MIDAMERICAN ENERGY HOLDINGS CO /NEW/ (Form: 10-K, Received: 03/01/2005 06:06:59)

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, 2004

Commission File No. 0-25551

MIDAMERICAN ENERGY HOLDINGS COMPANY

(Exact name of registrant as specified in its charter)

Iowa		94-2213782
(State or other jurisdiction of		(I.R.S. Employer
Incorporation or organization)		Identification No.)

666 Grand Avenue, Des Moines, IA		50309
(Address of principal executive offices)		(Zip Code)

(515) 242-4300

(Registrant’s telephone number, including area code)

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

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

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 registrant was required to file such reports), and (2) has 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 each of the registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act).

Yes __ No X

All of the shares of common equity of MidAmerican Energy Holdings Company are privately held by a limited group of investors. As of January 31, 2005, 9,081,087 shares of common stock were outstanding.

TABLE OF CONTENTS

	PART I
Item 1.	Business	4
Item 2.	Properties	31
Item 3.	Legal Proceedings	32
Item 4.	Submission of Matters to a Vote of Security Holders	34

	PART II

Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters	35
Item 6.	Selected Financial Data	35
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	55
Item 8.	Financial Statements and Supplementary Data	57
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	101
Item 9A.	Controls and Procedures	101
Item 9B.	Other Information	101

	PART III

Item 10.	Directors and Executive Officers of the Registrant	102
Item 11.	Executive Compensation	104

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	108
Item 13.	Certain Relationships and Related Transactions	109
Item 14.	Principal Accountant Fees and Services	110

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	111
Signatures		116
Exhibit Index		118

Disclosure Regarding Forward-Looking Statements

This report contains statements that do not directly or exclusively relate to historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can typically identify forward-looking statements by the use of forward-looking words, such as “may,” “will,” “could,” “project,” “believe,” “anticipate,” “expect,” “estimate,” “continue,” “potential,” “plan,” “forecast,” and similar terms. These statements represent plans, expectations and beliefs and are subject to risks, uncertainties and other factors. Many of these factors are outside the Company’s control and could cause actual results to differ materially from such forward-looking statements. These factors include, among others:

·	general economic and business conditions in the jurisdictions in which its facilities are located;

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

·	governmental, statutory, regulatory or administrative initiatives or ratemaking actions affecting the Company or the electric or gas utility, pipeline or power generation industries;

·	weather effects on sales and revenue;

·	general industry trends;

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

·	fuel and power costs and availability;

·	continued availability of accessible gas reserves;

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

·	availability, term and deployment of capital;

·	availability of qualified personnel;

·	unscheduled outages or repairs;

·	risks relating to nuclear generation;

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

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

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

MidAmerican Energy Holdings Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors should not be construed as exclusive.

PART I

Item 1. Business.

General

MidAmerican Energy Holdings Company (“MEHC”) and its subsidiaries (together with MEHC, the “Company”) are organized and managed on seven distinct platforms: MidAmerican Energy Company (“MidAmerican Energy”), Kern River Gas Transmission Company (“Kern River”), Northern Natural Gas Company (“Northern Natural Gas”), CE Electric UK Funding (“CE Electric UK”) (which includes Northern Electric Distribution Limited (“Northern Electric”) and Yorkshire Electricity Distribution plc (“Yorkshire Electricity”)), CalEnergy Generation-Foreign (the subsidiaries owning the Upper Mahiao, Malitbog and Mahanagdong projects (collectively, the “Leyte Projects”) and the Casecnan project), CalEnergy Generation-Domestic (the subsidiaries owning interests in independent power projects in the United States), and HomeServices of America, Inc. (collectively with its subsidiaries, “HomeServices”). Refer to Note 23 of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K for additional segment information regarding the Company’s platforms. Through these platforms, the Company owns and operates a combined electric and natural gas utility company in the United States, two natural gas pipeline companies in the United States, two electricity distribution companies in the United Kingdom, a diversified portfolio of domestic and international independent power projects and the second largest residential real estate brokerage firm in the United States.

MEHC’s energy subsidiaries generate, transmit, store, distribute and supply energy. MEHC’s electric and natural gas utility subsidiaries currently serve approximately 4.4 million electricity customers and approximately 680,000 natural gas customers. Its natural gas pipeline subsidiaries operate interstate natural gas transmission systems with approximately 18,300 miles of pipeline in operation and peak delivery capacity of 6.4 billion cubic feet of natural gas per day. The Company has interests in 6,777 net owned megawatts of power generation facilities in operation and under construction, including 5,203 net owned megawatts in facilities that are part of the regulated return asset base of its electric utility business and 1,574 net owned megawatts in non-utility power generation facilities. Substantially all of the non-utility power generation facilities have long-term contracts for the sale of energy and/or capacity from the facilities.

On March 14, 2000, MEHC and an investor group comprising Berkshire Hathaway Inc. (“Berkshire Hathaway”), Walter Scott, Jr., a director of MEHC, David L. Sokol, Chairman and Chief Executive Officer of MEHC, and Gregory E. Abel, President and Chief Operating Officer of MEHC, closed on a definitive agreement and plan of merger whereby the investor group, together with certain of Mr. Scott’s family members and family trusts and corporations, acquired all of the outstanding common stock of MEHC (the “Teton Transaction”).

The principal executive offices of MEHC are located at 666 Grand Avenue, Des Moines, Iowa 50309 and its telephone number is (515) 242-4300. MEHC initially incorporated in 1971 under the laws of the State of Delaware and reincorporated in 1999 in Iowa, at which time it changed its name from CalEnergy Company, Inc. to MidAmerican Energy Holdings Company.

In this Annual Report, references to “U.S. dollars,” “dollars,” “$” or “cents” are to the currency of the United States, references to “pounds sterling,” “£,” “sterling,” “pence” or “p” are to the currency of the United Kingdom and references to “pesos” are to the currency of the Philippines. References to kW means kilowatts, MW means megawatts, GW means gigawatts, kWh means kilowatt hours, MWh means megawatt hours, GWh means gigawatt hours, kV means kilovolts, mmcf means million cubic feet, Bcf means billion cubic feet, Tcf means trillion cubic feet and Dth means decatherms or one million British thermal units.

MidAmerican Energy

Business

MidAmerican Energy, an indirect wholly-owned subsidiary of MEHC, owns a public utility headquartered in Iowa with $5.1 billion of assets as of December 31, 2004, and operating revenues for 2004 totaling $2.7 billion. MidAmerican Energy is principally engaged in the business of generating, transmitting, distributing and selling electric energy and in distributing, selling and transporting natural gas. MidAmerican Energy distributes electricity at retail in Council Bluffs, Des Moines, Fort Dodge, Iowa City, Sioux City and Waterloo, Iowa; the Quad Cities (Davenport and Bettendorf, Iowa and Rock Island, Moline and East Moline, Illinois); and a number of adjacent communities and areas. It also distributes natural gas at retail in Cedar Rapids, Des Moines, Fort Dodge, Iowa City, Sioux City and Waterloo, Iowa; the Quad Cities; Sioux Falls, South Dakota; and a number of adjacent communities and areas. Additionally, MidAmerican Energy transports natural gas through its distribution system for a number of end-use customers who have independently secured their supply of natural gas. As of December 31, 2004, MidAmerican Energy had approximately 698,000 regulated retail electric customers and 680,000 regulated retail and transportation natural gas customers.

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

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

MidAmerican Energy also conducts a number of nonregulated business activities.

For the year ended December 31, 2004, MidAmerican Energy derived 53% of its gross operating revenues from its regulated electric business, 37% from its regulated gas business and 10% from its nonregulated business activities. For 2003 and 2002, the corresponding percentages were 54% electric, 36% gas and 10% nonregulated; and 61% electric, 31% gas and 8% nonregulated, respectively.

Electric Operations

For the year ended December 31, 2004, regulated electric sales by MidAmerican Energy by customer class were as follows: 20% were to residential customers, 14% were to small general service customers, 27% were to large general service customers, 5% were to other customers, and 34% were wholesale sales. For the year ended December 31, 2004, regulated electric sales by MidAmerican Energy by jurisdiction were as follows: 89% to Iowa, 10% to Illinois and 1% to South Dakota.

The annual hourly peak demand on MidAmerican Energy’s electric system usually occurs as a result of air conditioning use during the cooling season. In August 2003, MidAmerican Energy reached a record hourly peak demand of 3,935 MW. For 2004, MidAmerican Energy recorded an hourly peak demand of 3,894 MW on July 20.

The following table sets out certain information concerning MidAmerican Energy’s power generation facilities based upon summer 2004 accreditation and expected accredited generating capacity of projects recently completed or under construction:

	Facility Net
	Capacity		Net MW
Operating Project ⁽¹⁾		(MW) ⁽²⁾		Owned ⁽²⁾	Fuel	Location	Operation

Steam Electric Generating Facilities :
Council Bluffs Energy Center Units 1 & 2		133		133	Coal	Iowa	1954, 1958
Council Bluffs Energy Center Unit 3		690		546	Coal	Iowa	1978
Louisa Generation Station		700		616	Coal	Iowa	1983
Neal Generation Station Units 1 & 2		435		435	Coal	Iowa	1964, 1972
Neal Generation Station Unit 3		515		371	Coal	Iowa	1975
Neal Generation Station Unit 4		644		261	Coal	Iowa	1979
Ottumwa Generation Station		715		372	Coal	Iowa	1981
Riverside Generation Station		135		135	Coal	Iowa	1925-61
Total steam electric generating facilities		3,967		2,869
Other Facilities :
Combustion Turbines ⁽³⁾		1,116		1,116	Gas/Oil	Iowa	1969-2003
Quad Cities Generating Station		1,748		437	Nuclear	Illinois	1974
Portable Power Modules		56		56	Oil	Iowa	2000
Moline Water Power		3		3	Hydro	Illinois	1970
Total other facilities		2,923		1,612
Total accredited generating capacity		6,890		4,481

Projects Recently Completed or Under Construction :
Greater Des Moines Energy Center ⁽³⁾		190		190	Gas	Iowa	2004
Council Bluffs Energy Center Unit 4		790		479	Coal	Iowa	2007
Northern Iowa Wind Power		53		53	Wind	Iowa	2005
Total projects recently completed or under construction		1,033		722
		7,923		5,203

(1)	MidAmerican Energy operates all such power generation facilities other than Quad Cities Generating Station and Ottumwa Generation Station.

(2)

Represents accredited net generating capability from the summer of 2004 and the expected accredited generating capacity of projects recently completed or under construction. Actual MW may vary depending on operating conditions and plant design for operating projects. Net MW Owned indicates ownership of accredited capacity for the summer of 2004 as approved by the Mid-Continent Area Power Pool (“MAPP”).

(3)

The Greater Des Moines Energy Center project was completed in two phases. Commercial operation in the simple cycle mode began in May 2003, resulting in 327 MW (included in “Other Facilities — Combustion Turbines” above) of accredited capacity throughout 2004. Commercial operation of the combined cycle mode began in December 2004 and additional accredited capacity is expected to be 190 MW.

MidAmerican Energy’s total accredited net generating capability in the summer of 2004 was 4,897 MW. Accredited net generating capability represents the amount of generation available to meet the requirements on MidAmerican Energy’s system and consists of MidAmerican Energy-owned generation of 4,481 MW and the net amount of capacity purchases and sales of 416 MW. The actual amount of generation capacity available at any time may be less than the accredited capability due to regulatory restrictions, transmission constraints, fuel restrictions and generating units being temporarily out of service for inspection, maintenance, refueling, modifications or other reasons.

MidAmerican Energy anticipates a continuing increase in demand for electricity from its regulated customers. To meet anticipated demand and ensure adequate electric generation in its service territory, MidAmerican Energy recently completed its combined cycle combustion turbine project and is currently constructing the 790 MW (expected accreditation) super-critical-temperature, coal-fired Council Bluffs Energy Center Unit No. 4 (“CBEC Unit 4”) and a 310 MW (nameplate rating) wind power project in Iowa. The projects will provide service to regulated retail electricity customers. MidAmerican Energy has obtained regulatory approval to include the Iowa portion of the actual costs of the generation projects in its Iowa rate base as long as actual costs do not exceed the agreed caps that MidAmerican Energy has deemed to be reasonable. If the caps are exceeded, MidAmerican Energy has the right to demonstrate the prudence of the expenditures above the caps, subject to regulatory review. Wholesale sales may also be made from the projects to the extent the power is not immediately needed for regulated retail service. MidAmerican Energy expects to invest approximately $1.1 billion in the CBEC Unit 4 and wind generation projects, of which $350.4 million has been invested through December 31, 2004.

MidAmerican Energy recently completed work on its Greater Des Moines Energy Center, a natural gas-fired, combined cycle plant located near Pleasant Hill, Iowa. Construction of the plant was completed in two phases. Commercial operation of the simple cycle mode began on May 5, 2003, and continued through most of 2004, providing 327 MW of accredited capacity in the summer of 2004. Commercial operation of the combined cycle mode began on December 16, 2004. The additional accredited capacity from the completion of the second phase is expected to be 190 MW. MidAmerican Energy expects the total cost of the Greater Des Moines Energy Center to be under the $357.0 million cost cap established by the Iowa Utilities Board (“IUB”).

MidAmerican Energy is currently constructing the CBEC Unit 4, a 790 MW (based on expected accreditation) super-critical-temperature, low-sulfur coal-fired plant. MidAmerican Energy will operate the plant and hold an undivided ownership interest as a tenant in common with the other owners of the plant. MidAmerican Energy’s ownership interest is 60.67%, equating to 479 MW of output. MidAmerican Energy expects its share of the estimated cost of the project, including transmission facilities, to be approximately $737.0 million, excluding allowance for funds used during construction. Municipal, cooperative and public power utilities will own the remainder, which is a typical ownership arrangement for large base-load plants in Iowa. On February 12, 2003, MidAmerican Energy executed a contract with Mitsui & Co. Energy Development, Inc. (“Mitsui”) for the engineering, procurement and construction of the plant. On September 9, 2003, MidAmerican Energy began construction of the plant, which it expects to be completed in the summer of 2007. On December 29, 2004, MidAmerican Energy received an order from the IUB approving construction of the associated transmission facilities and is proceeding with construction.

The second electric generating project currently under construction consists of wind power facilities located at two sites in north central Iowa totaling 310 MW based on the nameplate rating. Generally speaking, accredited capacity ratings for wind power facilities are considerably less than the nameplate ratings due to the varying nature of wind. The current projected accredited capacity for these wind power facilities is approximately 53 MW. MidAmerican Energy will own and operate these facilities, which are expected to cost approximately $323.0 million, including transmission facilities and excluding the allowance for funds used during construction. As of December 31, 2004, wind turbines totaling 160.5 MW at one of the sites were completed and in service. Completion of the remaining turbines is expected by the middle of 2005. On January 31, 2005, the IUB approved ratemaking principles related to expanding the wind power project. An additional 50 MW of capacity, based on the nameplate rating, is expected to be constructed at the sites in 2005 at an estimated cost of $63.0 million.

MidAmerican Energy is interconnected with Iowa utilities and utilities in neighboring states and is party to an electric generation and transmission pooling agreement administered by the MAPP. The MAPP is a voluntary association of electric utilities doing business in Minnesota, Nebraska, North Dakota and the Canadian provinces of Saskatchewan and Manitoba and portions of Iowa, Montana, South Dakota and Wisconsin. Its membership also includes power marketers, regulatory agencies and independent power producers. The MAPP facilitates operation of the transmission system, is responsible for the safety and reliability of the bulk electric system, and has responsibility for administration of the 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. MidAmerican Energy’s reserve margin at peak demand for 2004 was approximately 26%. MidAmerican Energy believes it has adequate electric capacity reserve through 2010, including capacity provided by the generating projects discussed above. However, significantly higher-than-normal temperatures during the cooling season could cause MidAmerican Energy’s reserve to fall below the 15% minimum. If MidAmerican Energy fails to maintain the appropriate reserve, significant penalties could be contractually imposed by the MAPP.

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

Gas Operations

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

MidAmerican Energy sells natural gas and transportation services to end-use, or retail, customers and natural gas to other utilities, marketers and municipalities. MidAmerican Energy also transports through its distribution system natural gas purchased independently by a number of end-use customers. During 2004, 45% of total gas delivered through MidAmerican Energy's system for end-use customers was under gas transportation services.

For the year ended December 31, 2004, regulated gas sales, excluding transportation throughput, by MidAmerican Energy by customer class were as follows: 40% were to residential customers, 20% were to small general service customers, 2% were to large general service customers and 38% were wholesale sales. For the year ended December 31, 2004, regulated gas sales, excluding transportation throughput, by MidAmerican Energy by jurisdiction were as follows: 78% to Iowa, 11% to South Dakota, 10% to Illinois and 1% to Nebraska.

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

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 attempts to optimize the value of its regulated assets by engaging in wholesale sales transactions. IUB and South Dakota Public Utilities Commission (“SDPUC”) rulings have allowed MidAmerican Energy to retain 50% of the respective jurisdictional margins earned on wholesale sales of natural gas, with the remaining 50% being returned to customers through the purchased gas adjustment clause discussed below.

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

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

MidAmerican Energy utilizes leased gas storage to meet peak day requirements and to manage the daily changes in demand due to changes in weather. The storage gas is typically replaced during the summer months when the demand for gas has historically been lower than during the heating season. In addition, MidAmerican Energy also utilizes three liquefied natural gas (“LNG”) plants and two propane-air plants to meet peak day demands in the winter. The storage and peak shaving facilities reduce MidAmerican Energy’s dependence on gas purchases during the volatile winter heating season.

In 1995, the IUB gave initial approval of MidAmerican Energy’s Incentive Gas Supply Procurement Program. In November 2004, the IUB extended the program through October 31, 2006. Under the program, as amended, MidAmerican Energy is required to file with the IUB every six months a comparison of its gas procurement costs to 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 currently in effect in South Dakota through October 31, 2005. Since the implementation of the program, MidAmerican Energy has successfully achieved and shared savings with its natural gas customers.

On February 2, 1996, MidAmerican Energy had its highest peak-day delivery of 1,143,026 Dth. This peak-day delivery consisted of 88% traditional sales service and 12% transportation service of customer-owned gas. As of January 31, 2005, MidAmerican Energy’s 2004/2005 winter heating season peak-day delivery of 997,058 Dth was reached on January 14, 2005. This peak-day delivery included 76% traditional sales service and 24% transportation service.

Kern River

Business

Kern River, an indirect wholly-owned subsidiary of MEHC, owns an interstate natural gas transportation pipeline system comprising 1,679 miles of pipeline, with an approximate design capacity of 1,755,575 Dth per day, extending from supply areas in the Rocky Mountains to consuming markets in Utah, Nevada and California. In 2003, a 717 mile expansion project (“2003 Expansion Project”), which was placed in service on May 1, 2003, increased the design capacity of Kern River’s pipeline system by 885,575 Dth per day to its current 1,755,575 Dth per day.

Kern River’s pipeline consists of two sections: the mainline section and the common facilities. Kern River owns the entire mainline section, which extends from the pipeline’s point of origination near Opal, Wyoming through the Central Rocky Mountains area into Daggett, California. The mainline section consists of the original 682 miles of 36-inch pipeline, 628 miles of 36-inch loop pipeline related to the 2003 Expansion Project and 68 miles of various laterals that connect to the mainline.

The common facilities consist of a 219-mile section of original pipeline that extends from the point of interconnection with the mainline in Daggett to Bakersfield, California and an additional 82 miles related to the 2003 Expansion Project. The common facilities are jointly owned by Kern River (approximately 76.8% as of December 31, 2004) and Mojave Pipeline Company (“Mojave”), a wholly owned subsidiary of El Paso Corporation (“El Paso”) (approximately 23.2% as of December 31, 2004), as tenants-in-common. Kern River’s ownership percentage in the common facilities will increase or decrease pursuant to subsequently completed expansions by the respective joint owners. Kern River has exclusive rights to approximately 1,570,500 Dth per day of the common facilities’ capacity, and Mojave has exclusive rights to 400,000 Dth per day of capacity. Operation and maintenance of the common facilities are the responsibility of Mojave Pipeline Operating Company, an affiliate of Mojave.

Transportation Service Agreements

As of December 31, 2004, Kern River had under contract 1,661,575 Dth per day of capacity under long-term firm gas transportation service agreements under which the pipeline receives natural gas on behalf of shippers at designated receipt points, transports the gas on a firm basis up to each shipper’s maximum daily quantity and delivers thermally equivalent quantities of gas at designated delivery points. Each shipper pays Kern River the aggregate amount specified in its long-term firm gas transportation service agreement and Kern River’s tariff, with such amount consisting primarily of a fixed monthly reservation fee based on each shipper’s maximum daily quantity and a commodity charge based on the actual amount of gas transported.

With respect to Kern River’s mainline facilities in existence prior to the 2003 Expansion Project, at December 31, 2004, Kern River had 27 long-term firm gas transportation service agreements with 16 shippers, for a total of 848,949 Dth per day of capacity. All but one of these long-term firm gas transportation service agreements expires on or before April 30, 2017. Several of these shippers are major oil and gas companies, or affiliates of such companies. These shippers also include electric generating companies, energy marketing and trading companies, and a gas distribution utility which provides services in Nevada and California.

With respect to Kern River’s 2003 Expansion Project, at December 31, 2004, Kern River had 19 long-term firm gas transportation service agreements with 16 shippers, for a total of 812,626 Dth per day of capacity from the pipeline’s point of origination near Opal, Wyoming to delivery points primarily in California. Approximately 83% of the 2003 Expansion Project’s capacity is contracted for 15 years, with 14 of the long-term firm gas transportation service agreements expiring on April 30, 2018. The remaining 17% of capacity is contracted for 10 years, with five long-term firm gas transportation service agreements expiring on April 30, 2013. Over 95% of the 2003 Expansion Project’s capacity has primary delivery points in California, with the flexibility to access secondary delivery points in Nevada and Utah.

Northern Natural Gas

Business

Northern Natural Gas, an indirect wholly-owned subsidiary of MEHC, owns one of the largest interstate natural gas pipeline systems in the United States. It reaches from Texas to Michigan’s Upper Peninsula and is engaged in the transmission and storage of natural gas for utilities, municipalities, other pipeline companies, gas marketers, industrial and commercial users and other end users. Northern Natural Gas operates approximately 16,500 miles of natural gas pipelines with a design capacity of 4.4 Bcf per day. Based on a review of relevant industry data, the Northern Natural Gas system is believed to be the largest single pipeline in the United States as measured by pipeline miles and the ninth largest as measured by throughput. Northern Natural Gas’ revenue is derived from the interstate transportation and storage of natural gas for third parties. Except for small quantities of natural gas owned for system operations, Northern Natural Gas does not own the natural gas that is transported through its system. Northern Natural Gas’ transportation and storage operations are subject to a Federal Energy Regulatory Commission (“FERC”) regulated tariff that is designed to allow it an opportunity to recover its costs together with a regulated return on equity.

Northern Natural Gas’ system consists of two distinct but operationally integrated markets. Its traditional end-use and distribution market area is at the northern end of the system, including delivery points in Michigan, Illinois, Iowa, Minnesota, Nebraska, Wisconsin and South Dakota, which Northern Natural Gas refers to as the Market Area, and the natural gas supply and service area is at the southern end of the system, including Kansas, Oklahoma, Texas and New Mexico, which Northern Natural Gas refers to as the Field Area. Northern Natural Gas’ Field Area is interconnected with many interstate and intrastate pipelines in the national grid system. A majority of Northern Natural Gas’ capacity in both the Market Area and the Field Area is dedicated to Market Area customers under long-term firm transportation contracts. Approximately 70% of Northern Natural Gas’ firm transportation contracts extend beyond 2007.

Northern Natural Gas’ pipeline system transports natural gas primarily to end-user and local distribution markets in the Market Area. Customers consist of local distribution companies (“LDCs”), municipalities, other pipeline companies, gas marketers and end-users. While eight large LDCs account for the majority of Market Area volumes, Northern Natural Gas also serves numerous small communities through these large LDCs as well as municipalities or smaller LDCs and directly serves several large end-users. In 2004, approximately 85% of Northern Natural Gas’ revenue was from capacity charges under firm transportation and storage contracts and approximately 80% of that revenue was from LDCs. In 2004, approximately 71% of Northern Natural Gas’ revenue was generated from Market Area customer contracts.

The Field Area of Northern Natural Gas’ system provides access to natural gas supply from key production areas including the Hugoton, Permian and Anadarko Basins. In each of these areas, Northern Natural Gas has numerous interconnecting receipt and delivery points, with volumes received in the Field Area consisting of both directly connected supply and volumes from interconnections with other pipeline systems. In addition, Northern Natural Gas has the ability to aggregate processable natural gas for deliveries to various gas processing facilities.

In the Field Area, customers holding transportation capacity consist of LDCs, marketers, producers, and end-users. The majority of Northern Natural Gas’ Field Area firm transportation is provided to Northern Natural Gas’ Market Area firm customers under long-term firm transportation contracts with such volumes supplemented by volumes transported on an interruptible basis or pursuant to short-term firm contracts. In 2004, approximately 19% of Northern Natural Gas’ revenue was generated from Field Area customer transportation contracts.

Northern Natural Gas’ storage services are provided through the operation of one underground storage field in Iowa, two underground storage facilities in Kansas and one LNG storage peaking unit each at Garner, Iowa and Wrenshall, Minnesota. The three underground natural gas storage facilities and Northern Natural Gas’ two LNG storage peaking units have a total working storage capacity of approximately 59 Bcf and over 1.3 Bcf per day of peak day deliverability. These storage facilities provide Northern Natural Gas with operational flexibility for the daily balancing of its system and providing services to customers for meeting their year-round loadswing requirements. In 2004, approximately 10% of Northern Natural Gas’ revenue was generated from storage services.

Northern Natural Gas’ system is characterized by significant seasonal swings in demand, which provide opportunities to deliver high value-added services. Because of its location and multiple interconnections with other interstate and intrastate pipelines, Northern Natural Gas is able to access natural gas from both traditional production areas, such as the Hugoton, Permian and Anadarko Basins, as well as growing supply areas such as the Rocky Mountains through Trailblazer Pipeline Company, Pony Express Pipeline and Colorado Interstate Gas Pipeline Company (“Colorado Interstate”), and from Canadian production areas through Northern Border, Great Lakes Gas Transmission Limited Partnership (“Great Lakes”) and Viking Gas Transmission Company (“Viking”). As a result of Northern Natural Gas’ geographic location in the middle of the United States and its many interconnections with other pipelines, Northern Natural Gas augments its steady end-user and LDC revenue by taking advantage of opportunities to provide intermediate transportation through pipeline interconnections for customers in other markets including Chicago, Illinois, other parts of the Midwest and Texas.

Kern River and Northern Natural Gas Competition

Each of Kern River and Northern Natural Gas has several customers who account for greater than 10% of its revenue. The loss of any one or more of these, if not replaced, could have a material adverse effect on Kern River’s and Northern Natural Gas’ respective businesses.

Pipelines compete on the basis of cost (including both transportation costs and the relative costs of the natural gas they transport), flexibility, reliability of service and overall customer service. Industrial end-users often have the ability to choose from alternative fuel sources in addition to natural gas, such as fuel oil and coal. Natural gas competes with other forms of energy, including electricity, coal and fuel oil, primarily on the basis of price. Legislation and governmental regulations, the weather, the futures market, production costs, and other factors beyond the control of Kern River and Northern Natural Gas influence the price of natural gas.

Kern River competes with various interstate pipelines and its shippers in serving the southern California, Las Vegas, Nevada and Salt Lake City, Utah market areas, in order to market any unutilized or unsubscribed capacity. Kern River provides its customers with supply diversity through pipeline interconnections with Northwest Pipeline, Colorado Interstate, Overland Trail Pipeline, and Questar Pipeline. These interconnections, in addition to the direct interconnections to natural gas processing facilities, allow Kern River to access natural gas reserves in Colorado, northwestern New Mexico, Wyoming, Utah and the Western Canadian Sedimentary Basin.

Kern River is the only interstate pipeline that presently delivers natural gas directly from a gas supply basin into the intrastate California market, which enables its customers to avoid paying a “rate stack” (i.e., additional transportation costs attributable to the movement from one or more interstate pipeline systems to an intrastate system within California). Kern River believes that its rate structure and access to upstream pipelines/storage facilities and to economic Rocky Mountain gas reserves increases its competitiveness and attractiveness to end-users. Kern River believes it is advantaged relative to other competing interstate pipelines because its relatively new pipeline can be expanded at comparatively lower costs and will require significantly less capital expenditure to comply with the Pipeline Safety Improvement Act of 2002 ("PSIA") than other systems. Kern River’s levelized rate structures under expansion rates and settlement rates also provide customers with greater rate certainty. Kern River’s market position depends to a significant degree, however, on the availability and favorable price of gas produced in the Rocky Mountain area, an area that in recent years has attracted considerable expansion of pipeline capacity serving markets other than California and Nevada. In addition, Kern River’s 2003 Expansion Project relies substantially on long-term transportation service agreements with several electric generation companies, who face significant competitive and financial pressures due to, among other things, the financial stress of energy markets and apparent over-building of electric generation capacity in California and other markets.

Northern Natural Gas has been able to provide cost competitive service because of its access to a variety of relatively low cost gas supply basins, its cost control measures and its relatively high load factor throughput, which lowers the cost per unit of transportation. Although Northern Natural Gas has experienced pipeline system bypass affecting a small percentage of its market, to date Northern Natural Gas has been able to more than offset any load lost to bypass in the Northern Natural Gas Market Area through expansion projects.

Major competitors in the Northern Natural Gas Market Area include ANR, Northern Border and NGPL. Other competitors include Great Lakes and Viking. In the Field Area, Northern Natural Gas competes with a large number of other competitors. Particularly in the Field Area, a significant amount of Northern Natural Gas’ capacity is used on an interruptible or short-term basis. In summer months, Northern Natural Gas’ Market Area customers often release significant amounts of their unused firm capacity to other shippers, which released capacity competes with Northern Natural Gas’ short-term or interruptible services.

Although Northern Natural Gas will need to aggressively compete to retain and build load, Northern Natural Gas believes that current and anticipated changes in its competitive environment have created opportunities to serve existing customers more efficiently and to meet certain growing supply needs. While LDCs’ peak day growth is driven by population growth and alternative fuel replacement, new off-peak demand growth is being driven primarily by power and ethanol plant expansion. Off-peak demand growth is important to Northern Natural Gas as this demand can generally be satisfied with little or no requirement for the construction of new facilities. Northern Natural Gas has been successful in competing for a significant amount of the increased demand related to the construction of new power and ethanol plants. Over the last five years, Northern Natural Gas has contracted approximately 281 mmcf per day of firm volume on its system from such new facilities, of which approximately 262 mmcf per day is currently in service and approximately 19 mmcf per day is scheduled to begin service in 2005.

Pipeline Development Project

MEHC and a subsidiary, Alaska Gas Transmission Company, LLC (“Alaska Gas”), are two of several other parties, including existing producers of oil from Alaska’s North Slope, involved in a competitive selection process to develop and construct a proposed 745-mile natural gas pipeline which would be subject to FERC regulation and would extend from the North Slope area near Prudhoe Bay, Alaska south to the Alaska-Yukon border near Beaver Creek, Alaska. The State of Alaska is expected to select a preferred party for the project by the end of the second quarter of 2005. If either MEHC or Alaska Gas are selected, further approvals, including from FERC, would be required and significant development and construction risk would remain with respect to the pipeline project.

CE Electric UK

Business

CE Electric UK, an indirect wholly-owned subsidiary of MEHC, owns, primarily, two companies that distribute electricity in the United Kingdom, Northern Electric and Yorkshire Electricity. Northern Electric and Yorkshire Electricity, collectively, are the third largest electricity distribution business in the United Kingdom, serving more than 3.7 million customers in an area of approximately 10,000 square miles.

Electricity Distribution

Northern Electric’s and Yorkshire Electricity’s operations consist primarily of the distribution of electricity in the United Kingdom. Northern Electric and Yorkshire Electricity receive electricity from the national grid transmission system and distribute it to their customers’ premises using their network of transformers, switchgear and cables. Substantially all of the end users in Northern Electric’s and Yorkshire Electricity’s distribution service areas are connected to the Northern Electric and Yorkshire Electricity networks and electricity can only be delivered through their distribution system, thus providing Northern Electric and Yorkshire Electricity with distribution volume that is relatively stable from year to year. Northern Electric and Yorkshire Electricity charge fees for the use of the distribution system to the suppliers of electricity. The suppliers, which purchase electricity from generators and sell the electricity to end-user customers, use Northern Electric’s and Yorkshire Electricity’s distribution networks pursuant to an industry standard “Use of System Agreement”, which Northern Electric and Yorkshire Electricity separately entered into with the various suppliers of electricity in their respective distribution areas. One such supplier, Innogy Holdings plc (“Innogy”) and certain of its affiliates, represented approximately 47% of the total revenues of Northern Electric and Yorkshire Electricity in 2004. The fees that may be charged by Northern Electric and Yorkshire Electricity for use of their distribution systems are controlled by a formula prescribed by the United Kingdom’s electricity regulatory body that limits increases (and may require decreases) based upon the rate of inflation in the United Kingdom and other regulatory action.

At December 31, 2004, Northern Electric’s and Yorkshire Electricity’s electricity distribution network (excluding service connections to consumers) on a combined basis included approximately 33,000 kilometers of overhead lines and approximately 64,000 kilometers of underground cables. In addition to the circuits referred to above, at December 31, 2004, Northern Electric’s and Yorkshire Electricity’s distribution facilities also included approximately 58,000 transformers and approximately 750 primary substations. Substantially all substations are owned, with the balance being leased from third parties, most of which have remaining terms of at least 10 years.

Utility Services

Integrated Utility Services Limited, CE Electric UK's indirect wholly-owned subsidiary, is an engineering contracting company whose main business is providing electrical connection services on behalf of Northern Electric’s and Yorkshire Electricity’s distribution businesses and providing electrical infrastructure contracting services to third parties.

Gas Exploration and Production

CalEnergy Gas (Holdings) Limited (“CE Gas”), CE Electric UK’s indirect wholly-owned subsidiary, is a gas exploration and production company that is focused on developing integrated upstream gas projects in Australia, the United Kingdom and Poland. Its upstream gas business consists of exploration, development and production projects, resulting in the sale of gas to third parties.

In Australia, CE Gas has construction and development projects in the Bass, Otway and Perth Basins. The Yolla construction project in the Bass Basin is a gas and gas liquids project in which CE Gas holds a 20% interest. The project, operated by Origin Energy of Australia, is nearing completion and includes an approximately 145 kilometer subsea pipeline across the Bass Strait off southern Victoria. The Bass Project is expected to be fully operational in 2005. The gas from the project will be sold to Origin Energy’s retail affiliate, the liquefied petroleum gas will be sold to Elgas Limited, the largest marketer of liquefied petroleum gas in Australia, and the condensate will be sold to The Shell Company of Australia Limited. Also in the Bass Basin, CE Gas holds a 23.5% interest in the Trefoil discovery. This gas and gas liquids discovery was drilled in late 2004 and the commercial development potential is currently under evaluation. The Otway project, in which CE Gas holds a 6% interest, is operated by Woodside of Australia. This project received construction approval during 2004. Construction has now commenced with first production expected in 2006. Further prospecting in the three Otway Basin exploration permits in which CE Gas holds a 6% interest continues to be investigated. CE Gas also has a one-third interest in permit EP 437 in the onshore northern Perth Basin. The permitting process for this project was successfully completed in 2004.

In the United Kingdom, CE Gas continues to retain its 5% interest in the Victor Field, which is a gas field located in the North Sea, and during 2004, successfully applied for, and was granted, a new exploration permit in which CE Gas has a 100% interest.

In Poland, CE Gas retains its development interest in the Polish Trough. CE Gas, together with its joint venture partners FX Energy and the Polish Oil and Gas Company, has drilled the Zaniemysl #3 well in the Fences I Concession. This resulted in a commercial gas discovery early in 2004 in which CE Gas holds a 24.5% interest. This discovery is currently being developed and it is anticipated that the field will be on production in early 2006.

CalEnergy Generation-Foreign

Business

The CalEnergy Generation-Foreign platform consists of MEHC’s indirect ownership of the Upper Mahiao, Mahanagdong and Malitbog projects, which are geothermal power plants located on the island of Leyte in the Philippines, and the Casecnan project, a combined irrigation and hydroelectric power generation project located in the central part of the island of Luzon in the Philippines. Each plant possesses an operating margin that allows for production in excess of the amount listed below. Utilization of this operating margin is based upon a variety of factors and can be expected to vary between calendar quarters under normal operating conditions.

The following table sets out certain information concerning CalEnergy Generation-Foreign’s non-utility power projects in operation as of December 31, 2004:

Facility

Net

Power

Capacity

Net MW

Contract

Purchaser/

Project ⁽¹⁾

(MW) ⁽²⁾

Owned ⁽²⁾

Fuel

Expiration

Guarantor ⁽³⁾

Upper Mahiao

119

Geo

2006

PNOC-EDC/ROP

Mahanagdong

155

150

Geo

2007

PNOC-EDC/ROP

Malitbog

216

Geo

2007

PNOC-EDC/ROP

Casecnan ⁽⁴⁾

150

Hydro

2021

NIA/ROP

Total International Projects

640

635

(1)	All projects are located in the Philippines, are governed by contracts which are mainly payable in U.S. dollars and carry political risk insurance.

(2)	Actual MW may vary depending on operating, geothermal reservoir and water flow conditions, as well as plant design. Facility Net Capacity (MW) represents the contract capacity for the facility. Net MW Owned indicates current legal ownership, but, in some cases, does not reflect the current allocation of distributions.

(3)	Philippine National Oil Company-Energy Development Corporation (“PNOC-EDC”), Republic of the Philippines (“ROP”), and National Irrigation Administration (“NIA”). NIA also pays CE Casecnan Water and Energy Company, Inc. (“CE Casecnan”), an indirect subsidiary of MEHC, for the delivery of water and electricity by CE Casecnan. Separate sovereign undertakings of the ROP support PNOC-EDC’s and NIA’s respective obligations for each project.

(4)	Net MW Owned of approximately 150 MW is subject to repurchase rights of up to 15% of the project by an initial minority shareholder and a dispute with the other initial minority shareholder regarding an additional 15% of the project. Refer to “Item 3. Legal Proceedings” of this Form 10-K for additional information.

The Upper Mahiao project is a 119 net MW geothermal power project owned and operated by CE Cebu Geothermal Power Company, Inc. (“CE Cebu”), a Philippine corporation that is 100% indirectly owned by MEHC. On June 18, 2006, the end of the ten-year cooperation period, the Upper Mahiao facility will be transferred to PNOC-EDC at no cost on an “as-is” basis.

The Upper Mahiao project takes geothermal steam and fluid, provided by PNOC-EDC at no cost, and converts its thermal energy into electrical energy which is sold to PNOC-EDC on a “take-or-pay” basis, which in turn sells the power to the National Power Corporation (“NPC”), the government-owned and controlled corporation that is the primary supplier of electricity in the Philippines, for distribution on the island of Cebu. PNOC-EDC pays CE Cebu a fee based on the plant capacity. Pursuant to an amendment to the Upper Mahiao energy conversion agreement entered into on August 31, 2003, CE Cebu and PNOC-EDC agreed that the plant capacity for purposes of the fee would equal the contractually specified level of 118.5 MW. PNOC-EDC also pays CE Cebu a fee based on the electricity actually delivered to PNOC-EDC (approximately 5% of total contract revenue). Payments under the Upper Mahiao agreement are denominated in U.S. dollars, or computed in U.S. dollars and paid in pesos at the then-current exchange rate, except for the energy fee. PNOC-EDC’s payment requirements, and its other obligations under the Upper Mahiao agreement, are supported by the ROP through a performance undertaking.

The Mahanagdong project is a 155 net MW geothermal power project owned and operated by CE Luzon Geothermal Power Company, Inc. (“CE Luzon”), a Philippine corporation of which MEHC indirectly owns 100% of the common stock. Another industrial company owns an approximate 3% preferred equity interest in the Mahanagdong project. The Mahanagdong project sells 100% of its capacity to PNOC-EDC, which in turn sells the power to the NPC for distribution on the island of Luzon.

The terms of the Mahanagdong energy conversion agreement are substantially similar to those of the Upper Mahiao agreement. On July 25, 2007, the end of the ten year cooperation period, the Mahanagdong facility will be transferred to PNOC-EDC at no cost on an “as-is” basis. PNOC-EDC pays CE Luzon a fee based on the plant capacity. Pursuant to an amendment to the Mahanagdong energy conversion agreement entered into on August 31, 2003, CE Luzon and PNOC-EDC agreed that the plant capacity would equal the contractually specified level, which declines from approximately 155 MW in 2004 to approximately 153 MW in the last year of the cooperation period. The capacity fees are approximately 97% of total revenue at the contractually agreed capacity levels and the energy fees are approximately 3% of such total revenue. PNOC-EDC’s payment requirements, and its other obligations under the Mahanagdong agreement, are supported by the ROP through a performance undertaking.

The Malitbog project is a 216 net MW geothermal project owned and operated by Visayas Geothermal Power Company (“VGPC”), a Philippine general partnership that is indirectly wholly owned by MEHC. VGPC sells 100% of its capacity on substantially the same basis as described above for the Upper Mahiao project to PNOC-EDC, which sells the power to the NPC for distribution on the islands of Cebu and Luzon.

The electrical energy produced by the facility is sold to PNOC-EDC on a “take-or-pay” basis. These capacity payments equal 100% of total revenue. Pursuant to an amendment to the Malitbog energy conversion agreement entered into on August 31, 2003, VGPC and PNOC-EDC agreed that the plant capacity would equal the contractually specified level of 216 MW. A substantial majority of the capacity payments are required to be made by PNOC-EDC in U.S. dollars. The portion of capacity payments payable to PNOC-EDC in pesos is expected to vary over the term of the Malitbog project energy conversion agreement from 10% of VGPC’s revenue in the early years of the cooperation period to 23% of VGPC’s revenue at the end of the cooperation period. Payments made in pesos will generally be made to a peso-denominated account and will be used to pay peso-denominated operation and maintenance expenses with respect to the Malitbog project and Philippine withholding taxes, if any, on the Malitbog project’s debt service. The ROP has entered into a performance undertaking, which provides that all of PNOC-EDC’s obligations pursuant to the Malitbog energy conversion agreement carry the full faith and credit of, and are affirmed and guaranteed by, the ROP. The Malitbog energy conversion agreement ten year cooperation period expires on July 25, 2007, at which time the facility will be transferred to PNOC-EDC at no cost on an “as is” basis.

The Casecnan project is a combined irrigation and hydroelectric power generation project. The Casecnan project consists generally of diversion structures in the Casecnan and Taan rivers that capture and divert excess water in the Casecnan watershed by means of concrete, in-stream diversion weirs and transfer that water through a transbasin tunnel of approximately 23 kilometers. During the water transfer, the elevation differences between the two watersheds allows electrical energy to be generated at an approximately 150 MW rated capacity power plant, which is located in an underground powerhouse cavern at the end of the transbasin water tunnel. A tailrace discharge tunnel then delivers water to the existing underutilized water storage reservoir at Pantabangan, providing additional water for irrigation and increasing the potential electrical generation at two existing downstream hydroelectric facilities of NPC. Once in the reservoir at Pantabangan, the water is under the control of NIA.

CE Casecnan owns and operates the Casecnan project under the terms of the Project Agreement between CE Casecnan and NIA, which was modified by a Supplemental Agreement between CE Casecnan and NIA effective on October 15, 2003 (the “Supplemental Agreement”). CE Casecnan will own and operate the project for a 20-year cooperation period which commenced on December 11, 2001, the start of the project’s commercial operations, after which ownership and operation of the project will be transferred to NIA at no cost on an “as-is” basis. The Casecnan project is dependant upon sufficient rainfall to generate electricity and deliver water. The seasonality of rainfall patterns and the variability of rainfall from year to year, all of which are outside the control of CE Casecnan, have a material impact on the amounts of electricity generated and water delivered by the Casecnan project. Rainfall has historically been highest from June through December and lowest from January through May. The contractual terms for water delivery fees and variable energy fees (described below) can produce significant variability in revenue between reporting periods. Summarized below are significant provisions of the Project Agreement as modified by the Supplemental Agreement.

Under the Supplemental Agreement, CE Casecnan is paid a fee for the delivery of water and a fee for the generation of electricity. With respect to water deliveries, the water delivery fee is payable in a fixed monthly payment based upon an average annual water delivery of 801.9 million cubic meters, pro-rated to approximately 66.8 million cubic meters per month, multiplied by the applicable per cubic meter rate through December 25, 2008. For each contract year starting from December 25, 2003 and ending on December 25, 2008, a water delivery credit (deferred revenue) is computed equal to 801.9 million cubic meters minus the greater of actual water deliveries or 700.0 million cubic meters - the minimum threshold. The water delivery credit at the end of the contract year is available to be earned in the succeeding contract years ending December 25, 2008. The cumulative water delivery credit at December 25, 2008, if any, shall be amortized from December 25, 2008 through December 25, 2013. Accordingly, in recognizing revenue, the water delivery fees are recorded each month pro-rated to approximately 58.3 million cubic meters per month until the minimum threshold has been reached for the contract year. Subsequent water delivery fees within the contract year are based on actual water delivered.

With respect to electricity, CE Casecnan is paid a guaranteed energy delivery fee each month equal to the product obtained by multiplying 19 GWh times $0.1596 per kWh. The guaranteed energy delivery fee is payable regardless of the amount of energy actually generated and delivered by CE Casecnan in any month. NIA also pays CE Casecnan an excess energy delivery fee, which is a variable amount based on actual electrical energy, if any, delivered in each month in excess of 19 GWh multiplied by (i) $0.1509 per kWh through the end of 2008 and (ii) commencing in 2009, $0.1132 (escalating at 1% per annum thereafter) per kWh, provided that any deliveries of energy in excess of 490 GWh but less than 550 GWh per year are paid for at a rate of 1.3 pesos per kWh and deliveries in excess of 550 GWh per year are at no cost to NIA. Within each contract year, no variable energy fees are payable until energy in excess of the cumulative 19 GWh per month for the contract year to date has been delivered. If the Casecnan project is not dispatched up to 150 MW whenever water is available, NIA will pay for energy that could have been generated but was not as a result of such dispatch constraint.

The ROP has provided a Performance Undertaking under which NIA’s obligations under the Project Agreement, as supplemented by the Supplemental Agreement, are guaranteed by the full faith and credit of the ROP. The Project Agreement and the Performance Undertaking provide for the resolution of disputes by binding arbitration in Singapore under international arbitration rules.

In connection with the signing of the Supplemental Agreement, CE Casecnan received written confirmation from the Private Sector Assets and Liabilities Management Corporation that the issues with respect to the Casecnan project that had been raised by the interagency review of independent power producers in the Philippines or that may have existed with respect to the project under certain provisions of the Electric Power Industry Reform Act of 2001 (“EPIRA”), which authorized the ROP to seek to renegotiate certain contracts such as the Project Agreement, have been satisfactorily addressed by the Supplemental Agreement.

CalEnergy Generation-Domestic

Business

The subsidiaries comprising the Company's CalEnergy Generation-Domestic platform own interests in 15 operating non-utility power projects in the United States. The following table sets out certain information concerning CalEnergy Generation-Domestic’s non-utility power projects in operation as of December 31, 2004:

Facility

Power

Net

Purchase

Capacity

Agreement

Power

Operating Project

(MW) ⁽¹⁾

Owned ⁽¹⁾

Fuel

Location

Expiration

Purchaser ⁽²⁾

Cordova

537

Gas

Illinois

2017

El Paso

Salton Sea I

Geo

California

2017

Edison

Salton Sea II

Geo

California

2020

Edison

Salton Sea III

Geo

California

2019

Edison

Salton Sea IV

Geo

California

2026

Edison

Salton Sea V

Geo

California

Varies

Various

Vulcan

Geo

California

2016

Edison

Elmore

Geo

California

2018

Edison

Leathers

Geo

California

2019

Edison

Del Ranch

Geo

California

2019

Edison

CE Turbo

Geo

California

Varies

Various

Saranac

240

Gas

NewYork

2009

NYSE&G

Power Resources

212

106

Gas

Texas

2005

ONEOK

Yuma

Gas

Arizona

2024

SDG&E

Roosevelt Hot Springs

Geo

Utah

2020

UP&L

Total Domestic Operating Projects

1,389

939

(1)	Represents nominal net generating capability (accredited for Cordova and contract capacity for most others). Actual MW may vary depending on operating and reservoir conditions and plant design. Net MW Owned indicates current legal ownership, but, in some cases, does not reflect the current allocation of partnership distributions.

(2)	El Paso; Southern California Edison Company (“Edison”); New York State Electric & Gas Corporation (“NYSE&G”); ONEOK Energy, Marketing and Trading Company, L.P. (“ONEOK”); San Diego Gas & Electric Company (“SDG&E”); and Utah Power & Light Company (“UP&L”).

Cordova Energy owns a 537 MW gas-fired power plant in the Quad Cities, Illinois area (the “Cordova Project”). CalEnergy Generation Operating Company, an indirect wholly owned subsidiary of MEHC, operates the Cordova Project which commenced commercial operations in June 2001. Cordova Energy entered into a power purchase agreement with a unit of El Paso, under which El Paso will purchase all of the capacity and energy from the project until December 31, 2019. The contract year under the power purchase agreement extends from May 15th in a year to May 14th in the subsequent year. For each contract year, Cordova Energy has an option to recall from El Paso 50% of the output of the Cordova Project, reducing El Paso’s purchase obligation to 50% of the output during such contract year. Cordova Energy exercised such option for the contract year ended May 14, 2004, and the recalled output was sold to MidAmerican Energy. Cordova Energy did not exercise the recall option for the contract year which commenced on May 15, 2004, and El Paso is required to purchase 100% of the capacity and energy from the project for the current contract year and, subject to future exercises of the recall option, for the remainder of the term of the power purchase agreement. The Company is aware there have been public announcements that El Paso’s financial condition has deteriorated as a result of, among other things, reduced liquidity and will continue to monitor the situation.

MEHC has a 50% ownership interest in CE Generation, LLC (“CE Generation”) whose affiliates currently operate ten geothermal plants in the Imperial Valley in California (the “Imperial Valley Projects”). The Imperial Valley Projects include the “Salton Sea Projects” consisting of the Salton Sea I, Salton Sea II, Salton Sea III, Salton Sea IV and Salton Sea V projects and the “Partnership Projects” consisting of the Vulcan, Elmore, Leathers, Del Ranch and CE Turbo projects.

Each of the Imperial Valley Projects, excluding the Salton Sea V and CE Turbo projects, sells electricity to Edison pursuant to a separate Standard Offer No. 4 Agreement (“SO4 Agreement”) or a negotiated power purchase agreement. Each power purchase agreement is independent of the others, and the performance requirements specified within one such agreement apply only to the project subject to the agreement. The power purchase agreements provide for capacity payments, capacity bonus payments and energy payments. Edison makes fixed annual capacity payments and capacity bonus payments to the applicable projects to the extent that capacity factors exceed certain benchmarks. The price for capacity is fixed for the life of the SO4 Agreements and is significantly higher in the months of June through September.

Energy payments under the original SO4 Agreements were based on the cost that Edison avoids by purchasing energy from the project instead of obtaining the energy from other sources (“Avoided Cost of Energy”). In June and November 2001, the Imperial Valley Projects (except the Salton Sea IV, Salton Sea V and CE Turbo projects), which receive Edison’s Avoided Cost of Energy, entered into agreements that provide for amended energy payments under the SO4 Agreements. The amendments provide for fixed energy payments per kWh in lieu of Edison’s Avoided Cost of Energy. The fixed energy payment was 3.25 cents per kWh from December 1, 2001 through April 30, 2002 and is 5.37 cents per kWh commencing May 1, 2002 for a five-year period. Following the five-year period, the energy payments revert back to Edison’s Avoided Cost of Energy.

For the years ended December 31, 2004, 2003 and 2002, Edison’s average Avoided Cost of Energy was 5.9 cents per kWh, 5.4 cents per kWh and 3.5 cents per kWh, respectively. Estimates of Edison’s future Avoided Cost of Energy vary substantially from year to year primarily based on the future cost of natural gas.

On May 20, 2003, Salton Sea Power LLC (“Salton Sea Power”) entered into a power sales agreement with Riverside. Under the terms of the agreement, Salton Sea Power sells up to 20 MW of energy generated from the Salton Sea V project to Riverside. Sales under the agreement commenced June 1, 2003 and will terminate May 31, 2013.

Pursuant to 33-year power sales agreements, the Salton Sea V and CE Turbo projects had sold a portion of their net output to CalEnergy Minerals LLC (“Minerals”) for the Zinc Recovery Project’s full electrical energy requirements. The agreements provide for energy payments based on the market rates available to the Salton Sea V and CE Turbo projects, adjusted for wheeling costs. On September 10, 2004, Minerals ceased operations of the Zinc Recovery Project. Accordingly, except for sales during the dismantling and decommissioning phases of the Zinc Recovery Project, no further sales to Minerals are expected. The Salton Sea V project sells its remaining output and the CE Turbo project sells its available power under the transaction agreement as described in the next paragraph.

Pursuant to a transaction agreement dated January 29, 2003, the Salton Sea V project and the CE Turbo project began selling available power to TransAlta USA Inc. (“TransAlta”) on February 12, 2003 based on percentages of the Dow Jones SP-15 Index. The transaction agreement shall continue until the earlier of (a) 30 days following a written notice of termination and (b) any other termination date mutually agreed to by the parties. No such notice of termination has been given by either party.

The Saranac project is a 240 net MW natural gas-fired cogeneration facility located in Plattsburgh, New York owned by the Saranac Partnership, which is indirectly owned by subsidiaries of CE Generation, ArcLight Capital Holdings and General Electric Capital Corporation. The Saranac project has entered into a 15-year power purchase agreement with NYSE&G, 15-year steam purchase agreements with Georgia-Pacific Corporation and Pactiv Corporation and a 15-year natural gas supply contract with Coral Energy to supply 100% of the Saranac project’s fuel requirements. Each of the power purchase agreement, the steam purchase agreements and the natural gas supply contract contains rates that are fixed for the respective contract terms and expire in 2009.

The Power Resources project is a 212 net MW natural gas-fired cogeneration project owned by Power Resources Ltd. (“Power Resources”), an indirect wholly-owned subsidiary of CE Generation. On August 5, 2003, Power Resources entered into a Tolling Agreement with ONEOK. The agreement commenced October 1, 2003 and expires December 31, 2005. Under the terms of the agreement, Power Resources, as an exempt wholesale generator ("EWG"), sells its electricity and capacity to ONEOK for a fixed amount per kW-month plus a variable operating and maintenance fee per MWh. In addition, ONEOK pays annual turbine start-up costs.

The Yuma project is a 50 net MW natural gas-fired cogeneration project in Yuma, Arizona owned by Yuma Cogeneration Associates ("YCA"), providing its electricity to SDG&E under an existing 30-year power purchase contract which commenced in May 1994 the ("Yuma PPA"). MEHC has guaranteed all of the obligations of YCA under the Yuma PPA or any other agreement with SDG&E relating to or arising out of the Yuma PPA. YCA also has executed steam sales contracts with Queen Carpet, Inc. to act as its thermal host.

The Roosevelt Hot Springs project is a geothermal steam field which supplies geothermal steam to a 23 net MW power plant owned by UP&L located on the Roosevelt Hot Springs property under a 30-year steam sales contract expiring in 2020. The Company obtained a cash prepayment under a pre-sale agreement with UP&L whereby UP&L paid in advance for the steam produced by the steam field. MEHC guarantees the performance of this subsidiary and must make certain penalty payments to UP&L if the steam produced does not meet certain quantity and quality requirements.

Zinc Recovery Project

Indirect wholly-owned subsidiaries of MEHC, own the rights to commercial quantities of extractable minerals from elements in solution in the geothermal brine and fluids utilized at the Imperial Valley Projects and a zinc recovery plant constructed near the Imperial Valley Projects designed to recover zinc from the geothermal brine through an ion exchange, solvent extraction, electrowinning and casting process (the “Zinc Recovery Project”).

The Zinc Recovery Project began limited production during December 2002 and continued limited production until September 10, 2004. Efforts to increase production had continued since the Zinc Recovery Project was placed in service with an emphasis on process modification. Management had been assessing the long-term economic viability of the Zinc Recovery Project in light of continuing cash flow deficits and operating losses and the efforts to increase production, and had continued to evaluate the expected impact of the planned improvements to the extraction process during the third quarter of 2004. Furthermore, management had been exploring other operating alternatives, such as establishing strategic partnerships and consideration of ceasing operations of the Zinc Recovery Project.

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. In connection with ceasing operations, the Zinc Recovery Project’s assets are being dismantled and sold and certain employees of the operator of the Zinc Recovery Project have been paid one-time termination benefits. Implementation of a disposal plan began in September 2004 and will continue in 2005. Refer to Note 3 of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K for additional discussion regarding the Company’s discontinued operations.

Development Projects

MEHC’s indirect wholly-owned subsidiary, CE Obsidian Energy LLC (“Obsidian”), is evaluating the development of a 185 net MW geothermal facility in the Imperial Valley in California. Substantially all of the output of the facility would be sold to the Imperial Irrigation District (“IID”) pursuant to a power purchase agreement. TransAlta is currently funding 50% of the development costs of this project. Significant development and construction risk remains with this project.

HomeServices

Business

HomeServices is the second largest full-service residential real estate brokerage firm in the United States. In addition to providing traditional residential real estate brokerage services, HomeServices offers other integrated real estate services, including mortgage originations, mortgage banking, title and closing services and other related services. HomeServices currently operates in 18 states under the following brand names: Carol Jones REALTORS, CBSHOME Real Estate, Champion Realty, Edina Realty Home Services, Esslinger-Wooten-Maxwell REALTORS, First Realty/GMAC, HOME Real Estate, Iowa Realty, Jenny Pruitt and Associates REALTORS, Long Realty, Prudential California Realty, Prudential Carolinas Realty, RealtySouth, Rector-Hayden REALTORS, Reece & Nichols, Semonin REALTORS and Woods Bros. Realty. HomeServices generally occupies the number one or number two market share position in each of its major markets based on aggregate closed transaction sides. HomeServices’ major markets consist of the following metropolitan areas: Minneapolis and St. Paul, Minnesota; Los Angeles and San Diego, California; Kansas City, Kansas; Kansas City, Missouri; Des Moines, Iowa; Omaha and Lincoln, Nebraska; Birmingham and Auburn, Alabama; Tucson, Arizona; Winston-Salem and Charlotte, North Carolina; Louisville and Lexington, Kentucky; Annapolis, Maryland; Atlanta, Georgia; Miami, Florida and Springfield, Missouri.

Acquisitions

In 2004, HomeServices separately acquired six real estate companies for an aggregate purchase price of $30.7 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2003, these real estate companies had combined revenue of $95.7 million on approximately 15,000 closed sides representing $3.2 billion of sales volume. In 2003, HomeServices separately acquired four real estate companies for an aggregate purchase price of $36.7 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2002, these real estate companies had combined revenue of $102.9 million on approximately 16,000 closed sides representing $3.6 billion of sales volume.

Regulatory Matters

General Regulation

The Company’s operating platforms are subject to a number of federal, state, local and international regulations.

MidAmerican Energy

MidAmerican Energy is subject to comprehensive regulation by the FERC as well as utility regulatory agencies in Iowa, Illinois and South Dakota that significantly influences the operating environment and the recoverability of costs from utility customers. Except for Illinois, that regulatory environment has to date, in general, given MidAmerican Energy an exclusive right to serve electricity customers within its service territory and, in turn, the obligation to provide electric service to those customers. In Illinois, all customers are free to choose their electricity provider and MidAmerican Energy has an obligation to serve customers at regulated rates that leave MidAmerican Energy’s system, but later choose to return. To date, there has been no significant loss of customers from MidAmerican Energy’s existing regulated Illinois rates.

In conjunction with the March 1999 approval by the IUB of the MidAmerican Energy acquisition and March 2000 affirmation as part of the Company’s acquisition by a private investor group, MidAmerican Energy committed to the IUB to use commercially reasonable efforts to maintain an investment grade rating on its long-term debt and to maintain its common equity level above 42% of total capitalization unless circumstances beyond its control result in the common equity level decreasing to below 39% of total capitalization. MidAmerican Energy must seek the approval of the IUB of a reasonable utility capital structure if MidAmerican Energy’s common equity level decreases below 42% of total capitalization, unless the decrease is beyond the control of MidAmerican Energy. MidAmerican Energy is also required to seek the approval of the IUB if MidAmerican Energy’s equity level decreases to below 39%, even if the decrease is due to circumstances beyond the control of MidAmerican Energy. If MidAmerican Energy’s common equity level were to drop below the required thresholds, MidAmerican Energy’s ability to issue debt could be restricted.

With the elimination of its energy adjustment clause in Iowa in 1997, MidAmerican Energy is financially exposed to movements in energy prices. 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.

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

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

The third settlement agreement was approved by the IUB on January 31, 2005, in conjunction with MidAmerican Energy’s proposed expansion of its wind power project by up to 90 MW. This settlement extended through 2011 MidAmerican Energy’s commitment not to seek a general increase in electric rates unless its Iowa jurisdictional electric return on equity falls below 10%. It also extended the revenue sharing mechanism through 2011. In addition, the OCA agreed to commit not to seek any decrease in Iowa electric base rates to become effective before January 1, 2012. The total capacity added as the result of the wind expansion project is currently projected to be 50 MW.

The regulatory liabilities created by the three settlements are recorded as a regulatory charge in depreciation and amortization expense when the liability is accrued. Additionally, interest expense is accrued on the portion of the regulatory liability balance recorded in prior years. The regulatory liabilities created for the years through 2010 are expected to be reduced as they are credited against plant in service in amounts equal to the allowance for funds used during construction associated with generating plant additions. As a result of the credit applied to generating plant balances from the reduction of the regulatory liabilities, future depreciation will be reduced.

Illinois bundled electric rates are frozen until 2007, subject to certain exceptions allowing for increases, at which time bundled rates may be increased or decreased by the Illinois Commerce Commission. Illinois law provides that, through 2006, Illinois earnings above a computed level of return on common equity are to be shared equally between regulated retail electric customers and MidAmerican Energy. MidAmerican Energy’s computed level of return on common equity is based on a rolling two-year average of the Monthly Treasury Long-Term Average Rate, as published by the Federal Reserve System, plus a premium of 8.5% for 2000 through 2004 and a premium of 12.5% for 2005 and 2006. The two-year average above which sharing must occur for 2004 is 13.57%. The law allows MidAmerican Energy to mitigate the sharing of earnings above the threshold return on common equity through accelerated recovery of electric assets.

The FERC has undertaken several measures to increase competition in the markets for wholesale electric energy, including efforts to foster the development of regional transmission organizations (“RTO”) in its Order No. 2000 issued December 1999 and its July 2002 proposed rulemaking that would implement a standard market design (“SMD”) for wholesale electric markets.

If implemented, the FERC’s July 2002 proposed rule for SMD would require sweeping changes to the use and expansion of the interstate transmission and wholesale bulk power systems in the United States. However, it is unclear when or even whether the FERC will issue a final rule and what form the final rule would ultimately take. In response to significant criticism of its proposed rule, the FERC subsequently indicated that it had changed its proposal and would adopt a flexible approach to SMD that would accommodate regional differences. Any final rule on SMD or similar FERC action could impact the costs of MidAmerican Energy’s electricity and transmission products. Such FERC action could directly or indirectly influence how transmission services are priced, the availability of transmission services, how transmission services are obtained and market prices for electricity in markets in which MidAmerican Energy buys and sells electricity. Although MidAmerican Energy is not presently a member of an RTO, two RTOs - Midwest Independent System Operator and PJM Interconnection - are directly interconnected with MidAmerican Energy’s transmission facilities. MidAmerican Energy cannot predict what impact, if any, the evolution of these RTOs, or others, may have on how wholesale electricity is bought and sold, as well as the geographic scope of the wholesale marketplace in which MidAmerican Energy buys or sells electricity.

On June 3, 2004, the FERC’s Division of Operational Investigations of the Office of Market Oversight and Investigations informed MidAmerican Energy that it was commencing an audit to determine whether and how MidAmerican Energy and its subsidiaries and affiliates are complying with (1) requirements of the standards of conduct and open access same-time information system of the FERC’s regulations, (2) codes of conduct, and (3) transmission practices. The FERC has commenced several such audits of utilities in 2003 and 2004. The audit is on-going, and MidAmerican Energy expects it to be completed within the first half of 2005. MidAmerican Energy does not expect the outcome of this issue to have a material effect on its results of operations, financial position or cash flows.

On July 13, 2004, the FERC issued an order requiring MidAmerican Energy to conduct a study to determine whether MidAmerican Energy or its affiliates possess generation market power. MidAmerican Energy is being required to show the absence of generation market power in order to be allowed to continue to sell wholesale electric power at market-based rates. The FERC order is intended to have MidAmerican Energy conform to what has become the FERC’s general practice for utilities given authorization to make wholesale market-based sales. Under this general practice, utilities authorized to make market-based electric sales must submit a new market power study to the FERC every three years. In accordance with the FERC order, MidAmerican Energy’s market-based sales became subject to refund beginning November 1, 2004, and will remain so until the matter is resolved. MidAmerican Energy does not expect the outcome of this issue to have a material effect on its results of operations, financial position or cash flows.

Kern River and Northern Natural Gas

Kern River and Northern Natural Gas are subject to regulation by various federal and state agencies. As owners of interstate natural gas pipelines, Northern Natural Gas’ and Kern River’s rates, services and operations are subject to regulation by the FERC. The FERC administers, among other things, the Natural Gas Act and the Natural Gas Policy Act of 1978. Additionally, interstate pipeline companies are subject to regulation by the United States Department of Transportation (“DOT”) pursuant to the Natural Gas Pipeline Safety Act of 1968 (“NGPSA”), which establishes safety requirements in the design, construction, operations and maintenance of interstate natural gas transmission facilities.

The FERC has jurisdiction over, among other things, the construction and operation of pipelines and related facilities used in the transportation, storage and sale of natural gas in interstate commerce, including the modification or abandonment of such facilities. The FERC also has jurisdiction over the rates and charges and terms and conditions of service for the transportation of natural gas in interstate commerce.

Kern River’s tariff rates were designed to give it an opportunity to recover all actually and prudently incurred operations and maintenance costs of its pipeline system, taxes, interest, depreciation and amortization and a regulated equity return. Kern River’s rates are set using a “levelized cost-of-service” methodology so that the rate is constant over the contract period. This is achieved by using a FERC-approved depreciation schedule in which depreciation increases as interest expense decreases.

Kern River was required to file a general rate case no later than May 1, 2004 pursuant to the terms of its 1998 FERC Docket No. RP99-274 rate case settlement. Kern River filed its rate case on April 30, 2004, which supports a revenue increase of $40.1 million representing a 13% increase from its existing cost of service and a proposed overall cost of service of $347.4 million. Since its last rate case, Kern River has increased the capacity of its system from 724,500 Dth per day to 1,755,575 Dth per day at a cost of approximately $1.3 billion resulting in a total rate base of approximately $1.8 billion. The rate increase became effective on November 1, 2004, subject to refund, and the FERC set a procedural order with a hearing scheduled for March 2005.

On February 10, 2005, Kern River received notice from the Office of Market Oversight and Investigations of the FERC that it is instituting a non-public audit to determine Kern River's compliance with the FERC's standards of conduct in regards to communications with any of Kern River's marketing and energy affiliates. The time period of the audit generally covers September 22, 2004, to the present although some questions cover time periods from November 25, 2003. Kern River understands that virtually all interstate pipelines are expected to be audited by the FERC in 2005. Kern River believes it is in compliance with the standards of conduct in all material respects and the outcome of this audit is not expected to have a material effect on Kern River's results of operations, financial position or cash flows.

Northern Natural Gas has implemented a straight fixed variable rate design which provides that all fixed costs assignable to firm capacity customers, including a return on equity, are to be recovered through fixed monthly demand or capacity reservation charges which are not a function of throughput volumes.

On May 1, 2003, Northern Natural Gas filed a request for increased rates with the FERC. The rate increase is primarily attributable to four main cost areas: the capital investment made by Northern Natural Gas in the five years since its last rate case, an increase in Northern Natural Gas’ depreciation rates, increased return on equity, and changes in the level of contract entitlement. The rate filing provides evidence in support of a $71 million increase to Northern Natural Gas’ annual revenue requirement. However, Northern Natural Gas chose to effectuate only $55 million of the increase. Northern Natural Gas’ new rates went into effect November 1, 2003, subject to refund.

Additionally, on January 30, 2004, Northern Natural Gas filed with the FERC to increase its revenue requirement by an incremental $30 million to that requested in the May 1, 2003 filing. The increased revenue requirement is primarily attributable to ongoing pipeline integrity initiative costs that Northern Natural Gas has undertaken since the May 1, 2003 rate filing. The FERC suspended the rate increase until August 1, 2004 and consolidated the 2003 and 2004 rate cases due to the similarity of issues in both cases and the updated costs. On July 29, 2004, Northern Natural Gas notified the FERC that, in furtherance of settlement negotiations, Northern Natural Gas was not putting the rate increase into effect on August 1, 2004, but reserved its statutory right to put the suspended rates into effect at a later date. Northern Natural Gas’ implemented the new rates on November 1, 2004, subject to refund.

On February 16, 2005, Northern Natural Gas reached a tentative agreement with the majority of its customers to settle the consolidated rate cases. Definitive terms of the settlement must be agreed by all settling parties and must then be documented in a settlement agreement which must be agreed to by all settling parties. Thereafter, the settlement must be certified by the presiding administrative law judge and approved by the FERC. The terms of the agreement in principle provide for an annual revenue increase of $48 million for the period November 1, 2003 through October 31, 2004, $53 million for the period November 1, 2004 through October 31, 2005, $58 million for the period November 1, 2005 through October 31, 2006, and $62 million beginning November 1, 2006. As a result of the settlement, Northern Natural Gas will be required to refund an amount generally reflecting the difference between the rate increases implemented on November 1, 2003 and November 1, 2004 and the final settled revenue amounts.

Additional proposals and proceedings that might affect the interstate pipeline industry are considered from time to time by Congress, the FERC, state regulatory bodies and the courts. We cannot predict when or if any new proposals might be implemented or, if so, how Kern River and Northern Natural Gas might be affected.

Other United States Regulation

The Public Utility Regulatory Policies Act of 1978, as amended ("PURPA") and the Public Utility Holding Company Act of 1935, as amended (“PUHCA”), are two of the laws (including the regulations thereunder) that affect MEHC and certain of its subsidiaries’ operations. PURPA provides to qualified facilities (“QF”) certain exemptions from federal and state laws and regulations, including organizational, rate and financial regulation. PUHCA extensively regulates and restricts the activities of registered public utility holding companies and their subsidiaries. Any legislation altering PUHCA or PURPA, if adopted, could adversely impact the Company's existing domestic projects.

