MIDAMERICAN ENERGY CO (Form: 10-K, Received: 03/03/2006 17:06:31)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2005

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

For the transition period from to

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

333-90553	MIDAMERICAN FUNDING, LLC	47-0819200
	(An Iowa Limited Liability Company)
	666 Grand Ave. PO Box 657
	Des Moines, Iowa 50303
	515-242-4300

333-15387	MIDAMERICAN ENERGY COMPANY	42-1425214
	(An Iowa Corporation)
	666 Grand Ave. PO Box 657
	Des Moines, Iowa 50303
	515-242-4300

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

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

		Preferred Stock, $3.30 Series, no par value
		Preferred Stock, $3.75 Series, no par value
		Preferred Stock, $3.90 Series, no par value
		Preferred Stock, $4.20 Series, no par value
		Preferred Stock, $4.35 Series, no par value
		Preferred Stock, $4.40 Series, no par value
		Preferred Stock, $4.80 Series, no par value

		(Title of each Class)

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

Yes ¨ No T

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

MidAmerican Funding, LLC

Yes T No ¨

MidAmerican Energy Company

Yes ¨ No T

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.

MidAmerican Funding, LLC

Yes ¨ No T

MidAmerican Energy Company

Yes T 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 registrants’ knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. T

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

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer T

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

Yes ¨ No T

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

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

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

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

TABLE OF CONTENTS

PART I

Item 1.	Business	4
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	21
Item 3.	Legal Proceedings	21
Item 4.	Submission of Matters to a Vote of Security Holders	22

PART II

Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
	of Equity Securities	23
Item 6.	Selected Financial Data	23
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 8.	Financial Statements and Supplementary Data	45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	100
Item 9A.	Controls and Procedures	100
Item 9B.	Other Information	100

PART III

Item 10.	Directors and Executive Officers of the Registrant	101
Item 11.	Executive Compensation	103
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	103
Item 13.	Certain Relationships and Related Transactions	103
Item 14.	Principal Accountant Fees and Services	104

PART IV

Item 15.	Exhibits and Financial Statement Schedules	105
Signatures		108
Exhibit Index		110

PART I

Item 1.

Business

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

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

FORWARD-LOOKING STATEMENTS

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

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

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

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

·	weather effects on sales and revenues;

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

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

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

·	fuel, fuel transportation and power costs and availability;

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

·	availability, term and deployment of capital;

·	availability of qualified personnel;

·	unscheduled generation outages or repairs;

·	risks relating to nuclear generation;

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

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

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

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

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

MIDAMERICAN FUNDING AND MHC

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

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

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

MIDAMERICAN ENERGY

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

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

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

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

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

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

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

	Gross Operating Revenues
	By Business Activity
	2005			2004			2003

Regulated electric		47.9	%		52.7	%		53.9	%
Regulated gas		41.8			37.5			36.5
Nonregulated		10.3			9.8			9.6
		100.0	%		100.0	%		100.0	%

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

REGULATED ELECTRIC OPERATIONS

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

	Total Regulated Electric Sales
	By Customer Class
	2005			2004			2003

Residential		21.3	%		19.6	%		19.4	%
Small general service ⁽¹⁾		15.0			14.5			14.0
Large general service ⁽²⁾		27.9			26.7			25.4
Wholesale ⁽³⁾		30.5			34.2			36.4
Other		5.3			5.0			4.8
		100.0	%		100.0	%		100.0	%

(1)	Small general service generally includes commercial and industrial customers with a demand of 200 kilowatts or less.

(2)	Large general service generally includes commercial and industrial customers with a demand of more than 200 kilowatts.

(3)	Wholesale generally includes other utilities, marketers and municipalities to whom electric energy is sold at wholesale for resale to ultimate customers.

	Regulated Retail Electric Sales By State
	2005			2004			2003

Iowa		89.0	%		88.7	%		88.8	%
Illinois		10.1			10.3			10.4
South Dakota		0.9			1.0			0.8
		100.0	%		100.0	%		100.0	%

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

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

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

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

	Company's
	Share of
	Accredited
	Generating			Percent		Energy	Year In
Plant	Capability (MW)			Ownership		Source	Service
Steam electric generating plants:
Council Bluffs Energy Center
Unit No. 1		45		100.0	%	Coal	1954
Unit No. 2		88		100.0		Coal	1958
Unit No. 3		546		79.1		Coal	1978
Neal Energy Center
Unit No. 1		135		100.0		Coal	1964
Unit No. 2		300		100.0		Coal	1972
Unit No. 3		371		72.0		Coal	1975
Unit No. 4		261		40.6		Coal	1979
Louisa Generating Station		616		88.0		Coal	1983
Ottumwa Generating Station		350		52.0		Coal	1981
Riverside Generating Station
Unit No. 3		5		100.0		Coal	1925
Unit No. 5		130		100.0		Coal	1961
		2,847
Combined cycle:
Greater Des Moines - 3 units		491		100.0		Gas	2003-04

Combustion turbines:
Coralville - 4 units		64		100.0		Gas/Oil	1970
Electrifarm - 3 units		200		100.0		Gas/Oil	1975-78
Moline - 4 units		64		100.0		Gas/Oil	1970
Parr - 2 units		32		100.0		Gas/Oil	1969
Pleasant Hill - 3 units		163		100.0		Gas/Oil	1990-94
River Hills - 8 units		120		100.0		Gas/Oil	1966-67
Sycamore - 2 units		149		100.0		Gas/Oil	1974
		792
Nuclear: Quad Cities Station
Unit No. 1		218		25.0		Nuclear	1972
Unit No. 2		219		25.0		Nuclear	1972
		437

Wind: Intrepid		33		100.0		Wind	2004-05

Hydro: Moline - 4 units		3		100.0		Water	1970

Portable power modules - 28 units		56		100.0		Oil	2000

Accredited generating capacity		4,659

Participation purchases and (sales), net
Purchases		694
Sales		(255	)
		439
Accredited net generating capability		5,098

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

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

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

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

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

Energy Supply for Electric Operations

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

	2005			2004			2003

MidAmerican Energy-owned generation		78.9	%		76.5	%		77.9	%
Energy purchased under long-term contracts		7.9			12.6			11.5
Energy purchased - other		13.2			10.9			10.6
		100.0	%		100.0	%		100.0	%

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

	2005			2004			2003

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

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

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

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

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

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

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

REGULATED NATURAL GAS OPERATIONS

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

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

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

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

	Total Regulated Gas Sales
	By Customer Class
	2005			2004			2003

Residential		37.5	%		40.0	%		44.1	%
Small general service ⁽¹⁾		18.2			19.6			21.0
Large general service ⁽¹⁾		4.1			2.2			1.9
Wholesale ⁽²⁾		40.2			38.0			32.7
Other		-			0.2			0.3
		100.0	%		100.0	%		100.0	%

(1)	Small and large general service customers are classified primarily based on the nature of their business and gas usage. Small general service customers are business customers whose gas usage is principally for heating. Large general service customers are business customers whose principal gas usage is for their manufacturing processes.

(2)	Wholesale generally includes other utilities, marketers and municipalities to whom natural gas is sold at wholesale for eventual resale to end-use customers.

	Regulated Retail Gas Sales By State
	2005			2004			2003

Iowa		77.4	%		77.7	%		77.9	%
South Dakota		11.7			11.5			11.3
Illinois		10.0			9.9			10.0
Nebraska		0.9			0.9			0.8
		100.0	%		100.0	%		100.0	%

Fuel Supply and Capacity

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

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

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

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

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

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

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

	Thousands		Percent
	of		of
	Dths		Total

Leased storage and peak shaving plants		211.1		28.4	%
Firm supply		533.0		71.6
		744.1		100.0	%

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

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

NONREGULATED OPERATIONS

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

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

	2005		2004		2003

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

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

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

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

REGULATION

General Utility Regulation

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

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

Rate Regulation

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

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

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

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

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

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

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

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

Nuclear Regulation

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

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

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

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

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

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

Environmental Regulations

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

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

Air Quality -

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

Clean Water Act -

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

INTERCOAST CAPITAL

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

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

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

MIDWEST CAPITAL

Midwest Capital is a wholly owned nonregulated subsidiary of MHC with total assets of $7.7 million as of December 31, 2005. Midwest Capital's primary activity is the management of utility service area investments to support economic development. Midwest Capital's principal interest is a 1,920-acre planned residential and commercial development in southeastern South Dakota. The major construction phase of the planned community is complete, and the marketing phase to sell developed residential and commercial lots is in progress. As of December 31, 2005, 50.4% of the development available for sale had been sold.

Item 1A.

Risk Factors

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Item 1B.

Unresolved Staff Comments

Not applicable.

Item 2 .

Properties

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

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

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

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

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

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

Item 3.

Legal Proceedings

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

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

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

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

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

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

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

Item 4.

Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5.

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

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

Item 6.

Selected Financial Data

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

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

SELECTED FINANCIAL DATA

(In thousands)

	Years Ended December 31,
	2005		2004		2003		2002		2001

Statement of Operations Data:
Revenues	$	3,160,337	$	2,696,353	$	2,595,812	$	2,236,159	$	2,367,249
Operating income		381,124		356,396		370,820		354,997		333,574
Net income		221,297		210,455		188,597		175,821		152,778
Earnings on common stock		220,050		209,210		187,181		172,888		148,234

	As of December 31,
		2005		2004		2003		2002		2001
Balance Sheet Data:
Total assets	$	5,864,137	$	5,111,951	$	4,404,434	$	4,209,642	$	3,953,060
Long-term debt (a)		1,631,760		1,422,527		1,128,647		1,053,418		820,594
Power purchase obligation (b)		-		-		-		-		25,867
Short-term borrowings		-		-		48,000		55,000		89,350
Preferred securities not subject
to mandatory redemption		30,329		30,329		31,759		31,759		31,759
Preferred securities subject to
mandatory redemption		-		-		-		-		126,680
Common shareholder’s equity		1,744,882		1,527,468		1,318,519		1,319,139		1,226,292

(a)	Includes amounts due within one year.

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

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

SELECTED FINANCIAL DATA

(In thousands)

	Years Ended December 31,
	2005		2004		2003		2002		2001

Statement of Operations Data:
Revenues	$	3,166,084	$	2,701,700	$	2,600,239	$	2,240,879	$	2,388,650
Operating income		381,083		355,947		367,868		349,988		300,085
Net income (a)		195,069		179,257		157,176		136,716		103,087

	As of December 31,
		2005		2004		2003		2002		2001

Balance Sheet Data:
Total assets	$	7,157,416	$	6,427,244	$	5,737,614	$	5,551,747	$	5,550,640
Long-term debt (b)		2,331,760		2,122,527		1,828,647		1,753,418		1,544,969
Power purchase obligation (c)		-		-		-		-		25,867
Short-term borrowings		-		-		48,000		55,000		91,780
Preferred securities not subject
to mandatory redemption		30,329		30,329		31,759		31,759		31,759
Preferred securities subject to
mandatory redemption		-		-		-		-		126,680
Member’s equity		2,234,837		2,042,403		1,863,769		1,879,191		1,981,840

(a)	In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” beginning January 1, 2002, MidAmerican Funding’s goodwill is no longer amortized. Amortization of goodwill reduced MidAmerican Fundings’ Net Income by $34.4 million in 2001. In 2002, MidAmerican Funding recorded after-tax losses of $14.3 million for write-downs of impaired assets and investments, including an $8.2 million after-tax write-down of airplane leases. In 2005, MidAmerican Funding recorded after-tax losses totaling $7.0 million for write-downs of impaired airplane leases and $8.4 million of after-tax gains on the sales of assets and investments.

(b)	Includes amounts due within one year.

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

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

INDEX


General	26

Executive Summary	26

Results of Operations for the Years Ended December 31, 2005 and 2004	27

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

Liquidity and Capital Resources	36

Credit Ratings Risks	38

Utility Regulatory Matters	39

Environmental Matters	41

Generating Capability	41

Critical Accounting Policies and Estimates	42

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

General

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

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

Executive Summary

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

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

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

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

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

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

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

Results of Operations for the Years Ended December 31, 2005 and 2004

Earnings Overview

MidAmerican Energy -

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

MidAmerican Funding -

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

Regulated Electric Gross Margin

		2005		2004
Gross margin (in millions):
Operating revenues	$	1,513.2	$	1,421.7
Less cost of fuel, energy and capacity		468.1		398.6
Electric gross margin	$	1,045.1	$	1,023.1

Sales (GWh):
Residential		5,831		5,321
Small general service		4,111		3,944
Large general service		7,649		7,243
Wholesale		8,378		9,260
Other		1,453		1,357
Total		27,422		27,125

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

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

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

Regulated Gas Gross Margin

		2005		2004
Gross margin (in millions):
Operating revenues	$	1,322.7	$	1,010.9
Less cost of gas sold		1,098.4		790.0
Gas gross margin	$	224.3	$	220.9

Sales (000’s Dths):
Residential		48,229		49,170
Small general service		23,381		24,146
Large general service		5,279		2,680
Wholesale		51,655		46,630
Other		53		246
Total		128,597		122,872

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

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

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

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

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

Regulated Operating Expenses

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

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

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

Nonregulated Gross Margin

	2005		2004
	(In millions)
MidAmerican Energy -
Nonregulated operating revenues	$	324.4	$	263.7
Less nonregulated cost of sales		290.9		230.6
Nonregulated gross margin	$	33.5	$	33.1


MidAmerican Funding Consolidated -
Nonregulated operating revenues	$	330.1	$	269.1
Less nonregulated cost of sales		292.5		232.0
Nonregulated gross margin	$	37.6	$	37.1

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

	2005		2004

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

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

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

Allowance for Equity Funds

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

Other Income and Expense

MidAmerican Funding -

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

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

Fixed Charges

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

Income Taxes

MidAmerican Energy -

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

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

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

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

MidAmerican Funding -

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

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

Earnings Overview

MidAmerican Energy -

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

MidAmerican Funding -

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

Regulated Electric Gross Margin

		2004		2003
Gross margin (in millions):
Operating revenues	$	1,421.7	$	1,398.0
Less cost of fuel, energy and capacity		398.6		396.3
Electric gross margin	$	1,023.1	$	1,001.7

Sales (GWh):
Residential		5,321		5,303
Small general service		3,944		3,845
Large general service		7,243		6,951
Wholesale		9,260		9,963
Other		1,357		1,323
Total		27,125		27,385

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

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

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

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

Regulated Gas Gross Margin

		2004		2003
Gross margin (in millions):
Operating revenues	$	1,010.9	$	947.4
Less cost of gas sold		790.0		720.6
Gas gross margin	$	220.9	$	226.8

Sales (000’s Dths):
Residential		49,170		53,120
Small general service		24,146		25,296
Large general service		2,680		2,324
Wholesale		46,630		39,329
Other		246		285
Total		122,872		120,354

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

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

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

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

Regulated Operating Expenses

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

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

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

Nonregulated Gross Margin

	2004		2003
	(In millions)
MidAmerican Energy -
Nonregulated operating revenues	$	263.7	$	250.4
Less nonregulated cost of sales		230.6		215.7
Nonregulated gross margin	$	33.1	$	34.7


MidAmerican Funding Consolidated -
Nonregulated operating revenues	$	269.1	$	254.8
Less nonregulated cost of sales		232.0		216.2
Nonregulated gross margin	$	37.1	$	38.6

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

	2004		2003

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

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

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

Allowance for Equity Funds

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

Other Income and Expense

MidAmerican Funding -

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

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

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

Fixed Charges and Preferred Dividends

MidAmerican Energy -

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

Income Taxes

MidAmerican Energy -

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

MidAmerican Funding -

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

Liquidity and Capital Resources

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

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

Utility Construction Expenditures

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

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

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

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

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

Nuclear Decommissioning

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

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

Contractual Obligations and Commercial Commitments

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

			Period Payments are Due

						2007-		2009-		After
Type of Obligation		Total		2006		2008		2010		2010
MidAmerican Energy:
Long-term debt, excluding unamortized debt
premium and discount, net	$	1,637.1	$	160.5	$	2.1	$	-	$	1,474.5
Operating leases (1)		28.9		6.9		10.5		4.1		7.4
Coal, electricity and natural gas contract
commitments (1)		742.3		181.1		248.6		118.3		194.3
Deferred costs on construction contract (2)		200.0		-		200.0		-		-
Interest payments on long-term debt (3)		1,507.1		81.5		152.7		152.7		1,120.2
		4,115.4		430.0		613.9		275.1		2,796.4

MidAmerican Funding parent:
Long-term debt		700.0		-		-		175.0		525.0
Interest payments on long-term debt		642.1		47.1		94.2		77.6		423.2
		1,342.1		47.1		94.2		252.6		948.2
Total	$	5,457.5	$	477.1	$	708.1	$	527.7	$	3,744.6

(1)	The operating leases and coal, energy and natural gas commitments are not reflected on the Consolidated Balance Sheets. Refer to Note (4)(d) in Notes to Consolidated Financial Statements in Item 8 for a discussion of the nature of these commitments.

(2)	MidAmerican Energy is allowed to defer up to $200.0 million in payments to the contractor under its contract to build CBEC Unit 4. Refer to Note (4)(f) in Notes to Consolidated Financial Statements in Item 8 for a discussion of this commitment. Approximately 39.3% of this commitment is expected to be funded by the joint owners of CBEC Unit 4.

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

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

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

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

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

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

Debt Redemption and Issuance

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

Debt Authorizations and Credit Facilities

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

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

Other Financing Information

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

Credit Ratings Risks

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

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

Utility Regulatory Matters

Rate Matters

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

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

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

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

Transmission Developments

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

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

Electric Trading Developments

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

The Energy Policy Act of 2005

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

Environmental Matters

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

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

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

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

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

Generating Capability

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

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

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

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

Critical Accounting Policies and Estimates

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

Accounting for Regulated Entities

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

Unbilled Revenue

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

Goodwill

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

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

Contingent Liabilities

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

Accrued Pension and Postretirement Expense

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

						Other Postretirement
	Pension Plans					Benefit Plans
	+1.0%			-1.0%		+1.0%			-1.0%
				(in thousands)
Effect on December 31, 2005, benefit obligations:
Discount rate	$	(62,128	)	$	75,213	$	(28,671	)	$	35,735

Effect on periodic benefit cost:
Discount rate		(4,059	)		1,900		(2,104	)		2,122
Expected return on assets		(5,580	)		5,579		(1,419	)		1,417

Income Taxes

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

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

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

Item 7A .

Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

MidAmerican Energy -

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

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

MidAmerican Funding -

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

Item 8 . Financial Statements and Supplementary Data

MidAmerican Energy Company and Subsidiary

Report of Independent Registered Public Accounting Firm	46

Consolidated Balance Sheets	47

Consolidated Statements of Operations	48

Consolidated Statements of Comprehensive Income	49

Consolidated Statements of Cash Flows	50

Consolidated Statements of Capitalization	51

Consolidated Statements of Retained Earnings	52

Notes to Consolidated Financial Statements	53

MidAmerican Funding, LLC and Subsidiaries

Report of Independent Registered Public Accounting Firm	79

Consolidated Balance Sheets	80

Consolidated Statements of Operations	81

Consolidated Statements of Comprehensive Income	82

Consolidated Statements of Cash Flows	83

Consolidated Statements of Capitalization	84

Consolidated Statements of Retained Earnings	85

Notes to Consolidated Financial Statements	86

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder

MidAmerican Energy Company

Des Moines, Iowa

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

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

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

/s/ Deloitte & Touche LLP

Des Moines, Iowa

March 3, 2006

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands)

	As of December 31,
	2005			2004
ASSETS
Utility Plant, Net
Electric	$	5,933,387		$	5,498,878
Gas		992,834			957,011
		6,926,221			6,455,889
Accumulated depreciation and amortization		(3,096,933	)		(2,956,856	)
		3,829,288			3,499,033
Construction work in progress		596,458			369,406
		4,425,746			3,868,439

Current Assets
Cash and cash equivalents		70,914			88,113
Short-term investments		25,425			39,500
Receivables, less reserves of $10,872 and $8,678, respectively		463,630			332,759
Inventories		84,623			89,646
Other		61,221			22,080
		705,813			572,098

Investments and Nonregulated Property, Net		359,690			333,360
Regulatory Assets		237,201			227,997
Other Assets		135,687			110,057
Total Assets	$	5,864,137		$	5,111,951

CAPITALIZATION AND LIABILITIES

Capitalization
Common shareholder’s equity	$	1,744,882		$	1,527,468
MidAmerican Energy preferred securities		30,329			30,329
Long-term debt, excluding current portion		1,471,251			1,331,509
		3,246,462			2,889,306
Current Liabilities
Current portion of long-term debt		160,509			91,018
Accounts payable		359,496			241,836
Taxes accrued		84,122			91,108
Interest accrued		14,488			13,842
Other		94,501			83,949
		713,116			521,753
Other Liabilities
Deferred income taxes		471,892			456,581
Investment tax credits		43,962			48,143
Asset retirement obligations		191,117			166,845
Regulatory liabilities		763,155			677,489
Other		434,433			351,834
		1,904,559			1,700,892
Total Capitalization and Liabilities	$	5,864,137		$	5,111,951

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

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

	Years Ended December 31,
		2005			2004			2003
Operating Revenues
Regulated electric	$	1,513,239		$	1,421,709		$	1,397,997
Regulated gas		1,322,717			1,010,909			947,393
Nonregulated		324,381			263,735			250,422
		3,160,337			2,696,353			2,595,812
Operating Expenses
Regulated:
Cost of fuel, energy and capacity		468,132			398,610			396,342
Cost of gas sold		1,098,410			789,975			720,633
Other operating expenses		389,297			380,815			364,043
Maintenance		150,740			164,821			139,377
Depreciation and amortization		267,628			264,952			279,650
Property and other taxes		95,064			92,637			91,582
		2,469,271			2,091,810			1,991,627
Nonregulated:
Cost of sales		290,890			230,567			215,664
Other		19,052			17,580			17,701
		309,942			248,147			233,365
Total operating expenses		2,779,213			2,339,957			2,224,992

Operating Income		381,124			356,396			370,820

Non-Operating Income
Interest and dividend income		6,016			4,401			4,956
Allowance for equity funds		24,433			18,949			11,377
Other income		7,128			6,340			7,344
Other expense		(4,198	)		(3,615	)		(3,205	)
		33,379			26,075			20,472
Fixed Charges
Interest on long-term debt		80,485			71,949			72,207
Other interest expense		8,409			5,728			3,813
Allowance for borrowed funds		(10,544	)		(7,816	)		(4,586	)
		78,350			69,861			71,434

Income Before Income Taxes		336,153			312,610			319,858
Income Taxes		114,856			102,155			131,261

Net Income		221,297			210,455			188,597
Preferred Dividends		1,247			1,245			1,416

Earnings on Common Stock	$	220,050		$	209,210		$	187,181

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

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Years Ended December 31,
	2005			2004			2003

Earnings on Common Stock	$	220,050		$	209,210		$	187,181

Other Comprehensive Income (Loss)
Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) during period-
Before income taxes		-			-			(7,372	)
Income tax (expense) benefit		-			-			3,065
		-			-			(4,307	)
Less realized gains (losses) reflected in net income during period-
Before income taxes		-			682			5,513
Income tax (expense) benefit		-			(283	)		(2,292	)
		-			399			3,221

Less net unrealized gains (losses) reclassified to regulatory assets
and liabilities -
Before income taxes		-			-			(12,369	)
Income tax benefit		-			-			5,142
		-			-			(7,227	)

Minimum pension liability adjustment:
Before income taxes		(4,512	)		-			-
Income tax benefit		1,876			-			-
		(2,636	)		-			-

Other comprehensive income (loss)		(2,636	)		(399	)		(301	)

Comprehensive Income	$	217,414		$	208,811		$	186,880

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

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years Ended December 31,
	2005			2004			2003

Net Cash Flows From Operating Activities
Net income	$	221,297		$	210,455		$	188,597
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization		268,943			266,207			280,803
Deferred income taxes and investment tax credit, net		(569	)		35,531			544
Amortization of other assets and liabilities		27,667			18,210			32,771
Impact of changes in working capital-
Receivables, net		(116,922	)		(28,697	)		20,678
Inventories		5,023			(4,181	)		3,027
Accounts payable		90,895			29,310			(47,765	)
Taxes accrued		(5,602	)		(1,748	)		(10,505	)
Other current assets and liabilities		(8,144	)		9,436			(2,089	)
Other, net		(19,422	)		(11,029	)		(24,802	)
Net cash provided by operating activities		463,166			523,494			441,259

Net Cash Flows From Investing Activities
Utility construction expenditures		(699,061	)		(631,962	)		(344,137	)
Quad Cities Station decommissioning trust fund		(8,299	)		(8,299	)		(8,299	)
Purchases of available-for-sale securities		(563,330	)		(748,801	)		(352,327	)
Proceeds from sales of available-for-sale securities		564,025			691,133			337,169
Other, net		17,635			18,004			26,428
Net cash used in investing activities		(689,030	)		(679,925	)		(341,166	)

Net Cash Flows From Financing Activities
Dividends paid		(1,247	)		(1,245	)		(188,916	)
Issuance of long-term debt, net of issuance cost		296,466			347,769			272,550
Retirement of long-term debt, including reacquisition cost		(90,850	)		(56,168	)		(202,076	)
Net decrease in notes payable		-			(48,000	)		(7,000	)
Other		4,296			(963	)		-
Net cash provided by (used in) financing activities		208,665			241,393			(125,442	)

Net Increase (Decrease) in Cash and Cash Equivalents		(17,199	)		84,962			(25,349	)
Cash and Cash Equivalents at Beginning of Year		88,113			3,151			28,500
Cash and Cash Equivalents at End of Year	$	70,914		$	88,113		$	3,151

Supplemental Disclosure:
Interest paid, net of amounts capitalized	$	66,441		$	56,985		$	63,171
Income taxes paid	$	125,531		$	68,348		$	142,660

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

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CAPITALIZATION

(In thousands, except share amounts)

	As of December 31,
	2005					2004

Common Shareholder’s Equity
Common shares, no par; 350,000,000 shares authorized;
70,980,203 shares outstanding	$	561,162				$	561,162
Retained earnings		1,186,356					966,306
Accumulated other comprehensive income:
Minimum pension liability adjustment		(2,636	)				-
		1,744,882		53.8	%		1,527,468		52.9	%
Preferred Securities (100,000,000 shares authorized)
Cumulative shares outstanding; not subject to mandatory
redemption:
$3.30 Series, 49,451 shares		4,945					4,945
$3.75 Series, 38,305 shares		3,831					3,831
$3.90 Series, 32,630 shares		3,263					3,263
$4.20 Series, 47,362 shares		4,736					4,736
$4.35 Series, 49,945 shares		4,994					4,994
$4.40 Series, 35,697 shares		3,570					3,570
$4.80 Series, 49,898 shares		4,990					4,990
		30,329		0.9	%		30,329		1.0	%
Long-Term Debt, Excluding Current Portion
Pollution control revenue obligations:
6.1% Series due 2007		1,000					1,000
5.95% Series, due 2023 (secured by general mortgage
bonds)		29,030					29,030
Variable rate series -
Due 2016 and 2017, 3.59% and 2.05%, respectively		37,600					37,600
Due 2023 (secured by general mortgage bonds),
3.59% and 2.05%, respectively		28,295					28,295
Due 2023, 3.59% and 2.05%, respectively		6,850					6,850
Due 2024, 3.59% and 2.05%, respectively		34,900					34,900
Due 2025, 3.59% and 2.05%, respectively		12,750					12,750
Notes:
6.375% Series, due 2006		-					160,000
5.125% Series, due 2013		275,000					275,000
4.65% Series, due 2014		350,000					350,000
6.75% Series, due 2031		400,000					400,000
5.75% Series, due 2035		300,000					-
Obligation under capital lease		1,184					1,524
Unamortized debt premium and discount, net		(5,358	)				(5,440	)
		1,471,251		45.3	%		1,331,509		46.1	%
Total Capitalization	$	3,246,462		100.0	%	$	2,889,306		100.0	%

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

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

(In thousands)

	Years Ended December 31,
	2005		2004		2003

Beginning of Year	$	966,306	$	757,096	$	757,415

Net Income		221,297		210,455		188,597

Deduct:
Dividends declared on preferred shares		1,247		1,245		1,416
Dividends declared on common shares		-		-		187,500
		1,247		1,245		188,916

End of Year	$	1,186,356	$	966,306	$	757,096

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

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX

(1)	Summary of Significant Accounting Policies	54

(2)	Jointly Owned Utility Plant	58

(3)	Inventories	58

(4)	Commitments and Contingencies	58

(5)	Rate Matters	62

(6)	Long-Term Debt	63

(7)	Short-Term Borrowing	64

(8)	Preferred Securities	64

(9)	Retirement Plans	64

(10)	Segment Information	68

(11)	Income Taxes	71

(12)	Risk Management	72

(13)	Concentration of Credit Risk	73

(14)	Asset Retirement Obligations	74

(15)	Fair Value of Financial Instruments	75

(16)	Non-Operating Other Income and Expense	76

(17)	Affiliated Company Transactions	77

(18)	Unaudited Quarterly Operating Results	78

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Summary of Significant Accounting Policies

(a)

Company Organization

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

(b)

Principles of Consolidation and Preparation of Financial Statements

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

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

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

(c)

Accounting for the Effects of Certain Types of Regulation

MidAmerican Energy's utility operations are subject to the regulation of the Iowa Utilities Board (“IUB”); the Illinois Commerce Commission (“ICC”); the South Dakota Public Utilities Commission, and the Federal Energy Regulatory Commission (“FERC”). MidAmerican Energy's accounting policies and the accompanying consolidated financial statements conform to generally accepted accounting principles applicable to rate-regulated enterprises and reflect the effects of the ratemaking process.

