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, 2001
                                            -----------------

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:  None.


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, $7.80 Series, no par value

                               Title of each Class

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

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

All common stock of MidAmerican Energy Company is held by MHC Inc. As of March
20, 2002, 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

                         2001 ANNUAL REPORT ON FORM 10-K

                                TABLE OF CONTENTS

                                   Part I                                  Page
Item 1    Business
            General Overview...............................................   3
            Financial Information About Industry Segments..................   3
            Description of Business........................................   3
              Regulated Electric Operations ...............................   5
              Regulated Natural Gas Operations.............................   8
              Nonregulated Operations......................................  10
              Regulation...................................................  11
Item 2    Properties.......................................................  15
Item 3    Legal Proceedings................................................  17
Item 4    Submission of Matters to a Vote of Security Holders..............  17

                                    Part II
Item 5    Market for the Registrant's Common Equity and
            Related Stockholder Matters....................................  18
Item 6    Selected Financial Data..........................................  18
Item 7    Management's Discussion and Analysis of Financial
            Condition and Results of Operations............................  18
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.......  18
Item 8    Financial Statements and Supplementary Data......................  18
Item 9    Changes in and Disagreements with Accountants
            on Accounting and Financial Disclosure.........................  18

                                   Part III
Item 10   Directors and Executive Officers of the Registrant...............  19
Item 11   Executive Compensation...........................................  20
Item 12   Security Ownership of Certain Beneficial Owners
            and Management.................................................  20
Item 13   Certain Relationships and Related Transactions...................  20

                                    Part IV
Item 14   Exhibits, Financial Statement Schedules and Reports on Form 8-K..  21
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 is 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.

(B)  FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     Financial  information  on  MidAmerican  Energy's  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 as of December 31, 2001, and revenues for 2001 totaling $3.6 billion
and $2.7 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, 2001,  MidAmerican Energy had
673,000 retail electric customers and 652,000 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 wholesale
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.

                                      -3-
<PAGE>

     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 2001 electric  operating  revenues or 4%
of its total 2001 gas operating margin.  Among the primary  industries served by
MidAmerican  Energy  are those  which are  concerned  with  food  products,  the
manufacturing,  processing and fabrication of primary metals,  real estate, farm
and other non-electrical machinery, and cement and gypsum products.

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

     For  the  year  ended  December  31,  2001,   MidAmerican   Energy  derived
approximately  48% of its gross operating  revenues from its regulated  electric
business,  32% from its  regulated  gas business  and 20% from its  nonregulated
business activities.  For 2000 and 1999, the corresponding  percentages were 48%
electric,  37% gas  and  15%  nonregulated;  and  63%  electric,  30% gas and 7%
nonregulated,  respectively.  The change in revenue mix is principally driven by
an  increase  in  natural  gas  prices  and in  nonregulated  natural  gas sales
activity.

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

                         Total Regulated Electric Sales
                                By Customer Class

                            2001      2000      1999
                            ----      ----      ----
Residential                 20.6%     20.7%     21.0%
Small General Service       15.3      15.9      16.7
Large General Service       25.8      28.6      26.9
Other                        7.3       5.4       4.5
Sales for Resale            31.0      29.4      30.9
                           -----     -----     -----

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

                         Regulated Retail Electric Sales
                                    By State

                            2001      2000      1999
                            ----      ----      ----
Iowa                        88.6%     89.3%     88.9%
Illinois                    10.6      10.0      10.4
South Dakota                 0.8       0.7       0.7
                           -----     -----     -----

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

                                      -4-
<PAGE>

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

                            Total Regulated Gas Sales
                                By Customer Class

                            2001      2000      1999
                            ----      ----      ----
Residential                 34.5%     34.9%     39.1%
Small General Service       18.2      17.4      19.8
Large General Service        1.5       2.2       2.4
Other                        1.7       1.2       1.7
Sales for resale            44.1      44.3      37.0
                           -----     -----     -----
Total                      100.0%    100.0%    100.0%
                           =====     =====     =====


                           Regulated Retail Gas Sales
                                    By State

                            2001      2000      1999
                            ----      ----      ----
Iowa                        78.9%     78.0%     78.8%
Illinois                     9.8      10.2      10.3
South Dakota                10.5      11.0      10.1
Nebraska                     0.8       0.8       0.8
                           -----     -----     -----

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  2001,  38% of  MidAmerican  Energy's  regulated
electric  revenues  were  reported  in the  months  of June,  July,  August  and
September,  and 59% of MidAmerican Energy's regulated gas revenues were reported
in the months of January, February, March and December.

     At December 31, 2001,  MidAmerican Energy had 3,768 full-time  employees of
which  1,756  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 1,675 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 August 2001,  MidAmerican  Energy  recorded an hourly peak demand of
3,758 MW, which was 75 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
2001 was 4,735 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 power purchase contracts.  The net
generating  capability at any time may be less than it would otherwise be due to
regulatory   restrictions,

                                      -5-
<PAGE>

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 2001.

     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 (MAPP).  MAPP is a voluntary  association  of
electric utilities doing business in Minnesota,  Nebraska,  North Dakota and the
Canadian  provinces of Saskatchewan and Manitoba and portions of Iowa,  Montana,
South Dakota and  Wisconsin.  Its  membership  also  includes  power  marketers,
regulatory agencies and independent power producers.  MAPP facilitates operation
of the transmission  system and is responsible for the safety and reliability of
the bulk electric system.

     In   November   2001,   MAPPCOR,   the   contractor   to  MAPP,   sold  its
transmission-related  assets  to the  Midwest  Independent  Transmission  System
Operator,  Inc.  (Midwest  ISO).  The  Midwest  ISO now has  responsibility  for
administration of MAPP's Open-Access Transmission Tariff.

     Each MAPP participant is required to maintain for emergency  purposes a net
generating capability reserve of at least 15% above its system peak demand. If a
participant's  capability  reserve  falls  below  the 15%  minimum,  significant
penalties could be contractually  imposed by MAPP.  MidAmerican Energy's reserve
margin at peak demand for 2001 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.  Refer to Item 2,
Properties, for detail of transmission lines.

     In December 1999, the Federal Energy  Regulatory  Commission  (FERC) 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  September  28, 2001
MidAmerican  Energy and five other electric utilities filed with the FERC a plan
to create  TRANSLink  Transmission  Company LLC and to integrate  their electric
transmission systems into a single, coordinated system operating as a for-profit
independent  transmission  company in conjunction with a FERC-approved  regional
transmission  organization.  FERC approval of the plan is pending.  Transferring
operation  and  control of  MidAmerican  Energy's  transmission  assets to other
entities could increase costs for MidAmerican Energy; however, the actual impact
of TRANSLink on MidAmerican Energy's future transmission costs is not yet known.

                                       -6-

<PAGE>

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,
                                2001         2000          1999
                               -----        -----         -----

     Coal                       74.4%        75.9%       70.9%
     Nuclear*                   24.3         23.6         28.2
     Gas*                        1.2          0.3          0.7
     Oil/Hydro                   0.1          0.2          0.2
                               -----       ------      -------
       Total                   100.0%       100.0%       100.0%
                               =====        =====        =====

     *Nuclear  and gas  include  generation  purchased  through  power  purchase
contracts  with Nebraska  Public Power  District and Cordova Energy Company LLC,
respectively. Refer to Item 2, Properties, for detail of generating facilities.

     MidAmerican   Energy  is  no  longer  allowed  to  recover  through  energy
adjustment  clauses a portion  of its energy  costs  relating  to retail  sales.
Accordingly,  fluctuations  in energy  costs  now  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.  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)(h) of Notes to  Consolidated  Financial  Statements in Part
IV, Item 14, of this Form 10-K.

     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  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  intermediate  and
peak demand electric generation,  igniter fuel, transmission support and standby
purposes.  These sources are presently in adequate  supply and available to meet
MidAmerican Energy's needs.

     MidAmerican  Energy has an  agreement  with Cordova  Energy  Company LLC, a
subsidiary of MidAmerican  Energy Holdings,  to purchase  electric  capacity and
energy from a gas-fired combined cycle generation plant which started commercial
operation in June 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.

                                      -7-
<PAGE>

     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.

     Approximately  one-third of the nuclear fuel assemblies in the core at Quad
Cities  Station  Units  1 and 2 is  replaced  every  24  months.  Unit 2 began a
refueling outage in February 2002 and Unit 1 is scheduled for the fall of 2002.

     MidAmerican  Energy has been advised by Exelon Generation that the majority
of its uranium  concentrate and uranium conversion  requirements for Quad Cities
Station through 2002 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 enrichment
services  contracted  through  2007  provide  flexibility  as  to  the  quantity
purchased.  Commitments for fuel fabrication have been obtained at least through
2007.  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  approximately  every 18 months.  A refueling  outage was  completed in
early  January 2002.  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 2005. 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.   Exelon  Generation  expects  the  bulk  of  the
construction work will be done in 2004.

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.

                                      -8-
<PAGE>

     MidAmerican Energy also transports through its distribution  system natural
gas  purchased  independently  by a number of end-use  customers.  During  2001,
approximately 31% of total gas delivered through 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 and South  Dakota  margins,  respectively,  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  has been  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 costs  with  customers.  A similar
program is in effect in South Dakota.  Since the  implementation of the program,
MidAmerican Energy has successfully achieved and shared savings with 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  2001/2002  winter  heating  season  peak-day  delivery of
932,615  MMBtus was reached on March 3, 2002.  This peak-day  delivery  included
approximately 73% traditional sales service and 27% transportation service.

     The supply  sources  utilized by  MidAmerican  Energy to meet its 2001/2002
peak-day deliveries to its traditional sales service customers were:

                                              Thousands       Percent
                                                 of             of
                                                MMBtus         Total
                                              ---------       -------
     Leased Storage and Peak Shaving Plants     260.3          38.4%
     Firm Supply                                418.1          61.6
                                                -----         -----
     Total                                      678.4         100.0%
                                                =====         =====

                                      -9-
<PAGE>

     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.  MidAmerican  Energy's  nonregulated  natural gas marketing  services
currently operate in Iowa, Illinois, Kansas, Ohio, South Dakota and other states
to a lesser extent. 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 124 million MMBtus,  78 million MMBtus,  and 43 million MMBtus for 2001,
2000 and 1999, respectively.

     As of December 31, 2000, all non-residential customers in Illinois had been
phased in to allow them to select their  provider of electric  supply  services.
Residential  customers  all 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):

                                2001    2000    1999
                                ----    ----    ----

Nonregulated wholesale gas      $400    $282    $100
Nonregulated retail gas          118      71       1
Nonregulated retail electric      10      17      11
Other                             16      20      10
                                ----    ----    ----
                                $544    $390    $122
                                ====    ====    ====

                                      -10-

<PAGE>

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

     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.

     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

                                      -11-
<PAGE>

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 allowing for increases,
until 2005.


     The  FERC  regulates   MidAmerican  Energy's  rates  charged  to  wholesale
customers.

     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.

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,  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 Department of Energy
disposal fee) based upon energy delivered.  MidAmerican Energy is not subject to
the jurisdiction of the Nuclear Regulatory Commission with respect to Cooper and
the long-term  power  purchase  contract with  Nebraska  Public Power  District.
Nebraska  Public  Power  District,  as the sole owner,  licensee and operator of
Cooper,  is thereby the only entity subject to the  jurisdiction  of the Nuclear
Regulatory  Commission with respect to Cooper.  Under the terms of the long-term
power purchase  contract,  Nebraska  Public Power District is required to assure
that  Cooper is in  compliance  with all of the  Nuclear  Regulatory  Commission
regulations.

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

     Federal  regulations  provide  that any nuclear  operating  facility may be
required to cease  operation  if the Nuclear  Regulatory  Commission  determines
there are deficiencies in state,  local or utility emergency  preparedness plans
relating  to such  facility,  and the  deficiencies  are not  corrected.  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

                                      -12-
<PAGE>

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  in the past.  MidAmerican  Energy is  currently
accumulating  funds in a separate  MidAmerican  Energy  bank  account.  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 2001 was $19.9 million. Refer to Note
(4)(g) - Cooper  Litigation,  in Notes to Consolidated  Financial  Statements in
Part IV, Item 14 of this Form 10-K for  discussion  of a  proceeding  related to
Cooper.

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

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

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

     Air Quality -

     Essentially all utility  generating  units are subject to the provisions of
the  Clean  Air  Act  Amendments  of 1990  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  60% 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.

     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
or 2004.

                                      -13-
<PAGE>

The cost to MidAmerican Energy of reducing its mercury emissions would depend on
available technology at the time, but could be material.

     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.

     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 has evaluated or is  evaluating 27 properties  that 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,  2001,  was $22  million.  The Illinois
Commerce Commission has approved the use of a tariff rider that permits recovery
of the actual costs of litigation,  investigation  and  remediation  relating to
former manufactured gas plant sites.  MidAmerican Energy's present rates in Iowa
provide for a fixed annual recovery of manufactured gas plant costs.

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

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

                                      -14-

<PAGE>

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.

                                      -15-
<PAGE>

     The net accredited  generating capacity of MidAmerican  Energy,  along with
participation purchases and sales, net, are shown for summer 2001 accreditation.
<TABLE>
<CAPTION>

                                                                        Company's Share of
                                                   Percent             Accredited Generating
                       Plant                      Ownership  Fuel          Capability (MW)
     ------------------------------------------    ---------  ----      ----------------------
     <S>                                            <C>       <C>            <C>
     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             368
       Riverside Station
         Unit No. 3                                 100.0     Coal               5
         Unit No. 5                                 100.0     Coal             130
                                                                             -----
                                                                             2,851
                                                                             -----
     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)      Nuclear         379
       Quad Cities Station
         Unit No. 1                                  25.0      Nuclear         190
         Unit No. 2                                  25.0      Nuclear         193
                                                                             -----
                                                                               762
                                                                             -----

     Combined Cycle:  Cordova Energy Center           (2)      Gas             250

     Hydro:   Moline - 4 units                       100.0     Water             3

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

     Net Accredited Generating Capacity                                      4,711
     Participation Purchases and Sales, Net                                     24
                                                                             -----
     Total Net Accredited Generating Capability                              4,735
                                                                             =====
</TABLE>

     (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 contract extending to September 2004.

     (2)  Cordova is owned by  Cordova  Energy  Company  LLC,  a  subsidiary  of
          MidAmerican  Energy  Holdings.  The amount shown above is  MidAmerican
          Energy's  entitlement (50%) of Cordova's net accredited capacity under
          a purchase power contract extending to May 2004.

                                      -16-

<PAGE>


     The  electric  transmission  system of  MidAmerican  Energy at December 31,
2001, included 897 miles of 345-kV lines and 1,122 miles of 161-kV lines.