The Company is currently exempt from regulation under all provisions of PUHCA, except the provisions that regulate the acquisition of securities of public utility companies, based on the intrastate exemption in Section 3(a)(1) of PUHCA. In order to maintain this exemption, MEHC and each of its public utility subsidiaries from which it derives a material part of its income (currently only MidAmerican Energy) must be predominantly intrastate in character and organized in and carry on MEHC’s and MidAmerican Energy’s respective utility operations substantially in MidAmerican Energy’s state of organization (currently Iowa). Except for MidAmerican Energy’s generating plant assets, the majority of the Company's domestic power plant operations and all of its foreign utility operations are not public utilities within the meaning of PUHCA as a result of their status as QFs under PURPA (with the Company’s ownership interest therein limited to 50%), EWGs or foreign utility companies, or are otherwise exempted from the definition of “public utility” under PUHCA. Although the Company believes that it will continue to qualify for exemption from additional regulation under PUHCA, it is possible that as a result of the expansion of its public utility operations, loss of exempt status by one or more of its domestic power plants or foreign utilities, or amendments to PUHCA or the interpretation of PUHCA, the Company could become subject to additional regulation under PUHCA in the future. There can be no assurances that such regulation would not have a material adverse effect on the Company.

In the event the Company was unable to avoid the loss of QF status for one or more of its affiliate’s facilities, such an event could result in termination of a given project’s power sales agreement and a default under the project subsidiary’s project financing agreements, which, in the event of the loss of QF status for one or more facilities, could have a material adverse effect on the Company.

Regulatory requirements applicable in the future to nuclear generating facilities could adversely affect the results of operations of MEHC and MidAmerican Energy, in particular. The Company is subject to certain generic risks associated with utility nuclear generation, including risks arising from the operation of nuclear facilities and the storage, handling and disposal of high-level and low-level radioactive materials; risks of a serious nuclear incident; limitations on the amounts and types of insurance commercially available in respect of losses that might arise in connection with nuclear operations; and uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their licensed lives. The Nuclear Regulatory Commission (“NRC”) has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generating facilities. Revised safety requirements promulgated by the NRC have, in the past, necessitated substantial capital expenditures at nuclear plants, including the Quad Cities units, in which MidAmerican Energy has an ownership interest, and additional such expenditures could be required in the future.

Pipeline Safety Regulation

The Company’s pipeline operations are subject to regulation by the DOT under the NGPSA relating to design, installation, testing, construction, operation and management of its pipeline system. The NGPSA requires any entity that owns or operates pipeline facilities to comply with applicable safety standards, to establish and maintain inspection and maintenance plans and to comply with such plans. The Company’s pipeline operations conduct internal audits of their facilities every four years, with more frequent reviews of those it deems of higher risk. The DOT also routinely audits these pipeline facilities. Compliance issues that arise during these audits or during the normal course of business are addressed on a timely basis.

The aging pipeline infrastructure in the United States has led to heightened regulatory and legislative scrutiny of pipeline safety and integrity practices. The NGPSA was amended by the Pipeline Safety Act of 1992 to require the DOT’s Office of Pipeline Safety to consider protection of the environment when developing minimum pipeline safety regulations. In addition, the amendments require that the DOT issue pipeline regulations concerning, among other things, the circumstances under which emergency flow restriction devices should be required, training and qualification standards for personnel involved in maintenance and operation, and requirements for periodic integrity inspections, as well as periodic inspection of facilities in navigable waters which could pose a hazard to navigation or public safety. In addition, the amendments narrowed the scope of its gas pipeline exemption pertaining to underground storage tanks under the Resource Conservation and Recovery Act. The Company believes its pipeline operations comply in all material respects with the NGPSA.

The PSIA requires major new programs in the areas of operator qualification, risk analysis and integrity management. The PSIA requires the periodic inspection or testing of pipelines in areas where the potential consequences of a gas pipeline accident may be significant or may do considerable harm to people and their property, which are referred to as High Consequence Areas. Pursuant to the PSIA, the DOT promulgated a major new final rule, effective February 14, 2004, that requires interstate pipeline operators to: develop comprehensive integrity management programs, identify applicable threats to pipeline segments that could impact High Consequence Areas, assess these segments, and provide ongoing mitigation and monitoring. The Company believes its pipeline operations comply in all material respects with the PSIA.

CE Electric UK

Since 1990, the electricity generation, supply and distribution industries in Great Britain have been privatized, and competition has been introduced in generation and supply. Electricity is produced by generators, transmitted through the national grid transmission system and distributed to customers by the fourteen Distribution License Holders (“DLHs”) in their respective distribution service areas.

Under the Utilities Act 2000, the public electricity supply license created pursuant to the Electricity Act 1989 was replaced by two separate licenses-the electricity distribution license and the electricity supply license. When the relevant provision of the Utilities Act 2000 became effective on October 1, 2001, the public electricity supply licenses formerly held by Northern Electric plc (“NE”) and Yorkshire Electricity Group plc (“YE”) were split so that separate subsidiaries held licenses for electricity distribution and electricity supply. In order to comply with the Utilities Act 2000 and to facilitate this license splitting, NE and YE (and each of the other holders of the former public electricity supply licenses) each made a statutory transfer scheme that was approved by the Secretary of State for Trade and Industry. These schemes provided for the transfer of certain assets and liabilities to the licensed subsidiaries. This occurred on October 1, 2001, a date set by the Secretary of State for Trade and Industry. As a consequence of these schemes, the electricity distribution businesses of NE and YE were transferred to Northern Electric and Yorkshire Electricity, respectively. Northern Electric and Yorkshire Electricity are each holders of an electricity distribution license. The residual elements of the electricity supply licenses were transferred to Innogy in connection with the sale of NE’s electricity and gas supply business to Innogy and the purchase by NE of YE’s electricity distribution business from Innogy on September 21, 2001 (the “Yorkshire Swap”).

Each of the DLHs is required to offer terms for connection to its distribution system and for use of its distribution system to any person. In providing the use of its distribution system, a DLH must not discriminate between users, nor may its charges differ except where justified by differences in cost.

Most of the revenue of the DLHs in the United Kingdom is controlled by a distribution price control formula which is set out in the license of each DLH. It has been the practice of the Office of Gas and Electricity Markets (“Ofgem”) (and its predecessor body, the Office of Electricity Regulation), to review and reset the formula at five year intervals, although the formula may be further reviewed at other times at the discretion of the regulator. Any such resetting of the formula requires the consent of the DLH. If the DLH does not consent to the formula reset, it is reviewed by the United Kingdom’s competition authority, whose recommendations can then be given effect by license modifications made by Ofgem.

The current formula requires that regulated distribution income per unit is increased or decreased each year by RPI-Xd where RPI means the Retail Price Index, reflecting the average of the 12-month inflation rates recorded for each month in the previous July to December period. The Xd factor in the formula was established by Ofgem at the price control review effective in April 2000 (and through March 31, 2005, will continue to be set) at 3%. The formula also takes account of a variety of other factors including the changes in system electrical losses, the number of customers connected and the voltage at which customers receive the units of electricity distributed. The distribution price control formula determines the maximum average price per unit of electricity distributed (in pence per kWh) which a DLH is entitled to charge. The distribution price control formula permits DLHs to receive additional revenue due to increased distribution of units and the increase in the number of end users. The price control does not seek to constrain the profits of a DLH from year to year. It is a control on revenue that operates independently of most of the DLH’s costs. During the term of the price control, cost savings or additional costs have a direct impact on income and cash flow.

The procedure and methodology adopted at a price control review is at the reasonable discretion of Ofgem. Generally, Ofgem’s judgment of the future allowed revenue of licensees has been based upon, among other things:

·	the actual operating costs of each of the licensees;

·	the operating costs which each of the licensees would incur if it were as efficient as, in Ofgem’s judgment, the most efficient licensees;

·	the regulatory value to be ascribed to each of the licensees’ distribution network assets;

·	the allowance for depreciation of the distribution network assets of each of the licensees;

·	the rate of return to be allowed on investment in the distribution network assets by all licensees; and

·	the financial ratios of each of the licensees and the license requirement for each licensee to maintain an investment grade status.

As a result of the review concluded in 1999, the allowed revenue of Northern Electric’s distribution business was reduced by 24%, in real terms, and the allowed revenue of Yorkshire Electricity’s distribution business was reduced by 23%, in real terms, with effect from April 1, 2000.

Ofgem’s process of reviewing each DLH’s existing price control formula, with a revised formula for each DLH (including Northern Electric and Yorkshire Electricity) to take effect from April 1, 2005 for an expected period of five years was recently completed. As a result of the review, the allowed revenue of Northern Electric’s distribution business was reduced by 4%, in real terms, and the allowed revenue of Yorkshire Electricity’s distribution business was reduced by 9%, in real terms, with effect from April 1, 2005. The Xd factor was set at zero. Ofgem indicated that during the period 2005 to 2010, the retention of the benefits of any out-performance from the operating cost assumptions made by Ofgem in setting the new price control may depend on the successful implementation of revised cost reporting guidelines to be prescribed by Ofgem and applied by all DLHs. In setting the allowed revenue of Northern Electric and Yorkshire Electricity (and all other DLHs) with effect from April 1, 2005, Ofgem made a specific allowance for an amount in respect of each DLH’s pension costs.

With effect from April 1, 2005, a number of incentive schemes operate to encourage DLHs to provide an appropriate quality of service. Payments in respect of each failure to meet a prescribed standard of service are set out in regulations. The aggregate payments that may be due is uncapped, although payments are excused in certain force majeure circumstances. In storm conditions the obligations relating to the period within which supplies should be restored are relaxed and the overall, annual exposure under the restoration standard in storm conditions is limited to 2% of a DLH’s allowed revenue. There also is a discretionary reward scheme of up to a £1 million per annum, and other incentive schemes pursuant to which a DLH’s allowed revenue may increase by up to 3.3% or decrease by up to 3.5% in any year.

Under the Utilities Act 2000, the Gas and Electricity Markets Authority (“GEMA”) is able to impose financial penalties on license holders who contravene (or have in the past contravened) any of their license duties or certain of their duties under the Electricity Act 1989 or who are failing (or have in the past failed) to achieve a satisfactory performance in relation to the individual standards of performance prescribed by GEMA. Any penalty imposed must be reasonable and may not exceed 10% of the licensee’s revenue.

CalEnergy Generation-Foreign

In June 2004, Philippine President Gloria Macapagal-Arroyo was re-elected for a six-year term, through June 2010. President Macapagal-Arroyo has announced a plan to pursue policies targeting balanced economic growth, strong market-based industry, and poverty alleviation. In connection with those policies, the Philippine Department of Energy has announced an energy plan focused on attaining a 100 percent electrification level throughout the Philippines, further developing and utilizing renewable energy sources for power and electrification, and enhancing private sector participation in all energy activities.

The Philippine Congress has passed EPIRA, which is aimed at restructuring the Philippine power industry, privatizing the NPC and introducing a competitive electricity market, among other initiatives. The implementation of EPIRA may have an impact on the Company’s future operations in the Philippines and the Philippines power industry as a whole, the effect of which is not yet determinable or estimable.

In connection with an interagency review of approximately 40 independent power project contracts in the Philippines pursuant to EPIRA, in 2003 the Casecnan project (together with four other unrelated projects) had reportedly been identified as raising legal and financial questions and, with those projects, had been prioritized for renegotiation. As part of the Supplemental Agreement, CE Casecnan received written confirmation from the Private Sector Assets and Liabilities Management Corporation that the issues with respect to the Casecnan project that had been raised by the interagency review of independent power producers in the Philippines or that may have existed with respect to the project under certain provisions of EPIRA, which authorized the ROP to seek to renegotiate certain contracts such as the Project Agreement, have been satisfactorily addressed by the Supplemental Agreement. MEHC’s indirect subsidiaries’ Leyte Projects also had reportedly been identified as raising financial questions. In connection with the entering into of amendments to the energy conversion agreement for each of the Leyte Projects with PNOC-EDC, the Company believes that any issues raised by the interagency review of independent power producers in the Philippines with respect to the Leyte Projects have been resolved.

CalEnergy Generation-Domestic

Each of the domestic power facilities in the CalEnergy Generation-Domestic platform, excluding Cordova Energy and Power Resources, meets the requirements promulgated under PURPA to be a QF. QF status under PURPA provides two primary benefits. First, regulations under PURPA exempt QFs from PUHCA, the FERC rate regulation under the Federal Power Act and the state laws concerning rates of electric utilities and financial and organization regulations of electric utilities. Second, the FERC’s regulations promulgated under PURPA require that (1) electric utilities purchase electricity generated by QFs, the construction of which commenced on or after November 9, 1978, at a price based on the purchasing utility’s Avoided Cost of Energy, (2) electric utilities sell back-up, interruptible, maintenance and supplemental power to QFs on a non-discriminatory basis, and (3) electric utilities interconnect with QFs in their service territories. There can be no assurance that the QF status of such CalEnergy Generation - Domestic facilities will be maintained.

Cordova Energy and Power Resources are exempt from regulation under PUHCA because they are EWGs. PUHCA provides that a EWG is not considered to be an electric utility company. A EWG is permitted to sell capacity and electricity in the wholesale markets, but not in the retail markets.

If an EWG is subject to a “material change” in facts that might affect its continued eligibility for EWG status, within 60 days of such material change, the EWG must (1) file a written explanation of why the material change does not affect its EWG status, (2) file a new application for EWG status, or (3) notify the FERC that it no longer wishes to maintain EWG status.

HomeServices

HomeServices is subject to regulations promulgated by the U.S. Department of Housing and Urban Development (“HUD”) as well as regulatory agencies in the states within which it operates that significantly influence its operating environment. On July 29, 2002, HUD issued a proposed regulation under the Real Estate Settlement and Procedures Act.(“RESPA”) HUD has characterized the proposal as “fundamentally changing the way in which payments to mortgage brokers are recorded and reported to consumers,” “significantly” improving the disclosure of settlement costs on the Good Faith Estimate making it firmer and more usable, and “removing regulatory barriers to allow guaranteed packages of settlement services and mortgages to be made available to consumers.” The proposal was submitted to the Office of Management and Budget on December 16, 2003, and was voluntarily withdrawn by HUD on March 22, 2004. The House Committee on Financial Services, the Senate Committee on Banking, Housing and Urban Affairs and HUD each has indicated that reforming the RESPA regulation is a priority in 2005. It is unknown whether a proposed rule will be introduced or finalized in 2005. Accordingly, the Company is presently unable to quantify the likely impact of any proposed rule, if issued.

Environmental Regulation

Domestic

The Company’s domestic operations are subject to a number of federal, state and local environmental and environmentally related laws and regulations affecting many aspects of its present and future operations in the United States. Such laws and regulations generally require the Company’s domestic operations to obtain and comply with a wide variety of licenses, permits and other approvals. The Company believes that its operating power facilities and gas pipeline operations are currently in material compliance with all applicable federal, state and local laws and regulations. However, no guarantee can be given that in the future the Company’s domestic operations will be in material compliance with all applicable environmental statutes and regulations or that all necessary permits will be obtained or approved. In addition, the construction of new power facilities and gas pipeline operations is a costly and time-consuming process requiring a multitude of complex environmental permits and approvals prior to the start of construction that may create the risk of expensive delays or material impairment of project value if projects cannot function as planned due to changing regulatory requirements or local opposition. The Company cannot provide assurance that existing regulations will not be revised or that new regulations will not be adopted or become applicable to it which could have an adverse impact on its capital or operating costs or its operations.

Clean Air Standards

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

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

On December 4, 2003, the EPA announced the development of its Interstate Air Quality Rule, now known as the Clean Air Interstate Rule, a proposal to require coal-burning power plants in 29 states, including Iowa, and the District of Columbia to reduce emissions of sulfur dioxide (“SO ₂ ”) and nitrogen oxides (“NO _X ”) in an effort to reduce ozone and fine particulate matter in the Eastern United States. It is likely that MidAmerican Energy’s coal-burning facilities will be impacted by this proposal.

In December 2000, the EPA concluded that mercury emissions from coal-fired generating stations should be regulated. The EPA is currently considering two regulatory alternatives that would reduce emissions of mercury from coal-fired utilities. One of these alternatives would require reductions of mercury from all coal-fired facilities greater than 25 MW through application of Maximum Achievable Control Technology with compliance assessed on a facility basis. The other alternative would regulate the mercury emissions of coal-fired facilities that pose a health hazard through a market based cap-and-trade mechanism similar to the SO ₂ allowance system. The EPA is currently under a deadline to finalize the mercury reduction rule by March 2005.

The Clean Air Interstate Rule or the mercury reduction rule could, in whole or in part, be superseded or made more stringent by one of a number of multi-pollutant emission reduction proposals currently under consideration at the federal level, including the “Clear Skies Initiative,” and other pending legislative proposals that contemplate 70% to 90% reductions of SO ₂ , NO _X and mercury, as well as possible new federal regulation of carbon dioxide and other gasses that may affect global climate change.

Depending on the outcome of the final Clean Air Interstate Rule and the mercury reduction rule or any superseding legislation by Congress, MidAmerican Energy may be required to install control equipment on its generating stations, purchase emission allowances or decrease the number of hours during which its generating stations operate. However, until final regulatory or legislative action is taken, the impact of the regulations on MidAmerican Energy cannot be predicted.

MidAmerican Energy has implemented a planning process that forecasts the site-specific controls and actions that may be required to meet emissions reductions as contemplated by the EPA. In accordance with an Iowa law passed in 2001, MidAmerican Energy has on file with the IUB its current multi-year plan and budget for managing SO ₂ and NO _X from its generating facilities in a cost-effective manner. The plan, which is required to be updated every two years, provides specific actions to be taken at each coal-fired generating facility and the related costs and timing for each action. On July 17, 2003, the IUB issued an order that affirmed an administrative law judge’s approval of the initial plan filed on April 1, 2002, as amended. On October 4, 2004, the IUB issued an order approving MidAmerican Energy’s second biennial plan as revised in a settlement MidAmerican Energy entered into with the Iowa Consumer Advocate Division of the Department of Justice. That plan covers the time period from April 1, 2004 through December 31, 2006. Neither IUB order resulted in any changes to electric rates for MidAmerican Energy. The effect of the orders is to approve the prudence of expenditures made consistent with the plans. Pursuant to an unrelated rate settlement agreement approved by the IUB on October 17, 2003, if prior to January 1, 2011, capital and operating expenditures to comply with environmental requirements cumulatively exceed $325.0 million, then MidAmerican Energy may seek to recover the additional expenditures from customers. At this time, MidAmerican Energy does not expect these capital expenditures to exceed such amount.

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

In recent years, the EPA has requested from several utilities information and support regarding their capital projects for various generating plants. The requests were issued as part of an industry-wide investigation to assess compliance with the NSR and the New Source Performance Standards of the Clean Air Act. In December 2002 and April 2003, MidAmerican Energy received requests from the EPA to provide documentation related to its capital projects from January 1, 1980, to April 2003 for a number of its generating plants. MidAmerican Energy has submitted information to the EPA in responses to these requests, and there are currently no outstanding data requests pending from the EPA. MidAmerican Energy cannot predict the outcome of these requests at this time. However, on August 27, 2003, the EPA announced changes to its NSR rules that clarify what constitutes routine repair, maintenance and replacement for purposes of triggering NSR requirements. The EPA concluded equipment that is repaired, maintained or replaced with an expenditure not greater than 20 percent of the value of the source will not trigger the NSR provisions of the Clean Air Act. A number of states and local air districts challenged the EPA’s clarification of the NSR rule and a panel of the U.S. Circuit Court of Appeals for the District of Columbia Circuit issued an order on December 24, 2003, staying the EPA’s implementation of its clarifications of the equipment replacement rule. On July 1, 2004, the EPA published a notice of stay of the final equipment replacement rule in the Federal Register , consistent with the judicial stay. Additionally, on the same date, the EPA published a Notice of Reconsideration and Request for Comment on the equipment replacement rule in response to the Petitioners’ legal challenges. Until such time as the EPA takes final action on the equipment replacement rule, the previous rules without the clarified exemption remain in effect.

Nuclear Regulation

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

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

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

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

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

MidAmerican Energy has established trusts for the investment of funds collected for nuclear decommissioning associated with Quad Cities Station. Electric tariffs currently in effect include provisions for annualized collection of estimated decommissioning costs at Quad Cities Station. In Iowa, estimated Quad Cities Station decommissioning costs are reflected in base rates. MidAmerican Energy’s cost related to decommissioning funding in 2004 was $8.3 million.

United Kingdom

CE Electric UK’s businesses are subject to extensive regulatory requirements with respect to the protection of the environment.

The United Kingdom government introduced new contaminated land legislation in April 2000 that requires local governmental authorities to put in place a program for investigating land in their area in order to identify contamination. Local authorities (and the Environment Agency where controlled waters are affected) can enforce remedial action where such contamination of land poses a threat to the greater environment. If the “person” who contaminated the land cannot be found, the land owner will be held responsible.

The UK local authorities have not identified any CE Electric UK sites that require any action under these regulations. CE Electric UK evaluations of three potential sites confirm this conclusion. A project with an environmental remediation company is in progress at one of these sites where there is an agreement to reduce pockets of localized contamination to an acceptable standard.

The Environmental Protection Act (Disposal of PCB’s and other Dangerous Substances) Regulations 2001 were introduced on May 5, 2000. The regulations required that transformers containing over 50 parts per million of PCB’s and other dangerous substances be registered with the Environment Agency. Transformers containing 500 parts per million had to be de-contaminated by December 31, 2000. As of December 31, 2004, CE Electric UK had 360 transformers containing between 50 and 500 parts per million of such substances registered with the Environment Agency and is continuing with its sampling, labeling and registration program. CE Electric UK believes it is in compliance and these regulations are not expected to have a material impact on the Company.

The 1998 Groundwater Regulations seek to prevent listed hazardous substances from entering groundwater and strengthens the United Kingdom Environment Agency’s powers to require additional protective measures, especially in areas of important groundwater supplies. Mineral oils and hydrocarbons are included in the list of more tightly controlled substances (“List I substances”). This affects the high voltage fluid filled electricity cable network incorporating an insulating fluid that is currently in List I. The existing voluntary Operating Code of Practice, as agreed between the Environment Agency and companies in the electricity industry, is undergoing revision to address the regulatory changes. The existing voluntary Operating Code of Practice is, and any revised Operating Code of Practice will be, incorporated into the operating practices of Northern Electric and Yorkshire Electricity. Any revisions which are made are not expected to have a material impact on the Company.

The Oil Storage Regulations became effective in 2002 and require the phased introduction of secondary containment measures (bunding) for all above ground oil storage locations where the capacity is more than 200 liters. The primary containers must be in sound condition, leak free, and positioned away from vehicle traffic routes. The secondary containment must be impermeable to water and oil (without drainage valve) and be subject to routine maintenance. The capacity of the bund must be sufficient to hold up to 110% of the largest stored vessel or 25% of the maximum stored capacity, whichever is the greater. On March 1, 2002, these regulations came into effect for all new oil storage facilities. On September 1, 2003, the regulations became effective for existing storage facilities at “significant risk” (i.e. within 10 meters of a water course), and on September 1, 2005, the regulations come into effect for all remaining storage facilities. A detailed study of the impacts has been carried out and a plan of action prepared to ensure compliance. The Company expects that the cost of compliance with the remaining provisions of such regulations will not have a material impact.

The Electricity Act 1989 obligates either the United Kingdom Secretary of State or the Director General of Electric Supply to take into account the effect of electricity generation, transmission and supply activities on the physical environment when approving applications for the construction of overhead power lines. The Electricity Act requires CE Electric UK to consider the desirability of preserving natural beauty and the conservation of natural and man-made features of particular interest when it formulates proposals for development in connection with certain of its activities. CE Electric UK mitigates the effects its proposals have on natural and man-made features and administers an environmental assessment when it intends to lay cables, construct overhead lines or carry out any other development in connection with its licensed activities. The Company expects that the cost of compliance with these obligations and the mitigation thereof will not have a material impact.

CE Electric UK’s policy is to carry out its activities in such a manner as to minimize the impact of its works and operations on the environment, and in accordance with environmental legislation and good practice. There have not been any significant regulatory environmental compliance issues and there are no material legal or administrative proceedings pending against CE Electric UK with respect to any environmental matter.

Environmental laws and regulations in the United Kingdom currently have, and future modifications may increasingly have, the effect of requiring modification of CE Electric UK’s facilities and increasing its operating costs.

Philippines

On June 23, 1999, the Philippine Congress enacted the Philippine Clean Air Act of 1999. The related implementing rules and regulations were adopted in November 2000. The law as written would require the Leyte Projects to comply with a maximum discharge of 200 grams of hydrogen sulfide per gross MWh of output by June 2004. On November 13, 2002, the Secretary of the Philippine Department of Environment and Natural Resources issued a Memorandum Circular (“MC”) designating geothermal areas as “special airsheds.” PNOC-EDC has advised the Leyte Projects that the MC exempts the Mahanagdong and Malitbog plants from the need to comply with the point-source emission standards of the Clean Air Act. CE Cebu and PNOC-EDC have constructed a gas dispersion facility for the Upper Mahiao project which is designed to ensure compliance with the emission standards of the Clean Air Act. The gas dispersion project was put into commercial operation in December 2003.

Employees

At December 31, 2004, the Company employed approximately 11,540 people, of which approximately 3,900 are covered by union contracts. MidAmerican Energy’s union contract with International Brotherhood of Electrical Workers locals 109 and 499 expires February 28, 2006, and covers approximately 1,700 employee members.

Item 2. Properties.

The Company’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 and related rights-of-way. Gas property consists primarily of distribution plants, natural gas pipelines, related rights-of-way, compressor stations and meter stations. It is the opinion of management that the principal depreciable properties owned by the Company are in good operating condition and well maintained. Pursuant to separate financing agreements, substantially all or most of the properties of each subsidiary (except CE Electric UK and Northern Natural Gas) are pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. See Notes 6 and 23 of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K for additional information about the Company’s properties.

MidAmerican Energy

MidAmerican Energy’s most significant properties are its electric generation facilities. Refer to the MidAmerican Energy discussion in “Item 1. Business” of this Form 10-K for additional information about MidAmerican Energy’s generation facilities.

The electric transmission system of MidAmerican Energy at December 31, 2004, included 918 miles of 345-kV lines and 1,128 miles of 161-kV lines. MidAmerican Energy’s electric distribution system included approximately 222,300 transformers and 382 substations at December 31, 2004.

Gas property consists primarily of natural gas mains and services pipelines, meters and related distribution equipment, including feeder lines to communities served from natural gas pipelines owned by others. The gas distribution facilities of MidAmerican Energy at December 31, 2004, included approximately 21,548 miles of gas mains and services pipelines.

Kern River and Northern Natural Gas

At December 31, 2004, Kern River’s pipeline consisted of two distinguishable sections: the mainline section and the common facilities. The mainline section consists of the original 682 miles of 36-inch pipeline, 628 miles of 36-inch loop pipeline related to the 2003 Expansion Project and 68 miles of various laterals that connect to the mainline, and extends from the pipeline’s point of origination near Opal, Wyoming through the Central Rocky Mountains area into Daggett, California and is owned entirely by Kern River. The common facilities consist of the 219-mile section of original pipeline that extends from the point of interconnection with the mainline in Daggett to Bakersfield, California and an additional 82 miles related to the 2003 Expansion Project. The common facilities are jointly owned by Kern River (currently approximately 76.8%) and Mojave (currently approximately 23.2%) as tenants-in-common.

At December 31, 2004, Northern Natural Gas’ system was comprised of approximately 7,300 miles of mainline transmission pipelines and approximately 9,200 miles of lateral pipelines. Northern Natural Gas’ storage services are provided through the operation of three underground storage fields, in Redfield, Iowa, and Lyons and Cunningham, Kansas. Northern Natural Gas’ three underground natural gas storage facilities and two LNG storage peaking units have a total storage capacity of approximately 59 Bcf. Northern Natural Gas’ two LNG liquefaction/vaporization facilities are located near Garner, Iowa and Wrenshall, Minnesota with storage capacity of 2 Bcf each.

The right to construct and operate the pipelines across certain property was obtained through negotiations and through the exercise of the power of eminent domain, where necessary. Kern River and Northern Natural Gas continue to have the power of eminent domain in each of the states in which they operate their respective pipelines, but they do not have the power of eminent domain with respect to Native American tribal lands. Although the main Kern River pipeline crosses the Moapa Indian Reservation, all facilities are located within a utility corridor that is reserved to the United States Department of Interior, Bureau of Land Management.

With respect to real property, each of the pipelines falls into two basic categories: (1) parcels that are owned in fee, such as certain of the compressor stations, measurement stations and district office sites; and (2) parcels where the interest derives from leases, easements, rights-of-way, permits or licenses from landowners or governmental authorities permitting the use of such land for the construction, operation and maintenance of the pipelines.

MEHC believes that Kern River and Northern Natural Gas each have satisfactory title to all of the real property making up their respective pipelines in all material respects.

CE Electric UK

At December 31, 2004, Northern Electric’s and Yorkshire Electricity’s electricity distribution networks (excluding service connection to consumers) on a combined basis included approximately 33,000 kilometers of overhead lines and approximately 64,000 kilometers of underground cables. In addition to the circuits referred to above, at December 31, 2004, Northern Electric’s and Yorkshire Electricity’s distribution facilities also included approximately 58,000 transformers and approximately 750 primary substations.

Other Properties

At December 31, 2004, MEHC’s most significant physical properties, other than those owned by MidAmerican Energy, Kern River, Northern Natural Gas and CE Electric UK, are its current interests in operating power facilities and its plants under construction and related real property interests, as well as leases of office space for its residential real estate brokerage operations. See “Item 1. Business” of this Form 10-K for further detail.

Item 3. Legal Proceedings.

In addition to the proceedings described below, the Company is currently party to various items of litigation or arbitration in the normal course of business, none of which are reasonably expected by the Company to have a material adverse effect on its financial position, results of operations or cash flows.

Pipeline Litigation

In 1998, the United States Department of Justice informed the then current owners of Kern River and Northern Natural Gas that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against such entities and certain of their subsidiaries including Kern River and Northern Natural Gas. Mr. Grynberg has also filed claims against numerous other energy companies and alleges that the defendants violated the False Claims Act in connection with the measurement and purchase of hydrocarbons. The relief sought is an unspecified amount of royalties allegedly not paid to the federal government, treble damages, civil penalties, attorneys’ fees and costs. On April 9, 1999, the United States Department of Justice announced that it declined to intervene in any of the Grynberg qui tam cases, including the actions filed against Kern River and Northern Natural Gas in the United States District Court for the District of Colorado. On October 21, 1999, the Panel on Multi-District Litigation transferred the Grynberg qui tam cases, including the ones filed against Kern River and Northern Natural Gas, to the United States District Court for the District of Wyoming for pre-trial purposes. Motions to dismiss the complaint, filed by various defendants including Northern Natural Gas and The Williams Companies, Inc. (“Williams”), which was the former owner of Kern River, were denied on May 18, 2001. On October 9, 2002, the United States District Court for the District of Wyoming dismissed Grynberg’s royalty valuation claims. On November 19, 2002, the United States District Court for the District of Wyoming denied Grynberg’s motion for clarification and dismissed his royalty valuation claims. Grynberg appealed this dismissal to the United States Court of Appeals for the Tenth Circuit and on May 13, 2003, the Tenth Circuit Court dismissed his appeal. Motions to Dismiss based on various jurisdictional grounds were filed on June 4, 2004. Grynberg filed his brief and other pleadings in opposition to the Motions to Dismiss on October 22, 2004. In connection with the purchase of Kern River from Williams in March 2002, Williams agreed to indemnify MEHC against any liability for this claim; however, no assurance can be given as to the ability of Williams to perform on this indemnity should it become necessary. No such indemnification was obtained in connection with the purchase of Northern Natural Gas in August 2002. The Company believes that the Grynberg cases filed against Kern River and Northern Natural Gas are without merit and that Williams, on behalf of Kern River pursuant to its indemnification, and Northern Natural Gas, intend to defend these actions vigorously.

On June 8, 2001, a number of interstate pipeline companies, including Kern River and Northern Natural Gas, were named as defendants in a nationwide class action lawsuit which had been pending in the 26th Judicial District, District Court, Stevens County Kansas, Civil Department against other defendants, generally pipeline and gathering companies, since May 20, 1999. The plaintiffs allege that the defendants have engaged in mismeasurement techniques that distort the heating content of natural gas, resulting in an alleged underpayment of royalties to the class of producer plaintiffs. In November 2001, Kern River and Northern Natural Gas, along with the coordinating defendants, filed a motion to dismiss under Rules 9B and 12B of the Kansas Rules of Civil Procedure. The court denied this motion. In January 2002, Kern River and most of the coordinating defendants filed a motion to dismiss for lack of personal jurisdiction. The court has yet to rule on these motions. The plaintiffs filed for certification of the plaintiff class on September 16, 2002. On January 13, 2003, oral arguments were heard on coordinating defendants’ opposition to class certification. On April 10, 2003, the court entered an order denying the plaintiffs’ motion for class certification. On May 12, 2003, the plaintiffs filed a motion for leave to file a fourth amended petition alleging a class of gas royalty owners in Kansas, Colorado and Wyoming. The court granted the motion for leave to amend on July 28, 2003. Kern River was not a named defendant in the amended complaint and has been dismissed from the action. Northern Natural Gas filed an answer to the fourth amended petition on August 22, 2003. Class discovery is ongoing. Williams has agreed to indemnify MEHC against any liability associated with Kern River for this claim; however, no assurance can be given as to the ability of Williams to perform on this indemnity should it become necessary. Northern Natural Gas anticipates joining with other defendants in contesting certification of the plaintiff class. Kern River and Northern Natural Gas believe that this claim is without merit and that Kern River’s and Northern Natural Gas’ gas measurement techniques have been in accordance with industry standards and their tariffs.

Similar to the June 8, 2001 matter referenced above, the plaintiffs in that matter have filed a new companion action against a number of parties, including Northern Natural Gas but excluding Kern River, in a Kansas state district court for damages for mismeasurement of British thermal unit content, resulting in lower royalties. The action was filed on May 12, 2003, shortly after the state district court dismissed the plaintiffs’ third amended petition in the original litigation which sought to certify a nationwide class. The new companion action which seeks to certify a class of royalty owners in Kansas, Colorado and Wyoming, tracking the fourth amended petition in the action referenced above, was not served until August 4, 2003. A motion to dismiss was filed on August 25, 2003. On October 9, 2003, the state district court denied the motion to dismiss; Northern Natural Gas filed its answer on November 6, 2003. Class discovery is ongoing. Northern Natural Gas anticipates joining with other defendants in contesting certification of the plaintiff class. Northern Natural Gas believes that this claim is without merit and that Northern Natural Gas’ gas measurement techniques have been in accordance with industry standards and its tariff.

Natural Gas Commodity Litigation

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

The original complaint in this matter, Cornerstone Propane Partners, L.P. v. Reliant, et al. (“Cornerstone”), was filed on August 18, 2003 in the United States District Court, Southern District of New York naming MidAmerican Energy and MEHC. On October 1, 2003, a second complaint, Roberto, E. Calle Gracey, et al. (“Calle Gracey”), was filed in the same court but did not name MidAmerican Energy or MEHC. On November 14, 2003, a third complaint, Dominick Viola (“Viola”), et al., was filed in the same court and named MidAmerican Energy and MEHC as defendants. On November 19, 2003, an Order of Voluntary Dismissal Without Prejudice of MEHC was entered by the court dismissing MEHC from the Cornerstone and Viola complaints. On December 5, 2003, the court entered Pretrial Order No. 1, which among other procedural matters, ordered the consolidation of the Cornerstone, Calle Gracey and Viola complaints and permitted plaintiffs to file an amended complaint in this matter. On January 20, 2004, plaintiffs filed In Re: Natural Gas Commodity Litigation as the amended complaint reasserting their previous allegations. On February 19, 2004, MidAmerican Energy filed a Motion to Dismiss and joined with several other defendants to file a joint Motion to Dismiss. The plaintiffs filed a response on May 19, 2004, contesting both Motions to Dismiss. On September 24, 2004, the pending Motions to Dismiss were denied. On October 14, 2004, the plaintiffs filed an amended consolidated class action complaint reasserting their previous allegations. On January 25, 2005, the plaintiffs filed their motion for class certification. MidAmerican Energy will continue to coordinate with the other defendants and vigorously defend the allegations against it.

Philippines

Pursuant to the share ownership adjustment mechanism in the CE Casecnan stockholder agreement, which is based upon pro forma financial projections of the Casecnan project prepared following commencement of commercial operations, in February 2002, MEHC’s indirect wholly-owned subsidiary, CE Casecnan Ltd., advised the minority stockholder, LaPrairie Group Contractors (International) Ltd. (“LPG”), that MEHC’s ownership interest in CE Casecnan had increased to 100% effective from commencement of commercial operations. On July 8, 2002, LPG filed a complaint in the Superior Court of the State of California, City and County of San Francisco against, among others, CE Casecnan Ltd. and MEHC. On January 21, 2004, CE Casecnan Ltd. and LPG entered into a status quo agreement pursuant to which the parties agreed to set aside certain distributions related to the shares subject to the LPG dispute and CE Casecnan agreed not to take any further actions with respect to such distribution without at least 15 days prior notice to LPG. Accordingly, 15% of the CE Casecnan dividend distributions declared in 2004, totaling $15.9 million, was set aside by CE Casecnan in an unsecured CE Casecnan account and is shown as restricted cash and short-term investments and other current liabilities in the accompanying consolidated balance sheet included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. The court is currently expected to rule on the first phase of the litigation before the end of the first quarter of 2005. The impact, if any, of this litigation on the Company cannot be determined at this time.

Mirant Americas Energy Marketing (“Mirant”) Claim

Mirant was one of the shippers that entered into a 15-year, 2003 Expansion Project, firm gas transportation contract (90,000 Dth per day) with Kern River (the “Mirant Agreement”) and provided a letter of credit equivalent to 12 months of reservation charges as security for its obligations under the Mirant Agreement. In July 2003, Mirant filed for Chapter 11 bankruptcy protection and continued to perform under the Mirant Agreement post-bankruptcy. In October 2003, Mirant informed Kern River that it would not renew its letter of credit and Kern River drew on the letter of credit and held the proceeds thereof, $14.8 million, as cash collateral. Effective December 18, 2003, Mirant rejected the Mirant Agreement pursuant to procedures under the Bankruptcy Code and paid all post-petition amounts then due and owing under the Mirant Agreement through December 18, 2003. On January 13, 2004, Kern River filed a proof of claim with the bankruptcy court for an aggregate total amount of $210.2 million (the “Kern River Claim”), which Kern River believed was secured to the extent of the $14.8 million in proceeds received from the letter of credit and held as a cash security deposit. The claims underpinning the proof of claim arise from damages caused by Mirant’s rejection of the Mirant Agreement. On May 25, 2004, the bankruptcy court issued an order permitting Kern River to apply 100% of the $14.8 million cash security deposit to its claim for damages. On October 12, 2004, Mirant raised an objection to the Kern River Claim asserting, among other things, that Kern River had not included a discount adjustment or mitigation to the claim. On November 11, 2004, Kern River filed an amended proof of claim of $138.8 million, reflecting discounting, mitigation and other adjustments, and which excludes the $14.8 million already received by Kern River. Kern River can not determine at this time if it will collect any portion of the balance of the Kern River Claim or be able to remarket the rejected Mirant Agreement capacity.

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

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

Since March 14, 2000, MEHC’s equity securities have been owned by Berkshire Hathaway, Walter Scott, Jr. (together with certain of his family members and family trusts and corporations), David L. Sokol and Gregory E. Abel and have not been registered with the SEC pursuant to the Securities Act of 1933, as amended, listed on a stock exchange or otherwise publicly held or traded.

Item 6. Selected Financial Data.

The following table sets forth selected financial data, which should be read in conjunction with the Company’s consolidated financial statements and the related notes to those statements included in “Item 8. Financial Statements and Supplementary Data” and with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this Form 10-K. The selected financial data as of and for the years ended December 31, 2004, 2003, 2002 and 2001, and as of December 31, 2000 and for the period from March 14, 2000 through December 31, 2000, have been derived from the Company’s historical consolidated financial statements. The selected financial data from January 1, 2000 through March 13, 2000, have been derived from MEHC (Predecessor)’s historical consolidated financial statements.

																MEHC
																(Predecessor)
													March 14 2000			January 1, 2000
	Year Ended December 31,												through December 31,			through March 13,
	2004			2003			2002 ⁽¹⁾			2001 ⁽²⁾			2000 ⁽³⁾			2000 ⁽⁴⁾
	(Amounts in millions)
Statement of Operations Data:
Operating revenue	$	6,553.4		$	5,965.6		$	4,795.2		$	4,696.8		$	3,918.1		$	1,056.4
Income from continuing operations		537.8			442.7			397.4			148.4			84.1			51.4
Loss from discontinued operations, net of tax ⁽⁵⁾		(367.6	)		(27.1	)		(17.4	)		(5.7	)		(2.8	)		(0.1	)
Net income	$	170.2		$	415.6		$	380.0		$	142.7		$	81.3		$	51.3

Balance Sheet Data:
Total assets	$	19,903.6		$	19,145.0		$	18,434.9		$	12,994.6		$	11,960.4			N/A
Parent company senior debt ⁽⁶⁾		2,772.0			2,777.9			2,323.4			1,834.5			1,830.0			N/A
Parent company subordinated debt ⁽⁶⁾		1,585.8			1,772.1			-			-			-			N/A
Company-obligated mandatory redeemable preferred securities of subsidiary trusts		-			-			2,063.4			788.2			786.5			N/A
Subsidiary and project debt ⁽⁶⁾		6,304.9			6,674.6			7,077.1			4,754.8			3,398.7			N/A
Subsidiary-obligated mandatorily redeemable preferred securities of subsidiary trusts		-			-			-			100.0			100.0			N/A
Preferred securities of subsidiaries		89.5			92.1			93.3			121.2			145.7			N/A
Total stockholders’ equity	$	2,971.2		$	2,771.4		$	2,294.3		$	1,708.2		$	1,576.4			N/A

(1)	Reflects the acquisitions of Kern River on March 27, 2002 and Northern Natural Gas on August 16, 2002.

(2)	Reflects the Yorkshire Swap on September 21, 2001 and includes $15.2 million of after-tax income related to the sale of the Northern Electric electricity and gas supply business, the sale of the Telephone Flat Project, the sale of Western States Geothermal, the transfer of Bali Energy Ltd. shares, and the Teesside Power Limited (‘‘TPL’’) asset valuation impairment charge.

(3)	Reflects the Teton Transaction on March 14, 2000.

(4)	Includes $7.6 million of expenses related to the Teton Transaction.

(5)	Reflects MEHC’s decision to cease operations of the Zinc Recovery Project effective September 10, 2004, which resulted in a non-cash, after-tax impairment charge of $340.3 million being recorded to write-off the Zinc Recovery Project, rights to quantities of extractable minerals, and allocated goodwill (collectively, the “Mineral Assets”). The charge and related activity of the Mineral Assets, including the reclassification of such activity for the years ended December 31, 2003, 2002 and 2001 and for the periods January 1, 2000 through March 13, 2000 and March 14, 2000 through December 31, 2000, are classified separately as discontinued operations.

(6)	Excludes current portion.

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

The following discussion and analysis should be read in combination with the selected financial data and the consolidated financial statements included in Items 6 and 8 herein.

General

The Company’s operations are organized and managed on seven distinct platforms: MidAmerican Energy, Kern River, Northern Natural Gas, CE Electric UK (which includes Northern Electric and Yorkshire Electricity), CalEnergy Generation-Foreign, CalEnergy Generation-Domestic, and HomeServices.

The Company owns and operates a combined electric and natural gas utility company in the United States, two natural gas pipeline companies in the United States, two electricity distribution companies in the United Kingdom, a diversified portfolio of domestic and international independent power projects and the second largest residential real estate brokerage firm in the United States.

The Company’s principal energy subsidiaries generate, transmit, store, distribute and supply energy. The Company’s electric and natural gas utility subsidiaries currently serve approximately 4.4 million electricity customers and approximately 680,000 natural gas customers. Its natural gas pipeline subsidiaries operate interstate natural gas transmission systems with approximately 18,300 miles of pipeline in operation and peak delivery capacity of 6.4 Bcf of natural gas per day. The Company has interests in 6,777 net owned MW of power generation facilities in operation and under construction, including 5,203 net owned MW in facilities that are part of the regulated return asset base of its electric utility business and 1,574 net owned MW in non-utility power generation facilities. Substantially all of the non-utility power generation facilities have long-term contracts for the sale of energy and/or capacity from the facilities.

Executive Summary

The following significant events and changes, as discussed in more detail herein, highlight some factors that affect the comparability of our financial results, for the years ended December 31, 2004, 2003 and 2002, respectively:

·
On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project, effective immediately. Based on this decision, a non-cash, after-tax impairment charge of $340.3 million has been recorded to write-off the Mineral Assets.

·
In December 2004, MidAmerican Energy placed into service the second phase of its 327 MW natural gas-fired combined cycle generating plant. The plant is the first of three electric generating projects to be completed by MidAmerican Energy. MidAmerican Energy expects to invest approximately $1.1 billion in the two remaining projects through 2007. Both projects are currently under construction and $350.4 million of the $1.1 billion had been invested through December 31, 2004.

·
The Company made significant investments in its natural gas pipeline business by acquiring Kern River in March 2002 for $419.7 million, net of cash acquired, and Northern Natural Gas in August 2002 for $882.7 million, net of cash acquired, and completing the 2003 Expansion Project in May 2003 at a total cost of $1.2 billion. These pipelines serve major markets in the midwest and western United States.

·
HomeServices separately acquired 13 real estate companies throughout 2004, 2003 and 2002. Operating revenue has grown from $1.1 billion in 2002 to $1.8 billion in 2004.

·
CE Electric UK operates mainly in Great Britain and the majority of its transactions are in Pounds Sterling. The weighted average ratio of U.S. Dollars to Pounds Sterling was 1.84, 1.64 and 1.49 during each of the years ended December 31, 2004, 2003 and 2002, respectively, which continues to produce positive revenue and profit comparisons on a year over year basis.

·
Both Kern River and Northern Natural Gas have filed for rate increases with the FERC and have hearings scheduled in 2005. New rates for Northern Natural Gas’ May 2003 rate case went into effect on November 1, 2003, subject to refund. New rates for the Northern Natural Gas’ January 2004 and Kern River’s April 2004 rate cases each went into effect on November 1, 2004, subject to refund. Additionally, Ofgem completed the process of reviewing the existing price control formula for Northern Electric and Yorkshire Electricity in November 2004. As a result of the review, the allowed revenue of Northern Electric’s and Yorkshire Electricity’s distribution businesses will be reduced by 4% and 9%, respectively, in real terms, effective April 1, 2005.

·
CE Casecnan reached an arbitration settlement with the NIA effective during the fourth quarter of 2003. As part of the settlement, NIA paid CE Casecnan $17.7 million plus Philippines pesos of 39.9 million (approximately $0.7 million) and delivered a ROP $97.0 million 8.375% Note due in 2013. In exchange, CE Casecnan agreed to modify certain provisions of the project agreement, the most significant being the elimination of the tax compensation portion of the water delivery fee and modification of the threshold volume of water used to calculate the guaranteed water delivery fee. In January 2004, CE Casecnan exercised its right to put the note and received $99.2 million (representing par plus accrued interest) from the ROP.

·
On November 23, 2004, Northern Natural Gas sold its stipulated general, unsecured claim of $249.0 million against Enron Corp. (“Enron”) to a third party investor for $72.2 million and recorded the proceeds received as other income in 2004.

·
In the fourth quarter of 2004, CE Generation recorded a $16.8 million charge as a result of the partial impairment of the carrying value of the Power Resources project.

·
In February 2004, MEHC issued $250.0 million of 5.00% senior notes due February 15, 2014. The proceeds from these issuances were used to satisfy a demand made by MEHC’s affiliate, Salton Sea Funding Corporation (“Funding Corporation”), for the amount remaining on MEHC’s guarantee of Funding Corporation’s 7.475% Senior Secured Series F Bonds (“Series F Bonds”) and for other general corporate purposes. In October 2004, MidAmerican Energy issued $350.0 million of 4.65% medium-term notes due October 2014, which were used for general corporate purposes.

Results of Operations for the Year Ended December 31, 2004 and the Year Ended December 31, 2003

The following table summarizes net income for the years ended December 31(in millions):

		2004			2003
Income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income:
MidAmerican Energy	$	267.8		$	271.4
Kern River		142.6			133.7
Northern Natural Gas		218.0			127.3
CE Electric UK		325.9			288.7
CalEnergy Generation-Foreign		165.7			177.6
CalEnergy Generation-Domestic		3.1			2.1
HomeServices		111.9			90.0
Total reportable segments		1,235.0			1,090.8
Corporate/other		(435.8	)		(232.9	)
Income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income		799.2			857.9
Income tax expense		265.0			270.3
Minority interest and preferred dividends of subsidiaries		13.3			183.2
Income from continuing operations before equity income		520.9			404.4
Equity income		16.9			38.3
Income from continuing operations		537.8			442.7
Loss from discontinued operations, net of tax benefits		(367.6	)		(27.1	)
Net income available to common and preferred stockholders	$	170.2		$	415.6

The $367.6 million loss from discontinued operations, net of tax benefits, for the year ended December 31, 2004 included a $340.3 million non-cash impairment charge recognized in connection with ceasing operations of the Company’s Zinc Recovery Project and a $27.1 million loss from operations, net of tax, of the Zinc Recovery Project.

Income from continuing operations for the year ended December 31, 2004, increased $95.1 million, or 21.5%, to $537.8 million compared with $442.7 million for the same period in 2003.

Equity income for the year ended December 31, 2004, decreased $21.4 million to $16.9 million compared with $38.3 million for the same period in 2003. CE Generation recorded a $16.8 million charge as a result of the partial impairment of the carrying value of the Power Resources project. Additionally, HomeServices’ mortgage joint ventures had lower income due to lower refinancing activity.

Minority interest and preferred dividends for the year ended December 31, 2004, decreased $169.9 million to $13.3 million from $183.2 million for the same period in 2003. The decrease was due to the Company’s adoption, as of October 1, 2003, of FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) related to certain finance subsidiaries. The adoption required the deconsolidation of certain finance subsidiaries, which resulted in the amounts previously classified as mandatorily redeemable preferred securities of subsidiary trusts being reclassified as parent company subordinated debt in the Company’s consolidated balance sheet at December 31, 2003. The adoption also required that amounts previously recorded in minority interest and preferred dividends of subsidiaries be recorded as interest expense in the Company’s consolidated statements of operations, prospectively. In accordance with the requirements of FIN 46R, no amounts prior to adoption, on October 1, 2003, have been reclassified. The amount remaining in minority interest and preferred dividends of subsidiaries related to these mandatorily redeemable preferred securities of subsidiary trusts for the nine-month period ended September 30, 2003, was $170.2 million.

Income tax expense for the year ended December 31, 2004, decreased $5.3 million to $265.0 million from $270.3 million for the same period in 2003. The effective tax rate was 33.2% and 31.5% for the years ended December 31, 2004 and 2003, respectively. The increase in the effective tax rate in 2004 was mainly due to the effect of the $170.2 million of tax deductible interest on subordinated debt not included in income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income in 2003, partially offset by the $24.4 million tax payment made in connection with the NIA arbitration settlement at CE Casecnan in 2003, and the settlement by CE Electric UK of various positions with the Inland Revenue department and a change in the State of Iowa’s income tax laws in 2004.

Income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income decreased $58.7 million, or 6.8%, to $799.2 million in 2004 from $857.9 million in 2003. The decrease was due to the following:

Reportable Segments

Kern River's pre-tax earnings were $8.9 million higher due to the completion of the 2003 Expansion Project in May 2003, partially offset by lower capitalized interest in connection with completing the expansion. In 2004, Kern River collected $14.8 million on its claim for damages against Mirant for the rejection by Mirant of its firm gas transportation contract. The income was largely offset by revenue lost related to the rejection of the agreement.

·	Northern Natural Gas' pre-tax earnings were $90.7 million higher due to a $72.2 million pre-tax gain on the sale of the Enron Note Receivable and improved results associated with the May 2003 rate case which resulted in higher rates commencing November 1, 2003.

CE Electric UK's pre-tax earnings were $37.2 million higher primarily from the approximately $34.0 million favorable earnings impact of the continued weakness of the U.S. dollar relative to the British pound, partially offset by the $8.9 million gain from the sale of a local operational and dispatch facility at Northern Electric in 2003.

CalEnergy Generation-Foreign's pre-tax earnings were $11.9 million lower in 2004 compared to 2003. In 2003, CE Casecnan recorded $31.9 million of income in connection with the settlement of its arbitration with the NIA. That gain was partially offset by the settlement of various disputes which the Leyte Projects had with PNOC-EDC, which resulted in the reversal of accrued revenue totaling $11.3 million. In 2004, CE Casecnan had lower revenue as a result of its contract arbitration settlement, which was fully offset by higher revenue at the Leyte Projects due to price indices and lower interest expense on the repayment of project debt. Also in 2004, CalEnergy Generation-Foreign earned higher interest income on affiliate loans of $8.7 million.

·	Pre-tax earnings at HomeServices were $21.9 million higher due to higher average home sales prices and acquisitions not included in the comparable 2003 period.

Corporate

The Company’s adoption of FIN 46R, as previously described, required that amounts previously recorded in minority interest and preferred dividends of subsidiaries be recorded as interest expense in the Company’s consolidated statements of operations prospectively. As a result, the charges for interest expense related to securities of the Company’s finance subsidiaries increased by $147.1 million to $196.9 million in 2004 from $49.8 million in 2003.

·	During June 2003, the Company sold its investment in Williams Cumulative Convertible Preferred Stock. As a result, 2003 pre-tax earnings included $32.6 million from the gain on the sale and dividend income.

·	The Company's corporate interest expense increased $11.5 million primarily as a result of the issuance of the $250.0 million of 5.00% senior notes in February 2004.

Revenue

Operating revenue for the year ended December 31, 2004 increased $587.8 million or 9.9% to $6,553.4 million from $5,965.6 million for the same period in 2003. The following table summarizes operating revenue by segment for the years ended December 31 (in millions):

	Year Ended December 31,
		2004			2003
Operating revenue:
MidAmerican Energy	$	2,701.7		$	2,600.2
Kern River		316.1			260.2
Northern Natural Gas		544.8			486.9
CE Electric UK		936.4			830.0
CalEnergy Generation-Foreign		307.4			326.4
CalEnergy Generation-Domestic		39.0			45.2
HomeServices		1,756.4			1,476.6
Total reportable segments		6,601.8			6,025.5
Corporate/other		(48.4	)		(59.9	)
Total operating revenue	$	6,553.4		$	5,965.6

MidAmerican Energy’s operating revenue for the year ended December 31, 2004, increased $101.5 million, or 3.9%, to $2,701.7 million. Regulated and non-regulated natural gas revenue increased $53.8 million, or 4.8%, to $1,166.5 million mainly due to higher prices for natural gas purchased for regulated customers, which is passed directly to the customer, and regulated wholesale volumes. Average natural gas prices increased 7.4 % from 2003 to 2004. These price increases were partially offset by lower regulated retail and non-regulated volumes. Regulated and non-regulated electric revenue increased $49.8 million, or 3.4%, to $1,518.9 million mainly due to higher regulated retail and non-regulated volumes as well as prices of wholesale sales. These increases were partially offset by lower regulated wholesale volumes and regulated retail prices.

Operating revenue at Kern River and Northern Natural Gas is principally derived by providing firm or interruptible transportation services under long-term gas transportation service agreements. Northern Natural Gas also derives part of its revenue from storing gas. Kern River’s operating revenue for the year ended December 31, 2004, increased $55.9 million, or 21.5%, to $316.1 million primarily due to the transportation fees earned in connection with the 2003 Expansion Project, which began operations May 1, 2003. Northern Natural Gas’ operating revenue, which reflects the impact of the new rates beginning November 1, 2004 and 2003, and higher gas and liquid sales, increased $57.9 million, or 11.9%, to $544.8 million for the year ended December 31, 2004.

CE Electric UK’s operating revenue for the year ended December 31, 2004, increased $106.4 million, or 12.8%, to $936.4 million primarily as a result of the weaker U.S. dollar. Additionally, CE Electric UK experienced increased revenue at its contracting business.

Operating revenue for CalEnergy Generation-Foreign for the year ended December 31, 2004, decreased $19.0 million, or 5.8%, to $307.4 million primarily due to lower water delivery fees in connection with the NIA arbitration settlement at CE Casecnan effective in the fourth quarter of 2003, partially offset by higher energy fees due to increased generation on higher water flows in 2004.

HomeServices’ operating revenue for the year ended December 31, 2004, consisting mainly of commission revenue from real estate brokerage transactions, increased $279.8 million, or 18.9%, to $1,756.4 million. The increase is due primarily to growth at existing businesses of $154.7 million due primarily to higher average home sales prices and acquisitions not included in the comparable 2003 period totaling $125.1 million. During the year ended December 31, 2004, HomeServices participated in $59.8 billion of transactions, an increase of $11.2 billion from 2003. About 24% of the increase came from the six acquisitions made during the year.

Costs and expenses

Cost of sales for the year ended December 31, 2004, increased $351.4 million, or 14.6%, to $2,751.9 million from $2,400.5 million for the same period in 2003. HomeServices’ cost of sales, consisting primarily of commissions on real estate brokered transactions, increased $211.8 million due to higher commission expense on incremental sales at existing business units and acquisitions not included in the comparable 2003 period. MidAmerican Energy’s costs of sales increased $87.4 million due mainly to an increase in the per unit cost of natural gas, higher regulated wholesale natural gas, regulated retail electric and non-regulated electric volumes, partially offset by lower regulated retail and non-regulated natural gas volumes. Northern Natural Gas’ cost of sales increased $18.9 million due to higher gas and liquid sales. CE Electric UK’s cost of sales increased $16.7 million mainly due to increased activity at its contracting business and the weaker U.S. dollar, partially offset by lower exit charges from the National Grid Company at both Northern Electric and Yorkshire Electricity.

Operating expenses for the year ended December 31, 2004, increased $125.6 million, or 8.3%, to $1,637.9 million from $1,512.3 million for the same period in 2003. HomeServices’ operating expenses, consisting mainly of compensation, marketing and other administrative costs, increased $44.8 million due mainly to acquisitions not included in the comparable 2003 period. MidAmerican Energy’s operating expenses increased $40.3 million due mainly to higher generation maintenance costs, Quad Cities Station expenses, and transmission expenses. CE Electric UK’s operating expenses increased $39.3 million, mainly due to higher pension costs and the weaker U.S. dollar in 2004, and a gain on the sale of a local operational dispatch facility in 2003. Kern River’s operating expenses increased $16.4 million due to the commencement of operations of the 2003 Expansion Project. CalEnergy Generation-Foreign’s operating expenses decreased $12.5 million mainly due to lower legal and other costs in 2004.

Depreciation and amortization for the year ended December 31, 2004, increased $35.3 million to $638.2 million from $602.9 million for the same period in 2003. Kern River’s expense increased $16.5 million due to the completion of the 2003 Expansion Project. Northern Natural Gas’ expense increased $15.2 million due to higher depreciation rates consistent with the filed rate case. CE Electric UK’s expense increased $12.7 million primarily due to the weaker U.S. dollar. Partially offsetting these increases was a decrease in MidAmerican Energy’s expense of $14.6 million due primarily to a decrease in regulatory expense related to its revenue sharing arrangements.

Other income and expense

Interest expense for the year ended December 31, 2004, increased $142.2 million to $903.2 million from $761.0 million for the same period in 2003. On October 1, 2003, the Company adopted FIN 46R related to certain finance subsidiaries. The adoption required that amounts previously recorded in minority interest and preferred dividends of subsidiaries be recorded as interest expense in the accompanying consolidated statement of operations, prospectively. For the year ended December 31, 2004 and the three-month period ended December 31, 2003, the Company has recorded $196.9 million and $49.8 million, respectively, of interest expense related to these finance subsidiaries. In accordance with the requirements of FIN 46R, no amounts prior to adoption on October 1, 2003 have been reclassified. The amount included in minority interest and preferred dividends of subsidiaries related to these finance subsidiaries for the nine-month period ended September 30, 2003, was $170.2 million. Other interest expense decreased $4.9 million. The Company incurred lower interest expense of $42.9 million due mainly to the Company's scheduled redemption of $215.0 million of 6.96% senior notes in September 2003, redemption in full of the outstanding shares of the Yorkshire Capital Trust I, 8.08% trust securities in June 2003, and reductions in subsidiary project debt. The Company incurred additional interest expense, totaling $38.0 million, on the Company’s debt issuances of $450.0 million of 3.5% senior notes in May 2003 and $250.0 million of 5.0% senior notes in February 2004 and the effects of the weaker U.S. dollar.

Capitalized interest for the year ended December 31, 2004, decreased $10.5 million to $20.0 million from $30.5 million for the same period in 2003. The decrease was mainly due to the discontinuance of capitalizing interest on Kern River’s 2003 Expansion Project, partially offset by increased construction activity at MidAmerican Energy’s generation projects.

Interest and dividend income for the year ended December 31, 2004, decreased $9.0 million to $38.9 million from $47.9 million for the same period in 2003. The decrease was mainly due to dividend income received in 2003 from the Company’s investment in Williams Cumulative Convertible Preferred Stock that was sold in June 2003, partially offset by higher interest income at CE Electric UK resulting from higher cash balances.

Other income for the year ended December 31, 2004, increased $31.6 million to $128.2 million from $96.6 million for the same period in 2003. In 2004, the Company recognized a $72.2 million gain on Northern Natural Gas’ sale of the Enron Note Receivable and a $14.8 million gain on amounts collected by Kern River on its claim for damages against Mirant. In 2003, the Company recognized a $31.9 million gain in connection with the NIA arbitration settlement and a $13.8 million gain on the sale of Williams Cumulative Convertible Preferred Stock. Additionally, the allowance for equity funds used during construction for the year ended December 31, 2004, decreased $6.2 million due primarily to the completion of Kern River’s expansion in 2003.

Results of Operations for the Year Ended December 31, 2003 and the Year Ended December 31, 2002

The following table summarizes net income for the years ended December 31(in millions):

		2003			2002
Income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income:
MidAmerican Energy	$	271.4		$	238.8
Kern River		133.7			60.7
Northern Natural Gas		127.3			42.9
CE Electric UK		288.7			266.8
CalEnergy Generation-Foreign		177.6			147.9
CalEnergy Generation-Domestic		2.1			(1.2	)
HomeServices		90.0			61.2
Total reportable segments		1,090.8			817.1
Corporate/other		(232.9	)		(185.4	)
Income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income		857.9			631.7
Income tax expense		270.3			111.3
Minority interest and preferred dividends of subsidiaries		183.2			163.5
Income from continuing operations before equity income		404.4			356.9
Equity income		38.3			40.5
Income from continuing operations		442.7			397.4
Loss from discontinued operations, net of tax benefits		(27.1	)		(17.4	)
Net income available to common and preferred stockholders	$	415.6		$	380.0

The loss from discontinued operations, net of tax benefits, for the year ended December 31, 2003, was $27.1 million as compared to $17.4 million for 2002 and consists of losses from the operation of the Company’s Zinc Recovery Project.

Income from continuing operations for the year ended December 31, 2003, increased $45.3 million, or 11.4%, to $442.7 million compared with $397.4 million for the same period in 2002.

Equity income for the year ended December 31, 2003, decreased $2.2 million to $38.3 million compared with $40.5 million for the same period in 2003. Equity income from non-regulated generation equity investments decreased $16.6 million to $14.8 million from $31.4 million in 2002 mainly due to the expiration of a contract at the Power Resources project and a charge associated with an equity investment. Equity income from HomeServices for the year ended December 31, 2003 increased $14.8 million to $23.6 million primarily due to increased refinancing activity at mortgage joint ventures.

Minority interest and preferred dividends for the year ended December 31, 2003, increased $19.7 million to $183.2 million from $163.5 million for the same period in 2002. As previously described, the Company was required to adopt, as of October 1, 2003, FIN 46R related to certain finance subsidiaries. The adoption required that amounts previously recorded in minority interest and preferred dividends of subsidiaries be recorded as interest expense in the Company’s consolidated statements of operations prospectively. In accordance with the requirements of FIN 46R, no amounts prior to adoption, on October 1, 2003, have been reclassified. The amount remaining in minority interest and preferred dividends of subsidiaries related to these securities increased $22.5 million to $170.2 million for the nine-month period ended September 30, 2003, from $147.7 million for the year ended December 31, 2002. Mandatorily redeemable preferred securities of subsidiary trusts were issued in 2002 to finance the acquisitions of both Kern River and Northern Natural Gas.

Income tax expense for the year ended December 31, 2003, increased $159.0 million to $270.3 million from $111.3 million for the same period in 2002. The effective tax rate was 31.5% and 17.6% for the years ended December 31, 2003 and 2002, respectively. The increase in the effective tax rate was primarily due to increased tax expense on foreign income including the incremental tax expense of $24.4 million in connection with the CE Casecnan NIA arbitration settlement proceeds. The 2002 effective tax rate was unusually low as the Company recognized tax benefits of $35.7 million in connection with the execution of the TPL restructuring agreement at CE Electric UK.

Income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income increased $226.2 million, or 35.8%, to $857.9 million in 2003 from $631.7 million in 2002. The increase was due to the following:

Reportable Segments

Pre-tax earnings at MidAmerican Energy were higher by $32.6 million. The reportable segment earned higher regulated Iowa electric income as it benefited from the first phase of the Greater Des Moines Energy Center beginning operation in May 2003, higher equity funds used during the construction of its electric generation projects, and certain non-recurring items, including lower fuel costs resulting from a contract restructuring and the settlement of a bankruptcy claim.

Kern River, acquired in March 2002, and Northern Natural Gas, acquired in August 2002, had higher pre-tax earnings of $73.0 million and $84.4 million, respectively, due mainly to the inclusion of the acquisitions for a full-year of operations in the Company’s consolidated results and the completion of Kern River’s 2003 Expansion Project.

CE Electric UK's pre-tax earnings were higher by $21.9 million. Approximately $20.0 million of the increase resulted from higher distribution revenue at Yorkshire Electricity, $18.5 million was due to the earnings benefit of the continued weakness of the U.S. dollar relative to the British pound, $11.3 million related to lower costs primarily achieved from economies of scale with Northern Electric and Yorkshire Electricity, $14.4 million was a result of the gain and lower interest costs associated with a bond redemption, $8.9 million related to the gain on sale of a local operational and dispatch facility at Northern Electric, and $7.0 million for rebates received from the National Grid Company. These increases were partially offset by the sale of several of its north sea, natural gas assets resulting in a pre-tax gain of $54.3 million.

Pre-tax earnings at CalEnergy Generation-Foreign were higher by $29.7 million. In 2003, CE Casecnan recorded $31.9 million of other income in connection with the settlement of its arbitration with the NIA. The 2003 gain was partially offset by the settlement of various disputes which the Leyte Projects had with PNOC-EDC, which resulted in the reversal of accrued revenue totaling $11.3 million. The other significant difference in 2003 was the decrease in financial expense of $10.6 million due to repayment of debt and lower variable interest rates.

·	HomeServices' pre-tax earnings were higher by $28.8 million due to acquisitions made throughout 2002 and 2003 and due to growth from higher home prices and higher mortgage refinancing activity at existing companies.

Corporate

The Company’s adoption of FIN 46R, as previously described, required that amounts previously recorded in minority interest and preferred dividends of subsidiaries be recorded as interest expense in the Company’s consolidated statements of operations prospectively. The charge to interest expense related to securities of the Company’s finance subsidiaries was $49.8 million in 2003 and $ - million in 2002.

Revenue

Operating revenue for the year ended December 31, 2003 increased $1,170.4 million or 24.4% to $5,965.6 million from $4,795.2 million for the same period in 2002. The following table summarizes operating revenue by segment for the years ended December 31 (in millions):

	Year Ended December 31,
		2003			2002
Operating revenue:
MidAmerican Energy	$	2,600.2		$	2,240.9
Kern River		260.2			127.3
Northern Natural Gas		486.9			178.1
CE Electric UK		830.0			795.4
CalEnergy Generation-Foreign		326.4			326.3
CalEnergy Generation-Domestic		45.2			38.5
HomeServices		1,476.6			1,138.3
Total reportable segments		6,025.5			4,844.8
Corporate/other		(59.9	)		(49.6	)
Total operating revenue	$	5,965.6		$	4,795.2

MidAmerican Energy’s operating revenue for the year ended December 31, 2003, increased $359.3 million, or 16.0%, to $2,600.2 million. MidAmerican Energy’s regulated and non-regulated gas revenue for the year ended December 31, 2003 increased $308.4 million to $1,112.7 million from $804.3 million in 2002 mainly due to higher prices for gas purchased for regulated customers which is passed directly to the customer. Average gas prices increased 59.9 % or $2.24 per Dth from 2002 to 2003. Regulated electric revenue for the year ended December 31, 2003 increased $44.6 million to $1,398.0 million from $1,353.4 million for the same period in 2002 mainly due to higher prices of wholesale sales during 2003.

Operating revenue at both pipelines is principally derived by providing firm or interruptible transportation services under long-term gas transportation service agreements. Northern Natural Gas also derives part of its revenue from storing gas. Kern River’s operating revenue for the year ended December 31, 2003, increased $132.9 million to $260.2 million. The increase was primarily due to the transportation fees earned in connection with the 2003 Expansion Project which began operations May 1, 2003, and to a lesser degree, the inclusion of its operations for all of 2003. Northern Natural Gas’ operating revenue for the year ended December 31, 2003, increased $308.8 million to $486.9 million. Northern Natural Gas was acquired on August 16, 2002. The increase in its operating revenue relates to the timing of that acquisition and inclusion of its operations for all of 2003.

CE Electric UK’s operating revenue for the year ended December 31, 2004, increased $34.6 million, or 4.4%, to $830.0 million. The increase was a result of the weaker U.S. dollar, higher distribution revenue and higher revenue at its contracting business. This was partially offset by lower revenue caused by the sale of CE Gas assets in 2002.

HomeServices’ operating revenue for the year ended December 31, 2003, consisting mainly of commission revenue from real estate brokerage transactions, increased $338.3 million, or 29.7%, to $1,476.6 million. The increase was due to acquisitions made throughout 2002 and 2003 and $91.3 million due to growth at existing companies. During the year ended December 31, 2003, HomeServices participated in $48.6 billion of transactions, an increase of $11.7 billion from 2002. About 23% of the increase came from the four acquisitions made during the year.