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

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

	As of December 31,
	Average
	Remaining Life		2005		2004
			(In thousands)
Regulatory assets:
Deferred income taxes, net		27 years	$	145,967	$	131,770
Unrealized loss on regulated hedges		1 year		45,431		36,794
Minimum pension liability adjustment		17 years		11,694		18,203
Debt refinancing costs		8 years		11,998		15,365
Environmental costs		1 year		4,907		9,284
Asset retirement obligations		8 years		9,208		8,273
Nuclear generation assets		14 years		6,487		6,727
Other		Various		1,509		1,581
Total			$	237,201	$	227,997

Regulatory liabilities:
Cost of removal accrual		27 years	$	448,493	$	428,719
Iowa electric settlement accrual		2 years		213,135		181,188
Asset retirement obligations		32 years		65,966		53,259
Unrealized gain on regulated hedges		1 year		29,648		7,462
Environmental insurance recovery		1 year		3,494		3,599
Nuclear insurance reserve		48 years		2,419		3,262
Total			$	763,155	$	677,489

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

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

(d)

Revenue Recognition

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

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

(e)

Depreciation and Amortization

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

	2005	2004	2003

Electric	3.8%	4.0%	4.3%
Gas	3.4%	3.4%	3.5%

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

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

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

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

(f)

Investments and Nonregulated Property, Net

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

	2005		2004

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

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

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

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

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

(g)

Consolidated Statements of Cash Flows

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

(h)

Short-term Investments

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

(i)

Accounting for Derivatives

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

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

(j)

Income Taxes

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

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

(k)

Allowance for Funds Used During Construction

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

(2)

Jointly Owned Utility Plant

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

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

	Nuclear			Coal-fired
							Council
	Quad Cities			Neal			Bluffs			Neal			Ottumwa			Louisa
	Units			Unit			Unit			Unit			Unit			Unit
	No. 1 & 2			No. 3			No. 3			No. 4			No. 1			No. 1
	(dollars in millions)

In service date		1972			1975			1978			1979			1981			1983
Percent ownership		25.0	%		72.0	%		79.1	%		40.6	%		52.0	%		88.0	%
Utility plant in service	$	282		$	143		$	307		$	181		$	226		$	575
Accumulated depreciation	$	142		$	94		$	208		$	117		$	136		$	322
Accredited capacity at MidAmerican
Energy 2005 peak (megawatts)		437			371			546			261			350			616

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

(3)

Inventories

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

	2005		2004

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

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

(4) Commitments and Contingencies

(a)	Air Quality

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

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

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

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

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

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

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

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

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

(b)

Nuclear Decommissioning Costs

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

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

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

(c)

Nuclear Insurance

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

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

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

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

(d)

Purchase Commitments

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

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

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

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

(e)

Guarantees

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

(f)

Deferred Construction Costs

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

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

(g)

Other Commitments and Contingencies

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

(5)

Rate Matters

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

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

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

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

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

	2005			2004

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

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

(6)

Long-Term Debt

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

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

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

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

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

(7)

Short-Term Borrowing

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

	2005			2004

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

(8)

Preferred Securities

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

(9)

Retirement Plans

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

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

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

	Pension									Postretirement
		2005			2004			2003			2005			2004			2003

Components of net periodic benefit cost (in thousands):
Service cost	$	25,840		$	25,568		$	24,693		$	6,669		$	7,842		$	8,175
Interest cost		36,518			35,159			34,533			13,455			15,716			16,065
Expected return on plan assets		(38,188	)		(38,258	)		(38,396	)		(9,611	)		(8,437	)		(6,008	)
Amortization of net transition obligation		-			(792	)		(2,591	)		2,403			3,283			4,110
Amortization of prior service cost		2,766			2,758			2,761			-			296			593
Amortization of prior year (gain) loss		1,271			1,569			1,483			1,554			3,299			3,716
Regulatory expense		-			-			3,320			-			-			-
Net periodic benefit cost	$	28,207		$	26,004		$	25,803		$	14,470		$	21,999		$	26,651

Weighted-average assumptions used to
determine benefit obligations as of
December 31:
Discount rate		5.75	%		5.75	%		5.75	%		5.75	%		5.75	%		5.75	%
Rate of compensation increase		5.00	%		5.00	%		5.00	%	Not applicable

Weighted average assumptions used to
determine net benefit cost for the years
ended December 31:
Discount rate		5.75	%		5.75	%		5.75	%		5.75	%		5.75	%		5.75	%
Expected return on plan assets		7.00	%		7.00	%		7.00	%		7.00	%		7.00	%		7.00	%
Rate of compensation increase		5.00	%		5.00	%		5.00	%	Not applicable

	2005			2004

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

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

	Increase (Decrease) in Expense
	One Percentage-Point		One Percentage-Point
	Increase		Decrease

Effect on total service and interest cost	$	2,418	$	(1,891	)
Effect on postretirement benefit obligation	$	26,434	$	(21,350	)

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

	Pension Benefits						Postretirement Benefits
	2005			2004			2005			2004

Reconciliation of the fair value of plan assets:
Fair value of plan assets at beginning of year	$	591,628		$	551,568		$	179,375		$	157,849
Employer contributions		5,786			5,083			16,615			23,782
Participant contributions		-			-			9,096			7,733
Actual return on plan assets		46,966			63,151			5,958			9,698
Benefits paid		(31,551	)		(28,174	)		(20,144	)		(19,687	)
Fair value of plan assets at end of year		612,829			591,628			190,900			179,375

Reconciliation of benefit obligation:
Benefit obligation at beginning of year		657,406			620,048			256,044			297,433
Service cost		25,840			25,568			6,669			7,841
Interest cost		36,518			35,159			13,455			15,716
Participant contributions		-			-			9,096			7,733
Plan change		(3,184	)		-			(421	)		(19,219	)
Actuarial (gain) loss		(6,917	)		4,805			(15,141	)		(33,773	)
Benefits paid		(31,551	)		(28,174	)		(20,144	)		(19,687	)
Benefit obligation at end of year		678,112			657,406			249,558			256,044

Funded status		(65,283	)		(65,778	)		(58,658	)		(76,669	)
Amounts not recognized in the Consolidated
Balance Sheets:
Unrecognized net (gain) loss		(51,285	)		(34,319	)		29,725			42,768
Unrecognized prior service cost		9,207			15,157			-			-
Unrecognized net transition obligation (asset)		-			-			16,820			19,641
Net amount recognized in the Consolidated
Balance Sheets	$	(107,361	)	$	(84,940	)	$	(12,113	)	$	(14,260	)

Net amount recognized in the Consolidated
Balance Sheets consist of:
Accrued benefit liability	$	(135,506	)	$	(117,357	)	$	(83	)	$	(57	)
Intangible assets		11,939			14,653			-			-
Regulatory assets		11,694			17,764			-			-
Accumulated other comprehensive income		4,512			-			-			-
Liability of affiliate company		-			-			(12,030	)		(14,203	)
Net amount recognized	$	(107,361	)	$	(84,940	)	$	(12,113	)	$	(14,260	)

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

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

Plan Assets

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

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

	Percentage of Plan Assets
							Target
	2005			2004			Range

Equity securities		66	%		71	%		65-75	%
Debt securities		26			22			20-30
Real estate		6			6			0-10
Other		2			1			0-5
Total		100	%		100	%

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

	Percentage of Plan Assets
							Target
	2005			2004			Range

Equity securities		50	%		49	%		45-55	%
Debt securities		48			47			45-55
Real estate		-			-			-
Other		2			4			0-10
Total		100	%		100	%

Cash Flows

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

	Projected Benefit Payments
			Postretirement
	Pension		Gross		Medicare Subsidy		Net of Subsidy

2006	$	32,545	$	14,054	$	2,350	$	11,704
2007		34,771		15,336		2,533		12,803
2008		37,347		16,434		2,719		13,715
2009		41,125		17,419		2,888		14,531
2010		45,030		18,525		3,032		15,493
2011-15		275,118		107,131		17,728		89,403

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

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

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

(10)

Segment Information

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

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

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

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

		2005			2004			2003
Segment Profit Information
Operating revenues:
External revenues -
Generation	$	704,776		$	579,251		$	522,349
Energy delivery		2,110,390			1,839,289			1,812,547
Transmission		36,998			29,088			25,916
Unregulated retail services		308,173			248,725			235,000
Total		3,160,337			2,696,353			2,595,812

Intersegment revenues -
Generation		701,922			643,334			629,939
Energy delivery		(760,647	)		(702,418	)		(690,126	)
Transmission		58,725			59,084			57,946
Unregulated retail services		-			-			2,241
Total		-			-			-

Consolidated	$	3,160,337		$	2,696,353		$	2,595,812

Depreciation and amortization expense (a):
Generation	$	144,323		$	144,643		$	145,645
Energy delivery		113,317			111,172			121,296
Transmission		10,297			9,470			11,641
Unregulated retail services		1,006			922			2,221
Total	$	268,943		$	266,207		$	280,803

Interest and dividend income:
Generation	$	3,423		$	2,349		$	2,284
Energy delivery		2,269			1,844			2,307
Transmission		313			204			346
Unregulated retail services		11			4			19
Total	$	6,016		$	4,401		$	4,956

Fixed charges and preferred dividends:
Generation	$	39,331		$	33,575		$	30,364
Energy delivery		35,498			33,225			37,745
Transmission		4,712			4,252			4,416
Unregulated retail services		56			54			325
Total	$	79,597		$	71,106		$	72,850

		2005			2004			2003
Segment Profit Information (continued)
Earnings on common stock:
Generation	$	104,888		$	92,027		$	91,111
Energy delivery		74,453			79,798			65,437
Transmission		37,592			33,443			26,703
Unregulated retail services		3,117			3,942			3,930
Consolidated	$	220,050		$	209,210		$	187,181

Segment Asset Information
Capital expenditures:
Generation	$	520,788		$	540,873		$	215,952
Energy delivery		161,220			164,957			143,507
Transmission		84,192			34,095			16,759
Unregulated retail services		329			457			1,257
Total	$	766,529		$	740,382		$	377,475

Total assets:
Generation	$	2,701,964		$	2,229,909		$	1,639,541
Energy delivery		2,786,220			2,625,081			2,535,061
Transmission		356,077			277,771			242,435
Unregulated retail services		80,158			42,725			56,743
Total		5,924,419			5,175,486			4,473,780
Reclassifications and intersegment eliminations (b)		(60,282	)		(63,535	)		(69,346	)
Consolidated	$	5,864,137		$	5,111,951		$	4,404,434

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

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

(11)

Income Taxes

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

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

		2005			2004			2003
Current:
Federal	$	91,055		$	64,827		$	97,304
State		24,370			1,797			33,411
		115,425			66,624			130,715
Deferred:
Federal		7,144			46,848			9,996
State		(3,532	)		(6,950	)		(5,074	)
		3,612			39,898			4,922

Investment tax credit, net		(4,181	)		(4,367	)		(4,376	)
Total	$	114,856		$	102,155		$	131,261

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

	2005			2004			2003

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

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

		2005		2004
Deferred tax assets related to:
Revenue sharing	$	92,040	$	79,903
Pensions		49,200		39,817
Nuclear reserves and decommissioning		14,963		27,111
Accrued liabilities		920		979
Other		2,451		4,248
		159,574		152,058

Deferred tax liabilities related to:
Depreciable property		473,131		472,106
Regulatory asset for income taxes		145,967		131,770
Fuel cost recoveries		9,896		887
Reacquired debt		2,472		3,876
		631,466		608,639

Net deferred income tax liability	$	471,892	$	456,581

(12)

Risk Management

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

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

	Maturity
Contract Type		2006			2007-09			After 2009			Total
Non-trading:
Regulated electric assets	$	17,391		$	30		$	-		$	17,421
Regulated electric (liabilities)		(28,239	)		(5,963	)		-			(34,202	)
Regulated gas assets		14,394			-			-			14,394
Regulated gas (liabilities)		(13,396	)		-			-			(13,396	)
Regulated weather assets		895			-			-			895
Nonregulated electric assets		2,001			-			-			2,001
Nonregulated electric (liabilities)		(900	)		-			-			(900	)
Nonregulated gas assets		17,813			5,809			56			23,678
Nonregulated gas (liabilities)		(18,845	)		(5,077	)		(33	)		(23,955	)
Nonregulated weather assets		31			-			-			31
Total		(8,855	)		(5,201	)		23			(14,033	)

Trading:
Nonregulated electric assets		116			-			-			116
Nonregulated electric (liabilities)		(228	)		-			-			(228	)
Total		(112	)		-			-			(112	)

Total MidAmerican Energy assets	$	52,641		$	5,839		$	56		$	58,536
Total MidAmerican Energy (liabilities)	$	(61,608	)	$	(11,040	)	$	(33	)	$	(72,681	)

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

Commodity Price Risk

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

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

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

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

(13)

Concentration of Credit Risk

Regulated Utility Operations

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

Nonregulated Retail Operations

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

Wholesale Operations

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

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

					Credit
					Exposure,
	Credit		Collateral		Net of		% of
Exposure, Net of Collateral	Exposure		Held		Collateral		Credit

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

(14)

Asset Retirement Obligations

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

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

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

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

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

	2005		2004

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

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

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

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

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

(15)

Fair Value of Financial Instruments

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

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

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

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

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

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

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

	2005		2004

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

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

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

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

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

	Available-For-Sale
	Amortized		Fair
	Cost		Value

Within 1 year	$	3,148	$	3,160
1 through 5 years		38,096		37,529
5 through 10 years		21,962		21,996
Over 10 years		36,370		37,143

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

	Years Ended December 31,
	2005			2004			2003

Proceeds from sales	$	90,041		$	83,726		$	88,507
Gross realized gains		2,602			2,725			3,696
Gross realized losses		(2,174	)		(822	)		(607	)

(16)

Non-Operating Other Income and Expense

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

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

(17)

Affiliated Company Transactions

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

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

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

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

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

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

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

(18)

Unaudited Quarterly Operating Results

	2005
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
	(In thousands)
Operating revenues	$	855,136	$	618,470	$	721,657	$	965,074
Operating income		99,461		58,730		130,204		92,729
Net income		56,349		32,214		82,368		50,366
Earnings on common stock		56,037		31,903		82,056		50,054


	2004
		1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
	(In thousands)
Operating revenues	$	839,932	$	573,971	$	565,253	$	717,197
Operating income		111,449		59,362		115,259		70,326
Net income		64,887		28,571		66,158		50,839
Earnings on common stock		64,578		28,259		65,846		50,527

Quarterly data reflect seasonal variations common in the utility industry.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Managers and Member

MidAmerican Funding, LLC

Des Moines, Iowa

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

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

/s/ Deloitte & Touche LLP

Des Moines, Iowa

March 3, 2006

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

	As of December 31,
	2005			2004
ASSETS
Utility Plant, Net
Electric	$	5,933,387		$	5,498,878
Gas		992,834			957,011
		6,926,221			6,455,889
Accumulated depreciation and amortization		(3,096,933	)		(2,956,856	)
		3,829,288			3,499,033
Construction work in progress		596,458			369,406
		4,425,746			3,868,439

Current Assets
Cash and cash equivalents		71,207			88,367
Short-term investments		25,425			39,500
Receivables, less reserves of $10,942 and $8,748, respectively		469,128			337,333
Inventories		84,623			89,646
Other		61,577			22,585
		711,960			577,431

Investments and Nonregulated Property, Net		380,835			375,230
Goodwill		1,265,979			1,268,082
Regulatory Assets		237,201			227,997
Other Assets		135,695			110,065
Total Assets	$	7,157,416		$	6,427,244

CAPITALIZATION AND LIABILITIES
Capitalization
Member’s equity	$	2,234,837		$	2,042,403
MidAmerican Energy preferred securities		30,329			30,329
Long-term debt, excluding current portion		2,171,251			2,031,509
		4,436,417			4,104,241

Current Liabilities
Note payable to affiliate		54,283			31,500
Current portion of long-term debt		160,509			91,018
Accounts payable		360,225			242,966
Taxes accrued		105,029			92,500
Interest accrued		30,401			29,612
Other		94,712			84,032
		805,159			571,628

Other Liabilities
Deferred income taxes		468,550			468,215
Investment tax credits		43,962			48,143
Asset retirement obligations		191,117			166,845
Regulatory liabilities		763,155			677,489
Other		449,056			390,683
		1,915,840			1,751,375
Total Capitalization and Liabilities	$	7,157,416		$	6,427,244

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

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

	Years Ended December 31,
		2005			2004			2003
Operating Revenues
Regulated electric	$	1,513,239		$	1,421,709		$	1,397,997
Regulated gas		1,322,717			1,010,909			947,393
Nonregulated		330,128			269,082			254,849
		3,166,084			2,701,700			2,600,239
Operating Expenses
Regulated:
Cost of fuel, energy and capacity		468,132			398,610			396,342
Cost of gas sold		1,098,410			789,975			720,633
Other operating expenses		389,297			380,815			364,043
Maintenance		150,740			164,821			139,377
Depreciation and amortization		267,628			264,952			279,650
Property and other taxes		95,064			92,637			91,582
		2,469,271			2,091,810			1,991,627
Nonregulated:
Cost of sales		292,454			231,953			216,175
Other		23,276			21,990			24,569
		315,730			253,943			240,744
Total operating expenses		2,785,001			2,345,753			2,232,371

Operating Income		381,083			355,947			367,868

Non-Operating Income
Interest and dividend income		6,203			4,509			4,975
Allowance for equity funds		24,433			18,949			11,377
Other income		23,088			11,072			13,354
Other expense		(20,007	)		(5,267	)		(10,096	)
		33,717			29,263			19,610

Fixed Charges
Interest on long-term debt		127,581			119,004			119,333
Other interest expense		10,077			6,184			4,061
Preferred dividends of subsidiaries		1,247			1,245			1,416
Allowance for borrowed funds		(10,544	)		(7,816	)		(4,586	)
		128,361			118,617			120,224

Income Before Income Taxes		286,439			266,593			267,254
Income Taxes		91,370			87,336			110,078

Net Income	$	195,069		$	179,257		$	157,176

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

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Years Ended December 31,
	2005			2004			2003

Net Income	$	195,069		$	179,257		$	157,176

Other Comprehensive Income (Loss)
Unrealized gains (losses) on available-for-sale securities:
Unrealized holding gains (losses) during period-
Before income taxes		654			136			384
Income tax (expense) benefit		(229	)		(48	)		(135	)
		425			88			249
Less realized gains (losses) reflected in net income during period-
Before income taxes		653			480			71
Income tax benefit		(229	)		(168	)		(25	)
		424			312			46

Net unrealized gains (losses)		1			(224	)		203

Unrealized gains (losses) on cash flow hedges:
Unrealized gains (losses) during period-
Before income taxes		-			-			(7,372	)
Income tax (expense) benefit		-			-			3,065
		-			-			(4,307	)
Less realized gains (losses) reflected in net income during period-
Before income taxes		-			682			5,513
Income tax (expense) benefit		-			(283	)		(2,292	)
		-			399			3,221
Less net unrealized gains (losses) reclassified to regulatory assets
and liabilities -
Before income taxes		-			-			(12,369	)
Income tax benefit		-			-			5,142
		-			-			(7,227	)

Net unrealized gains (losses)		-			(399	)		(301	)

Minimum pension liability adjustment:
Before income taxes		(4,512	)		-			-
Income tax benefit		1,876			-			-
		(2,636	)		-			-

Other comprehensive income (loss)		(2,635	)		(623	)		(98	)

Comprehensive Income	$	192,434		$	178,634		$	157,078

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

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Years Ended December 31,
		2005			2004			2003
Net Cash Flows From Operating Activities
Net income	$	195,069		$	179,257		$	157,176
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization		269,142			266,409			281,001
Deferred income taxes and investment tax credit, net		(15,898	)		30,434			67
Amortization of other assets and liabilities		26,229			17,199			30,998
Gain on sale of securities, assets and other investments		(13,954	)		(316	)		(151	)
Loss from impairment of assets and other investments		15,641			1,735			6,375
Income on equity investments		-			-			(1,755	)
Impact of changes in working capital-
Marketable securities, trading		-			-			4,939
Receivables, net		(117,846	)		(28,717	)		16,500
Inventories		5,023			(4,181	)		3,027
Accounts payable		90,494			28,164			(48,691	)
Taxes accrued		(6,741	)		(2,087	)		(2,192	)
Other current assets and liabilities		(7,724	)		9,231			(1,704	)
Other, net		(15,744	)		(3,548	)		(28,915	)
Net cash provided by operating activities		423,691			493,580			416,675

Net Cash Flows From Investing Activities
Utility construction expenditures		(699,061	)		(631,962	)		(344,137	)
Quad Cities Station decommissioning trust fund		(8,299	)		(8,299	)		(8,299	)
Proceeds from sale of assets and other investments		15,088			-			326
Purchases of available-for-sale securities		(563,330	)		(748,801	)		(352,327	)
Proceeds from sales of available-for-sale securities		565,689			692,644			337,240
Other, net		16,367			22,959			24,741
Net cash used in investing activities		(673,546	)		(673,459	)		(342,456	)

Net Cash Flows From Financing Activities
Common dividends paid		-			-			(172,500	)
Issuance of long-term debt, net		296,466			347,769			272,550
Retirement of long-term debt, including reacquisition cost		(90,850	)		(56,168	)		(202,076	)
Note payable to affiliate		22,783			21,050			10,450
Net decrease in notes payable		-			(48,000	)		(7,000	)
Other		4,296			(963	)		-
Net cash provided by (used in) financing activities		232,695			263,688			(98,576	)

Net Increase (Decrease) in Cash and Cash Equivalents		(17,160	)		83,809			(24,357	)
Cash and Cash Equivalents at Beginning of Year		88,367			4,558			28,915
Cash and Cash Equivalents at End of Year	$	71,207		$	88,367		$	4,558
Supplemental Disclosure:
Interest paid, net of amounts capitalized	$	115,073		$	104,500		$	110,500
Income taxes paid	$	118,499		$	54,275		$	117,566

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

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CAPITALIZATION

(In thousands, except share amounts)

	As of December 31,
Member’s Equity		2005					2004
Paid in capital	$	1,669,753				$	1,669,753
Retained earnings		567,673					372,604
Accumulated other comprehensive income, net:
Unrealized gain on securities		47					46
Minimum pension liability adjustment		(2,636	)				-
		2,234,837		50.4	%		2,042,403		49.8	%
MidAmerican Energy Preferred Securities
(100,000,000 shares authorized)
Cumulative shares outstanding; not subject to
mandatory redemption:
$3.30 Series, 49,451 shares		4,945					4,945
$3.75 Series, 38,305 shares		3,831					3,831
$3.90 Series, 32,630 shares		3,263					3,263
$4.20 Series, 47,362 shares		4,736					4,736
$4.35 Series, 49,945 shares		4,994					4,994
$4.40 Series, 35,697 shares		3,570					3,570
$4.80 Series, 49,898 shares		4,990					4,990
		30,329		0.7	%		30,329		0.7	%
Long-Term Debt, Excluding Current Portion
MidAmerican Energy:
Pollution control revenue obligations -
6.1% Series due 2007		1,000					1,000
5.95% Series, due 2023 (secured by
general mortgage bonds)		29,030					29,030
Variable rate series -
Due 2016 and 2017, 3.59% and 2.05%, respectively		37,600					37,600
Due 2023 (secured by general mortgage bonds),
3.59% and 2.05%, respectively		28,295					28,295
Due 2023, 3.59% and 2.05%, respectively		6,850					6,850
Due 2024, 3.59% and 2.05%, respectively		34,900					34,900
Due 2025, 3.59% and 2.05%, respectively		12,750					12,750
Notes -
6.375% Series, due 2006		-					160,000
5.125% Series, due 2013		275,000					275,000
4.65% Series, due 2014		350,000					350,000
6.75% Series, due 2031		400,000					400,000
5.75% Series, due 2035		300,000					-
Obligation under capital lease		1,184					1,524
Unamortized debt premium and discount, net		(5,358	)				(5,440	)
Total MidAmerican Energy		1,471,251		33.1	%		1,331,509		32.4	%
MidAmerican Funding parent:
6.339% Senior Secured Notes Due 2009		175,000					175,000
6.75% Senior Secured Notes Due 2011		200,000					200,000
6.927% Senior Secured Notes Due 2029		325,000					325,000
Total MidAmerican Funding parent		700,000		15.8	%		700,000		17.1	%
		2,171,251		48.9	%		2,031,509		49.5	%
Total Capitalization	$	4,436,417		100.0	%	$	4,104,241		100.0	%

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

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS

(In thousands)

	Years Ended December 31,
	2005		2004		2003

Beginning of Year	$	372,604	$	193,347	$	208,671

Net Income		195,069		179,257		157,176

Deduct Dividends Declared		-		-		172,500

End of Year	$	567,673	$	372,604	$	193,347

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

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INDEX

(1)	Summary of Significant Accounting Policies	87

(2)	Jointly Owned Utility Plant	90

(3)	Inventories	90

(4)	Commitments and Contingencies	90

(5)	Rate Matters	90

(6)	Long-Term Debt	90

(7)	Short-Term Borrowing	91

(8)	Preferred Securities	92

(9)	Retirement Plans	92

(10)	Segment Information	92

(11)	Income Taxes	95

(12)	Risk Management	96

(13)	Concentration of Credit Risk	96

(14)	Asset Retirement Obligations	96

(15)	Fair Value of Financial Instruments	96

(16)	Non-Operating Other Income and Expense	98

(17)	Affiliated Company Transactions	98

(18)	Unaudited Quarterly Operating Results	99

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Summary of Significant Accounting Policies