     The gas distribution facilities of MidAmerican Energy at December 31, 2001,
included 20,561 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 79% 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 and 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
-----------------

     Information on MidAmerican  Energy's  litigation with Nebraska Public Power
District regarding Cooper Nuclear Station is included in Note (4)(g) of Notes to
Consolidated Financial Statements.

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

None.

                                      -17-

<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 Note (1)(i) - "Accounting for Derivatives" in Notes to
Consolidated Financial Statements 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.

                                      -18-
<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 as
                          Present                        Present       Director
Name                Age   Position                    Position Since     Since
----                ---   --------                    --------------   ---------


David L. Sokol       45   Chairman and Director            1999          1999

Gregory E. Abel      39   President, Chief Executive
                            Officer and Director           2002          1999

Jack L. Alexander    54   Senior Vice President            1998

Douglas L. Anderson  44   Senior Vice President            2001          2001

Patrick J. Goodman   35   Senior Vice President,
                            Chief Financial Officer
                            and Director                   1999          1999

Keith D. Hartje      52   Senior Vice President            1999

Todd M. Raba         45   Senior Vice President            2001

     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
and President since January 1, 2002. Mr. Abel joined MidAmerican Energy Holdings
in  1992.  Mr.  Abel is a  Chartered  Accountant  and  from  1984 to 1992 he was
employed  by  PriceWaterhouse.  As a  Manager  in the San  Francisco  office  of
PriceWaterhouse, he was responsible for clients in the energy industry.

                                      -19-
<PAGE>

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.

DOUGLAS L. ANDERSON

     Senior Vice  President and Director of  MidAmerican  Energy since May 2001.
Mr.  Anderson  joined  MidAmerican  Energy  Holdings  in 1993 and has  served in
various  legal  positions   including  General  Counsel  of  MidAmerican  Energy
Holdings'  independent power  affiliates.  From 1990 to 1993, Mr. Anderson was a
corporate  attorney  with Fraser,  Stryker.  Prior to that,  Mr.  Anderson was a
principal in the firm Anderson and Anderson.

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 1996 to March 1999, and held
various  executive and  management  positions  with  MidAmerican  Energy and its
predecessors for more than five years prior thereto.

TODD M. RABA

     Senior Vice  President  of  MidAmerican  Energy  since July 2001.  Mr. Raba
joined  MidAmerican  Energy  in  1997  as  Vice  President.   Prior  to  joining
MidAmerican  Energy,  he was employed  for 13 years with  Rollins  Environmental
Services.

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.

                                      -20-

<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...........................    22
       Management's Discussion and Analysis of Financial Condition
         And Results of Operations....................................    23
       Consolidated Statements of Income
         For the Years Ended December 31, 2001, 2000 and 1999.........    39
       Consolidated Statements of Comprehensive Income
         For the Years Ended December 31, 2001, 2000 and 1999.........    40
       Consolidated Balance Sheets
         As of December 31, 2001 and 2000 ............................    41
       Consolidated Statements of Cash Flows
         For the Years Ended December 31, 2001, 2000 and 1999.........    42
       Consolidated Statements of Capitalization
         As of December 31, 2001 and 2000 ............................    43
       Consolidated Statements of Retained Earnings
         For the Years Ended December 31, 2001, 2000 and 1999.........    44
       Notes to Consolidated Financial Statements.....................    45
       Independent Auditors' Report...................................    73


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

     The  following   schedule 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.

                                      -21-

<PAGE>

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

                                                                    DECEMBER 31
                                          --------------------------------------------------------------
                                             2001         2000         1999         1998         1997
                                          ----------   ----------   ----------   ----------   ----------

<S>                                       <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Revenues ..............................   $2,731,073   $2,532,359   $1,860,274   $1,744,978   $1,748,459
Operating income ......................      333,574      338,756      300,064      280,920      287,309
Net income from continuing operations .      152,778      165,456      127,331      115,593      125,941
Earnings on common from
    continuing operations .............      148,234      160,501      122,376      110,641      119,453

BALANCE SHEET DATA:
Total assets ..........................   $3,577,892   $3,823,566   $3,609,591   $3,585,530   $3,542,307
Long-term debt (a) ....................      820,594      921,682      870,499      930,966    1,044,663
Power purchase obligation (a) .........       25,867       52,282       68,049       83,127       97,504
Short-term borrowings .................       89,350       81,600      204,000      206,221      122,500
Preferred stock:
    Not subject to mandatory redemption       31,759       31,759       31,759       31,759       31,763
    Subject to mandatory redemption (b)      126,680      150,000      150,000      150,000      150,000
Common shareholder's equity ...........    1,219,057    1,161,968    1,057,855      972,278      985,744
</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.

                                      -22-


<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.

                                      -23-

<PAGE>

REGULATED GROSS MARGIN

Regulated Electric Gross Margin:
--------------------------------
                                            2001         2000           1999
                                           ------       ------         ------
                                                    (In millions)
     Operating revenues                    $1,318       $1,212         $1,179
     Cost of fuel, energy and capacity        276          249            223
                                           ------       ------         ------
       Electric gross margin               $1,042       $  963         $  956
                                           ======       ======         ======

     2001 vs. 2000

     Electric gross margin for 2001,  increased $79 million compared to 2000 due
principally to an improvement in wholesale sales margins.

     MidAmerican  Energy's  margins on wholesale  sales  increased $63.5 million
compared to 2000.  The increase was due to an increase in the average margin per
unit sold and an 11.7%  increase  in related  sales  volumes  compared  to 2000.
Wholesale  sales are the delivery of energy to other  utilities,  municipalities
and marketers outside of MidAmerican Energy's delivery system.

     Additionally,  electric margin for 2001 increased $21.6 million compared to
2000 due to a refund accrual in 2000 that reduced  electric  margin.  The refund
accrual was for a revenue sharing  arrangement in Iowa that terminated  December
31,  2000.  Refer to "Rate  Matters"  in the  "Operating  Activities  and  Other
Matters" section of MD&A for a discussion of the current arrangement.

     The impact of temperatures increased electric gross margin approximately $2
million compared to 2000.  Temperature  conditions  during the cooling season in
2001 were slightly hotter than 2000 while temperatures during the heating season
in 2001 were slightly milder than in 2000.  Other usage factors not dependent on
weather  increased  electric margin by $9.7 million  compared to 2000. In total,
retail sales of electricity increased 3.2% in 2001.

     In 2001,  MidAmerican  Energy  recorded  gains  from the sales of  emission
allowances  which  improved  electric  margin by $3.3 million  compared to 2000.
Revenues from transmission  services increased $4.0 million compared to 2000 due
to additional revenues from the Mid-Continent Area Power Pool.

     An  increase  in the  average  cost of energy per unit sold for Iowa retail
sales  reduced  electric  gross margin by $20.3  million  compared to 2000.  The
increase  in the  average  cost  of  energy  per  unit  sold  was due in part to
increased coal costs and increased use of combustion turbines and combined cycle
plants.

     Electric  revenues  from the recovery of energy  efficiency  program  costs
decreased  $6.0  million  compared  to  2000.  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 occurred over a four-year period from the date collection began
for each  phase.  The  decrease  in 2001 of the  recovery  of energy  efficiency
program  costs  is due to  completion  in  2001  of the  final  recovery  phase.
Approximately $28.8 million of MidAmerican  Energy's 2001 electric revenues were
from the recovery of energy  efficiency  program costs compared to $34.8 million
in 2000.

                                      -24-

<PAGE>

     2000 vs. 1999

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

     MidAmerican  Energy's  margins on wholesale  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.

     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.
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.

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

Regulated Gas Gross Margin:
---------------------------
                                2001    2000     1999
                               -----    -----    ----
                                   (In millions)
     Operating revenues        $ 869    $ 930    $ 560
     Cost of gas sold            675      721      364
                               -----    -----    -----
       Gas gross margin        $ 194    $ 209    $ 196
                               =====    =====    =====

         2001 vs. 2000

     Regulated gas revenues  include  purchase gas  adjustment  clauses  through
which  MidAmerican  Energy is allowed  to recover  the cost of gas sold from its
retail gas utility customers. Consequently, fluctuations in the cost of gas sold
do not affect gross margin or net income  because  revenues  reflect  comparable
fluctuations from purchase gas adjustment clauses.

                                      -25-
<PAGE>

     Warmer  temperature  conditions  in the second and fourth  quarters of 2001
compared  to the same  quarters in 2000 and  conservation  by  customers  due to
higher prices in early 2001 resulted in  approximately a $9 million  decrease in
gas margin  compared to 2000.  Other  usage  factors  not  dependent  on weather
resulted in a $4.7 million  decrease in gas margin  compared to 2000.  In total,
retail sales of natural gas decreased 7.2% compared to 2000. The decrease in gas
margin due to warmer  temperature  conditions was partially  mitigated by a $1.7
million gain on a weather derivative financial instrument.

     Recovery of gas energy  efficiency  costs  decreased  $1.2 million for 2001
compared to 2000 due to the completion of the final  four-year  recovery  phase.
Consistent  with  electric  revenues,   changes  in  gas  revenues  from  energy
efficiency cost recovery are  substantially  offset by corresponding  changes in
other operating expenses. Additionally, margin on gas transported decreased $1.1
million.

     2000 vs. 1999

     In 2000,  MidAmerican  Energy's per-unit cost of gas increased  compared to
1999, which resulted in a $285 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.

REGULATED OPERATING EXPENSES

     Other Operating Expenses -

     Regulated  other  operating  expenses  increased  $15.2  million  for  2001
compared  to 2000.  Increases  include a $15.9  million  increase in pension and
other  post-employment  benefits costs, a $6.7 million increase in the allowance
for  uncollectible  accounts,  a $5.5 million increase in Cooper Nuclear Station
costs  and a  $4.2  million  increase  in  electric  distribution  expense.  The
increases  were  partially  offset by a $7.3  million  reduction  in Quad Cities
Station  operating  expenses,  a $4.5  million  reduction  in energy  efficiency
amortization and program costs and decreases in various other costs.

     Other operating expenses decreased $26.8 million for 2000 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

                                      -26-
<PAGE>

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.

     Maintenance -

     Maintenance  expenses for 2001 compared to 2000  increased  $11.3  million.
Fossil fuel generating plant maintenance expenses increased $8.6 million,  while
maintenance  costs for Quad Cities  Station  (nuclear)  decreased  $5.7 million.
Electric distribution system maintenance increased $5.4 million in part due to a
more aggressive  tree-trimming  program.  Gas distribution  maintenance expenses
increased $3.0 million.  Maintenance  expenses for 2000 increased  $11.0 million
compared to 1999 due to  reliability  maintenance  at  generating  plants and an
increase  in  forestry   service   costs  and  related   overhead   distribution
maintenance.

     Depreciation and Amortization -

     Depreciation  and  amortization  expense  increased  $53.2  million in 2001
compared to 2000.  During 2001,  MidAmerican  Energy  recorded  $47.1 million of
amortization  expense related to the establishment of a regulatory liability for
a revenue  sharing  arrangement  in Iowa.  The Iowa  Utilities  Board approved a
settlement  agreement,  which  includes  the  revenue  sharing  arrangement,  in
December 2001.  Refer to "Rate  Matters" in the "Operating  Activities and Other
Matters"  section of MD&A for further  discussion.  In addition,  utility  plant
depreciation  expense increased as a result of an increase in depreciation rates
in 2001 and an increase in utility plant.

     Depreciation  and  amortization  expense  increased  $6.6  million  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.  Depreciation  expense  related to  nuclear  decommissioning  funding  for
MidAmerican Energy's Illinois operations decreased for 2000 compared to 1999.

     Property and Other Taxes -

     Property  and  other  taxes  decreased  for 2001 and 2000  compared  to the
respective  prior years due  principally to a reduction in MidAmerican  Energy's
Iowa property tax assessed values.

NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES

     Nonregulated Gas Gross Margin -

                              2001      2000      1999
                             ------    ------    ------
                                   (In millions)
     Operating revenues....  $518.3    $353.0    $100.4
     Cost of gas sold......   509.7     349.9      99.1
                             ------    ------    ------
       Gross margin........  $  8.6    $  3.1    $  1.3
                             ======    ======    ======

     The nonregulated  natural gas marketing  operations  include  wholesale and
retail  activities.  Approximately 77% of the nonregulated  natural gas revenues
for 2001 are from wholesale sales.

     Gross margin for the  nonregulated  natural gas  operations  increased $5.5
million to $8.6 million for

                                      -27-
<PAGE>

2001 compared to 2000. The  improvement in gross margin  reflects an increase in
margin  per unit and sales  volumes.  Revenues  from  nonregulated  natural  gas
operations increased $165.3 million compared to 2000. Sales volumes increased 47
million  MMBtus (60%)  resulting  in a $212.0  million  increase in revenues.  A
decrease in the average price per unit sold,  reflective of a 9% decrease in the
average  cost of gas,  partially  offset  the  increase  due to  sales  volumes,
reducing  revenues by $46.7  million.  Related  cost of sales  increased  $159.8
million for 2001 due to the increase in sales volumes,  offset  partially by the
decrease in the average cost of gas.

     Revenues  from  nonregulated  natural gas  marketing  operations  increased
$252.6  million for 2000  compared to 1999. An increase in the average price per
unit sold,  reflective  of a 95% increase in the average cost of gas,  accounted
for $171.2  million of the  increase in  revenues.  Sales  volumes  increased 35
million  MMBtus (81%)  resulting in an $81.4 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 $250.8
million  increase in related cost of sales  reflects  the  increases in cost per
unit sold and sales volumes.

     Other Nonregulated Revenues and Cost of Sales -

     As of December 31, 2000, all non-residential customers in Illinois had been
phased in to allow  them to  select  their  electric  power  supplier.  For 2001
compared to 2000,  gross margin related to these sales increased $4.4 million to
$4.5  million.  No  revenues or cost of sales were  incurred in 1999  related to
these activities.

     Nonregulated  revenues  for 2001  include  $6.2  million  from  MidAmerican
Energy's market access service  project,  compared to $17.9 million in 2000; the
related cost of sales  totaled $5.4 million for 2001 and $16.9 million for 2000.
The pilot project,  which  concluded in May 2001,  allowed larger Iowa customers
that were  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.  In 1999,  revenues and cost of sales  related to the market
access service project totaled $10.9 million and $9.7 million, respectively.

     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 $4.1 million,  $3.9 million and
$1.6 million in 2001, 2000 and 1999, respectively.

     MidAmerican  Energy  performs work for its customers that is not regulated,
including  distribution  maintenance.  In mid-2000,  an affiliated company began
doing most of this work. Accordingly, nonregulated revenues and costs related to
these  activities  decreased  for  MidAmerican  Energy in 2001 compared to 2000.
Increased  efforts in these  services  in 2000  contributed  to the  increase in
nonregulated revenues for 2000 compared to 1999.