Costs and expenses

Cost of sales for the year ended December 31, 2003 increased $556.5 million, or 30.2%, to $2,400.5 million from $1,844.0 million for the same period in 2002. MidAmerican Energy’s cost of sales for the year ended December 31, 2003 increased $345.6 million, or 34.9%, to $1,334.5 million from $988.9 million for the same period in 2002. MidAmerican Energy’s regulated and non-regulated gas cost of sales for the year ended December 31, 2003 increased $291.1 million to $878.1 million from $587.0 million in 2002 mainly due to the increase in per unit cost of gas discussed in operating revenue. Electric cost of sales increased $51.0 million in 2003 primarily due to the reclassification of costs for energy purchased under the Cooper Nuclear Station restructured contract between MidAmerican Energy and the Nebraska Public Power District which expired in December 2004. Prior to August 1, 2002, the date of the restructuring, only fuel costs for energy purchased from Cooper Nuclear Station were classified as a cost of sales. Consistent with the restructured contract, other costs under the contract are classified as operating expenses. Following the restructuring, all costs for energy and capacity purchased under the contract were included in cost of sales consistent with the new power purchase contract. Operating expenses decreased accordingly.

HomeServices’ cost of sales, consisting primarily of commissions on real estate brokerage transactions, increased $235.6 million for the year ended December 31, 2003, or 30.7%, to $1,003.2 million from $767.6 million for the same period in 2002. Cost of sales increased $106.7 million due to acquisitions made during 2002 and 2003. The remainder of HomeServices’ increase was due to growth of existing companies totaling $128.9 million.

Operating expenses for the year ended December 31, 2003 increased $209.5 million, or 16.1%, to $1,512.3 million from $1,302.8 million for the same period in 2002. An increase of $146.6 million was due to Northern Natural Gas, which was owned for the entire period in 2003. Increased operating expenses at HomeServices were $78.8 million, primarily due to the impact of acquisitions and increased compensation expenses. These increases were partially offset by lower operating expenses at CE Electric UK of $39.6 million, mainly due to the sale of the retail business in 2002 and a gain on the sale of a local operational dispatch facility in 2003, and lower operating expenses at MidAmerican Energy of $19.5 million primarily due to the restructuring of the Cooper contract.

Depreciation and amortization for the year ended December 31, 2003 increased $72.8 million, or 13.7%, to $602.9 million from $530.1 million for the same period in 2002. An increase of $34.6 million was due to Northern Natural Gas, which was owned for the entire period in 2003. Increased depreciation at Kern River was $19.6 million mainly due to the completion of the 2003 Expansion Project and the inclusion of Kern River’s operations for the entire period. Increased depreciation of $11.6 million at MidAmerican Energy due to higher utility plant depreciation and increased depreciation of $8.2 million at CE Electric UK due to a weaker U.S. dollar and an increased asset base, partially offset by the CE Gas asset sale in 2002.

In 2002, CE Gas executed the sale of several of its assets and recorded a pre-tax gain of $54.3 million, which included a write off of non-deductible goodwill of $49.6 million. Refer to Note 5 of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K for additional information regarding the asset sales.

Other Income and Expense

Interest expense for the year ended December 31, 2003 increased $128.9 million to $761.0 million from $632.1 million for the same period in 2002. The increase was mainly due to interest on parent company subordinated debt which was $49.8 million for the quarter and year ended December 31, 2003. This amount represents the interest recorded on the parent company subordinated debt for the period from October 1, 2003, the date the Company adopted FIN 46R, through December 31, 2003. Prior to the adoption of FIN 46R, the parent company subordinated debt was classified as company-obligated mandatorily redeemable preferred securities of subsidiary trusts. Costs associated with those instruments, prior to the adoption of FIN 46R, were classified as minority interest and preferred dividends of subsidiaries in the accompanying consolidated statements of operations. The remaining $79.1 million increase resulted from additional interest expense totaling $38.9 million on MEHC’s debt issuances of $700.0 million in October 2002 and $450.0 million in May 2003, increased interest expense of $32.5 million at Northern Natural Gas primarily due to a full year of ownership and increased interest expense at Kern River of $32.2 million due to additional borrowings related to the 2003 Expansion Project and a full year of ownership. The increases were partially offset by decreased interest, totaling $27.9 million, due to the combination of the June 2003 redemption of the Yorkshire Electricity securities, reductions in CalEnergy Generation-Foreign project debt, MEHC’s revolving credit facility and the retirement of MEHC’s 6.96% Senior Notes.

Capitalized interest for the year ended December 31, 2003 increased $7.1 million to $30.5 million. The increase was mainly due to Kern River’s 2003 Expansion Project and increased construction activity at MidAmerican Energy’s generation projects.

Interest and dividend income for the year ended December 31, 2003 decreased $8.1 million to $47.9 million from $56.0 million for the same period in 2002. The decrease was primarily due to lower income at CE Electric UK of $9.9 million due to lower cash balances partially offset by higher dividend income on the investment in Williams Cumulative Convertible Preferred Stock totaling $4.7 million and interest earned on higher corporate cash balances available during 2003.

Other income for the year ended December 31, 2003, increased $56.4 million to $96.6 million from $40.2 million for the same period in 2003. In 2003, the Company recognized a $31.9 million gain in connection with the NIA arbitration settlement and a $13.8 million gain on the sale of Williams Cumulative Convertible Preferred Stock. Additionally, the allowance for equity funds used during construction for the year ended December 31, 2003, increased $7.3 million due primarily to the construction of Kern River’s expansion in 2003.

Other expense for the year ended December 31, 2003, decreased $22.7 million to $5.9 million from $28.6 million for the same period in 2002. In 2002, MidAmerican Energy recorded an impairment of its investment in airplane leases and other non-regulated investments of $21.7 million.

Liquidity and Capital Resources

The Company has available a variety of sources of liquidity and capital resources, both internal and external. These resources provide funds required for current operations, construction expenditures, debt retirement and other capital requirements. The Company may from time to time seek to retire its outstanding securities through cash purchases in the open market, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, the Company’s liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Each of MEHC’s direct or indirect subsidiaries is organized as a legal entity separate and apart from MEHC and its other subsidiaries. Pursuant to separate financing agreements at each subsidiary, the assets of each subsidiary may be pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. It should not be assumed that any asset of any subsidiary of MEHC will be available to satisfy the obligations of MEHC or any of its other subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements for such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to MEHC or affiliates thereof.

The Company’s cash and cash equivalents were $960.9 million at December 31, 2004, compared to $660.2 million at December 31, 2003. In addition, the Company recorded separately, in restricted cash and short-term investments and in deferred charges and other assets, restricted cash and investments of $164.5 million and $119.5 million at December 31, 2004 and 2003, respectively. The restricted cash balance for both periods is comprised primarily of amounts deposited in restricted accounts which are reserved for the service of debt obligations, customer deposits held in escrow, custody deposits and unpaid dividends declared obligations.

Cash Flows from Operating Activities

The Company generated cash flows from operations of $1,424.6 million for the year ended December 31, 2004, compared with $1,217.9 million for the same period in 2003. The increase was mainly due to greater income from continuing operations and a tax refund as a result of a 2003 net operating loss from accelerated depreciation. Also contributing to the net increase in cash flows from operations were changes in working capital, partially offset by lower distributions from equity investments.

Cash Flows from Investing Activities

Cash flows used in investing activities for the years ended December 31, 2004 and 2003 were $1,029.7 million and $1,003.2 million, respectively. Capital expenditures, construction and other development costs for the years ended December 31, 2004 and 2003 were $1,179.4 million and $1,219.4 million, respectively. In addition to the capital expenditures, contributing to the increase of cash flows used in investing activities was $288.8 million of proceeds from the sale of convertible preferred securities in 2003, partially offset by the receipt of the proceeds of the put of the ROP Note, and sale of the Enron Note Receivable claim, as described below.

Put of ROP Note and Receipt of Cash

On January 14, 2004, CE Casecnan exercised its right to put the ROP Note to the ROP and, in accordance with the terms of the put option, CE Casecnan received $99.2 million (representing $97.0 million par value plus accrued interest) from the ROP on January 21, 2004.

Sale of Enron Note Receivable and Receipt of Cash

Northern Natural Gas had a note receivable of approximately $259.0 million (the “Enron Note Receivable”) with Enron. As a result of Enron filing for bankruptcy on December 2, 2001, Northern Natural Gas filed a bankruptcy claim against Enron seeking to recover payment of the Enron Note Receivable. As of December 31, 2001, Northern Natural Gas had written-off the note. By stipulation, Enron and Northern Natural Gas agreed to a value of $249.0 million for the claim and received approval of the stipulation from Enron’s Bankruptcy Court on August 26, 2004. On November 23, 2004, Northern Natural Gas sold its stipulated general, unsecured claim against Enron of $249.0 million to a third party investor for $72.2 million, which was recorded as other income in the fourth quarter of 2004.

Capital Expenditures, Construction and Other Development Costs

Capital expenditures, construction and other development costs were $1,310.3 for the year ended December 31, 2004, compared with $1,179.8 million for the same period in 2003. The following table summarizes the expenditures by business segment (in millions):

	Year Ended December 31,
		2004		2003
Capital expenditures:
MidAmerican Energy	$	633.8	$	346.5
Kern River		26.9		433.1
Northern Natural Gas		138.8		104.4
CE Electric UK		334.5		301.9
CalEnergy Generation-Foreign		4.6		8.5
CalEnergy Generation-Domestic		1.3		6.6
HomeServices		20.8		18.3
Segment capital expenditures		1,160.7		1,219.3
Corporate/other		18.7		0.1
Total capital expenditures	$	1,179.4	$	1,219.4

Forecasted capital expenditures, construction and other development costs for fiscal 2005 are approximately $1.3 billion. Capital expenditure needs are reviewed regularly by management and may change significantly as a result of such reviews. The Company expects to meet these capital expenditures with cash flows from operations and the issuance of debt. Capital expenditures relating to operating projects, consisting mainly of recurring expenditures, were $778.3 million for the year ended December 31, 2004. Construction and other development costs were $401.0 million for the year ended December 31, 2004. These costs consist mainly of expenditures for large scale, generation projects as follows:

MidAmerican Energy

MidAmerican Energy has obtained regulatory approval to include the Iowa portion of the actual costs of the generation projects in its Iowa rate base as long as actual costs do not exceed the agreed caps that MidAmerican Energy has deemed to be reasonable. If the caps are exceeded, MidAmerican Energy has the right to demonstrate the prudence of the expenditures above the caps, subject to regulatory review. Wholesale sales may also be made from the projects to the extent the power is not immediately needed for regulated retail service. MidAmerican Energy expects to invest approximately $1.1 billion in the CBEC Unit 4 and wind generation projects currently under construction, of which $350.4 million has been invested through December 31, 2004.

MidAmerican Energy recently completed work on its Greater Des Moines Energy Center, a natural gas-fired, combined cycle unit located near Pleasant Hill, Iowa. Construction of the plant was completed in two phases. Commercial operation of the simple cycle mode began on May 5, 2003, and continued through most of 2004, providing 327 MW of accredited capacity in the summer of 2004. Commercial operation of the combined cycle mode began on December 16, 2004. The additional accredited capacity from completion of the second phase is expected to be 190 MW. MidAmerican Energy expects the total cost of the Greater Des Moines Energy Center to be under the $357.0 million cost cap established by the IUB.

MidAmerican Energy is currently constructing the CBEC Unit 4, a 790 MW (based on expected accreditation) super-critical-temperature, low-sulfur coal-fired plant. MidAmerican Energy will operate the plant and hold an undivided ownership interest as a tenant in common with the other owners of the plant. MidAmerican Energy’s ownership interest is 60.67%, equating to 479 MW of output. MidAmerican Energy expects its share of the estimated cost of the project, including transmission facilities, to be approximately $737.0 million, excluding allowance for funds used during construction. Municipal, cooperative and public power utilities will own the remainder, which is a typical ownership arrangement for large base-load plants in Iowa. On February 12, 2003, MidAmerican Energy executed a contract with Mitsui for engineering, procurement and construction of the plant. On September 9, 2003, MidAmerican Energy began construction of the plant, which it expects to be completed in the summer of 2007. On December 29, 2004, MidAmerican Energy received an order from the IUB approving construction of the associated transmission facilities and is proceeding with construction.

The second electric generating project currently under construction consists of wind power facilities located at two sites in north central Iowa totaling 310 MW based on the nameplate rating. Generally speaking, accredited capacity ratings for wind power facilities are considerably less than the nameplate ratings due to the varying nature of wind. The current projected accredited capacity for these wind power facilities is approximately 53 MW. MidAmerican Energy will own and operate these facilities, which are expected to cost approximately $323.0 million, including transmission facilities and excluding the allowance for funds using during construction. As of December 31, 2004, wind turbines totaling 160.5 MW at one of the sites were completed and in service. Completion of the remaining turbines is expected by the middle of 2005. On January 31, 2005, the IUB approved ratemaking principles related to expanding the wind power project. An additional 50 MW of capacity, based on nameplate rating, is expected to be constructed at the sites in 2005 at an estimated cost of $63.0 million.

HomeServices’ Acquisitions

In 2004, HomeServices separately acquired six real estate companies for an aggregate purchase price of $30.7 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2003, these real estate companies had combined revenue of $95.7 million on approximately 15,000 closed sides representing $3.2 billion of sales volume. These purchases were financed using HomeServices’ cash balances. In 2003, HomeServices separately acquired four real estate companies for an aggregate purchase price of $36.7 million, net of cash acquired, plus working capital and certain other adjustments. For the year ended December 31, 2002, these real estate companies had combined revenue of $102.9 million on approximately 16,000 closed sides representing $3.6 billion of sales volume. Additionally in 2004, HomeServices paid an earnout of $6.0 million based on 2004 financial performance measures. These purchases were financed using HomeServices’ cash balances and revolving credit facility.

Cash Flows from Financing Activities

Cash flows used in financing activities for the year ended December 31, 2004 were $122.8 million. During 2004, the Company used cash for financing activities, totaling $747.9 million, primarily for repayments of subsidiary and parent company obligations, including $136.4 million of cash flows from discontinued operations, and generated cash from financing activities, totaling $625.1 million, from the issuance of subsidiary, project and parent company debt. Cash flows used in financing activities for the year ended December 31, 2003 were $426.3 million. During 2003, the Company used cash for financing activities, totaling $2,033.2 million, primarily for repayments of subsidiary obligations and parent company debt and the retirement of preferred securities of subsidiary trusts, and generated cash from financing activities, totaling $1,606.9 million, from the issuance of subsidiary, project and parent company debt.

Recent Debt Issuances, Redemptions and Stock Transactions

On February 12, 2004, MEHC completed the sale of $250 million in aggregate principal amount of its 5.00% senior notes due February 15, 2014. The proceeds were used to satisfy a demand made by its affiliate, Funding Corporation, for $136.4 million, the amount remaining on MEHC’s guarantee of Funding Corporation’s Series F Bonds, and for other general corporate purposes.

On March 1, 2004, Funding Corporation completed the redemption of an aggregate principal amount of $136.4 million of its Series F Bonds, pro rata, at a redemption price of 100% of such aggregate outstanding principal amount, plus accrued interest to the date of redemption. A demand was also made on MEHC for the full amount remaining on MEHC’s guarantee of the Series F Bonds in order to fund the redemption. MEHC made the requisite payment and, as a result, it has no further liability with respect to its guarantee. The payment was included in cash flows from discontinued operations.

On October 1, 2004, MidAmerican Energy issued $350.0 million of 4.65% medium-term notes due October 1, 2014. The proceeds were used for general corporate purposes.

In 2004, the Company made the required $100.0 million payment on its 11.00% parent company subordinated debt. The payments on subsidiary and project debt made in 2004 consisted of the maturity of CE Electric UK’s 6.853% senior notes, totaling $117.1 million, and regularly scheduled principal payments on project term loans.

On January 6, 2004, the Company purchased a portion of the shares of common stock owned by the Company’s chairman and chief executive officer, for an aggregate purchase price of $20.0 million.

Current Maturities of Long-Term Debt

The Company’s current portion of long-term debt increased $644.7 million to $1,145.6 million at December 31, 2004, from $500.9 million at December 31, 2003, due mainly to $260.0 million of 7.23% parent company senior notes becoming due in the third quarter of 2005, and, pursuant to a call option exercised in February 2005, at a cost of $17.5 million, a subsidiary of CE Electric UK purchased, and then cancelled, its Variable Rate Reset Trust Securities, due in 2020, at a par value of £155.0 million. Accordingly, the Company has included the entire principal amount of these securities in its current portion of long-term debt in the accompanying consolidated balance sheet. The Company plans to use existing cash and future debt issuances to repay these obligations.

Restricted Cash and Short-Term Investments

During the year ended December 31, 2004, CE Casecnan increased its restricted cash related to obligations for debt service and unpaid dividends declared. Additionally, Northern Natural Gas increased its restricted cash related to custody deposits.

Discontinued Operations - Zinc Recovery Project and Mineral Assets

The Zinc Recovery Project began limited production during December 2002 and continued limited production until September 10, 2004. Efforts to increase production had continued since the Zinc Recovery Project was place in service with an emphasis on process modification. Management had been assessing the long-term economic viability of the Zinc Recovery Project in light of continuing cash flow deficits and operating losses and the efforts to increase production, and had continued to evaluate the expected impact of the planned improvements to the extraction process during the third quarter of 2004. Furthermore, management had been exploring other operating alternatives, such as establishing strategic partnerships and consideration of ceasing operations of the Zinc Recovery Project.

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project, effective immediately. Based on this decision, a non-cash, after-tax impairment charge of $340.3 million has been recorded to write-off the Mineral Assets.

In connection with ceasing operations, the Zinc Recovery Project’s assets are being dismantled and sold and certain employees of the operator of the Zinc Recovery Project were paid one-time termination benefits. Cash expenditures of approximately $4.1 million, consisting of pre-tax disposal costs, termination benefit costs and property taxes, were made through December 31, 2004. The Company expects to make additional cash expenditures of pre-tax disposal costs and property taxes of approximately $1.6 million. Substantially all of such costs are expected to relate to disposal activities, and a portion of the disposal costs is expected to be offset by proceeds from sales of the Zinc Recovery Project’s assets. These costs are recognized in the period in which the related liability is incurred. Salvage proceeds will be recognized in the period earned. Implementation of a disposal plan began in September 2004 and will continue in 2005. The Company also expects to receive approximately $55 million in future tax benefits.

The operating losses from discontinued operations before income taxes during the years ended December 31, 2004, 2003 and 2002 were $42.7 million, $46.4 million and $29.1 million, respectively.

Credit Ratings Risks

Debt and preferred securities of the Company may be rated by nationally recognized credit rating agencies. Assigned credit ratings are based on each rating agency’s assessment of the rated company’s ability to, in general, meet the obligations of its debt or preferred securities. The credit ratings are not a recommendation to buy, sell or hold securities, and there is no assurance that a particular credit rating will continue for any given period of time. Other than the agreements discussed below, the Company does not have any credit agreements that require termination or a material change in collateral requirements or payment schedule in the event of a downgrade in the credit ratings of the respective company’s securities.

In conjunction with its wholesale marketing and trading activities, MidAmerican Energy must meet credit quality standards as required by counterparties. MidAmerican Energy has energy trading agreements that, in accordance with industry practice, either specifically require it to maintain investment grade credit ratings or provide the right for counterparties to demand “adequate assurances” in the event of a material adverse change in MidAmerican Energy’s creditworthiness. If one or more of MidAmerican Energy’s credit ratings decline below investment grade, MidAmerican Energy may be required to post cash collateral, letters of credit or other similar credit support to facilitate ongoing wholesale marketing and trading activities. As of December 31, 2004, MidAmerican Energy’s estimated potential collateral requirements totaled approximately $151.0 million. MidAmerican Energy’s collateral requirements could fluctuate considerably due to seasonality, market price volatility, and a loss of key MidAmerican Energy generating facilities or other related factors.

Yorkshire Power Group Limited (“YPGL”), a subsidiary of CE Electric UK, entered into certain currency rate swap agreements for its Yankee Bonds with three large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling. For the $281.1 million of the 6.496% Yankee Bonds outstanding at December 31, 2004, the agreements extend until February 25, 2008 and convert the U.S. dollar interest rate to a fixed Sterling rate ranging from 7.3175% to 7.345%. The estimated fair value of these swap agreements at December 31, 2004 was $96.1 million based on quotes from the counterparties to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated. Certain of these counterparties have the option to terminate the swap agreements and demand payment of the fair value of the swaps if YPGL’s credit ratings from the three recognized credit rating agencies decline below investment grade. As of December 31, 2004, YPGL’s credit ratings from the three recognized credit rating agencies were investment grade; however, if the ratings fell below investment grade, payment requirements would have been approximately $44.8 million.

Inflation

Inflation has not had a significant impact on the Company’s costs.

Obligations and Commitments

The Company has contractual obligations and commercial commitments that may affect its financial condition. Contractual obligations to make future payments arise from parent company and subsidiary long-term debt and notes payable, preferred equity securities, operating leases and power and fuel purchase contracts. Other obligations arise from unused lines of credit and letters of credit. Material obligations as of December 31, 2004 are as follows (in millions):

	Payments Due By Periods
			<		2-3		4-5		>5
	Total		1 Year		Years		Years		Years

Contractual Cash Obligations:
Parent company senior debt	$	3,032.0	$	260.0	$	550.0	$	1,000.0	$	1,222.0
Parent company subordinated debt		1,774.4		188.5		468.0		468.0		649.9
Subsidiary and project debt		7,190.4		885.6		695.3		844.3		4,765.2
Preferred securities of subsidiaries		89.5		-		-		-		89.5
Interest payments on long-term debt ⁽¹⁾		7,588.5		811.9		1,417.8		1,056.7		4,302.1
Coal, electricity and natural gas contract commitments (2)		668.8		173.0		255.3		122.2		118.3
Operating leases ⁽²⁾		375.0		70.4		121.0		78.9		104.7
Deferred costs on construction contracts ⁽³⁾		152.3		-		152.3		-		-
Total contractual cash obligations	$	20,870.9	$	2,389.4	$	3,659.7	$	3,570.1	$	11,251.7

	Commitment Expiration per Period
				<		2-3		4-5		>5
Total				1 Year		Years		Years		Years
Other Commercial Commitments:
Unused parent company revolving lines of credit	$	30.0	$	-	$	30.0	$	-	$	-
Parent company letters of credit		71.1		71.1		-		-		-
Unused subsidiary lines of credit		144.9		144.9		-		-		-
Total other commercial commitments	$	246.0	$	216.0	$	30.0	$	-	$	-

______________

(1)	Excludes interest payments on variable rate long-term debt.

(2)	The coal, electricity and natural gas contract commitments and operating leases are not reflected on the consolidated balance sheets.

(3)	MidAmerican Energy is allowed to defer up to $200.0 million in payments to Mitsui under its engineering, procurement and construction contract to build the CBEC Unit 4, which is expected to be complete in the summer of 2007.

The Company has other types of commitments that are subject to change and relate primarily to the items listed below. For additional information, refer, where applicable, to the respective referenced note of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplemental Data” of this Form 10-K.

·	Construction expenditures (see Note 6)

·	Asset retirement obligations (see Note 10)

·	Debt service reserve guarantees (see Note 14)

·	Nuclear decommissioning costs (see Note 21)

·	Residual guarantees on operating leases (see Note 21)

Off-Balance Sheet Arrangements

The Company has certain investments that are accounted for under the equity method in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, an amount is recorded on the Company’s balance sheet as an equity investment and is increased or decreased for the Company’s pro-rata share of earnings or losses, respectively, less any dividend distribution from such investments.

As of December 31, 2004, the Company’s investments which are accounted for under the equity method had $861.3 million of debt and $40.2 million in outstanding letters of credit. As of December 31, 2004, the Company’s pro-rata share of such debt and outstanding letters of credit, which is all non-recourse to MEHC, was $430.3 million and $20.1 million, respectively.

MEHC is generally not required to support the debt service obligations of its equity investments. However, default with respect to this non-recourse debt could result in a loss of invested equity.

New Accounting Pronouncements

In December 2003, the FASB issued FIN 46R, which served to clarify guidance in FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” (“FIN 46”). The Company adopted and applied the provisions of FIN 46R, related to certain finance subsidiaries, as of October 1, 2003. The adoption required the deconsolidation of certain finance subsidiaries, which resulted in the amounts previously classified as mandatorily redeemable preferred securities of subsidiary trusts, in the amount of $1.9 billion, being reclassified to parent company subordinated debt in the accompanying consolidated balance sheets. In addition, amounts previously recorded as minority interest and preferred dividends of subsidiaries are now recorded as interest expense in the accompanying consolidated statements of operations prospectively. For the year ended December 31, 2004, and the three-month period ended December 31, 2003, the Company has recorded $196.9 million and $49.8 million, respectively, of interest expense related to these securities. In accordance with the requirements of FIN 46R, no amounts prior to adoption of FIN 46R on October 1, 2003 have been reclassified. The amounts included in minority interest and preferred dividends of subsidiaries related to these securities for the nine-month period ended September 30, 2003, and the year ended December 31, 2002, were $170.2 million and $147.7 million, respectively. The Company adopted the provisions of FIN 46R related to non-special purpose entities in the first quarter of 2004. The Company considered the provisions of FIN 46R for all subsidiaries and their related power purchase, power sale, or tolling agreements. Factors considered in the analysis include the duration of the agreements, how capacity and energy payments are determined, source and payment terms for fuel, as well as responsibility and payment for operating and maintenance expenses. As a result of these considerations, the Company has determined its power purchase, power sale and tolling agreements do not represent significant variable interests. Accordingly, the Company concluded that it is appropriate to continue to consolidate the power plant projects with ownership interests greater than 50% and not to consolidate the power plants from which it purchases power.

In December 2004, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires entities to measure compensation costs for all share-based payments, including stock options, at fair value and expense such payments over the service period. Since MEHC is considered a nonpublic entity under the criteria of SFAS 123R, this standard is effective for annual periods beginning after December 15, 2005. Adoption of this standard will not have an effect on the Company’s financial position, results of operations or cash flows as all of the Company’s outstanding stock options were fully vested at the date of issuance of SFAS 123R. Modifications to outstanding stock options after the effective date of the standard may result in additional compensation expense pursuant to the provisions of SFAS 123R.

Critical Accounting Policies

The preparation of financial statements and related documents in conformity with GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. Note 2 to the consolidated financial statements for the year ended December 31, 2004 included in this annual report describes the significant accounting policies and methods used in the preparation of the consolidated financial statements. Estimates are used for, but not limited to, the accounting for the effects of certain types of regulation, impairment of long-lived assets, contingent liabilities, accrued pension and post-retirement expense and revenue. Actual results could differ from these estimates. The following critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of the consolidated financial statements.

Accounting for the Effects of Certain Types of Regulation

MidAmerican Energy, Kern River and Northern Natural Gas prepare their financial statements in accordance with the provisions of SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation (“SFAS 71”), which differs in certain respects from the application of GAAP by non-regulated businesses. In general, SFAS 71 recognizes that accounting for rate-regulated enterprises should reflect the economic effects of regulation. As a result, a regulated utility is required to defer the recognition of costs (a regulatory asset) or the recognition of obligations (a regulatory liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in future rates. Accordingly, MidAmerican Energy, Kern River and Northern Natural Gas have deferred certain costs, which will be amortized over various future periods. To the extent that collection of such costs or payment of such obligations is no longer probable as a result of changes in regulation, the associated regulatory asset or liability is charged or credited to income.

A possible consequence of deregulation of the regulated energy industry is that SFAS 71 may no longer apply. If portions of the Company’s regulated energy operations no longer meet the criteria of SFAS 71, the Company 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 or liabilities are not recovered in transition provisions of any deregulation legislation.

The Company continues to evaluate the applicability of SFAS 71 to its regulated energy operations and the recoverability of these assets and liabilities through rates as there are on-going changes in the regulatory and economic environment.

Impairment of Long-Lived Assets and Goodwill

The Company’s long-lived assets consist primarily of properties, plants and equipment. Depreciation is computed using the straight-line method based on economic lives or regulatorily mandated recovery periods. The Company believes the useful lives assigned to the depreciable assets, which generally range from 3 to 87 years, are reasonable.

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

The estimate of cash flows arising from future use of the asset that are used in the impairment analysis requires judgment regarding what the Company would expect to recover from future use of the asset. Any changes in the estimates of cash flows arising from future use of the asset or the residual value of the asset on disposal based on changes in the market conditions, changes in the use of the asset, management’s plans, the determination of the useful life of the asset and technology changes in the industry could significantly change the calculation of the fair value or recoverable amount of the asset and the resulting impairment loss, which could significantly affect the results of operations. The determination of whether impairment has occurred is primarily based on an estimate of undiscounted cash flows attributable to the assets, as compared to the carrying value of the assets. An impairment analysis of generating facilities requires estimates of possible future market prices, load growth, competition and many other factors over the lives of the facilities. A resulting impairment loss is highly dependent on these underlying assumptions.

The provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which establishes the accounting for acquired goodwill and other intangible assets, and provides that goodwill and indefinite-lived intangible assets will not be amortized, requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. The goodwill impairment test is performed annually or whenever an event has occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company completed its annual review pursuant to SFAS 142 for its reporting units as of October 31, 2004, primarily using a discounted cash flow methodology. No impairment was indicated as a result of these assessments.

Contingent Liabilities

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

Accrued Pension and Postretirement Expense

Pension and postretirement costs are accrued throughout the year based on results of an annual study performed by external actuaries. In addition to the benefits granted to employees, the timing of the cost of these plans is impacted by assumptions used by the actuaries, including assumptions provided by MEHC for the discount rate and long-term rate of return on assets. Both of these factors require estimates and projections by management and can fluctuate from period to period. Actual returns on assets are significantly affected by stock and bond markets, over which management has little control. The interest rate at which projected benefits are discounted significantly affects amounts expensed. Refer to Note 22 of Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and Supplementary Data” of this Form 10-K for additional disclosures regarding the Company’s pension and post retirement commitments.

Income Taxes

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

The Company has not provided U.S. deferred income taxes on its currency translation adjustment or the cumulative earnings of international subsidiaries that have been determined by management to be reinvested indefinitely. These earnings related to ongoing operations and were approximately $1.5 billion at December 31, 2004. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely. Deferred taxes are provided for earnings of international subsidiaries when the Company plans to remit those earnings.

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

Revenue Recognition

Revenue is recorded based upon services rendered and electricity, gas and steam delivered, distributed or supplied to the end of the period. The Company records unbilled revenue representing the estimated amounts customers will be billed for services rendered between the meter reading dates in a particular month and the end of that month.

Where billings result in an overrecovery of United Kingdom distribution business revenue against the maximum regulated amount, revenue is deferred in an amount equivalent to the over recovered amount. The deferred amount is deducted from revenue and included in other liabilities. Where there is an under recovery, no anticipation of any potential future recovery is made.

Revenue from the transportation and storage of gas is recognized based on contractual terms and the related volumes. Kern River and Northern Natural Gas are subject to the FERC’s regulations and, accordingly, certain revenue collected may be subject to possible refunds upon final orders in pending rate proceedings. Kern River and Northern Natural Gas record revenue which is subject to refund based on their best estimate of the final outcome of these proceedings and other third party regulatory proceedings, advice of counsel and estimated total exposure, as well as collection and other risks. The estimate of the refund is recorded in other current liabilities in the accompanying consolidated balance sheets.

Revenue from water and energy delivery is recorded on the basis of the contractual minimum guaranteed water delivery threshold for the respective contract year. If and when cumulative deliveries within a contract year exceed the minimum threshold, additional revenue is recognized. Revenue from long-term electricity contracts is recorded at the lower of the amount billed or the average of the contract, subject to contractual provisions at each project.

Commission revenue from real estate brokerage transactions and related amounts due to agents are recognized when title has transferred from seller to buyer. Title fee revenue from real estate transactions and related amounts due to the title insurer are recognized at the closing, which is when consideration is received. Fees related to loan originations are recognized at the closing, which is when services have been provided and consideration is received. To the extent the estimated amount differs from the actual amount, revenue will be affected.

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

The Company 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, the Company enters into various financial derivative instruments. Senior management provides the overall direction, structure, conduct and control of the Company’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.

Interest Rate Risk

At December 31, 2004, the Company had fixed-rate long-term debt of $11,503.4 million in aggregate principal amount and having a fair value of $12,416.2 million. These instruments are fixed-rate and therefore do not expose the Company to the risk of earnings loss due to changes in market interest rates. However, the fair value of these instruments would decrease by approximately $396.0 million if interest rates were to increase by 10% from their levels at December 31, 2004. In general, such a decrease in fair value would impact earnings and cash flows only if the Company were to reacquire all or a portion of these instruments prior to their maturity.

At December 31, 2003, the Company had fixed-rate long-term debt of $11,369.4 million in aggregate principal amount and having a fair value of $12,015.1 million. These instruments were fixed-rate and therefore did not expose the Company to the risk of earnings loss due to changes in market interest rates.

At December 31, 2004, the Company had floating-rate obligations of $493.4 million that expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates. These obligations are not hedged. If the floating rates were to increase by 1%, the Company’s consolidated interest expense for unhedged floating-rate obligations would increase by approximately $0.4 million each month in which such increase continued based upon December 31, 2004 principal balances.

At December 31, 2003, the Company had floating-rate obligations of $459.8 million that exposed the Company to the risk of increased interest expense in the event of increases in short-term interest rates. These obligations were not hedged.

Currency Exchange Rate Risk

CE Electric UK entered into currency rate swap agreements for its Senior Notes with large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling for $237.0 million of 6.995% Senior Notes outstanding at December 31, 2004. The agreements extend until maturity on December 30, 2007 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.737%. The estimated fair value of these swap agreements at December 31, 2004 and 2003 was $35.7 million and $16.0 million, respectively, based on quotes from the counterparty to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated.

A subsidiary of CE Electric UK entered into certain currency rate swap agreements for its Yankee Bonds with three large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling for $281.1 million of 6.496% Yankee Bonds outstanding at December 31, 2004. The agreements extend until maturity on February 25, 2008 and convert the U.S. dollar interest rate to a fixed Sterling rate ranging from 7.3175% to 7.345%. The estimated fair value of these swap agreements at December 31, 2004 and 2003 was $96.1 million and $62.6 million, respectively, based on quotes from the counterparties to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated.

A 10% devaluation of the U.S. dollar versus Sterling from the value at December 31, 2004 would increase the amount owed by the Company if these swap agreements were terminated by approximately $69.9 million.

Derivatives

As of December 31, 2004, MidAmerican Energy held derivative instruments used for non-trading and trading purposes with the following fair values (in thousands):

Contract Type	Maturity in 2005			Maturity in 2006-08			Total
Non-trading:
Regulated electric assets	$	2,260		$	431		$	2,691
Regulated electric (liabilities)		(10,057	)		(4,817	)		(14,874	)
Regulated gas assets		2,973			1,798			4,771
Regulated gas (liabilities)		(21,921	)		-			(21,921	)
Regulated weather (liabilities)		(4,495	)		-			(4,495	)
Nonregulated electric assets		1,957			372			2,329
Nonregulated electric (liabilities)		(1,158	)		(214	)		(1,372	)
Nonregulated gas assets		5,937			1,919			7,856
Nonregulated gas (liabilities)		(6,606	)		(1,558	)		(8,164	)
Total		(31,110	)		(2,069	)		(33,179	)

Trading:
Nonregulated gas assets		993			-			993
Nonregulated gas (liabilities)		(430	)		(100	)		(530	)
Total		563			(100	)		463

Total MidAmerican Energy assets	$	14,120		$	4,520		$	18,640
Total MidAmerican Energy (liabilities)	$	(44,667	)	$	(6,689	)	$	(51,356	)

Item 8. Financial Statements and Supplementary Data.

Report of Independent Registered Public Accounting Firm	58

Consolidated Balance Sheets as of December 31, 2004 and 2003	59

Consolidated Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002	60

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2004, 2003 and 2002	61

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002	62

Notes to Consolidated Financial Statements	63

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

MidAmerican Energy Holdings Company

Des Moines, Iowa

We have audited the accompanying consolidated balance sheets of MidAmerican Energy Holdings Company and subsidiaries (the “Company”) as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the consolidated financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of MidAmerican Energy Holdings Company and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Notes 2 and 10 to the consolidated financial statements, the Company changed its accounting policy for asset retirement obligations and for variable interest entities in 2003.

/s/ Deloitte & Touche LLP

Des Moines, Iowa

February 25, 2005

MIDAMERICAN ENERGY HOLDINGS COMPANY

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

	As of December 31,
	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	960,903		$	660,213
Restricted cash and short-term investments		129,316			55,281
Accounts receivable, net of allowance for doubtful accounts of $26,033 and $26,004		695,761			666,063
Inventories		125,079			123,301
Other current assets		278,219			348,618
Total current assets		2,189,278			1,853,476
Properties, plants and equipment, net		11,607,264			11,180,979
Goodwill		4,306,751			4,305,643
Regulatory assets		451,830			512,549
Other investments		236,258			228,896
Equity investments		210,430			234,370
Deferred charges and other assets		901,751			829,039
Total assets	$	19,903,562		$	19,144,952
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	410,319		$	345,237
Accrued interest		197,813			189,635
Accrued property and other taxes		166,639			112,823
Other liabilities		532,160			420,294
Short-term debt		9,090			48,036
Current portion of long-term debt		1,145,598			500,941
Current portion of parent company subordinated debt		188,543			100,000
Total current liabilities		2,650,162			1,716,966
Other long-term accrued liabilities		2,171,616			1,961,695
Parent company senior debt		2,771,957			2,777,878
Parent company subordinated debt		1,585,810			1,772,146
Subsidiary and project debt		6,304,923			6,674,640
Deferred income taxes		1,281,833			1,299,082
Total liabilities		16,766,301			16,202,407

Deferred income		62,443			69,201
Minority interest		14,119			9,754
Preferred securities of subsidiaries		89,540			92,145

Commitments and contingencies (Note 21)

Stockholders’ equity:
Zero coupon convertible preferred stock — authorized 50,000 shares, no par value; 41,263 shares issued and outstanding		-			-
Common stock — authorized 60,000 shares, no par value; 9,081 and 9,281 shares issued and outstanding at December 31, 2004 and 2003, respectively		-			-
Additional paid-in capital		1,950,663			1,957,277
Retained earnings		1,156,843			999,627
Accumulated other comprehensive loss, net		(136,347	)		(185,459	)
Total stockholders’ equity		2,971,159			2,771,445
Total liabilities and stockholders’ equity	$	19,903,562		$	19,144,952

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

MIDAMERICAN ENERGY HOLDINGS COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands)

	Year Ended December 31,
	2004			2003			2002

Operating revenue	$	6,553,388		$	5,965,630		$	4,795,179

Costs and expenses:
Cost of sales		2,751,856			2,400,536			1,843,955
Operating expense		1,637,922			1,512,345			1,302,780
Depreciation and amortization		638,209			602,934			530,078
Gain on CE Gas asset sale (Note 5)		-			-			(54,345	)
Total costs and expenses		5,027,987			4,515,815			3,622,468

Operating income		1,525,401			1,449,815			1,172,711

Other income (expense):
Interest expense		(903,217	)		(760,956	)		(632,133	)
Capitalized interest		20,040			30,494			23,361
Interest and dividend income		38,889			47,908			56,037
Other income		128,205			96,643			40,223
Other expense		(10,125	)		(5,913	)		(28,561	)
Total other income (expense)		(726,208	)		(591,824	)		(541,073	)
Income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income		799,193			857,991			631,638
Income tax expense		264,986			270,276			111,278
Minority interest and preferred dividends of subsidiaries		13,301			183,203			163,468
Income from continuing operations before equity income		520,906			404,512			356,892
Equity income		16,861			38,224			40,520
Income from continuing operations		537,767			442,736			397,412
Loss from discontinued operations, net of tax benefits (Note 3)		(367,561	)		(27,118	)		(17,369	)
Net income available to common and preferred stockholders	$	170,206		$	415,618		$	380,043

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

MIDAMERICAN ENERGY HOLDINGS COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE YEARS ENDED DECEMBER 31, 2004

(Amounts in thousands)

												Accumulated
	Outstanding					Additional						Other
	Common			Common		Paid-in			Retained			Comprehensive
	Shares			Stock		Capital			Earnings			Loss			Total

Balance, January 1, 2002		9,281		$	-	$	1,553,073		$	223,926		$	(68,832	)	$	1,708,167
Net income		-			-		-			380,043			-			380,043
Other comprehensive income:
Foreign currency translation adjustment		-			-		-			-			166,880			166,880
Fair value adjustment on cash flow hedges, net of tax of $(10,106)		-			-		-			-			(27,623	)		(27,623	)
Minimum pension liability adjustment, net of tax of $(135,707)		-			-		-			-			(313,456	)		(313,456	)
Unrealized losses on securities, net of tax of $(1,813)		-			-		-			-			(3,204	)		(3,204	)
Total comprehensive income																202,640
Issuance of zero-coupon convertible preferred stock		-			-		402,000			-			-			402,000
Retirement of stock options		-			-		815			(19,960	)		-			(19,145	)
Other equity transactions		-			-		621			-			-			621
Balance, December 31, 2002		9,281			-		1,956,509			584,009			(246,235	)		2,294,283
Net income		-			-		-			415,618			-			415,618
Other comprehensive income:
Foreign currency translation adjustment		-			-		-			-			58,148			58,148
Fair value adjustment on cash flow hedges, net of tax of $7,202		-			-		-			-			16,769			16,769
Minimum pension liability adjustment, net of tax of $(6,425)		-			-		-			-			(14,989	)		(14,989	)
Unrealized gains on securities, net of tax of $566		-			-		-			-			848			848
Total comprehensive income																476,394
Other equity transactions		-			-		768			-			-			768
Balance , December 31, 2003		9,281			-		1,957,277			999,627			(185,459	)		2,771,445
Net income		-			-		-			170,206			-			170,206
Other comprehensive income:
Foreign currency translation adjustment		-			-		-			-			107,370			107,370
Fair value adjustment on cash flow hedges, net of tax of $(6,069)		-			-		-			-			(12,270	)		(12,270	)
Minimum pension liability adjustment, net of tax of $(19,898)		-			-		-			-			(46,429	)		(46,429	)
Unrealized gains on securities, net of tax of $294		-			-		-			-			441			441
Total comprehensive income																219,318
Common stock purchase		(200	)		-		(7,010	)		(12,990	)		-			(20,000	)
Other equity transactions		-			-		396			-			-			396
Balance, December 31, 2004		9,081		$	-	$	1,950,663		$	1,156,843		$	(136,347	)	$	2,971,159

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

MIDAMERICAN ENERGY HOLDINGS COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

	Year Ended December 31,
		2004			2003			2002
Cash flows from operating activities:
Income from continuing operations	$	537,767		$	442,736		$	397,412
Adjustments to reconcile income from continuing operations to cash flows from continuing operations:
Distributions less income on equity investments		20,022			40,160			(11,383	)
Gain on other items		(71,757	)		(29,264	)		(47,086	)
Depreciation and amortization		638,209			602,934			530,078
Amortization of regulatory assets and liabilities		(1,586	)		(14,363	)		8,709
Amortization of deferred financing costs		20,875			27,748			28,433
Provision for deferred income taxes		176,591			220,136			(18,020	)
Other		16,981			8,211			8,356
Changes in other items:
Accounts receivable and other current assets		(43,600	)		(25,900	)		(200,760	)
Accounts payable and other accrued liabilities		171,457			(17,835	)		78,813
Deferred income		(6,465	)		(9,344	)		(4,839	)
Net cash flows from continuing operations		1,458,494			1,245,219			769,713
Net cash flows from discontinued operations		(33,846	)		(27,296	)		(11,987	)
Net cash flows from operating activities		1,424,648			1,217,923			757,726
Cash flows from investing activities:
Capital expenditures relating to operating projects		(778,300	)		(616,804	)		(528,950	)
Construction and other development costs		(401,090	)		(602,564	)		(813,348	)
Proceeds from notes receivable		169,210			-			-
Acquisitions, net of cash acquired		(36,706	)		(54,263	)		(1,416,937	)
Proceeds from (purchase of) affiliate notes, net		14,118			(32,406	)		-
Sale (purchase) of convertible preferred securities		-			288,750			(275,000	)
Other		2,148			25,786			189,984
Net cash flows from continuing operations		(1,030,620	)		(991,501	)		(2,844,251	)
Net cash flows from discontinued operations		966			(11,666	)		(63,560	)
Net cash flows from investing activities		(1,029,654	)		(1,003,167	)		(2,907,811	)
Cash flows from financing activities:
Proceeds from subsidiary and project debt		375,351			1,157,649			1,485,349
Proceeds from parent company senior debt		249,765			449,295			700,000
Repayments of subsidiary and project debt		(368,417	)		(1,490,986	)		(393,264	)
Repayments of parent company senior and subordinated debt		(100,000	)		(412,551	)		-
Net repayment of subsidiary short-term debt		(43,949	)		(31,750	)		(472,835	)
Purchase and retirement of common stock		(20,000	)		-			-
Proceeds from issuance of trust preferred securities		-			-			1,273,000
Proceeds from issuance of preferred stock		-			-			402,000
Net repayment of parent company revolving credit facility		-			-			(153,500	)
Repayment of other obligations		-			-			(94,297	)
Increase in restricted cash and investments		(48,515	)		(4,024	)		(41,524	)
Redemption of preferred securities of subsidiaries		(2,606	)		(1,176	)		(127,908	)
Other		(27,167	)		(91,387	)		(40,962	)
Net cash flows from continuing operations		14,462			(424,930	)		2,536,059
Net cash flows from discontinued operations		(137,297	)		(1,407	)		19,175
Net cash flows from financing activities		(122,835	)		(426,337	)		2,555,234
Effect of exchange rate changes		28,531			27,364			52,536
Net change in cash and cash equivalents		300,690			(184,217	)		457,685
Cash and cash equivalents at beginning of period		660,213			844,430			386,745
Cash and cash equivalents at end of period	$	960,903		$	660,213		$	844,430

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

MIDAMERICAN ENERGY HOLDINGS COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Operations

MidAmerican Energy Holdings Company (“MEHC”) and its subsidiaries (together with MEHC, the “Company”) are organized and managed on seven distinct platforms: MidAmerican Energy Company (“MidAmerican Energy”), Kern River Gas Transmission Company (“Kern River”), Northern Natural Gas Company (“Northern Natural Gas”), CE Electric UK Funding (“CE Electric UK”) (which includes Northern Electric Distribution Limited (“Northern Electric”) and Yorkshire Electricity Distribution plc (“Yorkshire Electricity”)), CalEnergy Generation-Foreign (the subsidiaries owning the Upper Mahiao, Malitbog and Mahanagdong Projects (collectively the “Leyte Projects”) and the Casecnan project), CalEnergy Generation-Domestic (the subsidiaries owning interests in independent power projects and related operations) and HomeServices of America, Inc. (collectively with its subsidiaries, “HomeServices”). Through these platforms, the Company owns and operates a combined electric and natural gas utility company in the United States, two natural gas pipeline companies in the United States, two electricity distribution companies in the United Kingdom, a diversified portfolio of domestic and international independent power projects and the second largest residential real estate brokerage firm in the United States.

MEHC initially incorporated in 1971 under the laws of the State of Delaware and reincorporated in 1999 in Iowa, at which time it changed its name from CalEnergy Company, Inc. to MidAmerican Energy Holdings Company.

In these notes to consolidated financial statements, references to “U.S. dollars,” “dollars,” “$” or “cents” are to the currency of the United States, references to “pounds sterling,” “ £,” “sterling,” “pence” or “p” are to the currency of the United Kingdom and references to “pesos” are to the currency of the Philippines. References to kW means kilowatts, MW means megawatts, GW means gigawatts, kWh means kilowatt hours, MWh means megawatt hours, GWh means gigawatts hours, kV means kilovolts, mmcf means million cubic feet, Bcf means billion cubic feet, Tcf means trillion cubic feet and Dth means decatherms or one million British thermal units.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of MEHC and its wholly-owned subsidiaries except for certain trusts formed to hold trust preferred securities. Under Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) these trusts, by design, are considered variable interest entities, with no variable interest holder being considered the primary beneficiary, thus requiring the reporting entity to deconsolidate the trust. Subsidiaries which are less than 100% owned but greater than 50% owned are consolidated with a minority interest. Subsidiaries that are 50% owned or less, but where the Company has the ability to exercise significant influence, are accounted for under the equity method of accounting. Investments where the Company’s ability to influence is limited are accounted for under the cost method of accounting. All inter-enterprise transactions and accounts have been eliminated. The results of operations of the Company include the Company’s proportionate share of results of operations of entities acquired from the date of each acquisition for purchase business combinations.

For the Company’s foreign operations whose functional currency is not the U.S. dollar, the assets and liabilities are translated into U.S. dollars at current exchange rates. Resulting translation adjustments are reflected as other comprehensive income in stockholders’ equity. Revenue and expenses are translated at average exchange rates for the period. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

Reclassifications

Certain amounts in the fiscal 2003 and 2002 consolidated financial statements and supporting note disclosures have been reclassified to conform to the fiscal 2004 presentation, including the reclassification of activity as discontinued operations (see Note 3). Such reclassification did not impact previously reported net income or retained earnings.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Accounting for the Effects of Certain Types of Regulation

MidAmerican Energy, Kern River and Northern Natural Gas prepare their financial statements in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 71, “Accounting for the Effects of Certain Types of Regulation” (“SFAS 71”), which differs in certain respects from the application of generally accepted accounting principles by non-regulated businesses. In general, SFAS 71 recognizes that accounting for rate-regulated enterprises should reflect the economic effects of regulation. As a result, a regulated entity is required to defer the recognition of costs (a regulatory asset) or the recognition of obligations (a regulatory liability) if it is probable that, through the rate-making process, there will be a corresponding increase or decrease in future rates. Accordingly, MidAmerican Energy, Kern River and Northern Natural Gas have deferred certain costs, which will be amortized over various future periods. To the extent that collection of such costs or payment of such obligations is no longer probable as a result of changes in regulation, the associated regulatory asset or liability is charged or credited to income.

A possible consequence of deregulation of the regulated energy industry is that SFAS 71 may no longer apply. If portions of the Company’s regulated energy operations no longer meet the criteria of SFAS 71, the Company could be required to write off the related regulatory assets and liabilities from its consolidated balance sheet, and thus a material adjustment to earnings in that period could result if regulatory assets or liabilities are not recovered in transition provisions of any deregulation legislation.

Consolidated Statements of Cash Flows

The Company considers all investment instruments purchased with an original maturity of three months or less to be cash equivalents. Investments other than restricted cash are primarily commercial paper and money market securities. Restricted cash is not considered a cash equivalent. The supplemental disclosures to the accompanying consolidated statements of cash flows were as follows (in thousands):

	Year Ended December 31,
	2004			2003		2002

Interest paid, net of interest capitalized	$	867,181		$	706,039	$	588,972
Income taxes (refunded) paid	$	(16,616	)	$	9,911	$	101,225
Non-cash transaction - ROP note received under NIA Arbitration Settlement	$	-		$	97,000	$	-

Cash paid for interest for the years ended December 31, 2003 and 2002 does not include $170,151 and $147,667, respectively, of interest paid on subordinated debt, which is included in minority interest and preferred dividends of subsidiaries in the consolidated statements of operations. These amounts were not reclassified pursuant to the FIN 46R.

Restricted Cash and Investments

The restricted cash and short-term investments balance recorded separately in restricted cash and short-term investments and in deferred charges and other assets, was $164.5 million and $119.5 million at December 31, 2004 and 2003, respectively, and includes commercial paper and money market securities. The balance is mainly composed of amounts deposited in restricted accounts from which the Company will source its debt service reserve requirements relating to the projects, customer deposits held in escrow, custody deposits, and unpaid dividends declared obligations. The debt service funds are restricted by their respective project debt agreements to be used only for the related project.

The Company’s nuclear decommissioning trust funds and other marketable securities are classified as available for sale and are accounted for at fair value.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of payments from its customers. This assessment requires judgment regarding the outcome of pending disputes, arbitrations and the ability of customers to pay the amounts owed to the Company.

Inventories

Inventories consist mainly of materials and supplies, coal stocks, gas in storage and fuel oil, which are valued at the lower of cost, determined primarily using average cost, or market.

Fair Value of Financial Instruments

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. Although management uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique. Therefore, the fair value estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current transaction.

The methods and assumptions used to estimate fair value are as follows:

Short-term debt — Due to the short-term nature of the short-term debt, the fair value approximates the carrying value.

Debt instruments — The fair value of all debt instruments has been estimated based upon quoted market prices as supplied by third-party broker dealers, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks.

Other financial instruments — All other financial instruments of a material nature are short-term and the fair value approximates the carrying amount.

Properties, Plants and Equipment, Net

Properties, plants and equipment are recorded at historical cost. The cost of major additions and betterments are capitalized, while replacements, maintenance, and repairs that do not improve or extend the lives of the respective assets are expensed. Depreciation is computed using the straight-line method based on economic lives or regulatorily mandated recovery periods. The Company believes the useful lives assigned to the depreciable assets, which generally range from 3 to 87 years, are reasonable.

Capitalized costs for gas reserves, other than costs of unevaluated exploration projects and projects awaiting development consent, are depleted using the units of production method. Depletion is calculated based on hydrocarbon reserves of properties in the evaluated pool estimated to be commercially recoverable and include anticipated future development costs in respect of those reserves.

Impairment of Long-Lived Assets

Goodwill

The provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), which establishes the accounting for acquired goodwill and other intangible assets, and provides that goodwill and indefinite-lived intangible assets will not be amortized, requires allocating goodwill to each reporting unit and testing for impairment using a two-step approach. The goodwill impairment test is performed annually or whenever an event has occurred that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company completed its annual review pursuant to SFAS 142 for its reporting units as of October 31, 2004 primarily using a discounted cash flow methodology. No impairment was indicated as a result of these assessments.

Allowance for Funds Used During Construction

Allowance for funds used during construction (“AFUDC”) represents the approximate net composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction. Although AFUDC increases both properties, plants and equipment and earnings, it is realized in cash through depreciation provisions included in rates for subsidiaries that apply SFAS 71. Interest and AFUDC for subsidiaries that apply SFAS 71 are capitalized as a component of projects under construction and will be amortized over the assets’ estimated useful lives.

Deferred Financing Cost

The Company capitalizes costs associated with financings, as deferred financing costs, and amortizes the amounts over the term of the related financing using the effective interest method.

Contingent Liabilities

Income Taxes

Revenue Recognition

Revenue from the transportation and storage of gas are recognized based on contractual terms and the related volumes. Kern River and Northern Natural Gas are subject to the Federal Energy Regulatory Commission’s (“FERC”) regulations and, accordingly, certain revenue collected may be subject to possible refunds upon final orders in pending rate proceedings. Kern River and Northern Natural Gas record revenue which is subject to refund based on their best estimate of the final outcome of these proceedings and other third party regulatory proceedings, advice of counsel and estimated total exposure, as well as collection and other risks. The estimate of the refund is recorded in other current liabilities in the accompanying consolidated balance sheets.

Financial Instruments

The Company currently utilizes swap agreements and forward purchase agreements to manage market risks and reduce its exposure resulting from fluctuation in interest rates, foreign currency exchange rates and electric and gas prices. For interest rate swap agreements, the net cash amounts paid or received on the agreements are accrued and recognized as an adjustment to interest expense. Gains and losses related to gas forward contracts are deferred and included in the measurement of the related gas purchases. These instruments are either exchange traded or with counterparties of high credit quality; therefore, the risk of nonperformance by the counterparties is considered to be negligible.

New Accounting Pronouncements

In December 2003, the FASB issued FIN 46R, which served to clarify guidance in FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.” The Company adopted and applied the provisions of FIN 46R, related to certain finance subsidiaries, as of October 1, 2003. The adoption required the deconsolidation of certain finance subsidiaries, which resulted in the amounts previously classified as mandatorily redeemable preferred securities of subsidiary trusts, in the amount of $1.9 billion, being reclassified to parent company subordinated debt in the accompanying consolidated balance sheets. In addition, amounts previously recorded as minority interest and preferred dividends of subsidiaries are now recorded as interest expense in the accompanying consolidated statements of operations, prospectively. For the year ended December 31, 2004, and the three-month period ended December 31, 2003, the Company has recorded $196.9 million and $49.8 million, respectively, of interest expense related to these securities. In accordance with the requirements of FIN 46R, no amounts prior to adoption of FIN 46R on October 1, 2003 have been reclassified. The amounts included in minority interest and preferred dividends of subsidiaries related to these securities for the nine-month period ended September 30, 2003, and the year ended December 31, 2002, were $170.2 million and $147.7 million, respectively. The Company adopted the provisions of FIN 46R related to non-special purpose entities in the first quarter of 2004. The Company considered the provisions of FIN 46R for all subsidiaries and their related power purchase, power sale, or tolling agreements. Factors considered in the analysis include the duration of the agreements, how capacity and energy payments are determined, source and payment terms for fuel, as well as responsibility and payment for operating and maintenance expenses. As a result of these considerations, the Company has determined its power purchase, power sale and tolling agreements do not represent significant variable interests. Accordingly, the Company concluded that it is appropriate to continue to consolidate the power plant projects with ownership interests greater than 50% and not to consolidate the power plants from which it purchases power.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services, primarily focusing on the accounting for transactions in which an entity obtains employee services in share-based payment transactions. SFAS 123R requires entities to measure compensation costs for all share-based payments, including stock options, at fair value and expense such payments over the service period. Since MEHC is considered a nonpublic entity under the criteria of SFAS 123R, this standard is effective for annual period beginning after December 15, 2005. Adoption of this standard will not have an effect on the Company’s financial position, results of operations or cash flows as all of the Company’s outstanding stock options were fully vested at the date of issuance of SFAS 123R. Modifications to outstanding stock options after the effective date of the standard may result in additional compensation expense pursuant to the provisions of SFAS 123R.

3. Discontinued Operations - Zinc Recovery Project and Mineral Assets

Indirect wholly-owned subsidiaries of MEHC, own the rights to commercial quantities of extractable minerals from elements in solution in the geothermal brine and fluids utilized at certain geothermal energy generation facilities located in the Imperial Valley of California and a zinc recovery plant constructed near the geothermal energy generation facilities designed to recover zinc from the geothermal brine through an ion exchange, solvent extraction, electrowinning and casting process (the “Zinc Recovery Project”).

On September 10, 2004, management made the decision to cease operations of the Zinc Recovery Project. Based on this decision, a non-cash, after-tax impairment charge of $340.3 million has been recorded to write-off the Zinc Recovery Project, rights to quantities of extractable minerals, and allocated goodwill (collectively, the “Mineral Assets”). The charge and the related activity of the Mineral Assets are classified separately as discontinued operations in the accompanying consolidated statements of operations and include the following (in thousands):

	Year Ended December 31.
	2004			2003			2002

Total revenue	$	3,401		$	659		$	288

Losses from discontinued operations	$	(42,695	)	$	(46,423	)	$	(29,059	)
Costs of disposal activities, net		(4,134	)		-			-
Asset impairment charges, including goodwill		(532,009	)		-			-
Income tax benefits		211,277			19,305			11,690
Loss from discontinued operations, net of tax	$	(367,561	)	$	(27,118	)	$	(17,369	)

4. Acquisitions

HomeServices

In 2003, HomeServices separately acquired four real estate companies for an aggregate purchase price of $36.7 million, net of cash acquired, plus working capital and certain other adjustments. Additionally in 2004, HomeServices paid an earnout of $6.0 million based on 2004 financial performance measures. These purchases were financed using HomeServices’ cash balances and revolving credit facility.

In 2002, HomeServices separately acquired three real estate companies for an aggregate purchase price of $106.1 million, net of cash acquired, plus working capital and certain other adjustments. Additionally in 2003, HomeServices paid an earnout of $17.6 million based on 2002 financial performance measures. These purchases were financed using HomeServices’ cash balances, revolving credit facility and $40.0 million from MEHC, which was contributed to HomeServices as equity.

Kern River

On March 27, 2002, the Company acquired Kern River from The Williams Companies, Inc. (“Williams”). At the date of acquisition, Kern River owned a 926-mile interstate pipeline transporting Rocky Mountain and Canadian natural gas to markets in California, Nevada and Utah.

The Company paid $419.7 million, net of cash acquired and a working capital adjustment, for Kern River’s gas pipeline business. The acquisition has been accounted for as a purchase business combination. The Company completed the allocation of the purchase price to the assets and liabilities acquired during 2003. The results of operations for Kern River are included in the Company’s results beginning March 27, 2002.

The recognition of goodwill resulted from various attributes of Kern River’s operations and business in general. These attributes include, but are not limited to:

· Opportunities for expansion;

· Generally high credit quality shippers contracting with Kern River;

· Kern River’s strong competitive position;

· Exceptional operating track record and state-of-the-art technology;

· Strong demand for gas in the Western markets; and

· An ample supply of low-cost gas.

There is no assurance that these attributes will continue to exist to the same degree as believed at the time of the acquisition.

In connection with the acquisition of Kern River, MEHC issued $323.0 million of 11% Company-obligated mandatorily redeemable preferred securities of a subsidiary trust due March 12, 2012 with scheduled principal payments beginning in 2005 and $127.0 million of no par, zero coupon convertible preferred stock to Berkshire Hathaway. Each share of preferred stock is convertible at the option of the holder into one share of the Company’s common stock subject to certain adjustments as described in the MEHC Amended and Restated Articles of Incorporation.

Northern Natural Gas

On August 16, 2002, the Company acquired Northern Natural Gas from Dynegy Inc. Northern Natural Gas is a 16,500-mile interstate pipeline extending from southwest Texas to the upper Midwest region of the United States.

The Company paid $882.7 million for Northern Natural Gas, net of cash acquired and a working capital adjustment. The acquisition has been accounted for as a purchase business combination. The Company completed the allocation of the purchase price to the assets and liabilities acquired during 2003. The results of operations for Northern Natural Gas are included in the Company’s results beginning August 16, 2002.

The recognition of goodwill resulted from various attributes of Northern Natural Gas’ operations and business in general. These attributes include, but are not limited to:

· Generally high credit quality shippers contracting with Northern Natural Gas;

· Northern Natural Gas’ strong competitive position;

· Strategic location in the high demand Upper Midwest markets;

· Flexible access to an ample supply of low-cost gas;

· Exceptional operating track record; and

· Opportunities for expansion.

There is no assurance that these attributes will continue to exist to the same degree as believed at the time of the acquisition.

In connection with the acquisition of Northern Natural Gas, MEHC issued $950.0 million of 11% Company-obligated mandatorily redeemable preferred securities of a subsidiary trust due August 31, 2011, with scheduled principal payments beginning in 2003, to Berkshire Hathaway.

The following pro forma financial information of the Company represents the unaudited pro forma results of operations as if the Kern River and Northern Natural Gas acquisitions, and the related financings, had occurred at the beginning of 2002. These pro forma results have been prepared for comparative purposes only and do not profess to be indicative of the results of operations which would have been achieved had these transactions been completed at the beginning of the year, nor are the results indicative of the Company’s future results of operations (in millions):

	Year Ended
	December 31,
		2002

Revenue	$	5,299.4
Income before cumulative effect of change in accounting principle		285.5
Net income available to common and preferred shareholders		285.5

5. Dispositions and Other Items

CE Gas Asset Sale

In May 2002, CalEnergy Gas (Holdings) Limited (“CE Gas”), an indirect wholly owned subsidiary of the Company, executed the sale of several of its U.K. natural gas assets to Gaz de France for approximately $200.0 million (£137.0 million), which was included in other investing activities in the accompany consolidated statement of cash flows in 2002. CE Gas sold its interest in four natural gas-producing fields located in the southern basin of the U.K. North Sea (Anglia, Johnston, Schooner and Windermere). The transaction also included the sale of rights in four gas fields (in development/construction) and three exploration blocks owned by CE Gas. The Company recorded pre-tax and after-tax income of $54.3 million and $41.3 million, respectively, which includes a write off of non-deductible goodwill of $49.6 million.

Teesside Power Limited (“TPL”)

The Company has a 15.4% interest in TPL, which owns and operates a 1,875 MW combined cycle gas-fired power plant. Enron Corp. (“Enron”), which through its subsidiaries has a 42.5% interest, previously operated TPL. TPL is now in administration and administrators have been appointed to run its business and are attempting to find a buyer. The Company wrote-off its investment in TPL during 2001. Shareholders in TPL had previously utilized TPL’s taxable losses with an obligation to reimburse TPL later in the project’s life. In May 2002, TPL executed a restructuring and stabilization agreement with its lenders. The contract included an agreement between TPL and its shareholders with respect to the waiver of these repayment obligations. In May 2002, TPL released $35.7 million due to the repayment obligation being waived which is reflected as a tax benefit in income tax expense in 2002.

6. Properties, Plants and Equipment, Net

Properties, plants and equipment, net comprise the following at December 31 (in thousands):

	Depreciation
	Life		2004			2003

Utility generation and distribution system		10-50 years	$	10,149,818		$	8,987,158
Interstate pipelines’ assets		3-87 years		3,566,578			3,470,117
Independent power plants		10-30 years		1,384,660			1,395,782
Mineral and gas reserves and exploration assets		5-30 years		101,472			554,780
Utility non-operational assets		3-30 years		465,297			429,228
Other assets		3-10 years		167,150			146,286
Total operating assets				15,834,975			14,983,351
Accumulated depreciation and amortization				(4,800,372	)		(4,260,643	)
Net operating assets				11,034,603			10,722,708
Construction in progress				572,661			458,271
Properties, plants and equipment, net			$	11,607,264		$	11,180,979

7. Investment in CE Generation

The Company holds a 50% interest in CE Generation, LLC (“CE Generation”) and accounts for this interest as an equity investment. The equity investment in CE Generation at December 31, 2004 and 2003 was $188.7 million and $209.4 million, respectively. The following is summarized financial information for CE Generation as of and for the years ended December 31 (in thousands):

		2004			2003		2002
Revenue	$	444,228		$	487,422	$	510,082
Income (loss) before cumulative effect of change in
accounting principle		(3,084	)		37,341		58,314
Net income (loss)		(3,084	)		34,874		58,314
Current assets		124,734			260,551
Total assets		1,447,388			1,708,742
Current liabilities		115,153			253,237
Long-term debt, including current portion		722,650			924,565

As part of its annual impairment test, CE Generation determined on December 9, 2004 that a portion of the carrying value of the Power Resources project’s long-lived assets were no longer recoverable. As a result, CE Generation recognized a non-cash impairment charge of $54.5 million ($33.5 million after tax), in accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets,” to write down the long-lived assets to their fair value. The fair value was determined based on discounted estimated cash flows from the future use of the long-lived assets. The impairment charge will not result in any current or future cash expenditures. MEHC’s $16.8 million portion of the Power Resources impairment is reflected in income on equity investments in the accompanying consolidated statement of operations for the year ended December 31, 2004.

8. Other Income and Expense

Other income for the years ending December 31 consists of the following (in thousands):

	2004		2003		2002

Gain on Enron note receivable	$	72,210	$	-	$	-
Gain on CE Casecnan settlement		-		31,889		-
Allowance for equity funds used during construction		20,476		26,708		19,366
Gain on Mirant bankruptcy claim		14,750		-		-
Gain on Williams preferred stock		-		13,750		2,750
Corporate-owned life insurance income		5,447		6,317		1,330
Gain on sale of other assets and investments		3,609		4,183		7,519
Other		11,713		13,796		9,258
Total other income	$	128,205	$	96,643	$	40,223

Other expense for the years ending December 31, 2004, 2003 and 2002 was $10.1 million, $5.9 million and $28.6 million, respectively. In 2002, MidAmerican Energy recorded an impairment of its investment in airplane leases and other non-regulated investments of $21.7 million.

Sale of Enron Note Receivable and Receipt of Cash

CE Casecnan Water and Energy Company (“CE Casecnan”) Arbitration Settlement

On October 15, 2003, CE Casecnan, an indirect, majority-owned subsidiary of the Company, closed a transaction settling the arbitration, which arose from a Statement of Claim made on August 19, 2002, by CE Casecnan against the Republic of the Philippines (“ROP”) National Irrigation Administration (“NIA”). As a result of the agreement, CE Casecnan recorded $31.9 million of other income and $24.4 million of associated income taxes. In connection with the settlement, the NIA delivered to CE Casecnan a ROP $97.0 million 8.375% Note due 2013 (the “ROP Note”), which contained a put provision granting CE Casecnan the right to put the ROP Note to the ROP for a price of par plus accrued interest for a 30-day period commencing on January 14, 2004. The ROP Note is included in other current assets in the accompanying consolidated balance sheet at December 31, 2003.

On January 14, 2004, CE Casecnan exercised its right to put the ROP Note to the ROP and, in accordance with the terms of the put, CE Casecnan received $99.2 million (representing $97.0 million par value plus accrued interest) from the ROP on January 21, 2004.

Mirant Americas Energy Marketing (“Mirant”) Claim

In July 2003, Mirant filed Chapter 11 bankruptcy. On January 13, 2004, Kern River filed a proof of claim with the bankruptcy court for an aggregate total of $210.2 million, which Kern River believed was secured by the $14.8 million in proceeds received from its letter of credit and held as a cash security deposit. In May 2004, the bankruptcy court issued an order permitting Kern River to apply 100% of the $14.8 million it held in cash collateral to its claim for damages. On October 12, 2004, Mirant raised an objection to Kern River’s claim asserting, among other things, that Kern River had not included a discount adjustment or mitigation to the claim. On November 11, 2004, Kern River filed an amended proof of claim of $138.8 million, reflecting discounting, mitigation and other adjustments. The amended proof of claim excludes the $14.8 million already received by Kern River. Kern River can not determine at this time if it will collect any portion of the balance of the claim or be able to remarket the rejected capacity.

William s Preferred Stock

On March 27, 2002, the Company invested $275.0 million in Williams in exchange for shares of 9 ⁷ / 8 % cumulative convertible preferred stock of Williams. Dividends on Williams preferred stock were received quarterly, commencing July 1, 2002. On June 10, 2003, Williams repurchased, for $288.8 million, plus accrued dividends, all of the shares of its 9 ⁷ / 8 % Cumulative Convertible Preferred Stock originally acquired by the Company in March 2002 for $275.0 million. The Company recorded a pre-tax gain of $13.8 million on the transaction.

9. Regulatory Assets and Liabilities

The principal components of the Company’s regulatory assets and liabilities were as follows as of December 31 (in thousands):

	As of December 31,
	Weighted Average
		Remaining Life		2004		2003

Regulatory assets:
Deferred income taxes, net		24 years	$	160,662	$	138,192
Computer systems development costs		7 years		63,637		72,787
System levelized account		25 years		53,576		54,109
Minimum pension liability adjustment		N/A		41,136		36,795
Unrealized loss on regulated hedges		1 year		36,794		14,248
Pipe recoating and reconditioning costs		87 years		22,406		22,315
Asset retirement obligations		9 years		20,875		90,556
Debt refinancing costs		7 years		15,365		19,698
Environmental costs		3 years		9,284		13,995
Nuclear generation assets		28 years		6,727		7,522
Cooper Nuclear Station capital improvement costs		-		-		7,314
Other		Various		21,368		35,018
Total			$	451,830	$	512,549

Regulatory liabilities:
Cost of removal accrual		24 years	$	428,719	$	408,608
Iowa electric settlement accrual		3 years		181,188		144,418
Asset retirement obligations		49 years		53,259		-
Unrealized gain on regulated hedges		2 years		7,462		15,122
Environmental insurance recovery		3 years		3,599		3,781
Nuclear insurance reserve		49 years		3,262		2,561
Other		Various		5,278		10,250
Total			$	682,767	$	584,740

Of the regulatory assets listed above, only the nuclear generation assets at MidAmerican Energy and the computer systems development costs, the system levelized account, and the pipe recoating and reconditioning costs at Northern Natural Gas are included in rate base and earn a return.