(a)

Company Organization

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

(b)

Principles of Consolidation and Preparation of Financial Statements

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

(c)

Accounting for the Effects of Certain Types of Regulation

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

(d)

Revenue Recognition

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

(e)

Depreciation and Amortization

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

(f)

Investments and Nonregulated Property, Net

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

	2005		2004

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

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

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

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

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

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

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

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

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

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

(g)

Consolidated Statements of Cash Flows

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

(h)

Short-term Investments

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

(i)

Accounting for Derivatives

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

(j)

Income Taxes

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

(k)

Allowance for Funds Used During Construction

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

(l)

Impairment of Long-lived assets

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

(m)

Goodwill

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

	Generation			Delivery			Transmission			Total

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

(2)

Jointly Owned Utility Plant

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

(3)

Inventories

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

(4)

Commitments and Contingencies

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

(g)

Other Commitments and Contingencies

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

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

(5)

Rate Matters

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

(6)

Long-Term Debt

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

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

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

·	are the direct senior secured obligations of MidAmerican Funding;

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

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

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

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

·	the greater of the following:

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

(2)

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

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

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

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

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

(7)

Short-Term Borrowing

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

	2005			2004

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

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

(8)

Preferred Securities

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

(9)

Retirement Plans

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

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

	2005		2004		2003

Pension costs	$	11.3	$	11.4	$	11.6
Postretirement costs		1.8		3.1		4.2

(10)

Segment Information

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

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

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

		2005			2004			2003
Segment Profit Information
Operating revenues:
External revenues -
Generation	$	704,776		$	579,251		$	522,349
Energy delivery		2,110,390			1,839,289			1,812,547
Transmission		36,998			29,088			25,916
Unregulated retail services		308,173			248,725			235,000
Other		5,747			5,347			4,427
Total		3,166,084			2,701,700			2,600,239

Intersegment revenues -
Generation		701,922			643,334			629,939
Energy delivery		(760,647	)		(702,418	)		(690,126	)
Transmission		58,725			59,084			57,946
Unregulated retail services		-			-			2,241
Total		-			-			-

Consolidated	$	3,166,084		$	2,701,700		$	2,600,239

Depreciation and amortization expense (a):
Generation	$	144,323		$	144,643		$	145,645
Energy delivery		113,317			111,172			121,296
Transmission		10,297			9,470			11,641
Unregulated retail services		1,006			922			2,221
Other		199			202			198
Total	$	269,142		$	266,409		$	281,001

Interest and dividend income:
Generation	$	3,423		$	2,349		$	2,284
Energy delivery		2,269			1,844			2,307
Transmission		313			204			346
Unregulated retail services		11			4			19
Other		1,023			326			117
Total		7,039			4,727			5,073
Intersegment eliminations		(836	)		(218	)		(98	)
Consolidated	$	6,203		$	4,509		$	4,975

Fixed charges:
Generation	$	39,331		$	33,575		$	30,364
Energy delivery		35,498			33,225			37,745
Transmission		4,712			4,252			4,416
Unregulated retail services		56			54			325
Other		49,600			47,729			47,472
Total		129,197			118,835			120,322
Intersegment eliminations		(836	)		(218	)		(98	)
Consolidated	$	128,361		$	118,617		$	120,224

		2005			2004			2003
Segment Profit Information (continued)
Net income:
Generation	$	104,888		$	92,027		$	91,111
Energy delivery		74,453			79,798			65,437
Transmission		37,592			33,443			26,703
Unregulated retail services		3,117			3,942			3,930
Other		(24,981	)		(29,953	)		(30,005	)
Total	$	195,069		$	179,257		$	157,176

Segment Asset Information
Capital expenditures:
Generation	$	520,788		$	540,873		$	215,952
Energy delivery		161,220			164,957			143,507
Transmission		84,192			34,095			16,759
Unregulated retail services		329			457			1,257
Other		1,564			1,388			1,055
Total	$	768,093		$	741,770		$	378,530

Total assets (b):
Generation	$	3,623,297		$	3,152,768		$	2,567,022
Energy delivery		3,047,356			2,886,656			2,797,967
Transmission		439,587			361,419			326,502
Unregulated retail services		80,158			42,725			56,743
Other		244,542			227,258			200,863
Total		7,434,940			6,670,826			5,949,097
Reclassifications and intersegment eliminations (c)		(277,524	)		(243,582	)		(211,483	)
Consolidated	$	7,157,416		$	6,427,244		$	5,737,614

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

(b)	Total assets by operating segment reflect the assignment of goodwill to applicable reporting units in accordance with SFAS No. 142.

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

(11)

Income Taxes

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

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

		2005			2004			2003
Current:
Federal	$	86,774		$	62,278		$	79,848
State		20,494			(5,376	)		30,163
		107,268			56,902			110,011
Deferred:
Federal		(9,342	)		40,023			8,471
State		(2,375	)		(5,222	)		(4,028	)
		(11,717	)		34,801			4,443

Investment tax credit, net		(4,181	)		(4,367	)		(4,376	)
Total	$	91,370		$	87,336		$	110,078

	2005			2004			2003

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

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

	2005		2004

Deferred tax assets related to:
Revenue sharing	$	92,040	$	79,903
Pensions		49,181		39,799
Nuclear reserves and decommissioning		14,962		27,111
Unrealized losses, net		16,653		20,560
Accrued liabilities		920		979
Other		8,535		9,963
		182,291		178,315

Deferred tax liabilities related to:
Depreciable property		492,506		509,997
Regulatory asset for income taxes		145,967		131,770
Fuel cost recoveries		9,896		887
Reacquired debt		2,472		3,876
		650,841		646,530

Net deferred income tax liability	$	468,550	$	468,215

(12)

Risk Management

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

(13)

Concentration of Credit Risk

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

(14)

Asset Retirement Obligations

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

(15)

Fair Value of Financial Instruments

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

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

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

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

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

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

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

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

	2005				2004
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value

Financial instruments owned:
Equity investments carried at cost	$	2,138	$	21,690	$	3,404	$	11,015

Financial instruments issued:
Long-term debt, including current portion	$	2,331,760	$	2,433,348	$	2,122,527	$	2,264,706

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

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

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

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

	Available-For-Sale
	Amortized		Fair
	Cost		Value

Within 1 year	$	3,148	$	3,160
1 through 5 years		38,096		37,529
5 through 10 years		21,962		21,996
Over 10 years		36,370		37,143

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

	Years Ended December 31,
	2005			2004			2003

Proceeds from sales	$	91,733		$	85,237		$	88,578
Gross realized gains		3,256			3,205			3,696
Gross realized losses		(2,175	)		(822	)		(607	)

(16)

Non-Operating Income and Expense

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

		2005		2004		2003
Other income:
Gain on sale of assets and other investments, net	$	13,331	$	-	$	57
Corporate-owned life insurance income		5,151		5,447		6,317
Income from energy projects and venture capital investments		1,211		2,540		332
Marketable securities gains (losses), net		653		480		204
Income from equity method investments		-		513		1,755
Lawsuit settlement		-		-		3,083
Other		2,742		2,092		1,606
Total	$	23,088	$	11,072	$	13,354

Other expense:
Write-down of impaired airplane leases	$	15,641	$	1,735	$	-
Write-down of equity method investments		-		-		4,307
Write-down of other venture capital investments		-		-		2,068
Other - primarily items not recoverable from MidAmerican Energy’s regulated utility customers		4,366		3,532		3,721
Total	$	20,007	$	5,267	$	10,096

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

(17)

Affiliated Company Transactions

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

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

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

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

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

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

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

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

(18)

Unaudited Quarterly Operating Results

	2005
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
	(In thousands)
Operating revenues	$	856,278	$	619,714	$	723,308	$	966,784
Operating income		99,351		58,570		130,246		92,916
Net income		56,357		25,209		66,921		46,582

	2004
	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
	(In thousands)
Operating revenues	$	840,946	$	575,521	$	566,448	$	718,785
Operating income		111,065		59,422		115,235		70,225
Net income		54,357		21,754		59,623		43,523

Quarterly data reflect seasonal variations common in the utility industry.

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

None.

Item 9A .

Controls and Procedures

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

Item 9B . Other Information

None

100

PART III

Item 10 . Directors and Executive Officers of the Registrant

MIDAMERICAN ENERGY

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

Identification

			Served in	Served as
	Age as of	Present	Present	Director
Name	February 15, 2006	Position	Position Since	Since

Todd M. Raba	48	President and Director	2004	2002
Brent E. Gale	54	Senior Vice President	2004
Keith D. Hartje	56	Senior Vice President	1999
Brian K. Hankel	43	Vice President, Treasurer and Director	1999	2002
Thomas B. Specketer	49	Vice President and Controller	1999
Steven R. Weiss	51	Vice President, General Counsel and Director	2000	2005

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

Business Experience

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

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

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

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

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

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

101

MIDAMERICAN FUNDING

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

Identification

			Served in	Served as
	Age as of		Present	Manager
Name	February 15, 2006	Present Position	Position Since	Since

Gregory E. Abel	43	President	1999	2001
Brian K. Hankel	43	Vice President and Treasurer	2005
Thomas B. Specketer	49	Vice President and Controller	2005
Douglas L. Anderson	47	Manager		2005
Patrick J. Goodman	39	Manager		2005
Ronald W. Roskens	73	Independent Manager	2003	2003

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

Business Experience

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

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

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

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

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

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

102

Audit Committee and Audit Committee Financial Expert

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

Code of Ethics

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

Item 11 . Executive Compensation

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

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

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

Item 13 . Certain Relationships and Related Transactions

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

103

Item 14 . Principal Accountant Fees and Services

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

	MidAmerican Funding				MidAmerican Energy
	2005		2004		2005		2004
	(In thousands)

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

(1)	Includes the aggregate fees billed for each of the last two fiscal years for professional services rendered by the Deloitte Entities for the audit of MidAmerican Funding’s and MidAmerican Energy’s respective annual financial statements and the review of their respective financial statements included in Form 10-Q or for services that are normally provided by the Deloitte Entities in connection with statutory and regulatory filings or engagements for those fiscal years.

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

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

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

104

PART IV

Item 15 . Exhibits and Financial Statement Schedules

(a)(1)	Financial Statements (included herein)

Consolidated financial statements of MidAmerican Energy and MidAmerican Funding, as well as the Report of Independent Registered Public Accounting Firm, are included in Item 8 of this Form 10-K.

(a)(2)	Financial Statement Schedules

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

		Page

MidAmerican Energy Company Consolidated Valuation and Qualifying Accounts (Schedule II)		106

MidAmerican Funding, LLC Consolidated Valuation and Qualifying Accounts (Schedule II)		107

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

(b)

Exhibits

See Exhibits Index on page 110.

106

SCHEDULE II

MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 200 5

(In thousands)

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

Reserves Deducted From Assets To Which They Apply:

Reserve for uncollectible accounts receivable:

Year ended 2005	$	8,678	$	11,037	$	(8,843	)	$	10,872

Year ended 2004	$	7,484	$	9,902	$	(8,708	)	$	8,678

Year ended 2003	$	7,615	$	9,909	$	(10,040	)	$	7,484


Reserves Not Deducted From Assets (1):

Year ended 2005	$	9,404	$	4,019	$	(2,386	)	$	11,037

Year ended 2004	$	8,779	$	3,562	$	(2,937	)	$	9,404

Year ended 2003	$	8,198	$	3,427	$	(2,846	)	$	8,779

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

106

SCHEDULE II

MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 31, 200 5

(In thousands)

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

Reserves Deducted From Assets To Which They Apply:

Reserve for uncollectible accounts receivable:

Year ended 2005	$	8,748	$	11,037	$	(8,843	)	$	10,942

Year ended 2004	$	7,554	$	9,902	$	(8,708	)	$	8,748

Year ended 2003	$	7,685	$	9,909	$	(10,040	)	$	7,554


Reserves Not Deducted From Assets (1):

Year ended 2005	$	10,848	$	4,019	$	(2,386	)	$	12,481

Year ended 2004	$	9,737	$	4,048	$	(2,937	)	$	10,848

Year ended 2003	$	9,166	$	3,427	$	(2,856	)	$	9,737

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

106

SIGNATURES

MIDAMERICAN ENERGY

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

	MIDAMERICAN ENERGY COMPANY
	Registrant

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

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

Signatures	Title	Date


/s/ Thomas B. Specketer	Vice President and Controller	March 3, 2006
(Thomas B. Specketer)	(principal financial and accounting officer)


/s/ Brian K. Hankel	Vice President and Director	March 3, 2006
(Brian K. Hankel)


/s/ Todd M. Raba	President and Director	March 3, 2006
(Todd M. Raba)


/s/ Steven R. Weiss	Vice President and Director	March 3, 2006
(Steven R. Weiss)

109

MIDAMERICAN FUNDING, LLC

	MIDAMERICAN FUNDING, LLC
	Registrant

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

Signatures	Title	Date



/s/ Thomas B. Specketer	Vice President and Controller	March 3, 2006
(Thomas B. Specketer)	(principal financial and accounting officer)


/s/ Patrick J. Goodman	Manager	March 3, 2006
(Patrick J. Goodman)


/s/ Ronald W. Roskens	Manager	March 3, 2006
(Ronald W. Roskens)


/s/ Douglas L. Anderson	Manager	March 3, 2006
(Douglas L. Anderson)

110

EXHIBIT INDEX

Exhibits Filed Herewith

MidAmerican Energy

23	Consent of Deloitte & Touche LLP

31.1	Chief executive officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Chief financial officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Chief executive officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Chief financial officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

MidAmerican Funding

31.3	Chief executive officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.4	Chief financial officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.3	Chief executive officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.4	Chief financial officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

MidAmerican Energy and MidAmerican Funding

4.1	Fourth Supplemental Indenture, dated November 1, 2005, by and between MidAmerican Energy Company and the Bank of New York Trust Company, NA, as Trustee.

10.1	Credit Agreement among MidAmerican Energy Company, the Lending Institutions Party Hereto, as Banks, Union Bank of California, N.A., as Syndication Agent, and JPMorgan Chase Bank, N.A., as Administrative Agent, dated as of November 18, 2004 Union Bank of California, N.A. and J.P. Morgan Securities, Inc. Co-Lead Arrangers and Co-Book Runners.

Exhibits Incorporated by Reference

MidAmerican Energy

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

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

14	Code of Ethics for Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. (Filed as Exhibit 14.1 to MidAmerican Energy's Annual Report on Form 10-K for the year ended December 31, 2003, Commission File No. 1-11505.)

110

MidAmerican Funding

3.1	Articles of Organization of MidAmerican Funding, LLC

3.2	Operating Agreement of MidAmerican Funding, LLC

4.1	Indenture, dated as of March 11, 1999, by and between MidAmerican Funding, LLC and IBJ Whitehall Bank & Trust Company, as Trustee (Filed as Exhibit 4.1 to MidAmerican Funding’s Registration Statement on Form S-4, Registration No. 333-90553)

4.2	First Supplemental Indenture, dated as of March 11, 1999, by and between MidAmerican Funding, LLC and IBJ Whitehall Bank & Trust Company, as Trustee (Filed as Exhibit 4.2 to MidAmerican Funding’s Registration Statement on Form S-4, Registration No. 333-90553)

4.3	Second Supplemental Indenture, dated as of March 1, 2001, by and between MidAmerican Funding, LLC and The Bank of New York, as Trustee (Filed as Exhibit 4.4 to MidAmerican Funding’s Registration Statement on Form S-3, Registration No. 333-56624)

4.4	Registration Rights Agreement, dated March 9, 1999, by and among MidAmerican Funding, LLC, Credit Suisse First Boston Corporation, Lehman Brothers, Inc., Goldman Sachs & Co. and Merrill Lynch & Co. (Filed as Exhibit 4.2 to MidAmerican Funding’s Registration Statement on Form S-4, Registration No. 333-90553)

14	Code of Ethics for Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. (Filed as Exhibit 14.2 to MidAmerican Funding's Annual Report on Form 10-K for the year ended December 31, 2003, Commission File No. 333-90553.)

MidAmerican Energy and MidAmerican Funding

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

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

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

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

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

111

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

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

4.8	Indenture dated as of December 1, 1996, between MidAmerican Energy and The First National Bank of Chicago, as Trustee. (Filed as Exhibit 4(l) to MidAmerican Energy’s Registration Statement on Form S-3, Registration No. 333-15387.)

4.9	First Supplemental Indenture, dated as of February 8, 2002, by and between MidAmerican Energy Company and The Bank of New York, as Trustee. (Filed as Exhibit 4.3 to MidAmerican Energy’s Annual Report on Form 10-K for the year ended December 31, 2004, Commission File No. 333-15387.)

4.10	Second Supplemental Indenture, dated as of January 14, 2003, by and between MidAmerican Energy Company and The Bank of New York, as Trustee. (Filed as Exhibit 4.2 to MidAmerican Energy’s Annual Report on Form 10-K for the year ended December 31, 2004, Commission File No. 333-15387.)

4.11	Third Supplemental Indenture, dated as of October 1, 2004, by and between MidAmerican Energy Company and The Bank of New York, as Trustee. (Filed as Exhibit 4.1 to MidAmerican Energy’s Annual Report on Form 10-K for the year ended December 31, 2004, Commission File No. 333-15387.)

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

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

10.3	MidAmerican Energy Company First Amended and Restated Supplemental Retirement Plan for Designated Officers. (Filed as Exhibit 10.52 to MidAmerican Energy Holding Company’s Registration Statement No. 333-101699.)

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

10.10	Iowa Utilities Board Order Approving Settlement With Modifications, issued December 21, 2001, in regards to MidAmerican Energy Company (Filed as Exhibit 10.7 to MidAmerican Energy’s Annual Report on Form 10-K dated December 31, 2001, Commission File No. 1-11505.)

10.11	Stipulation and Agreement in Regard to MidAmerican Energy Company Ratemaking Principles for Wind Energy Investment, approved by the Iowa Utilities Board on October 17, 2003 (Filed as Exhibit 10 to MidAmerican Funding’s and MidAmerican Energy’s joint Form 10-Q for the quarter ended September 30, 2003; Commission File Nos. 333-90553 and 1-11505, respectively.)

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

EXHIBIT 4.1

MIDAMERICAN ENERGY COMPANY

and

THE BANK OF NEW YORK TRUST COMPANY, NA,

as Trustee

________________

5.750% Notes due 2035

________________

Fourth Supplemental Indenture

________________

Dated as of November 1, 2005

FOURTH SUPPLEMENTAL INDENTURE, dated as of November 1, 2005 (herein called the “ Fourth Supplemental Indenture ”), between MIDAMERICAN ENERGY COMPANY, a corporation duly organized and existing under the laws of the State of Iowa (herein called the “ Company ”), and THE BANK OF NEW YORK TRUST COMPANY, NA (as successor to The Bank of New York), a New York banking association duly organized and existing under the laws of the United States of America, as Trustee (herein called the “ Trustee ”), under the Original Indenture referred to below.

W I T N E S S E T H :

WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture dated as of February 8, 2002, as amended (herein called the “ Original Indenture ”), as supplemented by the First Supplemental Indenture dated as of February 8, 2002, the Second Supplemental Indenture dated as of January 14, 2003 and the Third Supplemental Indenture dated as of October 1, 2004, to provide for the issuance from time to time of its unsubordinated debentures, notes or other evidences of indebtedness, the form and terms of which are to be established as set forth in Sections 2.01 and 3.01 of the Original Indenture;

WHEREAS, Section 9.01 of the Original Indenture provides, among other things, that the Company and the Trustee may enter into indentures supplemental to the Original Indenture for, among other things, (i) the purpose of establishing the form and terms of the Securities (as defined in the Original Indenture) of any series as permitted by Sections 2.01 and 3.01 of the Original Indenture, and (ii) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (as defined in the Original Indenture);

WHEREAS, the Company desires to create one series of securities to be designated the “5.750% Notes due 2035” and all action on the part of the Company necessary to authorize the issuance of up to three hundred million dollars ($300,000,000) aggregate principal amount of such securities (the “ Securities ”) under the Original Indenture and this Fourth Supplemental Indenture has been duly taken;

WHEREAS, the Company and the Trustee desire to make certain amendments to the Original Indenture in conformance with the requirements described above; and

WHEREAS, all acts and things necessary to make the Securities, when executed by the Company and authenticated and delivered by the Trustee as provided in the Original Indenture, the valid and binding obligations of the Company and to constitute these presents a valid and binding supplemental indenture and agreement according to its terms, have been done and performed.

NOW, THEREFORE, THIS FOURTH SUPPLEMENTAL INDENTURE WITNESSETH:

That in consideration of the premises and of the acceptance and purchase of the Securities by the holders thereof and of the acceptance of this trust by the Trustee, the Company covenants and agrees with the Trustee, for the equal benefit of holders of the Securities, as follows:

ARTICLE I

DEFINITIONS

Unless otherwise defined herein, the use of the terms and expressions herein is in accordance with the definitions, uses and constructions contained in the Original Indenture and the form of Security attached hereto as Exhibit A .

ARTICLE II

TERMS AND ISSUANCE OF THE SECURITIES

Section 2.01. Issue of Securities . One series of notes, which shall be designated the “5.750% Notes due 2035”, shall be executed, authenticated and delivered in accordance with the provisions of, and shall in all respects be subject to, the terms, conditions and covenants of the Original Indenture and this Fourth Supplemental Indenture (including the form of Security set forth in Exhibit A ).

Section 2.02. Optional Redemption . The Securities may be redeemed, in whole or in part, at the option of the Company pursuant to the terms set forth in Annex 1 to the Securities to be redeemed. The provisions of Article XI of the Original Indenture shall also apply to any optional redemption of Securities by the Company.

Section 2.03. Defeasance and Discharge . The provisions of Section 14.02 of the Original Indenture shall be applicable to the Securities.

Section 2.04. Covenant Defeasance . The provisions of Section 14.03 of the Original Indenture shall be applicable to the Securities.

Section 2.05. Place of Payment . The Place of Payment in respect of the Securities will be initially at the Corporate Trust Office of The Bank of New York Trust Company, NA (which as of the date hereof is located at 2 N. LaSalle Street, Suite 1020, Chicago, Illinois 60602, Attention: Corporate Trust Administration).

Section 2.06. Form of Securities; Incorporation of Terms . The form of the Securities shall be substantially in the form of Exhibit A , the terms of which are herein incorporated by reference and which are part of this Fourth Supplemental Indenture. The Securities shall be issued as one or more Global Securities in fully registered form, as determined in accordance with Section 2.01 of the Original Indenture. The Global Securities shall be delivered by the Trustee to the Depositary, as the Holder thereof, or a nominee or custodian therefore, to be held by the Depositary in accordance with the Original Indenture.

Section 2.07. Exchange of the Global Securities . Each of the Global Securities shall be exchangeable for definitive Securities only as provided in Section 3.05 of the Original Indenture.

Section 2.08. Regular Record Date for the Securities . The Regular Record Date for the Securities shall be the April 15 or October 15 immediately prior to each Interest Payment Date.

Section 2.09. Authorized Denominations. Beneficial interests in Global Securities, as well as definitive Securities, may be held only in denominations of $1,000 and integral multiples of $1,000 in excess thereof.

Section 2.10. Additional Securities. The Company may from time to time, without the consent of the Holders of the Securities, create and issue further securities having the same terms and conditions as the Securities in all respects, except for the original issue date and offering price. Additional Securities issued in this manner will be consolidated with, and form a single series with, the Securities and shall thereafter be deemed Securities for all purposes.

ARTICLE III

DEPOSITARY

Section 3.01. Depositary . The Depositary Trust Company, its nominees and their respective successors are hereby appointed Depositary with respect to the Global Securities.

ARTICLE IV

AMENDMENTS TO ORIGINAL INDENTURE

Section 4.01. Amendments . The Original Indenture is hereby amended as follows:

(a) Section 1.01 of the Original Indenture is hereby amended to add or modify the following definitions, as the case may be:

“ ‘Common Shareholders’ Equity ’ means, at any time, the total shareholders’ equity of the Company and its consolidated subsidiaries, determined on a consolidated basis in accordance with generally accepted accounting principles, as of the end of the most recently completed fiscal quarter of the Company for which financial information is then available.”

“‘ Midwest Power Indenture ’ means the 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 (Harris Trust and Savings Bank, successor trustee), and indentures supplemental thereto.”

“‘ Permitted Encumbrances ’ means:

(a) (i) any mortgage, pledge or other lien or encumbrance on any property hereafter acquired or constructed by the Company or a Subsidiary, or on which property so constructed is located, and created prior to, contemporaneously with or within 360 days after, such acquisition or construction or the commencement of commercial operation of such property to secure or provide for the payment of any part of the purchase or construction price of such property, or (ii) any property subject to any mortgage, pledge, or other lien or encumbrance upon such property existing at the time of acquisition thereof by the Company or any Subsidiary, whether or not assumed by the Company or such Subsidiary, or (iii) any mortgage, pledge or other lien or encumbrance existing on the property, shares of stock, membership interests or indebtedness of a corporation or limited liability company at the time such corporation or limited liability company shall become a Subsidiary or any pledge of the shares of stock or membership interests of such corporation or limited liability company prior to, contemporaneously with or within 360 days after such corporation or limited liability company shall become a Subsidiary to secure or provide for the payment of any part of the purchase price of such stock or membership interests, or (iv) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired or constructed; provided that, in the case of clauses (i) through (iv), the lien of any such mortgage, pledge or other lien does not spread to property owned prior to such acquisition or construction or to other property thereafter acquired or constructed other than additions to such acquired or constructed property and other than property on which property so constructed is located; and provided, further , that if a firm commitment from a bank, insurance company or other lender or investor (not including the Company, a Subsidiary or an Affiliate of the Company) for the financing of the acquisition or construction of property is made prior to, contemporaneously with or within the 360-day period hereinabove referred to, the applicable mortgage, pledge, lien or encumbrance shall be deemed to be permitted by this clause (a) whether or not created or assumed within such period;

(b) any mortgage, pledge or other lien or encumbrance created for the sole purpose of extending, renewing or refunding any mortgage, pledge, lien or encumbrance permitted by clause (a) of this definition; provided, however , that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding mortgage, pledge, lien or encumbrance shall be limited to all or any part of the same property that secured the mortgage, pledge or other lien or encumbrance extended, renewed or refunded;

(c) liens for taxes or assessments or governmental charges or levies not then due and delinquent or the validity of which is being contested in good faith, and against which an adequate reserve has been established; liens on any property created in connection with pledges or deposits to secure public or statutory obligations or to secure performance in connection with bids or contracts; materialmen’s, mechanics’, carrier’s, workmen’s, repairmen’s or other like liens; or liens on any property created in connection with deposits to obtain the release of such liens; liens on any property created in connection with deposits to secure surety, stay, appeal or customs bonds; liens created by or resulting from any litigation or legal proceeding which is currently being contested in good faith by appropriate proceedings; leases and liens, rights of reverter and other possessory rights of the lessor thereunder; zoning restrictions, easements, rights-of-way or other restrictions on the use of real property or minor irregularities in the title thereto; and any other liens and encumbrances similar to those described in this clause (c), the existence of which, in the opinion of the board of directors of the Company, does not materially impair the use by the Company or a Subsidiary of the affected property in the operation of the business of the Company or a Subsidiary, or the value of such property for the purposes of such business;

(d) any mortgage, pledge or other lien or encumbrance created after November 1, 2005 on any property leased to or purchased by the Company or a Subsidiary after that date and securing, directly or indirectly, obligations issued by a State, a territory or a possession of the United States, or any political subdivision of any of the foregoing, or the District of Columbia, to finance the cost of acquisition or cost of construction of such property; provided that the interest paid on such obligations is entitled to be excluded from gross income of the recipient pursuant to Section 103(a)(1) of the Internal Revenue Code of 1986, as amended (or any successor to such provision), as in effect at the time of the issuance of such obligations;

(e) any mortgage, pledge or other lien or encumbrance on any property now owned or hereafter acquired or constructed by the Company or a Subsidiary, or on which property so owned, acquired or constructed is located, to secure or provide for the payment of any part of the construction price or cost of improvements of such property, and created prior to, contemporaneously with or within 360 days after, such construction or improvement; provided that if a firm commitment from a bank, insurance company or other lender or investor (not including the Company, a Subsidiary or an Affiliate of the Company) for the financing of the acquisition or construction of property is made prior to, contemporaneously with or within the 360-day period hereinabove referred to, the applicable mortgage, pledge, lien or encumbrance shall be deemed to be permitted by this clause (e) whether or not created or assumed within such period; and

(f) any mortgage, pledge or other lien or encumbrance not otherwise described in clauses (a) through (e); provided that the aggregate amount of indebtedness secured by all such mortgages, pledges, liens or encumbrances does not exceed the greater of $100,000,000 or 10% of Common Shareholders’ Equity.”