                                      -28-

<PAGE>


     Nonregulated Operating Expenses: Other -

     Other operating  expenses for MidAmerican  Energy's  nonregulated  services
decreased  $2.3 million in 2001 compared to 2000 and increased  $3.5 million for
2000 compared to 1999.  The variances  were due  principally to costs related to
nonregulated distribution services performed for customers,  which, beginning in
mid-2000, were performed by an affiliate of MidAmerican Energy.

NON-OPERATING INCOME AND INTEREST EXPENSE

     Interest and Dividend Income-

     Interest  income  and  dividend  income  decreased  $2.4  million  for 2001
compared to 2000. A decrease in interest  from a joint plant  operator for funds
held by it reduced interest income by approximately $2.3 million, while interest
related to income tax refunds  decreased  $6.1 million.  A reduction in interest
rates also reduced  interest  income for 2001.  Interest  income  increased $5.4
million  compared to 2000 for interest  income on a note  receivable  related to
MidAmerican  Energy's  accounts  receivable  sold.  The  increase  in  the  note
receivable  is a result  of the  increased  balance  in  receivables  sold.  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 it 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.

     Other, Net -

     Other,  Net, which includes a number of non-operating  income and deduction
items,  decreased  Non-Operating  Income by $5.8 million,  $1.5 million and $3.7
million in 2001, 2000 and 1999, respectively.

     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 $13.1
million, $8.3 million and $7.9 million in 2001, 2000 and 1999, respectively.

     Income  related  to  the  cash  surrender  value  of  corporate-owned  life
insurance policies totaled $5.3 million, $9.3 million and $0.3 million for 2001,
2000 and 1999,  respectively.  The income for 2001  includes a gain from  common
stock  received as a result of an initial stock offering by one of the insurance
providers.  Income for 2000  includes  $7.4 million  related to benefits paid on
several policies.

     Other,  Net for 2001  reflects  $1.6 million of income for an allowance for
equity  funds  used  during   construction.   As  a  regulated  public  utility,
MidAmerican  Energy is allowed to  capitalize,  and record as income,  a cost of
construction for equity funds used, based on guidelines set forth by the Federal
Energy Regulatory Commission.

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

                                      -29-

<PAGE>


     Fixed Charges and Preferred Dividends -

     MidAmerican  Energy's interest on long-term debt decreased in 2001 and 2000
compared to their  respective  prior years due to long-term  debt  maturities in
each year and,  for 2001  compared  to 2000,  a reduction  in interest  rates on
variable rate debt. The decreases for 2001 were partially  offset by an increase
resulting from the issuance of $162 million of medium-term notes in July 2000.

     Preferred  dividends decreased due to the reacquisition of preferred shares
in April and  November  2001. A loss of $0.2  million on those  acquisitions  is
reflected in preferred dividends.

                                      -30-

<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 $476 million,  $359
million and $330 million in 2001, 2000 and 1999, respectively.

     INVESTING ACTIVITIES AND PLANS

     Utility Construction Expenditures -

     MidAmerican  Energy's  primary  need for  capital is  utility  construction
expenditures.  For the  year  ended  December  31,  2001,  utility  construction
expenditures  totaled $250  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 $332 million for 2002 and $1.614 billion for 2003
through 2006. Capital expenditure needs are reviewed regularly by management and
may change significantly as a result of such reviews.  Through 2007, MidAmerican
Energy plans to develop and  construct two electric  generating  plants in Iowa,
requiring an investment of approximately  $1.8 billion.  Participation by others
in a portion of the second plant is being discussed. The two plants will provide
approximately  1,400  megawatts of generating  capacity.  The first project is a
540-megawatt  natural  gas-fired  combined  cycle unit with an estimated cost of
$416 million.  MidAmerican  Energy  expects to begin  construction  on the first
project in Spring 2002  following  receipt of all  regulatory  approvals.  It is
anticipated  that the first phase of the project  will be completed in 2003 with
the remainder being completed in 2005. MidAmerican Energy presently expects that
all utility  construction  expenditures for the next five years will be met with
the issuance of long-term debt and 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 2002 through 2006 to external  trusts  established  for the investment of
funds for  decommissioning  Quad Cities Station.  Approximately  60% of the fair
value of the trusts' funds is now invested in domestic corporate debt and common
equity  securities.  The remainder is invested in investment grade municipal and
U.S. Treasury bonds. Funding for Quad Cities Station nuclear  decommissioning is
reflected in Depreciation  and  Amortization in the  Consolidated  Statements of
Income.

     Based on  information  presently  available  and assuming a September  2004
shutdown  of Cooper,  MidAmerican  Energy  expects to accrue  approximately  $54
million for Cooper  decommissioning during the period 2002 through 2004. Amounts
related to Cooper  decommissioning  are reflected in Other Operating Expenses in
the Consolidated Statements of Income.  MidAmerican Energy's obligation, if any,

                                      -31-
<PAGE>

for Cooper  decommissioning  will be affected by the actual plant shutdown date.
In July 1997,  the  Nebraska  Public  Power  District  filed a lawsuit in United
States District Court for the District of Nebraska naming  MidAmerican Energy as
the defendant  and seeking a  declaration  of  MidAmerican  Energy's  rights and
obligations in connection with Cooper nuclear decommissioning  funding. Refer to
Note (4)(g) of Notes to Consolidated Financial Statements in Part IV, Item 14 of
this Form 10-K 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.

     Contractual Obligations and Commercial Commitments -

     MidAmerican  Energy has  various  contractual  obligations  and  commercial
commitments.  Following is a table  summarizing,  as of December  31, 2001,  the
material cash obligations of MidAmerican Energy (in millions).
<TABLE>
<CAPTION>

                                                                   Period Payments are Due
                                                             ------------------------------------
                                                                       2003 -    2005 -     After
                                                   Total      2002      2004      2006      2006
                                                 --------    ------    ------    ------    ------
Type of Obligation:
-------------------
<S>                                              <C>         <C>       <C>       <C>       <C>
Long-term debt, excluding unamortized
  debt premium and discount, net                 $  821.6    $163.9    $161.3    $251.0    $245.4
Mandatorily redeemable preferred securities          26.7       6.7      13.3       6.7       -
Mandatorily redeemable preferred
  securities of subsidiary trust (1)                100.0       -         -         -       100.0
Operating leases (2)                                 12.9       5.5       5.7       1.2       0.5
Power purchase contract                              25.9      17.4       8.5       -         -
Coal, electricity and natural gas
  contract commitments (2)                          531.2     182.2     240.8      67.9      40.3
                                                 --------    ------    ------    ------    ------
  Total                                          $1,518.3    $375.7    $429.6    $326.8    $386.2
                                                 ========    ======    ======    ======    ======
</TABLE>

(1)  The mandatorily  redeemable  preferred  securities of subsidiary trust were
     redeemed on March 11, 2002.

(2)  The operating  leases and fuel and energy  commitments are not reflected on
     the Consolidated Balance Sheets.  Refer to Note (4)(h) in Notes to
     Consolidated Financial Statements for a discussion of these commitments.

     The above  table  includes  MidAmerican  Energy's  unconditional  purchase
obligations.  MidAmerican Energy has other types of commitments that are subject
to change and relate primarily to the following:

     -    Construction  expenditures  (see Note (4)(a) in Notes to  Consolidated
          Financial Statements)

     -    Manufactured  gas  plant  facilities  (see  Note  (4)(b)  in  Notes to
          Consolidated Financial Statements)

     -    Nuclear   decommissioning   costs   (see  Note   (4)(e)  in  Notes  to
          Consolidated Financial Statements)

                                     -32-
<PAGE>

FINANCING ACTIVITIES, PLANS AND AVAILABILITY

     Debt Authorizations 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  $500 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.

     On  February  8, 2002,  MidAmerican  Energy  issued  $400  million of 6.75%
medium-term notes due in 2031.  The proceeds will be used to refinance  existing
debt and preferred  securities and for other  corporate  purposes.  On March 11,
2002,  MidAmerican  Energy redeemed all of its  MidAmerican-obligated  preferred
securities  of  subsidiary  trust at 100% of the  principal  amount plus accrued
interest.

     MidAmerican Energy has on file with the Securities and Exchange  Commission
a  registration  statement  for $500  million  in  various  forms of senior  and
subordinated, unsecured long-term debt and preferred securities, $100 million of
which  remains  available   following  the  issuance  of  the  $400  million  of
medium-term notes discussed above.

     MidAmerican  Energy has  authorization  from the Federal Energy  Regulatory
Commission  to  issue up to an  additional  $100  million  in  various  forms of
long-term debt  following the issuance of the $400 million of medium-term  notes
discussed  above.  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 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 October  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, 2001, the
revolving cash balance was $44 million, down $26 million from December 31, 2000,
and the amount  outstanding under the subordinated  note was $28.7 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, 2001, $71.5 million of accounts  receivable,  net of reserves,  was
sold under the agreement.

                                     -33-
<PAGE>

OPERATING ACTIVITIES AND OTHER MATTERS

     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 also  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 5.5% for 1998 and 1999 and a premium of 8.5% for 2000 through 2004.
The two-year average above which sharing must occur for 2001 was 14.34%. The law
allows  MidAmerican  Energy  to  mitigate  the  sharing  of  earnings  above the
threshold  return on common equity  through  accelerated  recovery of regulatory
assets.

     The energy crisis and related events in California has heightened  concerns
nationally about deregulation of the electric utility industry. Accordingly, the
pace of deregulation in Iowa and elsewhere has slowed considerably.  MidAmerican
Energy will continue to work with  regulators and  legislators  on  deregulation
issues.

     In December 1999, the Federal Energy  Regulatory  Commission  (FERC) 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 September  28, 2001,
MidAmerican  Energy and five other electric utilities filed with the FERC a plan
to create  TRANSLink  Transmission  Company LLC and to integrate  their electric
transmission systems into a single, coordinated system operating as a for-profit
independent  transmission  company in conjunction with a FERC-approved  regional
transmission  organization.  FERC approval of the plan is pending.  Transferring
the operation and control of MidAmerican  Energy's  transmission assets to other
entities could increase costs for MidAmerican Energy; however, the actual impact
of TRANSLink on MidAmerican Energy's future transmission costs is not yet known.

     Critical Accounting Policies -

          Accounting for Regulatory Entities
          ----------------------------------

     MidAmerican Energy's significant  accounting policies are described in Note
(1) of Notes to Consolidated  Financial  Statements.  MidAmerican  Energy's most
critical  accounting  policy  is  the  application  of  Statement  of  Financial
Accounting Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types
of Regulation."

     A possible consequence of deregulation in the utility industry is that SFAS
No. 71 may no longer apply.  SFAS No. 71 sets forth  accounting  principles  for
operations that are regulated and meet the stated criteria.  For operations that
meet the  criteria,  SFAS No. 71 allows,  among other  things,  the  deferral of
expense or income that would otherwise be recognized when incurred.  MidAmerican
Energy's  electric  and gas  utility  operations  currently  meet  the  criteria
required by SFAS No. 71, but its  applicability is

                                      -34-
<PAGE>

periodically  reexamined.  If portions of its utility  operations no longer meet
the criteria of SFAS No. 71,  MidAmerican  Energy could be required to write off
the related  regulatory assets and liabilities from its balance sheet, and thus,
a material  adjustment  to earnings in that period  could  result if  regulatory
assets  are  not  recovered  in  transition   provisions  of  any   deregulation
legislation.  As of December 31, 2001,  MidAmerican Energy had $221.1 million of
regulatory   assets  and  $62.4  million  of  regulatory   liabilities   on  its
Consolidated Balance Sheet.

     Other  accounting  policies that  MidAmerican  Energy believes are critical
include the following:

          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.

          Accounting for Derivatives and Energy Trading Activities
          --------------------------------------------------------

     MidAmerican Energy accounts for its energy trading activities in accordance
with  Emerging  Issues Task Force  (EITF)  Issue No.  98-10 and SFAS No. 133, as
amended  and  interpreted,  which  require  certain  energy  trading  and energy
derivative contracts to be accounted for at fair value.

     EITF 98-10 also allows two methods of recognizing  energy trading contracts
in the income  statement.  The  "gross"  method  provides  that  energy  trading
contracts are recorded at their full value in revenues and  expenses.  The other
method is the "net"  method in which  revenues  and expenses are netted and only
the trading margin is reflected in revenues.  MidAmerican  Energy uses the gross
method for those energy trading contracts for which they have a choice.

     Accounting for derivatives  continues to evolve through  guidance issued by
the Derivatives Implementation Group (DIG) of the Financial Accounting Standards
Board  (FASB).  To the extent that changes by the DIG modify  current  guidance,
including the normal  purchases and normal sales  determination,  the accounting
treatment for derivatives may change.

     See Note (1)(i) in Notes to Consolidated  Financial  Statements for further
discussion related to accounting for derivatives.

          Contingent Liabilities
          ----------------------

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

     New Accounting Pronouncements -

     In July 2001, the FASB issued SFAS No. 141,  "Business  Combinations",  and
SFAS No. 142, "Goodwill and Other Intangible Assets" which establish  accounting
and  reporting  for  business

                                      -35-
<PAGE>

combinations.  SFAS No. 141  requires  all  business  combinations  entered into
subsequent to June 30, 2001,  to be accounted  for using the purchase  method of
accounting. SFAS No. 142 provides that goodwill and other intangible assets with
indefinite  lives will not be amortized but will be tested for  impairment on an
annual basis. These standards were effective for MidAmerican Energy beginning on
January  1,  2002.  MidAmerican  Energy  does not  anticipate  any impact on its
results of  operations,  cash flows or financial  condition as a result of these
standards.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  For Asset
Retirement  Obligations." SFAS No. 143 requires recognition on the balance sheet
of legal  obligations  associated with the retirement of long-lived  assets that
result from the acquisition,  construction,  development and/or normal operation
of such assets.  SFAS No. 143 is effective for fiscal years beginning after June
15, 2002.  MidAmerican  Energy is evaluating the impact of this pronouncement on
its balance sheet,  but does not believe adoption will have a material impact on
its results of operations.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or Disposal of  Long-Lived  Assets,"  which  addresses the financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
This  standard  was  effective  for  MidAmerican  Energy  on  January  1,  2002.
MidAmerican  Energy does not anticipate any impact on its results of operations,
cash flows or financial condition as a result of implementing this standard.

     Rate Matters -

     In 1997,  pursuant to a rate  proceeding  before the Iowa Utilities  Board,
MidAmerican  Energy,  the Office of Consumer  Advocate and other parties entered
into a pricing plan settlement agreement establishing  MidAmerican Energy's Iowa
retail electric rates. That settlement agreement expired on December 31, 2000.