The decrease in the asset retirement obligation regulatory asset and the establishment of a related regulatory liability is the result of a 20-year extension to the operating license of Quad Cities Generating Station and its impact on the timing of related cash flows. Regulatory liabilities are included in other long-term accrued liabilities in the accompanying consolidated balance sheets.

10. Asset Retirement Obligations

On January 1, 2003, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations” and recognized a liability for legal retirement obligations for nuclear decommissioning, wet and dry ash landfills and offshore and minor lateral pipeline facilities. Concurrent with the recognition of the liability, the estimated cost of the asset retirement obligation (“ARO”) was capitalized and is being depreciated over the remaining life of the asset. The difference between the ARO liability, the ARO net asset and amounts recovered from regulated customers to satisfy such liabilities is recorded as a regulatory asset or liability.

The change in the balance of the ARO liability, which is included in other long-term accrued liabilities in the accompanying consolidated balance sheets, for the years ended December 31 is summarized as follows (in thousands):

	2004			2003

Balance, January 1	$	284,007		$	289,323
Revision to nuclear decommissioning ARO liability		(120,098	)		(21,902	)
Addition for new wind power facilities		2,777			-
Accretion		15,877			16,586
Balance, December 31	$	182,563		$	284,007

At December 31, 2004, $154.2 million of the ARO liability pertained to the decommissioning of Quad Cities Station. Also, at December 31, 2004, $207.5 million of assets reflected in other investments in the accompanying consolidated balance sheet are restricted for satisfying the Quad Cities Station ARO liability.

The 2004 revision is a result of a change in the assumed life of Quad Cities Station pursuant to a 20-year extension to the operating license of the plant by the Nuclear Regulatory Commission (“NRC”) in October 2004 and its impact on the timing of related cash flows. The 2003 revision to the nuclear decommissioning ARO liability was due to the results of a decommissioning study performed by the plant operator.

In addition to the ARO liabilities, MidAmerican Energy has accrued for the cost of removing other electric and gas assets through its depreciation rates, in accordance with accepted regulatory practices. These accruals are reflected in other long-term accrued liabilities in the accompanying consolidated balance sheets and total $428.7 million and $408.6 million at December 31, 2004 and 2003, respectively.

11. Short-Term Debt

Short-term debt consists of the following at December 31 (in thousands):

		2004		2003
MidAmerican Energy commercial paper	$	-	$	48,000
HomeServices revolving credit facilities		9,052		-
Other		38		36
Total short-term debt	$	9,090	$	48,036

Parent Company Revolving Credit Facilities

In the second quarter of 2003, the Company terminated its $400.0 million credit facility. On June 6, 2003, the Company closed on a new $100.0 million revolving credit facility which expires on June 6, 2006. The facility supports letters of credit of which $70.0 million were outstanding at December 31, 2004. No borrowings were outstanding at December 31, 2004 or 2003. The facility, which was not drawn on during 2004, carries a variable interest rate based on LIBOR and ranged from 2.02% to 2.255% in 2003.

MidAmerican Energy Short-Term Debt

As of December 31, 2004, MidAmerican Energy has in place a $425.0 million revolving credit facility, which expires on November 18, 2009, and supports its $304.6 million commercial paper program and its variable rate pollution control revenue obligations, all of which was available at December 31, 2004. In addition, MidAmerican Energy has a $5.0 million line of credit which expires on July 1, 2005. There was no commercial paper outstanding at December 31, 2004, and commercial paper totaled $48.0 million at December 31, 2003. MHC Inc., an indirect wholly-owned subsidiary of the Company, has a $4.0 million line of credit, expiring July 1, 2005, under which no borrowings were outstanding at December 31, 2004 or 2003. The commercial paper, bank notes and outstanding line of credit had a weighted average interest rate of 0.98% at December 31, 2003.

HomeServices Revolving Credit Facilities

HomeServices maintains a $125.0 million senior secured revolving credit facility, which expires in November 2005. Amounts outstanding under this revolving credit facility are secured by a pledge of the capital stock of all of the existing and future subsidiaries of HomeServices and bear interest, at HomeServices’ option, at either the prime lending rate or LIBOR plus a fixed spread of 1.25% to 2.25%, which varies based on HomeServices’ cash flow leverage ratio. The spread was 1.25% at December 31, 2004 and 2003. No borrowings were outstanding at December 31, 2004 or 2003. In addition, HomeServices has in place two mortgage warehouse lines of credit totaling $20.0 million, which expire on March 31, 2005 and October 31, 2005, and bear interest at LIBOR plus 1.75% and LIBOR plus 2.25%, respectively. The balances outstanding on these mortgage warehouse lines of credit at December 31, 2004, totaled $9.1 million. There were no borrowings outstanding at December 31, 2003. The mortgage warehouse lines of credit had weighted average interest rates of 4.54% and 4.21%, respectively, at December 31, 2004.

12. Parent Company Senior Debt

Parent company senior debt is unsecured senior obligations of MEHC and consists of the following at December 31 (in thousands):

		2004			2003
7.23% Senior Notes, due 2005	$	260,000		$	260,000
4.625% Senior Notes, due 2007		199,403			199,225
7.63% Senior Notes, due 2007		350,000			350,000
3.50% Senior Notes, due 2008		449,497			449,373
7.52% Senior Notes, due 2008		450,000			450,000
7.52% Senior Notes, due 2008 (Series B)		101,037			101,267
5.875% Senior Notes, due 2012		499,906			499,898
5.00% Senior Notes, due 2014		249,797			-
8.48% Senior Notes, due 2028		475,000			475,000
Fair value adjustments and other		(2,683	)		(6,885	)
Total Parent Company Senior Debt		3,031,957			2,777,878
Less current portion		(260,000	)		-
Total Long-Term Parent Company Senior Debt	$	2,771,957		$	2,777,878

On February 12, 2004, MEHC issued $250.0 million, net of discount, of its 5.00% Senior Notes with a final maturity on February 15, 2014. The proceeds were used to satisfy a demand made by its affiliate, Salton Sea Funding Corporation (“Funding Corporation”), for $136.4 million, the amount remaining on MEHC’s guarantee of Funding Corporation’s 7.475% Senior Secured Series F Bonds due November 30, 2018 (“Series F Bonds”), and for other general corporate purposes.

On May 16, 2003, MEHC issued $450.0 million, net of discount, of its 3.50% Senior Notes with a final maturity on May 15, 2008. The proceeds were used for general corporate purposes.

13. Parent Company Subordinated Debt

MEHC has organized special purpose Delaware business trusts (collectively, the “Trusts”) pursuant to their respective amended and restated declarations of trusts (collectively, the “Declarations”).

The financial terms of MEHC’s various subordinated debentures held by such Trusts are essentially identical to the corresponding terms of the mandatorily redeemable preferred securities issued by such Trusts (the “Trust Securities”).

Pursuant to Preferred Securities Guarantee Agreements (collectively, the “Guarantees”), between MEHC and a trustee, MEHC has agreed irrevocably to pay to the holders of the Trust Securities, to the extent that the applicable Trust has funds available to make such payments, quarterly distributions, redemption payments and liquidation payments on the Trust Securities. Considered together, the undertakings contained in the Declarations, Junior Debentures, Indentures and Guarantees constitute full and unconditional guarantees on a subordinated basis by MEHC of the Trusts’ obligations under the Trust Securities.

Parent company subordinated debt consists of the following at December 31 (in thousands):

		2004			2003
CalEnergy Capital Trust II — 6.25%, due 2012	$	104,645		$	104,645
CalEnergy Capital Trust III — 6.5%, due 2027		269,980			269,980
MidAmerican Capital Trust I — 11%, due 2010		454,772			454,772
MidAmerican Capital Trust II — 11%, due 2011		700,000			800,000
MidAmerican Capital Trust III — 11%, due 2012		323,000			323,000
Fair value adjustment		(78,044	)		(80,251	)
Total Parent Company Subordinated Debt		1,774,353			1,872,146
Less current portion		(188,543	)		(100,000	)
Long-Term Parent Company Subordinated Debt	$	1,585,810		$	1,772,146

MEHC owns all of the common securities of the Trusts. The Trust Securities have a liquidation preference of $50 each (plus accrued and unpaid dividends thereon to the date of payment) and represent undivided beneficial ownership interests in each of the Trusts. The assets of the Trusts consist solely of Subordinated Debentures of MEHC (collectively, the “Junior Debentures”) issued pursuant to their respective indentures. The indentures include agreements by MEHC to pay expenses and obligations incurred by the Trusts.

Prior to the Teton Transaction, each Trust Security issued by CalEnergy Capital Trust II and III with a par value of $50 was convertible at the option of the holder at any time into shares of MEHC’s common stock based on a specified conversion rate. As a result of the Teton Transaction, in lieu of shares of MEHC’s common stock, upon any conversion, holders of Trust Securities will receive $35.05 for each share of common stock it would have been entitled to receive on conversion.

Distributions on the Trust Securities (and Junior Debentures) are cumulative, accrue from the date of initial issuance and are payable quarterly in arrears. The Junior Debentures are subordinated in right of payment to all senior indebtedness of the Company and the Junior Debentures are subject to certain covenants, events of default and optional and mandatory redemption provisions, all as described in the Junior Debenture indentures.

The indentures relating to the CalEnergy Trusts II and III Trust Securities give MEHC the option to defer the interest payments due on the respective Junior Debentures for up to 20 consecutive quarters during which time the corresponding distributions on the respective Trust Securities are deferred (but continue to accumulate and accrue interest). The indentures relating to the MidAmerican Capital Trust I, II and III Trust Securities give MEHC the option to defer the 11% interest payment on the respective Junior Debentures for up to 10 consecutive semi-annual periods during which time the corresponding 11% distributions on the respective Trust Securities are deferred (but continue to accumulate and accrue interest at the rate of 13% per annum). In addition, each declaration of trust establishing the MidAmerican Capital Trusts I, II and III Trust Securities and each of the related subscription agreements contains a provision prohibiting Berkshire Hathaway and its affiliates, who are the holders of all of the respective Trust Securities issued by such Trusts, from transferring such Trust Securities to a non-affiliated person absent an event of default.

14. Subsidiary and Project Debt

Each of MEHC’s direct and indirect subsidiaries is organized as a legal entity separate and apart from MEHC and its other subsidiaries. Pursuant to separate project financing agreements, all or substantially all of the assets of each subsidiary are or may be pledged or encumbered to support or otherwise provide the security for their own project or subsidiary debt. It should not be assumed that any asset of any such subsidiary will be available to satisfy the obligations of MEHC or any of its other such subsidiaries; provided, however, that unrestricted cash or other assets which are available for distribution may, subject to applicable law and the terms of financing arrangements of such parties, be advanced, loaned, paid as dividends or otherwise distributed or contributed to MEHC or affiliates thereof.

The restrictions on distributions at these separate legal entities include various covenants including, but not limited to, leverage ratios, interest coverage ratios and debt service coverage ratios. As of December 31, 2004, the separate legal entities were in compliance with all applicable covenants. However, Cordova Energy’s 537 MW gas-fired power plant in the Quad Cities, Illinois area (the “Cordova project”) is currently prohibited from making distributions by the terms of its indenture due to its failure to meet its debt service coverage ratio requirement.

Long-term debt of subsidiaries and projects consists of the following at December 31 (in thousands):

		2004			2003
MidAmerican Funding	$	700,000		$	700,000
MidAmerican Energy		1,422,527			1,128,647
CE Electric UK		2,504,801			2,467,214
Kern River		1,214,808			1,276,174
Northern Natural Gas		799,614			799,472
CE Casecnan		197,098			246,458
Leyte Projects		105,664			172,813
Cordova Funding		206,663			214,761
Funding Corporation		-			136,384
HomeServices		32,963			37,558
Other, including fair value adjustments		6,383			(3,900	)
Total Subsidiary and Project Debt		7,190,521			7,175,581
Less current portion		(885,598	)		(500,941	)
Total Long-Term Subsidiary and Project Debt	$	6,304,923		$	6,674,640

MidAmerican Funding

The components of MidAmerican Funding’s, a wholly owned subsidiary of MEHC, Senior Notes and Bonds consist of the following at December 31 (in thousands):

		2004		2003
6.339% Senior Notes, due 2009	$	175,000	$	175,000
6.75% Senior Notes, due 2011		200,000		200,000
6.927% Senior Bonds, due 2029		325,000		325,000
Total MidAmerican Funding	$	700,000	$	700,000

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

MidAmerican Energy

The components of MidAmerican Energy’s Mortgage Bonds, Pollution Control Revenue Obligations and Notes consist of the following at December 31 (in thousands):

		2004			2003
Mortgage bonds:
7.7% Series, due 2004	$	-		$	55,630
7% Series, due 2005		90,500			90,500
Pollution control revenue obligations:
6.1% Series, due 2007		1,000			1,000
5.95% Series, due 2023		29,030			29,030
Variable rate series:
Due 2016 and 2017, 2.05% and 1.26%		37,600			37,600
Due 2023 secured by general mortgage bond, 2.05% and 1.26%		28,295			28,295
Due 2023, 2.05% and 1.26%		6,850			6,850
Due 2024, 2.05% and 1.26%		34,900			34,900
Due 2025, 2.05% and 1.26%		12,750			12,750
Notes:
6.375% Series, due 2006		160,000			160,000
5.125% Series, due 2013		275,000			275,000
4.65% Series, due 2014		350,000			-
6.75% Series, due 2031		400,000			400,000
Obligations under capital lease		1,524			2,060
Unamortized debt premium and discount, net		(4,922	)		(4,968	)
Total MidAmerican Energy	$	1,422,527		$	1,128,647

MidAmerican Energy’s 7.7% series of mortgage bonds, totaling $55.6 million, matured on May 17, 2004. On October 1, 2004, MidAmerican Energy issued $350.0 million of 4.65% medium-term notes due October 1, 2014. The proceeds were used for general corporate purposes.

On January 14, 2003, MidAmerican Energy issued $275.0 million of 5.125% medium-term notes due in 2013. The proceeds were used to refinance existing debt and for other corporate purposes.

CE Electric UK

The components of CE Electric UK and its subsidiaries’ long-term debt consist of the following at December 31 (in thousands):

		2004		2003
6.853% Senior Notes, due 2004	$	-	$	117,112
8.625% Bearer bonds, due 2005		192,045		178,877
6.995% Senior Notes, due 2007		237,000		236,174
6.496% Yankee Bonds, due 2008		281,113		281,149
Variable Rate Reset Trust Securities, due 2020 (5.88% and 4.39%)		308,361		287,539
8.875% Bearer bonds, due 2020		191,955		178,644
9.25% Eurobonds, due 2020		485,654		458,187
7.25% Sterling Bonds, due 2022		377,674		351,242
7.25% Eurobonds, due 2028		378,202		352,768
CE Gas Credit Facility, 6.36%		52,797		25,522
Total CE Electric UK	$	2,504,801	$	2,467,214

Pursuant to a call option exercised in February 2005, at a cost of $17.5 million, a subsidiary of CE Electric UK purchased, and then cancelled, its Variable Rate Reset Trust Securities, due in 2020, at a par value of £155.0 million. Accordingly, the Company has included the entire principal amount of these securities in its current portion of long-term debt in the accompanying consolidated balance sheet at December 31, 2004.

Kern River

The components of Kern River’s long-term debt consist of the following at December 31 (in thousands):

		2004		2003
6.676% Senior Notes, due 2016	$	439,000	$	464,000
4.893% Senior Notes, due 2018		775,808		812,174
Total Kern River	$	1,214,808	$	1,276,174

On August 13, 2001, Kern River issued $510.0 million in debt securities. The offering was in the form of $510.0 million of 15-year amortizing Senior Notes bearing a fixed rate of interest of 6.676%. For the Senior Notes, $405.0 million will be amortized through June 2016, with a final payment of $105.0 million to be made on July 31, 2016.

On May 1, 2003, Kern River Funding Corporation, a wholly owned subsidiary of Kern River, issued $836.0 million of its 4.893% Senior Notes with a final maturity on April 30, 2018. The proceeds were used to repay all of the $815.0 million of outstanding borrowings under Kern River’s $875.0 million credit facility. Kern River entered into this credit facility in 2002 to finance the construction of its 717 mile expansion.

Northern Natural Gas

The components of Northern Natural Gas’ Senior Notes consist of the following at December 31 (in thousands):

		2004			2003
6.875% Senior Notes, due 2005	$	100,000		$	100,000
6.75% Senior Notes, due 2008		150,000			150,000
7.00% Senior Notes, due 2011		250,000			250,000
5.375% Senior Notes, due 2012		300,000			300,000
Unamortized debt discount		(386	)		(528	)
Total Northern Natural Gas	$	799,614		$	799,472

CE Casecnan

On November 27, 1995, CE Casecnan issued $371.5 million of notes and bonds to finance the construction of the CE Casecnan project. The CE Casecnan Notes and Bonds consist of the following at December 31 (in thousands):

		2004		2003
11.45% Senior Secured Series A Notes, due in 2005	$	48,750	$	91,250
11.95% Senior Secured Series B Bonds, due in 2010		148,348		155,208
Total CE Casecnan	$	197,098	$	246,458

The CE Casecnan Notes and Bonds are subject to redemption at the Company’s option as provided in the Trust Indenture. The CE Casecnan Notes and Bonds are also subject to mandatory redemption based on certain conditions.

Leyte Projects

The Leyte Projects term loans consist of the following at December 31 (in thousands):

		2004		2003
Mahanagdong Project 6.92% Term Loan, due 2007	$	51,537	$	72,151
Mahanagdong Project 7.60% Term Loan, due 2007		11,428		16,000
Malitbog Project 4.99% and 3.67%, due 2005		11,866		26,378
Malitbog Project 9.176% Term Loan, due 2006		6,580		14,628
Upper Mahiao Project 5.95% Term Loan, due 2006		24,253		43,656
Total Leyte Projects	$	105,664	$	172,813

MEHC provides debt service reserve letters of credit in amounts equal to the next semi-annual principal and interest payments due on the loans which were equal to $44.6 million and $40.3 million at December 31, 2004 and 2003, respectively.

Cordova Funding

On September 10, 1999, Cordova Funding Corporation (“Cordova Funding”), a wholly owned subsidiary of the Company, closed the $225.0 million aggregate principal amount financing for the construction of the Cordova project. The proceeds were loaned to Cordova Energy and consist of the following at December 31 (in thousands):

		2004		2003
8.48% Senior Secured Bonds, due 2019	$	11,716	$	12,175
8.64% Senior Secured Bonds, due 2019		85,893		89,260
8.79% Senior Secured Bonds, due 2019		28,758		29,885
8.82% Senior Secured Bonds, due 2019		53,384		55,476
9.07% Senior Secured Bonds, due 2019		26,912		27,965
Total Cordova Funding	$	206,663	$	214,761

MEHC has issued a limited guarantee of a specified portion of the final scheduled principal payment on December 15, 2019, on the Cordova Funding Senior Secured Bonds in an amount up to a maximum of $37.0 million. MEHC has also issued a debt service reserve guarantee of which such maximum amount was $13.0 million as of December 31, 2004.

As of December 31, 2004, Cordova Funding is currently prohibited from making distributions by the terms of its indenture due to its failure to meet its debt service coverage ratio requirement.

Funding Corporation

CalEnergy Minerals LLC (“Minerals”), a wholly-owned indirect subsidiary of MEHC, was one of several guarantors of the Funding Corporation’s debt. As a result of a note allocation agreement, Minerals was primarily responsible for $136.4 million of the Series F Bonds. In 1999, MEHC guaranteed a specified portion of the scheduled debt service on the Series F Bonds equal to the then current principal amount of $136.4 million and associated interest.

On March 1, 2004, Funding Corporation completed the redemption of an aggregate principal amount of $136.4 million of the Series F Bonds, pro rata, at a redemption price of 100% of such aggregate outstanding principal amount, plus accrued interest to the date of redemption. Funding Corporation also made a demand on MEHC for the full amount remaining on MEHC’s guarantee of the Series F Bonds in order to fund the redemption. MEHC made the requisite payment and, as a result, it has no further liability with respect to its guarantee. The Company had a non-cash, after-tax loss, recorded in loss from discontinued operations in the accompanying consolidated statement of operations, of $6.4 million as a result of the redemption of the Series F Bonds.

HomeServices

In November 1998, HomeServices issued $35.0 million of 7.12% fixed-rate private placement senior notes due in annual increments of $5.0 million beginning in 2004. As of December 31, 2004 and 2003, the balance of the HomeServices Senior Notes was $30.0 million and $35.0 million, respectively.

In addition to the senior notes, HomeServices has outstanding capital leases and other long-term debt, with varying interest rates, totaling $3.0 million and $2.6 million at December 31, 2004 and 2003, respectively.

Annual Repayments of Long-Term Debt

The annual repayments of parent company, subsidiary and project debt for the years beginning January 1, 2005 and thereafter are as follows (in thousands):

	2005	2006	2007	2008	2009	Thereafter	Total
Parent Company senior debt	$ 260,000	$ -	$ 550,000	$ 1,000,000	$ -	$ 1,221,957	$ 3,031,957
Parent Company subordinated debt	188,543	234,021	234,021	234,021	234,021	649,726	1,774,353
MidAmerican Funding	-	-	-	-	175,000	525,000	700,000
MidAmerican Energy	91,018	160,000	1,000	-	-	1,170,509	1,422,527
CE Electric UK	500,406	9,720	253,925	294,051	4,913	1,441,786	2,504,801
Kern River	62,784	66,128	69,472	72,816	74,906	868,702	1,214,808
Northern Natural Gas	99,963	-	-	150,000	-	549,651	799,614
CE Casecnan	54,753	36,016	37,730	37,730	13,720	17,149	197,098
Leyte Projects	63,034	30,037	12,593	-	-	-	105,664
Cordova Funding	7,875	4,500	4,163	4,725	6,412	178,988	206,663
HomeServices	5,765	5,000	5,000	5,000	5,000	7,198	32,963
Other, including purchase accounting adjustments	-	-	-	-	-	6,383	6,383
Totals	$ 1,334,141	$ 545,422	$ 1,167,904	$ 1,798,343	$ 513,972	$ 6,637,049	$ 11,996,831

Fair Value

At December 31, 2004, the Company had fixed-rate long-term debt of $11,503.4 million in principal amount and having a fair value of $12,416.2 million. In addition, at December 31, 2004, the Company had floating-rate obligations of $493.4 million that expose the Company to the risk of increased interest expense in the event of increases in short-term interest rates. The fair value of the floating-rate obligations and the short-term debt approximates their carrying amounts.

At December 31, 2003, the Company had fixed-rate long-term debt of $11,369.4 million in principal amount and having a fair value of $12,015.1 million. In addition, at December 31, 2003, the Company had floating-rate obligations of $459.8 million. The fair value of the floating-rate obligations and the short-term debt approximates their carrying amounts.

15. Income Taxes

Income tax expense on continuing operations consists of the following (in thousands):

	Year Ended December 31,
		2004			2003			2002
Current:
Federal	$	18,794		$	(48,911	)	$	57,236
State		(9,862	)		10,901			17,476
Foreign		79,463			88,150			54,586
		88,395			50,140			129,298
Deferred:
Federal		112,719			141,795			(4,900	)
State		607			10,833			(13,640	)
Foreign		63,265			67,508			520
		176,591			220,136			(18,020	)
Total	$	264,986		$	270,276		$	111,278

A reconciliation of the federal statutory tax rate to the effective tax rate on continuing operations applicable to income before income tax expense follows:

	2004		2003		2002
Federal statutory rate	35.0	%	35.0	%	35.0	%
Investment and energy tax credits	(0.6	)	(0.5	)	(0.7	)
State taxes, net of federal tax effect	2.2		1.8		1.2
Equity income	0.7		1.6		2.3
Dividends on preferred securities of subsidiaries	-		(6.9	)	(8.3	)
Tax effect of foreign income	0.3		0.5		(4.8	)
Non-recurring items on CE Electric UK, net of tax effect of foreign income	-		(0.5	)	(8.3	)
Dividends received deduction	-		(1.1	)	(1.9	)
Effects of ratemaking	(0.9	)	0.9		1.0
Other items, net	(3.5	)	0.7		2.1
Effective tax rate	33.2	%	31.5	%	17.6	%

Deferred tax liabilities (assets) consist of the following at December 31 (in thousands):

		2004			2003
Properties, plants and equipment, net	$	1,700,884		$	1,611,744
Income taxes recoverable through future rates		163,108			142,597
Employee benefits		56,656			43,005
Reacquired debt		3,877			5,665
Fuel cost recoveries		6,028			12,864
		1,930,553			1,815,875

Minimum pension liability adjustment		(172,350	)		(147,279	)
Revenue sharing accruals		(80,220	)		(64,192	)
Accruals not currently deductible for tax purposes		(54,402	)		(55,290	)
Nuclear reserve and decommissioning		(27,112	)		(35,955	)
Deferred income		(34,458	)		(37,819	)
Net operating loss (“NOL”) and credit carryforwards		(267,051	)		(161,659	)
Other		(13,127	)		(14,599	)
		(648,720	)		(516,793	)
Net deferred income taxes	$	1,281,833		$	1,299,082

At December 31, 2004, the Company has available unused NOL and credit carryforwards that may be applied against future taxable income and that expire at various intervals between 2007 and 2024.

16. Preferred Securities of Subsidiaries

The total outstanding cumulative preferred securities of MidAmerican Energy are not subject to mandatory redemption requirements and may be redeemed at the option of MidAmerican Energy at prices which, in the aggregate, total $31.1 million. The aggregate total the holders of all preferred securities outstanding at December 31, 2004, are entitled to upon involuntary bankruptcy is $30.3 million plus accrued dividends. The annual dividend requirements for all preferred securities outstanding at December 31, 2004, total $1.2 million.

The total outstanding 8.061% cumulative preferred securities of a subsidiary of CE Electric UK, which are redeemable in the event of the revocation by the Secretary of State of the subsidiary’s electricity distribution license, was $56.0 million as of December 31, 2004 and 2003, respectively.

17. Convertible Preferred Stock

In connection with the Kern River acquisition and the purchase of $275.0 million of Williams’ preferred stock, MEHC issued 6.7 million shares of no par, zero-coupon convertible preferred stock valued at $402.0 million to Berkshire Hathaway. In connection with the Teton Transaction, MEHC issued 34.6 million shares of no par, zero coupon convertible preferred stock valued at $1,211.4 million. Each share of preferred stock is convertible at the option of the holder into one share of MEHC’s common stock subject to certain adjustments as described in MEHC’s Amended and Restated Articles of Incorporation.

While the convertible preferred stock does not vote generally with the common stock in the election of directors, the convertible preferred stock gives Berkshire Hathaway the right to elect 20% of MEHC’s Board of Directors. The convertible preferred stock is convertible into common stock only upon the occurrence of specified events, including modification or elimination of the Public Utility Holding Company Act of 1935 so that holding company registration would not be triggered by conversion. Additionally, the prior approval of the holders of convertible preferred stock is required for certain fundamental transactions by MEHC. Such transactions include, among others: (a) significant asset sales or dispositions; (b) merger transactions; (c) significant business acquisitions or capital expenditures; (d) issuances or repurchases of equity securities; and (e) the removal or appointment of the Chief Executive Officer.

MEHC’s Articles of Incorporation further provide that the convertible preferred shares: (a) are not mandatorily redeemable by MEHC or at the option of the holder; (b) participate in dividends and other distributions to common shareholders as if they were common shares and otherwise possess no dividend rights; (c) are convertible into common shares on a 1 for 1 basis, as adjusted for splits, combinations, reclassifications and other capital changes by MEHC; and (d) upon liquidation, except for a de minimus first priority distribution of $1 per share, shared ratably with the shareholders of common stock. Further, the aforementioned dividend and distribution arrangements cannot be modified without the positive consent of the preferred shareholders.

18. Stock Transactions

As of December 31, 2004, there were 2,048,329 options outstanding which are exercisable until the end of the term on March 14, 2008 at exercise prices ranging from $15.94 to $35.05 per share.

On March 6, 2002, MEHC purchased 800,000 stock options held by Mr. David L. Sokol, its Chairman and Chief Executive Officer. The options purchased had exercise prices ranging from $18.50 to $29.01. MEHC paid Mr. Sokol an aggregate amount of $27.1 million, which is equal to the difference between the option exercise prices and an agreed upon per share value.

On January 6, 2004, the Company purchased a portion of the shares of common stock owned by Mr. Sokol for an aggregate purchase price of $20.0 million.

19. Accounting for Derivatives

The Company 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, the Company enters into various financial derivative instruments. Senior management provide the overall direction, structure, conduct and control of the Company’s risk management activities, including the use of financial derivative instruments, authorization and communication of risk management policies and procedures, strategic hedging program and guidelines, appropriate market and credit risk limits, and appropriate systems for recording, monitoring and reporting the results of transactional and risk management activities.

Currency Exchange Rate Risk

CE Electric UK entered into currency rate swap agreements for its Senior Notes with large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling for $237.0 million of 6.995% Senior Notes outstanding at December 31, 2004. The agreements extend until maturity on December 30, 2007 and convert the U.S. dollar interest rate to a fixed Sterling rate of 7.737%. The estimated fair value of these swap agreements at December 31, 2004 and 2003, was $35.7 million and $16.0 million, respectively, based on quotes from the counterparty to these instruments and represents the estimated amount that the Company would expect to pay if these agreement were terminated.

A subsidiary of CE Electric UK entered into certain currency rate swap agreements for its Yankee Bonds with three large multi-national financial institutions. The swap agreements effectively convert the U.S. dollar fixed interest rate to a fixed rate in Sterling for $281.1 million of the 6.496% Yankee Bonds outstanding at December 31, 2004. The agreements extend until maturity on February 25, 2008 and convert the U.S. dollar interest rate to a fixed Sterling rate ranging from 7.3175% to 7.345%. The estimated fair value of these swap agreements at December 31, 2004 and 2003, was $96.1 million and $62.6 million, respectively, based on quotes from the counterparties to these instruments and represents the estimated amount that the Company would expect to pay if these agreements were terminated.

Derivatives

As of December 31, 2004, MidAmerican Energy held derivative instruments used for non-trading and trading purposes with the following fair values (in thousands):

Contract Type	Maturity in 2005			Maturity in 2006-08			Total
Non-trading:
Regulated electric assets	$	2,260		$	431		$	2,691
Regulated electric (liabilities)		(10,057	)		(4,817	)		(14,874	)
Regulated gas assets		2,973			1,798			4,771
Regulated gas (liabilities)		(21,921	)		-			(21,921	)
Regulated weather (liabilities)		(4,495	)		-			(4,495	)
Nonregulated electric assets		1,957			372			2,329
Nonregulated electric (liabilities)		(1,158	)		(214	)		(1,372	)
Nonregulated gas assets		5,937			1,919			7,856
Nonregulated gas (liabilities)		(6,606	)		(1,558	)		(8,164	)
Total		(31,110	)		(2,069	)		(33,179	)

Trading:
Nonregulated gas assets		993			-			993
Nonregulated gas (liabilities)		(430	)		(100	)		(530	)
Total		563			(100	)		463

Total MidAmerican Energy assets	$	14,120		$	4,520		$	18,640
Total MidAmerican Energy (liabilities)	$	(44,667	)	$	(6,689	)	$	(51,356	)

20. Regulatory Matters

MidAmerican Energy

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

The regulatory liabilities created by the three settlement agreements are recorded as a regulatory charge in depreciation and amortization expense when the liability is accrued. Additionally, interest expense is accrued on the portion of the regulatory liability balance recorded in prior years. The regulatory liabilities created for the years through 2010 are expected to be reduced as they are credited against plant in service in amounts equal to the AFUDC associated with generating plant additions. As a result of the credit applied to generating plant balances from the reduction of the regulatory liabilities, future depreciation will be reduced. As of December 31, 2004 and 2003, the related regulatory liability reflected in the accompanying consolidated balance sheets was $181.2 million and $144.4 million, respectively. The regulatory liability for 2011 will be credited to customer bills in 2012.

Kern River

Kern River was required to file a general rate case no later than May 1, 2004 pursuant to the terms of its 1998 FERC Docket No. RP99-274 rate case settlement. Kern River filed its rate case on April 30, 2004, which supports a revenue increase of $40.1 million representing a 13% increase from its existing cost of service and a proposed overall cost of service of $347.4 million. Since its last rate case, Kern River has increased the capacity of its system from 724,500 Dth per day to 1,755,575 Dth per day at a cost of approximately $1.3 billion, resulting in a total rate base of approximately $1.8 billion. The rate increase became effective on November 1, 2004, subject to refund, and the FERC set a procedural order with a hearing scheduled for March 2005.

Northern Natural Gas

Additionally, on January 30, 2004, Northern Natural Gas filed with the FERC to increase its revenue requirement by an incremental $30 million to that requested in the May 1, 2003 filing. The increased revenue requirement is primarily attributable to ongoing pipeline integrity initiative costs that Northern Natural Gas has undertaken since the May 1, 2003 rate filing. The FERC suspended the rate increase until August 1, 2004 and consolidated the 2003 and 2004 rate cases due to the similarity of issues in both cases and the updated costs. On July 29, 2004, Northern Natural Gas notified the FERC that, in furtherance of settlement negotiations, Northern Natural Gas was not moving the rate increase into effect on August 1, 2004, but reserved its statutory right to move the suspended rates into effect at a later date. Northern Natural Gas’ implemented the new rates on November 1, 2004, subject to refund.

CE Electric UK

The majority of the revenue of the Distribution License Holder (“DLH”) in the United Kingdom is controlled by a distribution price control formula which is set out in the license of each DLH. It has been the practice of the Office of Gas and Electricity Markets (“Ofgem”) (and its predecessor body, the Office of Electricity Regulation), to review and reset the formula at five-year intervals, although the formula may be further reviewed at other times at the discretion of the regulator. Any such resetting of the formula requires the consent of the DLH. If the DLH does not consent to the formula reset, it is reviewed by the United Kingdom’s competition authority, whose recommendation can then be given effect by license modifications made by Ofgem.

With effect from April 1, 2005, a number of incentive schemes operate to encourage DLHs to provide an appropriate quality of service. Payments in respect of each failure to meet a prescribed standard of service are set out in regulations. The aggregate payments that may be due is uncapped, although payments are excused in certain force majeure circumstances. In storm conditions the obligations relating to the period within which supplies should be restored are relaxed and the overall, annual exposure under the restoration standard in storm conditions is limited to 2% of a DLH's allowed revenue. There also is a discretionary reward scheme of up to £1 million per annum, and other incentive schemes pursuant to which a DLH’s allowed revenue may increase by up to 3.3% or decrease by up to 3.5% in any year.

21. Commitments and Contingencies

MidAmerican Energy, Kern River, Northern Natural Gas, CE Electric UK, CalEnergy Generation-Domestic and HomeServices have non-cancelable operating leases primarily for computer equipment, office space and rail cars. Rental payments on non-cancelable operating leases totaled $71.1 million for 2004, $65.8 million for 2003, and $60.1 million for 2002. The minimum payments under these leases are $70.4 million, $64.3 million, $56.7 million, $45.9 million, and $33.0 million for the years 2005 through 2009, respectively, and $104.7 million for the total of the years thereafter.

MidAmerican Energy

Fuel, Energy and Operating Lease Commitments

MidAmerican Energy has supply and related transportation contracts for its fossil fueled generating stations. As of December 31, 2004, the contracts, with expiration dates ranging from 2005 to 2010, require minimum payments of $83.5 million, $67.4 million, $62.8 million, $22.0 million and $15.8 million for the years 2005 through 2009, respectively, and $15.5 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. Additionally, MidAmerican Energy has a supply and transportation contract for a natural gas-fired generating plant. The contract, which expires in 2012, requires minimum annual payments of $6.2 million.

MidAmerican Energy also has contracts to purchase electric capacity. As of December 31, 2004, the contracts, with expiration dates ranging from 2005 to 2028, require minimum payments of $29.1 million, $25.1 million, $27.3 million, $35.8 million and $28.9 million for the years 2005 through 2009, respectively, and $73.9 million for the total of the years thereafter.

MidAmerican Energy has various natural gas supply and transportation contracts for its gas operations. As of December 31, 2004, the contracts, with expiration dates ranging from 2005 to 2013, require minimum payments of $54.2 million, $35.1 million, $25.2 million, $4.4 million and $2.9 million for the years 2005 through 2009, respectively, and $10.3 million for the total of the years thereafter.

MidAmerican Energy is the lessee on operating leases for coal railcars that contain guarantees of the residual value of such equipment throughout the term of the leases. Events triggering the residual guarantees include termination of the lease, loss of the equipment or purchase of the equipment. Lease terms are for five years with provisions for extensions. As of December 31, 2004, the maximum amount of such guarantees specified in these leases totaled $30.2 million. These guarantees are not reflected in the accompanying consolidated balance sheets.

On February 12, 2003, MidAmerican Energy executed a contract with Mitsui & Co. Energy Development, Inc. (“Mitsui”) for engineering, procurement and construction of a 790 MW (based on expected accreditation) coal-fired generating plant expected to be completed in the summer of 2007. MidAmerican Energy will hold a 60.67% individual ownership interest as a tenant in common with the other owners of the plant. Under the contract, MidAmerican Energy is allowed to defer payments, including the other owners’ shares, for up to $200.0 million of billed construction costs through the end of the project. Deferred payments as of December 31, 2004 and 2003, totaled $152.3 million and $23.4 million, respectively, and are reflected in other long-term accrued liabilities in the accompanying consolidated balance sheets.

An asset representing the other owners’ share of the deferred payments is reflected in deferred charges and other assets in the accompanying consolidated balance sheets and totaled $59.9 million and $9.2 million, respectively, as of December 31, 2004 and 2003. MidAmerican Energy will bill each of the other owners for its share of the deferred payments when payment is made to Mitsui.

Air Quality

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

MidAmerican Energy has implemented a planning process that forecasts the site-specific controls and actions that may be required to meet emissions reductions as contemplated by the United States Environmental Protection Agency (“EPA”). In accordance with an Iowa law passed in 2001, MidAmerican Energy has on file with the IUB its current multi-year plan and budget for managing SO ₂ and NO _X from its generating facilities in a cost-effective manner. The plan, which is required to be updated every two years, provides specific actions to be taken at each coal-fired generating facility and the related costs and timing for each action. On July 17, 2003, the IUB issued an order that affirmed an administrative law judge’s approval of the initial plan filed on April 1, 2002, as amended. On October 4, 2004, the IUB issued an order approving MidAmerican Energy’s second biennial plan as revised in a settlement MidAmerican Energy entered into with the Iowa Consumer Advocate Division of the Department of Justice. That plan covers the time period from April 1, 2004 through December 31, 2006. Neither IUB order resulted in any changes to electric rates for MidAmerican Energy. The effect of the orders is to approve the prudence of expenditures made consistent with the plans. Pursuant to an unrelated rate settlement agreement approved by the IUB on October 17, 2003, if prior to January 1, 2011, capital and operating expenditures to comply with environmental requirements cumulatively exceed $325.0 million, then MidAmerican Energy may seek to recover the additional expenditures from customers. At this time, MidAmerican Energy does not expect these capital expenditures to exceed such amount.

Nuclear Decommissioning Costs

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

MidAmerican Energy’s share of expected decommissioning costs for Quad Cities Station, in 2004 dollars, is $154.0 million and is the ARO liability for Quad Cities Station. MidAmerican Energy has established trusts for the investment of funds for decommissioning the Quad Cities Station. The fair value of the assets held in the trusts is reflected in other investments in the accompanying consolidated balance sheets.

Nuclear Insurance

MidAmerican Energy maintains financial protection against catastrophic loss associated with its interest in Quad Cities Station through a combination of insurance purchased by Exelon Generation Company, LLC (“Exelon Generation”) (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.

Exelon Generation purchases nuclear liability insurance for Quad Cities Station in the maximum available amount of $300.0 million, which includes coverage for MidAmerican Energy’s ownership. In accordance with the Price-Anderson Amendments Act of 1988, excess liability protection above that amount is provided by a mandatory industry-wide Secondary Financial Protection program under which the licensees of nuclear generating facilities could be assessed for liability incurred due to a serious nuclear incident at any commercial nuclear reactor in the United States. Currently, MidAmerican Energy’s aggregate maximum potential share of an assessment for Quad Cities Station is approximately $50.3 million per incident, payable in installments not to exceed $5.0 million annually.

The property insurance covers property damage, stabilization and decontamination of the facility, disposal of the decontaminated material and premature decommissioning arising out of a covered loss. For Quad Cities Station, Exelon Generation purchased primary and excess property insurance protection for the combined interests in Quad Cities Station, with coverage limits totaling $2.1 billion. MidAmerican Energy also directly purchased extra expense or business interruption coverage for its share of replacement power and other extra expenses in the event of a covered accidental outage at Quad Cities Station. The property and related coverages purchased directly by MidAmerican Energy and by Exelon Generation, which includes the interests of MidAmerican Energy, are underwritten by an industry mutual insurance company and contain provisions for retrospective premium assessments should two or more full policy-limit losses occur in one policy year. Currently, the maximum retrospective amounts that could be assessed against MidAmerican Energy from industry mutual policies for its obligations associated with Quad Cities Station total $8.8 million.

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

The current Price-Anderson Act expired in August 2002 and is pending congressional action for reauthorization. Its contingent financial obligations still apply to reactors licensed by the NRC as of its expiration date. It is anticipated that the Price-Anderson Act will be renewed with increased third party financial protection requirements for nuclear incidents.

Legal Matters

CalEnergy Generation-Foreign

Pursuant to the share ownership adjustment mechanism in the CE Casecnan stockholder agreement, which is based upon pro forma financial projections of the Casecnan project prepared following commencement of commercial operations, in February 2002, MEHC’s indirect wholly-owned subsidiary, CE Casecnan Ltd., advised the minority stockholder, LaPrairie Group Contractors (International) Ltd. (“LPG”), that MEHC’s ownership interest in CE Casecnan had increased to 100% effective from commencement of commercial operations. On July 8, 2002, LPG filed a complaint in the Superior Court of the State of California, City and County of San Francisco against, among others, CE Casecnan Ltd. and MEHC. On January 21, 2004, CE Casecnan Ltd. and LPG entered into a status quo agreement pursuant to which the parties agreed to set aside certain distributions related to the shares subject to the LPG dispute and CE Casecnan agreed not to take any further actions with respect to such distributions without at least 15 days prior notice to LPG. Accordingly, 15% of the CE Casecnan dividend distributions declared in 2004, totaling to $15.9 million, was set aside by CE Casecnan in an unsecured CE Casecnan account and is shown as restricted cash and short-term investments and other current liabilities in the accompanying consolidated balance sheet. The court is currently expected to rule on the first phase of the litigation before the end of the first quarter of 2005. The impact, if any, of this litigation on the Company cannot be determined at this time.

22. Pension and Postretirement Commitments

Domestic Operations

MidAmerican Energy sponsors a noncontributory defined benefit pension plan covering substantially all employees of MEHC and its domestic energy subsidiaries. Benefit obligations under the plan are based on participants’ compensation, years of service and age at retirement. Funding to the established trust is based upon the actuarially determined costs of the plan and the requirements of the Internal Revenue Code and the Employee Retirement Income Security Act. The Company also maintains noncontributory, nonqualified defined benefit supplemental executive retirement plans for active and retired participants.

MidAmerican Energy also sponsors certain postretirement health care and life insurance benefits covering substantially all retired employees of MEHC and its domestic energy subsidiaries. Under the plans, covered employees may become eligible for these benefits if they reach retirement age while working for the Company. On July 1, 2004, the postretirement benefit plan was amended for non-union participants. Non-union employees hired July 1, 2004, and after will no longer be eligible for postretirement benefits other than pensions. The amendment establishes retiree medical accounts for participants to which the Company will make fixed contributions. Participants will use such accounts to pay a portion of their medical premiums during retirement. The Company retains the right to change these benefits anytime, subject to provisions in its collective bargaining agreements.

Net periodic pension benefit cost, including supplemental retirement, and postretirement benefit cost included the following components for MEHC and its domestic energy subsidiaries for the years ended December 31. For purposes of calculating the expected return on pension plan assets, a market-related value is used. Market-related value is equal to fair value except for gains and losses on equity investments which are amortized into market-related value on a straight-line basis over five years.

	Pension Cost									Postretirement Cost
	2004			2003			2002			2004			2003			2002
	(in thousands)
Service cost	$	25,568		$	24,693		$	20,235		$	7,842		$	8,175		$	6,028
Interest cost		35,159			34,533			34,177			15,716			16,065			13,928
Expected return on plan assets		(38,258	)		(38,396	)		(38,213	)		(8,437	)		(6,008	)		(4,880	)
Amortization of net transition obligation		(792	)		(2,591	)		(2,591	)		3,283			4,110			4,110
Amortization of prior service cost		2,758			2,761			2,729			296			593			425
Amortization of prior year (gain) loss		1,569			1,483			(2,482	)		3,299			3,716			2,385
Regulatory expense		-			3,320			6,639			-			-			-
Net periodic benefit cost	$	26,004		$	25,803		$	20,494		$	21,999		$	26,651		$	21,996

Weighted-average assumptions used to determine benefit obligations at December 31:

	2004		2003		2002			2004		2003		2002
Discount rate	5.75	%	5.75	%	5.75	%		5.75	%	5.75	%	5.75	%
Rate of compensation increase	5.00	%	5.00	%	5.00	%	Not applicable

Weighted-average assumptions used to determine net benefit cost for the years ended December 31:

	2004		2003		2002			2004		2003		2002
Discount rate	5.75	%	5.75	%	6.50	%		5.75	%	5.75	%	6.50	%
Expected return on plan assets	7.00	%	7.00	%	7.00	%		7.00	%	7.00	%	7.00	%
Rate of compensation increase	5.00	%	5.00	%	5.00	%	Not applicable

Assumed health care cost trend rates at December 31:

	2004		2003
Health care cost trend rate assumed for next year	10.00	%	11.00	%
Rate that the cost trend rate gradually declines to	5.00	%	5.00	%
Year that the rate reaches the rate it is assumed to remain at	2010		2010

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

	Increase (Decrease) in Expense
		One Percentage-		One Percentage-
		Point Increase		Point Decrease
Effect on total service and interest cost	$	4,855	$	(3,740	)
Effect on postretirement benefit obligation	$	29,420	$	(24,066	)

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 measured and recognized in the accompanying consolidated balance sheets as of December 31(in thousands):

	Pension Benefits						Postretirement Benefits
		2004			2003			2004			2003
Reconciliation of the fair value of plan assets:
Fair value of plan assets at beginning of year	$	551,568		$	467,773		$	157,849		$	122,655
Employer contributions		5,083			5,044			23,782			32,566
Participant contributions		-			-			7,733			6,371
Actual return on plan assets		63,151			105,438			9,698			15,853
Benefits paid		(28,174	)		(26,687	)		(19,687	)		(19,596	)
Fair value of plan assets at end of year	$	591,628		$	551,568		$	179,375		$	157,849

Reconciliation of benefit obligation:
Benefit obligation at beginning of year	$	620,048		$	593,179		$	297,433		$	291,441
Service cost		25,568			24,693			7,841			8,175
Interest cost		35,159			34,533			15,716			16,065
Participant contributions		-			-			7,733			6,371
Plan amendments		-			-			(19,219	)		-
Actuarial (gain) loss		4,805			(5,670	)		(33,773	)		(5,023	)
Benefits paid		(28,174	)		(26,687	)		(19,687	)		(19,596	)
Benefit obligation at end of year	$	657,406		$	620,048		$	256,044		$	297,433

Funded status	$	(65,778	)	$	(68,480	)	$	(76,669	)	$	(139,584	)
Amounts not recognized in consolidated balance sheets:
Unrecognized net (gain) loss		(34,319	)		(12,907	)		42,768			83,509
Unrecognized prior service cost		15,157			17,915			-			5,451
Unrecognized net transition obligation (asset)		-			(792	)		19,641			36,992
Net amount recognized in the consolidated balance sheets	$	(84,940	)	$	(64,264	)	$	(14,260	)	$	(13,632	)

Net amount recognized in the consolidated balance sheets consists of:
Prepaid benefit cost	$	-		$	39		$	-		$	-
Accrued benefit liability		(117,357	)		(100,490	)		(14,260	)		(13,632	)
Intangible assets		14,653			17,367			-			-
Regulatory assets		17,764			18,820			-			-
Net amount recognized	$	(84,940	)	$	(64,264	)	$	(14,260	)	$	(13,632	)

The portion of the pension projected benefit obligation, included in the table above, related to the supplemental executive retirement plan was $106.5 million and $105.1 million as of December 31, 2004 and 2003, respectively. The supplemental executive retirement plan has no assets, and accordingly, the fair value of its plan assets was zero as of December 31, 2004 and 2003. The accumulated benefit obligation for all defined benefit pension plans was $585.4 million and $554.6 million at December 31, 2004 and 2003, respectively. Of these amounts, the supplemental executive retirement plan accumulated benefit obligation totaled $102.3 million and $100.5 million for 2004 and 2003, respectively.

Although the supplemental executive retirement plan had no assets as of December 31, 2004, the Company has Rabbi trusts that hold corporate-owned life insurance and other investments to provide funding for the future cash requirements. Because this plan is nonqualified, the cash surrender value of these assets is not included in the plan assets. The cash surrender value of the Rabbi trust investments was $98.8 million and $88.1 million at December 31, 2004 and 2003, respectively.

Plan Assets

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

The Company’s pension plan asset allocations at December 31, 2004 and 2003, are as follows:

	Percentage of
	Plan Assets
	at December 31					Target
		2004		2003			Range
Asset Category
Equity securities		71	%	70	%		65-75	%
Debt securities		22	%	23	%		20-30	%
Real estate		6	%	7	%		0-10	%
Other		1	%	-	%		0-5	%
Total		100	%	100	%

The Company’s postretirement benefit plan asset allocations at December 31, 2004, and 2003, are as follows:

	Percentage of
	Plan Assets
	at December 31					Target
		2004		2003			Range
Asset Category
Equity securities		49	%	49	%		45-55	%
Debt securities		47	%	48	%		45-55	%
Other		4	%	3	%		0-10	%
Total		100	%	100	%

Cash Flows

MidAmerican Energy’s expected benefit payments for its pension and postretirement plans for 2005 through 2009 and for the five years thereafter are summarized below (in thousands):

	Pension Benefits		Postretirement Benefits

2005	$	30,670	$	12,241
2006		32,728		11,731
2007		34,972		12,618
2008		38,092		13,432
2009		42,339		14,321
2010-14	$	267,549	$	87,264

Employer contributions to the domestic pension and postretirement plans are currently expected to be $6.6 million and $15.8 million, respectively, for 2005. The Company’s policy is to contribute the minimum required amount to the pension plan and the amount expensed to its postretirement plans.

The Company sponsors defined contribution pension plans (401(k) plans) covering substantially all domestic employees. The Company’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 $17.1 million, $15.5 million and $12.0 million for 2004, 2003 and 2002, respectively.

In December 2003, the President signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“Medicare Act”). The Medicare Act introduces a prescription drug benefit under Medicare as well as a subsidy to sponsors of retiree health care plans that provide a benefit to participants that is at least actuarially equivalent to Medicare Part D. The Medicare Act is expected to ultimately reduce the Company’s postretirement costs from what they would have been absent such changes. Detailed regulations pertaining to the Medicare Act were promulgated in July 2004, resulting in a $23.8 million reduction in the accumulated postretirement obligation, which has been reflected as an actuarial gain in the table above. The impact of the Medicare Act on the net periodic postretirement benefit expense will initially be recognized in 2005 in conjunction with the next valuation of the postretirement plans.

United Kingdom Operations

Certain wholly-owned subsidiaries of CE Electric UK participate in the Electricity Supply Pension Scheme (the “UK Plan”), which provides pension and other related defined benefits, based on final pensionable pay, to substantially all employees throughout the electricity supply industry in the United Kingdom.

Net periodic pension benefit cost included the following components for CE Electric UK for the years ended December 31. For purposes of calculating the expected return on pension plan assets, a market-related value is used. Market-related value is equal to fair value except for gains and losses on equity investments which are amortized into market-related value on a straight-line basis over five years.

	Pension Cost
		2004			2003			2002
Service cost	$	12,100		$	9,485		$	8,718
Interest cost		73,515			62,632			56,817
Expected return on plan assets		(98,448	)		(89,124	)		(85,927	)
Amortization of prior service cost		1,915			1,472			1,202
Amortization of loss		12,742			537			-
Curtailment loss		-			-			6,463
Net periodic expense (benefit)	$	1,824		$	(14,998	)	$	(12,727	)

Weighted-average assumptions used to determine benefit obligations at December 31:

	2004		2003		2002
Discount rate	5.25	%	5.50	%	5.75	%
Rate of compensation increase	2.75	%	2.75	%	2.50	%

Weighted-average assumptions used to determine net benefit cost for years ended December 31:

	2004		2003		2002
Discount rate	5.50	%	5.75	%	5.75	%
Expected return on plan assets	7.00	%	7.00	%	7.00	%
Rate of compensation increase	2.75	%	2.50	%	2.50	%

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 UK Plan to the net amounts measured and recognized in the accompanying consolidated balance sheets as of December 31 (in thousands):

	Pension Benefits
		2004			2003
Reconciliation of the fair value of plan assets:
Fair value of plan assets at beginning of year	$	1,206,216		$	976,427
Employer contributions		17,600			14,391
Participant contributions		6,417			4,742
Actual return on plan assets		106,515			152,246
Benefits paid		(65,265	)		(57,726	)
Foreign currency exchange rate changes		93,239			116,136
Fair value of plan assets at end of year	$	1,364,722		$	1,206,216

Reconciliation of benefit obligation:
Benefit obligation at beginning of year	$	1,334,587		$	1,102,730
Service cost		12,100			9,485
Interest cost		73,515			62,632
Participant contributions		6,417			4,742
Benefits paid		(65,265	)		(57,726	)
Experience loss and change of assumptions		104,315			83,890
Foreign currency exchange rate changes		105,910			128,834
Benefit obligation at end of year	$	1,571,579		$	1,334,587

Funded status	$	(206,857	)	$	(128,371	)
Unrecognized net loss		614,182			507,039
Net amount recognized in the consolidated balance sheets	$	407,325		$	378,668

Amounts recognized in the consolidated balance sheets consist of:
Prepaid benefit cost	$	407,325		$	378,668
Accrued benefit liability		(561,988	)		(496,147	)
Intangible assets		16,119			16,604
Accumulated other comprehensive income		545,869			479,543
Net amount recognized	$	407,325		$	378,668

The accumulated benefit obligation for the defined benefit pension plan was $1.5 billion and $1.3 billion at December 31, 2004 and 2003, respectively.

The Company recorded a minimum pension liability as of December 31, 2004 and 2003 in the amount of $545.9 million and $479.5 million, respectively. The pension liability is primarily due to the decline in market value of the pension plan assets during 2002 combined with the effects of lower discount rates and higher rates of compensation increases used to value the plan’s liabilities in 2004 and 2003, as well as, mortality assumption changes which increased the liability. As of December 31, 2004 and 2003, the minimum pension liability is measured as the amount of the plan’s accumulated benefit obligation that is in excess of the plan’s market value of assets at December 31, 2004 and 2003 plus the prepaid asset balance. A charge equal to the excess was recorded to the Company’s stockholders’ equity, net of income tax benefits, as a component of comprehensive loss in the amount of $46.4 million and $27.1 million in 2004 and 2003, respectively. This adjustment does not impact current year earnings, or the funding requirements of the plan.

Plan Assets

CE Electric UK’s investment policy for its pension and postretirement plans is to balance risk and return through a diversified portfolio of high-quality equity and fixed income securities. Maturities for fixed income securities are managed such that sufficient liquidity exists to meet near-term benefit payment obligations. The plans retain outside investment advisors to manage plan investments within the parameters outlined by the Benefits Committee of subsidiaries of CE Electric UK. The weighted average return on assets assumption is based on historical performance for the types of assets in which the plans invest.

CE Electric UK’s pension plan asset allocation consists of the following at December 31:

	Percentage of
	Plan Assets
	at December 31 ,
		2004		2003		Target
Asset Category
Equity securities		49	%	64	%	50	%
Debt securities		39	%	26	%	40	%
Real estate		11	%	9	%	10	%
Other		1	%	1	%	-
Total		100	%	100	%	100	%

Cash Flows

CE Electric UK's expected benefit payments relative to the UK Plan for 2005 through 2009 and for the five years thereafter are summarized below (in millions):

2005	$	67.5
2006		67.0
2007		67.7
2008		68.1
2009		70.5
2010-14	$	369.8

Employer contributions to fund the ongoing liabilities of the UK Plan were approximately $14.7 million in 2004. The triennial process of valuing the UK Plan's assets and liabilities, which will value the plan assets and liabilities as of March 31, 2004, is underway. This valuation will set a revised level of contributions for the next three years. The preliminary report of the actuaries conducting the valuation showed a funding deficiency of $365.2 million. Based on the preliminary valuation, CE Electric UK has proposed that its subsidiaries contribute $63.6 million to the UK Plan each year, which amount includes $42.7 million each year in respect of the existing funding deficiency. The amount in respect of the funding deficiency has been calculated based on eliminating the funding deficiency over 12 years commencing April 1, 2005. Discussions on the appropriate level of contributions continue with the UK Plan trustees in accordance with the UK Plan rules.

23. Segment Information

The Company has identified seven reportable segments: MidAmerican Energy, Kern River, Northern Natural Gas, CE Electric UK, CalEnergy Generation-Foreign, CalEnergy Generation-Domestic and HomeServices. The Company’s determination of reportable segments considers the strategic units under which the Company is managed. The Company’s foreign reportable segments include CE Electric UK and CalEnergy Generation-Foreign. The reportable segment financial information includes all necessary adjustments and eliminations needed to conform to the Company’s significant accounting policies including the allocation of goodwill and fair value adjustments relating to acquisitions. Additionally, the activity of the Company’s Mineral Assets, which was previously reported in the CalEnergy Generation-Domestic reportable segment, is presented as discontinued operations within the accompanying consolidated financial statements. Information related to the Company’s reportable segments is shown below (in thousands).

	Year Ended December 31,
		2004			2003			2002
Operating revenue:
MidAmerican Energy	$	2,701,700		$	2,600,239		$	2,240,879
Kern River		316,131			260,182			127,254
Northern Natural Gas		544,822			486,878			178,118
CE Electric UK		936,364			829,993			795,366
CalEnergy Generation-Foreign		307,395			326,454			326,316
CalEnergy Generation-Domestic		38,960			45,154			38,478
HomeServices		1,756,454			1,476,569			1,138,332
Total reportable segments		6,601,826			6,025,469			4,844,743
Corporate/other ⁽¹⁾		(48,438	)		(59,839	)		(49,564	)
Total operating revenue	$	6,553,388		$	5,965,630		$	4,795,179

Depreciation and amortization:
MidAmerican Energy	$	266,409		$	281,001		$	269,412
Kern River		53,250			36,771			17,165
Northern Natural Gas		67,913			52,716			18,151
CE Electric UK		137,746			125,000			116,792
CalEnergy Generation-Foreign		90,328			87,928			88,036
CalEnergy Generation-Domestic		8,721			8,882			8,648
HomeServices		20,827			17,560			22,072
Total reportable segments		645,194			609,858			540,276
Corporate/other ⁽¹⁾		(6,985	)		(6,924	)		(10,198	)
Total depreciation and amortization	$	638,209		$	602,934		$	530,078

Interest expense:
MidAmerican Energy	$	125,189		$	123,395		$	122,561
Kern River		76,671			79,272			47,034
Northern Natural Gas		53,100			56,008			23,550
CE Electric UK		202,067			180,207			189,554
CalEnergy Generation-Foreign		42,696			59,603			68,338
CalEnergy Generation-Domestic		18,971			19,736			20,043
HomeServices		2,837			3,864			4,256
Total reportable segments		521,531			522,085			475,336
Corporate/other ⁽¹⁾		184,811			189,083			156,797
Parent company subordinated debt ⁽²⁾		196,875			49,788			-
Total interest expense	$	903,217		$	760,956		$	632,133

	Year Ended December 31,
		2004			2003			2002
Income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income:
MidAmerican Energy	$	267,838		$	271,437		$	238,761
Kern River		142,643			133,720			60,700
Northern Natural Gas		217,981			127,307			42,882
CE Electric UK		325,844			288,720			266,755
CalEnergy Generation-Foreign		165,703			177,568			147,936
CalEnergy Generation-Domestic		3,071			2,120			(1,155	)
HomeServices		111,906			89,981			61,202
Total reportable segments		1,234,986			1,090,853			817,081
Corporate/other ^(1) (2)		(435,793	)		(232,862	)		(185,443	)
Total income from continuing operations before income tax expense, minority interest and preferred dividends of subsidiaries and equity income	$	799,193		$	857,991		$	631,638

Income tax expense:
MidAmerican Energy	$	87,336		$	110,078		$	99,782
Kern River		54,148			51,319			23,014
Northern Natural Gas		84,423			50,599			16,947
CE Electric UK		80,211			91,539			25,245
CalEnergy Generation-Foreign		62,548			62,130			31,924
CalEnergy Generation-Domestic		1,217			1,078			(4,611	)
HomeServices		52,996			43,587			28,207
Total reportable segments		422,879			410,330			220,508
Corporate/other ⁽¹⁾		(157,893	)		(140,054	)		(109,230	)
Total income tax expense	$	264,986		$	270,276		$	111,278

Capital expenditures:
MidAmerican Energy	$	633,807		$	346,449		$	332,845
Kern River		26,936			433,125			692,586
Northern Natural Gas		138,747			104,400			62,409
CE Electric UK		334,458			301,896			222,622
CalEnergy Generation-Foreign		4,633			8,497			7,830
CalEnergy Generation-Domestic		1,341			6,619			(1,640	)
HomeServices		20,786			18,311			18,273
Total reportable segments		1,160,708			1,219,297			1,334,925
Corporate/other ⁽¹⁾		18,682			71			7,373
Total capital expenditures	$	1,179,390		$	1,219,368		$	1,342,298

	As of December 31,
	2004			2003			2002

Total assets:
MidAmerican Energy	$	7,274,999		$	6,596,849		$	6,411,143
Kern River		2,135,265			2,200,201			1,797,850
Northern Natural Gas		2,200,846			2,167,621			2,162,367
CE Electric UK		5,794,887			5,038,880			4,714,459
CalEnergy Generation-Foreign		767,465			951,155			974,852
CalEnergy Generation-Domestic		553,741			1,113,172			1,145,456
HomeServices		724,592			567,736			488,324
Total reportable segments		19,451,795			18,635,614			17,694,451
Corporate/other ⁽¹⁾		451,767			509,338			740,469
Total assets	$	19,903,562		$	19,144,952		$	18,434,920

Long-lived assets:
MidAmerican Energy	$	3,892,031		$	3,385,056		$	3,236,046
Kern River		1,945,094			1,976,213			1,650,387
Northern Natural Gas		1,491,428			1,430,475			1,403,748
CE Electric UK		3,691,459			3,227,723			2,741,277
CalEnergy Generation-Foreign		520,406			621,674			724,908
CalEnergy Generation-Domestic		256,429			738,296			739,940
HomeServices		59,827			53,518			45,078
Total reportable segments		11,856,674			11,432,955			10,541,384
Corporate/other ⁽¹⁾		(249,410	)		(251,976	)		(256,897	)
Total long-lived assets	$	11,607,264		$	11,180,979		$	10,284,487

(1)	The remaining differences between the segment amounts and the consolidated amounts described as “Corporate/other” relate principally to the corporate functions including administrative costs, interest expense, corporate cash and related interest income, intersegment eliminations and fair value adjustments relating to acquisitions.

(2)	The Company adopted and applied the provisions of FIN 46R related to certain finance subsidiaries as of October 1, 2003. The adoption required amounts previously recorded in minority interest and preferred dividends of subsidiaries to be recorded as interest expense in the accompanying consolidated statements of operations. For the year ended December 31, 2004, and the three-month period ended December 31, 2003, the Company has recorded $196.9 million and $49.8 million, respectively, of interest expense related to these securities. In accordance with the requirements of FIN 46R, no amounts prior to adoption of FIN 46R on October 1, 2003 have been reclassified. The amounts included in minority interest and preferred dividends of subsidiaries related to these securities for the nine-month period ended September 30, 2003, and the year ended December 31, 2002, were $170.2 million and $147.7 million, respectively.

The following table shows the change in the carrying amount of goodwill by reportable segment for the years ended December 31, 2004 and 2003 (in thousands):

	MidAmerican Energy	Kern River	Northern Natural Gas	CE Electric UK	Cal Energy Generation Domestic	Home- Services	Total
Balance, January 1, 2003	$ 2,149,282	$ 32,547	$ 414,721	$ 1,195,321	$ 126,440	$ 339,821	$ 4,258,132
Goodwill from acquisitions during the year	-	-	-	-	-	26,648	26,648
Other goodwill adjustments ⁽¹⁾	(10,059 )	1,353	(35,573 )	66,262	(132 )	(988 )	20,863
Balance, December 31, 2003	2,139,223	33,900	379,148	1,261,583	126,308	365,481	4,305,643
Goodwill from acquisitions during the year	-	-	-	-	-	32,120	32,120
Impairment losses ⁽²⁾	-	-	-	-	(52,776)	-	(52,776)
Other goodwill adjustments ⁽¹⁾	(18,098 )	-	(24,236 )	68,208	(1,038 )	(3,072 )	21,764
Balance, December 31, 2004	$ 2,121,125	$ 33,900	$ 354,912	$ 1,329,791	$ 72,494	$ 394,529	$ 4,306,751

(1)	Other goodwill adjustments include income tax, foreign currency translation and purchase price adjustments.

(2)	Impairment losses relate to the write-off of the Mineral Assets - see Note 3.

100

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

None.

Item 9A. Controls and Procedures.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the chief executive officer and chief financial officer, regarding the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2004. Based on that evaluation, the Company’s management, including the chief executive officer and chief financial officer, concluded that the Company’s disclosure controls and procedures were effective. There have been no significant changes during the fourth quarter of 2004 in the Company’s internal controls or in other factors that could significantly affect internal controls.

Item 9B. Other Information.

None.

101

PART III

Item 10. Directors and Executive Officers of the Registrant.

MEHC’s management structure is organized functionally and the current executive officers and directors of MEHC and their positions are as follows:

Name	Position

David L. Sokol	Chairman of the Board, Chief Executive Officer and Director
Gregory E. Abel	President, Chief Operating Officer and Director
Patrick J. Goodman	Senior Vice President and Chief Financial Officer
Douglas L. Anderson	Senior Vice President, General Counsel and Corporate Secretary
Keith D. Hartje	Senior Vice President, Communications, General Services and Safety Audit and Compliance
Warren E. Buffett	Director
Walter Scott Jr.	Director
Marc D. Hamburg	Director
W. David Scott	Director
Edgar D. Aronson	Director
John K. Boyer	Director
Stanley J. Bright	Director
Richard R. Jaros	Director

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

Set forth below is certain information, as of January 1, 2005, with respect to each of the foregoing officers and directors:

DAVID L. SOKOL, 48, Chairman of the Board of Directors and Chief Executive Officer. Mr. Sokol has been the Chief Executive Officer since April 19, 1993 and served as President of MEHC from April 19, 1993 until January 21, 1995. Mr. Sokol has been Chairman of the Board of Directors 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, which at that time was a wholly owned subsidiary of Peter Kiewit & Sons’, Inc., and Ogden Projects, Inc.

GREGORY E. ABEL, 42, President, Chief Operating Officer and Director. Mr. Abel joined MEHC in 1992 and initially served as Vice President and Controller. Mr. Abel is a Chartered Accountant and from 1984 to 1992 was employed by Price Waterhouse. As a Manager in the San Francisco office of Price Waterhouse, he was responsible for clients in the energy industry.

PATRICK J. GOODMAN, 38, Senior Vice President and Chief Financial Officer. Mr. Goodman joined MEHC in 1995 and served in various accounting positions including Senior Vice President and Chief Accounting Officer. Prior to joining MEHC, Mr. Goodman was a financial manager for National Indemnity Company and a senior associate at Coopers & Lybrand.

DOUGLAS L. ANDERSON, 46, Senior Vice President and General Counsel. Mr. Anderson joined MEHC in February 1993 and has served in various legal positions including General Counsel of the Company’s independent power affiliates. From 1990 to 1993, Mr. Anderson was a corporate attorney with Fraser, Stryker in Omaha, NE. Prior to that Mr. Anderson was a principal in the firm Anderson and Anderson.

KEITH D. HARTJE, 54, Senior Vice President, Communications, General Services and Safety Audit and Compliance. Mr. Hartje has been with MidAmerican Energy and its predecessor companies since 1973. In that time, he has held a number of positions, including General Counsel and Corporate Secretary, District Vice President for southwest Iowa operations, and Vice President, Corporate Communications.

102

WARREN E. BUFFETT, 74, Director. Mr. Buffett has been a director of MEHC since March 2000. He is Chairman of the Board and Chief Executive Office of Berkshire Hathaway. Mr. Buffett is a Director of the Coca-Cola Company, the Gillette Company and The Washington Post Company.

WALTER SCOTT, JR., 73, Director. Mr. Scott has been a director of MEHC since June 1991. Mr. Scott was the Chairman and Chief Executive Officer of MEHC from January 8, 1992 until April 19, 1993. For more than the past five years, he has been Chairman of the Board of Directors of Level 3 Communications, Inc., a successor to certain businesses of Peter Kiewit & Sons’, Inc. Mr. Scott is a director of Peter Kiewit & Sons’, Inc., Berkshire Hathaway, Burlington Resources, Inc., ConAgra, Inc., Valmont Industries, Inc., Kiewit Materials Co., Commonwealth Telephone Enterprises, Inc. and RCN Corporation. Mr. Scott is the father of W. David Scott.

MARC D. HAMBURG, 55, Director. Mr. Hamburg has been a director of MEHC since March 2000. He has served as Vice President - Chief Financial Officer of Berkshire Hathaway since October 1, 1992 and Treasurer since June 1, 1987, his date of employment with Berkshire Hathaway.