“‘ Principal Facility ’ means the real property, fixtures, machinery and equipment relating to any facility owned by the Company or any Subsidiary, except any facility that is not of material importance to the business conducted by the Company and its Subsidiaries, taken as a whole.”

“‘ Regulated Subsidiary ’ means any Subsidiary which owns or operates facilities used for the generation, transmission or distribution of electric energy and is subject to the jurisdiction of any governmental authority of the United States or any state or political subdivision thereof, as to any of its: rates; services; accounts; issuances of securities; affiliate transactions; or construction, acquisition or sale of any such facilities, except that any ‘exempt wholesale generator’, as defined in 15 USC 79z-5a(a)(1), ‘qualifying facility’, as defined in 18 CFR 292.101(b)(1), ‘foreign utility company’, as defined in 15 USC 79z-5b(a)(3), and ‘power marketer’, as defined in NORTHWEST POWER MARKETING COMPANY, L.L.C., 75 FERC PARA 61,281, shall not be a Regulated Subsidiary.”

“‘ Subsidiary ’ means a corporation or limited liability company more than 50% of the outstanding voting stock or voting membership interests of which is or are owned, directly or indirectly, by the Company or by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, (1) ‘voting stock’ means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency, and (2) ‘voting membership interests’ means membership interests which ordinarily have voting power for the election of directors (or the equivalent thereof), whether at all times or only so long as no senior class of membership interests have such voting power by reason of any contingency.”

“‘ Wholly-Owned Subsidiary ’ means a Subsidiary of which all of the outstanding voting stock or voting membership interests (other than directors’ qualifying shares) is or are at the time, directly or indirectly, owned by the Company, or by one or more Wholly-Owned Subsidiaries of the Company or by the Company and one or more Wholly-Owned Subsidiaries.”

(b) Section 10.06 of the Original Indenture is hereby amended by replacing the reference to Section 10.04 therein with a reference to Section 10.08.

(c) Article X of the Original Indenture is amended by adding a new Section 10.08 thereto immediately following Section 10.07 thereof, such Section 10.08 to read as follows:

“Section 10.08. Limitation upon Mortgages and Liens .

The Company will not at any time directly or indirectly create or assume and will not cause or permit a Subsidiary directly or indirectly to create or assume, except in favor of the Company or a Wholly-Owned Subsidiary, any mortgage, pledge or other lien or encumbrance upon any Principal Facility or any interest it may have therein or upon any stock of any Regulated Subsidiary or any indebtedness of any Subsidiary to the Company or any other Subsidiary, whether now owned or hereafter acquired, without making effective provision (and the Company covenants that in such case it will make or cause to be made, effective provision) whereby the outstanding Securities and any other indebtedness of the Company then entitled thereto shall be secured by such mortgage, pledge, lien or encumbrance equally and ratably with any and all other obligations and indebtedness thereby secured, so long as any such other obligations and indebtedness shall be so secured (provided, that for the purpose of providing such equal and ratable security, the principal amount of outstanding Original Issue Discount Securities shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02); provided, however , that the foregoing covenant shall not be applicable to (1) the lien of the Midwest Power Indenture, (2) Permitted Encumbrances or (3) any transfer, lease, use or other encumbrance of or on the Company’s or any Subsidiary’s transmission assets as required by applicable state or federal order, regulation, rule or statute.”

(e) The first sentence of Section 14.03 of the Original Indenture is hereby amended by replacing the references to Section 10.04 therein with references to Section 10.08 in each place where such references appear in such sentence.

Section 4.02. Application of Amendments . The amendments to the Original Indenture set forth in Section 4.01 hereof shall be applicable only to the Securities, and shall not be applicable to any other series of securities issued under the Original Indenture except as otherwise provided in a supplemental indenture related to such other series of securities.

ARTICLE V

MISCELLANEOUS

Section 5.01. Execution as Supplemental Indenture . This Fourth Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this Fourth Supplemental Indenture forms a part thereof.

Section 5.02. Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

Section 5.03. Successors and Assigns . All covenants and agreements contained in this Fourth Supplemental Indenture made by the Company shall bind its successors and assigns, whether so expressed or not.

Section 5.04. Separability Clause . In case any provision in this Fourth Supplemental Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 5.05. Benefits of Fourth Supplemental Indenture . Nothing in this Fourth Supplemental Indenture or in the Securities, express or implied, shall give to any person, other than the parties hereto and their successors hereunder and the Holders of the Securities, any benefit or any legal or equitable right, remedy or claim under this Fourth Supplemental Indenture.

Section 5.06. Execution and Counterparts . This Fourth Supplemental Indenture may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

Section 5.07. Trustee Not Responsible for Recitals . The recitals herein contained are made by the Company and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this Fourth Supplemental Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of the Securities or the proceeds thereof.

[ SIGNATURE PAGE FOLLOWS ]

IN WITNESS WHEREOF, the parties hereof have caused this Fourth Supplemental Indenture to be duly executed by their respective officers or directors duly authorized thereto, all as of the day and year first above written.


	MIDAMERICAN ENERGY COMPANY

	By:	/s/ Brian K. Hankel
		Name: Brian K. Hankel
		Title: Vice President, Treasurer and Director


	THE BANK OF NEW YORK TRUST COMPANY, NA,
		as Trustee
	By:	/s/ Roxanne Ellwanger
		Name: Roxanne Ellwanger
		Title: Assistant Vice President

EXHIBIT 10.1

CREDIT AGREEMENT

among

MIDAMERICAN ENERGY COMPANY,

THE LENDING INSTITUTIONS PARTY HERETO,

as Banks,

UNION BANK OF CALIFORNIA, N.A. ,

as Syndication Agent,

and

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent,

dated as of

November 18, 2004

UNION BANK OF CALIFORNIA, N.A.

and

J.P. MORGAN SECURITIES, INC.

Co-Lead Arrangers and Co-Book Runners

MIDAMERICAN ENERGY COMPANY

CREDIT AGREEMENT

This Agreement dated as of November 18, 2004 is among MidAmerican Energy Company, the Banks, Union Bank of California, N.A., as Syndication Agent, and JPMorgan Chase Bank, N.A., as Administrative Agent. The parties hereto agree as follows:

ARTICLE I

DEFINITIONS; RULES OF INTERPRETATION

1.1 Definitions . As used in this Agreement:

“Administrative Agent” means JPMorgan in its capacity as administrative agent for the Banks pursuant to Article X , and not in its individual capacity as a Bank, and any successor Administrative Agent appointed pursuant to Article X .

“Administrative Questionnaire” means an administrative questionnaire, substantially in the form supplied by the Administrative Agent, completed by a Bank and furnished to the Administrative Agent in connection with this Agreement.

“Advance” means a borrowing hereunder consisting of the aggregate amount of the several Loans made by the Banks to the Company on the same Borrowing Date, at the same Rate Option and for the same Interest Period.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes hereof, “control”, when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” having correlative meanings.

“Aggregate Commitment” means the aggregate of the Commitments of the Banks, as changed from time to time pursuant to the terms hereof.

“Aggregate Outstanding Credit Exposure” means, at any time, the aggregate of the Outstanding Credit Exposure of the Banks.

“Agreement” means this credit agreement.

“Alternate Base Rate” means, on any date and with respect to all Floating Rate Advances, a fluctuating rate of interest per annum equal to the higher of (i) the Prime Rate, and (ii) the Federal Funds Effective Rate most recently determined by the Administrative Agent plus 1/2% per annum. Changes in the rate of interest on that portion of any Advance maintained as a Floating Rate Advance will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the Company and the Banks of changes in the Alternate Base Rate.

“Applicable Margin” - see Schedule I .

“Arrangers” means Union Bank of California, N.A. and J.P. Morgan Securities, Inc. in their capacity as Co-Lead Arrangers and Co-Book Runners.

“Assignment Agreement” means an assignment agreement substantially in the form of Exhibit C .

“Authorized Officer” means the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the General Counsel, any Assistant General Counsel, the Secretary, any Assistant Secretary, any Senior Vice President or any Vice President of the Company.

“Banks” means the financial institutions listed on the signature pages of this Agreement and their respective successors and assigns.

“Borrowing Date” means a date on which an Advance is made hereunder.

“Borrowing Notice” is defined in Section 2.2.3 .

“Business Day” means (i) with respect to any borrowing, payment or rate selection of Eurodollar Advances, a day other than Saturday or Sunday on which banks are open for business in Chicago and New York and on which dealings in United States dollars are carried on in the London interbank market and (ii) for all other purposes, a day other than Saturday or Sunday on which banks are open for business in Chicago.

“Capitalized Lease” of a Person means any lease of property by such Person as lessee which would be capitalized on a balance sheet of such Person.

“Capitalized Lease Obligations” of a Person means the amount of the obligations of such Person under Capitalized Leases which would be shown as a liability on a balance sheet of such Person.

“Code” means the Internal Revenue Code of 1986.

“Collateral Shortfall Amount” is defined in Section 8.1 .

“Commitment” means, for each Bank, the obligation of such Bank to make Loans to, and to participate in Facility LCs issued upon the application of, the Company in an aggregate amount not exceeding the amount set forth opposite its signature below or assumed by such Bank pursuant to an assignment, as such amount may be modified from time to time pursuant to the terms of this Agreement.

“Company” means MidAmerican Energy Company, an Iowa corporation, and its successors and assigns.

“Consolidated Debt” means all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis.

“Consolidated Net Worth” means, as at any date of determination, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit) plus preferred securities of the Company and its Subsidiaries on a consolidated basis.

“Contingent Obligation” of a Person means any agreement, undertaking or arrangement by which such Person assumes, guarantees, endorses, contingently agrees to purchase or provide funds for the payment of, or otherwise becomes or is contingently liable upon, the obligation or liability of any other Person, or agrees to maintain the net worth or working capital or other financial condition of any other Person, or otherwise assures any creditor of such other Person against loss, including any comfort letter, operating agreement or take-or-pay contract and shall include the contingent liability of such Person in connection with any application for a letter of credit.

“Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Company or any Subsidiary, are treated as a single employer under Section 414(b) or 414(c) of the Code.

“Conversion/Continuation Notice” is defined in Section 2.2.4 .

“Credit Extension” means the making of an Advance or the issuance of a Facility LC.

“Credit Extension Date” means the Borrowing Date for an Advance or the issuance date for a Facility LC.

“Default” means an event described in Article VII .

“ERISA” means the Employee Retirement Income Security Act of l974.

“Eurodollar Advance” means an Advance which bears interest at a Eurodollar Rate as requested by the Company pursuant to Section 2.2 .

“Eurodollar Base Rate” means, with respect to a Eurodollar Advance for the relevant Interest Period, the applicable British Bankers’ Association LIBOR rate for deposits in U.S. dollars as reported by any generally recognized financial service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period; provided that if no such British Bankers’ Association LIBOR rate is available to the Administrative Agent for any reason, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by the Administrative Agent to be the rate at which JPMorgan or one of its affiliate banks offers to place deposits in U.S. dollars with first-class banks in the London interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of JPMorgan’s relevant Eurodollar Loan and having a maturity equal to such Interest Period.

“Eurodollar Loan” means a Loan which bears interest at a Eurodollar Rate as requested by the Company pursuant to Section 2.2 .

“Eurodollar Rate” means, with respect to a Eurodollar Advance for the relevant Interest Period, the sum of (i) the quotient of (a) the Eurodollar Base Rate applicable to that Interest Period, divided by (b) one minus the Reserve Requirement (expressed as a decimal) applicable to that Interest Period, plus (ii) the Applicable Margin. The Eurodollar Rate shall be rounded, if necessary, to the next higher 1/100 of 1%.

“Existing Agreement” means the Credit Agreement dated as of January 15, 2004 among the Company, various financial institutions and JPMorgan (as successor to Bank One, NA), as Administrative Agent.

“Facility Fee Rate” - see Schedule I .

“Facility LC” is defined in Section 2.7.1 .

“Facility LC Application” is defined in Section 2.7.3 .

“Facility LC Collateral Account” is defined in Section 2.7.11 .

“FERC” means the Federal Energy Regulatory Commission or any other federal regulatory body that succeeds to the functions of the Federal Energy Regulatory Commission.

“Federal Funds Effective Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to (i) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the preceding Business Day) by the Federal Reserve Bank of New York; or (ii) if such rate is not so published for any day which is a Business Day, the average of the quotations at approximately 10 a.m. for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.

“Floating Rate” means, for any day, a rate per annum equal to the Alternate Base Rate, changing when and as the Alternate Base Rate changes.

“Floating Rate Advance” means an Advance which bears interest at the Floating Rate.

“Floating Rate Loan” means a Loan which bears interest at the Floating Rate.

“FRB” means the Board of Governors of the Federal Reserve System.

“GAAP” is defined in Section 1.3 .

“Indebtedness” of a Person means such Person’s (i) obligations for borrowed money, (ii) obligations representing the deferred purchase price of property or services other than accounts payable arising in the ordinary course of such Person’s business payable on terms customary in the trade, (iii) obligations, whether or not assumed, secured by liens on, or payable out of the proceeds or production from, property now or hereafter owned or acquired by such Person, (iv) obligations which are evidenced by notes, acceptances, or other instruments, (v) Capitalized Lease Obligations, (vi) net liabilities under interest rate swap, exchange or cap agreements, and (vii) all Contingent Obligations of such Person.

“Interest Period” means, with respect to a Eurodollar Advance, a period of one, two, three or six months commencing on a Business Day selected by the Company pursuant to this Agreement. Such Interest Period shall end on (but exclude) the day which corresponds numerically to such date one, two, three or six months thereafter, provided that if there is no such numerically corresponding day in such next, second, third or sixth succeeding month, such Interest Period shall end on the last Business Day of such next, second, third or sixth succeeding month. If an Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next succeeding Business Day, provided that if said next succeeding Business Day falls in a new month, such Interest Period shall end on the immediately preceding Business Day.

“JPMorgan” means JPMorgan Chase Bank, N.A. in its individual capacity, and its successors and assigns.

“LC Fee Rate” - see Schedule I .

“LC Issuer” means JPMorgan (or any subsidiary or affiliate of JPMorgan designated by JPMorgan) in its capacity as issuer of Facility LCs hereunder.

“LC Obligations” means, at any time, the sum, without duplication, of (i) the aggregate undrawn stated amount under all Facility LCs outstanding at such time plus (ii) the aggregate unpaid amount of all Reimbursement Obligations at such time.

“LC Payment Date” is defined in Section 2.7.5 .

“Lending Installation” means any office, branch, subsidiary or affiliate of any Bank or the Administrative Agent.

“Loan” means, with respect to a Bank, such Bank’s portion of any Advance.

“Loan Documents” means this Agreement, any Note and the Facility LC Applications.

“Midwest Power Indenture” means the 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 (Harris Trust and Savings Bank, successor trustee), as trustee, and indentures supplemental thereto.

“Modify” and “Modification” are defined in Section 2.7.1 .

“Moody’s” means Moody’s Investors Service, Inc., or any successor thereto.

“Moody’s Rating” means at any time the rating issued by Moody’s and then in effect with respect to the Company’s senior unsecured long-term debt securities without third-party credit enhancement (it being understood that if the Company does not have any outstanding debt securities of the type described above but has an indicative rating from Moody’s for debt securities of such type, then such indicative rating shall be used for determining the “Moody’s Rating”).

“Multiemployer Plan” means a Plan maintained pursuant to a collective bargaining agreement or any other arrangement to which the Company or any member of the Controlled Group is a party to which more than one employer is obligated to make contributions.

“Note” means a promissory note in substantially the form of Exhibit A .

“Obligations” means all unpaid principal of and accrued and unpaid interest on the Loans, all Reimbursement Obligations, all accrued and unpaid fees and all other reimbursements, indemnities or other obligations of the Company to any Bank, the LC Issuer, the Administrative Agent or any indemnified party hereunder arising under the Loan Documents.

“Outstanding Credit Exposure” means, as to any Bank at any time, the sum of (i) the aggregate principal amount of its Loans outstanding at such time plus (ii) an amount equal to its Pro Rata Share of the LC Obligations at such time.

“Payment Date” means the last day of each March, June, September and December.

“PBGC” means the Pension Benefit Guaranty Corporation and its successors and assigns.

“Permitted Encumbrance” means:

(i) (a) any mortgage, pledge or other lien or encumbrance on any property hereafter acquired or constructed by the Company or a Subsidiary, or on which property so constructed is located, and created prior to, contemporaneously with or within 360 days after, such acquisition or construction or the commencement of commercial operation of such property to secure or provide for the payment of any part of the purchase or construction price of such property, (b) any property subject to any mortgage, pledge, or other lien or encumbrance upon such property existing at the time of acquisition thereof by the Company or any Subsidiary, whether or not assumed by the Company or such Subsidiary, (c) any mortgage, pledge or other lien or encumbrance existing on the property, shares of stock, membership interests or indebtedness of a corporation or limited liability company at the time such corporation or limited liability company becomes a Subsidiary or any pledge of the shares of stock or membership interests of such corporation or limited liability company prior to, contemporaneously with or within 360 days after such corporation or limited liability company becomes a Subsidiary to secure or provide for the payment of any part of the purchase price of such stock or membership interests or (d) any conditional sales agreement or other title retention agreement with respect to any property hereafter acquired or constructed; provided that, in the case of clauses (a) through (d) , the lien of any such mortgage, pledge or other lien does not spread to property owned prior to such acquisition or construction or to other property thereafter acquired or constructed other than additions to such acquired or constructed property and other than property on which property so constructed is located; and provided , further , that if a firm commitment from a bank, insurance company or other lender or investor (not including the Company, a Subsidiary or an Affiliate of the Company) for the financing of the acquisition or construction of property is made prior to, contemporaneously with or within the 360-day period referred to above, the applicable mortgage, pledge, lien or encumbrance shall be deemed to be permitted by this clause (i) whether or not created or assumed within such period;

(ii) any mortgage, pledge or other lien or encumbrance created for the sole purpose of extending, renewing or refunding any mortgage, pledge, lien or encumbrance permitted by clause (i) above; provided that the principal amount of indebtedness secured thereby shall not exceed the principal amount of indebtedness so secured at the time of such extension, renewal or refunding and that such extension, renewal or refunding mortgage, pledge or other lien or encumbrance shall be limited to all or any part of the same property that secured the mortgage, pledge or other lien or encumbrance extended, renewed or refunded;

(iii) any lien for taxes or assessments or governmental charges or levies not then due and delinquent or the validity of which is being contested in good faith, and against which an adequate reserve has been established; any lien on any property created in connection with pledges or deposits to secure public or statutory obligations or to secure performance in connection with bids or contracts; any materialmen’s, mechanics’, carrier’s, workmen’s, repairmen’s or other similar lien or any lien on any property created in connection with deposits to obtain the release of any such lien; any lien on any property created in connection with deposits to secure surety, stay, appeal or customs bonds; any lien created by or resulting from any litigation or legal proceeding which is currently being contested in good faith by appropriate proceedings; any lease and any lien, right of reverter or other possessory right of the lessor thereunder; any zoning restriction, easement, right-of-way or other restriction on the use of real property or any minor irregularity in the title thereto; and any other lien or encumbrance similar to those described in this clause (iii) , the existence of which, in the opinion of the board of directors of the Company, does not materially impair the use by the Company or a Subsidiary of the affected property in the operation of the business of the Company or a Subsidiary, or the value of such property for the purposes of such business;

(iv) any mortgage, pledge or other lien or encumbrance created after the date hereof on any property leased to or purchased by the Company or a Subsidiary after that date and securing, directly or indirectly, obligations issued by a state, a territory or a possession of the United States, or any political subdivision of any of the foregoing, or the District of Columbia, to finance the cost of acquisition or cost of construction of such property; provided that the interest paid on such obligations is entitled to be excluded from gross income of the recipient pursuant to Section 103(a)(1) of the Internal Revenue Code of 1986 (or any successor to such provision), as in effect at the time of the issuance of such obligations;

(v) any mortgage, pledge or other lien or encumbrance on any property now owned or hereafter acquired or constructed by the Company or a Subsidiary, or on which property so owned, acquired or constructed is located, to secure or provide for the payment of any part of the construction price or cost of improvements of such property, and created prior to, contemporaneously with or within 360 days after, such construction or improvement; provided that if a firm commitment from a bank, insurance company or other lender or investor (not including the Company, a Subsidiary or an Affiliate of the Company) for the financing of the acquisition or construction of property is made prior to, contemporaneously with or within the 360-day period hereinabove referred to, the applicable mortgage, pledge, lien or encumbrance shall be deemed to be permitted by this clause (v) whether or not created or assumed within such period; and

(vi) any mortgage, pledge or other lien or encumbrance not otherwise described in clauses (i) through (v) ; provided that the aggregate amount of indebtedness secured by all such mortgages, pledges, liens or encumbrances does not exceed the greater of (a) $100,000,000 and (b) 10% of total shareholders’ equity of the Company and its consolidated Subsidiaries as of the end of the most recently completed fiscal quarter of the Company for which financial information is then available.

“Person” means any corporation, natural person, firm, joint venture, partnership, trust, limited liability company, unincorporated organization, enterprise, government or any department or agency of any government.

“Plan” means an employee pension benefit plan which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code as to which the Company or any member of the Controlled Group may have any liability.

“Prime Rate” means a rate per annum equal to the prime rate of interest announced from time to time by JPMorgan (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes.

“Principal Facility” means the real property, fixtures, machinery and equipment relating to any facility owned by the Company or any Subsidiary, except any facility that is not of material importance to the business conducted by the Company and its Subsidiaries, taken as a whole.

“Pro Rata Share” means, with respect to a Bank, a percentage equal to such Bank’s Commitment divided by the Aggregate Commitment.

“Rate Option” means the Eurodollar Rate or the Floating Rate.

“Regulated Subsidiary” means any Subsidiary that owns or operates facilities used for the generation, transmission or distribution of electric energy and is subject to the jurisdiction of any governmental authority of the United States or any state or political subdivision thereof, as to any of its: rates; services; accounts; issuances of securities; affiliate transactions; or construction, acquisition or sale of any such facilities, except that any "exempt wholesale generator", as defined in 15 USC 79z-5a(a)(1), “qualifying facility”, as defined in 18 CFR 292.101(b)(1), “foreign utility company”, as defined in 15 USC 79z-5b(a)(3), and “power marketer”, as defined in NORTHWEST POWER MARKETING COMPANY, L.L.C., 75 FERC PARA 61,281, shall not be a Regulated Subsidiary.

“Regulation D” means Regulation D of the FRB.

“Regulation U” means Regulation U of the FRB.

“Regulation X” means Regulation X of the FRB.

“Reimbursement Obligations” means, at any time, the aggregate of all obligations of the Company then outstanding under Section 2.7 to reimburse the LC Issuer for amounts paid by the LC Issuer in respect of any one or more drawings under Facility LCs.

“Reportable Event” means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event, provided that a failure to meet the minimum funding standard of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waivers in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.

“Required Banks” means Banks in the aggregate having more than 50% of the Aggregate Commitment or, if the Aggregate Commitment has been terminated, Banks in the aggregate holding more than 50% of the Aggregate Outstanding Credit Exposure.

“Reserve Requirement” means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on Eurocurrency liabilities.

“S&P” means Standard & Poor’s Rating Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

“S&P Rating” means at any time the rating issued by S&P and then in effect with respect to the Company’s senior unsecured long-term debt securities without third-party credit enhancement (it being understood that if the Company does not have any outstanding debt securities of the type described above but has an indicative rating from S&P for debt securities of such type, then such indicative rating shall be used for determining the “S&P Rating”).

“Single Employer Plan” means a Plan maintained by the Company or any member of the Controlled Group for employees of the Company or any member of the Controlled Group.

“Subsidiary” means any corporation more than 50% of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by the Company or by one or more Subsidiaries or by the Company and one or more Subsidiaries, or any similar business organization which is so owned or controlled.

“Syndication Agent” means Union Bank of California, N.A., in its capacity as syndication agent hereunder, and not in its individual capacity as a Bank.

“Tax-Exempt Bonds” means the following:

(i) the City of Council Bluffs, Iowa Pollution Control Refunding Revenue Bonds (Iowa-Illinois Gas and Electric Company Project), Series 1995 in the original aggregate principal amount of $12,750,000;

(ii) the Illinois Development Finance Authority Pollution Control Refunding Revenue Bonds (Iowa-Illinois Gas and Electric Project), Series 1993 in the original aggregate principal amount of $4,200,000;

(iii) the City of Chillicothe, Iowa Pollution Control Refunding Revenue Bonds (Iowa-Illinois Gas and Electric Project), Series 1993 in the original aggregate principal amount of $6,850,000;

(iv) $21,895,000 City of Salix, Iowa Pollution Control Refunding Revenue Bonds (Midwest Power Systems Inc. Project), Series 1993;

(v) $6,400,000 City of Chillicothe, Iowa Pollution Control Refunding Revenue Bonds (Midwest Power Systems Inc. Project), Series 1993A;

(vi) $34,900,000 Louisa County, Iowa Adjustable Tender Pollution Control Refunding Revenue Bonds (Midwest Power Systems Inc. Project), Series 1994;

(vii) $29,500,000 Louisa County, Iowa Customized Purchase Pollution Control Revenue Refunding Bonds (Iowa-Illinois Gas and Electric Company Project), Series 1986A;

(viii) $3,900,000 Louisa County, Iowa Customized Purchase Pollution Control Revenue Refunding Bonds (Iowa-Illinois Gas and Electric Company Project), Series 1987; and

(ix) any tax-exempt bonds issued to replace or refund the bonds referred to in clauses (i) through (viii) above.

“Termination Date” means the earliest to occur of (i) November 18, 2009, (ii) the date on which the Aggregate Commitment is reduced to zero or terminated in accordance with the terms hereof and (iii) the date as of which the Company is no longer authorized to maintain outstanding Credit Extensions hereunder by FERC.