     On March 14,  2001,  the Office of the Consumer  Advocate  filed a petition
with  the  Iowa  Utilities  Board  to  reduce  Iowa  retail  electric  rates  by
approximately  $77  million  annually.  On June  11,  2001,  MidAmerican  Energy
responded to that petition by filing a request with the Iowa Utilities  Board to
increase  MidAmerican  Energy's  Iowa  retail  electric  rates  by  $51  million
annually.  On December 21, 2001, the Iowa Utilities  Board approved a settlement
agreement  that  freezes  the rates in  effect on  December  31,  2000,  through
December 31, 2005,  and,  with  modifications,  reinstates  the revenue  sharing
provisions  of the  1997  pricing  plan  settlement  agreement.  Under  the 2001
settlement agreement, an amount equal to 50% of revenues associated with returns
on equity between 12% and 14%, and 83.33% of revenues associated with returns on
equity above 14%, in each year will be recorded as a regulatory  liability to be
used to offset a portion of the cost of future generating plant investments.  An
amount  equal to the  regulatory  liability  will be  recorded  as  depreciation
expense.  As of  December  31,  2001,  MidAmerican  Energy has  recorded a $47.1
million regulatory liability that is reflected in Regulatory  Liabilities on the
Consolidated Balance Sheet.

     On September 21, 2001,  MidAmerican  Energy filed a petition with the South
Dakota Public Utilities  Commission (SDPUC) to increase its South Dakota natural
gas rates.  On February 20,  2002,  the SDPUC  approved a  settlement  agreement
allowing increased rates of $3.1 million annually.

     On October 19, 2001,  MidAmerican Energy filed a petition with the Illinois
Commerce  Commission to increase its Illinois  natural gas rates by $3.2 million
annually.  A final decision on the petition is required  within eleven months of
the date of filing.

                                      -36-
<PAGE>

     On March 15, 2002, MidAmerican Energy made a filing with the Iowa Utilities
Board  requesting  an increase in rates of  approximately  $26.6 million for its
Iowa retail natural gas  customers.  As part of the filing,  MidAmerican  Energy
requested an interim rate increase of approximately $20.4 million annually.  The
Iowa  Utilities  Board may adjust  the  requested  interim  amount and delay its
implementation  for up to ninety  days.  MidAmerican  Energy  expects  the final
rates,  which may differ from the requested  amount,  to be  implemented  in the
fourth quarter of 2002.

     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 that 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, 2001, was $22 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.

     In July 1997, the EPA adopted revisions to the National Ambient Air Quality
Standards for ozone and a new standard for fine particulate  matter. In February
2001,  the United  States  Supreme  Court  upheld the  constitutionality  of the
standards, though remanding the issue of implementation of the ozone standard to
the EPA.  The impact of the new  standards  on  MidAmerican  Energy is currently
unknown.  MidAmerican  Energy  could  incur  increased  costs and a decrease  in
wholesale   electric  revenues  if  its  generating   stations  are  located  in
nonattainment  areas.  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  (MAPP).  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  believes it has  adequate  electric  capacity  reserve
through  2003 and  continues  to manage its  generating  resources  to ensure an
adequate reserve in the future.  MidAmerican Energy has announced plans to add a
540-megawatt natural gas-fired combined cycle unit to be completed in two phases
between 2003 and 2005. An additional  900 megawatts of coal-fired  generation is
expected  to  be   operational   later  this  decade.   However,   significantly
higher-than-normal   temperatures   during  the  cooling   season   could  cause
MidAmerican  Energy's  reserve to fall  below the 15%  minimum.  If

                                      -37-
<PAGE>

MidAmerican  Energy  fails to  maintain  the  appropriate  reserve,  significant
penalties could be contractually imposed by MAPP.

     MidAmerican  Energy is  financially  exposed to movements in energy  prices
since it no longer  recovers  fluctuations in its energy costs through an energy
adjustment  clause  in  Iowa.  Although   MidAmerican  Energy  believes  it  has
sufficient generation under typical operating conditions for its retail electric
needs,  a loss of  adequate  generation  by  MidAmerican  Energy  requiring  the
purchase of  replacement  power at a time of high market  prices  could  subject
MidAmerican Energy to losses on its energy sales.

     MidAmerican   Energy  has  been  able  to  maintain  its  capacity  reserve
requirement and has not been adversely  affected by seasonal price variations in
the wholesale market.

     Cooper Nuclear Station

     Under a long-term  power purchase  contract with the Nebraska  Public Power
District,  MidAmerican  Energy purchases  one-half of the output of Cooper.  The
Nuclear  Regulatory  Commission  (NRC) has notified  the  Nebraska  Public Power
District  that,  effective  April 1, 2002, it will place Cooper in its "Multiple
Repetitive Degraded Cornerstone" category of the NRC's Reactor Oversight Process
Action  Matrix.  As  a  result,  the  NRC  will  conduct  extensive   diagnostic
inspections at Cooper,  which are currently  anticipated to be completed  during
the month of June 2002.  MidAmerican  Energy cannot,  at this time,  predict the
outcome of the NRC inspections and their impact on the operation of Cooper.  The
Nebraska  Public  Power  District  has  informed  MidAmerican  Energy that it is
currently  developing  an  improvement  plan which it believes  will address the
issues that caused Cooper to be placed into this category.

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  the  overall
direction,   structure,   conduct  and  control  of  MidAmerican  Energy's  risk
management  activities,  including the use of financial derivative  instruments,
authorization  and  communication  of risk  management  policies and procedures,
strategic hedging program guidelines, appropriate market and credit risk limits,
and appropriate  systems for recording,  monitoring and reporting the results of
transactional  and risk  management  activities.  MidAmerican  Energy  regularly
performs sensitivity analysis of its outstanding positions and adheres to strict
value-at-risk   parameters.   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 price risk and
the accounting for derivative instruments.

     Energy Trading Activities -

     MidAmerican  Energy's net assets associated with energy trading  activities
outstanding at December 31, 2001, totaled $1.8 million. Of the open positions at
December 31, 2001, 96% are scheduled to be realized within twelve months.  Refer
to Note (1)(i) for a discussion of derivatives, including derivative instruments
used for trading purposes.

                                      -38-

<PAGE>

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

                                                 YEARS ENDED DECEMBER 31,
                                          -----------------------------------------
                                              2001           2000           1999
                                          -----------    -----------    -----------
<S>                                       <C>            <C>            <C>
OPERATING REVENUES
Regulated electric ....................   $ 1,318,129    $ 1,212,411    $ 1,178,702
Regulated gas .........................       869,132        929,555        559,957
Nonregulated ..........................       543,812        390,393        121,615
                                          -----------    -----------    -----------
                                            2,731,073      2,532,359      1,860,274
                                          -----------    -----------    -----------
OPERATING EXPENSES
Regulated:
  Cost of fuel, energy and capacity .         275,904        249,045        223,215
  Cost of gas sold ..................         674,883        721,395        364,112
  Other operating expenses ..........         449,328        434,125        460,883
  Maintenance .......................         138,343        127,076        116,089
  Depreciation and amortization .....         250,315        197,144        190,547
  Property and other taxes ..........          71,705         74,778         77,017
                                          -----------    -----------    -----------
                                            1,860,478      1,803,563      1,431,863
                                          -----------    -----------    -----------
Nonregulated:
  Cost of sales .....................         518,272        369,005        110,782
  Other .............................          18,749         21,035         17,565
                                          -----------    -----------    -----------
                                              537,021        390,040        128,347
                                          -----------    -----------    -----------
  Total operating expenses ..........       2,397,499      2,193,603      1,560,210
                                          -----------    -----------    -----------
OPERATING INCOME ......................       333,574        338,756        300,064
                                          -----------    -----------    -----------

NON-OPERATING INCOME
Interest and dividend income ..........        13,069         15,499          3,040
Other, net ............................        (5,813)        (1,455)        (3,699)
                                          -----------    -----------    -----------
                                                7,256         14,044           (659)
                                          -----------    -----------    -----------
FIXED CHARGES
Interest on long-term debt ............        60,880         61,120         65,649
Other interest expense ................         8,401          9,056         11,249
Preferred dividends of subsidiary trust         7,980          7,980          7,980
Allowance for borrowed funds ..........        (1,661)        (1,273)        (1,257)
                                          -----------    -----------    -----------
                                               75,600         76,883         83,621
                                          -----------    -----------    -----------

INCOME BEFORE INCOME TAXES ............       265,230        275,917        215,784
INCOME TAXES ..........................       112,452        110,461         88,453
                                          -----------    -----------    -----------
NET INCOME ............................       152,778        165,456        127,331
PREFERRED DIVIDENDS ...................         4,544          4,955          4,955
                                          -----------    -----------    -----------

EARNINGS ON COMMON STOCK ..............   $   148,234    $   160,501    $   122,376
                                          ===========    ===========    ===========
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      -39-
<PAGE>

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

                                                                  YEARS ENDED DECEMBER 31,
                                                            -----------------------------------
                                                              2001         2000         1999
                                                            ---------    ---------    ---------

<S>                                                         <C>          <C>          <C>
EARNINGS ON COMMON STOCK ................................   $ 148,234    $ 160,501    $ 122,376
                                                            ---------    ---------    ---------

OTHER COMPREHENSIVE INCOME (LOSS), NET
Unrealized gains (losses) on cash flow hedges:
  Unrealized net gains during period-
    Before income taxes .................................       7,690         --           --
    Income tax expense, net .............................      (3,197)        --           --
                                                            ---------    ---------    ---------
                                                                4,493         --           --
                                                            ---------    ---------    ---------
  Less reclassification adjustment for realized net gains
    reflected in net income during period-
    Before income taxes .................................       1,757         --           --
    Income tax expense, net .............................        (731)        --           --
                                                            ---------    ---------    ---------
                                                                1,026         --           --
                                                            ---------    ---------    ---------
      Net unrealized gains ..............................       3,467         --           --
                                                            ---------    ---------    ---------

Minimum pension liability adjustment:
  Before income tax benefit .............................      (8,295)      (4,087)        --
  Income tax benefit ....................................       3,448        1,699         --
                                                            ---------    ---------    ---------
                                                               (4,847)      (2,388)        --
                                                            ---------    ---------    ---------
Other comprehensive income (loss), net...................      (1,380)      (2,388)        --
                                                            ---------    ---------    ---------

COMPREHENSIVE INCOME ....................................   $ 146,854    $ 158,113    $ 122,376
                                                            =========    =========    =========

</TABLE>



        The accompanying notes are an integral part of these statements.

                                      -40-

<PAGE>

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

                                                                        AS OF DECEMBER 31,
                                                                     -----------------------
                                                                        2001         2000
                                                                     ----------   ----------
<S>                                                                  <C>          <C>
ASSETS
UTILITY PLANT
Electric .........................................................   $4,598,372   $4,471,839
Gas ..............................................................      867,277      831,203
                                                                     ----------   ----------
                                                                      5,465,649    5,303,042
Less accumulated depreciation and amortization ...................    2,847,979    2,680,420
                                                                     ----------   ----------
                                                                      2,617,670    2,622,622
Construction work in progress ....................................       80,276       38,584
                                                                     ----------   ----------
                                                                      2,697,946    2,661,206
                                                                     ----------   ----------

POWER PURCHASE CONTRACT ..........................................       48,185       82,231
                                                                     ----------   ----------

CURRENT ASSETS
Cash and cash equivalents ........................................       20,020        9,677
Receivables, less reserves of $627 and $102, respectively ........      119,740      422,661
Inventories ......................................................       83,339       69,130
Prepaid taxes ....................................................       23,956       22,889
Other ............................................................       10,962        9,789
                                                                     ----------   ----------
                                                                        258,017      534,146
                                                                     ----------   ----------

INVESTMENTS AND NONREGULATED PROPERTY, NET .......................      272,230      256,053
REGULATORY ASSETS ................................................      221,120      240,934
OTHER ASSETS .....................................................       80,394       48,996
                                                                     ----------   ----------

TOTAL ASSETS .....................................................   $3,577,892   $3,823,566
                                                                     ==========   ==========

CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity ......................................   $1,219,057   $1,161,968
MidAmerican Energy preferred securities, not subject to mandatory
  redemption .....................................................       31,759       31,759
Preferred securities, subject to mandatory redemption:
  MidAmerican Energy preferred securities ........................       26,680       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) .......................      656,740      820,082
                                                                     ----------   ----------
                                                                      2,034,236    2,163,809
                                                                     ----------   ----------
CURRENT LIABILITIES
Notes payable ....................................................       89,350       81,600
Current portion of long-term debt ................................      163,854      101,600
Current portion of power purchase contract .......................       17,398       16,554
Accounts payable .................................................      171,535      308,784
Taxes accrued ....................................................       54,175      124,493
Interest accrued .................................................       11,709       12,016
Other ............................................................       43,184       34,667
                                                                     ----------   ----------
                                                                        551,205      679,714
                                                                     ----------   ----------
OTHER LIABILITIES
Power purchase contract ..........................................        8,469       35,728
Deferred income taxes ............................................      513,978      540,608
Investment tax credit ............................................       61,292       66,209
Quad Cities Station decommissioning ..............................      158,349      153,100
Regulatory liabilities ...........................................       62,378        9,787
Other ............................................................      187,985      174,611
                                                                     ----------   ----------
                                                                        992,451      980,043
                                                                     ----------   ----------

TOTAL CAPITALIZATION AND LIABILITIES .............................   $3,577,892   $3,823,566
                                                                     ==========   ==========
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      -41-
<PAGE>

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

                                                                       YEARS ENDED DECEMBER 31,
                                                                  -----------------------------------
                                                                    2001         2000         1999
                                                                  ---------    ---------    ---------

<S>                                                               <C>          <C>          <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ....................................................   $ 152,778    $ 165,456    $ 127,331
Adjustments to reconcile net income to net cash provided:
  Depreciation and amortization ...............................     251,099      197,438      190,112
  Deferred income taxes and investment tax credit, net ........     (32,550)     (27,743)     (37,067)
  Amortization of other assets ................................      44,963       48,650       61,036
  Net change in accrued customer rate credits .................     (21,531)       6,724       13,559
  Cash inflows (outflows) of accounts receivable securitization     (26,000)      12,877       (2,877)
  Impact of changes in working capital ........................     113,115      (39,507)     (16,688)
  Other .......................................................      (5,392)      (4,468)      (5,377)
                                                                  ---------    ---------    ---------
    Net cash provided .........................................     476,482      359,427      330,029
                                                                  ---------    ---------    ---------

NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures .............................    (250,073)    (215,727)    (203,575)
Quad Cities Station decommissioning trust fund ................      (8,299)      (8,302)     (10,370)
Nonregulated capital expenditures .............................      (2,221)      (1,075)        (540)
Other investing activities, net ...............................       6,168        1,411      (10,968)
                                                                  ---------    ---------    ---------
  Net cash used ...............................................    (254,425)    (223,693)    (225,453)
                                                                  ---------    ---------    ---------

NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ................................................     (94,544)     (58,955)     (41,661)
Issuance of long-term debt, net of issuance cost ..............          --      160,992           --
Retirement of long-term debt, including reacquisition cost ....    (101,600)    (110,861)     (60,897)
Reacquisition of preferred shares .............................     (23,320)          --           --
Net increase (decrease) in notes payable ......................       7,750     (122,400)      (2,221)
                                                                  ---------    ---------    ---------
  Net cash used ...............................................    (211,714)    (131,224)    (104,779)
                                                                  ---------    ---------    ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..........      10,343        4,510         (203)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................       9,677        5,167        5,370
                                                                  ---------    ---------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................   $  20,020    $   9,677    $   5,167
                                                                  =========    =========    =========

ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .....................   $  61,344    $  63,420    $  69,412
                                                                  =========    =========    =========
Income taxes paid .............................................   $ 217,140    $ 133,176    $  96,711
                                                                  =========    =========    =========
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      -42-
<PAGE>

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

                                                                                       AS OF DECEMBER 31,
                                                                          --------------------------------------------
                                                                                  2001                    2000
                                                                          -------------------     --------------------
<S>                                                                       <C>           <C>       <C>            <C>
COMMON SHAREHOLDER'S EQUITY
Common shares, no par; 350,000,000 shares authorized;
  70,980,203 shares outstanding......................................     $   560,798             $   560,563
Retained earnings....................................................         662,027                 603,793
Accumulated other comprehensive (income) loss, net:
  Unrealized gain on cash flow hedges................................           3,467                       -
  Minimum pension liability adjustment...............................          (7,235)                 (2,388)
                                                                          -----------             -----------
                                                                            1,219,057   59.9%       1,161,968    53.7%
                                                                          -----------   -----     -----------    -----
PREFERRED SECURITIES (100,000,000 SHARES AUTHORIZED)
Cumulative shares outstanding; not subject to mandatory redemption:
  $3.30 Series, 49,451 shares........................................           4,945                   4,945
  $3.75 Series, 38,305 shares........................................           3,831                   3,831
  $3.90 Series, 32,630 shares........................................           3,263                   3,263
  $4.20 Series, 47,362 shares........................................           4,736                   4,736
  $4.35 Series, 49,945 shares........................................           4,994                   4,994
  $4.40 Series, 50,000 shares........................................           5,000                   5,000
  $4.80 Series, 49,898 shares........................................           4,990                   4,990
                                                                          -----------             -----------
                                                                               31,759    1.6%          31,759     1.5%
                                                                          -----------   -----     -----------    ----
Cumulative shares outstanding; subject to mandatory redemption:
  $5.25 Series, zero and 100,000 shares, respectively................               -                  10,000
  $7.80 Series, 266,800 and 400,000 shares, respectively.............          26,680                  40,000
                                                                          -----------             -----------
                                                                               26,680    1.3%          50,000     2.3%
                                                                          -----------   -----     -----------    -----
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    4.9%         100,000     4.6%
                                                                          -----------   -----     -----------    -----

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........................           4,320                   5,760
  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.

                                      -43-
<PAGE>


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

                                                                                     AS OF DECEMBER 31,
                                                                         -------------------------------------------
                                                                            2001                    2000
                                                                         ----------              ----------
<S>                                                                      <C>         <C>         <C>          <C>
LONG-TERM DEBT (CONTINUED)
  Variable rate series -
    Due 2016 and 2017, 1.77% and 4.56%, respectively...............      $   37,600              $   37,600
    Due 2023 (secured by general mortgage bond)
      1.77% and 4.56%, respectively................................          28,295                  28,295
    Due 2023, 1.77% and 4.56%, respectively........................           6,850                   6,850
    Due 2024, 1.77% and 4.56%, respectively........................          34,900                  34,900
    Due 2025, 1.77% and 4.56%, respectively........................          12,750                  12,750
Notes:
  8.75% Series, due 2002...........................................               -                     240
  7.375% Series, due 2002..........................................               -                 162,000
  6.375% Series, due 2006..........................................         160,000                 160,000
Obligation under capital lease.....................................           1,364                   1,538
Unamortized debt premium and discount, net.........................            (939)                 (1,451)
                                                                         ----------              ----------
                                                                            656,740   32.3%         820,082    37.9%
                                                                         ----------  ------      ----------   ------

TOTAL CAPITALIZATION.................................................    $2,034,236  100.0%      $2,163,809   100.0%
                                                                         ==========  ======      ==========   ======
</TABLE>


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

                                                                                YEARS ENDED DECEMBER 31,
                                                                         ---------------------------------------
                                                                           2001           2000            1999
                                                                         ---------      ---------      ---------

<S>                                                                      <C>            <C>            <C>
BEGINNING OF YEAR.................................................       $ 603,793      $ 497,292      $ 411,622
                                                                         ---------      ---------      ---------

NET INCOME........................................................         152,778        165,456        127,331
                                                                         ---------      ---------      ---------

DEDUCT:
Loss on reacquisition of preferred shares.........................             235              -              -
Dividends declared on preferred shares............................           4,309          4,955          4,955
Dividends declared on common shares...............................          90,000         54,000         36,706
                                                                         ---------      ---------      ---------
                                                                            94,544         58,955         41,661
                                                                         ---------      ---------      ---------

END OF YEAR.......................................................       $ 662,027      $ 603,793      $ 497,292
                                                                         =========      =========      =========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                      -44-
<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,  Midwest Capital Group, Inc. and MEC Construction Services Co. 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
classifications  of amounts  for 2001 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 (SFAS) No. 71 may no longer apply.
SFAS No. 71 sets forth  accounting  principles for operations that are regulated
and meet the stated criteria. For operations that meet the criteria, SFAS No. 71
allows,  among  other  things,  the  deferral  of expense  or income  that would
otherwise be recognized  when incurred.  MidAmerican  Energy's  electric and gas
utility  operations  currently  meet  the  criteria  of  SFAS  No.  71,  but its
applicability is periodically reexamined.  If portions of its utility operations
no longer meet the criteria of SFAS No. 71, MidAmerican Energy could be required
to write off the  related  regulatory  assets and  liabilities  from its balance
sheet,  and thus, a material  adjustment to earnings in that period could result
if  regulatory  assets  are  not  recovered  in  transition  provisions  of  any
deregulation  legislation.  The following regulatory assets represent costs that
are  expected  to be  recovered  in future  charges  to utility  customers.  The
regulatory  liabilities  represent  income  to  be  recognized  or  returned  to
customers in future periods.

                                      -45-
<PAGE>

<TABLE>
<CAPTION>

                                            Weighted Average
                                             Future Recovery     As of December 31,
                                                 Period           2001        2000
                                            ----------------    --------    --------
                                                                   (In thousands)
     <S>                                        <C>             <C>         <C>
     Regulatory Assets
     -----------------

     Deferred income taxes, net ..........      13 years        $145,271    $143,287
     Debt refinancing costs ..............       5 years          24,252      29,416
     Environmental costs .................      10 years          21,878      24,001
     Energy efficiency costs .............            --             200      22,846
     Nuclear generation assets ...........       4 years          10,284      14,675
     Enrichment facilities decommissioning       4 years           1,687       1,930
     Other ...............................       Various          17,548       4,779
                                                                --------    --------
          Total ..........................                      $221,120    $240,934
                                                                ========    ========

     Regulatory Liabilities
     ----------------------

     Environmental insurance recovery ....      10 years        $  8,850    $  9,787
     Iowa electric settlement reserve ....       5 years          47,125          --
     Energy efficiency ...................       4 years           3,883          --
     Coal contracts ......................        1 year           2,520          --
                                                                --------    --------
                                                                $ 62,378    $  9,787
                                                                ========    ========
</TABLE>

     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.

     For a discussion of the Iowa electric settlement reserve, refer to Note (7)
- Rate Matters.

     (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 $16.6
million and $191.8 million at December 31, 2001 and 2000, respectively,  and are
included in Receivables on the Consolidated Balance Sheets.

     Electric  operating  revenues for 2000 and 1999 include provisions for rate
refunds  related  to a  revenue  sharing  arrangement  in Iowa  that  terminated
December 31, 2000.  The provisions  reduced  revenues for 2000 and 1999 by $21.6
million  and $16.5  million,  respectively.  Under the current  revenue  sharing
arrangement  in Iowa,  the  provision  related to revenue  sharing is charged to
depreciation expense. Refer to Note (7) - Rate Matters for further discussion.

     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.

                                      -46-

<PAGE>

     (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:

                    2001     2000     1999
                    ----     ----     ----

     Electric       4.2%     4.0%     4.0%
     Gas ....       3.5%     3.5%     3.5%

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

     The cost of  repairs  and minor  replacements  is  charged  to  maintenance
expense. Property additions and major property replacements are charged to plant
accounts.  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.

     Depreciation  and  amortization  expense for 2001  includes a $47.1 million
regulatory  charge pursuant to the terms of an electric rate settlement in Iowa.
Refer to Note (7)-Rate Matters for a discussion of the settlement.

     An allowance for the  estimated  annual  decommissioning  costs of the Quad
Cities  Generating  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):

                                                             2001       2000
                                                           --------   --------

     Nuclear decommissioning trust fund.................   $158,349   $153,100
     Corporate-owned life insurance ...                      85,958     77,029
     Coal transportation property, net of accumulated
       depreciation of $1,396 and $1,097, respectively..     10,523     10,824
     Other, net of accumulated depreciation of $1,087
       and $602, respectively...........................     17,400     15,100
                                                           --------   --------
         Total .........................................   $272,230   $256,053
                                                           ========   ========

     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,  which is reflected in Other
Liabilities - Quad Cities Station  Decommissioning  on the Consolidated  Balance
Sheets.  Funds are invested in accordance  with  applicable  federal  investment
guidelines  and  are  restricted   for  use  as   reimbursement   for  costs  of
decommissioning  MidAmerican  Energy's Quad Cities  Station.  The  investment in
corporate-owned  life  insurance  represents  the cash  value of life  insurance
policies on certain key executives and other related investments.

                                      -47-
<PAGE>

     (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):

                                    2001          2000          1999
                                  ---------     ---------     ---------

     Receivables .............    $ 328,921     $(244,552)    $ (19,345)
     Inventories .............      (14,209)       11,519        12,096
     Prepaid taxes ...........       (1,067)           --            --
     Other current assets ....       (1,173)          566        (1,118)
     Accounts payable ........     (137,249)      177,598       (28,234)
     Taxes accrued ...........      (70,318)       11,830        21,637
     Interest accrued ........         (307)         (909)         (548)
     Other current liabilities        8,517         4,441        (1,176)
                                  ---------     ---------     ---------
       Total .................    $ 113,115     $ (39,507)    $ (16,688)
                                  =========     =========     =========

     (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 Cooper Nuclear Station, a 776-megawatt  nuclear power plant, based on the
maximum capability rating for the November 2001 through October 2002 period. 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 remaining
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), 4(f) and 4(g) for additional  information  regarding
the power purchase contract.

     (I) ACCOUNTING FOR DERIVATIVES:

     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  the  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

                                      -48-
<PAGE>

program  guidelines,  appropriate market and credit risk limits, and appropriate
systems for recording, monitoring and reporting the results of transactional and
risk management activities.

     MidAmerican  Energy  uses  hedge  accounting  for  derivative   instruments
pertaining to its natural gas purchasing,  wholesale electricity  activities and
financing activities.

     On  January 1,  2001,  MidAmerican  Energy  adopted  SFAS Nos.  133 and 138
pertaining to the accounting for derivative  instruments and hedging activities.
SFAS Nos.  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 Nos.
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 Nos. 133/138, all of which were accounted for as hedges. Due to
the  relative   immateriality   of  the  adoption  of  SFAS  Nos.   133/138,   a
cumulative-effect presentation is not reflected in the Consolidated Statement of
Income or the Consolidated Statement of Comprehensive Income for 2001.

     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 pursuant to EITF 98-10 under strict  value-at-risk  guidelines outlined
by senior  management.  Derivative  instruments  held for trading  purposes  are
recorded  at fair  value and any  unrealized  gains or losses  are  reported  in
earnings.  Trading revenues and costs are reported gross on the Consolidated
Statements of Income.

     MidAmerican  Energy  is  exposed  to  variations  in the  price of fuel for
generation and the price of purchased power in its Iowa jurisdiction  comprising
89% of 2001 electric  operating  revenues.  Fuel price risk is mitigated through
forward contracts.  Under typical operating  conditions,  MidAmerican Energy has
sufficient  generation  to supply  its  retail  electric  needs.  A loss of such
generation at a time of high market prices could subject  MidAmerican  Energy to
losses  on  its  energy  sales.  MidAmerican  Energy  uses  electricity  forward
contracts to hedge anticipated sales of wholesale electric power.

                                      -49-

<PAGE>

     MidAmerican  Energy  and  its  customers  are  exposed  to  the  effect  of
variations  in  weather  conditions  on sales and  purchases,  respectively,  of
electricity  and natural  gas. For the  2001-2002  heating  season,  MidAmerican
Energy  entered  into  several  degree  day  swaps to  offset a  portion  of the
financial impact of those variations on MidAmerican Energy and its customers.

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

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

                                                2001                  2000
                                          ----------------      ----------------

Natural Gas Futures Contracts - NYMEX:
     Net Contract Volumes - Long (Short)   (600,000) MMBtu      1,460,000 MMBtu
     Unrealized Gain, in thousands              $40                $7,554
     Weighted Average Settlement Price       $(6.77)                $9.42

Natural Gas Swap Contracts:
     Contract Volumes - Pay Fixed          7,853,052 MMBtu      13,496,239 MMBtu
     Contract Volumes - Receive Fixed        900,000 MMBtu      10,610,741 MMBtu
     Unrealized Gain (Loss), in thousands    $(7,643)               $8,055
     Weighted Average Pay Fixed Price         $(0.97)               $0.89
     Weighted Average Receive Fixed Price      $0.04               $(0.37)

Natural Gas Options:
     Contract Volumes - Long               2,300,000 MMBtu       1,790,280 MMBtu
     Unrealized Gain (Loss), in thousands    $(1,212)                $953

Degree Day Swap Contracts:
     Contract Volumes                     20,000 $/Degree day    - $/Degree Day
     Unrealized (Loss), in thousands         $(3,486)              $ -

Electric Forward Contracts:
     Contract Volumes - (Short)              (728,800) MWh       (139,200) MWh
     Unrealized Gain (Loss), in thousands     $6,313              $(4,731)

     A $1.00 decrease in underlying natural gas prices would decrease unrealized
gains on the futures contracts held at December 31, 2001, by approximately  $0.6
million and would  increase  unrealized  losses on the above swap  contracts  by
approximately  $7.0 million.  A $5.00 increase in underlying  electricity prices
would decrease  unrealized  gains on the forward  contracts held at December 31,
2001, by  approximately  $3.6  million.  The weighted  average  maturity for all
derivative instruments used for hedging purposes is under one year.

