segment derives most of its revenue from retail sales of electricity to
residential,  commercial,  and industrial  customers and from wholesale 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 income or loss of investees
are allocated to each segment.

                                      -64-

<PAGE>


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

                                            2000           1999           1998
                                         -----------    -----------    -----------
<S>                                      <C>            <C>            <C>
SEGMENT PROFIT INFORMATION
--------------------------
Revenues:
  Electric ...........................   $ 1,212,411    $ 1,178,702    $ 1,169,810
  Gas ................................       656,560        454,802        429,870
  Nonregulated and other .............       449,218        157,532        107,509
                                         -----------    -----------    -----------
    Total ............................     2,318,189      1,791,036      1,707,189
                                         -----------    -----------    -----------

Depreciation and amortization expense:
  Electric ...........................       169,163        163,270        156,546
  Gas ................................        27,981         27,277         25,665
                                         -----------    -----------    -----------
    Total ............................       197,144        190,547        182,211
                                         -----------    -----------    -----------

Interest income:
  Electric ...........................        13,510          2,916          4,945
  Gas ................................         2,383            604          1,169
  Nonregulated and other .............            19             --              2
  Intersegment eliminations ..........          (413)          (480)            --
                                         -----------    -----------    -----------
    Total ............................        15,499          3,040          6,116
                                         -----------    -----------    -----------

Interest expense:
  Electric ...........................        56,132         62,394         66,784
  Gas ................................        12,759         13,247         14,011
  Nonregulated and other .............           425            480            149
  Intersegment eliminations ..........          (413)          (480)            --
                                         -----------    -----------    -----------
    Total ............................        68,903         75,641         80,944
                                         -----------    -----------    -----------

Income tax expense:
  Electric ...........................        96,726         86,315         75,831
  Gas ................................        13,972          5,205           (800)
  Nonregulated and other .............          (237)        (3,067)         1,011
                                         -----------    -----------    -----------
    Total ............................       110,461         88,453         76,042
                                         -----------    -----------    -----------

Earnings on common stock:
    Electric .........................       140,604        120,083        109,539
    Gas ..............................        19,227          6,521           (435)
    Nonregulated and other ...........           670         (4,228)         1,537
                                         -----------    -----------    -----------
       Total .........................       160,501        122,376        110,641
                                         -----------    -----------    -----------
</TABLE>

                                      -65-

<PAGE>

<TABLE>
<CAPTION>


                               2000         1999         1998
                            ----------   ----------   ----------
SEGMENT ASSET INFORMATION
-------------------------
<S>                         <C>          <C>          <C>
Total Assets:
  Electric ..............   $3,149,650   $2,904,935   $2,897,657
  Gas ...................      632,934      687,668      672,072
  Nonregulated and other.       40,982       16,988       15,801
                            ----------   ----------   ----------
    Total ...............    3,823,566    3,609,591    3,585,530
                            ----------   ----------   ----------

Capital expenditures:
  Electric ..............      179,033      169,261      158,596
  Gas ...................       36,694       34,314       34,758
  Nonregulated and other.        1,075          540       21,065
                            ----------   ----------   ----------
    Total ...............      216,802      204,115      214,419
                            ----------   ----------   ----------
</TABLE>

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

     As a result of an  intersegment  loan,  electric  segment  interest  income
includes $339,000 and $389,000, and gas segment interest income includes $74,000
and $91,000 for 2000 and 1999,  respectively.  Interest expense for nonregulated
and  other  includes  expense  of  $413,000  and  $480,000  for 2000  and  1999,
respectively.  These amounts were eliminated from  consolidated  interest income
and interest expense.

 (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.

     Gas futures  contracts and swaps - Fair value of the futures  contracts are
based on quoted market prices and generally have maturities of one year or less.
The fair value of the swaps is estimated  based on

                                     -66-

<PAGE>

quotes from the market makers of these  instruments and represents the estimated
amounts that would expect to be received or paid to  terminate  the  agreements.
See Note 1(i) for additional discussion of fair value.