“Unfunded Liabilities” means, (i) in the case of Single Employer Plans, the amount (if any) by which the present value of all vested nonforfeitable benefits under such Plan exceeds the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans, and (ii) in the case of Multiemployer Plans, the withdrawal liability that would be incurred by the Controlled Group if all members of the Controlled Group completely withdrew from all Multiemployer Plans.

“Unmatured Default” means an event which but for the lapse of time or the giving of notice, or both, would constitute a Default.

“Utilization Fee Rate” - see Schedule I .

“Wholly-Owned Subsidiary” means any Subsidiary all of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by the Company or one or more Wholly-Owned Subsidiaries, or by the Company and one or more Wholly-Owned Subsidiaries, or any similar business organization which is so owned or controlled.

1.2 Interpretation .

(i) Definitions shall be equally applicable to both the singular and plural forms of the defined terms.

(ii) The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”

(iii) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including.”

(iv) Unless otherwise expressly provided herein, (x) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (y) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation.

(v) Unless otherwise specified, (x) any reference to a particular time of day shall mean such time in Chicago, Illinois; and (y) any reference to an Article, Section, Exhibit or Schedule means an Article or Section of, or an Exhibit or Schedule to, this Agreement.

1.3 Accounting Terms . Unless otherwise specified herein, all accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles as in effect from time to time (“GAAP”). If any change in GAAP occurs after the date hereof that would result in a change in the method of calculation of any financial covenant, test, restriction or standard herein or in any related definition (an “Accounting Change”), the parties hereto agree to enter into negotiations, in good faith, in order to amend such provision in a credit neutral manner so as to reflect equitably such change with the desired result that the criteria for evaluating the Company’s and its Subsidiaries’ financial condition shall be the same after such changes as if such changes had not been made; provided that, until such provision is amended in a manner reasonably satisfactory to the Company and the Required Banks, no Accounting Change shall be given effect in such calculations.

ARTICLE II

THE FACILITY

2.1 The Facility .

2.1.1 Description of Facility . The Banks and the LC Issuer grant to the Company a revolving credit facility pursuant to which, and upon the terms and subject to the conditions herein set out, (a) each Bank severally agrees, on the terms and conditions set forth in this Agreement, to (i) make Loans to the Company and (ii) participate in Facility LCs issued upon the request of the Company and (b) the LC Issuer agrees to issue Facility LCs upon the request of the Company on the terms and conditions set forth in this Agreement.

2.1.2 Facility Amount . In no event may (i) the Aggregate Outstanding Credit Exposure exceed the Aggregate Commitment or (ii) any Bank’s Outstanding Credit Exposure exceed such Bank’s Commitment.

2.1.3 Availability of Facility . Subject to the terms hereof, the facility is available from the date hereof to the Termination Date. Subject to the terms of this Agreement, the Company may borrow, repay and reborrow at any time prior to the Termination Date.

2.2 Advances .

2.2.1 Advances . Each Advance hereunder shall consist of borrowings made from the several Banks ratably in accordance with their respective Pro Rata Shares.

2.2.2 Rate Options . The Advances may be Floating Rate Advances or Eurodollar Advances, or a combination thereof, selected by the Company in accordance with Section 2.2.3 . No Advance may mature after the scheduled Termination Date.

2.2.3 Method of Selecting Rate Options and Interest Periods for Advances . The Company shall select the Rate Option and Interest Period applicable to each Advance from time to time. The Company shall give the Administrative Agent irrevocable notice (a “Borrowing Notice”) not later than 10:00 a.m. on the Borrowing Date of each Floating Rate Advance and three Business Days before the Borrowing Date for each Eurodollar Advance. A Borrowing Notice shall specify:

(i) the Borrowing Date, which shall be a Business Day, of such Advance,

(ii) the aggregate amount of such Advance,

(iii) the Rate Option selected for such Advance, and

(iv) in the case of each Eurodollar Advance, the Interest Period applicable thereto (which may not end after the scheduled Termination Date).

2.2.4 Conversion and Continuation of Outstanding Advances . Floating Rate Advances shall continue as Floating Rate Advances unless and until such Floating Rate Advances are converted into Eurodollar Advances. Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of the then applicable Interest Period therefor, at which time such Eurodollar Advance shall be automatically converted into a Floating Rate Advance unless, subject to the immediately following sentence, the Company shall have given the Administrative Agent a Conversion/Continuation Notice requesting that, at the end of such Interest Period, such Eurodollar Advance either continue as a Eurodollar Advance for the same or another Interest Period or be converted into a Floating Rate Advance. Subject to the terms of Section 2.4.2 and the immediately preceding sentence, the Company may elect from time to time to convert all or any part of an Advance accruing interest at any Rate Option into an Advance accruing interest at any other Rate Option; provided that any conversion of any Eurodollar Advance shall be made on, and only on, the last day of the Interest Period applicable thereto. The Company shall give the Administrative Agent irrevocable notice (a “Conversion/ Continuation Notice”) of each conversion of an Advance or continuation of a Eurodollar Advance not later than 10:00 a.m. on the effective date of such conversion, in the case of a conversion into a Floating Rate Advance, or three Business Days, in the case of a conversion into or continuation of a Eurodollar Advance, prior to the date of the requested conversion or continuation, specifying:

(i) the requested date, which shall be a Business Day, of such conversion or continuation;

(ii) the aggregate amount and Rate Option of the Advance which is to be converted or continued; and

(iii) the amount of and Rate Option for the Advance(s) into which such Advance is to be converted or continued and, in the case of a conversion into or continuation of a Eurodollar Advance, the duration of the Interest Period applicable thereto.

2.3 Fees .

2.3.1 Facility Fee . The Company hereby agrees to pay to the Administrative Agent for the account of each Bank a facility fee at a rate per annum equal to the Facility Fee Rate on such Bank’s Pro Rata Share of the Aggregate Commitment (or, after termination of the Commitments, on such Bank’s Outstanding Credit Exposure), for the period from the date of this Agreement through the Termination Date (or such later date on which all Obligations are paid in full and all Letters of Credit have expired or terminated), payable in arrears on each Payment Date and on the Termination Date (and, if applicable, thereafter on demand) for any period then ending for which such fee shall not have been theretofore paid.

2.3.2 Administrative Agent’s Fees and Arrangers’ Fees . The Company agrees to pay to the Administrative Agent and the Arrangers for their own respective accounts such additional fees as the Administrative Agent, the Arrangers and the Company may agree upon from time to time.

2.3.3 Upfront Fee . Concurrently with the execution of this Agreement, the Company agrees to pay the Administrative Agent for the account of each Bank an upfront fee in the amount previously agreed to among the Company, the Arrangers and such Bank.

2.3.4 Utilization Fee . The Company agrees to pay to the Administrative Agent for the account of each Bank a utilization fee at a rate per annum equal to the Utilization Fee Rate on such Bank’s Outstanding Credit Exposure for each day on which the Aggregate Outstanding Credit Exposure exceeds 50% of the Aggregate Commitment, payable on each Payment Date and on the Termination Date (and, if applicable, thereafter on demand) for any period then ending for which such fee shall not have been theretofore paid.

2.4 General Facility Terms .

2.4.1 Method of Borrowing . Not later than noon on each Borrowing Date, each Bank shall make available its Loan or Loans in funds immediately available in Chicago, to the Administrative Agent at its address specified pursuant to Article XIII . The Administrative Agent shall promptly initiate a transfer of the funds so received from the Banks to such account with a domestic bank as the Company may designate.

2.4.2 Minimum Amount of Each Advance . Each Advance shall be in the minimum amount of $5,000,000 (and in integral multiples of $1,000,000 if in excess thereof); provided that any Floating Rate Advance may be in the aggregate amount of the unused Aggregate Commitment.

2.4.3 Payment on the Termination Date . The Company shall pay all outstanding Advances in full on the Termination Date.

2.4.4 Optional Principal Payments . The Company may from time to time pay all outstanding Floating Rate Advances, or, in a minimum aggregate amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), any portion of the outstanding Floating Rate Advances upon one Business Day’s prior notice to the Administrative Agent (except that, if at any time Floating Rate Advances are made pursuant to Section 2.7.6 to refinance any Reimbursement Obligation, the next prepayment of Floating Rate Advances shall be in an amount so that the aggregate outstanding principal amount of all Floating Rate Advances is either (a) zero or (b) a principal amount of $5,000,000 or multiples of $1,000,000 in excess thereof). The Company may from time to time pay any outstanding Eurodollar Advance or, in a minimum aggregate amount of $5,000,000 (and in multiples of $1,000,000 if in excess thereof), any portion of any outstanding Eurodollar Advance upon three Business Day’s prior notice to the Administrative Agent, provided that the Company shall be obligated to reimburse the Banks pursuant to Section 3.3 if such prepayment is made on any day other than the last day of an Interest Period for such Eurodollar Advance.

2.4.5 Interest Rates and Periods . Subject to the provisions of Section 2.4.6 , (a) each Floating Rate Advance shall bear interest from the date of the making thereof to the date of payment thereof or conversion thereof to a Eurodollar Advance at the Floating Rate as in effect from time to time and (b) each Eurodollar Advance shall bear interest from the first day of the Interest Period applicable thereto to the last day of such Interest Period at the interest rate determined as applicable to such Interest Period. The Company shall not request a Eurodollar Advance if, after giving effect to the requested Eurodollar Advance, more than 15 separate Eurodollar Advances would be outstanding.

2.4.6 Rate after Maturity . Except as provided in the next sentence, any Advance or Reimbursement Obligation not paid at maturity, whether by acceleration or otherwise, shall bear interest until paid in full at a rate per annum equal to the Alternate Base Rate plus 2% per annum. In the case of a Eurodollar Advance the maturity of which is accelerated, such Eurodollar Advance shall bear interest for the remainder of the applicable Interest Period, at the higher of the rate otherwise applicable to such Interest Period plus 2% per annum or the Prime Rate plus 2% per annum.

2.4.7 Payment Dates; Interest and Fee Basis . Interest accrued on each Floating Rate Advance shall be payable on each Payment Date, on the Termination Date and thereafter on demand. Interest accrued on each Eurodollar Advance shall be payable on the last day of its applicable Interest Period, on any date on which such Advance is prepaid, whether due to acceleration or otherwise, on the Termination Date and thereafter on demand. Interest accrued on each Eurodollar Advance having an Interest Period longer than three months shall also be payable on the last day of each three-month interval during such Interest Period. Interest on Floating Rate Advances when such interest is based on the Prime Rate shall be calculated for the actual number of days elapsed on the basis of a year consisting of 365 or, when appropriate, 366 days. All other interest and all fees under Section 2.3 shall be calculated for the actual number of days elapsed on the basis of a year consisting of 360 days. Interest shall be payable for the day an Advance is made but not for the day of any payment on the amount paid if payment is received prior to noon at the place of payment. If any payment of principal of or interest on an Advance, or any other amount payable hereunder, shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment.

2.4.8 Method of Payment . Except as otherwise specifically provided in this Agreement, all payments of principal, interest and fees hereunder shall be made without setoff, deduction or counterclaim in immediately available funds to the Administrative Agent at the Administrative Agent’s address specified pursuant to Article XIII or at any other Lending Installation of the Administrative Agent within the United States specified in writing by the Administrative Agent to the Company (at least one Business Day prior to the applicable due date). All such payments shall be made by noon on the date when due and shall be applied (i) first, to any unpaid Reimbursement Obligations and interest thereon, ratably among the holders thereof in accordance with the amount thereof held by each such holder, (ii) second, to any principal and interest due in connection with Advances, ratably among the Banks in accordance with their respective Pro Rata Shares, and (iii) third, to any other Obligations that are then due, ratably among the Banks in accordance with their respective Pro Rata Shares. Each payment delivered to the Administrative Agent for the account of any Bank or the LC Issuer shall be delivered by the Administrative Agent to such Bank or the LC Issuer in the same type of funds which the Administrative Agent received at such Bank’s or the LC Issuer’s address specified pursuant to Article XIII or at any Lending Installation specified in a notice received by the Administrative Agent from such Bank. Any payment to be delivered by the Administrative Agent pursuant to the foregoing sentence shall be delivered (a) if the corresponding payment was received by the Administrative Agent by noon on a Business Day, on such Business Day, and (b) otherwise, on the Business Day immediately following the Administrative Agent’s receipt of the corresponding payment. The Company authorizes the Administrative Agent to charge the account of the Company for each payment of principal, Reimbursement Obligations and interest as it becomes due hereunder. Any payment made by the Company prior to a date when due shall be applied as the Company may determine; provided that, except as otherwise provided herein, any such payment shall be applied ratably among the Banks in accordance with their respective Pro Rata Shares. Each reference to the Administrative Agent in this Section 2.4 shall also be deemed to refer, and shall apply equally, to the LC Issuer, in the case of payments required to be made by the Company to the LC Issuer pursuant to Section 2.7.6 .

2.4.9 Evidence of Indebtedness; Telephonic Notices .

(i) Each Bank shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Company to such Bank resulting from each Loan made by such Bank from time to time, including the amounts of principal and interest payable and paid to such Bank from time to time hereunder.

(ii) The Administrative Agent shall also maintain accounts in which it will record (a) the amount of each Loan made hereunder, the type thereof and the Interest Period with respect thereto, (b) the amount of any principal or interest due and payable or to become due and payable from the Company to each Bank hereunder, (c) the original stated amount of each Facility LC and the amount of LC Obligations outstanding at any time and (d) the amount of any sum received by the Administrative Agent hereunder from the Company and each Bank’s share thereof.

(iii) The entries maintained in the accounts maintained pursuant to clauses (i) and (ii) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided that the failure of the Administrative Agent or any Bank to maintain such accounts or any error therein shall not in any manner affect the obligation of the Company to repay the Obligations in accordance with their terms.

(iv) Any Bank may request that its Loans be evidenced by a Note. In such event, the Company shall execute and deliver to such Bank a Note payable to the order of such Bank. Each Bank is authorized to record on the schedule attached to its Note, or otherwise record in accordance with its usual practice, the date and amount of each Loan made by such Bank; provided that any failure to so record shall not affect the Company’s obligations under any Note.

(v) The Company authorizes the Banks and the Administrative Agent to extend Advances and effect Rate Option selections based on telephonic notices made by any person the Administrative Agent or any Bank in good faith believes to be an Authorized Officer. The Company agrees to deliver promptly to the Administrative Agent a written confirmation of each telephonic notice signed by an Authorized Officer. If the written confirmation differs in any material respect from the action taken by the Administrative Agent and the Banks, the records of the Administrative Agent and the Banks shall govern absent manifest error.

2.4.10 Notification of Advances, Interest Rates and Prepayments . The Administrative Agent will notify each Bank of the contents of each borrowing notice and payment notice received by it hereunder promptly and in any event before the close of business on the same Business Day of receipt thereof (or, in the case of borrowing notices with respect to Floating Rate Advances, within one hour of receipt thereof). Promptly after notice from the LC Issuer, the Administrative Agent will notify each Bank of the contents of each request for issuance of a Facility LC hereunder. The Administrative Agent will notify each Bank of the interest rate applicable to each Eurodollar Advance promptly upon determination of such interest rate and will give each Bank prompt notice of each change in the Prime Rate.

2.4.11 Non-Receipt of Funds by the Administrative Agent . Unless the Company or a Bank, as the case may be, notifies the Administrative Agent prior to the date on which it is scheduled to make payment to the Administrative Agent of (i) in the case of a Bank, the proceeds of a Loan, or (ii) in the case of the Company, a payment of principal, interest or fees to the Administrative Agent for the account of the Banks, that it does not intend to make such payment, the Administrative Agent may assume that such payment has been made. The Administrative Agent may, but shall not be obligated to, make the amount of such payment available to the intended recipient in reliance upon such assumption. If such Bank or the Company, as the case may be, has not in fact made such payment to the Administrative Agent, the recipient of such payment shall, on demand by the Administrative Agent, repay to the Administrative Agent the amount so made available together with interest thereon in respect of each day during the period commencing on the date such amount was so made available by the Administrative Agent until the date the Administrative Agent recovers such amount at a rate per annum equal to (x) in the case of payment by a Bank, the Federal Funds Effective Rate for such day or (y) in the case of payment by the Company, the interest rate applicable to the relevant Loan.

2.4.12 Changes in Aggregate Commitment . (i) The Company may at any time after the date hereof cancel the Aggregate Commitment in whole, or in a minimum aggregate amount of $5,000,000 (and in integral multiples of $1,000,000) ratably among the Banks upon at least 5 days’ prior written notice to the Administrative Agent, which notice shall specify the amount of such reduction; provided that no such notice of cancellation shall be effective to the extent that it would reduce the Aggregate Commitment to an amount which would be less than the Aggregate Outstanding Credit Exposure at the time such cancellation is to take effect. Any notice of cancellation given pursuant to this Section shall be irrevocable and shall specify the date upon which such cancellation is to take effect.

(ii) The Company may, from time to time, by means of a letter delivered to the Administrative Agent substantially in the form of Exhibit E , request that the Aggregate Commitment be increased to up to $500,000,000 by (a) increasing the Commitment of one or more Banks which have agreed to such increase and/or (b) adding one or more commercial banks or other Persons as a party hereto (each an “Additional Bank”) with a Commitment in an amount agreed to by any such Additional Bank; provided that no Additional Bank shall be added as a party hereto without the written consent of the Administrative Agent (which shall not be unreasonably withheld) or if an Unmatured Default or a Default exists. Any increase in the Aggregate Commitment pursuant to this clause (ii) shall be effective three Business Days (or such other period of time as the Administrative Agent, the Company and the applicable increasing or new Bank shall agree) after the date on which the Administrative Agent has received and accepted the applicable increase letter in the form of Annex 1 to Exhibit E (in the case of an increase in the Commitment of an existing Bank) or assumption letter in the form of Annex 2 to Exhibit E (in the case of the addition of a new Bank). The Administrative Agent shall promptly notify the Company and the Banks of any increase in the amount of the Aggregate Commitment pursuant to this clause (ii) and of the Commitment and Pro Rata Share of each Bank after giving effect thereto. The Company acknowledges that, in order to maintain Advances in accordance with each Bank’s Pro Rata Share of all outstanding Advances prior to any increase in the Aggregate Commitment pursuant to this clause (ii) , a reallocation of the Commitments as a result of a non-pro-rata increase in the Aggregate Commitment may require prepayment of all or portions of certain Advances on the date of such increase (and any such prepayment shall be subject to the provisions of Section 3.3 ).

2.5 Lending Installations . Each Bank may book its Loans and its participations in any LC Obligations, and the LC Issuer may book the Facility LCs, at any Lending Installation selected by such Bank or the LC Issuer, as the case may be, and each Bank and the LC Issuer may change its Lending Installation from time to time. Each Bank and the LC Issuer will notify the Administrative Agent and the Company on or prior to the date of this Agreement of the Lending Installation which it intends to utilize for each type of Loan hereunder or the Facility LCs, as the case may be. Each Bank and the LC Issuer may, by written notice to the Administrative Agent and the Company, change the Lending Installation through which Loans will be made by it or Facility LCs will be issued by it and for whose account Loan payments or payments with respect to Facility LCs are to be made.

2.6 Withholding Tax Exemption . At least five Business Days prior to the first date on which interest or fees are payable hereunder for the account of any Bank, each Bank that is not incorporated under the laws of the United States of America, or a state thereof, agrees that it will deliver to each of the Company and the Administrative Agent two duly completed copies of United States Internal Revenue Service Form W-8BEN or W-8ECI, certifying in either case that such Bank is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes. Each Bank which so delivers a Form W-8BEN or W-8ECI further undertakes to deliver to each of the Company and the Administrative Agent two additional copies of such form (or a successor form) on or before the date that such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent forms so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Company or the Administrative Agent, in each case certifying that such Bank is entitled to receive payments under this Agreement and the Notes without deduction or withholding of any United States federal income taxes, unless an event (including any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Company and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax.

2.7 Facility LCs .

2.7.1 Issuance . The LC Issuer hereby agrees, on the terms and conditions set forth in this Agreement, to issue standby letters of credit (each, a “ Facility LC ”), and to renew, extend, increase, decrease or otherwise modify each Facility LC (“ Modify ,” and each such action a “ Modification ”), in each case upon the request of the Company from time to time from the date of this Agreement to the date that is 30 days prior to the scheduled Termination Date (or, if earlier, the Termination Date); provided that immediately after each such Facility LC is issued or Modified, (i) the aggregate amount of the outstanding LC Obligations shall not exceed $50,000,000 and (ii) the Aggregate Outstanding Credit Exposure shall not exceed the Aggregate Commitment. No Facility LC shall have an expiry date later than the earlier of (a) one year after its issuance (provided that a Facility LC may provide for the automatic renewal thereof for additional periods of up to one year each) and (b) five Business Days prior to the scheduled Termination Date.

2.7.2 Participations . Upon the issuance or Modification by the LC Issuer of a Facility LC in accordance with this Section 2.7 , the LC Issuer shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the LC Issuer, a participation in such Facility LC (and each Modification thereof) and the related LC Obligations in accordance with its Pro Rata Share.

2.7.3 Notice . Subject to Section 2.7.1 , the Company shall give the LC Issuer notice prior to 10:00 a.m. at least three Business Days prior to the proposed date of issuance or Modification of each Facility LC, specifying the beneficiary, the proposed date of issuance (or Modification) and the expiry date of such Facility LC, and describing the proposed terms of such Facility LC and the nature of the transactions proposed to be supported thereby. Upon receipt of such notice, the LC Issuer shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Bank, of the contents thereof and of the amount of such Bank’s participation in such proposed Facility LC. The issuance or Modification by the LC Issuer of any Facility LC shall, in addition to the conditions precedent set forth in Article IV (the satisfaction of which the LC Issuer shall have no duty to ascertain), be subject to the conditions precedent that such Facility LC shall be satisfactory to the LC Issuer and that the Company shall have executed and delivered such application agreement and/or such other instruments and agreements relating to such Facility LC as the LC Issuer shall have reasonably requested (each, a “ Facility LC Application ”). In the event of any conflict between the terms of this Agreement and the terms of any Facility LC Application, the terms of this Agreement shall control.

2.7.4 LC Fees . The Company shall pay to the Administrative Agent, for the account of the Banks ratably in accordance with their respective Pro Rata Shares, with respect to each Facility LC, a letter of credit fee at a per annum rate equal to the LC Fee Rate in effect from time to time on the undrawn stated amount available under such Facility LC. Such fee shall be calculated for actual days elapsed on the basis of a 360-day year and shall be payable in arrears on each Payment Date. The Company shall also pay to the LC Issuer for its own account (x) a fronting fee at the rates and times agreed to by the Company and the LC Issuer from time to time and (y) documentary and processing charges in connection with the issuance or Modification of and draws under Facility LCs in accordance with the LC Issuer’s standard schedule for such charges as in effect from time to time.

2.7.5 Administration; Reimbursement by Banks . Upon receipt from the beneficiary of any Facility LC of any demand for payment under such Facility LC, the LC Issuer shall notify the Administrative Agent and the Administrative Agent shall promptly notify the Company and each other Bank as to the amount to be paid by the LC Issuer as a result of such demand and the proposed LC Payment Date. The responsibility of the LC Issuer to the Company and each Bank shall be only to determine that the documents (including each demand for payment) delivered under each Facility LC in connection with such presentment shall be in conformity in all material respects with such Facility LC. The LC Issuer shall endeavor to exercise the same care in the issuance and administration of the Facility LCs as it does with respect to letters of credit in which no participations are granted, it being understood that in the absence of any gross negligence or willful misconduct by the LC Issuer, each Bank shall be unconditionally and irrevocably liable without regard to the occurrence of any Default or Unmatured Default or any condition precedent whatsoever, to reimburse the LC Issuer on demand for (i) such Bank’s Pro Rata Share of the amount of each payment made by the LC Issuer under each Facility LC (the date of such payment by the LC Issuer, an “ LC Payment Date ”) to the extent such amount is not reimbursed by the Company, or paid by the making of a Floating Rate Advance, pursuant to Section 2.7.6 below, plus (ii) interest on the foregoing amount to be reimbursed by such Bank, for each day from the date of the LC Issuer’s demand for such reimbursement (or, if such demand is made after 11:00 a.m. on such date, from the next succeeding Business Day) to the date on which such Bank pays the amount to be reimbursed by it, at a rate of interest per annum equal to the Federal Funds Effective Rate for the first three days and, thereafter, at a rate of interest equal to the rate applicable to Floating Rate Advances.

2.7.6 Reimbursement by Company . The Company shall be irrevocably and unconditionally obligated to reimburse the LC Issuer on the applicable LC Payment Date for any amount paid by the LC Issuer upon any drawing under any Facility LC, without presentment, demand, protest or other formalities of any kind; provided that neither the Company nor any Bank shall hereby be precluded from asserting any claim for direct (but not consequential) damages suffered by the Company or such Bank to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the LC Issuer in determining whether a request presented under any Facility LC issued by it complied with the terms of such Facility LC or (ii) the LC Issuer’s failure to pay under any Facility LC issued by it after the presentation to it of a request strictly complying with the terms and conditions of such Facility LC. If the Company fails to so reimburse the LC Issuer by 2:00 P.M. on the applicable LC Payment Date, the Administrative Agent shall promptly notify each Bank of such LC Payment Date, the amount of the unpaid Reimbursement Obligation and such Bank’s Pro Rata Share thereof. In such event, the Company shall be deemed to have requested a Floating Rate Advance to be disbursed on the applicable LC Payment Date in an amount equal to the unpaid Reimbursement Obligation, without regard to the minimum and multiples specified in Section 2.4.2 for Floating Rate Advances, but subject to the amount of the unutilized portion of the Aggregate Commitment and the conditions set forth in Article IV . Any Reimbursement Obligation that is not fully refinanced by the making of a Floating Rate Advance because the conditions set forth in Article IV cannot be satisfied or for any other reason shall bear interest payable on demand from such LC Payment Date to the date of reimbursement, at a rate of interest per annum equal to the rate applicable to Floating Rate Advances (plus, beginning on the third Business Day after the LC Issuer notifies the Company that the LC Issuer has paid the applicable drawing, 2%). The LC Issuer will pay to each Bank ratably in accordance with its Pro Rata Share all amounts received by it from the Company for application in payment, in whole or in part, of the Reimbursement Obligation in respect of any Facility LC issued by the LC Issuer, but only to the extent such Bank has made payment to the LC Issuer in respect of such Facility LC pursuant to Section 2.7.5 .

2.7.7 Obligations Absolute . The Company’s obligations under this Section 2.7 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Company may have or have had against the LC Issuer, any Bank or any beneficiary of a Facility LC. The Company further agrees with the LC Issuer and the Banks that the LC Issuer and the Banks shall not be responsible for, and the Company’s Reimbursement Obligation in respect of any Facility LC shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among the Company, any of its Affiliates, the beneficiary of any Facility LC or any financing institution or other party to whom any Facility LC may be transferred or any claims or defenses whatsoever of the Company or of any of its Affiliates against the beneficiary of any Facility LC or any such transferee. The LC Issuer shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Facility LC. The Company agrees that any action taken or omitted by the LC Issuer or any Bank under or in connection with each Facility LC and the related drafts and documents, if done without gross negligence or willful misconduct, shall be binding upon the Company and shall not put the LC Issuer or any Bank under any liability to the Company. Nothing in this Section 2.7.7 is intended to limit the right of the Company to make a claim against the LC Issuer for damages as contemplated by the proviso to the first sentence of Section 2.7.6 .