W. DAVID SCOTT, 43, Director. Mr. Scott has been a director of MEHC since March 2000. Mr. Scott formed Magnum Resources, Inc., a commercial real estate investment and management company, in October 1994 and has served as its President and Chief Executive Officer since its inception. Before forming Magnum Resources, Mr. Scott worked for America First Companies, Cornerstone Banking Group and Peter Kiewit & Sons’, Inc. Mr. Scott has been a director of America First Mortgage Investments, Inc., a mortgage REIT, since 1998. Mr. Scott is the son of Walter Scott, Jr.

EDGAR D. ARONSON, 70, Director. Mr. Aronson has been a director of MEHC since 1983. Mr. Aronson founded EDACO, Inc., a private venture capital company, in 1981, and has been President of EDACO, Inc. since that time. Prior to that, Mr. Aronson was Chairman of Dillon, Read International from 1979 to 1981 and a General Partner in charge of the International Department of Salomon Brothers Inc. from 1973 to 1979. Mr. Aronson served during 1962-1968 as Vice President consecutively in the International Departments of First National Bank of Chicago and Republic National Bank of New York. He founded the International Department of Salomon Brothers and Hutzler in 1968.

JOHN K. BOYER, 60, Director. Mr. Boyer has been a director of MEHC since March 2000. He is a partner with Fraser, Stryker, Meusey, Olson, Boyer & Bloch, P.C. where he has practiced from 1973 to present with emphasis on corporate, commercial, federal, state, and local taxation.

STANLEY J. BRIGHT, 64, Director. Mr. Bright was Chairman and Chief Executive Officer of MidAmerican Energy from July 1, 1995 until March 1999. Mr. Bright joined Iowa-Illinois Gas and Electric Company (a predecessor of MidAmerican Energy) as Vice President and Chief Financial Officer in 1986, became a director in 1987, President and Chief Operating Officer in 1990, and Chairman and Chief Executive Officer in 1991.

RICHARD R. JAROS, 52, Director. Mr. Jaros has been a director of MEHC since March 1991. Mr. Jaros served as President and Chief Operating Officer of MEHC from January 8, 1992 to April 19, 1993 and as Chairman of the Board from April 19, 1993 to May 1994. Until July 1997, Mr. Jaros was Executive Vice President and Chief Financial Officer of Peter Kiewit & Sons’, Inc. and President of Kiewit Diversified Group, Inc., which is now Level 3 Communications, Inc. Mr. Jaros serves as director of Commonwealth Telephone Enterprises, Inc., RCN Corporation and Level 3 Communications, Inc.

Audit Committee Members and Financial Experts

The audit committee of the Board of Directors is comprised of Messrs. Marc D. Hamburg and Richard R. Jaros. The Board of Directors has determined that Messrs. Hamburg and Jaros qualify as “audit committee financial experts,” as defined by Securities and Exchange Commission Rules, based on their education, experience and background. Mr. Jaros is independent as that term is used in Item 7(d) (3) (IV) of Schedule 14A under the Exchange Act.

Code of Ethics

MEHC has adopted a code of ethics that applies to its principal executive officer, its principal financial officer, its chief accounting officer and certain other covered officers. The code of ethics is filed as an exhibit to this annual report on Form 10-K.

103

Item 11. Executive Compensation.

The following table sets forth the compensation of MEHC’s Chief Executive Officer and its four other most highly compensated executive officers who were employed as of December 31, 2004, which MEHC refers to as its Named Executive Officers. Information is provided regarding its Named Executive Officers for the last three fiscal years during which they were its executive officers, if applicable.

Name and Principal Positions	Year Ended Dec. 31		Salary ⁽¹⁾		Bonus ⁽¹⁾		Other Annual Comp ⁽²⁾		LTIP Payouts		All Other Comp ⁽³⁾
David L. Sokol	2004	$	800,000	$	2,500,000	$	131,644	$	-	$	9,995
Chairman and Chief	2003		800,000		2,750,000		141,501		-		9,800
Executive Officer	2002		800,000		2,750,000		27,232,047		-		8,850

Gregory E. Abel	2004		720,000		2,200,000		80,424		-		9,995
President and	2003		700,000		2,200,000		87,162		-		9,800
Chief Operating Officer	2002		540,000		2,200,000		-		-		8,857

Patrick J. Goodman	2004		290,000		295,000		-		257,664		88,391
Senior Vice President and	2003		275,000		285,000		-		-		108,631
Chief Financial Officer	2002		248,000		260,000		209,970		-		(16,342	)

Douglas L. Anderson	2004		270,000		240,000		-		151,585		77,145
Senior Vice President and	2003		260,000		240,000		-		-		83,703
General Counsel	2002		200,000		220,000		-		-		(7,289	)

Keith D. Hartje	2004		180,000		65,000		-		128,847		54,774
Senior Vice President,	2003		180,000		65,000		-		-		71,317
Communications, General	2002		180,000		65,000		-		-		(3,015	)
Services and Safety Audit and
Compliance

______________

(1)	Includes amounts voluntarily deferred by the executive, if applicable.

(2)

Consists of perquisites and other benefits if the aggregate amount of such benefits exceeds the lesser of either $50,000 or 10% of the total of salary and bonus reported for the Named Executive Officer. The amounts shown include the personal use of aircraft for 2004 for Mr. Sokol of $100,726 and for Mr. Abel of $73,859.

(3)

Consists of the 2004 earnings on the MEHC Long-Term Incentive Partnership Plan (“LTIP”) awards not paid out in 2004 and 401(k) plan contributions. For 2004, LTIP earnings on awards not paid out in 2004 were $78,396 for Mr. Goodman, $67,150 for Mr. Anderson and $44,979 for Mr. Hartje. Messrs. Sokol and Abel are not participants in the LTIP. Additionally, the amounts shown include company 401(k) contributions for 2004 for Messrs. Sokol, Abel, Goodman and Anderson of $9,995 and for Mr. Hartje of $9,795.

Pursuant to MEHC’s Executive Incremental Profit Sharing Plan, Messrs. Sokol and Abel are each eligible to receive a one-time profit sharing award of $11.25 million, $18.75 million or $37.5 million based upon achieving specified adjusted diluted earnings per share targets for any calendar year from 2004 through 2007 and continued employment during such time.

Option Grants in Last Fiscal Year

MEHC did not grant any options during 2004.

104

Aggregated Option Exercises In Last Fiscal Year And Fiscal Year End Option Values

The following table sets forth the option exercises and the number of securities underlying exercisable and unexercisable options held by each of its Named Executive Officers at December 31, 2004.

	Shares
	Acquired
	On		Underlying Unexercised			Value of Unexercised
	Exercise	Value	Options Held (#)			In-the-money Options ($) ⁽¹⁾
Name	(# )	Realized	Exercisable	Unexercisable		Exercisable	Unexercisable

David Sokol	-	-	1,399,277	-	$	113,073,927	N/A
Gregory E. Abel	-	-	649,052	-	$	55,748,672	N/A
Patrick J. Goodman	-	-	-	-		-	-
Douglas L. Anderson	-	-	-	-		-	-
Keith D. Hartje	-	-	-	-		-	-

______________

(1)	On March 14, 2000, MEHC was acquired by a private investor group. As a privately held company, MEHC has no publicly traded equity securities. The value shown is based on an assumed fair market value of the stock of $113 per share as of December 31, 2004, as agreed to by MEHC stockholders.

Long-Term Incentive Plans - Awards in Last Fiscal Year

	Number of	Performance or
	Shares,	Other Period Until
	Units or Other	Maturation	Threshold	Target	Maximum
Name	Rights (#)	Or Payout	($) ⁽¹⁾	($) ⁽¹⁾	($) ⁽¹⁾

Patrick J. Goodman	N/A	December 31, 2008	40,000	N/A	N/A
Douglas L. Anderson	N/A	December 31, 2008	40,000	N/A	N/A
Keith D. Hartje	N/A	December 31, 2008	40,000	N/A	N/A

______________

(1)

The awards shown in the foregoing table are made pursuant to the LTIP. The amounts shown are dollar amounts credited to an investment account for the benefit of the named executive officers and such amounts vest equally over five years (starting with year 2004) with any unvested balances forfeited upon termination of employment. Vested balances (including any investment performance profits or losses thereon) are paid to the participant at the time of termination. Once an award is fully vested, the participant may elect to defer or receive payment of part or the entire award. Awards are credited or reduced with annual interest or loss based on a composite of funds or indices. Because the amounts to be paid out may increase or decrease depending on investment performance, the ultimate benefits are undeterminable and the payouts do not have a “target” or “maximum” amount.

Compensation of Directors

All directors, excluding Messrs. Sokol, Abel, Buffett and Walter Scott Jr., are paid an annual retainer fee of $24,000 and a fee of $500 per day for attendance at Board and Committee meetings. Directors who are employees are not entitled to receive such fees. All directors are reimbursed for their expenses incurred in attending Board meetings.

105

Retirement Plans

The MidAmerican Energy Company Supplemental Retirement Plan for Designated Officers (the “SERP”), provides additional retirement benefits to designated participants, as determined by the Board of Directors. Messrs. Sokol, Abel, Goodman and Hartje are participants in the SERP. The SERP provides annual retirement benefits up to sixty-five percent of a participant’s Total Cash Compensation in effect immediately prior to retirement, subject to a $1 million maximum retirement benefit. “Total Cash Compensation” means the highest amount payable to a participant as monthly base salary during the five years immediately prior to retirement multiplied by 12 plus the average of the participant’s last three years awards under an annual incentive bonus program and special, additional or non-recurring bonus awards, if any, that are required to be included in Total Cash Compensation pursuant to a participant’s employment agreement or approved for inclusion by the Board. Participants must be credited with five years of service to be eligible to receive benefits under the SERP. Each of the Company’s Named Executive Officers has or will have five years of credited service with the Company as of their respective normal retirement age and will be eligible to receive benefits under the SERP. A participant who elects early retirement is entitled to reduced benefits under the SERP, however, in accordance with their respective employment agreements, Messrs. Sokol and Abel are eligible to receive the maximum retirement benefit at age 47. A survivor benefit is payable to a surviving spouse under the SERP. Benefits from the SERP will be paid out of general corporate funds; however, through a Rabbi trust, the Company maintains life insurance on the participants in amounts expected to be sufficient to fund the after-tax cost of the projected benefits. Deferred compensation is considered part of the salary covered by the SERP.

The SERP benefit will be reduced by the amount of the participant’s regular retirement benefit under the MidAmerican Energy Company Cash Balance Retirement Plan (the “MidAmerican Retirement Plan”), which became effective January 1, 1997, and by benefits under the Iowa Resources Inc. and Subsidiaries Supplemental Retirement Income Plan (the “IOR Supplemental Plan”), as applicable.

Part A of IOR Supplemental Plan provides retirement benefits up to sixty-five percent of a participant’s highest annual salary during the five years prior to retirement reduced by the participant’s MidAmerican Retirement Plan benefit. The percentage applied is based on years of credited service. A participant who elects early retirement is entitled to reduced benefits under the plan. A survivor benefit is payable to a surviving spouse. Benefits are adjusted annually for inflation. Part B of the IOR Supplemental Plan provides that an additional one hundred-fifty percent of annual salary is to be paid out to participants at the rate of ten percent per year over fifteen years, except in the event of a participant’s death, in which event the unpaid balance would be paid to the participant’s beneficiary or estate. Deferred compensation is considered part of the salary covered by the IOR Supplemental Plan.

The MidAmerican Retirement Plan replaced retirement plans of predecessor companies that were structured as traditional, defined benefit plans. Under the MidAmerican Retirement Plan, each participant has an account, for record keeping purposes only, to which credits are allocated each payroll period based upon a percentage of the participant’s salary paid in the current pay period. In addition, all balances in the accounts of participants earn a fixed rate of interest that is credited annually. The interest rate for a particular year is based on the constant maturity Treasury yield plus seven-tenths of one percentage point. At retirement, or other termination of employment, an amount equal to the vested balance then credited to the account is payable to the participant in the form of a lump sum or a form of annuity for the entire benefit under the MidAmerican Retirement Plan.

106

The table below shows the estimated aggregate annual benefits payable under the SERP and the MidAmerican Retirement Plan. The amounts exclude Social Security and are based on a straight life annuity and retirement at ages 55, 60 and 65. Federal law limits the amount of benefits payable to an individual through the tax qualified defined benefit and contribution plans, and benefits exceeding such limitation are payable under the SERP.

Total Cash		Estimated Annual Benefit
Compensation		Age of Retirement
at Retirement ($)		55	60	65
$ 400,000		$ 220,000	$ 240,000	$ 260,000
500,000		275,000	300,000	325,000
600,000		330,000	360,000	390,000
700,000		385,000	420,000	455,000
800,000		440,000	480,000	520,000
900,000		495,000	540,000	585,000
1,000,000		550,000	600,000	650,000
1,250,000		687,500	750,000	812,500
1,500,000		825,000	900,000	975,000
1,750,000		962,500	1,000,000	1,000,000
$ 2,000,000	and greater	$ 1,000,000	$ 1,000,000	$ 1,000,000

Employment Agreements

Pursuant to his employment agreement, Mr. Sokol serves as Chairman of MEHC’s Board of Directors and Chief Executive Officer. The employment agreement provides that Mr. Sokol is to receive an annual base salary of not less than $750,000, senior executive employee benefits and annual bonus awards that shall not be less than $675,000. Subject to an annual renewal provision, such agreement is scheduled to expire on August 21, 2005.

The employment agreement provides that MEHC may terminate the employment of Mr. Sokol with cause, in which case MEHC is to pay to him any accrued but unpaid salary and a bonus of not less than the minimum annual bonus, or due to death, permanent disability or other than for cause, including a change in control, in which case Mr. Sokol is entitled to receive an amount equal to three times the sum of his annual salary then in effect and the greater of his minimum annual bonus or his average annual bonus for the two preceding years, as well as three years of accelerated option vesting plus continuation of his senior executive employee benefits (or the economic equivalent thereof) for three years. If Mr. Sokol resigns, MEHC is to pay to him any accrued but unpaid salary and a bonus of not less than the annual minimum bonus, unless he resigns for good reason in which case he will receive the same benefits as if he were terminated other than for cause.

In the event Mr. Sokol has relinquished his position as Chief Executive Officer and is subsequently terminated as Chairman of the Board due to death, disability or other than for cause, he is entitled to (i) any accrued but unpaid salary plus an amount equal to the aggregate annual salary that would have been paid to him through the fifth anniversary of the date he commenced his employment solely as Chairman of the Board, (ii) the immediate vesting of all of his options, and (iii) the continuation of his senior executive employee benefits (or the economic equivalent thereof) through such fifth anniversary. If Mr. Sokol relinquishes his position as Chief Executive Officer but offers to remain employed as the Chairman of the Board, he is to receive a special achievement bonus equal to two times the sum of his annual salary then in effect and the greater of his minimum annual bonus or his average annual bonus for the two preceding years, as well as two years of accelerated option vesting.

Under the terms of separate employment agreements with MEHC, each of Messrs. Abel and Goodman is entitled to receive two years base salary continuation, payments in respect of average bonuses for the prior two years and two years continued option vesting in the event MEHC terminates his employment other than for cause. If such persons were terminated without cause, Messrs. Sokol, Abel and Goodman would currently be entitled to be paid approximately $10,650,000, $5,750,000 and $1,200,000, respectively, without giving effect to any tax related provisions.

107

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

The following table sets forth certain information regarding beneficial ownership of the shares of MEHC’s common stock and certain information with respect to the beneficial ownership of each director, its Named Executive Officers and all directors and executive officers as a group as of January 31, 2005.

	Number of Shares	Percentage
Name and Address of Beneficial Owner ⁽¹⁾	Beneficially Owned ⁽²⁾	Of Class ⁽²⁾
Common Stock:
Walter Scott, Jr. ⁽³⁾	5,000,000	55.06	%
David L. Sokol ⁽⁴⁾	1,523,482	14.54	%
Berkshire Hathaway ⁽⁵⁾	900,942	9.92	%
Gregory E. Abel ⁽⁶⁾	704,992	7.25	%
W. David Scott ⁽⁷⁾	624,350	6.88	%
Douglas L. Anderson	-	-
Edgar D. Aronson	-	-
Stanley J. Bright	-	-
John K. Boyer	-	-
Warren E. Buffett ⁽⁸⁾	-	-
Patrick J. Goodman	-	-
Marc D. Hamburg ⁽⁸⁾	-	-
Richard R. Jaros	-	-
Keith D. Hartje	-	-
All directors and executive officers as a group (14 persons)	8,753,766	77.40	%

______________

(1)	Unless otherwise indicated, each address is c/o MEHC at 666 Grand Avenue, 29th Floor, Des Moines, Iowa 50309.

(2)	Includes shares which the listed beneficial owner is deemed to have the right to acquire beneficial ownership under Rule 13d-3(d) under the Securities Exchange Act, including, among other things, shares which the listed beneficial owner has the right to acquire within 60 days.

(3)	Excludes 3 million shares held by family members and family controlled trusts and corporations (“Scott Family Interests”) as to which Mr. Scott disclaims beneficial ownership. Such beneficial owner’s address is 1000 Kiewit Plaza, Omaha, Nebraska 68131.

(4)	Includes options to purchase 1,399,277 shares of common stock that are exercisable within 60 days.

(5)	Such beneficial owner’s address is 1440 Kiewit Plaza, Omaha, Nebraska 68131.

(6)	Includes options to purchase 649,052 shares of common stock which are exercisable within 60 days. Excludes 10,041 shares reserved for issuance pursuant to a deferred compensation plan.

(7)	Includes shares held by trusts for the benefit of or controlled by W. David Scott. Such beneficial owner’s address is 11422 Miracle Hills Drive, Suite 400, Omaha, Nebraska 68154.

(8)	Excludes 900,942 shares of common stock held by Berkshire Hathaway of which beneficial ownership of such shares is disclaimed.

The terms of MEHC’s Zero Coupon Convertible Preferred Stock held by Berkshire Hathaway entitle the holder thereof to elect two members of its Board of Directors. The Zero Coupon Convertible Preferred Stock does not vote as to the election of any other members of MEHC’s Board of Directors. Mr. Sokol’s employment agreement gives him the right during the term of his employment to serve as a member of the Board of Directors and to designate two additional directors.

108

Pursuant to a shareholders agreement, following March 14, 2003, Walter Scott, Jr. or any of the Scott Family Interests are able to require Berkshire Hathaway to purchase, for an agreed value or an appraised value, any or all of Walter Scott, Jr.’s and the Scott Family Interests’ shares of MEHC’s common stock, provided that Berkshire Hathaway is then a purchaser of a type which is able to consummate such a purchase without causing it or any of its affiliates or MEHC or any of its subsidiaries to become subject to regulation as a registered holding company or a subsidiary of a registered holding company under PUHCA. Berkshire Hathaway is not currently such a purchaser. The consummation of such a transaction could result in a change in control with respect to MEHC.

MEHC’s Amended and Restated Articles of Incorporation provide that each share of the Zero Coupon Convertible Preferred Stock is convertible at the option of the holder thereof into one conversion unit, which is one share of its common stock subject to certain adjustments as described in its articles, upon the occurrence of a Conversion Event. A “Conversion Event” includes (1) any conversion of Zero Coupon Convertible Preferred Stock that would not cause the holder of the shares of common stock issued upon conversion (or any affiliate of such holder) or the Company to become subject to regulation as a registered holding company or as a subsidiary of a registered holding company under PUHCA either as a result of the repeal or amendment of PUHCA, the number of shares involved or the identity of the holder of such shares and (2) a Company Sale. A “Company Sale” includes MEHC’s involuntary or voluntary liquidation, dissolution, recapitalization, winding-up or termination and mergers, consolidations or sale of all or substantially all of its assets. The conversion by Berkshire Hathaway of its shares of Zero Coupon Convertible Preferred Stock into MEHC’s common stock could result in a change in control with respect to beneficial ownership of its voting securities as calculated pursuant to Rule 13d-3(d) under the Securities Exchange Act.

Item 13. Certain Relationships and Related Transactions.

Under a subscription agreement with MEHC, which expires in March 2007, Berkshire Hathaway has agreed to purchase, under certain circumstances, additional 11% trust issued mandatorily redeemable preferred securities in the event that certain outstanding trust preferred securities of MEHC which were outstanding prior to the closing of its acquisition by a private investor group on March 14, 2000 are tendered for conversion to cash by the current holders.

MEHC provided a guarantee in favor of a third party lender in connection with a $1,663,998.75 loan from such lender to its President, Gregory E. Abel, in March 2000. The loan matures on April 1, 2010. The proceeds of this loan were used by Mr. Abel to purchase 47,475 shares of MEHC’s common stock. Such common stock (together with 8,465 additional shares of common stock owned by Mr. Abel) also secures the loan. The entire original principal amount of the loan and the guarantee remain presently outstanding.

In order to finance its acquisition of Northern Natural Gas, on August 16, 2002, MEHC sold to Berkshire Hathaway $950.0 million in aggregate principal amount of the 11% mandatorily redeemable trust issued preferred securities Series A, of its subsidiary trust, MidAmerican Capital Trust II, due August 31, 2012. The transaction was a private placement pursuant to Section 4(1) of the Securities Act and did not involve any underwriters, underwriting discounts or commissions. Scheduled principal payments began in August 2003. Messrs. Warren E. Buffett and Walter Scott, Jr. are members of the Board of Directors of Berkshire Hathaway. Messrs. Buffett and Marc D. Hamburg are executive officers of Berkshire Hathaway.

On January 6, 2004, MEHC purchased a portion of the shares of common stock owned by Mr. Sokol for an aggregate purchase price of $20.0 million.

Compensation Committee Interlocks and Insider Participation

The compensation committee of the Board of Directors is comprised of Messrs. Warren E. Buffett and Walter Scott, Jr. Mr. Walter Scott, Jr. is a former officer of the Company. See “Certain Relationships and Related Transactions.”

109

Item 14. Principal Accountant Fees and Services.

Aggregate fees billed to the Company as a consolidated entity during the fiscal years ending December 31, 2004 and 2003 by the Company’s principal accounting firm, Deloitte & Touche LLP and the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”), are set forth below. The audit committee has considered whether the provision of the non-audit services described below is compatible with maintaining the principal accountant’s independence.

	Year Ended December 31,
	2004		2003
	(in millions)
Audit Fees ⁽¹⁾	$	3.2	$	2.6
Audit-Related Fees ⁽²⁾		0.1		0.3
Tax Fees ⁽³⁾		0.4		0.9
All Other Fees ⁽⁴⁾		-		-
Total aggregate fees billed	$	3.7	$	3.8

______________

(1)

Includes the aggregate fees billed for each of the last two fiscal years for professional services rendered by Deloitte & Touche for the audit of the Company’s annual financial statements and the review of financial statements included in the Company’s Form 10-Q or for services that are normally provided by Deloitte & Touche in connection with statutory and regulatory filings or engagements for those fiscal years.

(2)

Includes the aggregate fees billed in each of the last two fiscal years for assurance and related services by Deloitte & Touche that are reasonably related to the performance of the audit or review of the Company’s financial statements. Services included in this category include audits of benefit plans, due diligence for possible acquisitions and consultation pertaining to new and proposed accounting and regulatory rules.

(3)	Includes the aggregate fees billed in each of the last two fiscal years for professional services rendered by Deloitte & Touche for tax compliance, tax advice, and tax planning.

(4)	Includes the aggregate fees billed in each of the last two fiscal years for products and services provided by Deloitte & Touche, other than the services reported as “Audit Fees,” “Audit-Related Fees,” or “Tax Fees”.

The audit committee reviewed the non-audit services rendered by Deloitte & Touche in and for fiscal 2004 as set forth in the above table and concluded that such services were compatible with maintaining the principal accountant’s independence. Under the Sarbanes-Oxley Act of 2002, all audit and non-audit services performed by the Company’s principal accountant are approved in advance by the audit committee to assure that such services do not impair the principal accountant’s independence from the Company. Accordingly, the audit committee has an Audit and Non-Audit Services Pre-Approval Policy (the “Policy”) which sets forth the procedures and the conditions pursuant to which services to be performed by the principal accountant are to be pre-approved. Pursuant to the Policy, certain services described in detail in the Policy may be pre-approved on an annual basis together with pre-approved maximum fee levels for such services. The services eligible for annual pre-approval consist of services that would be included under the categories of Audit Fees, Audit-Related Fees and Tax Fees. If not pre-approved on an annual basis, proposed services must otherwise be separately approved prior to being performed by the principal accountant. In addition, any services that receive annual pre-approval but exceed the pre-approved maximum fee level also will require separate approval by the audit committee prior to being performed. The audit committee may delegate authority to pre-approve audit and non-audit services to any member of the audit committee, but may not delegate such authority to management.

110

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)	Financial Statements and Schedules

	(i)	Financial Statements

		Financial Statements are included in Item 8 of this Form 10-K.

	(ii)	Financial Statement Schedules

		See Schedule I on page 112.
		See Schedule II on page 115.

		Schedules not listed above have been omitted because they are either not applicable, not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto.

(b)	Exhibits

	The exhibits listed on the accompanying Exhibit Index are filed as part of this Annual Report.

(c)	Financial statements required by Regulation S-X, which are excluded from the Annual Report by Rule 14a-3(b).

	Not applicable.

111

Schedule I

MidAmerican Energy Holdings Company

Parent Company Only

Condensed Balance Sheets

As of December 31, 2004 and 2003

(Amounts in thousands)

		2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	349,689		$	328,750
Investments in and advances to subsidiaries and joint ventures		6,141,843			5,731,915
Equipment, net		18,881			15,388
Goodwill		1,299,560			1,370,241
Deferred charges and other assets		168,805			180,331
Total assets	$	7,978,778		$	7,626,625

LIABILITIES AND STOCKHOLDERS ’ EQUITY
Current liabilities:
Accounts payable and other liabilities	$	55,535		$	52,934
Current portion of senior debt		260,000			-
Current portion of subordinated debt		188,543			100,000
Total current liabilities		504,078			152,934
Other long-term accrued liabilities		35,142			31,298
Notes payable — affiliate		76,000			86,045
Senior debt		2,771,957			2,777,878
Subordinated debt		1,585,810			1,772,146
Total liabilities		4,972,987			4,820,301

Deferred income		30,229			32,916
Minority interest		4,403			1,963

Stockholders’ equity:
Zero coupon convertible preferred stock — authorized 50,000 shares, no par value; 41,263 shares outstanding		-			-
Common stock — authorized 60,000 shares, no par value; 9,081 and 9,281 shares issued and outstanding at December 31, 2004 and 2003, respectively		-			-
Additional paid in capital		1,950,663			1,957,277
Retained earnings		1,156,843			999,627
Accumulated other comprehensive loss, net		(136,347	)		(185,459	)
Total stockholders’ equity		2,971,159			2,771,445
Total liabilities and stockholders ’ equity	$	7,978,778		$	7,626,625

The notes to the consolidated MEHC financial statements are an integral part of this financial statement schedule.

112

Schedule I

MidAmerican Energy Holdings Company

Parent Company Only (continued)

Condensed Statements of Operations

For the three years ended December 31, 2004

(Amounts in thousands)

	2004			2003			2002

Revenues:
Equity in undistributed earnings of subsidiary companies and joint ventures	$	103,176		$	375,666		$	250,517
Dividends and distributions from subsidiary companies and joint ventures		330,678			318,665			351,847
Interest and other income		11,713			19,377			778
Total revenues		445,567			713,708			603,142

Costs and expenses:
General and administration		30,209			35,503			31,914
Depreciation and amortization		5,219			5,225			5,271
Interest, net of capitalized interest		399,394			247,509			164,290
Total costs and expenses		434,822			288,237			201,475
Income before income taxes		10,745			425,471			401,667
Income tax benefit		(159,461	)		(160,298	)		(126,043	)
Income before preferred dividends of subsidiaries		170,206			585,769			527,710
Preferred dividends of subsidiaries		-			170,151			147,667
Net income available to common and preferred stockholders	$	170,206		$	415,618		$	380,043

The notes to the consolidated MEHC financial statements are an integral part of this financial statement schedule.

113

Schedule I

MidAmerican Energy Holdings Company

Parent Company Only (continued)

Condensed Statements of Cash Flows

For the three years ended December 31, 2004

(Amounts in thousands)

	2004			2003			2002

Cash flows from operating activities	$	(228,468	)	$	(230,354	)	$	(211,704	)

Cash flows from investing activities:
Decrease (increase) in advances to and investments in subsidiaries and joint ventures		116,167			228,083			(1,654,755	)
Other, net		6,803			(21,031	)		(2,840	)
Net cash flows from investing activities		122,970			207,052			(1,657,595	)
Cash flows from financing activities:
Purchase and retirement of common stock		(20,000	)		-			-
Repayment of subordinated debt		(100,000	)		(198,958	)		-
Proceeds from senior debt		249,765			449,295			700,000
Repayments of senior debt		-			(215,000	)		-
Proceeds from issuance of preferred stock		-			-			402,000
Proceeds from issuance of trust preferred securities		-			-			1,273,000
Net repayment of revolving credit facility		-			-			(153,500	)
Other		(3,328	)		(3,914	)		(34,096	)
Net cash flows from financing activities		126,437			31,423			2,187,404

Net change in cash and cash equivalents		20,939			8,121			318,105
Cash and cash equivalents at beginning of year		328,750			320,629			2,524
Cash and cash equivalents at end of year	$	349,689		$	328,750		$	320,629

Supplemental disclosures:
Interest paid, net of interest capitalized	$	392,390		$	219,910		$	164,267
Income tax receipts	$	(138,757	)	$	(135,025	)	$	(81,656	)

The notes to the consolidated MEHC financial statements are an integral part of this financial statement schedule.

114

Schedule II

MIDAMERICAN ENERGY HOLDINGS COMPANY

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 2004

(Amounts in thousands)

	Column B		Column C									Column E
	Balance at		Charged									Balance
Column A	Beginning		to		Other		Acquisition		Column D			at End
Description	of Year		Income		Accounts		Reserves ⁽²⁾		Deductions			of Year

Reserves Deducted From Assets To Which They Apply:

Reserve for uncollectible accounts receivable:
Year ended 2004	$	26,004	$	15,304	$	-	$	-	$	(15,275	)	$	26,033
Year ended 2003	$	39,742	$	13,620	$	-	$	-	$	(27,358	)	$	26,004
Year ended 2002	$	7,319	$	27,782	$	-	$	10,142	$	(5,501	)	$	39,742

Reserves Not Deducted From Assets ^(1):
Year ended 2004	$	17,417	$	4,048	$	-	$	-	$	(10,617	)	$	10,848
Year ended 2003	$	10,981	$	10,527	$	-	$	-	$	(4,091	)	$	17,417
Year ended 2002	$	13,631	$	2,798	$	247	$	-	$	(5,695	)	$	10,981

The notes to the consolidated MEHC financial statements are an integral part of this financial statement schedule.

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

(2)	Acquisition reserves represent the reserves recorded at Kern River and Northern Natural Gas at the date of acquisition.

115

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Des Moines, State of Iowa, on this 28 ^th day of February 2005.

	MIDAMERICAN ENERGY HOLDINGS COMPANY

	/s/ David L. Sokol*
	David L. Sokol
	Chairman of the Board and Chief Executive Officer

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

Signature		Date

/s/ David L. Sokol*		February 28, 2005
David L. Sokol
Chairman of the Board,
Chief Executive Officer, and Director

/s/ Gregory E. Abel*		February 28, 2005
Gregory E. Abel
President, Chief Operating Officer
and Director

/s/ Patrick J. Goodman*
Patrick J. Goodman		February 28, 2005
Senior Vice President and
Chief Financial Officer

/s/ Edgar D. Aronson*
Edgar D. Aronson		February 28, 2005
Director

/s/ Stanley J. Bright*
Stanley J. Bright		February 28, 2005
Director

/s/ Walter Scott, Jr.*
Walter Scott, Jr.		February 28, 2005
Director

/s/ Marc D. Hamburg*
Marc D. Hamburg		February 28, 2005
Director

/s/ Warren E. Buffett*
Warren E. Buffett		February 28, 2005
Director

116

Signature		Date

/s/ John K. Boyer*
John K. Boyer		February 28, 2005
Director

/s/ W. David Scott*
W. David Scott		February 28, 2005
Director

/s/ Richard R. Jaros*
Richard R. Jaros		February 28, 2005
Director


* By: /s/ Douglas L. Anderson
Douglas L. Anderson		February 28, 2005
Attorney-in-Fact

117

EXHIBIT INDEX

Exhibit No.

3.1	Amended and Restated Articles of Incorporation of MidAmerican Energy Holdings Company effective March 6, 2002 (incorporated by reference to Exhibit 3.3 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

3.2	Bylaws of MidAmerican Energy Holdings Company (incorporated by reference to Exhibit 3.2 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

4.1	Indenture, dated as of October 4, 2002, by and between MidAmerican Energy Holdings Company and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012 (incorporated by reference to Exhibit 4.1 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

4.2	First Supplemental Indenture, dated as of October 4, 2002, by and between MidAmerican Energy Holdings Company and The Bank of New York, relating to the 4.625% Senior Notes due 2007 and the 5.875% Senior Notes due 2012 (incorporated by reference to Exhibit 4.2 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

4.3	Registration Rights Agreement, dated as of October 1, 2002, by and between MidAmerican Energy Holdings Company and Credit Suisse First Boston (as Representative for the Initial Purchasers) (incorporated by reference to Exhibit 4.3 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

4.4	Indenture for the 6 1/4% Convertible Junior Subordinated Debentures due 2012, dated as of February 26, 1997, between MidAmerican Energy Holdings Company, as issuer, and the Bank of New York, as Trustee (incorporated by reference to Exhibit 10.129 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1995).

4.5	Indenture, dated as of October 15, 1997, among MidAmerican Energy Holdings Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to MidAmerican Energy Holdings Company’s Current Report on Form 8-K dated October 23, 1997).

4.6	Form of First Supplemental Indenture for the 7.63% Senior Notes in the principal amount of $350,000,000 due 2007, dated as of October 28, 1997, among MidAmerican Energy Holdings Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.2 to MidAmerican Energy Holdings Company’s Current Report on Form 8-K dated October 23, 1997).

4.7	Form of Second Supplemental Indenture for the 6.96% Senior Notes in the principal amount of $215,000,000 due 2003, 7.23% Senior Notes in the principal amount of $260,000,000 due 2005, 7.52% Senior Notes in the principal amount of $450,000,000 due 2008, and 8.48% Senior Notes in the principal amount of $475,000,000 due 2028, dated as of September 22, 1998 between MidAmerican Energy Holdings Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to MidAmerican Energy Holdings Company’s Current Report on Form 8-K dated September 17, 1998.)

4.8	Form of Third Supplemental Indenture for the 7.52% Senior Notes in the principal amount of $100,000,000 due 2008, dated as of November 13, 1998, between MidAmerican Energy Holdings Company and IBJ Schroder Bank & Trust Company, as Trustee (incorporated by reference to MidAmerican Energy Holdings Company’s Current Report on Form 8-K dated November 10, 1998).

118

Exhibit No.

4.9	Indenture, dated as of March 14, 2000, among MidAmerican Energy Holdings Company and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.9 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

4.10	Subscription Agreement, dated as of March 14, 2000, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.10 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

4.11	Indenture, dated as of March 12, 2002, between MidAmerican Energy Holdings Company and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.11 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

4.12	Subscription Agreement, dated as of March 7, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.12 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

4.13	Subscription Agreement, dated as of March 12, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.13 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

4.14	Amended and Restated Declaration of Trust of MidAmerican Capital Trust III, dated as of August 16, 2002 (incorporated by reference to Exhibit 4.14 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

4.15	Amended and Restated Declaration of Trust of MidAmerican Capital Trust II, dated as of March 12, 2002 (incorporated by reference to Exhibit 4.15 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

4.16	Amended and Restated Declaration of Trust of MidAmerican Capital Trust I, dated as of March 14, 2000 (incorporated by reference to Exhibit 4.16 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

4.17	Indenture, dated as of August 16, 2002, between MidAmerican Energy Holdings Company and the Bank of New York, as Trustee (incorporated by reference to Exhibit 4.17 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

4.18	Subscription Agreement, dated as of August 16, 2002, executed by Berkshire Hathaway Inc. (incorporated by reference to Exhibit 4.18 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

4.19	Shareholders Agreement, dated as of March 14, 2000 (incorporated by reference to Exhibit 4.19 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

10.1	Amended and Restated Employment Agreement between MidAmerican Energy Holdings Company and David L. Sokol, dated May 10, 1999 (incorporated by reference to Exhibit 10.1 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

10.2	Amendment No. 1 to the Amended and Restated Employment Agreement between MidAmerican Energy Holdings Company and David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.2 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

119

Exhibit No.

10.3	Non-Qualified Stock Option Agreements of David L. Sokol, dated March 14, 2000 (incorporated by reference to Exhibit 10.3 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

10.4	Amended and Restated Employment Agreement between MidAmerican Energy Holdings Company and Gregory E. Abel, dated May 10, 1999 (incorporated by reference to Exhibit 10.3 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

10.5	Non-Qualified Stock Option Agreements of Gregory E. Abel, dated March 14, 2000 (incorporated by reference to Exhibit 10.5 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

10.6	Employment Agreement between MidAmerican Energy Holdings Company and Patrick J. Goodman, dated April 21, 1999 (incorporated by reference to Exhibit 10.5 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

10.7	125 MW Power Plant-Upper Mahiao Agreement, dated September 6, 1993, between PNOC- Energy Development Corporation and Ormat, Inc. as amended by the First Amendment to 125 MW Power Plant Upper Mahiao Agreement, dated as of January 28, 1994, the Letter Agreement dated February 10, 1994, the Letter Agreement dated February 18, 1994 and the Fourth Amendment to 125 MW Power Plant-Upper Mahiao Agreement, dated as of March 7, 1994 (incorporated by reference to Exhibit 10.95 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.8	Credit Agreement, dated April 8, 1994, among CE Cebu Geothermal Power Company, Inc., the Banks thereto, Credit Suisse as Agent (incorporated by reference to Exhibit 10.96 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.9	Credit Agreement, dated as of April 8, 1994, between CE Cebu Geothermal Power Company, Inc., Export-Import Bank of the United States (incorporated by reference to Exhibit 10.97 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.10	Pledge Agreement, dated as of April 8, 1994, among CE Philippines Ltd, Ormat-Cebu Ltd., Credit Suisse as Collateral Agent and CE Cebu Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.98 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.11	Overseas Private Investment Corporation Contract of Insurance, dated April 8, 1994, between the Overseas Private Investment Corporation and the Company through its subsidiaries CE International Ltd., CE Philippines Ltd., and Ormat-Cebu Ltd. (incorporated by reference to Exhibit 10.99 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.12	180 MW Power Plant-Mahanagdong Agreement, dated September 18, 1993, between PNOC- Energy Development Corporation and CE Philippines Ltd. and the Company, as amended by the First Amendment to Mahanagdong Agreement, dated June 22, 1994, the Letter Agreement dated July 12, 1994, the Letter Agreement dated July 29, 1994, and the Fourth Amendment to Mahanagdong Agreement, dated March 3, 1995 (incorporated by reference to Exhibit 10.1 00 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.13	Credit Agreement, dated as of June 30, 1994, among CE Luzon Geothermal Power Company, Inc., American Pacific Finance Company, the Lenders party thereto, and Bank of America National Trust and Savings Association as Administrative Agent (incorporated by reference to Exhibit 10.101 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

120

Exhibit No.

10.14	Credit Agreement, dated as of June 30, 1994, between CE Luzon Geothermal Power Company, Inc. and Export-Import Bank of the United States (incorporated by reference to Exhibit 10.102 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.15	Finance Agreement, dated as of June 30, 1994, between CE Luzon Geothermal Power Company, Inc. and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.103 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.16	Pledge Agreement, dated as of June 30, 1994, among CE Mahanagdong Ltd., Kiewit Energy International (Bermuda) Ltd., Bank of America National Trust and Savings Association as Collateral Agent and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.104 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.17	Overseas Private Investment Corporation Contract of Insurance, dated July 29, 1994, between Overseas Private Investment Corporation and the Company, CE International Ltd., CE Mahanagdong Ltd. and American Pacific Finance Company and Amendment No. 1, dated August 3, 1994 (incorporated by reference to Exhibit 10.105 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.18	231 MW Power Plant-Malitbog Agreement, dated September 10, 1993, between PNOC- Energy Development Corporation and Magma Power Company and the First and Second Amendments thereto, dated December 8, 1993 and March 10, 1994, respectively (incorporated by reference to Exhibit 10.106 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.19	Credit Agreement, dated as of November 10, 1994, among Visayas Power Capital Corporation, the Banks parties thereto and Credit Suisse, as Bank Agent (incorporated by reference to Exhibit 10.107 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.20	Finance Agreement, dated as of November 10, 1994, between Visayas Geothermal Power Company and Overseas Private Investment Corporation (incorporated by reference to Exhibit 10.108 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.21	Pledge and Security Agreement, dated as of November 10, 1994, among Broad Street Contract Services, Inc., Magma Power Company, Magma Netherlands B.V. and Credit Suisse, as Bank Agent (incorporated by reference to Exhibit 10.109 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1993).

10.22	Overseas Private Investment Corporation Contract of Insurance, dated December 21, 1994, between Overseas Private Investment Corporation and Magma Netherlands, B.V. (incorporated by reference to Exhibit 10.110 to MidAmerican Energy Holdings Company’s Annual Report on Form10-K for the year ended December 31, 1993).

10.23	Agreement as to Certain Common Representations, Warranties, Covenants and Other Terms, dated November 10, 1994, between Visayas Geothermal Power Company, Visayas Power Capital Corporation, Credit Suisse, as Bank Agent, Overseas Private Investment Corporation and the Banks named therein (incorporated by reference to Exhibit 10.111 to MidAmerican Energy Holdings Company’s 1994 Annual Report on Form 10-K for the year ended December 31, 1993).

10.24	Trust Indenture, dated as of November 27, 1995, between the CE Casecnan Water and Energy Company, Inc. and Chemical Trust Company of California (incorporated by reference to Exhibit 4.1 to CE Casecnan Water and Energy Company, Inc.’s Registration Statement on Form S-4 dated January 25, 1996).

121

Exhibit No.

10.25	Amended and Restated Casecnan Project Agreement, dated June 26, 1995, between the National Irrigation Administration and CE Casecnan Water and Energy Company Inc. (incorporated by reference to Exhibit 10.1 to CE Casecnan Water and Energy Company, Inc.’s Registration Statement on Form S-4 dated January 25, 1996).

10.26	Indenture and First Supplemental Indenture, dated March 11, 1999, between MidAmerican Funding LLC and IBJ Whitehall Bank & Trust Company and the First Supplement thereto relating to the $700 million Senior Notes and Bonds (incorporated by reference to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 1998).

10.27	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 (incorporated by reference to Exhibit 4(b)-1 to the Midwest Resources Inc. Annual Report on Form 10-K for the year ended December 31, 1992, Commission File No. 1-10654).

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

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

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

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

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

10.33	Sixth Supplemental Indenture, dated as of July 1, 1995, between Midwest Power Systems Inc. and Harris Trust and Savings Bank, Trustee (incorporated by reference to Exhibit 4.15 to the MidAmerican Energy Company Annual Report on Form 10-K for the year ended December 31, 1995, Commission File No. 1-11505).

10.34	Supplemental Agreement between CE Casecnan Water and Energy Company, Inc. and the Philippines National Irrigation Administration dated as of September 29, 2003 (incorporated by reference to Exhibit 98.1 to MidAmerican Energy Holdings Company's Current Report on Form 8-K dated October 15, 2003).

10.35	Sixth Amendment to 180 MW Power Plant-Mahanagdong Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and CE Luzon Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.44 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 2003).

122

Exhibit No.

10.36	Third Amendment to 231 MW Power Plant-Malitbog Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and Visayas Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.45 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 2003).

10.37	Seventh Amendment to 125 MW Power Plant-Upper Mahiao Agreement, dated August 31, 2003, between PNOC-Energy Development Corporation and CE Cebu Geothermal Power Company, Inc. (incorporated by reference to Exhibit 10.46 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 2003).

10.38	Fiscal Agency Agreement, dated as of October 15, 2002, between Northern Natural Gas Company and J.P. Morgan Trust Company, National Association, Fiscal Agent, relating to the $300,000,000 in principal amount of the 5.375% Senior Notes due 2012. (incorporated by reference to Exhibit 10.47 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K for the year ended December 31, 2003).

10.39	Trust Indenture, dated as of August 13, 2001, among Kern River Funding Corporation, Kern River Gas Transmission Company and the JP Morgan Chase Bank, as Trustee, relating to the $510,000,000 in principal amount of the 6.676% Senior Notes due 2016. (incorporated by reference to Exhibit 10.48 to MidAmerican Energy Holdings Company's Annual Report on Form 10-K for the year ended December 31, 2003).

10.40	Third Supplemental Indenture, dated as of May 1, 2003, among Kern River Funding Corporation, Kern River Gas Transmission Company and JPMorgan Chase Bank, as Trustee, relating to the $836,000,000 in principal amount of the 4.893% Senior Notes due 2018. (incorporated by reference to Exhibit 10.49 to MidAmerican Energy Holdings Company's Annual Report on Form 10-K for the year ended December 31, 2003).

10.41	CalEnergy Company, Inc. Voluntary Deferred Compensation Plan, effective December 1, 1997, First Amendment, dated as of August 17, 1999, and Second Amendment effective March 14, 2000 (incorporated by reference to Exhibit 10.50 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

10.42	MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan (incorporated by reference to Exhibit 10.51 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

10.43	MidAmerican Energy Company First Amended and Restated Supplemental Retirement Plan for Designated Officers dated as of May 10, 1999 (incorporated by reference to Exhibit 10.52 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

10.44	MidAmerican Energy Company Restated Executive Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

10.45	MidAmerican Energy Holdings Company Restated Deferred Compensation Plan-Board of Directors (incorporated by reference to Exhibit 10 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).

10.46	MidAmerican Energy Company Combined Midwest Resources/Iowa Resources Restated Deferred Compensation Plan-Board of Directors (incorporated by reference to Exhibit 10.63 to MidAmerican Energy Holdings Company’s Annual Report on Form 10-K/A for the year ended December 31, 1999).

10.47	Share Sale Agreement, dated as of August 6, 2001, among NPower Yorkshire Limited, Innogy Holdings plc, CE Electric UK plc and Northern Electric plc (incorporated by reference to Exhibit 10.63 of MidAmerican Energy Holdings Company’s Registration Statement No. 333-101699 dated December 6, 2002).

123

Exhibit No.

10.48	Purchase Agreement, dated as of March 7, 2002, among The Williams Companies, Inc., Williams Gas Pipeline Company, LLC, Williams Western Pipeline Company LLC, Kern River Acquisition, LLC and MidAmerican Energy Holdings Company, KR Holding, LLC, KR Acquisition 1, LLC and KR Acquisition 2, LLC (incorporated by reference to Exhibit 99.2 to MidAmerican Energy Holdings Company’s Current Report on Form 8-K dated March 28, 2002).

10.49	MidAmerican Energy Holdings Company Executive Incremental Profit Sharing Plan (incorporated by reference to Exhibit 10.2 of MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003.)

10.50	Purchase and Sale Agreement, dated as of July 28, 2002, between Dynegy Inc., NNGC Holding Company, Inc. and MidAmerican Energy Holdings Company (incorporated by reference to Exhibit 99.2 to MidAmerican Energy Holdings Company's Current Report on Form 8-K dated July 30, 2002).

10.51	Trust Deed between CE Electric UK Funding Company, AMBAC Insurance UK Limited and The Law Debenture Trust Corporation, p.l.c. dated December 15, 1997 (incorporated by reference to Exhibit 99.1 to MidAmerican Energy Holdings Company’s Current Report on Form 8-K dated March 30, 2004).

10.52	Insurance and Indemnity Agreement between CE Electric UK Funding Company and AMBAC Insurance UK Limited dated December 15, 1997 (incorporated by reference to Exhibit 99.2 to MidAmerican Energy Holdings Company’s Current Report on Form 8-K dated March 30, 2004).

10.53	Supplemental Agreement to Insurance and Indemnity Agreement between CE Electric UK Funding Company and AMBAC Insurance UK Limited dated September 19, 2001 (incorporated by reference to Exhibit 99.3 to MidAmerican Energy Holdings Company’s Current Report on Form 8-K dated March 30, 2004).

10.54	Fiscal Agency Agreement, dated as of May 4, 1993, among Northern Natural Gas Company, Enron Corp. and Continental Bank, National Association, Fiscal Agent, relating to the $100,000,000 in principal amount of the 6.875% Senior Notes due 2005 (incorporated by reference to Exhibit 10.68 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.55	Fiscal Agency Agreement, dated as of September 4, 1998, between Northern Natural Gas Company and Chase Bank of Texas, National Association, Fiscal Agent, relating to the $150,000,000 in principal amount of the 6.75% Senior Notes due 2008 (incorporated by reference to Exhibit 10.69 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.56	Fiscal Agency Agreement, dated as of May 24, 1999, between Northern Natural Gas Company and Chase Bank of Texas, National Association, Fiscal Agent, relating to the $250,000,000 in principal amount of the 7.00% Senior Notes due 2011(incorporated by reference to Exhibit 10.70 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.57	Trust Indenture, dated as of September 10, 1999, between Cordova Funding Corporation and Chase Manhattan Bank and Trust Company, National Association, Trustee, relating to the $225,000,000 in principal amount of the 8.75% Senior Secured Bonds due 2019 (incorporated by reference to Exhibit 10.71 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.58	Indenture, dated as of December 15, 1997, among CE Electric UK Funding Company, The Bank of New York, as Trustee, and Banque Internationale A Luxembourg S.A., as Paying Agent (incorporated by reference to Exhibit 10.72 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

124

Exhibit No.

10.59	First Supplemental Indenture, dated as of December 15, 1997, among CE Electric UK Funding Company, The Bank of New York, Trustee, and Banque Internationale A Luxembourg S.A., Paying Agent, relating to the $125,000,000 in principal amount of the 6.853% Senior Notes due 2004 and to the $237,000,000 in principal amount of the 6.995% Senior Notes due 2007 (incorporated by reference to Exhibit 10.73 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004)

10.60	Trust Deed, dated as of February 4, 1998 among Yorkshire Power Finance Limited, Yorkshire Power Group Limited and Bankers Trustee Company Limited, Trustee, relating to the £200,000,000 in principal amount of the 7.25% Guaranteed Bonds due 2028 (incorporated by reference to Exhibit 10.74 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.61	First Supplemental Trust Deed, dated as of October 1, 2001, among Yorkshire Power Finance Limited, Yorkshire Power Group Limited and Bankers Trustee Company Limited, Trustee, relating to the £200,000,000 in principal amount of the 7.25% Guaranteed Bonds due 2028 (incorporated by reference to Exhibit 10.75 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.62	Third Supplemental Trust Deed, dated as of October 1, 2001, among Yorkshire Electricity Distribution plc, Yorkshire Electricity Group PLC and Bankers Trustee Company Limited, Trustee, relating to the £200,000,000 in principal amount of the 9.25% Bonds due 2020 (incorporated by reference to Exhibit 10.76 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.63	Indenture, dated as of February 1, 1998, and Second Supplemental Indenture, dated as of February 25, 1998, each among Yorkshire Power Finance Limited, Yorkshire Power Group Limited, The Bank of New York, Trustee, and Banque Internationale du Luxembourg S.A., Paying Agent, relating to the $300,000,000 in principal amount of the 6.496% Notes due 2008 (incorporated by reference to Exhibit 10.77 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.64	Indenture, dated as of February 1, 2000, among Yorkshire Power Finance 2 Limited, Yorkshire Power Group Limited and The Bank of New York, Trustee (incorporated by reference to Exhibit 10.78 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.65	First Supplemental Indenture, dated as of February 16, 2000, among Yorkshire Power Finance 2 Limited, Yorkshire Power Group Limited and The Bank of New York, Trustee, relating to the £155,000,000 in principal amount of the Reset Senior Notes due 2020 (incorporated by reference to Exhibit 10.79 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.66	Trust Agreement, dated as of February 1, 2000, among Yorkshire Power Group Limited, YPG Holdings LLC and The Bank of New York, Trustee, relating to the $250,000,000 in principal amount of the 8.25% Pass-Through Asset Trust Securities due 2005 (incorporated by reference to Exhibit 10.80 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.67	First Supplemental Trust Deed, dated as of September 27, 2001, among Northern Electric Finance plc, Northern Electric plc, Northern Electric Distribution Limited and The Law Debenture Trust Corporation p.l.c., Trustee, relating to the £100,000,000 in principal amount of the 8.625% Guaranteed Bonds due 2005 and to the £100,000,000 in principal amount of the 8.875% Guaranteed Bonds due 2020 (incorporated by reference to Exhibit 10.81 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

125

Exhibit No.

10.68	Stock Redemption Agreement, dated as of January 8, 2004, between David L. Sokol and MidAmerican Energy Holdings Company (incorporated by reference to Exhibit 10.82 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.69	Trust Deed, dated as of January 17, 1995, between Yorkshire Electricity Group plc and Bankers Trustee Company Limited, Trustee, relating to the £200,000,000 in principal amount of the 9 1/4% Bonds due 2020 (incorporated by reference to Exhibit 10.83 to MidAmerican Energy Holdings Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).

10.70	Master Trust Deed, dated as of October 16, 1995, among Northern Electric Finance plc, Northern Electric plc and The Law Debenture Trust Corporation p.l.c., Trustee, relating to the £100,000,000 in principal amount of the 8.625% Guaranteed Bonds due 2005 and to the £100,000,000 in principal amount of the 8.875% Guaranteed Bonds due 2020.

10.71	MidAmerican Energy Holdings Company Amended and Restated Long-Term Incentive Partnership Plan dated as of January 1, 2004.

14.1	MidAmerican Energy Holdings Company Code of Ethics for Chief Executive Officer, Chief Financial Officer and Other Covered Officers.

21.1	Subsidiaries of the Registrant.

24.1	Power of Attorney.

31.1	Chief Executive Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2	Chief Financial Officer’s Certificate Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Chief Executive Officer’s Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Chief Financial Officer’s Certificate Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

126

CONFORMED COPY

DATED 16th October, 1995

NORTHERN ELECTRIC FINANCE plc (1)

NORTHERN ELECTRIC plc (2)

and

THE LAW DEBENTURE TRUST CORPORATION p.l.c. (3)

MASTER TRUST DEED

constituting

(pound)100,000,000 8.625 per cent. Guaranteed Bonds due 2005 and
(pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020 with power to issue further securities

Norton Rose London

CONTENTS

Clause Heading Page

1       Interpretation.....................................................2
        1.1    Definitions.................................................2
        1.2    Construction of certain references..........................9
        1.3    Definitions in Conditions..................................11
        1.4    Headings...................................................11
        1.5    Schedules..................................................11
        1.6    Enforceability.............................................11

2       Amounts of Original Bonds and covenant to pay.....................12
        2.1    Amounts of Original Bonds..................................12
        2.2    Original Bonds separate series.............................12
        2.3    Covenant to pay............................................12
        2.4    Discharge..................................................14
        2.5    Payment after default......................................14
        2.6    Ranking of obligations.....................................15

3       Guarantee
        3.1    Guarantor's liability......................................16
        3.2    No payments by Company.....................................16
        3.3    Consents and authorisations................................18
        3.4    Application of moneys received.............................19
        3.5    Nature of obligations......................................19

4       Forms of Original Bonds and Original Coupons


        4.1    Original Global Bond.......................................19
        4.2    Original Bonds and Original Coupons........................19
        4.3    Signature..................................................20
        4.4    Issue......................................................21
        4.5    Bondholder deemed to be absolute owner.....................21

5       Stamp duties and taxes............................................21
        5.1    Stamp duties...............................................21
        5.2    Change of taxing jurisdiction..............................22

6       Further Bonds.....................................................22
        6.1    Liberty to create..........................................22
        6.2    Means of constitution......................................23
        6.3    Noting of supplemental deeds...............................23
        6.4    Notice of further issues...................................23
        6.5    Separate series............................................24

7 Application of moneys received by Trustee.........................24

        7.1    Declaration of trust.......................................24
        7.2    Accumulation...............................................25
        7.3    Investment.................................................25

8       Covenants to comply with provisions...............................26

9       Covenants.........................................................27
10      Remuneration and indemnification of Trustee.......................33
11      Provisions supplemental to Trustee Act 1925.......................36
12      Trustee liable for breach of trust................................42

13      Waiver, proof of default, consents and Trustee's power to apply to



          Court...........................................................43
14      Trustee not precluded from entering into contracts................44
15      Modification and substitution.....................................45
16      Appointment, retirement and removal of Trustee....................50
17      Couponholders.....................................................52
18      Communications....................................................53

19      Powers in addition................................................54
20      Severability......................................................54
21      Execution.........................................................55
22      Counterparts......................................................55
23      Governing law.....................................................55


Schedule

1       Part I    Form of individual Certificate for Original Bonds 2005..56
1       Part II   Form of Original Global Bond 2005.......................58
1       Part III  Form of Original Coupon 2005............................66
2       Terms and Conditions of Original Bonds 2005.......................68

3       Part I    Form of individual Certificate for Original Bonds 2020..69
3       Part II   Form of Original Global Bond 2020.......................71
3       Part III  Form of Original Coupon 2020............................79
3       Part IV   Form of Original Talon 2020.............................81
4       Terms and Conditions of Original Bonds 2020.......................83
5       Provisions for meetings of Bondholders............................84

THIS TRUST DEED is made on 16th October, 1995 BETWEEN:

(1) NORTHERN ELECTRIC FINANCE plc whose registered office is at Carliol House, Market Street, Newcastle-upon-Tyne NEl 6NE (the "Company" or the "Issuer");

(2) NORTHERN ELECTRIC plc whose registered office is at Carliol House, Market Street, Newcastle-Upon-Tyne NEl 6NE (the "Guarantor"); and

(2) THE LAW DEBENTURE TRUST CORPORATION p.l.c. whose registered office is at Princes House, 95 Gresham Street, London EC2V 7LY (the "Trustee", which expression shall, where the context so admits, include all persons for the time being the trustee or trustees of these presents).

WHEREAS:

(A) The Company, incorporated in England and Wales with registered number 3070482, has by resolution of its Board of Directors passed on 9th October, 1995 authorised the issue of (pound)100,000,000 8.625 per cent. Guaranteed Bonds due 2005 and (pound)100,000,000 8.875 per cent. Guaranteed Bonds 2020 to be constituted by these presents.

(B) The Guarantor, incorporated in England and Wales with registered number 2366942, has by resolution of a duly authorised committee of its Board of Directors passed on 9th October, 1995 resolved to give its guarantee in relation to the said Bonds upon and subject to the terms and conditions of these presents.

(C) The Trustee has agreed to act as trustee of these presents on and subject to the terms and conditions set out in these presents.

NOW THIS DEED WITNESSES AND IT IS HEREBY AGREED AND DECLARED
as follows:

1 Interpretation

1.1 Definitions: In these presents, unless the context otherwise requires, the following expressions shall have the following meanings:

"AGENCY AGREEMENT" means, in relation to the Original Bonds 2005, the Paying Agency Agreement dated 16th October, 1995 between the Company, the Guarantor, the Trustee, the Principal Paying Agent and the other Paying Agents whereby the Agents were appointed in respect of the Original Bonds 2005, in relation to the Original Bonds 2020, the Paying Agency Agreement dated 16th October, 1995 between the Company, the Guarantor, the Trustee, the Principal Paying Agent and the other Paying Agents whereby the Agents were appointed in respect of the Original Bonds 2020 and, in relation to any Further Bonds, the agreement appointing, on terms previously approved in writing by the Trustee, the Principal Paying Agent and the other Paying Agents and/or any other Agent in respect of such Further Bonds and, in relation to the relevant Bonds, includes any agreement (whether made pursuant to another agreement or otherwise) appointing, on terms previously approved in writing by the Trustee, a further or another Agent and any other agreement for the time being in force, the terms of which shall have been previously approved in writing by the Trustee, relating to the duties of any Agent or amending or modifying any of such agreements;

"Agents" means, in relation to the Original Bonds, the Principal Paying Agent and the other Paying Agents or, as the context requires, any of them and, in relation to any Further Bonds, any Principal Paying Agent and other Paying Agents and other agent approved by the Trustee appointed under the Agency Agreement in respect of such Further Bonds or, as the context requires, any of them;

"Auditors" means the auditors for the time being of the Company or the Guarantor (as the case may require) or, if there shall be joint auditors, any one

or more of such auditors or, in the event of their being unable or unwilling to carry out any action requested of them pursuant to these presents, such other chartered accountant or firm of chartered accountants as may be nominated by the Company or the Guarantor (as the case may require) with the prior written approval of the Trustee or, in default of such nomination and approval, nominated by the Trustee after consultation with the Company or the Guarantor (as the case may require) where such consultation is not prejudicial to the interests of the Bondholders for the purpose;

"Bondholder" and, in relation to a Bond, "holder" means the bearer of that Bond;

"Bonds" means the Original Bonds and/or, as the context may require, any Further Bonds;

"Cedel" means Cedel Bank, societe anonyme;

"Certificate" means a certificate in definitive form representing a Bond including any Global Bond and includes any replacement certificate in definitive form issued pursuant to the relevant Conditions;

"Conditions" means, in relation to the Original Bonds 2005, the terms and conditions set out in Schedule 2 and, in relation to the Original Bonds 2020, the terms and conditions set out in Schedule 4 or, in either case, other the terms and conditions for the time being endorsed on the Original Bonds as the same may from time to time be modified in accordance with these presents and references in these presents to a particular numbered Condition shall, in relation to the Original Bonds be construed accordingly and, in relation to any Further Bonds, the terms and conditions for the time being endorsed on such Further Bonds and references in these presents to a particular numbered Condition shall, in relation to any Further Bonds, unless either referring specifically to a particular numbered Condition of such Further Bonds or the context otherwise requires,

be construed as a reference to the provisions (if any) in the Conditions thereof which corresponds to the provisions of the particular numbered Condition of the Original Bonds;

"Couponholder" and, in relation to a Coupon, "holder" means the bearer of a Coupon;

"Coupons" means the Original Coupons and/or, as the context may require, the bearer interest coupons for the time being relating to any Further Bonds or, as the context may require, a specific number of them and includes any replacement coupons issued pursuant to the relevant Conditions and, where the context so permits, the Talons (if any);

"Couponholder" means, in relation to a Coupon, the bearer of a Coupon;

"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System;

"Event of Default" means any of the events described in paragraphs (a) to (i) (inclusive) of Condition 10 which, in the case of the events described in paragraphs (b),(c),(e),(f),(g) and (h) of such Condition, shall have been certified in writing by the Trustee to be in its opinion materially prejudicial to the interests of the Bondholders;

"Extraordinary Resolution" has the meaning set out in paragraph 21 of Schedule 5;

"Further Bonds" means any further bonds or notes or similar securities issued in accordance with the provisions of Clause 6 and constituted by a deed supplemental to this Master Trust Deed or, as the context may require, a specific number of them and includes the Certificates representing the same including any relevant Global Bond;

"Global Bond' means the Original Global Bond 2005 and/or, as the context may require, the Original Global Bond 2020 and/or, as the context may require, any other global Bond Certificate in definitive form representing Further Bonds or any of them;

issue" includes allot and vice versa;

"London Stock Exchange" means The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited;

"Original Bonds" means, the Original Bonds 2005 and/or, as the context may require, the Original Bonds 2020;

"Original Bonds 2005" means the Bonds in bearer form comprising the
(pound)100,000,000 8.625 per cent. Guaranteed Bonds due 2005 constituted by these presents and for the time being outstanding or, as the context may require, a specific number of them and includes the Certificates representing the same including the Original Global Bond 2005;

"Original Bonds 2020" means the Bonds in bearer form comprising the
(pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020 constituted by these presents and for the time being outstanding or, as the context may require, a specific number of them and includes the Certificates representing the same including the Original Global Bond 2020;

"Original Bondholders" means the holders for the time being of the Original Bonds;

"Original Coupons" means the Original Coupons 2005 and/or, as the context may require, the Original Coupons 2020;

"Original Coupons 2005" means the Coupons relating to the Original Bonds 2005;

"Original Coupons 2020" means the Coupons relating to the Original Bonds 2020;

"Original Couponholders" means the holders for the time being of the Original Coupons;

"Original Global Bond" means the Original Global Bond 2005 and/or, as the context may require, the Original Global Bond 2020;

"Original Global Bond 2005" means the single temporary global Bond Certificate in definitive form representing the Original Bonds 2005;

"Original Global Bond 2020" means the single temporary global Bond Certificate in definitive form representing the Original Bonds 2020;

"Original Talons 2020" means the Talons relating to the Original Bonds 2020;

"outstanding" means, in relation to the Bonds, all the Bonds issued other than:

(a) those which have been redeemed and cancelled in accordance with the Conditions;

(b) those in respect of which the date for redemption in accordance with the Conditions has occurred and the redemption moneys (including all interest accrued on such Bonds to the date for such redemption and any interest payable under Condition 4 after such date) have been duly paid to the relevant Bondholder (or to a person on behalf of such Bondholder) or to the Trustee or to the Principal Paying Agent as provided in the proviso to Clause 2.3 and remain available for payment against presentation and surrender of Bonds and/or Coupons, as the case may be;

(d) those mutilated or defaced Bonds which have been surrendered and cancelled in exchange for replacement Bonds pursuant to Condition 13;

(e) (for the purpose only of determining how many Bonds are outstanding and without prejudice to their status for any other purpose) those Bonds which are alleged to have been lost, stolen or destroyed and in respect of which replacement Bonds have been issued pursuant to Condition 13;

(f) those which have been purchased and cancelled as provided in Condition 6;

(g) the Global Bond to the extent that it shall have been exchanged for individual Bonds,

provided that for the purposes of:

(i) ascertaining the right to attend and vote at any meeting of the Bondholders;

(ii) the determination of how many Bonds are outstanding for the purposes of Clause 8.2 and Conditions 7(D), 10, 11 and 15 and Schedule 5;

(iii) the exercise of any discretion, power or authority which the Trustee is required, expressly or impliedly, to exercise in or by reference to the interests of the Bondholders or, as the case may be, any of them; and

(iv) the determination by the Trustee whether any event, circumstance, matter or thing is, in the opinion of the Trustee, materially prejudicial to the interests of the Bondholders,

those Bonds (if any) which are beneficially held by, or are held on behalf of, the Company or the Guarantor or any of the Subsidiaries and not yet cancelled shall (unless and until cancelled or, as the case may be, ceasing to be so held) be deemed not to remain outstanding;

"Paying Agents" means, in relation to the Original Bonds, the several institutions (including the Principal Paying Agent) at their respective specified offices referred to in the Conditions and, in relation to any Further Bonds, such institutions at their respective specified offices as shall be appointed under the Agency Agreement as Paying Agents in respect of such Further Bonds by or on behalf of the Company with the prior written approval of the Trustee or, in any case, such other institutions at their respective specified offices as may from time to time be appointed under the Agency Agreement as Paying Agents in respect of the relevant Bonds by or on behalf of the Company with the prior written approval of the Trustee;

"Potential Event of Default" means an event or circumstance which would with the giving of notice and/or lapse of time and/or the issuing of a certificate and/or the fulfilment of any other requirement provided for in Condition 10 become an Event of Default;

"Principal Paying Agent" means, in relation to the Original Bonds, Barclays Bank PLC at its specified office in its capacity as Principal Paying Agent in respect of the Original Bonds and, in relation to any Further Bonds, such institution at its specified office as shall be appointed under the Agency Agreement as the Principal Paying Agent in respect of such Further Bonds by or on behalf of the Company with the prior written approval of the Trustee or, in any case, such other institution at its specified office as may from time to time be appointed under the Agency Agreement as Principal Paying Agent in respect of the relevant Bonds by or on behalf of the Company with the prior written approval of the Trustee;

"specified office" means, in relation to any Agent, either the office identified with its name at the end of the Conditions or any other office approved by the Trustee and notified to the Bondholders pursuant to Clause 9.1(k);

"Subsidiary" means a subsidiary for the time being of the Company or the Guarantor;

"Talons" means the Original Talons 2020 and/or, as the context may require, the talons relating to, and exchangeable in accordance with the provisions therein contained for further Coupons relating to, any relevant Further Bonds or, as the context may require, a specific number of them and includes any replacement talons issued pursuant to the relevant Conditions;

"these presents" means this Master Trust Deed, including its Schedules, as altered from time to time, and any other document executed in accordance with or pursuant to this Master Trust Deed, as ~o altered, and expressed to be supplemental to this Master Trust Deed and includes the Bonds, the Coupons and the Conditions; and

"trust corporation" means a corporation entitled by rules made under the Public Trustee Act 1906 or entitled pursuant to any other legislation applicable to a trustee in any jurisdiction other than England to carry out the functions of a custodian trustee.

1.2 Construction of certain references: Unless otherwise provided in these presents, references in these presents to:

(a) costs, charges, remuneration or expenses shall include any value added tax, turnover tax or similar tax charged in respect thereof and legal fees and expenses on a full indemnity basis;

(b) "sterling" and "pound" shall be construed as references to the lawful currency for the time being of the United Kingdom;

(c) the expressions subsidiary and holding company have the respective meanings ascribed thereto by the Companies Act 1985;

(d) any action, remedy or method of judicial proceedings for the enforcement of rights of creditors shall include, in respect of any jurisdiction other than England, references to such action, remedy or method of judicial proceedings for the enforcement of rights of creditors available or appropriate in such jurisdiction as shall most nearly approximate thereto;

(e) words denoting the singular number only shall include the plural number and vice versa;

(f) words denoting one gender only shall include the other genders:

(g) words denoting persons only shall include firms and corporations and vice versa;

(h) any provision of any statute shall be deemed also to refer to any statutory modification or re-enactment thereof or any statutory instrument, order or regulation made thereunder or under such modification or re-enactment;

(i) any document shall be deemed also to refer to any amendment thereto;

(j) Schedules and Clauses shall be construed as references to Schedules to, and to Clauses of, this Trust Deed respectively;

(k) the carrying out of the trusts of these presents includes the exercise of the functions of the Trustee under these presents and the exercise of the powers, authorities and discretions vested in the Trustee (or any agent or delegate or sub-delegate) by, under or pursuant to these presents;

(1) taking proceedings against the Company and/or the Guarantor shall be deemed to include references to proving in the winding-up of the Company and/or the Guarantor; and

(m) principal or principal amount of and/or interest in respect of the Bonds shall include any premium and other additional amounts which may be payable under Condition 6(B) or 8 or (in the case of Condition 8) under any obligations undertaken in addition thereto or in substitution therefor pursuant to these presents.

1.3 Definitions in Conditions: Words and expressions defined in the Conditions and not otherwise defined in the main body of any other document comprised in these presents shall when used in these presents have the meanings given to them in the Conditions.

1.4 Headings: Headings shall be ignored in construing these presents.

1.5 Schedules: The Schedules to any document comprised in these presents form part of these presents and shall have effect accordingly.

1.6 Enforceability: If at any time any provision of these presents is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions of these presents nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby.