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

                                                              2000                   1999
                                                       -------------------   -------------------
                                                       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   $ 50,700   $ 50,000   $ 52,025
  MidAmerican Energy-obligated preferred securities;
    subject to mandatory redemption ................    100,000     98,752    100,000     87,240
  Long-term debt, including current portion ........    921,682    925,349    870,499    853,015
</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):

<TABLE>
<CAPTION>
                                                         2000
                                    -------------------------------------------------
                                    Amortized   Unrealized   Unrealized       Fair
                                      Cost        Gains        Losses         Value
                                     --------    --------     ---------     ---------
     <S>                             <C>         <C>          <C>           <C>
     Available-for-sale:
       Equity Securities ........    $ 48,124    $ 30,714     $  (1,942)    $ 76,896
       Municipal Bonds ..........      27,758       1,071          (175)      28,654
       U.S. Government Securities      26,284       1,163            --       27,447
       Corporate Securities .....      14,709          48          (394)      14,363
       Cash equivalents .........       5,740          --            --        5,740
                                     --------    --------     ---------     --------
                                     $122,615    $ 32,996     $  (2,511)    $153,100
                                     ========    ========     =========     ========
</TABLE>

<TABLE>
<CAPTION>
                                                           1999
                                     -----------------------------------------------
                                     Amortized   Unrealized    Unrealized      Fair
                                       Cost        Gains        Losses        Value
                                     ---------   ----------    ----------    --------
     <S>                             <C>         <C>          <C>           <C>
     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 Debt Securities.      15,423           5          (492)      14,936
       Cash equivalents .........       3,969          --            --        3,969
                                     --------    --------     ---------     --------
                                     $112,385    $ 31,294     $  (2,033)    $141,646
                                     ========    ========     =========     ========
</TABLE>

                                      -67-

<PAGE>



     At December 31, 2000, 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..............     $ 1,722     $ 1,742
     1 through 5 years..........      34,281      35,028
     5 through 10 years.........       8,843       9,343
     Over 10 years..............      23,905      24,351

     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):

                                     2000     1999       1998
                                   -------   -------   --------

     Proceeds from sales.........  $34,279   $24,684   $29,380
     Gross realized gains........    3,356       615     1,073
     Gross realized losses.......   (4,515)   (2,704)   (2,690)

(12)  INCOME TAX EXPENSE:

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

<TABLE>
<CAPTION>
                                     2000           1999         1998
                                   ---------     ---------     --------
     <S>                           <C>           <C>           <C>
     Current
       Federal ................    $ 105,754     $  95,967     $ 69,266
       State ..................       32,450        29,553       25,154
                                   ---------     ---------     --------
                                     138,204       125,520       94,420
                                   ---------     ---------     --------
     Deferred
       Federal ................      (18,174)      (25,657)      (8,666)
       State ..................       (4,021)       (5,746)      (4,007)
                                   ---------     ---------     --------
                                     (22,195)      (31,403)     (12,673)
                                   ---------     ---------     --------

     Investment tax credit, net       (5,548)       (5,664)      (5,705)
                                   ---------     ---------     --------
       Total ..................    $ 110,461     $  88,453     $ 76,042
                                   =========     =========     ========
</TABLE>

                                      -68-
<PAGE>


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

                                                            2000        1999
                                                          --------    ---------
     Deferred tax assets related to:
         Investment tax credits ......................    $ 44,846    $ 48,427
         Pensions ....................................      17,820      14,595
         Nuclear reserves and decommissioning ........      20,690      20,280
         Other .......................................       1,138          --
                                                          --------    --------
                                                            84,494      83,302
                                                          --------    --------

     Deferred tax liabilities related to:
         Depreciable property ........................     421,481     424,306
         Income taxes recoverable through future rates     186,427     187,379
         Energy efficiency ...........................       4,391      14,806
         Reacquired debt .............................      10,256      13,117
         Other .......................................       2,547       4,694
                                                          --------    --------
                                                           625,102     644,302
                                                          --------    --------

     Net deferred income tax liability ...............    $540,608    $561,000
                                                          ========    ========