2.7.8 Actions of LC Issuer . The LC Issuer shall be entitled to rely, and shall be fully protected in relying, upon any Facility LC, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the LC Issuer in good faith. The LC Issuer shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first have received such advice or concurrence of the Required Banks as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Notwithstanding any other provision of this Section 2.7 , the LC Issuer shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement in accordance with a request of the Required Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and any future holders of a participation in any Facility LC.

2.7.9 Indemnification . The Company hereby agrees to indemnify and hold harmless each Bank, the LC Issuer and the Administrative Agent, and their respective directors, officers, agents and employees from and against any and all claims and damages, losses, liabilities, costs or expenses which such Bank, the LC Issuer or the Administrative Agent may incur (or which may be claimed against such Bank, the LC Issuer or the Administrative Agent by any Person whatsoever) by reason of or in connection with the issuance, execution and delivery or transfer of or payment or failure to pay under any Facility LC or any actual or proposed use of any Facility LC, including any claim, damage, loss, liability, cost or expense which the LC Issuer may incur (i) by reason of or in connection with the failure of any other Bank to fulfill or comply with its obligations to the LC Issuer hereunder (but nothing herein contained shall affect any right the Company may have against any defaulting Bank) or (ii) by reason of or on account of the LC Issuer issuing any Facility LC which specifies that the term “Beneficiary” included therein includes any successor by operation of law of the named Beneficiary, but which Facility LC does not require that any drawing by any such successor Beneficiary be accompanied by a copy of a legal document, satisfactory to the LC Issuer, evidencing the appointment of such successor Beneficiary; provided that the Company shall not be required to indemnify any Bank, the LC Issuer or the Administrative Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (x) the willful misconduct or gross negligence of the LC Issuer in determining whether a request presented under any Facility LC complied with the terms of such Facility LC or (y) the LC Issuer’s failure to pay under any Facility LC after the presentation to it of a request strictly complying with the terms and conditions of such Facility LC. Nothing in this Section 2.7.9 is intended to limit the obligations of the Company under any other provision of this Agreement.

2.7.10 Banks’ Indemnification . Each Bank shall, ratably in accordance with its Pro Rata Share, indemnify the LC Issuer, its affiliates and their respective directors, officers, agents and employees (to the extent not reimbursed by the Company) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees’ gross negligence or willful misconduct or the LC Issuer’s failure to pay under any Facility LC after the presentation to it of a request strictly complying with the terms and conditions of the Facility LC) that such indemnitees may suffer or incur in connection with this Section 2.7 or any action taken or omitted by such indemnitees hereunder.

2.7.11 Facility LC Collateral Account . The Company agrees that it will, upon the request of the Administrative Agent or the Required Banks and until the final expiration date of any Facility LC and thereafter as long as any amount is payable to the LC Issuer or the Banks in respect of any Facility LC, maintain a special collateral account pursuant to arrangements satisfactory to the Administrative Agent (the “ Facility LC Collateral Account ”) at the Administrative Agent’s office at the address specified pursuant to Article XIII , in the name of such Company but under the sole dominion and control of the Administrative Agent, for the benefit of the Banks and in which the Company shall have no interest other than as set forth in Section 8.1 . Except as otherwise expressly provided herein, the Company shall have no obligation to deposit or maintain funds in the Facility LC Collateral Account. The Company hereby pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Banks and the LC Issuer, a security interest in all of the Company’s right, title and interest in and to all funds which may from time to time be on deposit in the Facility LC Collateral Account to secure the prompt and complete payment and performance of the Obligations. The Administrative Agent will invest any funds on deposit from time to time in the Facility LC Collateral Account in certificates of deposit of JPMorgan having a maturity not exceeding 30 days. Nothing in this Section 2.7.11 shall either obligate the Administrative Agent to require the Company to deposit any funds in the Facility LC Collateral Account or limit the right of the Administrative Agent to release any funds held in the Facility LC Collateral Account in each case other than as required by Section 8.1 ; provided that if one or more Facility LCs are outstanding on the Termination Date, the Company shall deposit and thereafter maintain funds in the Facility LC Collateral Account in an amount equal to the undrawn stated amount available under all such Facility LCs plus all fees that would be payable thereon pursuant to Section 2.7.4 assuming each Facility LC is drawn on the scheduled expiration date thereof. The Administrative Agent shall, at the request of the Company, notify the Company of (a) the amount of funds on deposit in the Facility LC Collateral Account and (b) the amount required to be on deposit in the Facility LC Collateral Account pursuant to the proviso in the foregoing sentence. So long as no Default or Unmatured Default exists, the Administrative Agent shall, promptly upon request of the Company, return to the Company any amount held in the Facility LC Collateral Account pursuant to the proviso to the second preceding sentence in excess of the amount required by such proviso.

2.7.12 Rights as a Bank . In its capacity as a Bank, the LC Issuer shall have the same rights and obligations as any other Bank.

ARTICLE III

CHANGE IN CIRCUMSTANCES

3.1 Yield Protection . If after the date of this Agreement any law or any governmental or quasi-governmental rule, regulation, policy, guideline or directive (whether or not having the force of law), or any interpretation thereof, or compliance of any Bank or any applicable Lending Installation or the LC Issuer with any of the foregoing,

(i) subjects any Bank, any applicable Lending Installation or the LC Issuer to any tax, duty, charge or withholding on or from payments due from the Company (excluding taxation of the overall net income of any Bank, any applicable Lending Installation or the LC Issuer), or changes the basis of taxation of payments to any Bank or the LC Issuer in respect of its Loans, Facility LCs or participations therein or other amounts due it hereunder, or

(ii) imposes or increases or deems applicable any reserve, assessment, insurance charge, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank, any applicable Lending Installation or the LC Issuer (other than reserves and assessments taken into account in determining the interest rate applicable to Eurodollar Advances), or

(iii) imposes any other condition the result of which is to increase the cost to any Bank, any applicable Lending Installation or the LC Issuer of making, funding or maintaining Loans or of issuing or participating in Facility LCs or reduces any amount receivable by any Bank, any applicable Lending Installation or the LC Issuer in connection with loans, or requires any Bank, any applicable Lending Installation or the LC Issuer to make any payment calculated by reference to the amount of Loans, Facility LCs or participations therein held or interest received by it, by an amount deemed material by such Bank or the LC Issuer, or

(iv) affects the amount of capital required or expected to be maintained by any Bank, any applicable Lending Installation or the LC Issuer or any corporation controlling any Bank or the LC Issuer and such Bank or the LC Issuer, as the case may be, determines the amount of capital required is increased by or based upon the existence of this Agreement or its obligation to make Loans hereunder or to issue or participate in Facility LCs hereunder or of commitments of this type,

then, within 15 days of demand by such Bank or the LC Issuer, the Company shall pay such Bank or the LC Issuer, as the case may be, that portion of such increased expense incurred (including, in the case of Section 3.1(iv) , any reduction in the rate of return on capital to an amount below that which it or such Lending Installation or corporation could have achieved but for such law, rule, regulation, policy, guideline or directive and after taking into account such Bank’s or the LC Issuer’s policies as to capital adequacy) or reduction in an amount received which such Bank or the LC Issuer determines is attributable to making, funding and maintaining its Loans and/or issuing or participating in Facility LCs and its Commitment.

3.2 Availability of Rate Options . If (a) any Bank determines, and notifies the Company and the Administrative Agent, that maintenance of its Eurodollar Loans at a suitable Lending Installation would violate any applicable law, rule, regulation or directive, whether or not having the force of law, or (b) the Required Banks determine that (i) deposits of a type and maturity appropriate to match fund Eurodollar Advances are not available or (ii) the Eurodollar Rate for any Interest Period does not accurately reflect the cost of making or maintaining Eurodollar Loans for such Interest Period, then the Administrative Agent shall suspend the availability of Eurodollar Advances and, in the case of clause (a) , require any outstanding Eurodollar Loan of such Bank to be repaid at the end of each Interest Period therefor or on such earlier date as may be required by the applicable law, rule, regulation or directive (it being understood that, so long as the circumstances described in clause (a) continue, such Bank shall make and maintain Floating Rate Loans in an amount equal to its Pro Rata Share of each Eurodollar Advance).

3.3 Funding Indemnification . If any payment of a Eurodollar Advance occurs on a date which is not the last day of the applicable Interest Period, whether because of acceleration, prepayment or otherwise, or a Eurodollar Advance is not made or continued or a Floating Rate Advance is not converted to a Eurodollar Advance on the date specified by the Company for any reason other than default by the Banks, the Company will indemnify each Bank for any loss or cost incurred by it resulting therefrom, including any loss or cost in liquidating or employing deposits acquired to fund or maintain the Eurodollar Advance (but excluding lost profits).

3.4 Bank Statements; Survival of Indemnity . To the extent reasonably possible, each Bank and the LC Issuer, as applicable, shall designate an alternate Lending Installation or take such other actions with respect to its Eurodollar Loans or Facility LCs or participations therein to reduce any liability of the Company to such Bank or the LC Issuer, as the case may be, under Section 3.1 or to avoid the unavailability of a Rate Option under Section 3.2 , so long as such designation or the taking of such actions is not disadvantageous to such Bank or the LC Issuer, as the case may be. Each Bank and the LC Issuer, as the case may be, shall deliver a written statement of such Bank as to the amount due, if any, under Section 3.1 or 3.3 . Such written statement shall set forth in reasonable detail the calculations upon which such Bank or the LC Issuer determined such amount and shall be final, conclusive and binding on the Company in the absence of manifest error. Determination of amounts payable under such Sections in connection with a Eurodollar Loan shall be calculated as though each Bank funded its Eurodollar Loan through the purchase of a deposit of the type and maturity corresponding to the deposit used as a reference in determining the Eurodollar Rate applicable to such Loan, whether in fact that is the case or not. Unless otherwise provided herein, the amount specified in the written statement shall be payable within 10 Business Days after receipt by the Company of the written statement. The obligations of the Company under Sections 3.1 and 3.3 shall survive payment of the Obligations and termination of this Agreement.

3.5 Substitution of Bank . In the event that any Bank delivers to the Company a certificate as to an amount due under Section 3.1 or delivers a notice pursuant to Section 3.2 , the Company may, at its sole expense and effort, require such Bank to transfer and assign, without recourse (in accordance with Section 12.3 ) all (but not less than all) of its interests, rights and obligations under this Agreement to an assignee which shall assume such assigned obligations (which assignee may be another Bank, if a Bank accepts such assignment); provided that (i) such assignment shall not conflict with any law, rule or regulation or order of any court or other governmental authority, (ii) the Company shall have received a written consent of the Administrative Agent in the case of an entity that is not a Bank, which consent shall not be unreasonably withheld, (iii) the Company or such assignee shall have paid to the assigning Bank in immediately available funds the principal of and interest accrued to the date of such payment on the Loans made by it hereunder and all other amounts owed to it hereunder and the fee payable to the Administrative Agent pursuant to Section 12.3.2 and (iv) nothing in the foregoing is intended or shall be construed as obligating any Bank to locate such an assignee.

ARTICLE IV

CONDITIONS PRECEDENT

4.1 Conditions to Effectiveness . This Agreement shall become effective on the date that the Administrative Agent has received (a) counterpart signature pages hereto executed by the Company, the Administrative Agent, the LC Issuer and the Banks, (b) evidence, satisfactory to the Administrative Agent, that the Company has paid (or will pay with the proceeds of the initial Advance) all amounts then payable under the Existing Agreement and that the Existing Agreement has been (or concurrently with the effectiveness hereof will be) terminated and (c) the following documents, with sufficient copies to provide one copy for each Bank:

(i) Copies of the Articles of Incorporation of the Company, together with all amendments, and a certificate of good standing, both certified by the appropriate governmental officer in its jurisdiction of incorporation, as well as any other information that any Bank may request that is required by Section 326 of the USA PATRIOT ACT or necessary for the Administrative Agent or any Bank to verify the identity of the Company as required by Section 326 of the USA PATRIOT ACT.

(ii) Copies, certified by the Secretary or Assistant Secretary of the Company, of its By-Laws and of its Board of Directors’ resolutions (and resolutions of other bodies, if any are deemed necessary by counsel for any Bank) authorizing the execution of the Loan Documents.

(iii) An incumbency certificate, executed by the Secretary or Assistant Secretary of the Company, which shall identify by name and title and bear the signature of the officers of the Company authorized to sign the Loan Documents and to make borrowings hereunder, upon which certificate the Banks shall be entitled to rely until informed of any change in writing by the Company.

(iv) A certificate, signed by the President, the Chief Financial Officer or the Treasurer of the Company, stating that on the date of the effectiveness of this Agreement, (a) the representations and warranties set forth in Article V are true and correct in all material respects and (b) no Default or Unmatured Default has occurred and is continuing.

(v) A written opinion of the Company’s counsel, addressed to the Banks in substantially the form of Exhibit B .

(vi) A Note payable to the order of each Bank that has requested a Note.

(vii) Written money transfer instructions addressed to the Administrative Agent and signed by an Authorized Officer, together with such other related money transfer authorizations as the Administrative Agent may have reasonably requested.

(viii) Such other documents as any Bank or its counsel may have reasonably requested.

4.2 Each Credit Extension . The Banks and the LC Issuer shall not be required to make any Credit Extension, unless on the applicable Credit Extension Date:

(i) There exists no Default or Unmatured Default.

(ii) The representations and warranties contained in Article V , except the representations and warranties contained in Sections 5.6 and 5.7 , are true and correct in all material respects as of such Credit Extension Date.

Each Borrowing Notice with respect to an Advance and each request for issuance of a Facility LC shall constitute a representation and warranty by the Company that the conditions contained in Sections 4.2(i) and (ii) have been satisfied.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

The Company represents and warrants to the Banks that:

5.1 Organization, etc. The Company is a corporation validly organized and existing and in good standing under the laws of the state of its incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification, and has full power and authority and holds all requisite governmental licenses, permits and other approvals to own and hold under lease its property and to conduct its business substantially as currently conducted, except where the failure to be so qualified as a foreign corporation or to hold such licenses, permits and other approvals would not reasonably be expected to have a material adverse effect on the Company’s ability to perform its obligations under this Agreement.

5.2 Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Company of the Loan Documents are within the Company’s corporate powers, have been duly authorized by all necessary corporate action, and do not

(a) contravene the Company’s articles of incorporation, by-laws, and all shareholder agreements, voting trusts, and similar arrangements applicable to any of its authorized shares;

(b) contravene any law or governmental regulation or court decree or order, or any material contractual restriction, binding on or affecting the Company; or

5.3 Government Approval, Regulation, etc. No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Company of the Loan Documents, except for one or more orders of FERC which have been duly obtained and are in full force and effect. The Company is not an “investment company” within the meaning of the Investment Company Act of 1940. The Company is a “subsidiary company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935, but such holding company is exempt from regulation under such Act (except for Section 9(a)(2) thereof) pursuant to Section 3(a)(1) thereof.

5.4 Validity, etc. This Agreement constitutes, and, on the due execution and delivery thereof, each other Loan Document will constitute, the legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability and by the effect of general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and except that no representation or warranty is made as to the indemnification provisions of Section 9.7 or the provisions of this Agreement purporting to authorize conclusive determinations by the Banks.

5.5 Financial Information . The audited balance sheets of the Company and its Subsidiaries as at December 31, 2003, and the unaudited consolidated balance sheets of the Company and its Subsidiaries as at September 30, 2004, and the related consolidated statements of income, capitalization, cash flows and retained earnings, copies of which have been furnished to the Banks, have been prepared in accordance with GAAP consistently applied, except as may be otherwise indicated in the notes thereto, and present fairly the consolidated financial condition of the corporations covered thereby as at the dates thereof and the results of their operations for the periods then ended.

5.6 No Material Adverse Change . Since September 30, 2004, there has been no material adverse change in the consolidated financial condition, operations, assets, business, properties or prospects of the Company and its Subsidiaries, taken as a whole.

5.7 Litigation, Labor Controversies, etc. There is no pending or, to the knowledge of any Authorized Officer, threatened litigation, action, proceeding or labor controversy affecting the Company or any of its Subsidiaries, or any of their respective properties, assets or revenues, which could reasonably be expected to have a material adverse effect on the consolidated financial condition, operations, assets, business, properties or prospects of the Company and its Subsidiaries, taken as a whole, or which purports to affect the legality, validity or enforceability of the Loan Documents, except as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003, the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, or as heretofore disclosed in writing to the Banks.

5.8 Subsidiaries . The Company has no material Subsidiaries.

5.9 Taxes . The Company and each of its Subsidiaries has filed all federal and other material tax returns and reports required by law to have been filed and has paid all material taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books.

5.10 Regulations U and X . The Company is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loans will be used for a purpose which violates Regulation U or Regulation X. Terms for which meanings are provided in Regulation U or Regulation X, as from time to time in effect, are used in this Section 5.10 with such meanings.

5.11 ERISA . The Unfunded Liabilities of all Plans do not in the aggregate exceed an amount which, if asserted against the Company as a matured liability, could reasonably be expected to have a material adverse effect on the consolidated financial condition, operations, assets, business, properties or prospects of the Company and its Subsidiaries, taken as a whole. Each Plan complies in all material respects with all applicable requirements of law and regulations, no Reportable Event has occurred with respect to any Plan, neither the Company nor any other members of the Controlled Group has withdrawn from any Plan or initiated steps to do so, and no steps have been taken to terminate any Plan.

5.12 Environmental Matters . In the ordinary course of its business, the Company conducts an ongoing review of the effect of environmental laws on the business, operations and properties of the Company, in the course of which it identifies and evaluates associated liabilities and costs (including any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the Company has reasonably concluded that environmental laws (as in effect on the date on which this warranty is made or deemed made) are unlikely to have a material adverse effect on the business, financial condition, or results of operations of the Company and its Subsidiaries, considered as a whole.

ARTICLE VI

COVENANTS

During the term of this Agreement, unless the Required Banks shall otherwise consent in writing:

6.1 Financial Information, Reports, Notices, etc .

(a) The Company will furnish to the Administrative Agent (which shall promptly forward a copy to each Bank) copies of the following financial statements (which shall be prepared on a consolidated basis if the Company shall have any Subsidiaries), reports and information:

(i) Within 120 days after the close of each fiscal year of the Company, a balance sheet of the Company as of the end of such fiscal year and the related statements of income, capitalization, cash flows and retained earnings, each prepared in accordance with GAAP consistently applied (except for changes in which the Company’s independent certified public accountants concur) in reasonable detail and certified by a firm of independent certified public accountants selected by the Company; and

(ii) Within 60 days after the close of each of the first three quarters of the Company’s fiscal year, the unaudited quarterly interim financial reports of the Company.

Delivery by the Company of copies of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for any year shall satisfy the Company’s obligation under clause (i) of this Section 6.1(a) with respect to such year, and delivery by the Company to the Banks of a copy of the Company’s Quarterly Report on Form 10-Q filed with such Commission for any quarter shall satisfy the Company’s obligation under clause (ii) of this Section 6.1(a) with respect to such quarter. The Company will also furnish to the Administrative Agent (which shall promptly forward a copy to each Bank), together with the financial statements required under this Section 6.1(a) , copies of a compliance certificate in substantially the form of Exhibit D signed by an Authorized Officer showing the calculations necessary to determine compliance with Section 6.10 of this Agreement.

(b) The Company shall promptly, from time to time, furnish to any Bank such information regarding the operations, business affairs and financial condition of the Company as such Bank (acting through the Administrative Agent) may reasonably request.

6.2 Use of Proceeds . The Company will use the proceeds of the Advances to repay outstanding Indebtedness, to pay the purchase price, tender price or redemption price (principal component only without any interest component) of the Tax-Exempt Bonds, to support commercial paper issuance and for other general corporate purposes.

6.3 Corporate Existence . The Company agrees that during the term of this Agreement it will maintain its corporate existence and its good standing in those states in which it is required to maintain such existence and standing in order to conduct its business, will not dissolve or otherwise dispose of all or substantially all of its assets and will not consolidate with or merge into another corporation unless the acquirer of its assets or the corporation with which it shall consolidate or into which it shall merge shall be a corporation organized under the laws of one of the states of the United States of America, shall be a solvent corporation and shall assume in writing all of the obligations of the Company under the Loan Documents. Notwithstanding the foregoing, nothing in this Agreement shall restrict the Company from restructuring its operations or organization for the purpose of conducting its business in a manner deemed solely by the Company to be appropriate and any such restructuring or reorganization shall not constitute a violation of this Agreement unless it has a material adverse effect on the validity or enforceability of the Loan Documents or the liability of the Company thereunder.

6.4 Books and Records . The Company will keep books and records reflecting all of its business affairs and transactions in accordance with GAAP and permit the Administrative Agent (or any Bank together with the Administrative Agent) or any representative thereof (subject to Section 9.15 ), at reasonable times and intervals and at the expense of the Administrative Agent or such Bank, to visit its principal offices, discuss financial matters with its officers and examine and make copies of any of its books and other corporate records.

6.5 Litigation Notice . The Company will, promptly after an Authorized Officer obtains knowledge thereof, notify the Administrative Agent (which shall promptly notify each Bank) in writing of any action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency which (i) has remained unsettled for a period of 90 days from the commencement thereof and involves claims for damages or relief in an amount which could reasonably be expected to have a material adverse effect on the consolidated financial condition of the Company and its Subsidiaries, taken as a whole, or (ii) has resulted in a final judgment or judgments for the payment of money in an amount which has a materially adverse effect on the consolidated financial condition of the Company and its Subsidiaries, taken as a whole.

6.6 Notice of Default or Unmatured Default . The Company will promptly notify the Administrative Agent (which shall promptly notify each Bank) of any Default or Unmatured Default of which any Authorized Officer has knowledge, setting forth the details of such Default or Unmatured Default and any action which the Company proposes to take with respect thereto.

6.7 FERC Approvals . From time to time prior to the date of expiration of each approval of FERC then in effect with respect to the short-term debt of the Company, the Company will deliver to the Administrative Agent (which shall promptly forward a copy to each Bank) a copy of any order issued by FERC extending, supplementing, or superseding such approval obtained by the Company, certified as in full force and effect by an Authorized Officer.

6.8 Maintenance of Property; Insurance . The Company will keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. The Company will maintain with financially sound and reputable insurance companies insurance on its property in such amounts and covering such risks as is consistent with sound business practice, and the Company will furnish to any Bank upon request full information as to the insurance carried.

6.9 Compliance with Laws . The Company will comply in all material respects with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including environmental laws, ERISA, the USA Patriot Act, the U.S. Bank Secrecy Act and any sanction program administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control of the United States Department of Treasury, and rules and regulations thereunder) except where either (i) the necessity of compliance therewith is contested in good faith by appropriate proceedings or (ii) the failure to so comply would not reasonably be expected to have a material adverse effect on the business, financial condition, or results of operations of the Company and its Subsidiaries, considered as a whole.

6.10 Debt to Capitalization Ratio . The Company will not permit the ratio of (a) Consolidated Debt to (b) the sum of Consolidated Debt plus Consolidated Net Worth to exceed 0.65 to 1 as of the last day of any fiscal quarter of the Company.

6.11 Liens . The Company will not, nor will it permit any Subsidiary to, directly or indirectly create or assume, except in favor of the Company or a Wholly-Owned Subsidiary, any mortgage, pledge or other lien or encumbrance upon any Principal Facility or any interest it may have therein or upon any stock of any Regulated Subsidiary or any indebtedness of any Subsidiary to the Company or any other Subsidiary, whether now owned or hereafter acquired, without making effective provision (and the Company covenants that in such case it will make or cause to be made, effective provision) whereby the Obligations and any other indebtedness of the Company then entitled thereto shall be secured by such mortgage, pledge, lien or encumbrance equally and ratably with any and all other obligations and indebtedness thereby secured, so long as any such other obligations and indebtedness shall be so secured; provided that the foregoing covenant shall not be applicable to (i) the lien of the Midwest Power Indenture, (ii) Permitted Encumbrances or (iii) any transfer, lease, use or other encumbrance of or on the Company's or any of its Subsidiary's transmission assets as required by applicable state or federal order, regulation, rule or statute.

ARTICLE VII

DEFAULTS

The occurrence of any one or more of the following events shall constitute a Default:

7.1 Non-Payment of Obligations . The Company shall default in the payment or prepayment when due of any principal of any Loan; the Company shall default (and such default shall continue unremedied for more than three Business Days) in the payment when due of any Reimbursement Obligation; or the Company shall default (and such default shall continue unremedied for a period of 10 days) in the payment when due of any interest on any Loan, of any facility fee or utilization fee or of any other Obligation.

7.2 Breach of Warranty . Any representation or warranty of the Company made or deemed to be made hereunder or in any other Loan Document or any other writing or certificate furnished by or on behalf of the Company to the Administrative Agent or the Banks for the purposes of or in connection with this Agreement or such other Loan Document is or shall be incorrect when made in any material respect (provided that if such incorrectness is capable of being cured and the Company is diligently taking all reasonable steps to effect such cure, no Default shall arise under this Section 7.2 until 15 days after an Authorized Officer obtains knowledge of such incorrectness).

7.3 Non-Performance of Certain Covenants and Obligations . The Company shall default in the due performance and observance of any of its obligations under Section 6.2 or 6.3 (other than with respect to maintenance of good standing in jurisdictions which are not its jurisdiction of incorporation).

7.4 Non-Performance of Other Covenants and Obligations . The Company shall default in the due performance and observance of any other agreement contained herein or in any other Loan Document, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Company by the Administrative Agent or any Bank.

7.5 Default on Other Indebtedness . A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any other Indebtedness of the Company having a principal amount, individually or in the aggregate, in excess of $30,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity.

7.6 Judgments . One or more final judgments or orders for the payment of money aggregating in excess of $30,000,000 shall be rendered against the Company, and

(a) such judgment(s) or order(s) shall not have been vacated, bonded, discharged or stayed pending appeal within 30 days after entry thereof or, in the event of such a stay, such judgment(s) or order(s) shall not be discharged within 30 days after such stay shall expire; or

(b) any enforcement action shall be lawfully taken by a judgment creditor to levy upon the assets or properties of the Company to enforce any such judgment, and such levy shall not be bonded, stayed or otherwise prevented not later than five days prior to the date of any proposed sale thereunder;

provided that clause (a) of this Section 7.6 shall not apply to any judgment(s) or order(s) as to which the Company is insured if the insurer has admitted in writing its liability for an amount which, when deducted from the full amount of the Company’s liability with respect to such judgment(s) or order(s), would reduce the Company’s remaining liability to an amount less than $30,000,000.

7.7 Bankruptcy, Insolvency etc . The Company shall:

(a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due;

(b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any substantial part of its property, or make a general assignment for the benefit of creditors;

(c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for a substantial part of its property, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days, provided that the Company hereby expressly authorizes the Administrative Agent (on behalf of the Banks) to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend its rights under the Loan Documents;

(d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if any such case or proceeding is not commenced by the Company, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that the Company hereby expressly authorizes the Administrative Agent (on behalf of the Banks) to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend its rights under the Loan Documents; or

(e) take any corporate action authorizing, or in furtherance of, any of the foregoing.

7.8 Unfunded Liabilities . The Unfunded Liabilities of all Plans shall exceed in the aggregate an amount which, if asserted against the Company as a matured liability, would reasonably be expected to have a material adverse effect on the consolidated financial condition, operations, assets, business, properties or prospects of the Company and its Subsidiaries, taken as a whole; or any Reportable Event shall occur in connection with any Plan.