     Unrealized gains and losses on cash flow hedges of future  transactions are
recorded in other comprehensive income. Only hedges that are highly effective in
offsetting  the risk of  variability  in future cash flows are  accounted for in
this  manner.  Future  transactions  include  purchases  of gas  for  resale  to
regulated  and  nonregulated  customers,  purchases  of  gas  for  storage,  and
purchases and sales of wholesale  electric  energy.  When the associated  hedged
future transaction occurs or if a hedging relationship is no longer appropriate,
the unrealized gains and losses are reversed from other comprehensive income and
recognized  in net income.  Realized  gains on cash flow hedges are  recorded in
Cost of Gas Sold,  Regulated Cost of Fuel,  Energy and Capacity or  Nonregulated
Operating Revenues,  depending upon the nature of the physical transaction being
hedged.

                                      -50-
<PAGE>

     For 2001,  a net loss of $408,000  and a net gain of $36,000,  representing
the  ineffectiveness  of cash flow hedges, are reflected in Cost of Gas Sold and
Regulated  Cost of Fuel,  Energy and Capacity,  respectively.  During the twelve
months  beginning  January 1, 2002, it is  anticipated  that $3.4 million of the
$3.5  million  after-tax,  net  unrealized  gains on cash flow hedges  presently
recorded as accumulated other comprehensive income will be realized and recorded
in  earnings.  MidAmerican  Energy has hedged a portion of its  exposure  to the
variability of cash flows for future transactions through December 2003.

     Unrealized  gains and losses on fair value hedges are  recognized in income
as either Nonregulated Operating Revenues or Cost of Gas Sold depending upon the
nature of the item being hedged.  Purchase and sales commitments  hedged by fair
value  hedges are  recorded  at fair  value,  with the  changes  in values  also
recognized in income and  substantially  offsetting  the impact of the hedges on
earnings.   For  2001,  a  net  pre-tax  gain  of  $18,000,   representing   the
ineffectiveness  of fair value  hedges,  is included in  Nonregulated  Operating
Revenues.

Derivative instruments used for trading purposes -
--------------------------------------------------

                                                  2001                2000
                                             ---------------     --------------
Natural Gas Futures Contracts - NYMEX:
     Net Contract Volumes - Long (Short)       120,000 MMBtu     (20,000) MMBtu
     Unrealized (Loss), in thousands             $(224)             $(79)
     Weighted Average Settlement Price           $1.69           $(15.92)

Natural Gas Swap Contracts:
     Contract Volumes - Pay Fixed           17,519,581 MMBtu     1,000,000 MMBtu
     Contract Volumes - Receive Fixed       17,850,372 MMBtu     1,010,000 MMBtu
     Unrealized Gain (Loss), in thousands       $2,045             $(261)
     Weighted Average Pay Fixed Price           $(0.99)            $0.92
     Weighted Average Receive Fixed Price        $1.09            $(1.17)

     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, 2001,  MidAmerican Energy had fixed-rate long-term debt and
mandatorily   redeemable   preferred  securities  and  preferred  securities  of
subsidiary trust totaling $826 million with a fair value of $850 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  $24  million if
interest  rates were to increase by 10% from their  levels at December 31, 2001.
In general,  such a decrease in fair value would impact  earnings and cash flows
only  if  MidAmerican  Energy  were  to  reacquire  all or a  portion  of  these
instruments prior to their maturity.

     At December  31,  2001,  MidAmerican  Energy had  long-term  floating  rate
obligations  totaling  $120 million and  short-term  floating  rate  obligations
totaling  $89  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, 2001,  approximated fair value. If the
floating interest rates were to increase by 10% from December 31, 2001,  levels,
MidAmerican  Energy's  interest expense for the floating rate obligations  would
increase by  approximately  $0.4  million  annually  based on December 31, 2001,
principal balances.
                                      -51-

<PAGE>

     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, 2001,
the fair value of this swap was $9.1 million.

(2)  LONG-TERM DEBT:

     MidAmerican  Energy's sinking fund requirements and maturities of long-term
debt for 2002 through 2006 are $164  million,  $106  million,  $56 million,  $91
million and $160 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, 2001 and 2000.  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 79% 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, 2001, 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...    $227        $143     $295     $175     $210      $539
     Accumulated depreciation...    $103        $ 95     $199     $112     $127      $303
     Unit capacity-MW (100%)....   1,541         515      675      644      715       700
     Percent ownership..........    25.0%       72.0%    79.1%    40.6%    52.0%     88.0%
</TABLE>

                                      -52-

<PAGE>

(4)  COMMITMENTS AND CONTINGENCIES:

     (A)  CAPITAL EXPENDITURES:

     MidAmerican Energy's construction expenditures for 2002 are estimated to be
$332  million,  including  $116 million for the recently  announced  Greater Des
Moines Energy Center, a 540-megawatt natural gas-fired combined cycle unit.

     (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 that 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, 2001 was $22 million. The estimate consists of $2 million for
investigation  costs, $7 million for remediation  costs,  $11 million for ground
water   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
that  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.

                                      -53-
<PAGE>

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)  AIR QUALITY:

     Essentially all of MidAmerican Energy's generating units are subject to the
Clean Air Acts Amendments of 1990.  Currently,  MidAmerican  Energy's generating
units meet all  requirements  under Title IV of the Clean Air Act  Amendments of
1990,  which sets forth  requirements  for the  emission  of sulfur  dioxide and
nitrogen oxides at electric utility generating stations.

     In July 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).  The  standards  were  subjected  to  legal
proceedings,  and in February  2001,  the United States Supreme Court upheld the
constitutionality of the standards, though remanding the issue of implementation
of the ozone standard to the Environmental  Protection Agency. The Environmental
Protection Agency is moving forward with analyzing  existing  monitored data and
determining attainment status.

     The impact of the new standards on MidAmerican Energy is currently unknown.
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 increase  operating costs and decrease wholesale electric
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 2002 and is not  contingent  upon the
plant being in service. In addition,  prior to December 2000, MidAmerican Energy
contributed  toward  payment of one-half of Cooper's  projected  decommissioning
costs based on an assumed September 2004 shutdown of Cooper.

     The  debt   amortization   and  Department  of  Energy   enrichment   plant
decontamination and decommissioning  component of MidAmerican  Energy's payments
to the Nebraska  Public Power  District  were $16.6  million,  $15.8 million and
$15.1  million  and the net  interest  component,  which  is  included  in Other
Operating  Expenses in the Consolidated  Statements of Income, was $1.5 million,
$1.6  million  and  $2.5  million  each  for the  years  2001,  2000  and  1999,
respectively.

                                      -54-
<PAGE>

     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 $17.4 million, $8.5 million and
zero for 2002 through 2004, respectively.

     (E)  NUCLEAR DECOMMISSIONING COSTS:

     Expected decommissioning costs for Quad Cities Station and Cooper have been
developed   based  on   site-specific   decommissioning   studies  that  include
decontamination,  dismantling,  site  restoration,  dry  fuel  storage  cost and
assumed shutdown dates. 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
as base rates in Iowa tariffs.

     MidAmerican  Energy's  share of  expected  decommissioning  costs  for Quad
Cities  Station,  in 2001  dollars,  is $278  million.  MidAmerican  Energy  has
established  external trusts for the investment of funds for decommissioning the
Quad Cities  Station.  The total  accrued  balance as of December 31, 2001,  was
$158.3  million  and is  included in Other  Liabilities  - Quad  Cities  Station
Decommissioning,  and a like amount is reflected in Investments and Nonregulated
Property, Net 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, $8.3 million, and $10.4 million
for 2001,  2000 and 1999,  respectively.  The provision  charged to depreciation
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%.  Realized income (loss), net of investment fees, on the assets in
the trust fund was $(0.6) million,  $1.9 million and $1.9 million for 2001, 2000
and 1999, respectively.

     MidAmerican  Energy's  contributions  toward payment of Cooper's  projected
decommissioning  costs have been based on the  Nebraska  Public  Power  District
decommissioning  funding plan for Cooper. Total expected  decommissioning  costs
for Cooper,  in 2001  dollars,  are $577  million.  For purposes of developing a
decommissioning  funding  plan for Cooper,  the 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,  2001,  funds set aside in the  internal  and  external
accounts for Cooper  decommissioning  that are maintained by the Nebraska Public
Power District totaled $291.3 million. In addition,  the funding plan for Cooper
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.  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.

     Beginning in December 2000,  MidAmerican Energy ceased  contributing to the
accounts maintained by the Nebraska Public Power District and began contributing
funds to a separate MidAmerican Energy bank account based on the Nebraska Public
Power District decommissioning funding plan for Cooper. A liability equal to the
amount of funds  contributed,  plus the earnings on those funds, is reflected in
Other Liabilities on the Consolidated Balance Sheets. MidAmerican Energy records
expense equal to the funds contributed to the separate account,  plus investment
manager  fees  paid to the  Nebraska  Public  Power  District  for  funds in the
accounts they maintain.  MidAmerican Energy's expense for Cooper decommissioning
was $11.6 million,  $11.5 million and $11.3 million

                                      -55-
<PAGE>

for the  years  2001,  2000 and 1999,  respectively,  and is  included  in Other
Operating Expenses in the Consolidated Statements of Income.

     MidAmerican Energy is currently involved in litigation with Nebraska Public
Power  District in part related to the  determination  of  MidAmerican  Energy's
obligation,  if any, for costs of decommissioning  Cooper.  Refer to Note (4)(g)
for a discussion of the proceedings.

     (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 $20.5 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)  COOPER LITIGATION:

     On July 23, 1997, the 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

                                      -56-
<PAGE>

three issues under the parties'  long-term  power purchase  agreement for Cooper
capacity  and energy.  More  specifically,  the 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
          the 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  counterclaims.  The 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 the term "monthly  power costs" as defined in the power  purchase
          agreement  does  not  include  costs  and  expenses   associated  with
          decommissioning the plant;

     (3)  that the Nebraska Public Power District violated  MidAmerican Energy's
          directions for application of payments;

     (4)  that transition  costs are not included in any  decommissioning  costs
          and are not any kind of costs that MidAmerican  Energy is obligated to
          pay;

     (5)  that the  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;

     (6)  that the Nebraska  Public Power  District is equitably  estopped  from
          continuing  to operate the plant after the term of the power  purchase
          agreement so long as the Nebraska Public Power District does not repay
          all  amounts   MidAmerican   Energy  has   prefunded   for   estimated
          decommissioning costs together with other amounts in certain funds and
          accounts and for so long as the Nebraska  Public Power  District fails
          to provide  MidAmerican Energy with certain requested  accountings and
          information;

     (7)  that certain  funds,  accounts,  and reserves  are  excessive  and are
          required to be paid to  MidAmerican  Energy or credited to MidAmerican
          Energy's pre-2004 monthly power costs;

     (8)  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;

     (9)  that the Nebraska  Public Power  District has  mismanaged the plant in
          numerous  described  transactions  resulting in damage to  MidAmerican
          Energy;

                                      -57-
<PAGE>

     (10) that the Nebraska  Public Power District has breached its  contractual
          and  other  duties  to  MidAmerican  Energy  by  not  joining  certain
          litigation  and by  failing  to credit or agree to credit  MidAmerican
          Energy with any recovery for low-level radioactive waste; and

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

     On October 6, 1999,  the court rendered  summary  judgment for the Nebraska
Public Power  District on the  above-mentioned  issue  concerning  liability for
decommissioning  (issue  one in the  first  paragraph  above)  and  the  related
counterclaims  filed by  MidAmerican  Energy  (issues  one and two 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 on issues one and two in the second  paragraph  above, as
well as issue one in the first paragraph  above.  Additionally,  it remanded the
case for trial on all other claims and counterclaims.

     Since the remand to the  District  Court from the Eighth  Circuit  Court of
Appeals,  the Nebraska Public Power District has been granted  permission,  over
MidAmerican Energy's objections,  to file a second amended complaint. The second
amended  complaint  asserts that even though the Eighth Circuit Court of Appeals
held that MidAmerican Energy has no liability under the power purchase agreement
to  reimburse  or  pay  the  Nebraska  Public  Power  District  a 50%  share  of
decommissioning  costs unless certain  conditions occur,  MidAmerican Energy has
unconditional liability for a 50% share based on agreements other than the power
purchase agreement as originally  written.  The Nebraska Public Power District's
post-remand  contentions -- all strongly disputed by MEC -- are that MidAmerican
Energy has unconditional  liability for a 50% share of decommissioning  based on
any of the  following  alternative  theories:  (i) the parties  without  written
amendment  either  modified  the power  purchase  agreement  or made a  separate
agreement  that  imposes  unconditional  liability  on  MidAmerican  Energy  for
decommissioning  costs; (ii) absent  unconditional  liability for a 50% share of
decommissioning  costs,  MidAmerican  Energy would be unjustly  enriched;  (iii)
MidAmerican   Energy   has   unconditional   liability   for  a  50%   share  of
decommissioning  costs based on promissory estoppel; or (iv) the Nebraska Public
Power  District  is entitled to have the power  purchase  agreement  reformed to
provide that MidAmerican  Energy has unconditional  liability for a 50% share of
decommissioning  costs.  In response to the  Nebraska  Public  Power  District's
second amended complaint,  MidAmerican Energy filed its first amended answer and
third amended  counterclaims  containing denials,  several affirmative defenses,
and the counterclaims summarized above. In the course of discovery, the Nebraska
Public  Power   District  has  contended  that   MidAmerican   Energy  has  some
responsibility  for some  costs of  storage  of spent  fuel  resulting  from the
operation  of the  plant  during  the  term  of the  power  purchase  agreement.
MidAmerican  Energy disputes this.  MidAmerican Energy recently filed a mandamus
petition  with Eighth  Circuit  Court of Appeals  seeking an order of that court
directing the District Court not to permit the Nebraska Public Power District to
pursue the above  alternative  theories  at trial,  since the above  alternative
theories  appear to be contrary to the December 12, 2000 Eighth Circuit Court of
Appeals  decision.  If such  relief  is not  granted,  MidAmerican  Energy  will
strongly  dispute  at trial  these  contentions  and  theories  put forth by the
Nebraska  Public  Power  District.  Trial in  these  matters  has been  recently
rescheduled to September 9, 2002.

                                      -58-

<PAGE>


     (H)  FUEL, ENERGY AND OPERATING LEASE COMMITMENTS:

     MidAmerican Energy has supply and related transportation  contracts for its
fossil fueled generating stations. The contracts,  with expiration dates ranging
from 2002 to 2007,  require  minimum  payments of $80.3 million,  $70.6 million,
$36.2  million,  $34.0 million and $2.6 million for the years 2002 through 2006,
respectively,   and  $2.6  million  for  the  total  of  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.

     MidAmerican  Energy has a  contract  with  Cordova  Energy  Company  LLC, a
subsidiary of MidAmerican  Energy Holdings,  to purchase  electric  capacity and
energy from a gas-fired  combined cycle  generation  plant. The minimum payments
under the contract,  which  terminates  in May 2004,  are $18.3  million,  $24.1
million and $9.4  million  for 2002,  2003 and 2004,  respectively.  The minimum
payments  are based on  MidAmerican  Energy's 50% of the  projected  monthly net
capacity ratings of the plant.

