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

FORM 10-Q


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

For the quarterly period ended September 30, 2006

or

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

For the transition period from _________to _________


Commission
 
Exact name of registrant as specified in its charter
 
IRS Employer
File Number
 
State or other jurisdiction of incorporation or organization
 
Identification No.
 
333-90553
 
MIDAMERICAN FUNDING, LLC
 
47-0819200
   
(An Iowa Limited Liability Company)
   
   
666 Grand Avenue, Suite 500
   
   
Des Moines, Iowa 50309-2580
   
 
333-15387
 
MIDAMERICAN ENERGY COMPANY
 
42-1425214
   
(An Iowa Corporation)
   
   
666 Grand Avenue, Suite 500
   
   
Des Moines, Iowa 50309-2580
   
         
         
(515) 242-4300
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)

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

As of October 27, 2006, all of the member’s equity of MidAmerican Funding, LLC was held by its parent company, MidAmerican Energy Holdings Company.

As of October 27, 2006, all 70,980,203 outstanding shares of MidAmerican Energy Company’s voting stock were held by its parent company, MHC Inc., a direct, wholly owned subsidiary of MidAmerican Funding, LLC.
 
2


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

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION

     
4
     
26
     
43
     
44
     
PART II - OTHER INFORMATION
     
45
     
45
     
46
     
46
     
46
     
46
     
46
     
 
47
     
 
48
 
3

 
PART I - FINANCIAL INFORMATION

Item 1.       Financial Statements.

MidAmerican Energy Company and Subsidiary


5
   
6
   
7
   
8
   
9
   
10
   
MidAmerican Funding, LLC and Subsidiaries
   
18
   
19
   
20
   
21
   
22
   
23
 
4


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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

We have reviewed the accompanying consolidated balance sheet of MidAmerican Energy Company and subsidiary (the “Company”) as of September 30, 2006, and the related consolidated statements of operations and comprehensive income for the three-month and nine-month periods ended September 30, 2006 and 2005, and of cash flows for the nine-month periods ended September 30, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet and consolidated statement of capitalization (not presented herein) of MidAmerican Energy Company and subsidiary as of December 31, 2005, and the related consolidated statements of operations, comprehensive income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated March 3, 2006 (May 16, 2006 as to Note 10), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2005 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


/s/ Deloitte & Touche LLP

Des Moines, Iowa
November 3, 2006

5

 
MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY
(In thousands)

   
As of
 
   
September 30,
 
December 31,
 
   
2006
 
2005
 
ASSETS
Utility Plant, Net
             
Electric
 
$
6,151,407
 
$
5,933,387
 
Gas
   
1,022,910
   
992,834
 
     
7,174,317
   
6,926,221
 
Accumulated depreciation and amortization
   
(3,237,309
)
 
(3,096,933
)
     
3,937,008
   
3,829,288
 
Construction work in progress
   
826,288
   
596,458
 
     
4,763,296
   
4,425,746
 
               
Current Assets
             
Cash and cash equivalents
   
4,058
   
70,914
 
Short-term investments
   
-
   
25,425
 
Receivables, net
   
282,830
   
463,630
 
Inventories
   
99,560
   
84,623
 
Other
   
130,697
   
61,221
 
     
517,145
   
705,813
 
               
Investments and Nonregulated Property, Net
   
382,775
   
359,690
 
Regulatory Assets
   
232,750
   
237,201
 
Other Assets
   
60,442
   
135,687
 
Total Assets
 
$
5,956,408
 
$
5,864,137
 
 
CAPITALIZATION AND LIABILITIES
 
Capitalization
             
Common shareholder’s equity
 
$
1,957,033
 
$
1,744,882
 
MidAmerican Energy preferred securities
   
30,329
   
30,329
 
Long-term debt, excluding current portion
   
1,470,497
   
1,471,251
 
     
3,457,859
   
3,246,462
 
Current Liabilities
             
Notes payable
   
70,000
   
-
 
Current portion of long-term debt
   
1,150
   
160,509
 
Accounts payable
   
398,260
   
359,496
 
Taxes accrued
   
97,749
   
84,122
 
Interest accrued
   
26,174
   
14,488
 
Other
   
129,072
   
94,501
 
     
722,405
   
713,116
 
Other Liabilities
             
Deferred income taxes
   
469,282
   
471,892
 
Investment tax credits
   
41,527
   
43,962
 
Asset retirement obligations
   
200,104
   
191,117
 
Regulatory liabilities
   
823,359
   
763,155
 
Other
   
241,872
   
434,433
 
     
1,776,144
   
1,904,559
 
Total Capitalization and Liabilities
 
$
5,956,408
 
$
5,864,137
 

The accompanying notes are an integral part of these financial statements.
 