7.9 Environmental Matters . The Company shall be the subject of any proceeding or investigation pertaining to the release by the Company or any other Person of any toxic or hazardous waste or substance into the environment, or any violation of any federal, state or local environmental, health or safety law or regulation, which would, in either case, upon a final determination adverse to the Company, have a material adverse effect on the consolidated financial condition, operations, assets, business, properties or prospects of the Company and its Subsidiaries, taken as a whole.

ARTICLE VIII

ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES

8.1 Acceleration; Facility LC Collateral Account . (i) If any Default described in clauses (a) through (d) of Section 7.7 occurs with respect to the Company, the obligations of the Banks to make Loans hereunder and the obligation and power of the LC Issuer to issue Facility LCs shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Administrative Agent, the LC Issuer or any Bank; and the Company will be and become thereby unconditionally obligated, without any further notice, act or demand, to pay to the Administrative Agent an amount in immediately available funds, which funds shall be held in the Facility LC Collateral Account, equal to the excess of (x) the amount of LC Obligations at such time over (y) the amount on deposit in the Facility LC Collateral Account at such time which is free and clear of all rights and claims of third parties and has not been applied against the Obligations (such difference, the “Collateral Shortfall Amount”). If any other Default occurs, the Required Banks may (a) terminate or suspend the obligations of the Banks to make Loans hereunder and the obligation and power of the LC Issuer to issue Facility LCs hereunder, or declare the Obligations to be due and payable, or both, whereupon the Obligations shall become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which the Company hereby expressly waives, and (b) upon notice to the Company and in addition to the continuing right to demand payment of all amounts payable under this Agreement, make demand on the Company to pay, and the Company will, forthwith upon such demand and without any further notice or act, pay to the Administrative Agent the Collateral Shortfall Amount, which funds shall be deposited in the Facility LC Collateral Account.

(ii) If at any time while any Default exists, the Administrative Agent determines that the Collateral Shortfall Amount is greater than zero, the Administrative Agent may make demand on the Company to pay, and the Company will, forthwith upon such demand and without any further notice or act, pay to the Administrative Agent the Collateral Shortfall Amount, which funds shall be deposited in the Facility LC Collateral Account.

(iii) The Administrative Agent may, at any time or from time to time after funds are deposited in the Facility LC Collateral Account, apply such funds to the payment of the Obligations and any other amounts as shall from time to time have become due and payable by the Company to the Banks or the LC Issuer under the Loan Documents.

(iv) Except as provided in clause (iii) above or in the following two sentences, at any time while any Default is continuing, neither the Company nor any Person claiming on behalf of or through the Company shall have any right to withdraw any of the funds held in the Facility LC Collateral Account. Upon the earlier to occur of (x) the indefeasible payment in full of all Obligations and the termination of the Aggregate Commitment and (y) the cure or written waiver of all outstanding Defaults, any funds remaining in the Facility LC Collateral Account (including any investment income and interest earned on funds deposited therein) shall be returned by the Administrative Agent to the Company or paid to whomever may be legally entitled thereto at such time.

(v) If, within 14 days after acceleration of the maturity of the Obligations or termination of the obligations of the Banks to make Loans hereunder and the obligation and power of the LC Issuer to issue Facility LCs hereunder as a result of any Default (other than any Default as described in clauses (a) through (d) of Section 7.7 with respect to the Company) and before any judgment or decree for the payment of the Obligations due shall have been obtained or entered, the Required Banks (in their sole discretion) shall so direct, the Administrative Agent shall, by notice to the Company, rescind and annul such acceleration and/or termination. The Administrative Agent shall promptly return to the Company any funds remaining in the Facility LC Collateral Account (including any investment income and interest earned on funds deposited therein) in connection with such acceleration and/or termination.

8.2 Amendments . Subject to the provisions of this Article VIII , the Required Banks (or the Administrative Agent with the consent in writing of the Required Banks) and the Company may enter into agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Banks or the Company hereunder or waiving any Default hereunder; provided that no such supplemental agreement shall, without the consent of each Bank affected thereby:

(i) Extend the maturity of any Loan or Reimbursement Obligation or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest or fees thereon.

(ii) Reduce the percentage specified in the definition of Required Banks.

(iii) Extend the Termination Date, increase the amount of the Commitment of any Bank hereunder or permit the Company to assign its rights under this Agreement.

(iv) Amend this Section 8.2 or Section 11.2 .

No amendment of any provision of this Agreement relating to the Administrative Agent shall be effective without the written consent of the Administrative Agent. No amendment of any provision of this Agreement relating to the LC Issuer shall be effective without the written consent of the LC Issuer. The Administrative Agent may waive payment of any fee required under Section 2.3.2 or 12.3.2 without obtaining the consent of any Bank. The LC Issuer may waive payment of any fee or charge required under the last sentence of Section 2.7.4 without obtaining the consent of any Bank.

8.3 Preservation of Rights . No delay or omission of the Banks, the LC Issuer or the Administrative Agent to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Default or an acquiescence therein, and the making of a Credit Extension notwithstanding the existence of a Default or the inability of the Company to satisfy the conditions precedent to such Credit Extension shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Banks required pursuant to Section 8.2 , and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Administrative Agent, the LC Issuer and the Banks until the Obligations have been paid in full.

ARTICLE IX

GENERAL PROVISIONS

9.1 Survival of Representations . All representations and warranties of the Company contained in this Agreement shall survive delivery of the Loan Documents and the making of the Credit Extensions herein contemplated.

9.2 Governmental Regulation . Anything contained in this Agreement to the contrary notwithstanding, neither the LC Issuer nor any Bank shall be obligated to extend credit to the Company in violation of any limitation or prohibition provided by any applicable statute or regulation.

9.3 Taxes . Any taxes (excluding income taxes) or other similar assessments or charges payable or ruled payable by any governmental authority as a result of the Loan Documents (other than (x) taxes or assessments payable because a Bank failed to provide the documents required under Section 2.6 and (y) net income taxes, franchise taxes and other taxes imposed on, or measured by net income, net profits or receipts of, the Administrative Agent, the LC Issuer or any Bank) shall be paid by the Company, together with interest and penalties, if any.

9.4 Headings . Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents.

9.5 Entire Agreement . The Loan Documents embody the entire agreement and understanding among the Company, the Administrative Agent, the LC Issuer and the Banks and supersede all prior agreements and understandings among the Company, the Administrative Agent, the LC Issuer and the Banks relating to the subject matter thereof.

9.6 Several Obligations . The respective obligations of the Banks hereunder are several and not joint and no Bank shall be the partner or agent of any other (except to the extent to which the Administrative Agent is authorized to act as such). The failure of any Bank to perform any of its obligations hereunder shall not relieve any other Bank from any of its obligations hereunder. This Agreement shall not be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns.

9.7 Expenses; Indemnification . The Company shall reimburse the Administrative Agent and each Arranger for any reasonable costs, internal charges and out-of-pocket expenses (including attorneys’ fees and time charges of attorneys for the Administrative Agent and the Arrangers, which attorneys may be employees of the Administrative Agent or either Arranger) paid or incurred by the Administrative Agent or such Arranger in connection with the preparation, negotiation, execution, delivery, review, amendment and modification of the Loan Documents. The Company also agrees to reimburse the Administrative Agent, each Arranger, the LC Issuer and each Bank for any reasonable costs, internal charges and out-of-pocket expenses (including attorneys’ fees and time charges of attorneys for the Administrative Agent, the Arrangers, the LC Issuer and the Banks, which attorneys may be employees of the Administrative Agent, either Arranger, the LC Issuer or any Bank) paid or incurred by the Administrative Agent, such Arranger or such Bank in connection with the collection and enforcement of the Loan Documents. The Company further agrees to indemnify the Administrative Agent, each Arranger, the LC Issuer and each Bank and each of their respective directors, officers and employees against all losses, claims, damages, penalties, judgments, liabilities and expenses (including all expenses of litigation or preparation therefor whether or not the Administrative Agent, either Arranger, the LC Issuer or any Bank is a party thereto) which any of them may pay or incur arising out of or relating to this Agreement, the other Loan Documents, the transactions contemplated hereby or the direct or indirect application or proposed application of the proceeds of any Loan hereunder except to the extent such losses, claims, damages, penalties, judgments, liabilities and expenses arise from the gross negligence or willful misconduct of any indemnified party. The obligations of the parties to this Agreement under this Section shall survive the termination of this Agreement.

9.8 Numbers of Documents . All statements, notices, closing documents, and requests hereunder shall be furnished to the Administrative Agent with sufficient counterparts so that the Administrative Agent may furnish one to each of the Banks.

9.9 USA PATRIOT ACT NOTIFICATION . The following notification is provided to the Company pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318: IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit or other financial services product. What this means for the Company: When the Company opens an account, the Banks will ask for the Company’s name, tax identification number, business address and other information that will allow the Administrative Agent and the Banks to identify the Company. The Administrative Agent and the Banks may also ask to see the Company’s legal organizational documents or other identifying documents.

9.10 Severability of Provisions . Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable.

9.11 Nonliability of Banks . The relationship between the Company, on the one hand, and the Banks, the LC Issuer and the Administrative Agent, on the other hand, shall be solely that of borrower and lender. Neither the Administrative Agent, the LC Issuer nor any Bank shall have any fiduciary responsibilities to the Company. Neither the Administrative Agent, the LC Issuer nor any Bank undertakes any responsibility to the Company to review or inform the Company of any matter in connection with any phase of the Company’s business or operations.

9.12 CHOICE OF LAW . THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

9.13 CONSENT TO JURISDICTION . EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT, THE LC ISSUER AND EACH BANK HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT AND EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT, THE LC ISSUER AND EACH BANK HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. ANY JUDICIAL PROCEEDING BY THE COMPANY AGAINST THE ADMINISTRATIVE AGENT, THE LC ISSUER OR ANY BANK OR ANY AFFILIATE OF THE ADMINISTRATIVE AGENT, THE LC ISSUER OR ANY BANK INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO, ILLINOIS.

9.14 WAIVER OF JURY TRIAL . THE COMPANY, THE ADMINISTRATIVE AGENT, THE LC ISSUER AND EACH BANK HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.

9.15 Confidentiality . Each Bank agrees to hold any confidential information which it may receive from the Company pursuant to this Agreement, including information obtained from the books and records of the Company made available pursuant to Section 6.4 , in confidence, except for disclosure (i) to other Banks and their respective Affiliates, (ii) to legal counsel, accountants, and other professional advisors to that Bank, (iii) to regulatory officials, (iv) as requested pursuant to or as required by law, regulation, or legal process, (v) in connection with any legal proceeding to which that Bank is a party (so long as such proceeding arises from or is related to this Agreement or the transactions contemplated hereby), and (vi) permitted by Section 12.4 . Each Bank is hereby authorized to deliver a copy of any information delivered to it if so requested by any regulatory body having jurisdiction over it; provided that such Bank will notify the Company of any such request (other than a request arising in the course of a bank audit, notice of which such Bank shall deliver to the Company as soon as is practicable) before divulging such information to such regulatory body unless such disclosure is legally prohibited by the terms of such request.

ARTICLE X

THE ADMINISTRATIVE AGENT

10.1 Appointment . JPMorgan is hereby appointed Administrative Agent hereunder and under each other Loan Document, and each of the Banks irrevocably authorizes the Administrative Agent to act as the agent of such Bank. The Administrative Agent agrees to act as such upon the express conditions contained in this Article X . The Administrative Agent shall not have a fiduciary relationship in respect of any Bank by reason of this Agreement.

10.2 Powers . The Administrative Agent shall have and may exercise such powers under the Loan Documents as are specifically delegated to the Administrative Agent by the terms of each thereof, together with such powers as are reasonably incidental thereto. The Administrative Agent shall have no implied duties to the Banks, or any obligation to the Banks to take any action thereunder except any action specifically provided by the Loan Documents to be taken by the Administrative Agent.

10.3 General Immunity . Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable to the Banks or any Bank for any action taken or omitted to be taken by it or them hereunder or under any other Loan Document or in connection herewith or therewith except for its or their own gross negligence or willful misconduct.

10.4 No Responsibility for Loan Documents, Recitals, etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into, or verify (i) any statement, warranty or representation made in connection with any Loan Document or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of any obligor under any Loan Document; (iii) the satisfaction of any condition specified in Article IV , except receipt of items required to be delivered to the Administrative Agent; or (iv) the validity, effectiveness or genuineness of any Loan Document or any other instrument or writing furnished in connection therewith.

10.5 Action on Instructions of Banks . The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder and under any other Loan Document in accordance with written instructions signed by the Required Banks, and such instructions and any action taken or failure to act pursuant thereto shall be binding on all of the Banks and on all holders of Notes.

10.6 Employment of Agents and Counsel . The Administrative Agent may execute any of its duties as Administrative Agent hereunder and under any other Loan Document by or through employees, agents, and attorneys-in-fact and shall not be answerable to the Banks, except as to money or securities received by it or its authorized agents, for the default or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. The Administrative Agent shall be entitled to advice of counsel concerning all matters pertaining to the agency hereby created and its duties hereunder and under any other Loan Document.

10.7 Reliance on Documents; Counsel . The Administrative Agent shall be entitled to rely upon any Note, notice, consent, certificate, affidavit, letter, telegram, statement, paper or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and, in respect to legal matters, upon the opinion of counsel selected by the Administrative Agent, which counsel may be employees of the Administrative Agent.

10.8 Administrative Agent’s Reimbursement and Indemnification . The Banks agree to reimburse and indemnify the Administrative Agent ratably in proportion to their respective Pro Rata Shares (i) for any amounts not reimbursed by the Company for which the Administrative Agent is entitled to reimbursement by the Company under the Loan Documents, (ii) for any other expenses incurred by the Administrative Agent on behalf of the Banks, in connection with the preparation, execution, delivery, administration and enforcement of the Loan Documents and (iii) for any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other document delivered in connection therewith or the transactions contemplated thereby, or the enforcement of any of the terms thereof or of any such other documents, provided that no Bank shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Administrative Agent.

10.9 Rights as a Bank . With respect to its Commitment, Loans made by it and any Note issued to it, the Administrative Agent shall have the same rights and powers hereunder and under any other Loan Document as any Bank and may exercise the same as though it were not the Administrative Agent, and the term “Bank” or “Banks” shall, unless the context otherwise indicates, include the Administrative Agent in its individual capacity. Nothing contained herein shall preclude the Administrative Agent or any other Bank from engaging in any debt, equity or other transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Company or any of its Affiliates in which the Company or such Affiliate is not restricted hereby from engaging with any other Person.

10.10 Bank Credit Decision . Each Bank acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Bank and based on the financial statements prepared by the Company and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Loan Documents. Each Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement and the other Loan Documents.

10.11 Successor Administrative Agent . The Administrative Agent may resign at any time by giving written notice thereof to the Banks and the Company, and the Administrative Agent may be removed at any time with or without cause by written notice received by the Administrative Agent from the Required Banks. Upon any such resignation or removal, the Required Banks shall have the right to appoint, on behalf of the Company and the Banks, a successor Administrative Agent. Such appointment shall not be made without the prior written consent of the Company. If no successor Administrative Agent shall have been so appointed by the Required Banks and shall have accepted such appointment within thirty days after the retiring Administrative Agent’s giving notice of resignation, then the Administrative Agent’s resignation shall become effective and the duties and responsibilities of the Administrative Agent hereunder shall be performed by the Banks until such time as a new Administrative Agent is appointed by the Required Banks and such appointment is consented to by the Company. Any successor Administrative Agent so appointed and approved shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the Administrative Agent hereunder and under the other Loan Documents. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Administrative Agent hereunder and under the other Loan Documents.

10.12 Other Agents, Etc. The titles “Syndication Agent”, “Co-Documentation Agent”, “Senior Managing Agent”, “Co-Agent”, “Arranger” and “Co-Lead Arranger and Co-Book Runner” are purely honorific, and no Person designated on the cover page, signature pages, or elsewhere in this Agreement as having any such title shall have any duties or responsibilities hereunder in such capacity.

ARTICLE XI

SETOFF; RATABLE PAYMENTS

11.1 Setoff . In addition to, and without limitation of, any rights of the Banks under applicable law, if the Company becomes insolvent, however evidenced, or any Default occurs, any indebtedness from any Bank to the Company (including all account balances, whether provisional or final and whether or not collected or available but excluding amounts maintained by the Company as part of its normal treasury operations used for the purpose of conducting the Company’s ordinary ongoing business) may be offset and applied toward the payment of the Obligations owing to such Bank, whether or not the Obligations, or any part hereof, shall then be due.

11.2 Ratable Payments . If any Bank, whether by setoff or otherwise, has payment made to it upon its Outstanding Credit Exposure (other than payments received pursuant to Article III ) in a greater proportion than that received by any other Bank, such Bank agrees, promptly upon demand, to purchase a portion of the Loans held by the other Banks so that after such purchase each Bank will hold its Pro Rata Share of the Aggregate Outstanding Credit Exposure. If any Bank, whether in connection with setoff or amounts which might be subject to setoff or otherwise, receives collateral or other protection for its Obligations or such amounts which may be subject to setoff, such Bank agrees, promptly upon demand, to take such action necessary such that all Banks share in the benefits of such collateral ratably in proportion to their respective Pro Rata Shares. In case any such payment is disturbed by legal process, or otherwise, appropriate further adjustments shall be made.

ARTICLE XII

BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS

12.1 Successors and Assigns . The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Company and the Banks and their respective successors and assigns, except that (i) the Company shall not have the right to assign its rights or obligations under the Loan Documents without the express written consent of the Administrative Agent and the Banks (which shall not be unreasonably withheld) and (ii) any assignment by any Bank must be made in compliance with Section 12.3 . Notwithstanding clause (ii) of this Section, any Bank may at any time, without the consent of the Company or the Administrative Agent, assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank; provided that no such assignment shall release the transferor Bank from its obligations hereunder. The Administrative Agent may treat the payee of any Note as the owner thereof for all purposes hereof unless and until such payee complies with Section 12.3 in the case of an assignment thereof or, in the case of any other transfer, a written notice of the transfer is filed with the Administrative Agent. Any assignee or transferee of a Note agrees by acceptance thereof to be bound by all the terms and provisions of the Loan Documents. Any request, authority or consent of any Person, who at the time of making such request or giving such authority or consent is the holder of any Note, shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or of any Note issued in exchange therefor.

12.2 Participations .

12.2.1 Permitted Participants; Effect . Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time sell to one or more banks or other entities (“ Participants ”) participating interests in any Loan owing to such Bank, any Note held by such Bank, any Commitment of such Bank or any other interest of such Bank under the Loan Documents. In the event of any such sale by a Bank of participating interests to a Participant, such Bank’s obligations under the Loan Documents shall remain unchanged, such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, such Bank shall remain the holder of any such Note for all purposes under the Loan Documents, all amounts payable by the Company under this Agreement shall be determined as if such Bank had not sold such participating interests, and the Company and the Administrative Agent shall continue to deal solely and directly with such Bank in connection with such Bank’s rights and obligations under the Loan Documents.

12.2.2 Voting Rights . Each Bank shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Credit Extension or Commitment in which such Participant has an interest which forgives principal, interest, fees or any Reimbursement Obligation or reduces the interest rate or fees payable with respect to any such Credit Extension or Commitment, postpones any date fixed for any regularly-scheduled payment of principal of, or interest or fees on, any such Credit Extension or Commitment, releases any guarantor of any such Credit Extension or releases any substantial portion of collateral, if any, securing any such Credit Extension.

12.2.3 Benefit of Setoff . The Company agrees that each Participant shall be deemed to have the right of setoff provided in Section 11.1 in respect of its participating interest in amounts owing under the Loan Documents to the same extent as if the amount of its participating interest were owing directly to it as a Bank under the Loan Documents, provided that each Bank shall retain the right of setoff provided in Section 11.1 with respect to the amount of participating interests sold to each Participant. The Banks agree to share with each Participant, and each Participant, by exercising the right of setoff provided in Section 11.1 , agrees to share with each Bank, any amount received pursuant to the exercise of its right of setoff, such amounts to be shared in accordance with Section 11.2 as if each Participant were a Bank.

12.3 Assignments .

12.3.1 Permitted Assignments . Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law, at any time assign to one or more banks or other entities (each a “ Purchaser ”) all or any part of its rights and obligations under the Loan Documents; provided that the amount being assigned pursuant to each such assignment (determined as of the effective date specified in the applicable Assignment Agreement (an “ Assignment Effective Date ”)) shall (unless each of the Company and the Administrative Agent otherwise consents) not be less than $10,000,000 or, if less, the entire amount of such Bank’s Commitment, and shall be in an integral amount of $1,000,000. The consents of the Administrative Agent, the LC Issuer and, unless a Default has occurred and is continuing, the Company (which consents shall not be unreasonably withheld or delayed) shall be required prior to an assignment becoming effective with respect to a Purchaser which is not a Bank or an Affiliate thereof.

12.3.2 Effect; Effective Date . Upon (i) delivery to the Administrative Agent of an Assignment Agreement executed by the applicable assigning Bank and the applicable Purchaser, together with any consents required by Section 12.3.1 , and (ii) payment of a $3,500 fee to the Administrative Agent for processing such assignment, such assignment shall become effective on the applicable Assignment Effective Date. On and after the effective date of such assignment, the applicable Purchaser shall for all purposes be a Bank party to this Agreement and any other Loan Document executed by the Banks and shall have all the rights and obligations of a Bank under the Loan Documents, to the same extent as if it were an original party hereto, and no further consent or action by the Company, the Banks, the LC Issuer or the Administrative Agent shall be required to release the transferor Bank with respect to the percentage of the Aggregate Commitment and Loans assigned to such Purchaser.

12.4 Dissemination of Information . The Company authorizes each Bank to disclose to any Participant or Purchaser, to any direct or indirect contractual counterparty to any credit derivative transaction relating to obligations of the Company or to any other Person acquiring an interest in the Loan Documents by operation of law (each a “ Transferee ”) and any prospective Transferee any and all information in such Bank’s possession concerning the creditworthiness of the Company and the Subsidiaries; provided that each Transferee agrees to be bound by Section 9.15 of this Agreement.

12.5 Tax Treatment . If any interest in any Loan Document is transferred to any Transferee which is organized under the laws of any jurisdiction other than the United States or any State thereof, the transferor Bank shall cause such Transferee, concurrently with the effectiveness of such transfer, to comply with the provisions of Section 2.6 .

ARTICLE XIII

NOTICES

13.1 Giving Notice . Except as otherwise permitted by Section 2.4.9 with respect to borrowing notices and Conversion/Continuation Notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed or delivered to such party (i) in the case of the Company or the Administrative Agent, at its address or facsimile number set forth below its signature hereto, (ii) in the case of any Bank, at its address or facsimile number set forth in its Administrative Questionnaire or (iii) in the case of any party to this Agreement, at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when transmitted.

13.2 Change of Address . The Company, the Administrative Agent, the LC Issuer and any Bank may each change the address for service of notice upon it by a notice in writing to the other parties hereto.

ARTICLE XIV

COUNTERPARTS; TERMINATION OF EXISTING CREDIT AGREEMENT

This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. The Company and the Banks which are parties to the Existing Agreement (which Banks constitute “Required Banks” as defined in the Existing Agreement) agree that, concurrently with the effectiveness of this Agreement (and without regard to any requirement for prior notice of termination of the commitments under the Existing Agreement), the commitments under the Existing Agreement shall terminate and be of no further force or effect.

IN WITNESS WHEREOF, the Company, the Banks, the LC Issuer and the Administrative Agent have executed this Agreement as of the date first above written.


	MIDAMERICAN ENERGY COMPANY

	By:	/s/ Paul J. Leighton

		Mr. Paul J. Leighton
		Vice President & Corporate Secretary



	By:	/s/ Brian K. Hankel

		Mr. Brian K. Hankel
		Vice President & Treasurer

		666 Grand Avenue
		P.O. Box 657
		Des Moines, IA 50303-0657

		Attention: Treasurer
		Telecopier: (515) 242-4261

S-1


*Commitments*
$31,500,000		JPMORGAN CHASE BANK, N.A. , Individually, as LC Issuer and as Administrative Agent


	By:	/s/ Jane Bek Keil

		Name: Jane Bek Keil
		Title: Director

		Address: 1 Bank One Plaza
		Chicago, IL 60670
		Attention: Utilities Group
		Telecopier: (312) 325-3020

S-2


$31,500,000	UNION BANK OF CALIFORNIA, N.A., Individually and as Syndication Agent

	By:	/s/ Dennis G. Blank

		Name: Dennis G. Blank
		Title: Vice President

S-3


$30,000,000	THE BANK OF NEW YORK, Individually and as a Co-Documentation Agent

	By:	/s/ Cynthia D. Howells

		Name: Cynthia D. Howells
		Title: Vice President

S-4


$30,000,000	BNP PARIBAS, Individually and as a Co-Documentation Agent

	By:	/s/ Francis J. Delaney

		Name: Francis J. Delaney
		Title: Managing Director




	By:	/s/ Andrew S. Platt

		Name: Andrew S. Platt
		Title: Director

S-5


$30,000,000	ABN AMRO BANK N.V., Individually and as a Co-Documentation Agent

	By:	/s/ R. Scott Donaldson

		Name: R. Scott Donaldson
		Title: Vice President




	By:	/s/ John Reed

		Name: John Reed
		Title: Vice President

S-6


$30,000,000	THE ROYAL BANK OF SCOTLAND plc, Individually and as Senior Managing Agent

	By:	/s/ Grant Matthews

		Name: Grant Matthews
		Title: Senior Vice President

S-7


$27,000,000	WACHOVIA BANK, N.A., Individually and as a Co-Agent

	By:	/s/ Rotcher Watkins

		Name: Rotcher Watkins
		Title: Managing Director

S-8


$27,000,000	WELLS FARGO BANK, N.A., Individually and as a Co-Agent

	By:	/s/ Charles W. Reed

		Name: Charles W. Reed
		Title: Vice President




	By:	/s/ Kathleen M. Savard

		Name: Kathleen M. Savard
		Title: Vice President

S-9


$27,000,000	U.S. BANK NATIONAL ASSOCIATION, Individually and as a Co-Agent

	By:	/s/ Karen Nelsen

		Name: Karen Nelsen
		Title: Vice President

S-10


$27,000,000	LEHMAN BROTHERS BANK, FSB, Individually and as a Co-Agent

	By:	/s/ Janine M. Shugan

		Name: Janine M. Shugan
		Title: Authorized Signatory

S-11


$27,000,000	COMMERZBANK AG, New York and Grand Cayman Branches, Individually and as a Co-Agent

	By:	/s/ Andrew Campbell

		Andrew Campbell
		Senior Vice President




	By:	/s/ Barbara Stacks

		Assistant Treasurer

S-12


$27,000,000	BANK HAPOALIM B.M., Individually and as a Co-Agent

	By:	/s/ James P. Surless

		Name: James P. Surless
		Title: Vice President




	By:	/s/ Laura Anne Raffa

		Name: Laura Anne Raffa
		Title: Executive Vice President & Corporate Manager

S-13


$25,000,000	FIFTH THIRD BANK

	By:	/s/ Christopher C. Motley

		Name: Christopher C. Motley
		Title: Assistant Vice President

S-14


$20,000,000	NATIONAL CITY BANK OF THE MIDWEST

	By:	/s/ Kevin M.Knopf

		Name: Kevin M. Knopf
		Title: Vice President

S-15


$20,000,000	MIZUHO CORPORATE BANK, LTD.