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

                                                    2000     1999      1998
                                                    -----    ----      ----

     Effective federal and state income tax rate     39%      40%      38%
     Amortization of investment tax credit .....      2        3        3
     State income tax, net of federal income
       tax benefit .............................     (7)      (7)      (7)
     Other .....................................      1       (1)       1
                                                    ---      ---      ---
     Statutory federal income tax rate .........     35%      35%      35%
                                                    ===      ===      ===

(13)  INVENTORIES:

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

                                                  2000       1999
                                                -------    -------

     Materials and supplies, at average cost    $26,038    $30,195
     Coal stocks, at average cost ..........     21,076     26,712
     Gas in storage, at LIFO cost ..........     18,413     21,449
     Fuel oil, at average cost .............      2,506      1,156
     Other .................................      1,097      1,137
                                                -------    -------
        Total ..............................    $69,130    $80,649
                                                =======    =======

     At December 31, 2000 prices, the current cost of gas in storage was $107.0
million.

                                      -69-

<PAGE>


(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.

     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 cash and a subordinated  note,  bearing interest at
8%, from MidAmerican  Energy Funding  Corporation.  As of December 31, 2000, the
revolving  cash balance was $70 million,  and the amount  outstanding  under the
subordinated note was $114.9 million. 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.  Therefore,  the accounts  receivable  sold are not  reflected on the
Consolidated  Balance Sheets.  At December 31, 2000,  $185.8 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 $1.9  million,  $7.7  million,  and $12.2  million  for 2000,  1999 and 1998,
respectively.  MidAmerican  Energy's  allocated  share

                                      -70-
<PAGE>


of these  costs and those  which  originated  at MHC was  $(0.3)  million,  $7.7
million and $15.3 million for 2000, 1999 and 1998, 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 $25.8  million,  $11.7 million and $3.2 million for 2000,  1999 and
1998, 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 $9.5  million and $5.0 million in
2000 and 1999, respectively, for its allocated share of corporate expenses.

     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 $0.4 million, $1.0 million and
$2.1 million for 2000, 1999 and 1998, 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 $1.3 million,
$4.0 million and $2.2 million for 2000, 1999 and 1998, respectively. MidAmerican
Energy  also sold  natural  gas to AmGas in the amount of $32.0  million,  $42.3
million and $24.8 million for 2000, 1999 and 1998, respectively.

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

     MidAmerican Energy had accounts  receivable from affiliates of $3.7 million
and $8.9  million  as of  December  31,  2000 and 1999,  respectively,  that are
included in Receivables on the Consolidated  Balance Sheets.  MidAmerican Energy
also had accounts  payable to affiliates of $2.5 million and $12.9 million as of
December 31, 2000 and 1999, respectively,  that are included in Accounts Payable
on the Consolidated Balance Sheets.

     MidAmerican  Energy has  entered  into an  agreement  with  Cordova  Energy
Company LLC, a subsidiary of MidAmerican  Energy Holdings,  to purchase electric
capacity  and  energy  from  a  gas-fired   generation   plant  currently  under
construction.  The plant is expected to be  commercially  operational by June 1,
2001.  The agreement,  which  terminates in May 2004,  provides for  MidAmerican
Energy to purchase up to 50% of the net  capacity of the plant and to supply the
fuel stock  required to generate  the energy  purchased.  MidAmerican  Energy is
required to pay monthly  capacity  charges once the plant  becomes  commercially
operational. The charges are expected to be approximately $24 million annually.