2 Amounts of Original Bonds and covenant to pay

2.1 Amounts of Original Bonds: The aggregate principal amount of the Original Bonds 2005 is limited to (pound)100,000,000. The aggregate principal amount of the Original Bonds 2020 is limited to
(pound)100,000,000.

2.2 Original Bonds separate series: The Original Bonds 2005 and the Original Bonds 2020 shall be separate series and the provisions of Clauses 1.1 (to the extent applicable), 2.3, 2.4, 2.5, 2.6, 3, 4.3, 4.4, 4.5 and of Clauses 5 to 23 (inclusive) and Schedule 5 shall apply mutatis mutandis separately and independently to the Original Bonds 2005 and the Original Bonds 2020 and shall be construed accordingly.

2.3 Covenant to pay: The Company will by 11.00 a.m. (London time) on any date when the Original Bonds or any of them bec9me due to be redeemed or, if the due date is not a Business Day in London, on the immediately following Business Day in London unconditionally pay to or to the order of the Trustee in sterling in immediately available funds in London (or such other place as the Trustee and the Company may agree in writing) the principal amount of the Original Bonds becoming due for redemption on that date and will (subject to the Conditions) up to and including the date of such payment (both before and after judgment) unconditionally so pay to or to the order of the Trustee in sterling in immediately available funds in London (or such other place as the Trustee and the Company may agree in writing) interest on the principal amount of the Original Bonds outstanding as set out in the Conditions, provided that:

(a) every payment of any such principal amount and/or interest made to or to the order of the Principal Paying Agent as provided in the Agency Agreement shall, to such extent, satisfy the applicable such obligation except to the extent that there is failure in the subsequent payment of such principal amount and/or interest (as the case may be) to the relevant Original Bondholders or Original Couponholders (as the case may be);

(b) in the case of any payment of principal amount and/or interest made after the due date therefor or following the application of Condition 10, the principal amount in respect of which the payment thereof or of the interest thereon shall have been so made shall continue to bear interest until the day the full amount due has been received by or to the order of the Trustee or by the Principal Paying Agent as provided in the Agency Agreement and notice to that effect has been given to the Original Bondholders if required in accordance with Clause 9.1(i), except to the extent that there is failure in the subsequent payment of such principal amount and/or interest (as the case may be) to the relevant Original Bondholders or Original Couponholders (as the case may be), and so that a full amount due shall be deemed to have been received by or to the order of the Trustee on the day when by 11.00 a.m. (London time) such amount shall have been so received in sterling in immediately available funds in London (or such other place ,as the Trustee and the Company may agree in writing); and

(c) in the event that on the occasion for redemption or purchase of any Original Bond falling to be redeemed or, as the case may be, purchased payment of any principal amount and/or interest due in respect of that Original Bond is improperly withheld or refused, the principal amount in respect of which the payment thereof or of the interest thereon shall have been so improperly withheld or refused will continue to bear interest as aforesaid up to and including the date on which such payment is deemed to have been received by the Trustee as provided in paragraph (b) of this proviso.

The Trustee will hold the benefit of this covenant on trust for the Original Bondholders and Original Couponholders.

2.4 Discharge: Subject to Clause 2.5, any payment to be made in respect of the Bonds or the Coupons by the Company, the Guarantor or the Trustee may be

made as provided in the Conditions and any payment so made will (subject to Clause 2.5) to such extent be a good discharge to the Company, the Guarantor or the Trustee, as the case may be.

2.5 Payment after default: At any time after a Potential Event of Default has occurred and whilst the same is subsisting or after an Event of Default has occurred and is continuing the Trustee may:

(a) by notice in writing to the Company, the Guarantor and the Agents, require the Agents, until notified by the Trustee to the contrary, so far as permitted by any applicable law:

(i) to act thereafter as Agents of the Trustee in relation to payments to be made by or on behalf of the Trustee under these presents on the terms of the Agency Agreement (with consequential amendments as necessary and save that the Trustee's liability for the indemnification, remuneration and all other out-of-pocket expenses of the Agents will be limited to the amounts for the time being held by the Trustee in respect of the Bonds on the terms of these presents) and thereafter to hold all Bonds and Coupons and all moneys, documents and records held by them in respect of Bonds and Coupons to the order of the Trustee: and/or

(ii) to deliver all Bonds and Coupons and all moneys, documents and records held by them in respect of the Bonds and Coupons to the Trustee or as the Trustee directs in such notice, provided that such notice shall be deemed not to apply to any documents or records which the relevant Agent is obliged not to release by any law or regulation; and

(b) by notice in writing to the Company and the Guarantor require each of them to make all subsequent payments in respect of the Bonds and the

Coupons to or to the order of the Trustee and not to the Principal Paying Agent.

If the Potential Event of Default in respect of which the Trustee has given notice in writing to the Company, the Guarantor and the Agents as aforesaid shall cease to subsist and Provided that

(i) no other Potential Event of Default shall have occurred and be subsisting or be about to occur; or

(ii) no Event of Default shall have occurred and be continuing or be about to occur; or

(iii) the Bonds shall not have been declared immediately due and repayable,

the Trustee shall by notice in writing to the Company, the Guarantor and the Agents require the Agents to cease acting forthwith as the Agents of the Trustee.

The provisions of this Clause 2.5 may apply on any number of occasions.

2.6 Ranking of obligations: The Company hereby covenants with the Trustee that the obligations of the Company in respect of the Bonds and the Coupons constitute direct, unconditional and, subject to Condition 3, unsecured obligations of the Company and that the Bonds and the Coupons rank and will rank pari passu and rateably without any preference or priority among themselves and, subject to Condition 3, rank and will rank pan passu with all other outstanding unsecured and unsubordinated obligations of the Company, present and future, but, in the event of the insolvency of the Company, only to the extent permitted by applicable laws relating to creditors' rights.

3 Guarantee

3.1 Guarantor's liability: The Guarantor hereby irrevocably and unconditionally guarantees to the Trustee the due and punctual payment by the Company of all moneys payable from time to time in respect of the Original Bonds and the Original Coupons (including, without prejudice to the generality of the foregoing, all additional amounts payable pursuant to Condition 8) and all other moneys payable from time to time under or pursuant to these presents as follows:

(a) if and whenever the Company shall make default in the payment of any such moneys, the Guarantor shall forthwith upon written demand therefor by the Trustee irrevocably and unconditionally pay to or to the order of the Trustee in sterling the amount in respect of which such default has been made and any payment so made shall to such extent cure such default by the Company subject as provided in Clauses 2.3, 2.4 and 2.5, the provisions of which Clauses shall apply mutatis mutandis to such payment;

(b) as a separate and independent stipulation the Guarantor agrees that any such moneys which may not be recoverable from the Company by reason of any legal limitation, disability or incapacity on or of the Company or any other fact or circumstance shall nevertheless be recoverable from the Guarantor as though the same had been incurred by the Guarantor and the Guarantor were the sole and principal debtor in respect thereof and shall be paid by the Guarantor forthwith upon written demand therefor by the Trustee. The Guarantor shall not be exonerated or discharged from liability by time being given, or any other indulgence or concession being granted, to the Company by the Trustee or by the Original Bondholders or the Original Couponholders or any of them or by anything done by the Trustee in exercise of any of the trusts, powers, authorities or discretions vested in it by these presents or by anything

which the Original Bondholders or the Original Couponholders or the Trustee or any of them may do or omit or neglect to do or by any other dealing or thing which, but for this provision, might operate to exonerate or discharge the Guarantor from its obligations hereunder. It is further agreed as a separate and independent stipulation that any sums of money which may not be recoverable from the Guarantor on the footing of a guarantee whether by reason of any legal limitation, disability or. any other fact or circumstances and whether or not known to the Trustee or the Original Bondholders or the Original Couponholders or any of them shall nevertheless be recoverable from the Guarantor as sole or principal debtor in respect thereof and shall be paid by the Guarantor to the Trustee forthwith upon written demand therefor by the Trustee;

(c) this guarantee shall be a continuing guarantee and accordingly shall remain in operation until all such moneys have been paid or satisfied in full and shall be in addition to and not in substitution for, and shall not be affected by, any other rights which the Trustee or the Original Bondholders or the Original Couponholders or any of them may have under or by virtue of these presents and may be enforced without first having recourse to any such rights and without taking any steps or proceedings against the Company;

(d) the Trustee may from time to time make any arrangement or compromise with the Guarantor in relation to this guarantee which the Trustee may think fit;

(e) prior to the liquidation of the Company, the Guarantor shall not, without the prior written consent of the Trustee, at any time after default has been made by the Company in the payment of any such moneys and so long as any moneys payable from time to time by the Guarantor in respect of such defaulted moneys remain unpaid, exercise in respect of any amounts paid under this guarantee any right of subrogation,

indemnity or reimbursement or any other right or remedy which the Guarantor may have in respect of or as a result of such payment;

(f) in the event of the liquidation of the Company, if any moneys shall then be payable by the Guarantor under this guarantee, the Guarantor will, until all such moneys payable from time to time in respect of the Original Bonds and the Original Coupons and all other moneys payable from time to time under or pursuant to these presents have been paid in full, hold the benefit of all its claims against the Company upon trust to pay the same to the Trustee and shall prove for such claims against the Company and the Guarantor hereby irrevocably authorises the Company to pay to the Trustee, to the extent that all such moneys payable from time to time in respect of the Original Bonds and the Original Coupons and all other moneys payable under or pursuant to these presents shall not have been paid in full, all moneys due in respect of such claims;

(g) if any payment received by the Trustee or any Original Bondholder or Original Couponholder pursuant to the provisions hereof shall be avoided under any laws relating to bankruptcy, insolvency, corporate reorganisation or other similar events, such payment shall not be considered as having discharged or diminished the liability of the Guarantor, and this guarantee shall continue to apply as if such payment had at all times remained owing by the Company and the Guarantor shall indemnify the Trustee and the Original Bondholders and Original Couponholders in respect thereof.

3.2 No payments by Company: If any moneys shall become payable by the Guarantor under the guarantee, this Company shall not (save in the event of the liquidation of the Company), so long as such moneys remain unpaid, pay any moneys for the time being due by the Company to the Guarantor.

3.3 Consents and authorisations: If at any time any authorisation or approval becomes necessary to permit the Guarantor to pay any moneys payable from time to time in respect of the Original Bonds or the Original Coupons or under or pursuant to these presents in accordance with the terms of these presents as a result of any change in, any change in the official application of, or any amendment to, the laws or regulations of the United Kingdom, the Guarantor shall forthwith apply for the necessary authorisation and approval and shall provide copies of such application as soon as reasonably practicable to the Trustee. The Guarantor shall provide copies of such authorisation and approval to the Trustee as soon as they are obtained.

3.4 Application of moneys received by Trustee: Any amount from time to time received by the Trustee under this guarantee shall be applied by the Trustee in accordance with the provisions of Clause 7.

3.5 Nature of obligations: The Guarantor hereby covenants with the Trustee that the obligations of the Guarantor under this guarantee constitute direct, unconditional and, subject to Condition 3, unsecured obligations of the Guarantor and, subject to Condition 3, rank and will rank pan passu with all other outstanding unsecured and unsubordinated obligations of the Guarantor, present and future but, in the event of the insolvency of the Guarantor, only to the extent permitted by applicable laws relating to creditors' rights.

4 Forms of Original Bonds and Original Coupons

4.1 Original Global Bond: The Original Bonds 2005 will initially be represented by the Original Global Bond 2005 and the Original Bonds 2020 will initially be represented by the Original Global Bond 2020, each in the principal amount of (pound)100,000,000 and each of which will be exchangeable for relevant individual Original Bonds (serially numbered) in denominations of (pound)1,000, (pound)10,000 and
(pound)100,000 each with Coupons attached as set out in the relevant Original Global Bond. The Company shall issue each Original Global Bond to a bank depositary

common to both Euroclear and Cedel on terms that such depositary shall hold the same for the account of the persons who would otherwise be entitled to receive the Original Bonds (as notified to such depositary by the Principal Paying Agent) and the successors in title to such persons as appearing in the records of Euroclear and Cedel for the time being. The Company shall issue the relevant Original Bonds in exchange for the relevant Original Global Bond only in accordance with the provisions thereof. Pending exchange of an Original Global Bond, its holder will be deemed to be the holder of the relevant individual Original Bonds and Original Coupons for all purposes.

4.2 Original Bonds and Original Coupons: The Certificates representing the Original Bonds and the Original Coupons will be security printed in accordance with the applicable stock exchange requirements. The individual Certificates representing Original Bonds 2005, the Original Global Bond 2005 and the Original Coupons 2005 will be in or substantially in the respective forms set out in Parts I, II and III of Schedule 1 and the Original Bonds 2005 will be endorsed with the Conditions set out in Schedule 2. The individual Certificates representing Original Bonds 2020, the Original Global Bond 2020, the Original Coupons 2020 and the Original Talons 2020 will be in or substantially in the respective forms set out in Parts I, II, III and IV of Schedule 3 and the Original Bonds 2020 will be endorsed with the Conditions set out in Schedule 4. Title to the Original Bonds and the Original Coupons shall pass by delivery.

4.3 Signature: Each Original Global Bond and individual Certificate representing Original Bonds and Original Coupon will be signed manually or in facsimile by two Directors of the Company and two Directors of the Guarantor and will be authenticated by or on behalf of the Principal Paying Agent. The Company and the Guarantor may use the facsimile signature of any person who is at the date of this Master Trust Deed a Director of the Company or the Guarantor respectively even if at the time of issue of any Original Global Bond, individual Certificate representing Original Bonds or Original Coupon he no longer holds such office. An Original Global Bond, an individual Certificate representing

Original Bonds or an Original Coupon which is not so executed and authenticated shall not be valid for any purpose. Each Original Global Bond and individual Certificate representing Original Bonds and Original Coupon which shall be so executed and authenticated shall represent valid binding and enforceable obligations of the Company and of the Guarantor.

4.4 Issue: Issue and delivery of the Original Bonds shall be complete on the issue and delivery of the relevant Original Global Bond to the depositary referred to in Clause 4.1 (or its representative) by, or at the order of, the Company and the Guarantor.

4.5 Bondholder deemed to be absolute owner: The Company, the Guarantor, the Trustee and the Agents may (to the fullest extent permitted by applicable laws) deem and treat the holder of any Bond and the holder of any Coupon as the absolute owner of such Bond or such Coupon, as the case may be, for all purposes (whether or not such Bond or such Coupon shall be overdue and notwithstanding any notice of ownership or writing thereon or any notice of previous loss or theft thereof), and the Company, the Guarantor, the Trustee and the Agents shall not be affected by any notice or other matter to the contrary, and shall not be liable to anyone for so treating such holder. All payments made to any such holder shall be valid and, to the extent of the sums so paid, effective to satisfy and discharge the liability for the moneys payable upon such Bond or Coupon, as the case may be.

5 Stamp duties and taxes

5.1 Stamp duties: The Company (failing which the Guarantor) will pay any capital, stamp, issue, registration, documentary and other similar taxes and duties and all costs and expenses, including interest and penalties, payable in the United Kingdom, Belgium and Luxembourg in respect of the creation, constitution, issue and original offering of the Bonds and the Coupons, and the execution and delivery of these presents. The Company (failing which the Guarantor) will also

indemnify the Trustee, the Bondholders and the Couponholders from and against all stamp, issue, registration, documentary and other taxes and duties paid by any of them in any jurisdiction in relation to which the liability to pay arises directly as a result of any action taken by or on behalf of the Trustee or, as the case may be, (where entitled under Condition 11 to do so) the Bondholders or the Couponholders to enforce the obligations of the Company or the Guarantor under these presents.

5.2 Change of taxing jurisdiction: If the Company and/or the Guarantor becomes subject generally to the taxing jurisdiction of any territory or any political subdivision or authority of or in that territory having power to tax other than or in addition to the United Kingdom or any political sub-division or authority of or in the United Kingdom, the Company and the Guarantor will (unless the Trustee otherwise agrees) give to the Trustee an undertaking in form and manner satisfactory to the Trustee in terms corresponding to the terms of Condition 8 with the substitution for, or, where applicable, the addition to, the references in that Condition to the United Kingdom of references to that other or additional territory or political sub-division or authority to the taxing jurisdiction of which the Company and/or the Guarantor (as the case may be) has become so subject and in such event these presents will be read accordingly.

6 Further Bonds

6.1 Liberty to create: The Company may from time to time without the consent of the Bondholders or Couponholders create and issue further bonds or notes or similar securities, in bearer or registered form, ranking pari passu with the Original Bonds and either having the same terms and conditions as the Original Bonds in all respects (or in all respects except for the amount of the first payment of interest thereon) or upon such terms and conditions as to interest, conversion, premium, redemption and otherwise as the Directors of the Company may at the time of issue thereof determine. Any such further bonds having the same terms and conditions as the Original Bonds in all respects or

which after the first payment of interest will have the same such terms and conditions shall (if applicable, after such first payment of interest) be consolidated and form a single series with the Original Bonds and any Further Bonds forming a single series with the Original Bonds.

6.2 Means of constitution: Any Further Bonds created and issued pursuant to Clause 6. 1 so as to form either immediately or after the first payment of interest a single series with the Original Bonds or Further Bonds of any series shall be constituted by a deed supplemental to these presents and any other further bonds, notes or similar securities created and issued pursuant to Clause 6.1 may, with the consent of the Trustee, be so constituted. The Company and the Guarantor shall prior to the issue of Further Bonds execute and deliver to the Trustee a deed supplemental to these presents (if applicable duly stamped or denoted) and containing a covenant by the Company in the form mutatis mutandis of Clause 2.3, and a guarantee by the Guarantor in the form mutatis mutandis of Clause 3, in relation to the principal amount of and interest in respect of such Further Bonds and such other provisions (corresponding to any of the provisions contained in these presents) as the Trustee shall require.

6.3 Noting of supplemental deeds: A memorandum of every such supplemental deed shall be endorsed by the Trustee on this Master Trust Deed and by the Company and the Guarantor on each duplicate of this Master Trust Deed.

6.4 Notice of further issues: Whenever it is proposed to create and issue any Further Bonds, the Company shall give to the Trustee not less than seven days' notice in writing of its intention to do so, stating the amount of Further Bonds proposed to be created and issued.

6.5 Separate series: Any Further Bonds not forming a single series with the Original Bonds or Further Bonds of any series shall form a separate series and accordingly, unless for any purpose the Trustee in its absolute discretion shall otherwise determine, the provisions of Clauses 1.1 (to the extent applicable),

2.4, 2.5, 2.6, 4.3, 4.4, 4.5, 5 and 6.2 and of Clauses 7 to 23 (inclusive) and Schedule 5 shall apply (if at all) mutatis mutandis separately and independently to the Bonds of each series and shall be construed accordingly.

7 Application of moneys received by Trustee

7.1 Declaration of trust: All moneys received by the Trustee under or pursuant to these presents will, regardless of any appropriation of all or part of them by the Company or, in respect of amounts received from the Guarantor, the Guarantor, be held by the Trustee upon trust to apply them (subject to Clause 7.2):

(a) first, in payment or satisfaction of all costs, charges, expenses and liabilities properly incurred in or about the exercise of powers conferred on the Trustee by these presents or otherwise in relation to these presents and payments made by the Trustee under any of the provisions contained in these presents and of all remuneration payable to the Trustee under these presents with interest thereon (as provided in Clause 10.4) and in payment or satisfaction of all amounts payable pursuant to these presents to any attorney, manager, agent, delegate or other person appointed by or under these presents;

(b) secondly, in payment of any principal and interest and all other sums owing in respect of the Bonds and the Coupons pari passu and rateably; and

(c) thirdly, in payment of the balance (if any) to the Company for itself or, in respect of amounts received from the Guarantor, the Guarantor for itself.

Without prejudice to this Clause 7.1, if the Trustee holds any moneys which represent principal or interest or other sums in respect of Bonds or Coupons

which have become void or in respect of which claims have become prescribed under Condition 9, the Trustee will hold such moneys upon the above trusts.

7.2 Accumulation: If the amount of the moneys at any time available for payment in respect of the Bonds under Clause 7.1 is less than 10 per cent of the principal amount of the Bonds then outstanding, the Trustee may, at its discretion, invest such moneys in accordance with the provisions of Clause 7.3. The Trustee may retain such investments and accumulate the resulting income until the investments and the accumulations, together with any other funds for the time being under the control of the Trustee and available for such payment, amount to at least 10 per cent of the principal amount of the Bonds then outstanding and then such investments, accumulations and funds (after deduction of any applicable taxes or provisions made therefor) will be applied as specified in Clause 7.1.

7.3 Investment: Any moneys which under the trusts herein contained ought to or may be invested by the Trustee may be invested in the name or under the control of the Trustee in any of the investments for the time being authorised by English law for the investment by trustees of trust moneys or in any other investments, whether similar to the aforesaid or not, which may be selected by the Trustee or by placing the same on deposit in the name or under the control of the Trustee with such bank or other financial institution as the Trustee may, in its absolute discretion, think fit and the Trustee may at any time vary or transpose any of such investments for or into other such investments and shall not be responsible for any loss occasioned thereby whether by depreciation in value or otherwise.

8 Covenants to comply with provisions

8.1 Compliance with these presents: Each of the Company and the Guarantor hereby covenants with the Trustee that it will comply with and perform and observe all the provisions of these presents which are expressed to be binding

on it (including those which may subsequently be determined to be illegal, invalid or unenforceable for any reason). The Trustee shall be entitled to enforce the obligations of the Company and the Guarantor under these presents.

8.2 When Trustee required to act: The Trustee is hereby authorised and it is declared that the Trustee shall be entitled to assume without enquiry (in the absence of express written notice to the Trustee from the Company or. the Guarantor, as the case may be, to the contrary) that the Company and the Guarantor are duly performing and observing all covenants and provisions contained in these presents and on their respective parts to be performed and observed. Notwithstanding knowledge by or notice to the Trustee of any breach of any such covenant or provision it shall be in the discretion of the Trustee whether or not to take any action or proceedings to enforce the performance thereof and the Trustee shall not be bound to enforce the same or any of the covenants or provisions of these presents unless and until in any of such cases (but subject to Condition 10) the Trustee, is required to do so by an Extraordinary Resolution or in writing by the holders of not less than one-quarter part in principal amount of the Bonds for the time being outstanding, and then only if the Trustee shall be indemnified to its satisfaction against all actions, proceedings, costs, claims and demands to which it may render itself liable and all costs, charges, damages and expenses which it may incur by so doing. Only the Trustee may enforce the provisions of these presents. No Bondholder or Couponholder shall be entitled to proceed directly against the Company unless the Trustee having become bound as aforesaid to take proceedings fails so to do within a reasonable period and such failure shall be continuing.

9 Covenants

9.1 So long as any Bond is outstanding, the Company will and the Guarantor will procure that the Company will:

(a) Carry on and conduct its affairs in an efficient manner and keep books of account: at all times carry on and conduct its affairs, and procure that each of the Subsidiaries carries on and conducts its affairs, in a proper and efficient manner and keep, and procure that each of the Subsidiaries keeps, proper books of account and, at any time after the occurrence of an Event of Default or a Potential Event of Default or if the Trustee has reasonable grounds to believe that any such event has occurred, so far as permitted by applicable law, allow, and procure that each of the Subsidiaries will allow, the Trustee and anyone appointed by it to whom the Company and/or the relevant Subsidiary has no reasonable objection access to the books of account of the Company and/or the relevant Subsidiary respectively at all reasonable times during normal business hours;

(b) Notice of security interests: notify the Trustee in writing immediately upon becoming aware that the provisions of Condition 3 shall have become applicable by reason of any encumbrance or security interest referred to therein being created or being permitted to subsist or arising;

(c) Notice of Event of Default: notify the Trustee in writing immediately upon becoming aware of the occurrence of any Event of Default or Potential Event of Default;

(d) Information: so far as permitted by applicable law, give to the Trustee such information and assistance as it requires to carry out the trusts of these presents;

(e) Financial statements etc.: send to the Trustee two copies or translations, in each case in the English language, of:

(i) all accounts, financial statements and reports for or in respect of any annual, half-yearly or other period in respect of which any

account, financial statement or report is prepared by the Company for issue to its shareholders, together with any report of the Auditors thereon, as soon as practicable, and in any event within six months, after the last day of such period;

(ii) all notices, statements, circulars and other documents issued, sent or given to holders of the shares or of any other securities of the Company (other than the Bonds) or of any of the Subsidiaries, and which, in the opinion of the Trustee, have a material bearing on the interests of the Bondholders, when such documents are issued, sent or given to such holders; and

(iii) all notices, statements, circulars and other documents issued, sent or given to Bondholders when such documents are issued, sent or given to Bondholders and prior thereto, in the case of any such document addressed to Bondholders, send to the Trustee two copies of the form of such document at least 48 hours prior to publication,

and so that:

(a) if and to the extent that any account, financial statement or report referred to in paragraph (i) of this Clause 9.1(e) shall not be prepared or adjusted on a basis consistent with that used for the relevant preceding period, that fact shall be stated in such account, financial statement or report (as the case may be);

(b) any document referred to in paragraph (iii) in this Clause 9.1(e) addressed to Bondholders shall be issued, sent or given in a form previously approved in writing by the Trustee (such approval, unless so expressed, not to constitute approval for the purposes of section 57 of the Financial Services Act 1986 of any such

notice which is an investment advertisement (as therein defined)); and

(c) any notice, statement, circular and other document issued, sent or given to Bondholders shall be so issued sent or given in accordance with Condition 14;

(f) Certificates of Directors: send to the Trustee, within ten days after a request by the Trustee therefor and also (without the necessity for any such demand) promptly or in any event within 14 days of its annual audited financial statements being issued to its shareholders, a certificate signed by two of its Directors certifying to the effect that, having made all reasonable enquiries, in the opinion of the persons so certifying as at a date (the `Certification Date"), being not more than five days before the date of the certificate, no Event of Default or Potential Event of Default had occurred since the date of this Master Trust Deed or, if later, the Certification Date of the last such certificate (if any) and, if such an event had occurred, giving details of it;

(g) Reports of Auditors: procure that the Auditors furnish to the Trustee such reports and information as the Trustee may request in connection with any calculation or matter arising under these presents;

(h) Further acts: so far as permitted by applicable law, do all such further things as may be necessary in the opinion of the Trustee to give effect to these presents and to enable the Trustee to carry out the trusts of these presents;

(i) Notice of late payment: forthwith after a request by the Trustee give notice to the Bondholders of any unconditional payment to the Trustee or the Principal Paying Agent of any sum due in respect of the Bonds or Coupons made after the due date for such payment;

(j) Listing of Bonds: use all reasonable endeavours to maintain at its expense a listing or quotation for the Bonds on the London Stock Exchange and/or on any other stock exchange or securities market on which the Bonds shall for the time being be listed or quoted, provided that if, notwithstanding such endeavours, it is unable to do so or if the terms and conditions subject to which such listing or quotation is maintained are agreed by the Trustee in writing to be unduly onerous (whether by reason of expense or otherwise) and the Trustee is satisfied that the interests of the Bondholders would not be thereby materially prejudiced, the Company will instead use all reasonable endeavours to obtain and maintain at its expense a listing or quotation for the Bonds on such other stock exchange or securities market as it may (with the prior written approval of the Trustee) decide and will promptly give notice (in a form previously approved in writing by the Trustee) to the Bondholders of any delisting or listing or grant or loss of quotation for the Bonds occurring hereafter (other than the initial listing on the London Stock Exchange);

(k) Change in Agents: give not less than 14 days' prior notice to the Bondholders of any appointment or resignation or removal of any Agent or of any change by any Agent of its specified office, in each case occurring after the date of this Master Trust Deed, and not make any such appointment or removal without the prior written approval of the Trustee;

(1) Bonds held by the Company etc.: send to the Trustee as soon as practicable after being so requested by the Trustee a certificate signed by two Directors of the Company setting out the total number of Bonds which, at the date of such certificate, were held by or on behalf of the Company and each of its Subsidiaries respectively and which had not been cancelled;

(m) Early redemption: give prior written notice to the Trustee of any proposed redemption pursuant to Condition 6(B) or (C) and, if it gives notice to Bondholders of its intention to redeem any Bonds pursuant to Condition 6(B), make selections by lot (if appropriate) and redeem Bonds accordingly;

(n) Agency Agreement: comply with and perform all its obligations under the Agency Agreement, use all reasonable endeavours to procure that each of the Agents complies with and performs its obligations thereunder, not take any steps to prevent compliance by the Agent in accordance with the terms of the Agency Agreement and not amend or modify the Agency Agreement without the prior written consent of the Trustee;

(o) Availability of information: make available for inspection at the specified offices of the Agents copies of the accounts, financial statements and reports referred to in Clause 9.1(d) as from the date of issue thereof to the Company's shareholders;

(p) Cedel and Euroclear: use all reasonable endeavours to provide assistance to Cedel and/or Euroclear (as the case may be) in the issuance of any certificate or other document requested by the Trustee under Clause 11(q) as soon as practicable after such request;

(q) Filings: duly and punctually comply with or procure that there is complied with all filing, reporting and similar requirements required in accordance with applicable English law and regulations from time to time relating in any manner whatsoever to the Bonds, and deliver to the Trustee two copies of all orders, directions notices given or made to the Company by the London Stock Exchange and any other stock exchange or securities market on which the Bonds shall for the time being be listed

or quoted (other than of a purely procedural, routine or technical nature) together, if applicable, with English language translations thereof;

(r) Principal Subsidiaries: give to the Trustee within 14 days of its annual audited financial statements being issued to its shareholders and also within 14 days of a request by the Trustee, either a certificate by the Auditors listing the Principal Subsidiaries which, as at the last day of the latest completed financial year of the Company or as at the date specified in such request, were the consolidated Principal Subsidiaries or, if the Company has no such Principal Subsidiaries, a certificate to that effect signed by two Directors of the Company.

9.2 Covenants by the Guarantor: The Guarantor hereby covenants with the Trustee in the terms of Clauses 9.1(a), (b), (c), (d), (e),
(f), (g), (h), (k), (1), (n), (o), (p), (q) and (r) as if references to the Company therein were references to the Guarantor. So long as any Bond is outstanding the Guarantor will send to the Trustee a certificate of the Guarantor signed by two of its Directors:

(a) specifying details of any modification to the terms and conditions of the PES Licence, such certificate to be provided promptly upon any such modification being made; and

(b) specifying any higher figure determined by the Director (as defined in the PES Licence) as is mentioned in Condition 10, such certificate to be provided within five days of the Director determining such figure by notice in writing to the Secretary of State (as defined in the PES Licence) and the Guarantor.

10 Remuneration and indemnification of Trustee

10.1 Normal remuneration: So long as any Bond is outstanding the Company (failing which the Guarantor) will pay to the Trustee by way of remuneration for its services as Trustee such sum as may from time to time be agreed between them. Such remuneration will accrue from day to day from the date of this Trust Deed until the trusts of these presents shall be finally wound up and shall be payable on such dates as shall be agreed between the Company and the Trustee. Upon the issue of any Further Bonds, the rate of remuneration in force immediately prior thereto shall be increased by such amount, and as from such date, as shall be agreed between the Company and the Trustee.

10.2 Extra remuneration: At any time after the occurrence of an Event of Default or a Potential Event of Default or if the Trustee finds it expedient in the interests of Bondholders or necessary, or if the Trustee is requested by the Company or the Guarantor to undertake duties which the Trustee and the Company or the Guarantor (as the case may be) agree to be of an exceptional nature or otherwise outside the scope of the normal duties of the Trustee under these presents, the Company (failing which the Guarantor) will pay such additional remuneration as may be agreed between the Company and the Trustee or, failing agreement as to any of the matters in this Clause 10.2 (or as to such sums referred to in Clause 10. 1), as determined by a merchant or investment bank in London of international repute selected by the Trustee and approved by the Company or, failing such approval, nominated on the application by the Trustee by the President for the time being of The Law Society of England and Wales. In making its determination such merchant or investment bank shall act as an expert and not as an arbitrator and its determination of such matter shall, in the absence of manifest error, be conclusive and binding on the Company, the Guarantor, the Trustee, the Bondholders and the Couponholders. The expenses involved in appointing such merchant or investment bank and the fees and expenses of the merchant or investment bank shall be paid by the Company (failing which by the Guarantor).

10.3 Expenses: The Company (failing which by the Guarantor) will also pay or discharge on a full indemnity basis (in priority to any payment to the Bondholders and the Couponholders) all costs, charges, liabilities and expenses properly incurred by the Trustee in relation to the preparation and execution of these presents and the carrying out of the trusts of these presents and the exercise of the powers, authorities and discretions vested in the Trustee by or pursuant to these presents, including, but not limited to, Legal and travelling expenses and any stamp, issue, registration, documentary or other taxes or duties paid by the Trustee in connection with any legal proceedings brought or contemplated by the Trustee against the Company or the Guarantor for enforcing any obligation under these presents.

10.4 Payment of Expenses: All such costs, charges, liabilities and expenses incurred by the Trustee and payments made referred to in Clause 10 will be payable or reimbursable by the Company (failing which the Guarantor) on a full indemnity basis within 14 days of demand by the Trustee and:

(i) in the case of payments made by the Trustee prior to such demand will carry interest from the date on which the demand is made at the rate of 2 per cent per annum over the base rate for the time being of Barclays Bank PLC; and

(ii) in all other cases will carry interest at such rate from 30 days after the date on which the demand is made or where the demand properly specifies that payment is to be made on an earlier date from such earlier date.

10.5 Indemnity: The Company (failing which the Guarantor) will indemnify the Trustee (in priority to any payment to the Bondholders and the Couponholders) in respect of all liabilities and expenses properly incurred by the Trustee in the carrying out of the trusts of these presents or by anyone appointed by the Trustee or to whom any of the functions of the Trustee may be delegated by the

Trustee in such carrying out of the trusts of these presents and against any loss, liability, cost, claim, action, demand or expense (including, but not limited to, all costs, charges and expenses paid or incurred in disputing or defending any of the foregoing) which the Trustee or any such person may properly incur or which may be made against the Trustee or any such person, arising out of or in relation to or in connection with the appointment of the Trustee or any such person and any thing done or omitted by the Trustee in such carrying out of the trusts of these presents or by any such person under or pursuant to such delegation, provided that such indemnity shall not extend to any such loss, ~liability, cost, claim, action, demand or expense incurred or suffered by any agent or delegate appointed by the Trustee in the event of negligence or wilful default of such agent or delegate. The Trustee may retain and pay out of any moneys in its hands arising from the carrying out of the trusts of, or otherwise trusts under, these presents all sums necessary to effect such indemnity and also the remuneration of the Trustee as herein before provided.

10.6 Value added tax: The Company (failing which the Guarantor) shall pay to the Trustee (in priority to any payment to the Bondholders and the Couponholders) an amount equal to any value added tax or similar tax chargeable in respect of any payment to be made to the Trustee under these presents.

10.7 Provisions continuing: The provisions of Clauses 10.3 to 10.6 (inclusive) will continue in full force and effect in relation to the Trustee even if it may have ceased to be Trustee.

10.8 The Trustee shall be entitled in its absolute discretion to determine in respect of which series of Bonds any costs, charges, liabilities and expenses incurred under or pursuant to these presents have been incurred or to allocate any such costs, charges, liabilities and expenses between the Original Bonds and any Further Bonds of any series.

11 Provisions supplemental to Trustee Act 1925

By way of supplement to the Trustee Act 1925 it is expressly declared in the terms of the following provisions of this Clause 11:

(a) Advice: The Trustee may in carrying out the trusts of these presents act on the opinion or advice of, or information obtained from, any accountant, lawyer, valuer, surveyor, broker, auctioneer or other expert, whether obtained by the Company, the Guarantor or the Trustee, and will not be responsible to anyone for any loss occasioned by so acting. Any such opinion, advice or information may be sent or obtained by letter, telephone, telex or facsimile or cable transmission and the Trustee will not be liable to anyone for acting in good faith on any opinion, advice or information purporting to be conveyed by such means even if it contains some error or is not authentic.

(b) Notification of execution: The Trustee need not notify anyone of the execution of these presents.

(c) Resolutions of Bondholders: The Trustee will not be responsible for having acted in good faith upon a resolution purporting to have been passed at a meeting of Bondholders (in respect of which minutes have been made and signed) even though it may later be found that there was a defect in the constitution of such meeting or in the procedures thereat or in the signing of such resolution or that such resolution was not valid or binding upon the Bondholders or Couponholders for any reason whatsoever.

(d) Certificate signed by Directors: The Trustee may call for and may accept as sufficient evidence of any fact or matter or the expediency of any act a certificate signed by two Directors of the Company or of the Guarantor certifying to the effect that, having made all reasonable enquiries, in the

opinion of the persons so certifying such fact or matter is as stated in the certificate or such act is expedient and in any such case and in the case of any certificate given under Clause 9.1(f) or 15.2(a)(iv) the Trustee may rely absolutely on such certificate and need not call for any further evidence and will not be responsible for any loss that may be occasioned by it not calling for further evidence or by it acting on any such certificate.

(e) Deposit of documents: The Trustee may deposit these presents and any other documents in any part of the world with any banker or banking company or entity the business of which includes undertaking the safe custody of documents or with any lawyer or firm of lawyers believed by it to be of good repute, may at its discretion make any such arrangements as it thinks fit for allowing the Company or the Guarantor access to, or its solicitors or auditors access to or possession of, such documents and the Trustee shall not be responsible for or required to insure against loss, liability, claim, action, demand or expense incurred in connection with any such deposit, access or provision and may pay all sums to be paid on account of or in respect of any such deposit, provided that, unless in the opinion of the Trustee it is required in connection with the enforcement of any obligation of the Company or the Guarantor under these presents or otherwise in connection with the carrying out of the trusts of these presents or unless it comprises the holding or placing of such documents in the United Kingdom the Trustee may not take any such action if a liability to stamp duty or other duties or taxes would thereby arise.

(f) Discretion of Trustee: Save as otherwise expressly provided in these presents, the Trustee will have absolute and uncontrolled discretion as to the exercise of the powers, authorities and discretions conferred on, and the functions of, the Trustee under these presents, will not be responsible to anyone for any loss, liability, cost, claim, action, demand, expenses

or inconvenience which may result from their exercise or non-exercise and any such exercise or non-exercise shall, as between the Trustee and the Bondholders and the Couponholders, be conclusive and binding on the Bondholders and the Couponholders.

(g) Agents: The Trustee may, in the carrying out of the trusts of these presents, instead of acting personally, employ and pay an agent believed by it to be of good repute, whether or not a lawyer or other professional person, to transact or conduct, or concur in transacting or conducting, any business and to do or concur in doing any acts required to be done by the Trustee in carrying out of the trusts of these presents (including the receipt and payment of money) and any Trustee being a lawyer, accountant, broker or other person engaged in any profession or business shall be entitled to charge and be paid all usual professional and other charges for business transacted and acts done by him or his firm in connection with the trusts of these presents (including matters which ought to or should have been attended to in person by a trustee not being engaged in any trade or profession) and also his reasonable charges in addition to disbursements for all other work and business done and all time spent by him or his firm in connection with matters arising in connection with these presents. The Trustee shall not be responsible to anyone for any misconduct or omission or default on the part of any such agent so employed by it or be bound to supervise the proceedings or acts of any such agent.

(h) Delegation: The Trustee may, in the execution and exercise of all or any of the trusts, powers, authorities and discretions vested in it by these presents and the Conditions, act by responsible officers or a responsible officer for the time being of the Trustee, and the Trustee may also whenever it thinks it expedient in the interests of the Bondholders, whether by power of attorney or otherwise, and after such consultation (if any) with the Company and the Guarantor as the Trustee may

consider to be practicable, delegate to any person or fluctuating body of persons all or any of the trusts, powers, authorities and discretions vested in it by these presents and the Conditions and any such delegation may be made upon such terms and conditions and subject to such regulations (including power to sub-delegate) as the Trustee may think fit and provided that the Trustee shall have exercised reasonable care in the selection of such delegate, it shall not be bound to supervise, the proceedings and shall not in any way or to any extent be responsible for any loss incurred by any misconduct or default on the part of such delegate or sub-delegate. The Trustee shall give prompt notice to the Company and the Guarantor of the appointment (and termination thereof) of any delegate as aforesaid and shall procure that any delegate shall also give prompt notice to the Company and the Guarantor of any sub-delegate. Notwithstanding the above, the Trustee may not delegate the right to give written notice to the Company that the Bonds are immediately due and repayable unless prior to such delegation the Trustee provides to the Company and the Guarantor confirmation in writing that the Trustee has been advised by its legal advisers that it should delegate the right (with or without any other rights, trusts, powers, authorities and discretions) to another person or fluctuating body of persons because of a conflict of interest or possible conflict of interest and/or other similar circumstances which the Trustee might face, or be subjected to, as the trustee of these presents if it were not to delegate that right.

(i) Forged Bonds: The Trustee will not be liable to the Company, the Guarantor or any Bondholder or Couponholder by reason of having accepted as valid or not having rejected any Certificate, Coupon or other document relating to any Bond purporting to be such and later found to be forged or not authentic.

(j) Confidentiality: Unless ordered to do so by a court of competent jurisdiction, the Trustee shall not be required to disclose to any Bondholder or Couponholder any confidential, financial, price sensitive or other information made available to the Trustee by the Company or the Guarantor or any of the Subsidiaries and no Bondholder or Couponholder shall be entitled to take any action to obtain from the Trustee any such information (and for this purpose any unpublished accounts and other unpublished financial information of or concerning the Company, the Guarantor or any of the Subsidiaries shall be considered to be confidential).

(k) Determinations conclusive: As between itself and the Bondholders and Couponholders, the Trustee shall have power to determine all questions and doubts arising in relation to any of the provisions of these presents. Every such determination, whether made upon such a question actually raised or implied in the acts or proceedings of the Trustee, shall be conclusive in the absence of manifest error and shall bind the Trustee, the Bondholders, the Couponholders and all other persons interested under these presents.

(l) Currency conversion: Where it is necessary or desirable to convert any sum from one currency to another, it shall (unless otherwise provided under these presents or required by law) be converted at such rate or rates, in accordance with such method and as at such date as may be specified by the Trustee but having regard to current rates of exchange, if available. Any rate, method and date so specified will be binding on the Company, the Guarantor, the Bondholders and the Couponholders.

(m) Events of Default and other events: The Trustee may determine whether or not a default in the performance or observance by the Company or the Guarantor of any of their respective obligations is in its opinion capable of remedy and/or whether or not any event is in its opinion materially

prejudicial to the interests of the Bondholders or has a material adverse effect on the Company's or the Guarantor's ability to perform or to comply with any of its obligations under these presents. Any such determination will be conclusive and binding upon the Company, the Guarantor, the Bondholders and the Couponholders. Notwithstanding the foregoing provisions of this Clause 11.1(m) or any other provisions of these presents, the Trustee shall not be bound to take any steps to ascertain whether or not any Event of Default or Potential Event of Default, Negative Rating Event, Restructuring Event or any event which could lead to the occurrence of or could constitute a Restructuring Event has occurred and, until it shall have actual knowledge or express notice pursuant to these presents to the contrary, the Trustee shall be entitled to assume that no Event of Default, Potential Event of Default, Negative Rating Event, Restructuring Event or any other such event has occurred and that each of the Company and the Guarantor is observing and performing all its obligations under these presents.

(n) Payment for and delivery of Bonds: The Trustee will not be responsible for the receipt or application by the Company of the proceeds of the issue of the Bonds, the exchange of interests in the Global Bond for individual Bonds or the delivery of individual Bonds to the persons entitled to them.

(o) Bonds held by the Company etc: In the absence of knowledge or express notice to the contrary, the Trustee may assume without enquiry that no Bonds or Coupons are for the time being held by or on behalf of the Company, the Guarantor or any of the Subsidiaries and that none of such companies has any beneficial interest therein.

(p) Interests of Bondholders: In connection with the carrying out of the trusts of these presents (including, but not limited to, those in relation to any proposed modification, waiver or authorisation of any breach or

proposed breach of any of the Conditions or any of the provisions of these presents or any proposed substitution in accordance with Clause 15), the Trustee shall have regard to the interests of the Bondholders as a class and in particular, but without prejudice to the generality of the foregoing, shall not have regard to the consequences of such exercise for individual Bondholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof or otherwise to the tax consequences thereof and the Trustee shall not be entitled to require, nor shall any Bondholder or Couponholder be entitled to claim, from the Company, the Guarantor, the Trustee or any other person any indemnification or payment of or in respect of any tax arising in consequence of any such exercise upon individual Bondholders or Couponholders except to the extent provided for in Condition 8 and/or in any undertaking given in addition thereto or in substitution therefor pursuant to these presents.

(q) Cedel and Euroclear: The Trustee may call for any certificate or other document to be issued by Cedel or Euroclear as to the principal amount of Bonds represented by a Global Bond standing to the account of any person. Any such certificate or other document shall be conclusive and binding for all purposes. The Trustee shall not be liable to any person by reason of having accepted as valid or not having rejected any certificate or other document to such effect purporting to be issued by Cedel or Euroclear and subsequently found to be forged or not authentic.

12 Trustee liable for breach of trust

Nothing in these presents shall, in any case in which the Trustee has failed to show the degree of care and diligence required of it as Trustee having regard to the provisions of these presents conferring on the Trustee any powers, authorities or discretions, exempt the Trustee from, or indemnify it against, any

liability which by virtue of any rule of law would otherwise attach to it in respect of any breach of trust of which it may be guilty.

13 Waiver, proof of default, consents and Trustee's power to apply to Court

13.1 Waiver: The Trustee may, without the consent of the Bondholders or Couponholders and without prejudice to its rights in respect of any subsequent breach, Potential Event of Default or Event of Default, from time to time and at any time, if in its opinion, the interests of the Bondholders will not be materially prejudiced thereby, waive or authorise, on such terms and conditions as seem expedient to it (including with retrospective effect) any breach or proposed breach by the Company or the Guarantor of any of the provisions of these presents or determine that any Event of Default or Potential Event of Default will not be treated as such, provided that the Trustee will not exercise any of the powers conferred on it by this Clause 13.1 in contravention of any express direction given by an Extraordinary Resolution or by a request made pursuant to Condition 11, but no such direction or request will affect any previous waiver, authorisation or determination. Any such waiver, authorisation or determination will be binding on the Bondholders and the Couponholders and, if, but only if, the Trustee so requires, will be notified to the Bondholders in accordance with Condition 14 by the Company or the Guarantor as soon as practicable.

13.2 Proof of default: If it is proved that as regards any specified Bond or Coupon the Company or the Guarantor has made default in paying any sum due to the relevant Bondholder or Couponholder, such proof will (unless the contrary be proved) be sufficient evidence that the same default has been made as regards all other Bonds or (as the case may be) Coupons which are then payable.

13.3 Consents: Where under these presents provision is made for the giving of any consent or the exercise of any discretion by the Trustee, any such consent may be given and any such discretion may be exercised on such terms and conditions

(if any) as the Trustee may think fit and may be given or exercised with retrospective effect. The Company and the Guarantor, as applicable, shall observe and perform any such terms and conditions and the Trustee may at any time waive or agree a variation in such terms and conditions.

13.4 Trustees' power to apply to Court: The Trustee may at any time apply to the Court for an order that the powers and the carrying out of the trusts of these presents be exercised or carried into execution under the direction of the Court and for any other order in relation to the execution and administration of the powers and the carrying out of the trusts of these presents as the Trustee shall deem expedient and it may assent to or approve any application to the Court made at the instance of any of the Bondholders and shall be indemnified by the Company or, failing which, the Guarantor against all the costs, charges and expenses incurred by and in relation to any such application or proceedings.

14 Trustee not precluded from entering into contracts

Neither the Trustee nor any director, officer or employee of a corporation acting as a Trustee, whether acting for itself or in any other capacity, will be precluded in any way from becoming the owner of, or acquiring any interest in, or holding, or disposing of, any Bond or Coupon or any shares or securities of the Company, the Guarantor, any Subsidiary or any associated companies thereof with the same rights as it would have had if the Trustee or such person were not the Trustee or connected with the Trustee or from entering into or being interested in any contracts or transactions or arrangements with the Company, the Guarantor, any Subsidiary or any associated companies thereof or from acting on, or as depositary or agent for, any committee or body of holders of any securities of the Company, the Guarantor, any Subsidiary or any associated companies thereof and the Trustee will be entitled to retain, and will not be liable to anyone to account for, any profit, share of brokerage, commission, remuneration or other benefit made or received in connection therewith.

15 Modification and substitution

15.1 Modification: The Trustee may agree, without the consent of the Bondholders or the Couponholders, to any modification to these presents which in its opinion is of a formal, minor or technical nature or which is made to correct a manifest error. The Trustee may also so agree to any modification to these presents which in its opinion is not materially prejudicial to the interests of the Bondholders, but so that such power shall not extend to any such modification as is mentioned in the proviso to paragraph 19 of Schedule 5. Any such modification as is permitted by this Clause 15.1 shall be binding upon the Bondholders and the Couponholders and, unless the Trustee otherwise agrees, will be notified by the Company to the Bondholders in accordance with Condition 14 as soon as practicable.

15.2 Substitution:

(a) The Trustee may, without the consent of the Bondholders or the Couponholders, but so as to bind the Bondholders and the Couponholders, agree with the Company and the Guarantor to the substitution of the Guarantor or any Subsidiary or holding company of the Guarantor or any subsidiary of such holding company (the "Substituted Obligor") in place of the Company (or of any previous substitute under this Clause 15.2, 15.3) as the principal debtor under these presents, provided that:

(i) the Trustee is satisfied that such substitution is not materially prejudicial to the interests of the Bondholders;

(ii) a trust deed is executed or some other form of undertaking is given by the Substituted Obligor and, where the Substituted Obligor is not the Guarantor, the Guarantor to the Trustee, in a form and manner satisfactory to the Trustee, agreeing to be

bound or, as the case may be, to continue to be bound by the provisions of these presents binding on the Company or, as the case may be, the Guarantor with any consequential amendments which the Trustee may deem appropriate as fully as if the Substituted Obligor had been named in these presents as the principal debtor in place of the Company (or of any preVious substitute under this Clause 15.2) and, unless the Substituted Obligor is the Guarantor, the guarantee of the Guarantor in these presents had been given accordingly;

(iii) where the Substituted Obligor is subject generally to the taxing jurisdiction of any territory or any political sub-division or any authority of or in that territory having power to tax (for the purpose of this Clause 15.2, the "Substituted Territory") other than or in addition to any territory to the taxing jurisdiction of which (or to any such political sub-division or authority of or in which) the Company (or any previous substitute under this Clause 15.2) is subject generally (for the purpose of this Clause 15.2, the "Existing Territory"), the Substituted Obligor will (unless the Trustee otherwise agrees) give to the Trustee an undertaking in form and manner satisfactory to the Trustee in terms corresponding to the terms of Condition 8 with the substitution for or, where applicable, the addition to, the references in that Condition to the Existing Territory of references to the Substituted Territory and in such event these presents will be read accordingly;

(iv) if any two of the directors or other officers acceptable to the Trustee of the Substituted Obligor certify to the Trustee to the effect that, having made all reasonable enquiries, in the opinion of the persons so certifying the Substituted Obligor will be solvent immediately after such substitution, the Trustee may rely

absolutely on such certificate and need not have regard to the financial condition, profits or prospects of the Substituted Obligor or compare them with those of the Company (or any previous substitute under this Clause 15.2) or call for any further evidence and the provisions of Clause 11(d) shall apply; and

(v) the Company, the Guarantor (and any previous substitute under Clause 15.3) and, the Substituted Obligor (and any previous substitute under this Clause 15.2) comply with such other requirements as the Trustee may direct in the interests of the Bondholders.

In the case of such substitution, the Trustee may agree, without the consent of the Bondholders or the Couponholders, to a change of law governing these presents provided that such change would not, in the opinion of the Trustee, be materially prejudicial to the interests of the Bondholders. Any such substitution as is permitted by this Clause 15.2 shall be binding upon the Bondholders and the Couponholders.

(b) Release of existing obligor: Any such agreement by the Trustee pursuant to this Clause 15.2 will, if so expressed but subject to Clause 15.2(a)(v), operate to release the Company (or any such previous substitute) from any or all of its obligations under these presents. Not later than 14 days after the execution of any such documents and after compliance with such requirements, notice of the substitution will be given by the Substituted Obligor to the Bondholders in accordance with Condition 14 as soon as practicable.

(c) Completion of substitution: Upon the execution of such documents and compliance with such requirements, the Substituted Obligor will be deemed to be named in these presents as the principal debtor in place of the Company (or of any previous substitute under this Clause 15.2) and

these presents will be deemed to be modified in such manner as shall be necessary to give effect to the substitution.

15.3 Substitution:

(a) The Trustee may, without the consent of the Bondholders or the Couponholders, but so as to bind the Bondholders and the Couponholders, agree with the Company and the Guarantor to the substitution of any Subsidiary or holding company of the Guarantor or any subsidiary of such holding company (the "Substituted Guarantor") in place of the Guarantor (or of any previous substitute under this Clause 15.2, 15.3) as the guarantor of the obligations of the Company (or any previous substitute under Clause 15.2) under these presents guaranteed by the Guarantor (or if any previous substitute under this Clause 15.3) under these presents, provided that:

(i) the Trustee is satisfied that such substitution is not materially prejudicial to the interests of the Bondholders;

(ii) the PES Licence is transferred to the Substituted Guarantor;

(iii) a trust deed is executed or some other form of undertaking is given by the Substituted Guarantor to the Trustee, in a form and manner satisfactory to the Trustee, agreeing to be bound by the provisions of these presents binding on the Guarantor with any consequential amendments which the Trustee may deem appropriate as fully as if the Substituted Guarantor had been named in these presents as the guarantor of such obligations of the Company (or of any previous substitute under Clause 15.2) in place of the Guarantor (or of any previous substitute under this Clause 15.3);

(iv) where the Substituted Guarantor is subject generally to the taxing jurisdiction of any territory or any political sub-division or any authority of or in that territory having power to tax (for the purpose of this Clause 15(3), the "Substituted Territory') other than or in addition to any territory to the taxing jurisdiction of which (or to any such political sub-division or authority of or in which) the Guarantor (or any previous substitute under this Clause 15.3) is subject generally (for the purpose of this Clause 15(3), the "Existing Territory'), the Substituted Guarantor will (unless the Trustee otherwise agrees) give to the Trustee an undertaking in form and manner satisfactory to the Trustee in terms corresponding to the terms of Condition 8 with the substitution for or, where applicable, the addition to, the references in that Condition to the Existing Territory of references to the Substituted Territory and in such event these presents will be read accordingly;

(v) if any two of the directors or other officers acceptable to the Trustee of the Substituted Guarantor certify to the Trustee to the effect that, having made all reasonable enquiries, in the opinion of the persons so certifying the Substituted Guarantor will be solvent immediately after such substitution, the Trustee may rely absolutely on such certificate and need not have regard to the financial condition, profits or prospects of the Substituted Guarantor or compare them with those of the Guarantor (or of any previous substitute under this Clause 15.3) or call for any further evidence and the provisions of Clause 11.1(d) shall apply; and

(vi) the Company (and any previous substitute under clause 15.2), the Guarantor and the Substituted Guarantor (and any previous substitute under this Clause 15.3) comply with such other

requirements as the Trustee may direct in the interests of the Bondholders.

In the case of such substitution, the Trustee may agree, without the consent of the Bondholders or the Couponholders, to a change of law governing these presents provided that such change would not, in the opinion of the Trustee, be materially prejudicial to the interests of the Bondholders. Any such substitution as is permitted by this Clause 15.3 shall be binding upon the Bondholders and the Couponholders.

(b) Release of existing obligor: Any such agreement by the Trustee pursuant to this Clause 15.3 will, if so expressed but subject to Clause 15.3(a)(vi), operate to release the Guarantor (or any such previous substitute) from any or all of its obligations under these presents. Not later than 14 days after the execution of any such documents and after compliance with such requirements, notice of the substitution will be given by the Substituted Guarantor to the Bondholders in accordance with Condition 14 as soon as practicable.

(c) Completion of substitution: Upon the execution of such documents and compliance with such requirements, the Substituted Guarantor will be deemed to be named in these presents as the guarantor of the obligations aforesaid of the Company (or of any previous substitute under Clause 15.2) in place of the Guarantor (or of any previous substitute under this Clause 15.3) and these presents will be deemed to be modified in such manner as shall be necessary to give effect to the substitution.

16 Appointment, retirement and removal of Trustee

16.1 Appointment: The Company will have the power of appointing a new Trustee but no person will be so appointed unless previously approved by an Extraordinary Resolution. A trust corporation will at all times be a Trustee and

may be the sole Trustee. Any appointment of a new Trustee will be notified by the Company to the Bondholders and to the Agents as soon as practicable.

16.2 Retirement and removal: Any Trustee may retire at any time on giving not less than three months' notice in writing to the Company without giving any reason and without being responsible for any costs occasioned by such retirement and the Bondholders may by Extraordinary Resolution remove any Trustee provided that the retirement or removal of any sole Trustee or sole trust corporation will not become effective until a trust corporation is appointed as successor Trustee. If a sole Trustee or sole trust corporation gives notice of retirement or an Extraordinary Resolution is passed for its removal under this Clause 16.2, it will use all reasonable endeavours to procure that another trust corporation be appointed as Trustee. Any replacement or retirement of a Trustee will be notified by the Company to the Bondholders and to the Agents as soon as practicable.

16.3 Co-Trustees: The Trustee may, notwithstanding the provisions of Clause 16.1, by notice in writing to the Company and the Guarantor (but without the need for the consent of the Company, the Guarantor, the Bondholders or the Couponholders) appoint any person to act as an additional Trustee jointly with the Trustee:

(a) if the Trustee considers such appointment to be in the interests of the Bondholders;

(b) for the purpose of conforming with any legal requirement, restriction or condition in any jurisdiction in which any particular act is to be performed; or

(c) for the purpose of obtaining a judgment in any jurisdiction or the enforcement in any jurisdiction of either a judgment already obtained or

any of the provisions of these presents against the Company or the Guarantor.

Subject to the provisions of these presents the Trustee may confer on any person so appointed such functions as it thinks fit. The Trustee may by notice in writing to the Company, the Guarantor and such person remove any person so appointed. At the request of the Trustee, the Company and the Guarantor will forthwith execute and do all such documents, acts and things as may be required to perfect such appointment or removal and the Company and the Guarantor hereby irrevocably appoints the Trustee to be its attorney in its name and on its behalf to do so. Any appointment or removal of any such additional Trustee shall be notified by the Company or the Guarantor to the Bondholders and to the Agents as soon as practicable.

16.4 Competence of a majority of Trustees: If there are more than two Trustees, the majority of such Trustees will (provided such majority includes a trust corporation) be competent to carry out all or any of the Trustee's functions.

17 Couponholders

17.1 Notices: Neither the Trustee, the Company nor the Guarantor need give any notice to the Couponholders for any purpose under these presents and the Couponholders will be deemed to have notice of the contents of any notice given to the Bondholders.

17.2 Bondholders assumed to hold Coupons: Even if it has express notice to the contrary, whenever the Trustee is required to exercise any of its functions, powers, authorities or discretions by reference to the interests of the Bondholders, the Trustee shall assume that each Bondholder is the holder of all Coupons relating to each Bond of which he is the bearer.

18 Communications

Any notice, confirmation, demand, certificate or other document given, made or served, or required to be given, made or served, under these presents shall be in the English language and shall be given, made or served by letter delivered personally or by facsimile transmission:

(a) in the case of the Company, to it at:

Carliol House,
Market Street,
Newcastle-Upon-Tyne NEl 6NE

Fax no. 0191 210 2081

Attention: The Finance Director

(b) in the case of the Guarantor, to it at:

Carliol House,
Market Street,
Newcastle-Upon-Tyne NEl 6NE

Fax no. 0191 210 2081

Attention: The Finance Director

Princes House,

95 Gresham Street,

London EC2V 7LY

Fax no. 0171 606 0643 or 0171 726 4063

Attention: The Secretary

or, in each case, to such other address or facsimile number as shall have been notified (in accordance with this Clause 18) to the other parties.

Any such communication will take effect, in the case of delivery, at the time of delivery or, in the case of facsimile transmission, at the time of despatch.

Any communication not by letter shall be confirmed by letter but failure to send or receive the letter of confirmation shall not invalidate the original communication.

19 Powers in addition

The powers conferred upon the Trustee by these presents shall be in addition to any powers which may from time to time be vested in the Trustee by the general law or as a holder of any of the Bonds or Coupons.

20 Severability

Notwithstanding that any provision of these presents may prove to be illegal or unenforceable, the remaining provisions of these presents shall continue in full force and effect.

21 Execution

Each of the parties to this Master Trust Deed intends it to be a deed, and agrees to execute and deliver it as a deed. The signature or sealing of this Master Trust Deed by or on behalf of a party shall constitute an authority to the solicitors, or an agent or employee of the solicitors,

acting for that party in connection with this Master Trust Deed to deliver it as a deed on behalf of that party.

22 Counterparts

These presents may be executed in counterparts, and the counterparts together shall constitute one deed.

23 Governing law

These presents shall be governed by and construed in accordance with English law.

IN WITNESS whereof this Master Trust Deed has been executed as a deed the day and year first above written.

Schedule 1

Part I

Form of individual Certificate for Original Bonds 2005

On the front:
        ISIN:                           Serial No:                     Cert No:

                          NORTHERN ELECTRIC FINANCE plc
    (Incorporated with limited liability in England and Wales - No. 3070482)

(pound)100,000,000 8.625 per cent. Guaranteed Bonds due 2005 guaranteed as to principal and interest by NORTHERN ELECTRIC plc
(Incorporated with limited liability in England and Wales - No. 2366942)

The Bonds in respect of which this Certificate is issued are in bearer form and form part of the series designated as specified in the title (the "Bonds") of Northern Electric Finance plc (the "Issuer") constituted by a Master Trust Deed dated 16th October, 1995 between the Issuer, Northern Electric plc (the "Guarantor") and The Law Debenture Trust Corporation p.l.c. as the Trustee (the "Trust Deed", which expression includes all deeds supplemental to such Trust

Deed). The Bonds are subject to, and have the benefit of, the Trust Deed and the Terms and Conditions (the "Conditions") set out on the reverse hereof.

The Issuer for value received hereby promises to pay to the bearer of this Certificate the principal amount of (pound)[1,000/10,000/100,000][(One/Ten/One

Hundred)] Thousand pounds sterling on 16th October, 2005 or on such earlier date as such principal amount may become payable in accordance with the Conditions and the Trust Deed together with interest thereon and any other moneys payable in respect of the Bonds in accordance with the Conditions and the Trust Deed.

The Bonds are guaranteed as to principal and interest by the Guarantor on the terms of the Trust Deed.

This Certificate shall not be valid or become obligatory for any purpose until signed on behalf of the Issuer and the Guarantor and authenticated by or on behalf of the Principal Paying Agent.

Dated ______________________

In witness whereof the Issuer and the Guarantor have caused this Certificate to be signed in facsimile on their respective behalves.

Northern Electric Finance plc                   Northern Electric plc

By: _________________________                   By: ___________________
    Director                                        Director

By:__________________________                   By: ___________________
    Director                                        Director

Certificate of Authentication

This Certificate is authenticated by or on behalf of the Principal Paying Agent.

By: _________________________
Authorised Signatory

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.

[NEITHER THE ISSUER NOR THE GUARANTOR HAS BEEN OR WILL BE REGISTERED AS AN "INVESTMENT COMPANY" UNDER THE UNITED STATES INVESTMENT COMPANY ACT OF 1940.]

On the back:

Terms and Conditions

Details of Agents

Schedule 1

Part II

Form of Original Global Bond 2005

ISIN:

NORTHERN ELECTRIC FINANCE plc
(Incorporated with limited liability in England and Wales - No. 3070482)

(pound)100,000,000 8.625 per cent. Guaranteed Bonds due 2005 guaranteed as to principal and interest by NORTHERN ELECTRIC plc
(Incorporated with limited liability in England and Wales - No. 2366942)

TEMPORARY GLOBAL BOND CERTIFICATE

The Bonds in respect of which this temporary Global Bond Certificate is issued are in bearer form and comprise the series of Bonds designated as specified in the title (the "Bonds") of Northern Electric Finance plc (the "Issuer") constituted by a Master Trust Deed dated 16th October, 1995 between the Issuer, Northern Electric plc (the "Guarantor") and The .Law Debenture Trust Corporation
p.l.c. as the Trustee (the "Trust Deed", which expression includes all deeds supplemental to such Trust Deed). The Bonds are subject to, and have the benefit of, the Trust Deed including the Terms and Conditions set out on the reverse hereof.

The Issuer for value received hereby promises to pay to the bearer of this Certificate the principal amount of (pound)100,000,000 (or such lesser or greater amount as is duly endorsed in the third column of Schedule A to this Certificate) on 16th October, 2005 or on such earlier date as such principal amount may become payable in accordance with the Trust Deed together with interest thereon and any other moneys payable in respect of the Bonds in accordance with the Trust Deed.

The Bonds are guaranteed as to principal and interest by the Guarantor on the terms of the Trust Deed.

This temporary Global Bond Certificate is exchangeable for individual Certificates representing Bonds in bearer form with Coupons attached. The Issuer hereby irrevocably undertakes to deliver individual Certificates representing Bonds in exchange for this temporary Global Bond Certificate on and after 26th November, 1995 (the "Exchange Date").

On or after the Exchange Date this temporary Global Bond Certificate may be exchanged in whole or in part for individual Certificates representing Bonds in an aggregate principal amount not exceeding the principal amount of this temporary Global

Bond by the submission of this temporary Global Bond Certificate to the Principal Paying Agent together with a certificate from Cedel Bank, soci6t~ anonyme ("Cedel") or Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") substantially to the following effect:

CERTIFICATE OF CLEARING SYSTEM

NORTHERN ELECTRIC FINANCE plc

(pound)100,000,000 8.625 per cent. Guaranteed Bonds due 2005 (the "Bonds")

Common Code: ISIN:

This is to certify that, based solely on certificates we have received in writing, by tested telex or by electronic transmission, from member organisations appearing in our records as persons being entitled to a portion of the principal amount set forth below (Our "Member Organisations") substantially in the form set out in the temporary Global Bond Certificate representing Bonds (the form of which is set out in Part II of Schedule 1 to the Master Trust Deed constituting the Bonds) as of the date hereof ................... principal amount of the Bonds (i) is owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source ("United States persons"), (ii) is owned by United States persons that are (a) foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1. 165-12(c)(1)(v)) ("financial institutions") purchasing for their own account or for resale, or (b) United States persons who acquired the Bonds through foreign branches of United States financial institutions and who hold the Bonds through such United States financial institutions on the date hereof (and, in either case (a) or (b), each such United States financial institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section
165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) is owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1. 163-5(c)(2)(i)(D)(7)), and to the further effect that United States or foreign financial institutions described in (iii) above (whether or not also described in (i) or (ii) above) have certified that they have not acquired the Bonds for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.

We further certify (i) that we are not making available herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) any portion of the Bonds represented by the temporary Global Bond Certificate excepted in such certificates and (ii) that as of the date hereof we have not received any notification from any of our Member Organisations to the effect that the statements made by such Member Organisation with respect to any portion of the part submitted herewith for exchange (or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as of the date hereof.

We understand that this certificate is required in connection with certain tax laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened in connection with which this certificate is or would be relevant, we irrevocably authorise you to produce this certificate to any interested parry in such proceedings.

Dated: _______________*

Yours faithfully,

[Cedel Bank, societe anonyme]

[MORGAN GUARANTY TRUST COMPANY OF NEW YORK,

Brussels office,

as operator of the Euroclear System]

By: ______________________

* To be dated no earlier than the Exchange Date.

Any person appearing in the records maintained by Cedel or Euroclear as entitled to any interest in Bonds represented by this temporary Global Bond Certificate shall be entitled to require the exchange of this temporary Global Bond Certificate for (an) individual Certificate(s) representing such Bonds in bearer form by delivering or causing to be delivered to Cedel or Euroclear a certificate in substantially the following form (copies of which certificate will be available at the office of Cedel in Luxembourg and Euroclear in Brussels and at the specified office of each of the Paying Agents):

"CERTIFICATE OF CLEARING SYSTEM PARTICIPANT

NORTHERN ELECTRIC FINANCE plc

(pound)100,000,000 8.625 per cent. Guaranteed Bonds due 2005 (the "Bonds")

Common Code: ISIN:

To: [Cedel Bank, societe anonyme] [Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System]

This is to certify that, as of the date hereof, and except as set forth below, the Bonds held by you for our account (i) are owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source ("United States persons"), (ii) are owned by United States persons that are (a) foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations
Section 1. 165-12(c)(1)(v)) ("financial institutions") purchasing for their own account or for resale, or (b) United States persons who acquired the Bonds through foreign branches of United States financial institutions and who hold the Bonds through such United States financial institutions on the date hereof (and, in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise the Issuer or the Issuer's agent that it will comply with the requirements of
Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition, if an owner of Bonds is a United States or foreign financial institution described in (iii) above (whether or not also described in (i) or
(ii) above), this is to certify further that such financial institution has not acquired the Bonds for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.

As used herein, "United States" means the United States of America (including the States and the District of Columbia); and its "possessions" include Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana Islands.

We undertake to advise you promptly by tested telex on or prior to that date on which you intend to submit your certificate relating to the Bonds held by you for our account in accordance with your documented procedures if any applicable statement herein is not correct on such date, and in the absence of any such notification it may be assumed that this certificate applies as of such date.

This certificate excepts and does not relate to ....................... principal amount of the Bonds in respect of which we are not able to certify and as to which we understand exchange and delivery of individual Certificates representing Bonds (or, if relevant, exercise of any rights or collection of any interest) cannot be made until we do so certify.

Dated: __________________*

By: ____________________

[Name of person giving certificate] as, or as agent for, the beneficial owner(s) of the Bonds in respect of which this certificate is issued.

* To be dated no earlier than the fifteenth day prior to the Exchange Date."

Until the exchange of this temporary Global Bond Certificate for individual Certificates representing Bonds pursuant to the foregoing provisions, no person as aforesaid shall (except as stated herein) be entitled to receive any payment by way of principal or interest in respect of the Bonds represented by this temporary Global Bond Certificate (unless, upon due presentation of this temporary Global Bond Certificate for exchange, delivery of any individual Certificate representing Bonds shall be improperly withheld or refused) or to receive (an) individual Certificate(s) representing Bonds which he would otherwise be entitled to receive.

shall be effected shall be endorsed by the Principal Paying Agent on the Schedule of exchanges for individual Certificates hereon, whereupon the principal amount represented by this temporary Global Bond Certificate shall be

reduced for all purposes by the amount of such portion.

Subject to the second preceding paragraph, no provisions of this temporary Global Bond Certificate shall alter or impair the obligation of the Issuer to pay the principal and interest in respect of the Bonds when due in accordance with the Trust Deed or the obligations of the Guarantor under the Trust Deed.

This temporary Global Bond Certificate is governed by and shall be construed in accordance with English law.

This temporary Global Bond Certificate shall not be valid or become obligatory for any purpose until signed on behalf of the Issuer and the Guarantor and authenticated by or on behalf of the Principal Paying Agent.