     MidAmerican  Energy also has  contracts  with  non-affiliated  companies to
purchase electric  capacity.  The contracts,  with expiration dates ranging from
2002 to 2011,  require minimum payments of $27.0 million,  $30.5 million,  $15.3
million,  $2.9  million  and $2.2  million  for the  years  2002  through  2006,
respectively, and $11.0 million for the total of the years thereafter.

     MidAmerican  Energy has  various  natural  gas  supply  and  transportation
contracts for its gas operations.  The minimum commitments under these contracts
are $56.6 million, $41.3 million, $13.4 million, $13.2 million and $13.0 million
for the years 2002 through 2006,  respectively,  and $26.7 million for the total
of the years thereafter.

     MidAmerican  Energy has  non-cancellable  operating  leases  primarily  for
office  space and rail cars.  The minimum  payments  under these leases are $5.5
million, $3.8 million, $1.9 million, $0.9 million and $0.3 million for the years
2002  through  2006,  respectively,  and $0.5 million for the total of the years
thereafter.

     (I) OTHER COMMITMENTS AND CONTINGENCIES:

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

(5)  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  postretirement  health care
and life insurance 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.

                                      -59-

<PAGE>

     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).

<TABLE>
<CAPTION>

                                                        Pension Cost                       Postretirement Cost
                                             --------------------------------------------------------------------------
                                               2001         2000         1999         2001         2000         1999
                                             --------     --------     --------     --------     --------     ---------

<S>                                          <C>          <C>          <C>          <C>          <C>          <C>
Service cost ............................    $ 18,114     $ 16,256     $ 12,192     $  4,357     $  2,609     $  3,066
Interest cost ...........................      33,027       35,387       31,557       10,418        8,354        7,947
Expected return on plan assets ..........     (36,326)     (48,132)     (46,265)      (4,032)      (4,931)      (4,380)
Amortization of net transition obligation      (2,591)      (2,591)      (2,591)       4,110        4,110        4,110
Amortization of prior service cost ......       2,729        2,885        1,428          425          425          216
Amortization of prior year (gain) loss ..      (3,894)      (4,119)      (2,703)         332         (873)        (181)
Curtailment loss ........................          --           --        5,283           --           --           --
                                             --------     --------     --------     --------     --------     --------
  Net periodic (benefit) cost ...........    $ 11,059     $   (314)    $ (1,099)    $ 15,610     $  9,694     $ 10,778
                                             ========     ========     ========     ========     ========     ========
</TABLE>

     In 2001,  MidAmerican Energy was allocated $5.8 million of pension cost and
$14.6 million of postretirement cost.

     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  plan had no assets as of
December   31,   2001,   MidAmerican   Energy  has  Rabbi   trusts   which  hold
corporate-owned  life insurance and other investments to provide funding for the
future cash requirements.  Because this plan is nonqualified,  the fair value of
these assets is not included in the following table. The fair value of the Rabbi
trust  investments  was $50.4 million and $44.7 million at December 31, 2001 and
2000, 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 $91.2 million and $88.2 million,
respectively,  as of December 31,  2001,  and $82.7  million and $77.5  million,
respectively, as of December 31, 2000.

                                      -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
                                                                     -----------------------     -----------------------
                                                                        2001          2000          2001         2000
                                                                     ---------     ---------     ---------    ---------
<S>                                                                  <C>           <C>           <C>           <C>
Reconciliation of benefit obligation:
Benefit obligation at beginning of year .........................    $ 472,349     $ 447,170     $ 131,822     $ 107,744
Service cost ....................................................       18,114        16,256         4,357         2,609
Interest cost ...................................................       33,027        35,387        10,418         8,354
Participant contributions .......................................           --            74         3,059         2,395
Plan amendments .................................................          652          (132)           --            --
Actuarial (gain) loss ...........................................       17,333         6,007        57,101        20,589
Benefits paid ...................................................      (23,267)      (32,413)      (11,840)       (9,869)
                                                                     ---------     ---------     ---------     ---------
Benefit obligation at end of year ...............................      518,208       472,349       194,917       131,822
                                                                     ---------     ---------     ---------     ---------

Reconciliation of the fair value of plan assets:
Fair value of plan assets at beginning of year ..................      555,208       605,059        75,090        72,622
Employer contributions ..........................................        4,576         4,355        16,022        10,543
Participant contributions .......................................           --            74         3,059         2,395
Actual return on plan assets ....................................      (20,627)      (21,867)       (1,202)         (601)
Benefits paid ...................................................      (23,267)      (32,413)      (11,840)       (9,869)
                                                                     ---------     ---------     ---------     ---------
Fair value of plan assets at end of year ........................      515,890       555,208        81,129        75,090
                                                                     ---------     ---------     ---------     ---------

Funded status ...................................................       (2,318)       82,859      (113,788)      (56,732)
Unrecognized net (gain) loss ....................................      (52,244)     (130,423)       63,328         1,326
Unrecognized prior service cost .................................       22,885        24,962         4,264         4,689
Unrecognized net transition obligation (asset) ..................       (5,974)       (8,566)       45,212        49,322
                                                                     ---------     ---------     ---------     ---------
Net amount recognized in the
  Consolidated Balance Sheets ...................................    $ (37,651)    $ (31,168)    $    (984)    $  (1,395)
                                                                     =========     =========     =========     =========

Amounts recognized in the Consolidated Balance Sheets consist of:
Prepaid benefit cost ............................................    $  15,381     $  16,773     $   1,493     $   1,493
Accrued benefit liability .......................................      (88,210)      (77,538)       (2,477)       (2,888)
Intangible assets ...............................................       22,796        25,510            --            --
Accumulated other comprehensive income ..........................       12,382         4,087            --            --
                                                                     ---------     ---------     ---------     ---------
Net amount recognized ...........................................    $ (37,651)    $ (31,168)    $    (984)    $  (1,395)
                                                                     =========     =========     =========     =========
</TABLE>
                                      -61-

<PAGE>


                                             Pension and Postretirement
                                                    Assumptions
                                             --------------------------
                                               2001     2000     1999
                                              -----    -----    -----
Assumptions used were:
Discount rate .........................       6.50%    7.00%    7.75%
Rate of increase in compensation levels       5.00%    5.00%    5.00%
Weighted average expected long-term
    rate of return on assets ..........       7.00%    9.00%    9.00%

     For purposes of calculating the postretirement  benefit  obligation,  it is
assumed  health care costs for covered  individuals  will  increase by 11.25% in
2002 and that the rate of increase  thereafter will decrease to an ultimate rate
of 5.25% by the year 2006.

     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 2001 would  increase by $3.0  million and the  postretirement
benefit obligation at December 31, 2001, would increase by $30.6 million. If the
assumed  health care trend rates were to decrease by 1.0%, the total service and
interest  cost for 2001 would  decrease by $2.3  million and the  postretirement
benefit obligation at December 31, 2001, would decrease by $24.2 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 $7.2 million,  $7.4 million and $6.2 million for 2001,  2000
and 1999, 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>

                                                           2001       2000
                                                          -------   --------

     <S>                                                  <C>       <C>
     Balance at year-end   .............................  $89,350   $ 81,600
     Weighted average interest rate on year-end balance.     1.9%       6.6%
     Average daily amount outstanding during the year...  $25,921   $109,213
     Weighted average interest rate on average
       daily amount outstanding during the year.........     4.7%        6.2%
</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  $500 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:

     In 1997,  pursuant to a rate  proceeding  before the Iowa Utilities  Board,
MidAmerican  Energy,  the Office of Consumer  Advocate and other parties entered
into a pricing plan settlement agreement establishing  MidAmerican Energy's Iowa
retail electric rates. That settlement agreement expired on December 31, 2000.

     On March 14,  2001,  the Office of the Consumer  Advocate  filed a petition
with  the  Iowa  Utilities  Board  to  reduce  Iowa  retail  electric  rates  by
approximately  $77  million  annually.  On June  11,  2001,  MidAmerican  Energy
responded to that petition by filing a request with the Iowa Utilities  Board to
increase  MidAmerican  Energy's  Iowa  retail  electric  rates  by  $51  million
annually.  On December 21, 2001, the Iowa Utilities  Board approved a settlement
agreement  that  freezes  the rates in  effect on  December  31,  2000,  through
December 31, 2005,  and,  with  modifications,  reinstates  the revenue  sharing
provisions  of the  1997  pricing  plan  settlement  agreement.  Under  the 2001
settlement agreement, an amount equal to 50% of revenues associated with returns
on equity between 12% and 14%, and 83.33% of revenues associated with returns on
equity above 14%, in each year will be recorded as a regulatory  liability to be
used to offset a portion of the cost of future generating plant investments.  An
amount  equal to the  regulatory  liability  will be  recorded  as  depreciation
expense.  As of  December  31,  2001,  MidAmerican  Energy has  recorded a $47.1
million  regulatory  liability that is reflected in Regulatory Liabilities on
the Consolidated Balance Sheet.

     Under an Illinois restructuring law enacted in 1997, a sharing mechanism is
in place for MidAmerican  Energy's Illinois regulated retail electric operations
whereby  earnings  above a computed  threshold  will be shared  equally  between
customers and  shareholders.  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 5.5% for 1998 and 1999 and a premium of 8.5% for 2000  through  2004.
The two-year average above which sharing must occur for 2001 was 14.34%. 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 586,000
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 512,000 customers in Iowa,  65,000 customers in western  Illinois,  70,000
customers  in  southeastern  South Dakota and 5,000  customers  in  northeastern
Nebraska.  The largest communities served by MidAmerican Energy are the Iowa and
Illinois Quad-Cities;  Des Moines, Sioux City, Cedar Rapids, Waterloo, Iowa City
and Council Bluffs,  Iowa; and Sioux Falls, South Dakota.  MidAmerican  Energy's
utility  operations  grant unsecured credit to customers,  substantially  all of
whom are local  businesses  and  residents.  As of  December  31,  2001,  billed
receivables from  MidAmerican  Energy's  utility  customers,  net of receivables
sold,  totaled  $4.5  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 6% of the $47.9  million of related
receivables outstanding at December 31, 2001.

(9)  PREFERRED SHARES:

     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 through May 1,
2005.  MidAmerican  Energy  has the  option  to  redeem  at $100  per  share  an
additional  66,600  shares  through the sinking  fund each May 1.  Additionally,
MidAmerican

                                      -63-
<PAGE>

Energy may redeem all of the remaining  shares at $103.90 per share prior to May
1, 2003, and $101.95 per share thereafter, plus accrued dividends.

     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.

     During 2001,  MidAmerican  Energy  redeemed all 100,000 shares of the $5.25
Series Preferred Shares at $100 per share and 133,200 shares of the $7.80 Series
Preferred  Shares at $100 per  share.  A  combined  loss of $0.2  million on the
redemptions is reflected in Preferred Dividends on the Consolidated Statement of
Income.

     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, 2001, are entitled to upon involuntary bankruptcy is $158.4 million
plus  accrued  dividends.   Annual  dividend   requirements  for  all  preferred
securities outstanding at December 31, 2001, total $11.4 million.

(10) SEGMENT INFORMATION:

     MidAmerican Energy has identified four reportable  operating segments based
principally on management structure.  The generation segment derives most of its
revenue  from the  sale of  regulated  wholesale  electricity  and  nonregulated
wholesale  and retail  natural  gas.  The energy  delivery  segment  derives its
revenue  principally  from the delivery of retail  electricity  and natural gas,
while the  transmission  segment  obtains  most of its revenue  from the sale of
transmission  capacity.  The marketing  and sales  segment  receives its revenue
principally  from  nonregulated  sales of natural  gas and  electricity.  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.

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

                                      -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>

                                                2001           2000            1999
                                             -----------    -----------    -----------
<S>                                          <C>            <C>            <C>
SEGMENT PROFIT INFORMATION
Revenues:
  External revenues -
    Generation ...........................   $   910,510    $   724,500    $   354,568
    Energy delivery ......................     1,664,462      1,694,942      1,479,193
    Transmission .........................        22,852         17,276         10,662
    Sales & marketing ....................       133,249         95,641         15,851
                                             -----------    -----------    -----------
      Total ..............................     2,731,073      2,532,359      1,860,274
                                             -----------    -----------    -----------

    Intersegment revenues -
      Generation .........................       606,164        588,862        548,633
      Energy delivery ....................            --             --             --
      Transmission .......................        55,086         58,220         71,110
      Sales & marketing ..................         2,727          2,564             --
                                             -----------    -----------    -----------
        Total ............................       663,977        649,646        619,743

    Intersegment eliminations ............      (663,977)      (649,646)      (619,743)
                                             -----------    -----------    -----------
      Consolidated .......................   $ 2,731,073    $ 2,532,359    $ 1,860,274
                                             ===========    ===========    ===========

Depreciation and amortization expense (a):
  Generation .............................   $   133,681    $    87,480    $    84,559
  Energy delivery ........................       106,496        101,295         92,572
  Transmission ...........................         8,900          8,663         13,861
  Sales & marketing ......................         2,022             --             --
                                             -----------    -----------    -----------
    Total ................................   $   251,099    $   197,438    $   190,992
                                             ===========    ===========    ===========

Interest and dividend income:
  Generation .............................   $     5,450    $     7,935    $     1,240
  Energy delivery ........................         6,727          6,695          1,451
  Transmission ...........................           822            855            349
  Sales & marketing ......................            70             14             --
                                             -----------    -----------    -----------
    Total ................................   $    13,069    $    15,499    $     3,040
                                             ===========    ===========    ===========

Fixed charges:
  Generation .............................   $    31,726    $    31,799    $    34,612
  Energy delivery ........................        42,654         44,395         43,602
  Transmission ...........................         5,401          5,630         10,362
  Sales & marketing ......................           363             14             --
                                             -----------    -----------    -----------
    Total ................................        80,144         81,838         88,576
  Preferred dividends ....................        (4,544)        (4,955)        (4,955)
                                             -----------    -----------    -----------
    Consolidated .........................   $    75,600    $    76,883    $    83,621
                                             ===========    ===========    ===========
</TABLE>
                                      -65-
<PAGE>


<TABLE>
<CAPTION>

                                                2001           2000           1999
                                             -----------    -----------    -----------
<S>                                          <C>            <C>            <C>
SEGMENT PROFIT INFORMATION (CONTINUED)
Income before income taxes:
  Generation .............................   $   142,637    $   120,993    $    85,263
  Energy delivery ........................        84,334        124,680        115,883
  Transmission ...........................        39,514         32,470         21,749
  Sales & marketing ......................        (5,799)        (7,181)       (12,066)
                                             -----------    -----------    -----------
    Total ................................       260,686        270,962        210,829
  Preferred dividends ....................         4,544          4,955          4,955
                                             -----------    -----------    -----------
    Consolidated .........................   $   265,230    $   275,917    $   215,784
                                             ===========    ===========    ===========

SEGMENT ASSET INFORMATION
Capital expenditures:
  Generation .............................   $    87,296    $    48,386    $    54,700
  Energy delivery ........................       159,302        120,919        119,613
  Transmission ...........................         3,733         22,189         25,592
  Sales & marketing ......................         1,963         25,308          4,210
                                             -----------    -----------    -----------
    Total ................................   $   252,294    $   216,802    $   204,115
                                             ===========    ===========    ===========

Total Assets:
  Generation .............................   $ 1,282,677    $ 1,333,253    $1,347,855
  Energy delivery ........................     2,107,598      2,226,445     1,981,431
  Transmission ...........................       226,251        247,641       358,647
  Sales & marketing ......................        51,164        113,347        26,815
                                             -----------    -----------    ----------
    Total ................................     3,667,690      3,920,686    $3,714,748
                                                                           ==========
  Reclassifications and
    intersegment eliminations (b) ........       (89,798)       (97,120)
                                             -----------    -----------
  Consolidated ...........................   $ 3,577,892    $ 3,823,566
                                             ===========    ===========
</TABLE>

     (a)  Depreciation  and  amortization  expense above  includes  depreciation
          related to nonregulated operations,  which is included in Nonregulated
          Operating Expense - Other on the Consolidated Statements of Income.