                                      -71-

<PAGE>


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

                                                                2000
                                         --------------------------------------------------
                                         1st Quarter  2nd Quarter  3rd Quarter  4th Quarter
                                         -----------  -----------  -----------  -----------
                                                          (In thousands)

<S>                                        <C>          <C>          <C>         <C>
     Operating revenues ..............     $514,852     $469,062     $553,433    $780,842
     Operating income ................       95,977       61,067      123,215      58,497
     Income from continuing operations       44,799       23,875       64,431      32,351
     Earnings on common stock ........       43,560       22,637       63,192      31,112

</TABLE>

<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>

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

(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):


                                               2000          1999         1998
                                             --------      -------      --------

     Discount on sold receivables ........   $(10,212)     $(9,457)     $(8,716)
     Subservicer fee for sold receivables       1,905        1,515        1,714
     Gain on sale of rail cars ...........         --        5,357           --
     Corporate-owned life insurance income      9,299          251        1,537
     Merger investigation costs ..........       (297)      (1,491)          --
     Other ...............................     (2,150)         126       (1,012)
                                             --------      -------      -------
       Total (expense) income ............   $ (1,455)     $(3,699)     $(6,477)
                                             ========      =======      =======

                                      -72-
<PAGE>


INDEPENDENT AUDITORS' REPORT


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

     We  have  audited  the   accompanying   consolidated   balance  sheets  and
consolidated  statements of  capitalization  of  MidAmerican  Energy Company and
subsidiaries  (Company)  as of  December  31,  2000 and  1999,  and the  related
consolidated statements of income,  comprehensive income, retained earnings, and
cash flows for the years then ended.  Our audits also included the 2000 and 1999
financial  statement  schedules  listed in the Index at Item 14. These financial
statements  and  financial  statement  schedules are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an  opinion  on the
financial  statements and financial statement schedules based on our audits. The
financial  statements  and financial  statement  schedule of the Company for the
year ended December 31, 1998 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 audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  such 2000 and 1999 consolidated  financial  statements  present
fairly, in all material  respects,  the financial position of MidAmerican Energy
Company and  subsidiaries  as of December 31, 2000 and 1999,  and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with accounting  principles  generally accepted in the United States of America.
Also, in our opinion,  such 2000 and 1999 financial  statement  schedules,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly  in all  material  respects  the  information  set forth
therein.



Des Moines, Iowa                                    DELOITTE & TOUCHE LLP
January 18, 2001

                                      -73-

<PAGE>

                                                                   SCHEDULE II


                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2000
                                 (IN THOUSANDS)


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

Reserves Deducted From Assets
  To Which They Apply:

  Reserve for uncollectible accounts:

    Year ended 2000...................  $     -    $ 8,498    $(8,396)   $   102
                                        =======    =======    =======    =======

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

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



Reserves Not Deducted From Assets (1):

   Year ended 2000....................  $ 8,051    $ 3,316    $(3,221)   $ 8,146
                                        =======    =======    =======    =======

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

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



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

                                      -74-

<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: February 28, 2001                           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                      February 28, 2001
---------------------------
  (David L. Sokol)



/s/ Gregory E. Abel             Chief Executive Officer       February 28, 2001
---------------------------
    (Gregory E. Abel)           and Director



/s/  Patrick J. Goodman         Senior Vice President and     February 28, 2001
---------------------------
    (Patrick J. Goodman)        Chief Financial Officer



/s/  Ronald W. Stepien          Director                      February 28, 2001
---------------------------
    (Ronald W. Stepien)



/s/  Steven A. McArthur         Director                      February 28, 2001
-----------------------------
    (Steven A. McArthur)



*By: /s/  Steven A. McArthur    Attorney-in-Fact              February 28, 2001
   --------------------------
         (Steven A. McArthur)

                                      -75-
<PAGE>



                                  EXHIBIT INDEX

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

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

23        Consent of Deloitte & Touche LLP


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.)

                                      -76-

<PAGE>

4.6       Fifth  Supplemental  Indenture  dated as of November 1, 1994,  between
          Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee.
          (Filed as Exhibit 4.6 to Midwest Resources' Annual Report on Form 10-K
          for the year ended December 31, 1994, Commission File No. 1-10654.)

4.7       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.)

                                      -77-

<PAGE>


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.)

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.)

                                      -78-
<PAGE>


10.16    Iowa Utilities Board  Settlement  Agreement (Filed as Exhibit 10.16 to
         MidAmerican  Energy's  Annual  Report on Form 10-K dated  December 31,
         2000, Commission File No. 1-11505).

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.



                                      -79-