Dated _______________________

In witness whereof the Issuer and the Guarantor have caused this temporary

Global Bond Certificate to be signed in facsimile on their respective behalves.

Northern Electric Finance plc Director          Northern Electric plc

By: __________________________________          By: ____________________
     Director                                        Director

By: __________________________________ By: ____________________ Director Director

Certificate of Authentication

This temporary Global Bond Certificate is authenticated by or on behalf of the Principal Paying Agent.

By: __________________________
Authorised Signatory

[NEITHER THE ISSUER NOR THE GUARANTOR HAS BEEN OR WILL BE REGISTERED AS AN "INVESTMENT COMPANY" UNDER THE U.S. INVESTMENT COMPANY ACT OF 1940.]

Schedule of exchanges for individual Certificates

The principal amount of the Bonds represented by this temporary Global Bond Certificate has been reduced as a result of the issue of individual Certificates

representing Bonds in respect of a portion of such principal amount in exchange as follows:

            Amount of decrease
            ------------------



            in principal amount
            -------------------
            of Bonds                Principal amount of         Notation made by
            --------                -------------------         ----------------
            represented by          Bonds represented by        or on behalf of

            --------------          --------------------        ---------------
Date of     Global Bond             Global Bond Certificate     Principal Paying
-------     -----------             -----------------------     ----------------
exchange    Certificate             following such decrease     Agent
--------    -----------             -----------------------     -----

Schedule of interest paid

Date of payment Amount of interest Notation made

Schedule 1
----------

Part III

Form of Original Coupon 2005

On the front:
        ISIN:                       Serial No:                       Coupon No:


                          NORTHERN ELECTRIC FINANCE plc

(Incorporated with limited liability in England and Wales - No. 3070482)

(pound)100,000,000 8.625 per cent Guaranteed Bonds due 2005

guaranteed as to principal and interest by

NORTHERN ELECTRIC plc

(Incorporated with limited liability in England and Wales - No. 2366942)

Coupon for _____________ due on - 199[6/7/8/9/2000/1/2/3/4/5].

This Coupon relates to interest payable on (pound)[1,OO0/10,000/100,000]
[(One/Ten/One Hundred Thousand)] principal amount of the Bonds designated as specified in the title (the "Bonds") of Northern Electric Finance plc (the "Issuer") constituted by a Master Trust Deed dated 16th October, 1995 between the Issuer, Northern Electric plc (the "Guarantor") and The Law Debenture Trust

Corporation p.l.c. as the Trustee (the "Trust Deed", which expression includes all deeds supplemental to such Trust Deed).

This Coupon is payable to bearer (subject to the Trust Deed, including the Conditions endorsed on the Certificate representing the Bonds to which this Coupon relates, which shall be binding upon the holder of this Coupon whether or

not it is for the time being attached to such Certificate) at the specified offices of the Paying Agents set out on the reverse hereof (or any further or other Paying Agents or specified offices duly appointed or nominated from time to time and notified to the Bondholders).

Such interest is guaranteed by the Guarantor.

This Coupon is negotiable separately from the Bonds to which this Coupon relates.

This Coupon shall not be valid or become obligatory for any purpose until signed on behalf of the Company and authenticated by or on behalf of the Principal Paying Agent.

Dated:_____________________

In witness whereof the Company and the Guarantor have caused this Coupon to be signed in facsimile on their respective behalves.

Northern Electric Finance plc                        Northern Electric plc

By: _________________________                        By: _________________
     Director                                              Director


By: _________________________                        By: _________________
     Director                                              Director

Certificate of Authentication

This Coupon is authenticated by or on behalf of the Principal Paying Agent

By: _________________________
Authorised Signatory

[NEITHER THE ISSUER NOR THE GUARANTOR HAS BEEN OR WILL BE REGISTERED AS AN "INVESTMENT COMPANY" UNDER THE U.S. INVESTMENT COMPANY ACT OF 1940.]

On the back:

Details of Paying Agents

Schedule 2

Terms and Conditions of Original Bonds 2005

TERMS AND CONDiTIONS OF THE BONDS

The following is the text of the terms and conditions of the Bonds which will be endorsed on each Bond in definitive form:

The (pound)100,000,000 8.625 per cent. Guaranteed Bonds due 2005 (the "Bonds", which expression shall in these Terms and Conditions, unless the context otherwise requires, include any further bonds issued pursuant to Condition 17 and forming a single series with the Bonds) of Northern Electric Finance plc (the "Issuer") are constituted by a master trust deed dated 16th October, 1995 (the "Trust Deed", which expression shall wherever the context so admits include any deed supplemental thereto) made between the Issuer, Northern Electric plc (the "Guarantor") and The Law Debenture Trust Corporation p.l.c. (the "Trustee", which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the holders of the Bonds (the "Bondholders") The issue of the Bonds was authorised by a resolution of the board of directors of the Issuer passed on 9th October, 1995. The giving of the guarantee by the Guarantor was authorised by a written resolution of the board of directors of the Guarantor passed on 14th September, 1995 appointing a committee of the board for the purposes of the giving of the guarantee and by a resolution of such duly appointed committee of the board of directors of the Guarantor passed on 9th October, 1995. The Bonds are, on issue, listed on The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited (the "London Stock Exchange"). The statements in these Terms and Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the Trust Deed. Copies of the Trust Deed and of an agency agreement dated 16th October, 1995 (the "Agency Agreement") made between the Issuer, the Guarantor, Barclays Bank PLC, as principal paying agent (the "Principal Paying Agent", which expression shall include any successor), the other paying agents named therein (together with the Principal Paying Agent, the "Paying Agents", which expression shall include any additional or successor paying agents) and the Trustee are available for inspection during normal business hours by the Bondholders and the holders of the interest coupons appertaining to the Bonds (respectively, the "Couponholders" and the "Coupons", at the registered office for the time being of the Trustee, being at the date of issue of the Bonds at Princes House, 95 Gresham Street, London EC2V 7LY and at the specified office of each of the Paying Agents. The Bondholders and the Couponholders are entitled to the benefit of, and are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Agency Agreement.

1. Form, Denominations and Title

The Bonds are in bearer form, serially numbered, in the denominations of
(pound)1,000, (pound)10,000 and (pound)100,000 each with Coupons attached on issue. Title to the Bonds and to the Coupons will pass by delivery. Bonds of one denomination may not be exchanged for Bonds of another denomination.

The Issuer, the Guarantor, any Paying Agent and the Trustee may (to the fullest extent permitted by applicable laws) deem and treat the holder of any Bond and the holder of any Coupon as the absolute owner thereof for all purposes (whether or not the Bond or Coupon shall be overdue and notwithstanding any notice of ownership or writing on the Bond or Coupon or any notice of previous loss or theft of the Bond or Coupon).

2. Status and Guarantee

The Bonds and the Coupons are direct, unconditional and, subject to the provisions of Condition 3, unsecured obligations of the Issuer and, subject as aforesaid, rank and will rank pari passu, without any preference among themselves, with all other outstanding unsecured and unsubordinated obligations of the Issuer, present and future, but, in the event of insolvency of the Issuer, only to the extent permitted by applicable laws relating to creditors' rights.

The Guarantor has, in the Trust Deed, unconditionally and irrevocably guaranteed the due and punctual payment of the principal of and interest on the Bonds as and when the same shall become due and payable together with any additional amounts payable pursuant to Condition 8 and all other moneys payable under the Trust Deed. The obligations of the Guarantor under the terms of such guarantee constitute direct, unconditional and, subject to the provisions of Condition 3, unsecured obligations of the Guarantor and such obligations rank and will rank pari passu with all other outstanding unsecured and unsubordinated obligations of the Guarantor, present and future, but, in the event of insolvency of the Guarantor, only to the extent permitted by applicable laws relating to creditors' rights.

3. Negative Pledge

So long as any of the Bonds remains outstanding (as defined in the Trust Deed) each of the Issuer and the Guarantor will ensure that no Relevant Indebtedness of the Issuer, the Guarantor or any PES Subsidiary or of any other person and no guarantee by the Issuer, the Guarantor or any PES Subsidiary of any Relevant Indebtedness of any other person will be secured by a mortgage, charge, lien, pledge or other security interest (each a "Security Interest") upon, or with respect to, any of the present or future business, undertaking, assets or revenues (including any uncalled capital) of the Issuer, the Guarantor or any PES Subsidiary unless the Issuer or the Guarantor, as the case may be shall, before or at the same time as the creation of the Security Interest, take any and all action necessary to ensure that:

(a) all amounts payable by the Issuer under the Bonds, the Coupons and the Trust Deed or, as the case may be. the obligations of the Guarantor under the guarantee referred to in Condition 2 are secured to the satisfaction of the Trustee equally and rateably with the Relevant Indebtedness or guarantee of Relevant Indebtedness, as the case may be, by such Security Interest; or

(b) such other Security Interest or guarantee or other arrangement (whether or not including the giving of a Security Interest) is provided in respect of all amounts payable by the Issuer under the Bonds, the Coupons and the Trust Deed or, as the case may be, in respect of the obligations of the Guarantor under the guarantee referred to in Condition 2 either (i) as the Trustee shall in its absolute discretion deem not materially less beneficial to the interests of the Bondholders or (ii) as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Bondholders,

save that the Issuer, the Guarantor or any PES Subsidiary may create or have outstanding a Security Interest in respect of any of its Relevant Indebtedness and/or any guarantees given by the Issuer, the Guarantor or any PES Subsidiary in respect of any Relevant Indebtedness of any other person (without the obligation to provide a Security Interest or guarantee or other arrangement in respect of the Bonds, the Coupons and the Trust Deed or, as the case may be, the obligations of the Guarantor under the said guarantee as aforesaid) where such Relevant Indebtedness has an initial maturity falling not earlier than 31st December, 2005 and is of a maximum aggregate amount outstanding at any time not exceeding the greater of (pound)20,000,000 and 20 per cent, of the Consolidated Tangible Net Worth (as defined below).

For the purposes of these Terms and Conditions:

(a) "Consolidated Tangible Net Worth" means at any particular time the aggregate of the amount paid up on the Guarantor's issued share capital and the consolidated distributable - and non-distributable reserves of the Group (as shown in the most recently published audited consolidated financial statements of the Group), after:

(i) deducting the total of any debit balance on the profit and loss account and the book value of any intangible assets including but not limited to goodwill; and

(ii) excluding any minority interests in Subsidiary Undertakings;

but adjusted as may be necessary in respect of any variation in the paid-up share capital or share premium account of the Group since the date of that balance sheet and further adjusted as may be necessary to reflect any change since the date of that balance sheet in the Subsidiary Undertakings comprising the Group.

A report by the Auditors (as defined in the Trust Deed~ as to the amount of the Consolidated Tangible Net Worth at any given time shall, in the absence of manifest error, be conclusive and binding on all parties.

(b) "Excluded Subsidiary" means any Subsidiary of the Issuer or the Guarantor (other than a Subsidiary which holds a public electricity supply licence granted under the Electricity Act 1989):

(i) which is a single purpose company whose principal assets and business are constituted by the ownership, acquisition, development and/or operation of an asset;

(ii) none of whose indebtedness for borrowed money in respect of the financing of such ownership, acquisition, development and/or operation of an asset is subject to any recourse whatsoever to any member of the Group (other than another Excluded Subsidiary) in respect of the repayment thereof; and

(iii) which has been designated as such by the Issuer or the Guarantor by written notice to the Trustee, provided that the Issuer or the Guarantor, as the case may be, may give written notice to the Trustee at any time that any Excluded Subsidiary is no longer an Excluded Subsidiary, whereupon it shall cease to be an Excluded Subsidiary;

(d) "PES Subsidiary" means any Subsidiary of the Guarantor which holds a public electricity supply licence granted under the Electricity Act 1989;

(e) "Project Finance Indebtedness" means any present or future indebtedness (whether being principal, premium, interest or other amounts) to finance a project:

(i) which is incurred by an Excluded Subsidiary; or

(ii) in respect of which recourse to any member of the Group for the repayment or payment of any sum relating to such indebtedness is limited to:

(1) the assets of a single purpose company (other than a PES Subsidiary) the principal assets and business of which are constituted by such project and which was established for the purpose of incurring such indebtedness; or

(2) the assets of the project and the rights, revenues and insurance proceeds derived therefrom or related thereto,

with no recourse to any other assets of the Group (other than those of an Excluded Subsidiary);

(f) "Relevant Indebtedness" means any present or future indebtedness (whether being principal, premium, interest or other amounts) in the form of or represented by notes, bonds, debentures, debenture stock, loan stock or other securities, whether issued for cash or in whole or in part for a consideration other than cash, and which, with the agreement of the person issuing the same are quoted, listed or ordinarily dealt in on any stock exchange or recognised over-the-counter or other securities market, but shall not in any event include Project Finance Indebtedness;

(g) "Subsidiary" means a subsidiary within the meaning of Section 736 of the Companies Act 1985;

(h) "Subsidiary Undertaking" shall have the meaning given to it by
Section 258 of the Companies Act 1985 (but shall exclude any undertakings (as defined in the Companies Act 1985) whose accounts are not included in the then latest published audited consolidated accounts of the Guarantor, nor (in the case of an undertaking which has first become a subsidiary undertaking of a member of the Group since the date as at which any such audited accounts were prepared) would its accounts have been so included or consolidated if it had become so on or before that date); and

(i) any reference to an obligation being guaranteed shall include a reference to an indemnity being given in respect of the obligation.

4. Interest

The Bonds bear interest from (and including) 16th October, 1995 at the rate of 8.625 per cent. per annum, payable annually in arrear on 16th October in each year (each an "Interest Payment Date"), the first such payment to be made on 16th October, 1996 and to amount to a full year's interest.

Each Bond will cease to bear interest from its due date for redemption unless, upon due presentation, payment of the principal in respect of the Bond is improperly withheld or refused or unless default is otherwise made in respect of such payment, in which event interest shall continue to accrue as provided in the Trust Deed.

When interest is required to be calculated in respect of a period of less than a full year, it shall be calculated on the basis of a 360 day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed.

5. Payments

Payments of principal in respect of each Bond will only be made against presentation and surrender (or, in the case of part payment only, endorsement) of the relevant Bond at the specified office

of any of the Paying Agents. Payments of interest due on the Bonds on an Interest Payment Date will be made against presentation and surrender (or, in the case of part payment only, endorsement) of the relevant Coupons at the specified office of any of the Paying Agents. Each such payment will be made at the specified office of any Paying Agent, at the option of the holder, by sterling cheque drawn on a town clearing branch of, or by transfer to a sterling account maintained by the payee with, a bank in the City of London, subject in all cases to any applicable fiscal or other laws and regulations, but without prejudice to the provisions of Condition 8.

Each Bond must be presented for payment together with all unmatured Coupons appertaining thereto failing which the full amount of any missing unmatured Coupon (or, in the case of payment not being made in full, that proportion of the full amount of the missing unmatured Coupons which the amount so paid bears to the total amount due) appertaining thereto will be deducted from the amount due for payment. Each amount so deducted will be paid in the manner mentioned above against presentation and surrender (or, in the case of part payment only, endorsement) of such missing Coupon at any time before the expiry of 10 years after the Relevant Date (as defined in Condition 8) in respect of the relevant Bond (whether or not such Coupon would otherwise have become void pursuant to Condition 9), or, if later, five years after the date on which such Coupon would have become due, but not thereafter.

A holder shall be entitled to present a Bond or Coupon for payment only on a Presentation Date and shall not be entitled to any further interest or other payment if a Presentation Date is after the due date.

"Presentation Date" means a day which (subject to Condition 9):

(a) is or falls after the relevant due date but, if the due date is not or was not a Business Day in the City of London, is or falls after the next following such Business Day; and

(b) is a Business Day in the place of the specified office of the Paying Agent at which the Bond or Coupon is presented for payment and, in the case of payment by transfer to a sterling account in the City of London as referred to above, in the City of London.

"Business Day" means, in relation to any place, a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in that place.

When making payments to Bondholders or Couponholders, fractions of one penny will be rounded down to the nearest whole penny.

The names of the initial Paying Agents and their initial specified offices are set out at the end of these Terms and Conditions. The Issuer reserves the right, subject to the prior written approval of the Trustee, at any time to vary or terminate the appointment of any Paying Agent and to appoint additional or other Paying Agents provided that it will at all times maintain at least two Paying Agents having specified offices in separate European cities previously approved in writing by the Trustee, one of which, so long as the Bonds are listed on the London Stock Exchange, shall be London or such other place as the London Stock Exchange may approve and one of which shall be outside the United Kingdom. Notice of any such termination or appointment and of any changes in the specified offices of the Paying Agents will be given to the Bondholders promptly by the Issuer in accordance with Condition 14.

6. Redemption and Purchase

(A) Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Bonds at their principal amount on 16th October, 2005.

(B) The Issuer may, at any time, having given notice to the Bondholders in accordance with this Condition 6(B) (which notice shall be irrevocable), redeem the Bonds in whole or in part (but if in part, in integral multiples of (pound) l,000,000 in principal amount thereof), at the price which shall be the higher of the following, together with interest accrued up to the date of redemption:

(i) their principal amount; and

(ii) that price (the "Redemption Price"), expressed as a percentage rounded to three decimal places (0.0005 being rounded down), at which the Gross Redemption Yield on the Bonds, if they were to be purchased at such price on the third dealing day prior to the publication of the notice of redemption (or, in the case of a partial redemption, the first notice of redemption referred to below), would be equal to the Gross Redemption Yield on such dealing day of the 8 1/2 per cent. Treasury Stock 2005 or of such other United Kingdom Government Stock as the Trustee, with the advice of three leading brokers operating in

the

gilt-edged market and/or gilt-edged market makers, shall determine to be appropriate (the "Reference Stock") on the basis of the middle market price of the Reference Stock prevailing on such dealing day, as determined by Barclays de Zoete Wedd Limited (or such other person(s) as the Trustee may approve).

The Gross Redemption Yield on the Bonds and the Reference Stock will be expressed as a percentage and will be calculated on the basis indicated by the Joint Index and Classification Committee of the Institute and Faculty of Actuaries as reported in the Journal of the Institute of Actuaries, Vol. 105, Part 1, 1978, page 18 or on such other basis as the Trustee may previously approve in writing.

In the case of a redemption of all of the Bonds pursuant to this Condition
6(B), notice will be given to the Bondholders by the Issuer in accordance with Condition 14 once not less than 30 nor more than 60 days before the date fixed for redemption and will specify the date fixed for redemption and the redemption price.

In the case of a partial redemption of Bonds, Bonds to be redeemed will be selected individually by lot in such place as the Trustee may previously approve in writing and in such manner as the Trustee shall deem to be appropriate and fair without involving any part of a Bond, not more than 65 days before the date fixed for redemption. In the case of a partial redemption of the Bonds pursuant to this Condition 6(B), notice will be so given to the Bondholders by the Issuer in accordance with Condition 14 twice, first not less than 80 nor more than 95 days, and secondly not less than 30 nor more than 60 days, before the date fixed for redemption. Each notice will specify the date fixed for redemption and the redemption price, the aggregate principal amount of the Bonds to be redeemed, the serial numbers of Bonds previously called (in whole or in part) for redemption and not presented for payment and the aggregate principal amount of Bonds which will be outstanding after the partial redemption. In addition the second such notice will specify the serial numbers of the Bonds called for redemption.

Upon the expiry of any such notice as is referred to in this Condition
6(B), the Issuer shall be bound to redeem the Bonds to which the notice refers at the relevant redemption price at the date of such redemption together with interest accrued to but excluding such date.

(C) If as a result of any change in, or amendment to, the laws or regulations of the United Kingdom or any political sub-division of, or any authority in, or of, the United Kingdom having power to tax, or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective after 10th October, 1995, the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 8 (and such amendment or change has been evidenced by the delivery by the Issuer to the Trustee (who shall, in the absence of manifest error, accept such certificate and opinion as sufficient evidence thereof) of (i) a certificate signed by two directors of the Issuer on behalf of the Issuer stating that such amendment or change has occurred (irrespective of whether such amendment or change is then effective), describing the facts leading thereto and stating that such obligation cannot be avoided by the Issuer taking reasonable measures available to it and (ii) an opinion in a form satisfactory to the Trustee of independent legal advisers of recognised standing to whom the Trustee shall have no reasonable objection to the effect that such amendment or change has occurred (irrespective of whether such amendment or change is then effective)), the Issuer may at its option, having given not less than 30 nor more than 60 days' notice to the Bondholders in accordance with Condition 14 (which notice shall be irrevocable), redeem all the Bonds (other than Bonds in respect of which the Issuer shall have given a notice of redemption pursuant to Condition 6(B) prior to any notice being given under this Condition 6(C)) but not some only, at their principal amount together with interest (if any) accrued to (but excluding) the date of redemption, provided that no notice of redemption shall be given earlier than 90 days before the earliest date on which the Issuer would be required to pay such additional amounts were a payment in respect of the Bonds then due.

Upon expiry of any such notice as is referred to in this Condition 6(C) (and subject as provided above), the Issuer shall be bound to redeem all the Bonds at their principal amount together with interest accrued to (but excluding) the redemption date.

(D) The Issuer, the Guarantor or any of their respective Subsidiaries may at any time purchase Bonds together with unmatured Coupons in any manner and at any price in the open market or by private treaty. If purchases are made by tender, tenders must be available to all Bondholders alike. Bonds purchased by the Issuer, the Guarantor or any of their respective Subsidiaries may be held or reissued or resold or surrendered for cancellation.

(E) All Bonds which are redeemed will forthwith be cancelled (together with all relative unmatured Coupons attached to or surrendered with the Bonds) and may not be reissued or resold.

(F) While any Bonds are held by the Issuer, the Guarantor or any of their respective Subsidiaries, such Bonds shall not entitle the holder to vote at, or to be counted in the quorum for, any meeting of Bondholders and, for the purposes of the provisions of the Trust Deed concerning meetings of Bondholders, will not be regarded as being in issue.

7. Redemption at the Option of Bondholders

(A) For the purposes of these Terms and Conditions:

(i) "independent financial adviser" means a financial adviser appointed by the Guarantor and previously approved in writing by the Trustee (such approval not to be unreasonably withheld or delayed) or, if the Guarantor shall not have appointed such an adviser within 21 days of becoming aware of the occurrence of a Restructuring Event and the Trustee is indemnified to its satisfaction against the costs of such adviser, appointed by the Trustee following consultation with the Guarantor;

(ii) "Investment Grade Rating" means a rating of at least investment grade BBB- in the case of Standard & Poor's Corporation and Baa3 in the case of Moody's Investors Services Inc. or their respective equivalents for the time being; ~ "Negative Certification" means a certificate given in writing to the Trustee by an independent financial adviser that a Restructuring Event will be or is, in its opinion, materially prejudicial to the interests of the Bondholders;

(iv) A "Negative Rating Event" shall be deemed to have occurred if (X) the Guarantor does not, either prior to or not later than 14 days after the date of a Negative Certification in respect of the relevant Restructuring Event, seek, and thereupon use all reasonable endeavours to obtain, a rating of the Bonds or any other unsecured and unsubordinated debt of the Guarantor (or of any Subsidiary of the Guarantor (including, without limitation, the Issuer) and which is guaranteed on an unsecured and unsubordinated basis by the Guarantor) having an initial maturity of five years or more from a Rating Agency or (Y) if the Guarantor does so seek and use such endeavours but it is unable, as a result of such Restructuring Event, to obtain the Investment Grade Rating (and, in this definition, "seek" shall include procuring the relevant Subsidiary to seek);

(v) "Pooling and Settlement Agreement" means the agreement dated 30th March, 1990 (as amended and restated up to 22nd April, 1994) made by the Guarantor with The National Grid Company plc and others setting out the rules and procedures for the operation of an electricity trading pool and of a settlement system as in force on 10th October, 1995 and, while the same has effect, the Initial Settlement Agreement also dated 30th March, 1990 and made between the same parties, as in force on 10th October, 1995;

(vi) A "Put Event" occurs on either (X) the date of the last to occur of all of the following (aa) a Restructuring Event, (bb) either a Rating Downgrade or, as the case may be, a Negative Rating Event and (cc) the relevant Negative Certification or (Y) the date on which the Guarantor receives a notice from the Secretary of State as referred to in Article I l(4)(a) of the Guarantor's Articles of Association as in effect on 10th October, 1995;

(vii)" Rating Agency" means Standard & Poor's Corporation or any of its subsidiaries and their successors or Moody's Investors Service Inc. or any of its subsidiaries and their successors or any rating agency substituted for either of them (or any permitted substitute of them) by the Guarantor from time to time with the prior written approval of the Trustee (such approval not to be unreasonably withheld or delayed);

(viii) Following a Restructuring Event, a "Rating Downgrade" shall be deemed to have occurred in respect of that Restructuring Event if the then current rating assigned to the Rated Securities by any Rating Agency (whether provided by a Rating Agency at the invitation of the Guarantor or by its own volition) is withdrawn or reduced from the Investment Grade Rating or, if the Rating Agency shall then have already rated the Rated Securities below the Investment Grade Rating, the rating is lowered one full rating category;

(ix) "Rated Securities" means the Bonds, if at any time and for so long as they shall have a rating from a Rating Agency, and otherwise any other unsecured and unsubordinated debt of the Guarantor (or of any Subsidiary of the Guarantor (including, without limitation, the Issuer) and which is guaranteed on an unsecured and unsubordinated basis by the Guarantor) having an initial maturity of five years or more which is rated by a Rating Agency;

(x) "Restructuring Event" means the occurrence of any one or more of the following events:

(A)(aa) the Secretary of State for Trade and Industry (or any successor)

giving the Guarantor written notice of revocation of the public electricity supply licence (the "PES Licence") granted by the Secretary of State for Energy to the Guarantor under the Electricity Act 1989 in relation to its authorised area and excluding any second tier supply licence provided that the giving of notice pursuant to paragraph 3 of Part 1 of the PES Licence shall not be deemed to constitute the revocation of the PES Licence or (bb) the Guarantor agreeing in writing with the Secretary of State for Trade and Industry (or any successor) to any revocation or surrender of the PES Licence or (cc) any legislation (whether primary or subordinate) being enacted terminating or revoking the PES Licence, except in any such case in circumstances where a licence or licences on substantially no less favourable terms is or are granted to the Guarantor or a wholly-owned Subsidiary of the Guarantor (the "Relevant Subsidiary") and in the case of such Relevant Subsidiary at the time of such grant it either executes in favour of the Trustee an unconditional and irrevocable guarantee in respect of the Bonds in such form as the Trustee may previously approve in writing (such approval not to be unreasonably withheld or delayed) or becomes the principal debtor under the Bonds in accordance with Condition 12; or

(B) any modification (other than a modification which is of a formal, minor or technical nature) being made to the terms and conditions of the PES Licence on or after 10th October, 1995 unless the modified terms and conditions are certified by two directors of the Guarantor to be not materially less favourable to the business of the Guarantor; or

(C) (aa) the Pooling and Settlement Agreement being terminated under Clause 67.4 thereof and not being replaced by an agreement, commercial arrangement or open market mechanism or framework having substantially the same effect as the Pooling and Settlement Agreement, in each case on terms which two directors of the Guarantor certify to be not materially less favourable to the business of the Guarantor; or

(bb) the Guarantor being given notice pursuant to Clause 67.3.2 of the Pooling and Settlement Agreement requiring it to cease to be a party thereto; or

(cc) any notice declaring an event of default (as defined in the Pooling and Settlement Agreement) being given to the Guarantor under Clause 66.1.1 or 66.2 thereof and such default remaining unremedied or unwaived; or

(dd) any modification (other than a modification which is of a formal, minor or technical nature) being made to the Pooling and Settlement Agreement on or after 10th October, 1995, unless two directors of the Guarantor certify that any such modification has not had and will not have a materially adverse effect on the amount or nature of any payment made or to be made by or to the Guarantor pursuant to the Pooling and Settlement Agreement or a materially adverse effect on the financial rights or obligations of the Guarantor under the Pooling and Settlement Agreement, provided that any such modification shall, to the extent it grants or confers powers or discretions on the Director General of Electricity Supply (or any successor) under or in respect of the Pooling and Settlement Agreement, be deemed not to have a materially adverse effect as aforesaid, but for the avoidance of doubt any modification to the Pooling and Settlement Agreement made by the Director General of Electricity Supply (or any successor) by virtue of or pursuant to any such powers or discretions and which otherwise would have a materially adverse effect as provided above shall not by virtue of this subparagraph be deemed not to have such an effect; or

(ee) the Guarantor ceasing to be a party to the Pooling and Settlement Agreement for any reason (other than pursuant to (bb) and (cc) above), except where a licence is granted to a Relevant Subsidiary as contemplated by sub-paragraph (A)(X)(A) above and at or about the same time all rights and obligations of the Guarantor pursuant to the Pooling and Settlement Agreement are assigned and transferred to such Relevant Subsidiary in such manner as the Trustee may previously approve in writing (such approval not to be unreasonably withheld or delayed); or

(D) any legislation (whether primary or subordinate) is enacted which removes, qualifies or amends (other than an amendment which is of a formal, minor or technical nature) the duties of the Secretary of State for Trade and Industry (or any successor) and/or the Director General of Electricity Supply (or any successor) under Section 3 of the Electricity Act 1989 as in force on 10th October, 1995, unless two directors of the Guarantor certify that such removal, qualification or amendment does not have a materially adverse effect on the financial condition of the Guarantor.

(xi) "Restructuring Period" means:

(A) if at the time a Restructuring Event occurs there are Rated Securities, the period of 90 days starting from and including the day on which that Restructuring Event occurs; or

(B) if at the time a Restructuring Event occurs there are no Rated Securities, the period starting from and including the day on which that Restructuring Event occurs and ending on the day 90 days following the later of (an) the date on which the Guarantor shall seek to obtain a rating pursuant to Condition 7(A)(iv) prior to the expiry of the 14 days referred to in the definition of Negative Rating Event and (bb) the date on which a Negative Certification shall have been given to the Guarantor in respect of that Restructuring Event; and

(xii) A Rating Downgrade or a Negative Rating Event or a non-Investment Grade Rating shall be deemed not to have occurred as a result or in respect of a Restructuring Event if the Rating Agency making the relevant reduction in rating or, where applicable, declining to assign a rating of at least investment grade as provided in this Condition 7 does not announce or publicly confirm or inform the Trustee in writing at its request that the reduction or, where applicable, declining to assign a rating of at least investment grade was the result, in whole or in part, of any event or circumstance comprised in or arising as a result of the applicable Restructuring Event.

The Trust Deed provides that the Trustee is under no obligation to ascertain whether a Restructuring Event, a Negative Rating Event or any event which could lead to the occurrence of or could constitute a Restructuring Event has occurred and until it shall have actual knowledge or express notice in accordance with the Trust Deed to the contrary the Trustee may assume that no Restructuring Event, Negative Rating Event or other such event has occurred.

(B) If, at any time while any of the Bonds remains outstanding, a Restructuring Event occurs and prior to the commencement of or during the Restructuring Period an independent financial adviser shall have certified in writing to the Trustee that such Restructuring Event will not be or is not, in its opinion, materially prejudicial to the interests of the Bondholders, the following provisions of this Condition 7 shall cease to have any further effect in relation to such Restructuring Event.

(i) a Restructuring Event occurs and (subject to Condition 7(B)):

(X) within the Restructuring Period, either:

(i) if at the time such Restructuring Event occurs there are Rated Securities, a Rating Downgrade in respect of such Restructuring Event also occurs; or

(ii) if at such time there are no Rated Securities, a Negative Rating Event also occurs; and

(Y) an independent financial adviser shall have given a Negative Certification; or

(ii) the Guarantor receives a notice from the Secretary of State as referred to in Article 11 (4)(a) of the Guarantor's Articles of Association as in effect on 10th October, 1995,

then, unless, in the case of (ii) only, an independent financial adviser shall have certified in writing to the Trustee within 12 days of issue of such notice that neither the notice of the revocation of the Licence by the Secretary of State nor the redemption by the Guarantor of all of its preference shares will be or is, in its opinion, materially prejudicial to the interests of the Bondholders and unless, in the case of both (i) and (ii), at any time the Issuer shall have given a notice in respect of his Bond under Condition 6(B) or under Condition 6(C), in each case expiring prior to the Put Date (as defined below) each Bondholder shall have the option (the "Put Option") to require the Issuer or, failing the Issuer, the Guarantor, to redeem or, at the option of the Issuer or the Guarantor, as applicable, purchase (or procure the purchase

of that Bond on the Put Date at its principal amount together with (or, where purchased, together with an amount equal to) interest (if any) accrued to (but excluding) the Put Date.

A Restructuring Event shall be deemed not to be materially prejudicial to the interests of the Bondholders if, notwithstanding the occurrence of the Rating Downgrade, the rating assigned to the Rated Securities by any Rating Agency (as defined below) is subsequently increased to the Investment Grade Rating prior to any Negative Certification being given.

Any certification by an independent financial adviser as aforesaid as to whether or not, in its opinion, any Restructuring Event will be or is materially prejudicial to the interests of the Bondholders shall, in the absence of manifest error, be conclusive and binding on the Trustee, the Issuer, the Guarantor, the Bondholders and the Couponholders.

(D) Promptly upon the Issuer or the Guarantor becoming aware that a Put Event, has occurred and in any event not later than 14 days after the occurrence of a Put Event, the Issuer or the Guarantor shall, and at any time upon the Trustee becoming similarly so aware the Trustee may, and if so requested by the holders of at least one-quarter in principal amount of the Bonds then outstanding shall, give notice (a "Put Event Notice") to the Bondholders in accordance with Condition 14 specifying the nature of the Put Event, and the procedure for exercising the Put Option.

(E) To exercise the Put Option in respect of his Bond the Bondholder must deliver such Bond to the specified office of any Paying Agent, on a day which is a Business Day (as defined in Condition 5) in the City of London and in the place of such specified office falling within the period (the "Put Period") commencing on the date the Put Event Notice is given and expiring 45 days thereafter accompanied by a duly completed and signed notice of exercise in the form (for the time being current) obtainable from any specified office of any Paying Agent (a "Put Notice") and in which the Bondholder may specify a bank account complying with the requirements of Condition 5 to which payment is to be made under this Condition 7. Each Bond must be delivered together with all Coupons appertaining thereto maturing after the day (the "Put Date") being, in the case of a Put Event referred to in sub-clause (X) of the definition of Put Event, the fifteenth day after the date of expiry of the Put Period and, in the case of a Put Event referred to in sub-clause (Y) of the definition of Put Event, the day upon which such Bond is delivered at the specified office of any Paying Agent by the relevant Bondholder failing which the full amount of any such missing Coupon will be deducted from the amount due for payment. Each amount so deducted will be paid in the manner provided in Condition 5 against presentation and surrender (or, in the case of part payment only, endorsement) of such missing Coupon at any time before the expiry of 10 years after the Relevant Date (as defined in Condition 8) in respect of the relevant Bond (whether or not the Coupon would otherwise have become void pursuant to Condition 9) or, if later, five years after the date on which such Coupon would have become due, but not thereafter. The Paying Agent to which such Bond and Put Notice are delivered shall issue to the Bondholder concerned a non-transferable receipt in respect of the Bond so delivered. Payment in respect of any Bond so delivered shall be made, if the holder duly specifies a bank account in the Put Notice to which payment is to be made, on the Put Date, by transfer to that bank account and, in every other case, on or after the Put Date, but in each case against presentation and surrender (or, as the case may be) endorsement of such receipt at any specified office of any Paying Agent, subject in any such case as provided in Condition 5. A Put Notice, once given, shall be irrevocable. For the purposes of Conditions 1, 9, 10, 11, 13, and 15 and for certain other purposes specified in the Trust Deed, receipts issued pursuant to this Condition 7 shall be treated as if they were Bonds. The Issuer shall redeem or, at the option of the Issuer, purchase (or procure the purchase of) the relevant Bond on the applicable Put Date, unless such Bond has been previously redeemed or purchased in accordance with these Terms and Conditions.

8. Taxation

All payments in respect of the Bonds and the Coupons by the Issuer or, as the case may be, the Guarantor shall be made without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature ("Taxes") imposed or levied by or on behalf of the United Kingdom, or any political sub-division of, or any authority in, or of, the United Kingdom having power to tax, unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer or, as the case may be, the Guarantor will pay such additional amounts as may be necessary in order that the net amounts received by the Bondholders and Couponholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Bonds or, as the case may be, the Coupons in the absence of the withholding or deduction except that no additional amounts shall be payable in relation to any payment in respect of any Bond or Coupon:

(a) to, or to a third party on behalf of, a holder who is liable to the Taxes in respect of the Bond or Coupon by reason of his having some connection with the United Kingdom other than the mere holding of the Bond or Coupon; or

(b) presented for payment in the United Kingdom; or

(c) presented for payment more than 30 days after the Relevant Date except to the extent that a holder would have been entitled to additional amounts on presenting the same for payment on the last day of such period of 30 days; or

(d) to, or to a third party on behalf of, a holder who would not be liable or subject to the withholding or deduction by making a declaration of non-residence or other similar claim for exemption to the relevant tax authority.

As used herein, "Relevant Date" means the date on which the payment first becomes due but, if the full amount of the money payable has not been received in London by the Principal Paying Agent or the Trustee on or before the due date, it means the date on which, the full amount of the money having been so received, notice to that effect shall have been duly given to the Bondholders by the Issuer in accordance with Condition 14.

Any reference in these Terms and Conditions to any amounts in respect of the Bonds shall be deemed also to refer to any additional amounts which may be payable under this Condition 8 or under any undertakings given in addition to, or in substitution for, this Condition 8 pursuant to the Trust Deed.

9. Prescription

Bonds and Coupons will become void unless presented for payment within periods of 10 years and five years respectively from the Relevant Date in respect of the Bonds or, as the case may be, the Coupons, subject to the provisions of Condition 5.

10. Events of Default

The Trustee at its discretion may, and if so requested in writing by the holders of at least one-quarter in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution of the Bondholders shall, (but in the case of the happening of any of the events mentioned in sub-paragraphs (b), (c), (d), (e), (f), (g) and (h) below, only if the Trustee shall have certified in writing to the Issuer that such event is, in its opinion, materially prejudicial to the interests of the Bondholders and subject in each case to the Trustee being indemnified by, or on behalf of. Bondholders to its satisfaction), give notice to the Issuer and the Guarantor that the Bonds are, and they shall accordingly thereby forthwith become, immediately due and repayable at their principal amount together with accrued interest (as provided in the Trust Deed) if any of the following events (each an "Event of Default") shall have occurred (unless such Event of Default has been remedied to the satisfaction of the Trustee):

(a) if default is made for a period of 7 days or more in the payment of any principal or the purchase price due in respect of any Bond pursuant to Condition 7 or 14 days or more in the payment of any interest due in respect of the Bonds or any of them; or

(b) if the Issuer or the Guarantor fails to perform or observe any of its other obligations, covenants, conditions or provisions under the Bonds or the Trust Deed and (except where the Trustee shall have certified to the Issuer in writing that it considers such failure to be incapable of remedy in which case no such notice or continuation as is hereinafter mentioned will be required) such failure continues for the period of 30 days (or such longer period as the Trustee may in its absolute discretion permit) next following the service by the Trustee on the Issuer or the Guarantor, as the case may be, of notice requiring the same to be remedied; or

any

guarantee or indemnity of indebtedness for borrowed money of any person becomes enforceable by reason of default in relation thereto and steps are taken to enforce such security save in any such case where there is a bona fide dispute as to whether the relevant indebtedness for borrowed money or any such guarantee or indemnity as aforesaid shall be due and payable, provided that the aggregate amount of the relevant indebtedness for borrowed money in respect of which any one or more of the events mentioned above in this sub-paragraph
(c) has or have occurred equals or exceeds whichever is the greater of
(pound)20,000,000 or its equivalent in other currencies (as determined by the Trustee) or two per cent. of the Consolidated Tangible Net Worth, and for the purposes of this sub-paragraph (c), "indebtedness for borrowed money" shall exclude Project Finance Indebtedness; or

(d) if any order shall be made by any competent court or any resolution shall be passed for the winding up or dissolution of the Issuer or the Guarantor, save for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other similar arrangement on terms previously approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders; or

(e) if any order shall be made by any competent court or any resolution shall be passed for the winding up or dissolution of a Principal Subsidiary, save for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other similar arrangement (i) not involving or arising out of the insolvency of such Principal Subsidiary and under which all the surplus assets of such Principal Subsidiary are transferred to the Guarantor or any of its other Subsidiaries or (ii) the terms of which have previously been approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders; or

(f) if the Issuer, the Guarantor or any Principal Subsidiary shall cease to carry on the whole or substantially the whole of its business, save in each case for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other similar arrangement (i) not involving or arising out of the insolvency of the Issuer, the Guarantor or such Principal Subsidiary and under which all or substantially all of its assets are transferred to another member of the Group or (ii) under which all or substantially all of its assets are transferred to a third party or parties (whether associates or not) for full consideration by the Issuer, the Guarantor or a Principal Subsidiary on an arm's length basis or (iii) where the transferee is or immediately upon such transfer becomes a Principal Subsidiary or (iv) the terms of which have previously been approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders, provided that if the Guarantor shall transfer the PES - Licence it shall be deemed to have ceased to carry on the whole or substantially the whole of its business (and none of exceptions (i) to
(iii) shall apply) unless the transferee assumes all the Issuer's obligations under the Bonds and the Trust Deed as primary obligor or gives a guarantee in substitution for the Guarantor in form and substance acceptable to the Trustee in respect of the obligations of the Issuer under the Bonds and the Trust Deed; or

(g) if the Issuer, the Guarantor or any Principal Subsidiary shall suspend or shall threaten to suspend payment of its debts generally or shall be declared or adjudicated by a competent court to be unable or shall admit in writing its inability, to pay its debts (within the meaning of Section 123(1) or (2) of the Insolvency Act 1986) as they fall due, or shall be adjudicated or found insolvent by a competent court or shall enter into any composition or other similar arrangement with its creditors under Section 1 of the Insolvency Act 1986; or

(h) if a receiver, administrative receiver, administrator or other similar official shall be appointed in relation to the Issuer, the Guarantor or any Principal Subsidiary or in relation to the whole or a substantial part of the undertaking or assets of any of them or a distress, execution or other process shall be levied or enforced upon or sued out against, or an encumbrancer shall take possession of, the whole or a substantial part of the assets of any of them and in any of the foregoing cases it or he shall not be paid out or discharged within 60 days (or such longer period as the Trustee may in its absolute discretion permit).

For the purposes of sub-paragraph (g) above, Section 123(1)(a) of the Insolvency Act 1986 shall have effect as if for "(pound)750" there was substituted "(pound)250,000" or such higher figure as the Director (as defined in the PES Licence) may from time to time determine by notice in writing to the Secretary of State (as defined in the PES Licence) and the Guarantor.

Neither the Issuer, the Guarantor nor any Principal Subsidiary shall be deemed to be unable to pay its debts for the purposes of sub-paragraph (g) above if any such demand as is mentioned in Section

123(1)(a) of the Insolvency Act 1986 is being contested in good faith by the Issuer, the Guarantor or the relevant Principal Subsidiary, as the case may be, with recourse to all appropriate measures and procedures or if any such demand is satisfied before the expiration of such period as may be stated in any notice given by the Trustee under the first paragraph of this Condition 10. For the purposes of these Terms and Conditions:

(a) a "Principal Subsidiary" at any time shall mean a Subsidiary of the Issuer or the Guarantor (not being any Subsidiary of the Issuer or the Guarantor whose only indebtedness for borrowed money is Project Finance Indebtedness):

(A) whose (i) net profits before tax or (ii) gross assets represent 15 per cent. or more of the consolidated net profits before tax of the Group or consolidated gross assets of the Group respectively in each case as calculated by reference to the then latest audited financial statements of such Subsidiary (consolidated in the case of a company which itself has Subsidiaries and which, in the normal course, prepares consolidated accounts) and the then latest audited consolidated financial statements of the Group; or

(B) to which is transferred all or substantially all of the business, undertaking and assets of a Subsidiary of the Issuer or the Guarantor which immediately prior to such transfer is - a Principal Subsidiary, whereupon the transferor Subsidiary shall immediately cease to be a Principal Subsidiary and the transferee Subsidiary shall immediately become a Principal Subsidiary under the provisions of this sub-paragraph (B) (but without prejudice to the provisions of sub-paragraph (A) above);

all as more fully defined in the Trust Deed.

A report by the Auditors that in their opinion a Subsidiary of the Issuer or the Guarantor is or is not or was or was not at any particular time or throughout any specified period a Principal Subsidiary shall, in the absence of manifest error, be conclusive and binding on the Guarantor, the Issuer, the Trustee, the Bondholders and the Couponholders; and

(b) "indebtedness for borrowed money" means any present or future indebtedness (whether being principal, premium, interest or other amounts) for or in respect of (i) money borrowed, (ii) liabilities under or in respect of any acceptance credit, or (iii) any notes, bonds, debentures, debenture stock, loan stock or other securities offered, issued or distributed whether by way of public offer, private placing, acquisition consideration or otherwise and whether issued for cash or in whole or in part for a consideration other than cash.

11. Enforcement

The Trustee may at any time, at its discretion and without notice, take such proceedings against the Issuer or the Guarantor as it may think fit to enforce the provisions of the Trust Deed, the Bonds and the Coupons but it shall not be bound to take any proceedings or any other action in relation to the Trust Deed, the Bonds or the Coupons unless (a) it shall have been so directed by an Extraordinary Resolution of the Bondholders or so requested in writing by the holders of at least one-quarter in principal amount of the Bonds then outstanding, and (b) it shall have been indemnified to its satisfaction. No Bondholder or Couponholder shall be entitled to proceed directly against the Issuer or the Guarantor unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and such failure shall be continuing.

12. Substitution

The Trustee may, without the consent of the Bondholders or Couponholders, agree with the Issuer and the Guarantor to the substitution in place of the Issuer (or of any previous substitute under this Condition) as the principal debtor under the Bonds, the Coupons and the Trust Deed of the Guarantor or any Subsidiary or holding company (as defined in section 736 of the Companies Act 1985) of the Guarantor or any Subsidiary of such holding company, subject to (a) the Bonds continuing to be unconditionally and irrevocably guaranteed by the Guarantor (save where the Guarantor itself has been substituted for the Issuer (or any previous substitute) or where the Guarantor has transferred the PES Licence to the substituted party), (b) the Trustee being satisfied that the interests of the Bondholders will not be materially prejudiced by the substitution, and (c) certain other conditions set out in the Trust Deed being complied with.

The Trustee may, without the consent of the Bondholders or Couponholders, agree with the Issuer and the Guarantor to the substitution in place of the Guarantor (or of any previous substitute under

this Condition) as the guarantor of the obligations of the Issuer (or of any previous substitute under this Condition) guaranteed by the Guarantor under the Bonds, the Coupons and the Trust Deed of any Subsidiary or holding company (as defined in section 736 of the Companies Act 1985) of the Guarantor or any subsidiary of such holding company, subject to (a) the PES Licence having been previously transferred to the substituted party; (b) the Trustee being satisfied that the interest of the Bondholders will not be materially prejudiced by the substitution; and (c) certain other conditions set out in the Trust Deed being complied with.

13. Replacement of Bonds and Coupons

If any Bond or Coupon is lost, stolen, mutilated, defaced or destroyed, it may be replaced at the specified office of the Paying Agent in London, upon payment by the claimant of the expenses incurred in connection with the replacement and on such terms as to evidence, indemnity and security as the Issuer may reasonably require. Mutilated or defaced Bonds or Coupons must be surrendered before replacements will be issued.

14. Notices

Notices to the Bondholders will be valid if published in a leading English language daily newspaper published in London or such other English language daily newspaper with general circulation in ~Eur6pe as the Trustee may previously approve in writing. Any notice shall be deemed to have been given on the date of publication or, if so published more than once, on the date of the first publication. It is expected that publication will normally be made in the Financial Times. If publication as provided above is not practicable, notice will be given in such other manner, and shall be deemed to have been given on such date, as the Trustee may previously approve in writing.

Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Bondholders in accordance with this Condition 14.

15. Meetings of Bondholders, Modification, Waiver and Authorisation

(a) The Trust Deed contains provisions for convening meetings of the Bondholders to consider any matter affecting their interests, including the modification by Extraordinary Resolution of these Terms and Conditions or the provisions of the Trust Deed. The quorum at any meeting for passing an Extraordinary Resolution will be one or more persons present holding or representing a clear majority in principal amount of the Bonds for the time being outstanding, or at any adjourned such meeting one or more persons present whatever the principal amount of the Bonds held or represented by him or them, except that at any meeting, the business of which includes the modification of certain of the provisions of these Terms and Conditions and certain of the provisions of the Trust Deed, the necessary quorum for passing an Extraordinary Resolution will be one or more persons present holding or representing not less than two-thirds, or at any adjourned such meeting not less than one-third, of the principal amount of the Bonds for the time being outstanding. An Extraordinary Resolution passed at any meeting of the Bondholders will be binding on all Bondholders, whether or not they are present at the meeting or voted thereat, and on all Couponholders.

(b) The Trustee may agree, without the consent of the Bondholders or Couponholders, to any modification (subject to certain exceptions) of, or to the waiver or authorisation of any breach or proposed breach of, any of these Terms and Conditions or any of the provisions of the Trust Deed which is not, in the opinion of the Trustee, materially prejudicial to the interests of the Bondholders or to any modification which is of a formal, minor or technical nature or to correct a manifest error.

(c) In connection with the exercise by it of any of its trusts, powers, authorities or discretions (including, without limitation, any modification, waiver, authorisation or substitution), the Trustee shall have regard to the interests of the Bondholders as a class and, in particular but without limitation, shall not have regard to the consequences of the exercise of its trusts, powers, authorities or discretions for individual Bondholders and Couponholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory and the Trustee shall not be entitled to require, nor shall any Bondholder or Couponholder be entitled to claim, from the Issuer, the Guarantor, the Trustee or any other person any indemnification or payment in respect of any tax consequences of any such exercise upon individual Bondholders or Couponholders except to the extent already provided for in Condition 8 and/or any undertaking given in addition to, or in substitution for, Condition 8 pursuant to the Trust Deed.

(d) Any modification, waiver or authorisation shall be binding on the Bondholders and the Couponholders and, unless the Trustee agrees otherwise, any modification shall be notified by the Issuer to the Bondholders as soon as practicable thereafter in accordance with Condition 14.

16. Indemnification of the Trustee

The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking action unless indemnified to its satisfaction.

17. Further Issues

outstanding bonds or notes of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed shall, and any other further bonds or notes may (with the prior written consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Bondholders and the holders of bonds or notes of other series in certain circumstances where the Trustee so decides.

18. Governing Law

The Trust Deed, the Bonds and the Coupons are governed by, and will be construed in accordance with, English law.

PRINCIPAL PAYING AGENT

Barclays Bank PLC
BGSS Depositary Services
8 Angel Court
Throgmorton Street
London EC2R 7HT

OTHER PAYING AGENT

Banque Lnternationale a Luxembourg S.A.
69 route d'Esch
L-1470 Luxembourg

Schedule 3

Part I

Form of individual Certificate for Original Bonds 2020

On the front:
        ISIN:                   Serial No:                             Cert No:

                          NORTHERN ELECTRIC FINANCE plc

(Incorporated with limited liability in England and Wales - No. 3070482)

(pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020

guaranteed as to principal and interest by

NORTHERN ELECTRIC plc

(Incorporated with limited liability in England and Wales - No.2366942)

The Bonds in respect of which this Certificate is issued are in bearer form and form part of the series designated as specified in the title ~the "Bonds") of Northern Electric Finance plc (the "Issuer") constituted by a Master Trust Deed

dated 16th October, 1995 between the Issuer, Northern Electric plc (the "Guarantor") and The Law Debenture Trust Corporation p.l.c. as the Trustee (the "Trust Deed", which expression includes all deeds supplemental to such Trust Deed). The Bonds are subject to, and have the benefit of, the Trust Deed and the Terms and Conditions (the "Conditions") set out on the reverse hereof.

The Issuer for value received hereby promises to pay to the bearer of this Certificate the principal amount of (pound)[1,000/10,000/100,000] [(One/Ten/One

The Bonds are guaranteed as to principal and interest by the Guarantor on the terms of the Trust Deed.

This Certificate shall not be valid or become obligatory for any purpose until signed on behalf of the Issuer and the Guarantor and authenticated by or on behalf of the Principal Paying Agent.

Dated ____________________

In witness whereof the Issuer and the Guarantor have caused this Certificate to be signed in facsimile on their respective behalves.

Northern Electric Finance plc                   Northern Electric plc

By:__________________________                   By:___________________
     Director                                        Director

By:__________________________                   By:___________________
     Director                                        Director

Certificate of Authentication

This Certificate is authenticated by or on behalf of the Principal Paying Agent.

By: _______________________
Authorised Signatory

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 1650) AND 1287(a) OF THE INTERNAL REVENUE CODE.

[NEITHER THE ISSUER NOR THE GUARANTOR HAS BEEN OR WILL BE REGISTERED AS AN "INVESTMENT COMPANY" UNDER THE UNITED STATES INVESTMENT COMPANY ACT OF 1940.]

On the back:

Terms and Conditions

Details of Agents

Schedule 3

Part II

Form of Original Global Bond 2020

ISIN:

NORTHERN ELECTRIC FINANCE plc

(Incorporated with limited liability in England and Wales - No. 3070482)

(pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020

guaranteed as to principal and interest by

NORTHERN ELECTRIC plc

(Incorporated with limited liability in England and Wales - No. 2366942)

TEMPORARY GLOBAL BOND CERTIFICATE

The Bonds in respect of which this temporary Global Bond Certificate is issued are in bearer form and comprise the series of Bonds designated as specified in the title (the "Bonds") of Northern Electric Finance plc (the "Issuer") constituted by a Master Trust Deed dated 16th October, 1995 between the Issuer, Northern Electric plc (the "Guarantor") and The Law Debenture Trust Corporation
p.l.c. as the Trustee (the "Trust Deed", which expression includes all deeds supplemental to such Trust Deed). The Bonds are subject to, and have the benefit of, the Trust Deed including the Terms and Conditions set out on the reverse hereof.

The Bonds are guaranteed as to principal and interest by the Guarantor on the terms of the Trust Deed.

Bond Certificate by the submission of this temporary Global Bond Certificate to the Principal Paying Agent together with a certificate from Cedel Bank, societe anonyme ("Cedel") or Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System ("Euroclear") substantially to the following effect:

CERTIFICATE OF CLEARING SYSTEM

NORTHERN ELECTRIC FINANCE plc

(pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020 (the "Bonds")

Common Code: ISIN:

This is to certify that, based solely on certificates we have received in writing, by tested telex or by electronic transmission, from member organisations appearing in our records as persons being entitled to a portion of the principal amount set forth below (our "Member Organisations") substantially in the form set out in the temporary Global Bond Certificate representing Bonds (the form of which is set out in Part II of Schedule 3 to the Master Trust Deed constituting the Bonds), as of the date hereof ............ principal amount of the Bonds (i) is owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source ("United States persons"), (ii) is owned by United States persons that are (a) foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations Section 1. 165-12(c)(1)(v) ("financial institutions") purchasing for their own account or for resale, or
(b) United States persons who acquired the Bonds through foreign branches of United States financial institutions and who hold the Bonds through such United States financial institutions on the date hereof (and, in either case (a) or
(b), each such United States financial institution has agreed, on its own behalf or through its agent, that we may advise the Issuer or the Issuer's agent that it will comply with the requirements of Section 165(j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or
(iii) is owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations
Section 1.163-5(c)(2)(i)(D)(7)), and to the further effect that United States or foreign financial institutions described in (iii) above (whether or not also described in (i) or (ii) above) have certified that they have not acquired the Bonds for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.

(or, if relevant, exercise of any rights or collection of any interest) are no longer true and cannot be relied upon as of the date hereof.

Dated: ____________________*

Yours faithfully,

[Cedel Bank, societe anonyme]

[MORGAN GUARANTY TRUST COMPANY OF NEW YORK,

Brussels office,
as operator of the Euroclear System]

By:____________________

* To be dated no earlier than the Exchange Date.

"CERTIFICATE OF CLEARING SYSTEM PARTICIPANT

NORTHERN ELECTRIC FINANCE plc

(pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020 (the "Bonds")

Common Code: ISIN:

To: [Cedel Bank, societe anonyme] [Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear System]

This is to certify that, as of the date hereof, and except as set forth below, the Bonds held by you for our account (i) are owned by persons that are not citizens or residents of the United States, domestic partnerships, domestic corporations or any estate or trust the income of which is subject to United States federal income taxation regardless of its source ("United States persons"), (ii) are owned by United States persons that are (a) foreign branches of United States financial institutions (as defined in U.S. Treasury Regulations
Section 1. 165-12(c)(1)(v)) ("financial institutions") purchasing for their own account or for resale, or (b) United States persons who acquired the Bonds through foreign branches of United States financial institutions and who hold the Bonds through such United States financial institutions on the date hereof (and, in either case (a) or (b), each such United States financial institution hereby agrees, on its own behalf or through its agent, that you may advise the Issuer or the Issuer's agent that it will comply with the requirements of
Section 165(,j)(3)(A), (B) or (C) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder), or (iii) are owned by United States or foreign financial institutions for purposes of resale during the restricted period (as defined in U.S. Treasury Regulations Section 1.163-5(c)(2)(i)(D)(7)), and in addition, if an owner of Bonds is a United States or foreign financial institution described in (iii) above (whether or not also described in (i) or
(ii) above), this is to certify further that such financial institution has not acquired the Bonds for purposes of resale directly or indirectly to a United States person or to a person within the United States or its possessions.

This certificate excepts and does not relate to ................. principal amount of the Bonds in respect of which we are not able to certify and as to which we understand exchange and delivery of individual Certificates representing Bonds (or, if relevant, exercise of any rights or collection of any interest) cannot be made until we do so certify.

Dated: _____________________ *

By: ________________________

[Name of person giving certificate] as, or as agent for, the beneficial owner(s) of the Bonds in respect of which this certificate is issued.

* To be dated no earlier than the fifteenth day prior to the Exchange Date."

Until the exchange of this temporary Global Bond Certificate for individual Certificates representing Bonds pursuant to the foregoing provisions, no person as aforesaid shall (except as stated herein) be entitled to receive any payment by way of principal or interest in respect of the Bonds represented by this temporary Global Bond Certificate (unless, upon due presentation of this temporary Global Bond Certificate for exchange, delivery of any individual Certificate representing Bonds shall be improperly withheld or- refused) or to receive (an) individual Certificate(s) representing Bonds which he would otherwise be entitled to receive.

Upon any exchange of this temporary Global Bond Certificate for individual Certificates representing Bonds the portion of the principal amount represented by this temporary Global Bond Certificate in respect of which such exchange shall be effected shall be endorsed by the Principal Paying Agent on the Schedule of exchanges for individual Certificates hereon, whereupon the principal amount represented by this temporary Global Bond Certificate shall be reduced for all purposes by the amount of such portion.

This temporary Global Bond Certificate is governed by and shall be construed in accordance with English law.

Dated _______________________

In witness whereof the Issuer and the Guarantor have caused this temporary Global Bond Certificate to be signed in facsimile on their respective behalves.

Northern Electric Finance plc                   Northern Electric plc


By: __________________________                  By: _____________________
       Director                                        Director

By: __________________________                   By: ____________________


       Director                                         Director

Certificate of Authentication

This temporary Global Bond Certificate is authenticated by or on behalf of the Principal Paying Agent.

By: _______________________
Authorised Signatory

[NEITHER THE ISSUER NOR THE GUARANTOR HAS BEEN OR WILL BE REGISTERED AS AN "INVESTMENT COMPANY" UNDER THE U.S. INVESTMENT COMPANY ACT OF 1940.]

Schedule of exchanges for individual Certificates

The principal amount of the Bonds represented by this temporary Global Bond Certificate has been reduced as a result of the issue of individual Certificates

representing Bonds in respect of a portion of such principal amount in exchange as follows:

Amount of decrease

in principal amount

             of Bonds               Principal amount of        Notation made by
             --------               -------------------        ----------------
             represented by         Bonds represented by       or on behalf of

             --------------         --------------------       ---------------
Date of      Global Bond            Global Bond Certificate    Principal Paying
-------      -----------            -----------------------    ----------------


exchange     Certificate            following such decrease    Agent
--------     -----------            -----------------------    -----

Schedule of interest paid

Date of payment Amount of interest Notation made

Schedule 3
----------

Part III

Form of Original Coupon 2020

On the front:
        ISIN:                        Serial No:                     Coupon No:

                          NORTHERN ELECTRIC FINANCE plc

(Incorporated with limited liability in England and Wales - No. 3070482)

(pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020

guaranteed as to principal and interest by

                             NORTHERN ELECTRIC plc
   (Incorporated with limited liability in England and Wales - No. 2366942)

Coupon for................... due on 199[6/7/8/9/2000/1/2/3/4/5/6/7/8/9/10/11/
                              12/13/14/15/16/17/18/19/20].

This Coupon relates to interest payable on (pound)[1,000/10,000/100,000]
[(One/Ten/One Hundred Thousand)] principal amount of the Bonds designated as specified in the title (the "Bonds") of Northern Electric Finance plc (the "Issuer") constituted by a Master Trust Deed dated 16th October, 1995 between the Issuer, Northern Electric plc (the "Guarantor") and The Law Debenture Trust

Corporation p.l.c. as the Trustee (the "Trust Deed", which expression includes all deeds supplemental to such Trust Deed).

Such interest is guaranteed by the Guarantor.

This Coupon is negotiable separately from the Bonds to which this Coupon relates.

This Coupon shall not be valid or become obligatory for any purpose until signed on behalf of the Company and authenticated by or on behalf of the Principal Paying Agent.

Dated: _________________________

In witness whereof the Company and the Guarantor have caused this Coupon to be signed in facsimile on their respective behalves.

Northern Electric Finance plc                   Northern Electric plc

By: __________________________                  By: ___________________
    Director                                         Director


By: __________________________                  By: ___________________
    Director                                          Director

Certificate of Authentication

This Coupon is authenticated by or on behalf of the Principal Paying Agent

By:________________________
Authorised Signatory

[NEITHER THE ISSUER NOR THE GUARANTOR HAS BEEN OR WILL BE REGISTERED AS AN "INVESTMENT COMPANY" UNDER THE U.S. INVESTMENT COMPANY ACT OF 1940.]

On the back:

Details of Paying Agents

Schedule 3

Part IV

Form of Original Talon 2020

On the front:

NORTHERN ELECTRIC FINANCE plc

(Incorporated with limited liability in England and Wales - No. 3070482)

(pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020

guaranteed as to principal and interest by NORTHERN ELECTRIC plc
(Incorporated with limited liability in England and Wales - No. 2366942)

Talon relating to (pound)[1,OOO/1O,OOO/100,OOO] principal amount of Bonds

On and after ......, 200. further Coupons will be issued at the specified office of any of the Paying Agents set out on the reverse hereof (and/or any other or further Paying Agents and/or specified offices as may from time to time be duly appointed and notified to the Bondholders) upon production and surrender Of this Talon.

If the Bond to which this Talon appertains shall become due and payable or shall have been redeemed or cancelled before the date for presentation of this Talon, this Talon shall be void and no further Coupons will be issued in respect thereof.

[This Talon shall not be valid or become obligatory for any purpose until signed on behalf of the Company and the Guarantor and authenticated by or on behalf of the Principal Paying Agent.

Dated: ______________________

In witness whereof the Company and the Guarantor have caused this Talon to be signed in facsimile on their respective behalves.

Northern Electric Finance plc                      Northern Electric plc

By:  _________________________                     By: ___________________
     Director                                          Director

Director Director

Certificate of Authentication

This Talon is authenticated by or on behalf of the Principal Paying Agent

By: ________________________
Authorised Signatory]

ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS. INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(A) OF THE UNITED STATES INTERNAL REVENUE CODE.

[NEITHER THE ISSUER NOR THE GUARANTOR HAS BEEN OR WILL BE REGISTERED AS AN "INVESTMENT COMPANY" UNDER THE U.S. INVESTMENT COMPANY ACT OF 1940.]

On the back: _______________________

Details of Paying Agents

Schedule 4

Terms and Conditions of Original Bonds 2020

TERMS AND CONDITIONS OF THE BONDS

The following is the text of the terms and conditions of the Bonds which will be endorsed on each Bond in definitive form:

The (pound)100,000,000 8.875 per cent. Guaranteed Bonds due 2020 (the "Bonds", which expression shall in these Terms and Conditions, unless the context otherwise requires, include any further bonds issued pursuant to Condition 17 and forming a single series with the Bonds) of Northern Electric Finance plc (the "Issuer") are constituted by a master trust deed dated 16th October, 1995 (the "Trust Deed", which expression shall wherever the context so admits include any deed supplemental thereto) made between the Issuer, Northern Electric plc (the "Guarantor") and The Law Debenture Trust Corporation p.l.c. (the "Trustee", which expression shall include all persons for the time being the trustee or trustees under the Trust Deed) as trustee for the holders of the Bonds (the "Bondholders"). The issue of the Bonds was authorised by a resolution of the board of directors of the Issuer passed on 9th October, 1995. The giving of the guarantee by the Guarantor was authorised by a written resolution of the board of directors of the Guarantor passed on 14th September, 1995 appointing a committee of the board for the purposes of the giving of the guarantee and by a resolution of such duly appointed committee of the board of directors of the Guarantor passed on 9th October, 1995. The Bonds are, on issue, listed on The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited (the "London Stock Exchange"). The statements in these Terms and Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the Trust Deed. Copies of the Trust Deed and of an agency agreement dated 16th October, 1995 (the "Agency Agreement") made between the Issuer, the Guarantor, Barclays Bank PLC, as principal paying agent (the "Principal Paying Agent", which expression shall include any successor), the other paying agents named therein (together with the Principal Paying Agent, the "Paying Agents", which expression shall include any additional or successor paying agents) and the Trustee are available for inspection during normal business hours by the Bondholders and the holders of the interest coupons appertaining to the Bonds (respectively, the "Couponholders" and the "Coupons", which latter expression shall, unless the context otherwise requires, include the Talons referred to below) at the registered office for the time being of the Trustee, being at the date of issue of the Bonds at Princes House, 95 Gresharn Street, London EC2V 7LY and at the specified office of each of the Paying Agents. The Bondholders and the Couponholders are entitled to the benefit of, and are bound by, and are deemed to have notice of, all the provisions of the Trust Deed and the Agency Agreement.

1. Form, Denominations and Title

The Bonds are in bearer form, serially numbered, in the denominations of
(pound)1,000, (pound)10,000 and (pound)100,000 each with Coupons and one Talon for further Coupons (a "Talon") attached on issue. Title to the Bonds and to the Coupons will pass by delivery. Bonds of one denomination may not be exchanged for Bonds of another denomination.

2. Status and Guarantee

3. Negative Pledge

(a) all amounts payable by the Issuer under the Bonds, the Coupons and the Trust Deed or, as the case may be, the obligations of the Guarantor under the guarantee referred to in Condition 2 are secured to the satisfaction of the Trustee equally and rateably with the Relevant Indebtedness or guarantee of Relevant Indebtedness, as the case may be, by such Security Interest; or

save that the Issuer, the Guarantor or any PES Subsidiary may create or have outstanding a Security Interest in respect of any of its Relevant Indebtedness and/or any guarantees given by the Issuer, the Guarantor or any PES Subsidiary in respect of any Relevant Indebtedness of any other person (without the obligation to provide a Security Interest or guarantee or other arrangement in respect of the Bonds, the Coupons and the Trust Deed or, as the case may be, the obligations of the Guarantor under the said guarantee as aforesaid) where such Relevant Indebtedness h4s an initial maturity falling not earlier than 31st December, 2020 and is of a maximum aggregate amount outstanding at any time not exceeding the greater of (pound)20,000,000 and 20 per cent. of the Consolidated Tangible Net Worth (as defined below).

For the purposes of these Terms and Conditions:

(a) "Consolidated Tangible Net Worth" means at any particular time the aggregate of the amount paid up on the Guarantor's issued share capital and the consolidated distributable and non-distributable reserves of the Group (as shown in the most recently published audited consolidated financial statements of the Group), after:

(i) deducting the total of any debit balance on the profit and loss account and the book value of any intangible assets including but not limited to goodwill; and

(ii) excluding any minority interests in Subsidiary Undertakings;

A report by the Auditors (as defined in the Trust Deed) as to the amount of the Consolidated Tangible Net Worth at any given time shall, in the absence of manifest error, be conclusive and binding on all parties.

(b) "Excluded Subsidiary" means any Subsidiary of the Issuer or the Guarantor (other than a Subsidiary which holds a public electricity supply licence granted under the Electricity Act 1989):

(i) which is a single purpose company whose principal assets and business are constituted by the ownership, acquisition, development and/or operation of an asset;

and

(d) "PES Subsidiary" means any Subsidiary of the Guarantor which holds a public electricity supply licence granted under the Electricity Act 1989;

(e) "Project Finance Indebtedness" means any present or future indebtedness (whether being principal, premium, interest or other amounts) to finance a project:

(i) which is incurred by an Excluded Subsidiary; or

(ii) in respect of which recourse to any member of the Group for the repayment or payment of any sum relating to such indebtedness is limited to:

(1) the assets of a single purpose company (other than a PBS Subsidiary) the principal assets and business of which are constituted by such project and which was established for the purpose of incurring such indebtedness; or

(2) the assets of the project and the rights, revenues and insurance proceeds derived therefrom or related thereto, with no recourse to any other assets of the Group (other than those of an Excluded Subsidiary);

(g) "Subsidiary" means a subsidiary within the meaning of Section 736 of the Companies Act 1985;

(i) any reference to an obligation being guaranteed shall include a reference to an indemnity being given in respect of the obligation.

4. Interest

The Bonds bear interest from (and including) 16th October, 1995 at the rate of 8.875 percent. per annum, payable annually in arrear on 16th October in each year (each an "Interest Payment Date"), the first such payment to be made on 16th October, 1996 and to amount to a full year's interest.

5. Payments and exchange of Talons

Payments of principal in respect of each Bond will only be made against presentation and surrender (or, in the case of part payment only, endorsement) of the relevant Bond at the specified office

"Presentation Date" means a day which (subject to Condition 9):

(a) is or falls after the relevant due date but, if the due date is not or was not a Business Day in the City of London, is or falls after the next following such Business Day; and

(b) is a Business Day in the place of the specified office of the Paying Agent at which the Bond or Coupon is presented for payment and, in the, case of payment by transfer to a sterling account in the City of London as referred to above, in the City of London.

"Business Day" means, in relation to any place, a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets settle payments in that place.

When making payments to Bondholders or Couponholders, fractions of one penny will be rounded down to the nearest whole penny.