     (b)  Reclassifications and intersegment  eliminations relate principally to
          the  reclassification  of  income  tax  balances  in  accordance  with
          generally  accepted  accounting  principles  and  the  elimination  of
          intersegment accounts receivables and payables.

(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.

                                      -66-
<PAGE>

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

     Preferred  securities - Fair value of preferred  securities  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 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>

                                                               2001                  2000
                                                       -------------------   -------------------
                                                       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 ........................   $ 26,680   $ 27,747   $ 50,000   $ 50,700
  MidAmerican Energy-obligated preferred securities;
    subject to mandatory redemption ................    100,000     99,640    100,000     98,752
  Long-term debt, including current portion ........    820,594    843,930    921,682    925,349
</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):

                                                        2001
                                   ---------------------------------------------
                                   Amortized  Unrealized   Unrealized     Fair
                                      Cost       Gains       Losses       Value
                                   ---------  ----------   ----------   --------
     Available-for-sale:
       Equity Securities .........  $ 50,241   $ 24,444    $    (316)   $ 74,369
       Municipal Bonds ...........    27,842      1,315          (92)     29,065
       U.S. Government Securities     26,725      1,910          (19)     28,616
       Corporate Debt Securities .    18,394        808          (23)     19,179
       Cash equivalents ..........     7,120         --           --       7,120
                                    --------   --------    ---------    --------
                                    $130,322   $ 28,477    $    (450)   $158,349
                                    ========   ========    =========    ========

                                      -67-

<PAGE>


                                                         2000
                                    --------------------------------------------
                                    Amortized  Unrealized  Unrealized     Fair
                                      Cost       Gains       Losses       Value
                                    ---------  ----------  ----------   --------
     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
                                    ========   ========    =========    ========

     At December 31, 2001, 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............   $ 2,981     $ 3,040
     1 through 5 years........    28,851      30,706
     5 through 10 years.......    10,733      11,578
     Over 10 years............    30,396      31,536

     The  proceeds and 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).  For the purpose
of computing realized gains and losses, the cost of investments is determined by
specific identification.

                                 2001        2000        1999
                               --------    --------    --------

     Proceeds from sales ...   $ 68,333    $ 34,279    $ 24,684
     Gross realized gains ..      2,676       3,356         615
     Gross realized losses .     (7,314)     (4,515)     (2,704)

(12) INCOME TAX EXPENSE:

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

                                     2001         2000         1999
                                  ---------    ---------    ---------
     Current
         Federal ..............   $ 111,674    $ 105,754    $  95,967
         State ................      33,327       32,450       29,553
                                  ---------    ---------    ---------
                                    145,001      138,204      125,520
                                  ---------    ---------    ---------
     Deferred
         Federal ..............     (23,199)     (18,174)     (25,657)
         State ................      (4,433)      (4,021)      (5,746)
                                  ---------    ---------    ---------
                                    (27,632)     (22,195)     (31,403)
                                  ---------    ---------    ---------

     Investment tax credit, net      (4,917)      (5,548)      (5,664)
                                  ---------    ---------    ---------
        Total .................   $ 112,452    $ 110,461    $  88,453
                                  =========    =========    =========

                                      -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):

                                                           2001       2000
                                                         --------   --------
     Deferred tax assets related to:
         Investment tax credits ......................   $ 41,275   $ 44,846
         Pensions ....................................     27,955     17,820
         Nuclear reserves and decommissioning ........     17,898     20,690
         Revenue sharing .............................     24,769      3,742
         Accrued liabilities .........................      2,413      5,422
         Other .......................................         10      4,025
                                                         --------   --------
                                                          114,320     96,545
                                                         --------   --------

     Deferred tax liabilities related to:
         Depreciable property ........................    412,773    421,481
         Income taxes recoverable through future rates    185,222    186,427
         Energy efficiency ...........................         --      4,391
         Reacquired debt .............................      7,544     10,256
         Fuel cost recoveries ........................     20,272     14,598
         Other .......................................      2,487         --
                                                         --------   --------
                                                          628,298    637,153

     Net deferred income tax liability ...............   $513,978   $540,608
                                                         ========   ========

     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:

                                                    2001    2000      1999
                                                    ----    ----      ----

     Effective federal and state income tax rate     42%      40%      41%
     Amortization of investment tax credit .....      2        2        3
     State income tax, net of federal income
       tax benefit .............................     (7)      (7)      (7)
     Other .....................................     (2)      --       (2)
                                                    ---      ---      ---
     Statutory federal income tax rate .........     35%      35%      35%
                                                    ===      ===      ===

(13)   INVENTORIES:

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

                                                 2001      2000
                                               -------   -------
     Materials and supplies, at average cost   $24,886   $26,038
     Coal stocks, at average cost ..........    27,855    21,076
     Gas in storage, at LIFO cost ..........    27,609    18,413
     Fuel oil, at average cost .............     1,892     2,506
     Other .................................     1,097     1,097
                                               -------   -------
        Total ..............................   $83,339   $69,130
                                               =======   =======

     At December 31, 2001  prices,  the current cost of gas in storage was $37.2
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 Energy 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.

     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 October  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, 2001, the
revolving cash balance was $44 million, down $26 million from December 31, 2000,
and the amount  outstanding under the subordinated  note was $28.7 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, 2001, $71.5
million of accounts receivable, net of reserves, was sold under the agreement.

(16) AFFILIATED COMPANY TRANSACTIONS:

     The companies  identified as affiliates are MidAmerican Energy Holdings and
its  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 $0.4  million,  $1.9  million,  and $7.7  million  for  2001,  2000 and 1999,
respectively.  MidAmerican  Energy's  allocated  share of these  costs and those
which originated at MHC was $1.0 million,  $(0.3) million,  and $7.7 million for
2001, 2000 and 1999, respectively.

                                      -70-
<PAGE>

     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 $27.0 million,  $25.8 million, and $11.7 million for 2001, 2000 and
1999, respectively.

     In 2001,  MidAmerican  Energy  acquired a gas  turbine  equipment  purchase
contract from MidAmerican Energy Holdings for $22.0 million.  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 $8.8  million,  $9.5 million and $5.0 million in 2001,  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 $0.1 million, $0.4 million and
$1.0 million for 2001, 2000 and 1999, respectively. MidAmerican Energy purchased
railcars from MidAmerican Rail Inc. in the amount of $1.4 million in 1999.

     MidAmerican  Energy sold natural gas to AmGas, an affiliate,  in the amount
of $11.6  million,  $32.0  million and $42.3  million  for 2001,  2000 and 1999,
respectively.  In 2000 and 1999,  MidAmerican  Energy also purchased natural gas
from AmGas.  MidAmerican  Energy's cost of gas related to these transactions was
$1.3 million and $4.0 million for 2000 and 1999, respectively.

     MidAmerican Energy had accounts  receivable from affiliates of $5.0 million
and $3.7  million  as of  December  31,  2001 and 2000,  respectively,  that are
included in Receivables on the Consolidated  Balance Sheets.  MidAmerican Energy
also had accounts  payable to  affiliates of $1.9 million and $2.5 million as of
December 31, 2001 and 2000, respectively,  that are included in Accounts Payable
on the Consolidated Balance Sheets.

     MidAmerican  Energy has an  agreement  with Cordova  Energy  Company LLC, a
subsidiary of MidAmerican  Energy Holdings,  to purchase  electric  capacity and
energy from a gas-fired combined cycle generation plant which started commercial
operation in June 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's payment for monthly capacity charges totaled $18.1 million
for 2001.

                                      -71-

<PAGE>

(17) UNAUDITED QUARTERLY OPERATING RESULTS:

                                                      2001
                                1st Quarter 2nd Quarter  3rd Quarter 4th Quarter
                                ----------- -----------  ----------- -----------
                                                (In thousands)

Operating revenues .............. $958,786    $639,061    $580,244    $552,982
Operating income ................  114,576      76,614     113,340      29,044
Income from continuing operations   55,789      32,636      56,564       7,789
Earnings on common stock ........   54,550      31,368      55,588       6,728


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

Operating revenues .............. $556,593    $523,482    $612,306    $839,978
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


Quarterly data reflect seasonal variations common in the utility industry.  The
decrease in Earnings on Common Stock for the fourth quarter of 2001 compared to
the fourth quarter of 2000 is due primarily to significantly warmer temperature
conditions during the 2001 quarter.

(18) OTHER INFORMATION:

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

                                                        2001        2000        1999
                                                      --------    --------    --------

<S>                                                   <C>         <C>         <C>
Discount on sold receivables ......................   $(16,010)   $(10,212)   $ (9,457)
Subservicer fee for sold receivables ..............      2,864       1,905       1,515
Gain on sale of rail cars .........................      1,387          --       5,357
Corporate-owned life insurance income .............      5,258       9,299         251
Merger investigation costs ........................       (150)       (297)     (1,491)
Allowance for equity funds used during construction      1,571          --          --
Other .............................................       (733)     (2,150)        126
                                                      --------    --------    --------
    Total expense .................................   $ (5,813)   $ (1,455)   $ (3,699)
                                                      ========    ========    ========
</TABLE>

                                      -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,  2001 and  2000,  and the  related  consolidated
statements of income,  comprehensive income,  retained earnings,  and cash flows
for each of the three years in the period ended  December  31, 2001.  Our audits
also included the financial  statement  schedule listed in the Index at Item 14.
These   financial   statements   and  financial   statement   schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial  statements and financial  statement  schedule based on
our audits.

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 consolidated  financial  statements present fairly, in all
material  respects,  the financial  position of  MidAmerican  Energy Company and
subsidiaries  as of  December  31,  2001  and  2000,  and the  results  of their
operations  and their cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting  principles  generally accepted
in the United States of America.  Also, in our opinion, such financial statement
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.



/s/  Deloitte & Touche LLP

Des Moines, Iowa
January 17, 2002

                                      -73-

<PAGE>


                                                                   SCHEDULE II


                           MIDAMERICAN ENERGY COMPANY
                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>


   Column A                                  Column B    Column C    Column D     Column E

                                            Balance at   Additions                Balance
                                             Beginning   Charged                  at End
Description                                   of Year    to Income   Deductions   of Year
-----------                                 ----------   ---------   ----------   --------

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

  Reserve for uncollectible accounts:

    Year ended 2001.......................    $  102     $15,266     $(14,741)    $  627
                                              ======     =======     ========     ======

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

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




Reserves Not Deducted From Assets (1):

    Year ended 2001.......................    $8,146     $ 2,766     $ (3,110)    $7,802
                                              ======     =======     ========     ======

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

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

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

                                      -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,  as amended,  to be
signed on its behalf by the undersigned, thereunto duly authorized.

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



Date: March 26, 2002                    By /s/  Gregory E. Abel *
                                           ----------------------
                                               (Gregory E. Abel)
                                           President and Chief Executive Officer

Pursuant  to the  requirements  of the  Securities  Exchange  Act of 1934,  this
report, as amended,  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
     ---------                            -----                        ----




 /s/  David L. Sokol        *      Chairman and Director          March 26, 2002
 ----------------------------
 (David L. Sokol)




 /s/  Gregory E. Abel       *      President, Chief Executive     March 26, 2002
 ----------------------------        Officer and Director
 (Gregory E. Abel)




/s/  Patrick J. Goodman     *      Senior Vice President,         March 26, 2002
-----------------------------        Chief Finnnancial Officer
    (Patrick J. Goodman)             and Director




/s/  Douglas L. Anderson   *       Senior Vice President          March 26, 2002
----------------------------         and Director
    (Douglas L. Anderson)




*By:/s/  Paul J. Leighton          Attorney-in-Fact               March 26, 2002
    ------------------------
     (Paul J. Leighton)

                                      -75-

<PAGE>

                                  EXHIBIT INDEX

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

10.17     Iowa Utilities Board Settlement Agreement, dated December 21, 2001

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

24        Power of Attorney

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

3.1       Restated Articles of Incorporation of MidAmerican  Energy Company,  as
          amended  October  27,  1998.  (Filed  as  Exhibit  3.3 to  MidAmerican
          Energy's  Quarterly Report on Form 10-Q for the period ended September
          30, 1998, Commission File No. 1-11505.)

3.2       Restated  Bylaws of MidAmerican  Energy  Company,  as amended July 24,
          1996. (Filed as Exhibit 3.1 to MidAmerican  Energy's  Quarterly Report
          on Form 10-Q for the period ended June 30, 1996,  Commission  File No.
          1-11505.)

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

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

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

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

4.14      Sixth Supplemental Indenture dated as of July 1, 1995, between Midwest
          Power Systems Inc. and Harris Trust and Savings Bank, Trustee.  (Filed
          as Exhibit 4.15 to  MidAmerican  Energy's  Annual  Report on Form 10-K
          dated December 31, 1995, Commission File No. 1-11505.)

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

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

10.2      MidAmerican Energy Company Restated  Executive  Deferred  Compensation
          Plan. (Filed as Exhibit 10.2 to MidAmerican  Energy's Quarterly Report
          on Form 10-Q dated March 31, 1999, Commission File No. 1-11505.)

10.3      MidAmerican Energy Company Combined Midwest  Resources/Iowa  Resources
          Restated Deferred Compensation Plan for Board of Directors.  (Filed as
          Exhibit 10.1 to  MidAmerican  Energy's  Quarterly  Report on Form 10-Q
          dated March 31, 1999, Commission File No. 1-11505.)

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

                                      -77-
<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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