	By:	/s/ Mark Gronich

		Name: Mark Gronich
		Title: Senior Vice President

S-16


$15,000,000	FIRST NATIONAL BANK OF OMAHA

	By:	/s/ Larry R. Guenther

		Name: Larry R. Guenther
		Title: Vice President

S-17

SCHEDULE I

PRICING SCHEDULE

	A/A2	A-/A3	BBB+/Baa1	BBB/Baa2	BBB-/Baa3	<BBB-/Baa3
S TATUS	Level I Status	Level II Status	Level III Status	Level IV Status	Level V Status	Level VI Status
Applicable Margin and LC Fee Rate	0.265%	0.400%	0.500%	0.600%	0.700%	0.875%
Facility Fee Rate	0.085%	0.100%	0.125%	0.150%	0.175%	0.250%
Utilization Fee Rate	0.100%	0.100%	0.125%	0.125%	0.125%	0.250%

For the purposes of this Schedule, the following terms have the following meanings, subject to the final two paragraphs of this Schedule:

“Level I Status” exists at any date if, on such date, the Company’s Moody’s Rating is A2 or better or the Company’s S&P Rating is A or better.

“Level II Status” exists at any date if, on such date, (i) the Company has not qualified for Level I Status and (ii) the Company’s Moody’s Rating is A3 or better or the Company’s S&P Rating is A- or better.

“Level III Status” exists at any date if, on such date, (i) the Company has not qualified for Level I Status or Level II Status and (ii) the Company’s Moody’s Rating is Baa1 or better or the Company’s S&P Rating is BBB+ or better.

“Level IV Status” exists at any date if, on such date, (i) the Company has not qualified for Level I Status, Level II Status or Level III Status and (ii) the Company’s Moody’s Rating is Baa2 or better or the Company’s S&P Rating is BBB or better.

“Level V Status” exists at any date if, on such date, (i) the Company has not qualified for Level I Status, Level II Status, Level III Status or Level IV Status and (ii) the Company’s Moody’s Rating is Baa3 or better or the Company’s S&P Rating is BBB- or better.

“Level VI Status” exists at any date if, on such date, the Company has not qualified for Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status.

“Status” means Level I Status, Level II Status, Level III Status, Level IV Status, Level V Status or Level VI Status.

The Applicable Margin, the LC Fee Rate, the Facility Fee Rate and the Utilization Fee Rate shall be determined in accordance with the foregoing table based on the Company’s Status as determined from its then-current Moody’s and S&P Ratings. The credit rating in effect on any date for the purposes of this Schedule is that in effect at the close of business on such date. If at any time the Company has no Moody’s Rating or no S&P Rating, Level VI Status shall exist; provided that if the reason that there is no Moody’s Rating or S&P Rating results from Moody’s or S&P, as the case may be, ceasing to issue debt ratings generally, then the Company and the Administrative Agent may select another nationally recognized rating agency to substitute for Moody’s or S&P, as applicable, for purposes of this Schedule and the Credit Agreement to which this Schedule is attached (and all references herein and therein to Moody’s or S&P, as applicable, shall refer to such substitute rating agency).

If the Company is split-rated and the ratings differential is one level, the higher rating will apply. If the Company is split-rated and the ratings differential is two levels or more, the intermediate rating at the midpoint will apply. If there is no midpoint, the higher of the two intermediate ratings will apply.

EXHIBIT A

NOTE

, 200_

MIDAMERICAN ENERGY COMPANY , an Iowa corporation (the “Company”), promises to pay, on or before the Termination Date, to the order of (the “Bank”) the aggregate unpaid principal amount of all Loans made by the Bank to the Company pursuant to Section 2.2 of the Credit Agreement referred to below, in immediately available funds at the main office of JPMorgan Chase Bank, N.A., as Administrative Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in such Credit Agreement.

The Bank shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Loan and the date and amount of each principal payment hereunder.

This Note is one of the Notes issued pursuant to, and is entitled to the benefits of, the Credit Agreement dated as of November 18, 2004 (as amended or otherwise modified from time to time, the “Credit Agreement”) among the Company, Union Bank of California, N.A., individually and as Syndication Agent, JPMorgan Chase Bank, N.A., individually and as Administrative Agent, and the banks named therein, including the Bank. Reference is made to the Credit Agreement for a statement of the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the respective meanings attributed to them in the Credit Agreement.

MIDAMERICAN ENERGY COMPANY

By:

Title:

By:

Title:

SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL

NOTE OF

MIDAMERICAN ENERGY COMPANY,

DATED ________, 200_

	Principal	Maturity	Principal
	Amount of	of Interest	Amount	Unpaid
Date	Loan	Period	Paid	Balance

EXHIBIT B

OPINION OF COUNSEL

__________, 2004

The Banks which are parties to the

Credit Agreement described below

c/o JPMorgan Chase Bank, N.A., as Administrative Agent

1 Bank One Plaza

Chicago, IL 60670

Gentlemen:

I am counsel for MidAmerican Energy Company, an Iowa corporation (the “Company”), and have represented the Company in connection with its execution and delivery of a Credit Agreement among the Company, Union Bank of California, N.A., individually and as Syndication Agent, and JPMorgan Chase Bank, N.A., individually and as Administrative Agent, and the other Banks named therein and dated as of November 18, 2004 (the “Agreement”). All capitalized terms used in this opinion and not otherwise defined shall have the meanings attributed to them in the Agreement.

I have examined the Company’s articles of incorporation, by-laws and resolutions, the Loan Documents and such other matters of fact and law which I deem necessary in order to render this opinion. Based upon the foregoing, it is my opinion that:

l. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation and has all requisite authority to conduct its business in each jurisdiction in which its business is conducted.

2. The execution and delivery of the Loan Documents by the Company and the performance by the Company of the Obligations have been duly authorized by all necessary corporate action and proceedings on the part of the Company and will not:

(a) require any consent of the Company’s shareholders;

(b) violate (i) any law, rule or regulation which is binding upon the Company or the Company’s articles of incorporation or by-laws or (ii) to the best of my knowledge, any order, writ, judgment, injunction, decree or award, or any indenture, instrument or agreement, which is binding upon the Company; or

(c) result in, or require, the creation or imposition of any lien pursuant to the provisions of any indenture, instrument or agreement which is binding upon the Company.

3. The Loan Documents have been duly executed and delivered by the Company and constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms except to the extent the enforcement thereof may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and subject also to the availability of equitable remedies if equitable remedies are sought.

4. There is no litigation or proceeding pending or, to my knowledge, threatened against the Company or any Subsidiary which, if adversely determined, would materially adversely affect the business or condition of the Company and its Subsidiaries, taken as a whole.

5. No approval, authorization, consent, adjudication or order of any governmental authority, which has not been obtained by the Company, is required to be obtained by the Company in connection with the execution and delivery of the Loan Documents, the borrowings under the Agreement or the payment by the Company of the Obligations.

This opinion may be relied upon by the Banks and their permitted participants, assignees and other transferees.

Very truly yours,

EXHIBIT C

ASSIGNMENT AGREEMENT

This Assignment and Assumption (the “ Assignment and Assumption ”) is dated as of the Effective Date set forth below and is entered into by and between [ Insert name of Assignor (the “ Assignor ”) and Insert name of Assignee (the “ Assignee ”). Capitalized terms used but not defined herein shall have the respective meanings given to them in the Credit Agreement identified below (as amended, the “ Credit Agreement ”), receipt of a copy of which is hereby acknowledged by the Assignee. The Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.

For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below, the interest in and to all of the Assignor’s rights and obligations in its capacity as a Bank under the Credit Agreement and any other documents or instruments delivered pursuant thereto that represents the amount and percentage interest identified below of all of the Assignor’s outstanding rights and obligations under the respective facilities identified below (including any letters of credit and guaranties included in such facilities and, to the extent permitted to be assigned under applicable law, all claims (including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity), suits, causes of action and any other right of the Assignor against any Person whether known or unknown arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby) (the “ Assigned Interest ”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.

1. Assignor:

2. Assignee:

3. Borrower: MidAmerican Energy Company

4. Agent: JPMorgan Chase Bank, N.A., as the Administrative Agent under the Credit Agreement.

5. Credit Agreement: The Credit Agreement dated as of November 18, 2004 among the Borrower, the Banks party thereto, and JPMorgan Chase Bank, N.A., as Agent.

6. Assigned Interest:

D-1

Facility Assigned	Aggregate Amount of Commitment/Loans for all Banks*	Amount of Commitment/Loans Assigned*	Percentage Assigned of Commitment/Loans ¹
____________	$	$	_______%
____________	$	$	_______%

7.	Trade Date:	²
	Effective Date:	____________________, 20__	[ TO BE INSERTED BY AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE AGENT. ]

The terms set forth in this Assignment and Assumption are hereby agreed to:


	ASSIGNOR
	[ NAME OF ASSIGNOR ]

	By:
		Title


	ASSIGNEE
	[ NAME OF ASSIGNEE ]

Date:	By:
		Title

[ Consented to and ] ³ Accepted:

JPMORGAN CHASE BANK, N.A., as Agent

By:

Title:

[ Consented to: ] ⁴

* Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.

^{1

Set
forth, to
at least 9 decimals, as a percentage of the Commitment/Loans of all Banks
thereunder.}

^{2

Insert
if
satisfaction of minimum amounts is to be determined as of the Trade
Date.}

^{3

To
be added
only if the consent of the Agent is required by the terms of the Credit
Agreement.}

^{4

To
be added
only if the consent of the Company and/or other parties (e.g. LC Issuer)
is
required by the terms of the Credit Agreement.}

D-2

[ NAME OF RELEVANT PARTY ]

By:

Title:

D-3

ANNEX 1

TERMS AND CONDITIONS FOR

ASSIGNMENT AND ASSUMPTION

1. Representations and Warranties .

1.1 Assignor . The Assignor represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby. Neither the Assignor nor any of its officers, directors, employees, agents or attorneys shall be responsible for (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency, perfection, priority, collectibility, or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Company, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document, (iv) the performance or observance by the Company, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document, (v) inspecting any of the property, books or records of the Company, or any guarantor, or (vi) any mistake, error of judgment, or action taken or omitted to be taken in connection with the Advances or the Loan Documents.

1.2. Assignee . The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Bank under the Credit Agreement, (ii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Bank thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Bank thereunder, (iii) agrees that its payment instructions and notice instructions are as set forth in Schedule 1 to this Assignment and Assumption, (iv) confirms that none of the funds, monies, assets or other consideration being used to make the purchase and assumption hereunder are “plan assets” as defined under ERISA and that its rights, benefits and interests in and under the Loan Documents will not be “plan assets” under ERISA, (v) agrees to indemnify and hold the Assignor harmless against all losses, costs and expenses (including reasonable attorneys’ fees) and liabilities incurred by the Assignor in connection with or arising in any manner from the Assignee’s non-performance of the obligations assumed under this Assignment and Assumption, (vi) it has received a copy of the Credit Agreement, together with copies of financial statements and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Agent or any other Bank, and (vii) attached as Schedule 1 to this Assignment and Assumption is any documentation required to be delivered by the Assignee with respect to its tax status pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee and (b) agrees that (i) it will, independently and without reliance on the Agent, the Assignor or any other Bank, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Bank.

Annex 1

2. Payments . The Assignee shall pay the Assignor, on the Effective Date, the amount agreed to by the Assignor and the Assignee. From and after the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, Reimbursement Obligations, fees and other amounts) to the Assignor for amounts which have accrued to the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.

3. General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption . This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of Illinois.

ADMINISTRATIVE QUESTIONNAIRE

(Schedule to be supplied by Closing Unit or Trading Documentation Unit)

(For Forms for Primary Syndication call _____________ at ________________)

(For Forms after Primary Syndication call _____________ at ________________)

Annex 1

US AND NON-US TAX INFORMATION REPORTING REQUIREMENTS

(Schedule to be supplied by Closing Unit or Trading Documentation Unit)

(For Forms for Primary Syndication call _____________ at ________________)

(For Forms after Primary Syndication call _____________ at ________________)

Annex 1

EXHIBIT D

COMPLIANCE CERTIFICATE

To:	The Banks parties to the

Credit Agreement Described Below

This Compliance Certificate is furnished pursuant to the Credit Agreement dated as of November 18, 2004 (as amended or otherwise modified from time to time, the “Agreement”) among the MidAmerican Energy Company (the “Company”), the banks party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent. Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the respective meanings ascribed thereto in the Agreement.

THE UNDERSIGNED HEREBY CERTIFIES ON BEHALF OF THE COMPANY THAT:

1.	I am the duly elected of the Company;

2.	I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Company and its Subsidiaries during the accounting period covered by the attached financial statements; and

3.	TheCompany’s Consolidated Debt as of the end of the most recently ended fiscal quarter is $_________________.

4.	The Company’s Consolidated Net Worth as of the end of the most recently ended fiscal quarter is as set forth below:

(a)	Capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficit)	$

(b)	Preferred securities	$

	Consolidated Net Worth (sum of Items 4(a) and (b))	$

5.	The Company’s Capitalization as of the end of the most recently ended fiscal quarter is $_________________________ ( sum of Items 3 and 4 ).

6.	The Company’s Debt to Capitalization Ratio as of the end of the most recently ended fiscal quarter is divided by = :1.0

( Item 3 ) ( Item 5 )

The foregoing certifications are made and delivered this day of , 200 .

Annex 1

EXHIBIT E

INCREASE REQUEST

_________________________, 20___

JPMorgan Chase Bank, N.A., as Administrative Agent

under the Credit Agreement referred to below

Ladies/Gentlemen:

Please refer to the Credit Agreement dated as of November 18, 2004 among MidAmerican Energy Company (the “Company”), various financial institutions and JPMorgan Chase Bank, N.A., as Administrative Agent (as amended, modified, extended or restated from time to time, the “Credit Agreement”). Capitalized terms used but not defined herein have the respective meanings set forth in the Credit Agreement.

In accordance with Section 2.4.12(ii) of the Credit Agreement, the Company hereby requests an increase in the Aggregate Commitment from $__________ to $__________. Such increase shall be made by [increasing the Commitment of ____________ from $________ to $________] [adding _____________ as a Bank under the Credit Agreement with a Commitment of $____________] as set forth in the letter attached hereto. Such increase shall be effective three Business Days after the date that the Administrative Agent accepts the letter attached hereto or such other date as is agreed among the Company, the Administrative Agent and the [increasing] [new] Bank.

Very truly yours,

MIDAMERICAN ENERGY COMPANY

By: _________________________________

Name: _______________________________

Title: ________________________________

Annex 1

ANNEX I TO EXHIBIT E

[Date]

JPMorgan Chase Bank, N.A., as Administrative Agent

under the Credit Agreement referred to below

Ladies/Gentlemen:

Please refer to the letter dated __________, 20__ from MidAmerican Energy Company(the “ Company ”) requesting an increase in the Aggregate Commitment from $__________ to $__________ pursuant to Section 2.4.12(ii) of the Credit Agreement dated as of November 18, 2004 among the Company, various financial institutions and JPMorgan Chase Bank, N.A., as Administrative Agent (as amended, modified, extended or restated from time to time, the “Credit Agreement”). Capitalized terms used but not defined herein have the respective meanings set forth in the Credit Agreement.

The undersigned hereby confirms that it has agreed to increase its Commitment under the Credit Agreement from $__________ to $__________ effective on the date which is three Business Days after the acceptance hereof by the Administrative Agent or on such other date as may be agreed among the Company, the Administrative Agent and the undersigned.

Very truly yours,

[NAME OF INCREASING BANK]

By:_________________________

Title:______________________

Accepted as of

_________, ____

JPMORGAN CHASE BANK, N.A., as

Administrative Agent

By: _______________________________

Name: _____________________________

Title: ______________________________

Annex 1

ANNEX II TO EXHIBIT E

[Date]

JPMorgan Chase Bank, N.A., as Administrative Agent

under the Credit Agreement referred to below

Ladies/Gentlemen:

Please refer to the letter dated __________, 20___ from MidAmerican Energy Company (the “ Company ”) requesting an increase in the Aggregate Commitment from $__________ to $__________ pursuant to Section 2.4.12(ii) of the Credit Agreement dated as of November 18, 2004 among the Company, various financial institutions and JPMorgan Chase Bank, N.A., as Administrative Agent (as amended, modified, extended or restated from time to time, the “Credit Agreement”). Capitalized terms used but not defined herein have the respective meanings set forth in the Credit Agreement.

The undersigned hereby confirms that it has agreed to become a Bank under the Credit Agreement with a Commitment of $__________ effective on the date which is three Business Days after the acceptance hereof, and consent hereto, by the Administrative Agent or on such other date as may be agreed among the Company, the Administrative Agent and the undersigned.

The undersigned (a) acknowledges that it has received a copy of the Credit Agreement and the Schedules and Exhibits thereto, together with copies of the most recent financial statements delivered by the Company pursuant to the Credit Agreement, and such other documents and information as it has deemed appropriate to make its own credit and legal analysis and decision to become a Bank under the Credit Agreement; and (b) agrees that it will, independently and without reliance upon the Administrative Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit and legal decisions in taking or not taking action under the Credit Agreement.

The undersigned represents and warrants that (i) it is duly organized and existing and it has full power and authority to take, and has taken, all action necessary to execute and deliver this letter and to become a Bank under the Credit Agreement; and (ii) no notices to, or consents, authorizations or approvals of, any Person are required (other than any already given or obtained) for its due execution and delivery of this letter and the performance of its obligations as a Bank under the Credit Agreement.

The undersigned agrees to execute and deliver such other instruments, and take such other actions, as the Administrative Agent may reasonably request in connection with the transactions contemplated by this letter.

Annex 1

The following administrative details apply to the undersigned:

(A) Notice Address:

Legal name: __________________________

Address: _______________________________

_______________________________

Attention: _____________________________

Telephone: (___) _______________________

Facsimile: (___) ______________________

(B) Payment Instructions:

Account No.: ___________________________

At: ___________________________

___________________________

Reference: ___________________________

Attention: ___________________________

The undersigned acknowledges and agrees that, on the date on which the undersigned becomes a Bank under the Credit Agreement as set forth in the second paragraph hereof, the undersigned will be bound by the terms of the Credit Agreement as fully and to the same extent as if the undersigned were an original Bank under the Credit Agreement.

Very truly yours,

[NAME OF NEW BANK]

By:_________________________

Title:______________________

Accepted and consented to as of

______________, 20___

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

By: _____________________________

Name: ___________________________

Title:____________________________

Annex 1

CONTENTS

Clause		Subject Matter	Page

ARTICLE I		DEFINITIONS; RULES OF INTERPRETATION	1
1.1	Definitions		1
1.2	Interpretation		11
1.3	Accounting Terms		11
ARTICLE II		THE FACILITY	12
2.1	The Facility		12
	2.1.1	Description of Facility	12
	2.1.2	Facility Amount	12
	2.1.3	Availability of Facility	12
2.2	Advances		12
	2.2.1	Advances	12
	2.2.2	Rate Options	12
	2.2.3	Method of Selecting Rate Options and Interest Periods for Advances	12
	2.2.4	Conversion and Continuation of Outstanding Advances	13
2.3	Fees		13
	2.3.1	Facility Fee	13
	2.3.2	Administrative Agent’s Fees and Arrangers’ Fees	13
	2.3.3	Upfront Fee	14
	2.3.4	Utilization Fee	14
2.4	General Facility Terms		14
	2.4.1	Method of Borrowing	14
	2.4.2	Minimum Amount of Each Advance	14
	2.4.3	Payment on the Termination Date	14
	2.4.4	Optional Principal Payments	14
	2.4.5	Interest Rates and Periods	15
	2.4.6	Rate after Maturity	15
	2.4.7	Payment Dates; Interest and Fee Basis	15
	2.4.8	Method of Payment	15
	2.4.9	Evidence of Indebtedness; Telephonic Notices	16
	2.4.10	Notification of Advances, Interest Rates and Prepayments	17
	2.4.11	Non-Receipt of Funds by the Administrative Agent	17
	2.4.12	Changes in Aggregate Commitment	18
2.5	Lending Installations		18

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CONTENTS

Clause	Subject Matter		Page

2.6	Withholding Tax Exemption		19
2.7	Facility LCs		19
	2.7.1	Issuance	19
	2.7.2	Participations	19
	2.7.3	Notice	20
	2.7.4	LC Fees	20
	2.7.5	Administration; Reimbursement by Banks	20
	2.7.6	Reimbursement by Company	21
	2.7.7	Obligations Absolute	21
	2.7.8	Actions of LC Issuer	22
	2.7.9	Indemnification	22
	2.7.10	Banks’ Indemnification	23
	2.7.11	Facility LC Collateral Account	23
	2.7.12	Rights as a Bank	24

ARTICLE III		CHANGE IN CIRCUMSTANCES	24
3.1	Yield Protection		24
3.2	Availability of Rate Options		25
3.3	Funding Indemnification		25
3.4	Bank Statements; Survival of Indemnity		25
3.5	Substitution of Bank		26
ARTICLE IV		CONDITIONS PRECEDENT	26
4.1	Conditions to Effectiveness		26
4.2	Each Credit Extension		27
ARTICLE V		REPRESENTATIONS AND WARRANTIES	28
5.1	Organization, etc.		28
5.2	Due Authorization, Non-Contravention, etc.		28
5.3	Government Approval, Regulation, etc.		28
5.4	Validity, etc.		29
5.5	Financial Information		29
5.6	No Material Adverse Change		29
5.7	Litigation, Labor Controversies, etc.		29
5.8	Subsidiaries		29
5.9	Taxes		29

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CONTENTS

Clause	Subject Matter		Page

5.10	Regulations U and X		29
5.11	ERISA		30
5.12	Environmental Matters		30
ARTICLE VI		COVENANTS	30
6.1	Financial Information, Reports, Notices, etc.		30
6.2	Use of Proceeds		31
6.3	Corporate Existence		31
6.4	Books and Records		31
6.5	Litigation Notice		32
6.6	Notice of Default or Unmatured Default		32
6.7	FERC Approvals		32
6.8	Maintenance of Property; Insurance		32
6.9	Compliance with Laws		32
6.10	Debt to Capitalization Ratio		32
6.11	Liens		32
ARTICLE VII		DEFAULTS	33
7.1	Non-Payment of Obligations		33
7.2	Breach of Warranty		33
7.3	Non-Performance of Certain Covenants and Obligations		33
7.4	Non-Performance of Other Covenants and Obligations		33
7.5	Default on Other Indebtedness		33
7.6	Judgments		34
7.7	Bankruptcy, Insolvency etc.		34
7.8	Unfunded Liabilities		35
7.9	Environmental Matters		35
ARTICLE VIII		ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES	35
8.1	Acceleration; Facility LC Collateral Account		35
8.2	Amendments		36
8.3	Preservation of Rights		37
ARTICLE IX		GENERAL PROVISIONS	37
9.1	Survival of Representations		37
9.2	Governmental Regulation		37
9.3	Taxes		38

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CONTENTS

Clause	Subject Matter		Page

9.4	Headings		38
9.5	Entire Agreement		38
9.6	Several Obligations		38
9.7	Expenses; Indemnification		38
9.8	Numbers of Documents		39
9.9	USA PATRIOT ACT NOTIFICATION		39
9.10	Severability of Provisions		39
9.11	Nonliability of Banks		39
9.12	CHOICE OF LAW		39
9.13	CONSENT TO JURISDICTION		39
9.14	WAIVER OF JURY TRIAL		39
9.15	Confidentiality		40
ARTICLE X		THE ADMINISTRATIVE AGENT	40
10.1	Appointment		40
10.2	Powers		41
10.3	General Immunity		41
10.4	No Responsibility for Loan Documents, Recitals, etc.		41
10.5	Action on Instructions of Banks		41
10.6	Employment of Agents and Counsel		41
10.7	Reliance on Documents; Counsel		41
10.8	Administrative Agent’s Reimbursement and Indemnification		41
10.9	Rights as a Bank		42
10.10	Bank Credit Decision		42
10.11	Successor Administrative Agent		42
10.12	Other Agents, Etc.		43
ARTICLE XI		SETOFF; RATABLE PAYMENTS	43
11.1	Setoff		43
11.2	Ratable Payments		43
ARTICLE XII		BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS	43
12.1	Successors and Assigns
12.2	Participations
	12.2.1	Permitted Participants; Effect
	12.2.2	Voting Rights

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CONTENTS

Clause	Subject Matter		Page

	12.2.3	Benefit of Setoff	44
12.3	Assignments		45
	12.3.1	Permitted Assignments	45
	12.3.2	Effect; Effective Date	45
12.4	Dissemination of Information		45
12.5	Tax Treatment		45
ARTICLE XIII		NOTICES	45
13.1	Giving Notice		45
13.2	Change of Address		45
ARTICLE XIV		COUNTERPARTS; TERMINATION OF EXISTING CREDIT AGREEMENT	46

EXHIBITS

EXHIBIT A		Form of Note
EXHIBIT B		Form of Opinion of Counsel
EXHIBIT C		Form of Assignment Agreement
EXHIBIT D		Form of Compliance Certificate
EXHIBIT E		Form of Increase Request

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EXHIBIT 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-110398 on Form S-3 of our report dated March 3 , 2006, relating to the financial statements and financial statement schedule of MidAmerican Energy Company, appearing in this Annual Report on Form 10-K of MidAmerican Energy Company for the year ended December 31, 2005.

/s/ Deloitte & Touche LLP

Des Moines, Iowa

March 3 , 2006

EXHIBIT 31.1

SECTION 302 CERTIFICATION FOR FORM 10-K

CERTIFICATIONS

I, Todd M. Raba, certify that:

1.	I have reviewed this annual report on Form 10-K of MidAmerican Energy 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: March 3 , 2006	/s/ Todd M. Raba
	Todd M. Raba
	President
	(chief executive officer)

EXHIBIT 31.2

SECTION 302 CERTIFICATION FOR FORM 10-K

CERTIFICATIONS

I, Thomas B. Specketer, certify that:

1.	I have reviewed this annual report on Form 10-K of MidAmerican Energy 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: March 3 , 2006	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Controller
	(chief financial officer)

EXHIBIT 31.3

SECTION 302 CERTIFICATION FOR FORM 10-K

CERTIFICATIONS

I, Gregory E. Abel, certify that:

1.	I have reviewed this annual report on Form 10-K of MidAmerican Funding, LLC;

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

EXHIBIT 31.4

SECTION 302 CERTIFICATION FOR FORM 10-K

CERTIFICATIONS

I, Thomas B. Specketer, certify that:

1.	I have reviewed this annual report on Form 10-K of MidAmerican Funding, LLC;

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: March 3 , 2006	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Controller
	(chief financial officer)

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Todd M. Raba, President of MidAmerican Energy 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, 2005 (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: March 3 , 2006	/s/ Todd M. Raba
	Todd M. Raba
	President
	(chief executive officer)

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Thomas B. Specketer, Vice President and Controller of MidAmerican Energy 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, 2005 (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: March 3 , 2006	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Controller
	(chief financial officer)

EXHIBIT 32.3

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Gregory E. Abel, President of MidAmerican Funding, LLC (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, 2005 (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: March 3 , 2006	/s/ Gregory E. Abel
	Gregory E. Abel
	President
	(chief executive officer)

EXHIBIT 32. 4

CERTIFICATION PURSUANT TO

SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

I, Thomas B. Specketer, Vice President and Controller of MidAmerican Funding, LLC (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, 2005 (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: March 3 , 2006	/s/ Thomas B. Specketer
	Thomas B. Specketer
	Vice President and Controller
	(chief financial officer)