On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet relating to a Bond matures, the Talon comprised in the Coupon Sheet relating to a Bond may be surrendered at the specified office of any Paying Agent in exchange for a further Coupon sheet (including any appropriate further Talon), subject to the provisions of Condition 9. Each Talon shall, for the purpose of these Terms and Conditions, be deemed to mature on the Interest Payment Date on which the final Coupon comprised in the relative Coupon sheet relating to the relevant Bond matures.

6. Redemption and Purchase

(A) Unless previously redeemed or purchased and cancelled as provided below, the Issuer will redeem the Bonds at their principal amount on 16th October, 2020.

(B) The Issuer may, at any time, having given notice to the Bondholders in accordance with this Condition 6(B) (which notice shall be irrevocable), redeem the Bonds in whole or in part (but if in part, in integral multiples of
(pound)1,000,000 in principal amount thereof), at the price which shall be the higher of the following, together with interest accrued up to the date of redemption:

(i) their principal amount; and

(ii) that price (the "Redemption Price"). expressed as a percentage rounded to three decimal places (0.0005 being rounded down), at which the Gross Redemption Yield on the Bonds, if they were to be purchased at such price on the third dealing day prior to the publication of the notice of redemption (or, in the case of a partial redemption, the first notice of redemption referred to below), would be equal to the Gross Redemption Yield on such dealing day of the 8 3/4 per cent. Treasury Stock 2017 or of such other United Kingdom Government Stock as the Trustee, with the advice of three leading brokers operating in the gilt-edged market and/or gilt-edged market makers, shall determine to be appropriate (the "Reference Stock") on the basis of the middle market price of the Reference Stock prevailing on such dealing day, as determined by Barclays de Zoete Wedd Limited (or such other person(s) as the Trustee may approve).

(D) The Issuer, the Guarantor or any of their respective Subsidiaries may at any time purchase Bonds together with unmatured Coupons and Talons in any manner and at any price in the open market

or by private treaty. If purchases are made by tender, tenders must be available to all Bondholders alike. Bonds purchased by the Issuer, the Guarantor or any of their respective Subsidiaries may be held or reissued or resold or surrendered for cancellation.

(E) All Bonds which are redeemed will forthwith be cancelled (together with all relative unmatured Coupons and Talons attached to or surrendered with the Bonds) and may not be reissued or resold.

7. Redemption at the Option of Bondholders (A) For the purposes of these Terms and Conditions:

(iii)" Negative Certification" means a certificate given in writing to the Trustee by an independent financial adviser that a Restructuring Event will be or is, in its opinion, materially prejudicial to the interests of the Bondholders;

(vi) A "Put Event" occurs on either (X) the date of the last to occur of all of the following (an) a Restructuring Event, (bb) either a Rating Downgrade or, as the case may be, a Negative Rating Event and (cc) the relevant Negative Certification or (Y) the date on which the Guarantor receives a notice from the Secretary of State as referred to in Article 1 1(4)(a) of the Guarantor's Articles of Association as in effect on 10th October, 1995;

(vii) "Rating Agency" means Standard & Poor's Corporation or any of its subsidiaries and their successors or Moody's Investors Service Inc. or any of its subsidiaries and their successors or any rating agency substituted for either of them (or any permitted substitute of them) by the Guarantor from time to time with the prior written approval of the Trustee (such approval not to be unreasonably withheld or delayed);

Rating or, if the Rating Agency shall then have already rated the Rated Securities below the Investment Grade Rating, the rating is lowered one full rating category;

(x) "Restructuring Event" means the occurrence of any one or more of the following events:

(A (aa) the Secretary of State for Trade and Industry (or any successor) giving the Guarantor written notice of revocation of the public electricity supply licence (the "PES Licence") granted by the Secretary of State for Energy to the Guarantor under the Electricity Act 1989 in relation to its authorised area and excluding any second tier supply licence provided that the giving of notice pursuant to paragraph 3 of Part 1 of the PES Licence shall not be deemed to constitute the revocation of the PES Licence or (bb) the Guarantor agreeing in writing with the Secretary of State for Trade and Industry (or any successor) to any revocation or surrender of the PES Licence or (cc) any legislation (whether primary or subordinate) being enacted terminating or revoking the PES Licence, except in any such case in circumstances where a licence or licences on substantially no less favourable terms is or are granted to the Guarantor or a wholly-owned Subsidiary of the Guarantor (the "Relevant Subsidiary") and in the case of such Relevant Subsidiary at the time of such grant it either executes in favour of the Trustee an unconditional and irrevocable guarantee in respect of the Bonds in such form as the Trustee may previously approve in writing (such approval not to be unreasonably withheld or delayed) or becomes the principal debtor under the Bonds in accordance with Condition 12; or

(bb) the Guarantor being given notice pursuant to Clause 67.3.2 of the Pooling and Settlement Agreement requiring it to cease to be a party thereto; or

or pursuant to any such powers or discretions and which otherwise would have a materially adverse effect as provided above shall not by virtue of this subparagraph be deemed not to have such an effect; or

(ee) the Guarantor ceasing to be a party to the Pooling and Settlement Agreement for any reason (other than pursuant to
(bb) and (cc) above), except where a licence is granted to a Relevant Subsidiary as contemplated by sub-paragraph (A)(X)(A) above and at or about the same time all rights and obligations of the Guarantor pursuant to the Pooling and Settlement Agreement are assigned and transferred to such Relevant Subsidiary in such manner as the Trustee may previously approve in writing (such approval not to be unreasonably withheld or delayed); or

(D) any legislation (whether primary or subordinate) is enacted which removes, qualifies or amends (other than an amendment which is of a formal, minor or technical nature) the duties of the Secretary of State for Trade and Industry (or any successor) and/or the Director General of Electricity Supply (or any successor) under
Section 3 of the Electricity Act 1989 as in force on 10th October, 1995, unless two directors of the Guarantor certify that such removal, qualification or amendment does not have a materially adverse effect on the financial condition of the Guarantor.

(xi) "Restructuring Period" means:

(A) if at the time a Restructuring Event occurs there are Rated Securities, the period of 90 days starting from and including the day on which that Restructuring Event occurs; or

(B) if at the time a Restructuring Event occurs there are no Rated Securities, the period starting from and including the day on which that Restructuring Event occurs and ending on the day 90 days following the later of (aa) the date on which the Guarantor shall seek to obtain a rating pursuant to Condition 7(A)(iv) prior to the expiry of the 14 days referred to in the definition of Negative Rating Event and (bb) the date on which a Negative Certification shall have been given to the Guarantor in respect of that Restructuring Event; and

(i) a Restructuring Event occurs and (subject to Condition 7(B)):

(X) within the Restructuring Period, either:

(i) if at the time such Restructuring Event occurs there are Rated Securities, a Rating Downgrade in respect of such Restructuring Event also occurs; or

(ii) if at such time there are no Rated Securities, a Negative Rating Event also occurs; and

(Y) an independent financial adviser shall have given a Negative Certification; or

(ii) the Guarantor receives a notice from the Secretary of State as referred to in Article 11 (4)(a) of the Guarantor's Articles of Association as in effect on 10th October, 1995,

then, unless, in the case of (ii) only, an independent financial adviser shall have certified in writing to the Trustee within 12 days of issue of such notice that neither the notice of the revocation of the Licence by the Secretary of State nor the redemption by the Guarantor of all of its preference shares will be or is, in its opinion, materially prejudicial to the interests of the Bondholders and unless, in the case of both (i) and (ii), at any time the Issuer shall have given a notice in respect of his Bond under Condition 6(B) or under Condition 6(C), in each case expiring prior to the Put Date (as defined below) each Bondholder shall have the option (the "Put Option") to require the Issuer or, failing the Issuer, the Guarantor, to redeem or, at the option of the Issuer, or the Guarantor, as applicable, purchase (or procure the purchase of) that Bond on the Put Date at its principal amount together with (or, where purchased, together with an amount equal to) interest (if any) accrued to (but excluding) the Put Date.

(D) Promptly upon the Issuer or the Guarantor becoming aware that a Put Event, has occurred and in any event not later than 14 days after the occurrence of a Put Event, the Issuer or the Guarantor shall, and at any time upon the Trustee becoming similarly so aware the Trustee may, and if so requested by the holders of at least one-quarter in principal amount of We Bonds then outstanding shall, give notice (a "Put Event Notice") to the Bondholders in accordance with Condition 14 specifying the nature of the Put Event, and the procedure for exercising the Put Option.

8. Taxation

(b) presented for payment in the United Kingdom; or

9. Prescription

Bonds and Coupons (which for this purpose shall not include Talons) will become void unless presented for payment within periods of 10 years and five years respectively from the Relevant Date in respect of the Bonds or, as the case may be, the Coupons, subject to the provisions of Condition 5. There shall not be included in any Coupon sheet issued upon exchange of a Talon any Coupon which would be void upon issue under this Condition or Condition 5.

10. Events of Default

The Trustee at its discretion may, and if so requested in writing by the holders of at least one-quarter in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution of the Bondholders shall, (but in the case of the happening of any of the events mentioned in sub-paragraphs (b), (c), (d), (e), (f), (g) and (h) below, only if the Trustee shall have certified in writing to the Issuer that such event is, in its opinion, materially prejudicial to the interests of the Bondholders and subject in each case to the Trustee being indemnified by, or on behalf of, Bondholders to its satisfaction), give notice to the Issuer and the Guarantor that the Bonds are, and they shall accordingly thereby forthwith become, immediately due and repayable at their principal amount together with accrued interest (as provided in the Trust Deed) if any of the following events (each an "Event of Default") shall have occurred (unless such Event of Default has been remedied to the satisfaction of the Trustee):

incapable of remedy in which case no such notice or continuation as is hereinafter mentioned will be required) such failure continues for the period of 30 days (or such longer period as the Trustee may in its absolute discretion permit) next following the service by the Trustee on the Issuer or the Guarantor, as the case may be, of notice requiring the same to be remedied; or

(c) if (i) any other indebtedness for borrowed money of the Issuer, the Guarantor or any Principal Subsidiary becomes due and repayable prior to its stated maturity by reason of an event of default (howsoever described) or (ii) any such indebtedness for borrowed money is not paid when due or, as the case may be, within any applicable grace period (as originally provided) or (iii) the Issuer, the Guarantor or any Principal Subsidiary fails to pay when due (or, as the case may be, within any originally applicable grace period) any amount payable by it under any present or future guarantee for, or indemnity in respect of, any indebtedness for borrowed money of any person or (iv) any security given by the Issuer, the Guarantor or any Principal Subsidiary for any indebtedness for borrowed money of any person or any guarantee or indemnity of indebtedness for borrowed money of any person becomes enforceable by reason of default in relation thereto and steps are taken to enforce such security save in any such case where there is a bona fide dispute as to whether the relevant indebtedness for borrowed money or any such guarantee or indemnity as aforesaid shall be due and payable, provided that the aggregate amount of the relevant indebtedness for borrowed money in respect of which any one or more of the events mentioned above in this sub-paragraph
(c) has or have occurred equals or exceeds whichever is the greater of
(pound)20,000,000 or its equivalent in other currencies (as determined by the Trustee) or two per cent. of the Consolidated Tangible Net Worth, and for the purposes of this sub-paragraph (c), "indebtedness for borrowed money" shall exclude Project Finance Indebtedness; or

(f) if the Issuer, the Guarantor or any Principal Subsidiary shall cease to carry on the whole or substantially the whole of its business, save in each case for the purposes of amalgamation, merger, consolidation, reorganisation, reconstruction or other similar arrangement (i) not involving or arising out of the insolvency of the Issuer, the Guarantor or such Principal Subsidiary and under which all or substantially all of its assets are transferred to another member of the Group or (ii) under which all or substantially all of its assets are transferred to a third party or parties (whether associates or not) for full consideration by the Issuer, the Guarantor or a Principal Subsidiary on an arm's length basis or (iii) where the transferee is or immediately upon such transfer becomes a Principal Subsidiary or (iv) the terms of which have previously been approved in writing by the Trustee or by an Extraordinary Resolution of the Bondholders, provided that if the Guarantor shall transfer the PES Licence it shall be deemed to have ceased to carry on the whole or substantially the whole of its business (and none of exceptions (i) to
(iii) shall apply) unless the transferee assumes all the Issuer's obligations under the Bonds and the Trust Deed as primary obligor or gives a guarantee in substitution for the Guarantor in form and substance acceptable to the Trustee in respect of the obligations of the Issuer under the Bonds and the Trust Deed; or

For the purposes of sub-paragraph (g) above, Section 123(1)(a) of the Insolvency Act 1986 shall have effect as if for "(pound)750" there was substituted `(pound)250,000" or such higher figure as the Director (as defined in the PES Licence) may from time to time determine by notice in writing to the Secretary of State (as defined in the PES Licence) and the Guarantor.

Neither the Issuer, the Guarantor nor any Principal Subsidiary shall be deemed to be unable to pay its debts for the purposes of sub-paragraph (g) above if any such demand as is mentioned in Section 123(1)(a) of the Insolvency Act 1986 is being contested in good faith by the Issuer, the Guarantor or the relevant Principal Subsidiary, as the case may be, with recourse to all appropriate measures and procedures or if any such demand is satisfied before the expiration of such period as may be stated in any notice given by the Trustee under the first paragraph of this Condition 10.

For the purposes of these Terms and Conditions:

(B) to which is transferred all or substantially all of the business, undertaking and assets of a Subsidiary of the Issuer or the Guarantor which immediately prior to such transfer is a Principal Subsidiary, whereupon the transferor Subsidiary shall immediately cease to be a Principal Subsidiary and the transferee Subsidiary shall immediately become a Principal Subsidiary under the provisions of this sub-paragraph (B) (but without prejudice to the provisions of sub-paragraph (A) above);

all as more fully defined in the Trust Deed.

11. Enforcement

12. Substitution

The Trustee may, without the consent of the Bondholders or Couponholders, agree with the Issuer and the Guarantor to the substitution in place of the Guarantor (or of any previous substitute under this Condition) as the guarantor of the obligations of the Issuer (or of any previous substitute under this Condition) guaranteed by the Guarantor under the Bonds, the Coupons and the Trust Deed of any Subsidiary or holding company (as defined in section 736 of the Companies Act 1985) of the Guarantor or any subsidiary of such holding company, subject to (a) the PES Licence having been previously transferred to the substituted party; (b) the Trustee being satisfied that the interest of the Bondholders will not be materially prejudiced by the substitution; and (c) certain other conditions set out in the Trust Deed being complied with.

13. Replacement of Bonds and Coupons

14. Notices

Notices to the Bondholders will be valid if published in a leading English language daily newspaper published in London or such other English language daily newspaper with general circulation in Europe as the Trustee may previously approve in writing. Any notice shall be deemed to have been given on the date of publication or, if so published more than once, on the date of the first publication. it is expected that publication will normally be made in the Financial Times. If publication as provided above is not practicable, notice will be given in such other manner, and shall be deemed to have been given on such date, as the Trustee may previously approve in writing.

Couponholders will be deemed for all purposes to have notice of the contents of any notice given to the Bondholders in accordance with this Condition 14.

15. Meetings of Bondholders, Modification, Waiver and Authorisation

(c) In connection with the exercise by it of any of its trusts, powers, authorities or discretions (including, without limitation, any modification, waiver, authorisation or substitution), the Trustee shall have regard to the interests of the Bondholders as a class and, in particular but without limitation, shall not have regard to the consequences of the exercise of its trusts, powers, authorities or discretions for individual Bondholders and Couponholders resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory and the Trustee shall not be entitled to require, nor shall any Bondholder or Couponholder be entitled to claim, from the Issuer, the Guarantor, the Trustee or any other person any indemnification or payment in respect of any tax consequences of any such exercise upon individual Bondholders or Couponholders except to the extent already provided for in Condition 8 and/or any undertaking given in- addition to, or -in substitution for, Condition 8 pursuant to the Trust Deed.

(d) Any modification, waiver or authorisation shall be binding on the Bondholders and the Couponholders and, unless the Trustee agrees otherwise, any modification shall be notified by .the Issuer to the Bondholders as soon as practicable thereafter in accordance with Condition 14.

16. Indemnification of the Trustee

17. Further Issues

The Issuer is at liberty from time to time without the consent of the Bondholders or Couponholders to create and issue further bonds or notes (whether in bearer or registered form) either (a) ranking pari passu in all respects (or in all respects save for the first payment of interest thereon) and so that the same shall be consolidated and form a single series with the outstanding bonds or notes of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed or (b) upon such terms as to ranking, interest, conversion, redemption and otherwise as the Issuer may determine at the time of the issue. Any further bonds or notes which are to form a single series with the outstanding bonds or notes of any series (including the Bonds) constituted by the Trust Deed or any supplemental deed shall, and any other further bonds or notes may (with the prior written consent of the Trustee), be constituted by a deed supplemental to the Trust Deed. The Trust Deed contains provisions for convening a single meeting of the Bondholders and the holders of bonds or notes of other series in certain circumstances where the Trustee so decides.

18. Governing Law

The Trust Deed, the Bonds and the Coupons are governed by, and will be construed in accordance with, English law.

PRINCIPAL PAYING AGENT

Barclays Bank PLC
BGSS Depositary Services
8 Angel Court
Throgmorton Street
London EC2R 7HT

OTHER PAYING AGENT
Banque Internationale a Luxembourg S.A.
69 route d'Esch
L-1470 Luxembourg

Schedule 5

Provisions for meetings of Bondholders

1 The following expressions shall have the following meanings:

"voting certificate" means a certificate in the English language issued by a Paying Agent and dated in which it is stated:

(a) that on that date Bonds (not being Bonds in respect of which a block voting instruction has been issued and is outstanding in respect of the meeting specified in such voting certificate or any adjournment of such meeting) bearing specified serial numbers were deposited with such Paying Agent (or to its order at a bank or other depositary) and that such Bonds will not be released until the earlier of:

(i) the conclusion of the meeting specified in such certificate or any adjournment of it whichever is the later; and

(ii) the surrender of the certificate to the Paying Agent which issued it; and

(b) that its bearer is entitled to attend and vote at such meeting or any adjournment of it in respect of the Bonds represented by such certificate;

"block voting instruction" means a document in the English language issued by a Paying Agent and dated in which:

(a) it is certified that Bonds (not being Bonds in respect of which a voting certificate has been issued and is outstanding in respect of the meeting specified in such block voting instruction or any adjournment of it) have been deposited with such Paying Agent (or to its order at a bank or other depositary) and that such Bonds will not be released until the earlier of:

(i) the conclusion of the meeting specified in such document or any adjournment of it whichever is the later; and

(ii) the surrender, not less than 48 hours before the time fixed for such meeting or adjournment, of the receipt for each such deposited Bond which is to be released to the Paying Agent which issued it and the notification of such surrender by such Paying Agent to the Company;

(b) it is certified that each depositor of such Bonds or a duly authorised agent on his behalf has instructed such Paying Agent that the votes attributable to his Bonds so deposited should be cast in a particular way in relation to each resolution to be put to such meeting or any adjournment of it and that all such instructions are, during the period of

48 hours before the time fixed for such meeting or adjourned meeting, neither revocable nor subject to amendment;

(c) the total number and the serial numbers of the Bonds so deposited are listed, distinguishing with regard to each such resolution between those in respect of which instructions have been so given
(i) to vote for, and (ii) to vote against, the resolution; and

(d) any person named in such document (a "proxy") is authorised and instructed by such Paying Agent to vote in respect of the Bonds so listed in accordance with the instructions referred to in sub-paragraph (c) above as set out in such document.

2 A holder of a Bond may obtain a voting certificate from a Paying Agent or require a Paying Agent to issue a block voting instruction by depositing his Bond with such Paying Agent not later than 48 hours before the time fixed for any meeting. Voting certificates and block voting instructions shall be valid until the relevant Bonds are released pursuant to paragraph 1 of this Schedule and until then the holder of any such voting certificate or (as the case may be) the proxy named in any such block voting instruction shall, for all purposes in connection with any meeting or proposed meeting of Bondholders, be deemed to be the holder of the Bonds to which such voting certificate or block voting instruction relates and the Paying Agent with which (or to the order of which) such Bonds have been deposited shall be deemed for such purposes not to be the holder of those Bonds.

3 Each of the Company and the Trustee at any time may, and the Trustee (subject to its being indemnified to its satisfaction against all costs and expenses thereby occasioned) upon a request in writing of Bondholders holding not less than one-tenth in principal amount of the Bonds for the time being outstanding shall, convene a meeting of Bondholders. Whenever any such party is about to convene any such meeting it shall forthwith give notice in writing to the other parties of the day, time and place of the meeting and of the nature of the business to be transacted at it. Every such meeting shall be held at such time and place as the Trustee may previously approve in writing.

4 At least 21 days' notice (exclusive of the day on which the notice is given and of the day on which the meeting is held) specifying the day, time and place of meeting shall be given to the Bondholders. A copy of the notice shall in all cases be given by the party convening the meeting to the other parties. Such notice shall also specify, unless in any particular case the Trustee otherwise agrees, the nature of the resolutions to be proposed and shall include a statement to the effect that Bonds may be deposited with (or to the order of) any Paying Agent for the purpose of obtaining voting certificates or appointing proxies not later than 48 hours before the time fixed for the meeting.

5 A person (who may, but need not, be a Bondholder) nominated in writing by the Trustee may take the chair at every such meeting but if no such nomination is

made or if at any meeting the person nominated shall not be present within 15 minutes after the time fixed for the meeting the Bondholders present shall choose one of their number to be chairman, failing which the Company or, failing which, the Guarantor may appoint a chairman. The chairman of an adjourned meeting need not be the same person as was chairman of the original meeting.

6 At any such meeting any one or more persons present in person holding Bonds or voting certificates or being proxies and holding or representing in the aggregate not less than one-tenth in principal amount of the Bonds for the .time being outstanding shall (except for the purpose of passing an Extraordinary Resolution) form a quorum for the transaction of business and no business (other than the choosing of a chairman) shall be transacted at any meeting unless the requisite quorum be present at the commencement of business. The quorum at any such meeting for passing an Extraordinary Resolution shall (subject as provided below) be one or more persons present in person holding Bonds or voting certificates or being proxies and holding or representing in the aggregate a clear majority in principal amount of the Bonds for the time being outstanding, provided that at any meeting the business of which includes the consideration of an Extraordinary Resolution to effect any of the matters specified in the proviso to paragraph 19 of this Schedule the quorum shall be one or more persons present in person holding Bonds or voting 9ertificates or being proxies and holding or representing in the aggregate not less than two-thirds in principal amount of the Bonds for the time being outstanding.

7 If within 15 minutes from the time fixed for any such meeting a quorum is not present the meeting shall, if convened upon the requisition of Bondholders, be dissolved. In any other case it shall stand adjourned (unless the Company and the Trustee agree that it be dissolved) for such period, not being less than 14 days nor more than 42 days, and to such place, as may be decided by the chairman. At such adjourned meeting one or more persons present in person holding Bonds or voting certificates or being proxies (whatever the principal amount of the Bonds so held or represented) shall form a quorum and may pass any resolution and decide upon all matters which could properly have been dealt with at the meeting from which the adjournment took place had a quorum been present at such meeting, provided that at any adjourned meeting the business of which includes the consideration of an Extraordinary Resolution to effect any of the modifications specified in the proviso to paragraph 19 the quorum shall be one or more persons present in person holding Bonds or voting certificates or being proxies and holding or representing in the aggregate not less than one-third in principal amount of the Bonds for the time being outstanding.

8 The chairman may with the consent of (and shall if directed by) any meeting adjourn such meeting from time to time and from place to place but no business shall be transacted at any adjourned meeting except business which might lawfully have been transacted at the meeting from which the adjournment took place.

9 At least 10 days' notice of any meeting adjourned through want of a quorum shall be given in the same manner as for an original meeting and such notice shall state the quorum required at such adjourned meeting. It shall not, however, otherwise be necessary to give any notice of an adjourned meeting.

10 Every question submitted to a meeting shall be decided in the first instance by a show of hands and in case of equality of votes the chairman shall both on a show of hands and on a poll have a casting vote in addition to the vote or votes (if any) which he may have as a Bondholder or as a holder of a voting certificate or as a proxy.

11 At any meeting, unless a poll is (before or on the declaration of the result of the show of hands) demanded by the chairman, the Company, the Guarantor, the Trustee or by one or more persons holding one or more Bonds or voting certificates or being proxies and holding or representing in the aggregate not less than one-fiftieth in principal amount of the Bonds for the time being outstanding, a declaration by the chairman that a resolution has been carried or carried by a particular majority or lost or not carried by any particular majority shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against such resolution.

12 If at any meeting a poll is so demanded, it shall be taken in such manner and (subject as provided below) either at once or after such an adjournment as the chairman directs and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded as at the date of the taking of the poll. The demand for a poll shall not prevent the continuation of the meeting for the transaction of any business other than the question on which the poll has been demanded.

13 Any poll demanded at any meeting on the election of a chairman or on any question of adjournment shall be taken at the meeting without adjournment.

14 The Company, the Guarantor and the Trustee (through their respective representatives) and their respective financial and legal advisers may attend and speak at any meeting of Bondholders. No one else may attend at any meeting of Bondholders or join with others in requesting the convening of such a meeting unless he is the holder of a Bond or a voting certificate or is a proxy.

15 At any meeting on a show of hands every person who is present in person and who produces a Certificate in respect of a Bond or a voting certificate shall have one vote and on a poll every such person and every person present in person who is a proxy shall have one vote in respect of each such principal amount as is equal to the lowest common denomination of the Bonds forming a particular series. Without prejudice to the obligations of proxies named in any block voting instruction, any person entitled to more than one vote need not use all his votes or cast all the votes to which he is entitled in the same way.

16 The proxy named in any block voting instruction need not be a Bondholder.

17 Each block voting instruction shall be deposited at the registered office of the Company, or at such other place as the Trustee shall designate or approve, not less than 24 hours before the time appointed for holding the meeting or adjourned meeting at which the proxy named in the block voting instruction proposes to vote and in default the block voting instructions shall not be treated as valid unless the chairman of the meeting decides otherwise before such meeting or adjourned meeting proceeds to business. A notarially certified copy of each such block voting instruction and, if required by the Trustee, proof satisfactory to the Trustee of its due execution on behalf of the relevant Paying Agent shall be produced by the proxy at the meeting or adjourned meeting but the Trustee shall not thereby be obliged to investigate or be concerned with the validity of, or the authority of, the proxy named in any such block voting instruction.

18 Any vote given in accordance with the terms of a block voting instruction shall be valid even if the block voting instruction or any of the Bondholders' instructions pursuant to which it was executed has been previously revoked or amended, provided that no intimation in writing of such revocation or amendment shall have been received from the relevant Paying Agent by the Company or the Trustee at its registered office or by the chairman of the meeting in each case not less than 24 hours before the time fixed for the meeting or adjourned meeting at which the block voting instruction is used.

19 A meeting of Bondholders shall, subject to the Conditions, in addition to the powers given above, but without prejudice to any powers conferred on other persons by these presents, have power exercisable by Extraordinary Resolution:

(a) to sanction any proposal by the Company or the Guarantor for any modification, abrogation, variation or compromise of, or arrangement in respect of, the rights of the Bondholders and/or the Couponholders against the Company or the Guarantor or against any of its property whether such rights shall arise under these presents or otherwise;

(b) to sanction any scheme or proposal for the exchange, substitution or sale of the Bonds for, or the conversion of the Bonds into, or the cancellation of the Bonds in consideration of, shares, stock, notes, bonds, debentures, debenture stock and/or other obligations and/or securities of the Company, the Guarantor or any other body corporate formed or to be formed, or for or into or in consideration of cash, or partly for or into or in consideration of such shares, stock, notes, bonds, debentures, debenture stock and/or other obligations and/or securities as aforesaid and partly for or into or in consideration of cash;

(c) to assent to any modification of these presents which shall be proposed by the Company, the Guarantor or the Trustee;

(d) to authorise anyone to concur in and do all such things as may be necessary to carry out and give effect to any Extraordinary Resolution;

(e) to give any authority, direction or sanction which under these presents is required to be given by Extraordinary Resolution;

(f) to appoint any persons (whether Bondholders or not) as a committee or committees to represent the interests of the Bondholders and to confer upon such committee or committees any powers or discretions which the Bondholders could themselves exercise by Extraordinary Resolution;

(g) to approve a person proposed to be appointed as a new Trustee and to remove any Trustee;

(h) to approve the substitution of any entity for the Company (or any previous substitute) as principal debtor under these presents;

(i) to approve the substitution of any entity for the Guarantor (or any previous substitute) as the guarantor under these presents; and

(j) to discharge or exonerate the Trustee from any liability in respect of any act or omission for which it may become responsible under these presents,

provided that the special quorum provisions contained in the proviso to paragraph 6 of this Schedule and, in the case of an adjourned meeting, in the proviso to paragraph 7 of this Schedule shall apply in relation to any Extraordinary Resolution for the purpose of paragraph 19(b) or (h) of this Schedule or for the purpose of making any modification to the provisions contained in these presents which would have the effect of:

(i) postponing the maturity of the Bonds or the dates on which interest is payable in respect of the Bonds; or

(ii) modifying the status of the Bonds; or

(iii) reducing or cancelling the principal amount of, or interest on, or other amounts in respect of or reducing the rate of interest on, the Bonds; or

(iv) changing the currency of payment of the Bonds; or

(v) modifying the provisions contained in this Schedule concerning the quorum required at any meeting of Bondholders or the majority required to pass an Extraordinary Resolution; or

(vi) amending this proviso.

20 An Extraordinary Resolution passed at a meeting of Bondholders duly convened and held in accordance with these presents shall be binding upon all the Bondholders, whether or not present at such meeting and whether or not they vote in favour, and upon all the Couponholders and each of the Bondholders and

Couponholders shall be bound to give effect to it accordingly. The passing of any such resolution shall be conclusive evidence that the circumstances of such resolution justify the passing of it. The Company shall give notice of the passing of an Extraordinary Resolution to Bondholders within 14 days but failure to do so shall not invalidate the resolution.

21 The expression "Extraordinary Resolution" means a resolution passed at a meeting of Bondholders duly convened and held in accordance with these presents by a majority consisting of not less than three-quarters of the votes cast.

22 Minutes of all resolutions and proceedings at every such meeting shall be made and entered in the books to be from time to time provided at the expense of the Company for that purpose by the Company or the Trustee and any such minutes, if purporting to be signed by the chairman of the meeting at which such resolutions were passed or proceedings transacted or by the chairman of the next succeeding meeting of Bondholders, shall be conclusive evidence of the matters contained in them and until the contrary is proved every such meeting in respect of the proceedings of which minutes have been so made and signed shall be deemed to have been duly convened and held and all resolutions passed or proceedings transacted at it to have been duly passed and transacted.

23 Subject to all other provisions contained in these presents the Trustee may without the consent of the Bondholders prescribe such further regulations regarding the holding of meetings of Bondholders and attendance and voting at them as the Trustee may in its sole discretion determine, including in particular (but without prejudice to the generality of the foregoing) such regulations and requirements as the Trustee thinks reasonable:

(a) so as to satisfy itself that persons who purport to requisition a meeting in accordance with paragraph 3 of this Schedule or who purport to make any requisition to the Trustee in accordance with these presents are in fact Bondholders; and

(b) as to the form of voting certificates or block voting instructions to be issued pursuant to paragraph 1 of this Schedule so as to satisfy itself that persons who purport to attend or vote at any meeting of Bondholders are entitled to do so in accordance with these presents.

24 (a) If and whenever the Company shall have issued and have outstanding any Bonds which are not identical and do not form one single series then those Bonds which are in all respects identical shall be deemed to constitute a separate series of the Bonds and the foregoing provisions of this Schedule shall have effect subject to the following modifications:

(i) a resolution which in the opinion of the Trustee affects one series only of the Bonds shall be deemed to have been duly passed if passed at a separate meeting of the holders of the Bonds of that series;

(ii) a resolution which in the opinion of the Trustee affects more than one series of the Bonds but does not give rise to a conflict of interest between the holders of Bonds of any of the series so affected shall be deemed to have been duly passed if passed at a single meeting of the holders of the Bonds of all the series so affected;

(iii) a resolution which in the opinion of the Trustee affects more than one series of the Bonds and gives or may give rise to a conflict of interest between the holders of the Bonds of any of the series so affected shall be deemed to have been duly passed only if it shall be duly passed at separate meetings of the holders of the Bonds of each series so affected; and

(iv) to all such meetings as aforesaid all the preceding provisions of this Schedule shall mutatis mutandis apply as though references therein to Bonds and holders were references to the Bonds of the series or group of series in question and to the holders of such Bonds respectively.

(b) If the Company shall have issued and have outstanding (a) Bonds which are not denominated in sterling or (b) more than one series of Bonds denominated in sterling but in differing denominations, the following provisions shall apply. In the case of any meeting of holders of Bonds of more than one currency the principal amount of such Bonds not denominated in sterling shall (i) for the purposes of paragraph 3 of this Schedule be the equivalent in sterling at the spot rate of a bank nominated by the Trustee for the conversion of the relevant currency or currencies into sterling on the seventh dealing day (being a day (other than a Saturday or a Sunday) on which banks in London are open for normal banking business) prior to the day on which the request in writing is received by the Trustee and (ii) for the purposes of

paragraphs 6, 7, 11 and 15 of this Schedule (whether in respect of the meeting, or any adjourned such meeting or any poll resulting therefrom) be the equivalent in pounds sterling at such spot rate on the seventh dealing day (as defined above) prior to the day of such meeting or, if applicable, the taking of such poll. In such circumstances, and where separate series of Bonds denominated in sterling but of different denominations are to be treated together for

the purposes of this Schedule, on any poll each person present shall have one vote for every complete one pound of Bonds (converted as above) which he holds.

25 Nothing in these presents shall prevent any of the proxies named in any block voting instruction or form of proxy from being a director, managing director, officer or representative of, or otherwise connected with, the Company, the Guarantor, the Subsidiaries or any of their respective holding and associated companies.

THE COMMON SEAL of                   )
NORTHERN ELECTRIC FINANCE plc        )
was hereunto affixed                 )
in the presence of:                  )


/s/ John Edwards
----------------
JOHN EDWARDS
Director

----------------
VALERIE GILES
Secretary



THE COMMON SEAL of                   )
NORTHERN ELECTRIC plc                )
was hereunto affixed                 )
in the presence of:                  )


/s/ Ron Dixon
--------------------
RON DIXON
Director

/s/ Valerie Giles
--------------------
VALERIE GILES
Secretary

THE COMMON SEAL of THE LAW )
DEBENTURE TRUST CORPORATION p.l.c. )

was hereunto affixed                 )
in the presence of:                  )


/s/ Julian Mason-Jebb
---------------------
JULIAN MASON-JEBB
Director


/s/ Clive Rakestrow
----------------------
CLIVE RAKESTROW
Assistant Trust Manager

EXHIBIT 10.71

MidAmerican Energy Holdings Company

LONG-TERM INCENTIVE PARTNERSHIP PLAN

As Amended and Restated January 1, 2004

PLAN DOCUMENT

MIDAMERICAN ENERGY HOLDINGS COMPANY

LONG-TERM INCENTIVE PARTNERSHIP PLAN

ARTICLE I - PURPOSE AND EFFECTIVE DATE

1.1

Purpose . The purpose of this Long-Term Incentive Partnership Plan (the “Plan”) is to permit a select group of management employees of MidAmerican Energy Holdings Company and its subsidiaries to share in significant increases in the value of the Company realized through the efforts of these individuals. It is intended that the Plan, by providing this award and deferral opportunity (U.S. only), will assist the Company in retaining and attracting individuals of exceptional ability and will act as an incentive to align their interests with those of the Company.

1.2	Effective Date . The Plan was effective as of March 14, 2000, subsequently restated effective as of January 1, 2003, with the current Plan effective as of January 1, 2004.

ARTICLE II - DEFINITIONS

For the purpose of the Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise:

2.1

Base Salary . “Base Salary” means the annual base salary rate payable to a Participant effective January 1 of the calendar year unless the Participant is a part of the CE U.K. pay review, in which case it is the annual base salary rate effective April 1 of the calendar year. For purposes of the Plan, Base Salary shall be calculated before reduction for any amounts deferred by the Participant pursuant to the Company’s tax qualified plans which may be maintained under Section 401(k) or Section 125 of the Internal Revenue Code of 1986, as amended (the “Code”), or pursuant to the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan or any other non-qualified plan which permits the voluntary deferral of compensation. Inclusion of any forms of compensation other than such “wages” and deferred “wages” is subject to approval of the Chairman & CEO and the President.

2.2	Beneficiary . “Beneficiary” means the person, persons or entity, as designated by the Participant, entitled under Article VII to receive any Plan benefits payable after the Participant’s death.

2.3	Board . “Board” means the Board of Directors of the Company or any duly authorized committee.

2.4	Company . “Company” means MidAmerican Energy Holdings Company, a Des Moines Iowa based corporation, and any directly or indirectly affiliated subsidiary corporations, any other affiliate designated by the Board, or any predecessor or successor to the business of any thereof.

2.5	Determination Date . “Determination Date” means each business day on which the New York Stock Exchange is open for business.

2.6

Disability . “Disability” means a physical or mental condition that prevents the Participant from satisfactorily performing the Participant’s usual duties for the Company. The Chairman & CEO and the President shall determine the existence of Disability, in their sole reasonable discretion, and may rely on advice from a medical examiner satisfactory to them in making the determination.

2.7

Incentive Account(s) . “Incentive Account(s)” means the account or accounts maintained on the books of the Company with respect to each Incentive Award and used solely to calculate the amount which may be payable to each Participant under the Plan and shall not constitute a separate fund of assets. Participants may have more than one Incentive Account maintained on their behalf.

2.8

Incentive Award(s) . “Incentive Award(s)” means the award determined and allocated under the terms of the Plan. Each Incentive Award(s) shall be designated by the year to which the award relates (the “Award Year”) even though the value of the award may be determined and credited to a Participant’s Incentive Account in a subsequent year. An example: The Year 2003 Incentive Award may relate to the performance of the Company over the calendar year 2003 (the Award Year), even though the Incentive Award will only be determinable in 2004.

2.9

Interest . “Interest” means the amount credited to each Participant’s Incentive Account(s) on each Determination Date, which shall be based on the Valuation Funds chosen by the Investment Committee as provided in Section 2.16, below and in a manner consistent with Section 5.2. Such credits to a Participant’s Incentive Account(s) may be either positive or negative to reflect the increase or decrease in value of the Incentive Account(s) in accordance with the provisions of this Plan.

2.10

Investment Committee . “Investment Committee” means the Participants of the Plan in the current Award Year. The Investment Committee shall designate the investment of the entire balance of all awards in one or more of the Valuation Funds for the sole purpose of determining the amount of Interest to be credited or debited to each Incentive Account(s).

2.11	Net Income . “Net Income” means the definition as applied under Generally Accepted Accounting Principles. The Chairman & CEO and the President may adjust Net Income for extraordinary and non-recurring events, when appropriate.

2.12	Nomination Committee . “Nomination Committee” means a group of Participants appointed by the Chairman & CEO and the President each plan year for the purposes of recommending the Initial and Performance Allocations.

2.13

Participant . “Participant” means any employee who is eligible, pursuant to Article III, below, to participate in this Plan, and who has been so notified by the Chairman & CEO and the President. Such employee shall remain a Participant in this Plan for any award that has been made until such time as all benefits payable for that specific Award Year have been paid in accordance with the provisions hereof. A Participant may have an Incentive Account(s) and not be chosen to participate in a subsequent Award Year. In addition, a Participant may be designated as an Associate Participant under the terms of this Plan, and the rights and benefits attributable to these Associate Participants shall be those attributable to Participants under this Plan, unless clearly set forth otherwise. An Associate Participant may also be referred to as an “Associate” which term shall have the same meaning in all respects as Associate Participant. Likewise, a Participant may alternatively be referred to as a “Partner” which term shall have the same meaning in all respects as Participant. The use of the term “Partner” is not intended to, and does not convey any additional rights or responsibilities to a Participant.

2.14	Plan . “Plan” means this Long-Term Incentive Partnership Plan as amended from time to time.

2.15	Retirement . “Retirement” means the termination of employment with the Company of the Participant after attaining age fifty-five (55) and five (5) years of service.

2.16

Valuation Funds . “Valuation Funds” means one or more of the independently established funds or indices that are identified and listed in Exhibit A. These Valuation Funds are used solely to calculate the Interest that is credited to each Incentive Account(s) in accordance with Article V, and does not represent, nor should it be interpreted to convey any beneficial interest on the part of the Participant in any specific asset or other property of the Company. The determination of the increase or decrease in the performance of each Valuation Fund shall be made by the Chairman & CEO and the President in their reasonable discretion by reference to the performance of such Valuation Funds. The Chairman & CEO and the President shall select the various Valuation Funds available to the Investment Committee pursuant to the Plan and shall set forth a list of these Valuation Funds attached hereto as Exhibit A, which may be amended from time to time at the discretion of the Chairman & CEO and the President.

ARTICLE III - ELIGIBILITY AND PARTICIPATION

3.1

Eligibility . Eligibility to participate in the Plan shall be limited to those select key employees of the Company who are designated by the Chairman & CEO and the President from time to time. The Chairman & CEO and the President of the Company may designate certain key employees of the Company as Associate Participants to reflect their contributions to the success of the Company. Such Associate Participant may later be designated as a full Participant, in which event, the benefits due under this Plan, including any Allocations, shall be determined as set forth for a full Participant from the date specified.

3.2	Participation . An employee’s participation in the Plan for any Award Year shall be effective upon notification to the employee by the Chairman & CEO and the President.

ARTICLE IV - INCENTIVE AWARD

4.1

Annual Award . Prior to the beginning of each year, the Chairman & CEO and the President shall determine whether an Incentive Award shall be granted for the current plan year. If an Incentive Award is granted, the Chairman & CEO and the President will establish the award categories based upon Net Income target goals or such other criteria, as they deem appropriate for the plan year. The amount of the Incentive Award shall be determined as described in the Plan Summary each plan year.

4.2	Allocation of Points . The amount of each Incentive Award shall be allocated among the eligible Participants in the following manner:

Initial Point Allocation . The Nomination Committee shall make recommendations to the Chairman & CEO and the President to allocate initial points among participants for that year. The Chairman & CEO and the President shall either accept these recommendations or make adjustments that may increase, decrease or eliminate any initial point allocation to any individual Participant. Any points that are not allocated to Participants may be either refunded to the Company or reallocated at a later date as initial points or performance points at the discretion of the Chairman & CEO and the President.

Performance Point Allocation . The Nomination Committee shall make recommendations to the Chairman & CEO and the President to allocate all, or a portion of, the remaining points for the Award Year, among the eligible Participants. The Chairman & CEO and the President shall either accept these recommendations or make adjustments that may increase, decrease or eliminate any such remaining point allocation to any individual Participant. Any award that is not allocated to Participants will be returned to the Company as an offset to Plan expenses.

Maximum Allocation . Notwithstanding the above, the dollar value of the sum of the Initial and Performance Allocations made on behalf of any Participant for any single Award Year shall not exceed one hundred fifty percent (150%) of that Participant’s Base Salary for that Award Year.

4.3

Determination of Annual Awards . The dollar value of any Incentive Award shall be determined by the Chairman & CEO and the President as soon as practical after the close of the Award Year, but in no event shall the dollar value of the Award be determined later than March 1 ^st of the year following the Award Year. The value of a Participant’s share of any Incentive Award shall be credited to a Participant’s Incentive Account(s) as of the day determined by the Chairman & CEO and the President but in no event shall the date be later than March 1 ^st of the year following the Award Year. Interest shall be credited (or debited) on each Determination Date. Any distributions to a Participant shall reduce the Participant’s Incentive Account(s) as of the date of such distribution.

4.4

Reduction of Awards . The Chairman & CEO and the President may, in their sole discretion, establish certain criteria that must be met for an Incentive Award to become effective. These criteria may include the achievement of certain safety performance goals, environmental, risk management or other goals established by the Chairman & CEO and the President. The determination of whether any applicable goals have been achieved with respect to an Incentive Award shall be determined by the Chairman & CEO and the President, as of the time that the dollar value of that Incentive Award is determined in Section 4.3 above.

ARTICLE V - INCENTIVE ACCOUNT(S)

5.1

Accounts . The Company shall maintain a separate bookkeeping account on behalf of each Participant in the Plan for each Incentive Award. The value of any Incentive Award(s) allocated to each Participant plus any Interest earned thereon shall be added to such Participant’s Incentive Account(s). These Incentive Accounts shall be used solely to calculate the amount payable to each Participant under the Plan and shall not constitute a separate fund of assets.

5.2

Timing of Credits . The value of a Participant’s share of any Incentive Award shall be credited to a Participant’s Incentive Account as of the day determined by the Chairman & CEO and the President but in no event shall the date be later than March 1 ^st of the year following the Award Year. Each Incentive Account(s) shall be increased or decreased by the Interest credited on each Determination Date as though the balance of that Incentive Account(s) as of the date Incentive Awards are credited to a Participant’s Incentive Account, had been invested in the applicable Valuation Funds chosen by the Investment Committee. Any distributions to a Participant shall reduce the Participant’s Incentive Account(s) as of the date of such distribution.

5.3

Vesting of Accounts . Each Participant shall be twenty percent (20%) vested in his or her Incentive Account at December 31 ^st of the Award Year and an additional twenty percent (20%) for each subsequent year. Participants must be employed on December 31 ^st to vest for the year. The Participant shall be considered to be one hundred percent (100%) vested in the event of termination of service as a result of a Disability or death, and shall be considered to be one hundred percent (100%) vested in the event of Retirement, but only with respect to Incentive Awards granted for years prior to 2004.

5.4	Statement of Accounts . The Company shall give to each Participant a statement showing the balances in the Participant’s Incentive Account(s) no less frequently than on an annual basis.

ARTICLE VI - PLAN BENEFITS

6.1

Normal Benefit . The balance of each Participant’s Incentive Account(s) shall be paid no earlier than four (4) years, eleven (11) months from beginning of the Award Year and no later than the fifth anniversary of the beginning of the Award Year. Unless modified pursuant to Section 6.3 below, such amount shall be paid in the form of a lump sum.

6.2

Early Termination Benefit . In the event that a Participant terminates service with the Company prior to the fifth anniversary of an Award Year, the Participant shall receive the vested portion of the Incentive Account(s) as of the most recent Determination Date, payable in a lump sum. The amount shall be paid as soon as practical after the termination of service, but in no event later than thirty (30) days from the date of termination.

6.3

Deferred Benefit (U.S. only) . With respect to any Incentive Account, the Participant may elect, in a manner acceptable to the Company, to defer the receipt of certain benefits due under this Plan by filing an election to do so no later than December 15 ^th after the third anniversary of the beginning of the Award Year relating to the Incentive Account to be deferred:

Such election must be accepted by the Administrative Committee of the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan;

The balance of the Incentive Account as of the fifth anniversary of the Award Year shall be transferred to the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan as of that date and shall thereafter be subject to the terms and conditions of that plan;

Such an election shall only permit the deferral of benefits payable under Section 6.1 above, and shall not defer the receipt of benefits payable under any other provision of the Plan; and

The acceptance of such an election shall completely satisfy and discharge all obligations on the part of the Company to the Participant (and the Participant’s Beneficiary) with respect to such Incentive Account, and the Participant’s (and Participant’s Beneficiary’s) rights under the Plan with respect to such Incentive Account shall terminate.

An example: A Participant may elect to defer the receipt of his Year 2003 Incentive Account by filing an election to do so prior to December 15, 2006. If such election is in a form acceptable to the Company and the election is accepted by the Administrative Committee of the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan, the balance of the vested portion of that plan year Incentive Account as of December 31, 2007, shall be considered to be transferred to the MidAmerican Energy Holdings Company Executive Voluntary Deferred Compensation Plan as of that date, and all obligations with respect to the Year 2003 Incentive Account for that Participant shall be deemed to be satisfied.

6.4

Death Benefit . In the event of the death of a Participant prior to complete payment of any Incentive Account(s), the Participant’s Beneficiary shall receive the remaining, vested balance of the Incentive Account(s) determined as if the Participant had terminated service as of the date of death. Such amounts shall be paid in a lump sum as soon as practical after the death of the Participant, but in no event later than thirty (30) days from the date of the Participant’s death.

6.5

Withholding and Payroll Taxes . The Company shall withhold from any payment made pursuant to the Plan any taxes required to be withheld from such payments under law. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Section 3405(a)(2) of the Code, or any successor provision thereto (U.S. only).

6.6

Payment to Guardian . If a Plan benefit is payable to a minor, a person declared incompetent or a person incapable of handling the disposition of the property, the Company may direct payment to the guardian, legal representative or person having the care and custody of such minor or person. The Company may require proof of incompetence, incapacity or guardianship, as it may deem appropriate prior to distribution. Such distribution shall completely discharge the Company from all liability with respect to such benefit.

6.7

Effect of Payment . The full payment of the applicable benefit under this Article VI shall completely discharge all obligations on the part of the Company to the Participant (and the Participant’s Beneficiary) with respect to the operation of the Plan, and the Participant’s (and Participant’s Beneficiary’s) rights under the Plan shall terminate.

ARTICLE VII - BENEFICIARY DESIGNATION

7.1

Beneficiary Designation . Each Participant shall have the right, at any time, to designate one (1) or more persons or entities as Beneficiary (both primary as well as secondary) to whom benefits under the Plan shall be paid in the event of Participant’s death prior to complete distribution of the Participant’s Incentive Account(s) balance. Each Beneficiary designation shall be in a written form prescribed by the Company and shall be effective only when filed with the Company during the Participant’s lifetime.

7.2	Changing Beneficiary . Any Beneficiary designation may be changed by a Participant without the consent of the previously named Beneficiary by the filing of a new Beneficiary designation with the Company. The filing of a new designation shall cancel all designations previously filed.

7.3	Change in Marital Status . If the Participant’s marital status changes after the Participant has designated a Beneficiary, the following shall apply until such time as the Participant submits a revised Beneficiary form.

If the Participant is married at death but was unmarried when the designation was made, the designation shall be void.

If the Participant is unmarried at death but was married when the designation was made:

The designation shall be void if the former spouse was named as Beneficiary.

ii)

The designation shall remain valid if the spouse was not named and a non-spouse Beneficiary was named.

If the Participant was married when the designation was made and is married to a different spouse at death:

The designation shall be void if the former spouse was named as Beneficiary.

ii)

The designation shall remain valid if the former spouse was not named and a non-spouse Beneficiary was named.

7.4

No Beneficiary Designation . If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void, or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant’s benefits, the Participant’s Beneficiary shall be the person in the first of the following classes in which there is a survivor:

The Participant’s surviving spouse;

The Participant’s children (including stepchildren) in equal shares, except if any of the children predeceases the Participant but leaves surviving issue, then such issue shall take by right of representation the share the deceased child would have taken if living;

The Participant’s estate.

7.5	Effect of Payment . Payment to Beneficiary shall completely discharge the Company’s obligations under the Plan and the Company may require a release to that effect from the Beneficiary prior to the distribution.

ARTICLE VIII - ADMINISTRATION

8.1

Binding Effect of Decisions . The decision or action of the Chairman & CEO and the President with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan.

ARTICLE IX - CLAIMS PROCEDURE

9.1

Claim . Any person or entity claiming a benefit, requesting an interpretation or ruling under the Plan (hereinafter referred to as “Claimant”), or requesting information under the Plan shall present the request in writing to the Chairman & CEO and the President, who shall respond in writing as soon as practical. The decision shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned.

9.2	Denial of Claim . If the claim or request is denied, the written notice of denial shall state:

The reasons for denial, with specific reference to the Plan provisions on which the denial is based;

A description of any additional material or information required and an explanation of why it is necessary; and

An explanation of the Plan’s claim review procedure.

9.3

Final Decision . The decision on review shall normally be made within sixty (60) days after receipt of Claimant’s claim or request. If an extension of time is required for a hearing or other special circumstances, the Claimant shall be notified and the time limit shall be one hundred twenty (120) days.

ARTICLE X - AMENDMENT AND TERMINATION OF PLAN

10.1

Amendment . The Board may at any time amend the Plan by written instrument, notice of which is given to all Participants and to any Beneficiary receiving payments, except that no amendment shall reduce any vested benefit or the amount accrued in any Incentive Account(s) or any deferral election as of the date such notice of the amendment is given.

10.2

Company’s Right to Terminate . The Board may at any time partially or completely terminate the Plan by written instrument, notice of which is given to all Participants and to any Beneficiary receiving payments if, in its judgment, the tax, accounting or other effects of the continuance of the Plan, or potential payments would not be in the best interests of the Company provided that no such termination shall reduce any vested benefit and the amount accrued in any Incentive Account(s) or any deferral election as of the date such notice of termination is given.

10.3	Partial Termination . The Board may partially terminate the Plan and if such a partial termination occurs, the Plan shall continue to operate and be effective with regard to Incentive Awards allocated prior to the effective date of such partial termination.

10.4

Payment on Termination . In the event of a complete or partial termination hereunder, the Plan shall cease to operate or as to a partial termination, the Plan shall cease only with respect to the part terminated and the Company shall distribute each Incentive Account(s) to the appropriate Participant or Beneficiary. Payment shall be made as a lump sum within thirty (30) days of Plan termination unless deferral elections are effective, in which case payments shall be made to a Participant’s (or Beneficiary’s) account in such deferral plan.

ARTICLE XI - MISCELLANEOUS

11.1

Unfunded Plan . The Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of “management or highly-compensated employees” within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Accordingly, the Board may terminate the Plan and make no further benefit payments or remove certain employees as Participants if it is determined by the United States Department of Labor, a court of competent jurisdiction, or an opinion of counsel that the Plan constitutes an employee pension benefit plan within the meaning of Section 3 (2) of ERISA (as currently in effect or hereafter amended) which is not so exempt.

11.2	Company Obligation . The obligation to make benefit payments to any Participant under the Plan shall be an obligation solely of the Company.

11.3

Unsecured General Creditor . Notwithstanding any other provision of the Plan, Participants and Participants’ Beneficiaries shall be unsecured general creditors, with no secured or preferential rights to any assets of the Company or any other party for payment of benefits under the Plan. Any property held by the Company for the purpose of generating the cash flow for benefit payments shall remain its general, unpledged and unrestricted assets. The Company’s obligation under the Plan shall be an unfunded and unsecured promise to pay money in the future.

11.4

Trust Fund . The Company shall be responsible for the payment of all benefits provided under the Plan. At its discretion, the Company may establish one (1) or more trusts for the purpose of assisting in the payment of such benefits. Although such a trust shall be irrevocable, its assets shall be held for payment of all the Company’s general creditors in the event of insolvency. To the extent any benefits provided under the Plan are paid from any such trust, the Company shall have no further obligation to pay them. If not paid from the trust, such benefits shall remain the obligation of the Company.

11.5

Nonassignability . Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt of the amounts, if any, payable hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable except only pursuant to the designated Beneficiary in the event of death or Disability or pursuant to a legal will or the laws of intestate succession. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant’s or any other person’s bankruptcy or insolvency.

11.6

Not a Contract of Employment . The Plan shall not constitute a contract of employment between the Company and the Participant. Nothing in the Plan shall give a Participant the right to be retained in the service of the Company or to interfere with the right of the Company to discipline or discharge a Participant at any time.

11.7	Protective Provisions . A Participant will cooperate with the Company by furnishing any and all information requested by the Company, in order to facilitate the payment of benefits hereunder.

11.8	Governing Law . The provisions of the Plan shall be construed and interpreted according to the laws of the State of Iowa, except as preempted by federal law.

11.9	Validity . If any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but the Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.

11.10

Notice . Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Chairman & CEO and the President shall be directed to the Company’s address. Mailed notice to a Participant or Beneficiary shall be directed to the individual’s last known address in the Company’s records.

11.11

Successors . The provisions of this Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term successors as used herein shall include any corporate or other business entity which shall, whether by merger, consolidation, purchase or otherwise acquire all or substantially all of the business and assets of the Company, and successors of any such corporation or other business entity.

11.12

Taxing Authority . If a Participant is subject to a taxing authority or jurisdiction which would cause an Incentive Account to be recognized and taxed as income by that authority or jurisdiction prior to the time it would otherwise be payable under the terms of the Plan, then the provisions of the Plan, as applied to that Participant, shall be modified such that if the Participant is terminated for cause, as defined by the Chairman & CEO and the President, prior to the time an Incentive Account is payable, the Participant shall be considered zero percent (0%) vested in such award and the entire Incentive Account shall be forfeited.


	MidAmerican Energy Holdings Company

Date: January 30, 2004	By:	/s/ Greg Abel
		Greg Abel

MIDAMERICAN ENERGY HOLDINGS COMPANY

LONG-TERM INCENTIVE PARTNERSHIP PLAN

EXHIBIT A

Following are the Valuation Funds as of January 1, 2003:

·	Russell 1000 Value (Large Cap Value)

·	S&P 500 Index [dividends reinvested] (Large Cap Core)

·	Russell 1000 Growth Index (Large Cap Growth)

·	Russell 2000 Value Index (Small Cap Value)

·	Russell 2000 Growth Index (Small Cap Growth)

·	Morgan Stanley EAFE Index (International)

·	Lehman Brothers Aggregate Bond Index (Core Bond)

·	Average of the one-year Treasury Bill constant maturity each October 15 (or the preceding business day if a holiday or weekend) of the prior year. (Stable Value)

The Company reserves the right to change the Valuation Funds at any time pursuant to the Plan.

Exhibit 21.1

MIDAMERICAN ENERGY HOLDINGS COMPANY

SUBSIDIARIES AND JOINT VENTURES

Pursuant to Item 601(b)(21)(ii) of Regulation S-K, we have omitted dormant subsidiaries (all of which, when considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of the end of our last fiscal year).

MidAmerican Funding, LLC	Iowa
MHC Inc.	Iowa
MidAmerican Energy Company	Iowa
CBEC Railway Inc.	Iowa
InterCoast Capital Company	Delaware
Cimmred Leasing Company	South Dakota
InterCoast Energy Company	Delaware
InterCoast Power Company	Delaware
IWG Co. 8	Delaware
MHC Investment Company	South Dakota
MWR Capital Inc.	South Dakota
TTP, Inc. of South Dakota	South Dakota
Midwest Capital Group, Inc.	Iowa
Dakota Dunes Development Company	Iowa
Two Rivers Inc.	South Dakota
MidAmerican Services Company	Iowa
MEC Construction Services Co.	Iowa
CE Electric UK Funding Company	England
CalEnergy Gas (Holdings) Limited	England
CalEnergy Gas Limited	England
CalEnergy Gas (Australia) Limited	England
CalEnergy Gas (Polska) sp. z.o.o.	Poland
CalEnergy Resources Limited	England
CalEnergy Resources (Poland) sp.z.o.o.	Poland
CE Electric (Ireland) Ltd.	Republic of Ireland
CE Electric UK Holdings	England
CE Electric UK Ltd.	England
CE UK Gas Holdings Limited	England
Electralink Limited	England
Integrated Utility Services Limited	England
Integrated Utility Services Limited	Republic of Ireland
Kings Road Developments Limited	England
Northern Electric plc	England
Northern Electric Distribution Limited	England
Northern Electric Finance plc	England
Northern Electric & Gas Limited	England
Northern Electric GenCo Limited	England
Northern Electric (Overseas Holdings) Limited	England
Northern Electric Generation (Peaking) Limited	England
Northern Electric Generation (TPL) Limited	England
Northern Electric Properties Limited	England
Northern Infocom Limited	England
Northern Transport Finance Limited	England
Selectusonline Limited	England
Stamfordham Road Developments Ltd.	England
Teesside Power Limited	England
Vehicle Lease and Service Limited	England

Yorkshire Cayman Holding Limited	Cayman Islands
Yorkshire Electricity Distribution plc	England
Yorkshire Electricity Distribution Services Limited	England
Yorkshire Electricity Group plc	England
Yorkshire Holdings plc	England
Yorkshire Power Finance Limited	Cayman Islands
Yorkshire Power Finance 2 Limited	Cayman Islands
Yorkshire Power Group Limited	England
YPG Holdings LLC	Delaware
HomeServices of America, Inc.	Delaware
Allied Title Services, LLC	Nebraska
Arizona Home Services, LLC	Arizona
Caldwell Mill, LLP	Alabama
California Title Company	California
Capitol Intermediary Company	Nebraska
Capitol Land Exchange, Inc.	Nebraska
Capitol Title Company	Nebraska
CBSHOME Real Estate Company	Nebraska
CBSHOME Real Estate of Iowa, Inc.	Delaware
CBSHOME Relocation Services, Inc.	Nebraska
Champion Realty, Inc.	Maryland
Chancellor Title Services, Inc.	Maryland
Columbia Title of Florida, Inc.	Florida
Cornerstone Title Company, L.L.C.	Georgia
Edina Financial Services, Inc.	Minnesota
Edina Realty, Inc.	Minnesota
Edina Realty Title, Inc.	Minnesota
Embassy Financial Services, Inc.	Florida
Esslinger-Wooten-Maxwell Inc.	Florida
First Capital Enterprises, LP	California
First Capital Group, LP	California
First Realty, Ltd.	Iowa
First Reserve Insurance, Inc.	Florida
FMLC Mortgage, LLC	Delaware
HMSV Financial Services, Inc.	Delaware
HMSV-USB Lending, LLC	Delaware
Home Real Estate, Inc.	Nebraska
Home Services Referral Network, LLC	Indiana
HomeServices Financial, LLC	Delaware
HomeServices Financial Holdings, Inc.	Delaware
HomeServices Financial-Iowa, LLC	Delaware
HomeServices Lending, LLC	Delaware
HomeServices Insurance, Inc.	Nebraska
HomeServices of California, Inc.	Delaware
HomeServices of Florida, Inc.	Florida
HomeServices of Kentucky, Inc.	Delaware
HomeServices of Nebraska, Inc.	Delaware
HomeServices of the Carolinas, Inc.	Delaware
HomeServices Relocation, LLC	Delaware
IMO Co., Inc.	Missouri
Iowa Realty Co., Inc.	Iowa
Iowa Realty Insurance Agency, Inc.	Iowa
Iowa Title Company	Iowa

Iowa Title Linn County LLC	Iowa
Iowa Title Linn County II, LLC	Iowa
J.D. Reece Mortgage Company	Kansas
Jenny Pruitt & Associates, Inc.	Georgia
Jenny Pruitt Insurance Services, LLC	Georgia
JRHBW Realty, Inc.	Alabama
J. S. White & Associates, Inc.	Alabama
Kansas City Title, Inc.	Missouri
Kentucky Residential Referral Service, LLC	Kentucky
Larabee School of Real Estate and Insurance, Inc.	Nebraska
Lincoln Title Company, LLC	Nebraska
Long Title Agency, LLC	Arizona
Meridian Title Services, LLC	Georgia
Midland Escrow Services, Inc.	Iowa
MortgageSouth, LLC	Alabama
Nebraska Land Title and Abstract Company	Nebraska
Pickford Escrow Company	California
Pickford Golden State Member, LLC	California
Pickford Holdings, LLC	California
Pickford North County, LP	California
Pickford Real Estate, Inc.	California
Pickford Realty Ltd.	California
Pickford Services Company	California
Piedmont Financial Capital Corporation	North Carolina
Piedmont Relocation Management Center, Inc.	North Carolina
Plaza Financial Services, LLC	Kansas
Preferred Carolinas Realty, Inc.	North Carolina
Preferred Carolinas Title Agency, L.L.C.	North Carolina
Professional Home Mortgage Lenders, LLC	North Carolina
Professional Referral Organization, Inc.	Maryland
Property I.D. Golden State, LLC	California
Real Estate Links, LLC	Illinois
Reece & Nichols Alliance, Inc.	Kansas
Reece & Nichols Realtors Inc.	Kansas
Referral Company of North Carolina, Inc.	North Carolina
RHL Referral Company, LLC	Arizona
Roy H. Long Realty Co., Inc.	Arizona
San Diego PCRE, Inc.	California
Semonin Realtors, Inc.	Delaware
Seward Title, LLC	Nebraska
Shelter Mortgage Company, L.L.C.	Delaware
Southwest Relocation, LLC	Arizona
The Escrow Firm, Inc.	California
The Piedmont Triad Mortgage Group, LLC	North Carolina
The Referral Company	Iowa
TITLE INFO NOW, LLC	Minnesota
TitleSouth, LLC	Alabama
Trinity Mortgage Affiliates	Georgia
Trinity Mortgage Partners, Inc.	Georgia
United Settlement Services, LC	Iowa
Woods Bros. Realty, Inc.	Nebraska
CE Generation, LLC	Delaware

CalEnergy Operating Corporation	Delaware
California Energy Development Corporation	Delaware
California Energy Yuma Corporation	Utah
CE Salton Sea Inc.	Delaware
CE Texas Energy LLC	Delaware
CE Texas Fuel, LLC	Delaware
CE Texas Gas LP	Delaware
CE Texas Pipeline, LLC	Delaware
CE Texas Power, LLC	Delaware
CE Texas Resources, LLC	Delaware
CE Turbo LLC	Delaware
Conejo Energy Company	California
Del Ranch, L. P.	California
Desert Valley Company	California
Elmore, L.P.	California
Falcon Power Operating Company	Texas
Falcon Seaboard Oil Company	Texas
Falcon Seaboard Pipeline Corporation	Texas
Falcon Seaboard Power Corporation	Texas
Fish Lake Power LLC	Delaware
FSRI Holdings, Inc	Texas
Imperial Magma LLC	Delaware
Leathers, L.P.	California
Magma Land Company I	Nevada
Magma Power Company	Nevada
Niguel Energy Company	California
North Country Gas Pipeline Corporation	New York
Power Resources, Ltd.	Texas
Salton Sea Brine Processing L. P.	California
Salton Sea Funding Corporation	Delaware
Salton Sea Power Company	Nevada
Salton Sea Power Generation L. P.	California
Salton Sea Power LLC	Delaware
Salton Sea Royalty LLC	Delaware
San Felipe Energy Company	California
Saranac Energy Company, Inc.	Delaware
Saranac Power Partners, LP	Delaware
SECI Holdings, Inc.	Delaware
VPC Geothermal LLC	Delaware
Vulcan Power Company	Nevada
Vulcan/BN Geothermal Power Company	Nevada
Yuma Cogeneration Associates	Arizona
American Pacific Finance Company	Delaware
CalEnergy Capital Trust II	Delaware
CalEnergy Capital Trust III	Delaware
CalEnergy Company Inc.	Delaware
CalEnergy Generation Operating Company	Delaware
CalEnergy Holdings, Inc.	Delaware
CalEnergy International Ltd.	Bermuda
CalEnergy International Services, Inc.	Delaware
CalEnergy Investments C.V.	Netherlands
CalEnergy Minerals Development LLC	Delaware
CalEnergy Minerals, LLC	Delaware
CalEnergy Pacific Holdings Corp.	Delaware

CalEnergy U.K. Inc.	Delaware
CE Casecnan Ltd.	Bermuda
CE Casecnan II, Inc.	Philippines
CE Casecnan Water and Energy Company, Inc.	Philippines
CE Cebu Geothermal Power Company, Inc.	Philippines
CE Electric (NY), Inc.	New York
CE Electric, Inc.	Delaware
CE Exploration Company	Delaware
CE Geothermal LLC	Delaware
CE Geothermal, Inc.	Delaware
CE Insurance Services Limited	Isle of Man
CE International Investments, Inc.	Delaware
CE Luzon Geothermal Power Company, Inc.	Philippines
CE Mahanagdong II, Inc.	Philippines
CE Mahanagdong Ltd.	Bermuda
CE Obsidian Energy LLC	Delaware
CE Obsidian Holdings, LLC	Delaware
CE Philippines II, Inc.	Philippines
CE Philippines Ltd.	Bermuda
CE Power LLC	Delaware
CE Power, Inc.	Delaware
CE Resource LLC	Delaware
Cordova Energy Company, LLC	Delaware
Cordova Funding Corporation	Delaware
Intermountain Geothermal Company	Delaware
Kern River Funding Corporation	Delaware
Kern River Gas Transmission Company	Texas
KR Acquisition 1, LLC	Delaware
KR Acquisition 2, LLC	Delaware
KR Holding, LLC	Delaware
Magma Netherlands B.V.	Netherlands
MEHC Investment, Inc.	South Dakota
MidAmerican Capital Trust I	Delaware
MidAmerican Capital Trust II	Delaware
MidAmerican Capital Trust III	Delaware
MidAmerican Energy Machining Services, LLC	Delaware
NNGC Acquisition, LLC	Delaware
Northern Natural Gas Company	Delaware
Quad Cities Energy Company	Iowa
Salton Sea Minerals Corp.	Delaware
Tongonan Power Investment, Inc.	Philippines
Visayas Geothermal Power Company	Philippines

EXHIBIT 24.1

POWER OF ATTORNEY

The undersigned, a member of the Board of Directors or an officer of MIDAMERICAN ENERGY HOLDINGS COMPANY, an Iowa corporation (the "Company"), hereby constitutes and appoints Douglas L. Anderson and James D. Stallmeyer and each of them, as his/her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for and in his/her stead, in any and all capacities, to sign on his/her behalf the Company's Form 10-K Annual Report for the fiscal year ending December 31, 2004 and to execute any amendments thereto and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission and applicable stock exchanges, with the full power and authority to do and perform each and every act and thing necessary or advisable to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Executed as of February 28, 2005

/s/ David L. Sokol		/s/ Gregory E. Abel
DAVID L. SOKOL		GREGORY E. ABEL

/s/ Patrick J. Goodman		/s/ Stanley J. Bright
PATRICK J. GOODMAN		STANLEY J. BRIGHT

/s/ Edgar D. Aronson		/s/ Walter Scott, Jr.
EDGAR D. ARONSON		WALTER SCOTT, JR.

/s/ Richard R. Jaros		/s/ Warren E. Buffett
RICHARD R. JAROS		WARREN E. BUFFETT

/s/ Marc D. Hamburg		/s/ W. David Scott
MARC D. HAMBURG		W. DAVID SCOTT

/s/ John K. Bower
JOHN K. BOYER

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, David L. Sokol , certify that:

1.	I have reviewed this annual report on Form 10-K of MidAmerican Energy Holdings Company ;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2005

/s/ David L. Sokol

David L. Sokol

Chairman and C hief Executive Officer

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE

SARBANES-OXLEY ACT OF 2002

I, Patrick J. Goodman , certify that:

1.	I have reviewed this annual report on Form 10-K of MidAmerican Energy Holdings Company ;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 28, 2005

/s/ Patrick J. Goodman

Patrick J. Goodman

Senior Vice President and Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, David L. Sokol, Chairman and Chief Executive Officer of MidAmerican Energy Holdings Company (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

(1)	the Annual Report on Form 10-K of the Company for the annual period ended December 31, 2004 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: February 28, 2005

/s/ David L. Sokol

David L. Sokol

Chairman and Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Patrick J. Goodman, Senior Vice President and Chief Financial Officer of MidAmerican Energy Holdings Company (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

(1)	the Annual Report on Form 10-K of the Company for the annual period ended December 31, 2004 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: February 28, 2005

/s/ Patrick J. Goodman

Patrick J. Goodman

Senior Vice President and Chief Financial