6


MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY
(In thousands)

   
Three Months
 
Nine Months
 
   
Ended September 30,
 
Ended September 30,
 
   
2006
 
2005
 
2006
 
2005
 
                           
Operating Revenues
                         
Regulated electric
 
$
494,525
 
$
467,586
 
$
1,370,322
 
$
1,127,434
 
Regulated gas
   
153,421
   
181,228
   
778,241
   
858,671
 
Nonregulated
   
117,414
   
72,843
   
418,250
   
209,158
 
     
765,360
   
721,657
   
2,566,813
   
2,195,263
 
                           
Operating Expenses
                         
Regulated:
                         
Cost of fuel, energy and capacity
   
199,346
   
147,616
   
516,818
   
339,845
 
Cost of gas sold
   
113,791
   
145,641
   
619,344
   
699,594
 
Other operating expenses
   
100,490
   
92,044
   
287,900
   
276,949
 
Maintenance
   
34,114
   
32,996
   
104,794
   
104,810
 
Depreciation and amortization
   
57,722
   
77,102
   
219,161
   
214,150
 
Property and other taxes
   
23,808
   
23,555
   
72,844
   
71,237
 
     
529,271
   
518,954
   
1,820,861
   
1,706,585
 
Nonregulated:
                         
Cost of sales
   
103,394
   
67,981
   
391,873
   
188,058
 
Other
   
3,635
   
4,518
   
10,925
   
12,225
 
     
107,029
   
72,499
   
402,798
   
200,283
 
Total operating expenses
   
636,300
   
591,453
   
2,223,659
   
1,906,868
 
                           
Operating Income
   
129,060
   
130,204
   
343,154
   
288,395
 
                           
Non-Operating Income
                         
Interest and dividend income
   
696
   
939
   
5,719
   
3,344
 
Allowance for equity funds
   
10,233
   
7,815
   
25,484
   
17,720
 
Other income
   
2,867
   
1,968
   
5,899
   
4,585
 
Other expense
   
(551
)
 
(1,403
)
 
(2,191
)
 
(3,155
)
     
13,245
   
9,319
   
34,911
   
22,494
 
Fixed Charges
                         
Interest on long-term debt
   
20,655
   
18,769
   
67,884
   
58,086
 
Other interest expense
   
3,112
   
2,100
   
8,783
   
5,959
 
Allowance for borrowed funds
   
(4,120
)
 
(3,199
)
 
(11,375
)
 
(7,771
)
     
19,647
   
17,670
   
65,292
   
56,274
 
                           
Income Before Income Taxes
   
122,658
   
121,853
   
312,773
   
254,615
 
Income Taxes
   
37,989
   
39,485
   
95,546
   
83,684
 
Net Income
   
84,669
   
82,368
   
217,227
   
170,931
 
Preferred Dividends
   
312
   
312
   
935
   
935
 
                           
Earnings on Common Stock
 
$
84,357
 
$
82,056
 
$
216,292
 
$
169,996
 

The accompanying notes are an integral part of these financial statements.
 
7


MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY
(In thousands)

   
Three Months
 
Nine Months
 
   
Ended September 30,
 
Ended September 30,
 
   
2006
 
2005
 
2006
 
2005
 
                           
Earnings on Common Stock
 
$
84,357
 
$
82,056
 
$
216,292
 
$
169,996
 
                           
Other Comprehensive Income (Loss)
                         
Unrealized gains (losses) on cash flow hedges during
   period:
                         
Before income taxes
   
(6,883
)
 
-
   
(6,883
)
 
-
 
Income tax (expense) benefit
   
2,730
   
-
   
2,730
   
-
 
Net unrealized gains (losses)
   
(4,153
)
 
-
   
(4,153
)
 
-
 
                           
Minimum pension liability adjustment:
                         
Before income taxes
   
-
   
-
   
18
   
(4,924
)
Income tax (expense) benefit
   
-
   
-
   
(7
)
 
2,047
 
Net adjustment
   
-
   
-
   
11
   
(2,877
)
                           
Other comprehensive income (loss)
   
(4,153
)
 
-
   
(4,142
)
 
(2,877
)
                           
Comprehensive Income
 
$
80,204
 
$
82,056
 
$
212,150
 
$
167,119
 


The accompanying notes are an integral part of these financial statements.
 
8


MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY
(In thousands)

   
Nine Months
 
   
Ended September 30,
 
     
2006
   
2005
 
     
Net Cash Flows From Operating Activities
             
Net income
 
$
217,227
 
$
170,931
 
Adjustments to reconcile net income to net cash provided:
             
Depreciation and amortization
   
220,028
   
215,130
 
Deferred income taxes and investment tax credit, net
   
(2,507
)
 
(13,204
)
Amortization of other assets and liabilities
   
19,257
   
20,014
 
Impact of changes in working capital:
             
Receivables, net
   
171,615
   
103,701
 
Inventories
   
(14,937
)
 
(2,725
)
Accounts payable
   
(124,851
)
 
(10,941
)
Taxes accrued
   
15,316
   
13,263
 
Other current assets and liabilities
   
32,589
   
16,303
 
Other, net
   
(13,630
)
 
(2,890
)
Net cash provided by operating activities
   
520,107
   
509,582
 
               
Net Cash Flows From Investing Activities
             
Utility construction expenditures
   
(513,594
)
 
(497,411
)
Quad Cities Station decommissioning trust fund contributions
   
(6,224
)
 
(6,224
)
Purchases of available-for-sale securities
   
(518,309
)
 
(196,681
)
Proceeds from sales of available-for-sale securities
   
534,049
   
226,979
 
Other, net
   
13,720
   
10,489
 
Net cash used in investing activities
   
(490,358
)
 
(462,848
)
               
Net Cash Flows From Financing Activities
             
Dividends paid
   
(935
)
 
(935
)
Retirement of long-term debt, including reacquisition cost
   
(160,441
)
 
(90,851
)
Net increase in notes payable
   
70,000
   
-
 
Other
   
(5,229
)
 
4,427
 
Net cash used in financing activities
   
(96,605
)
 
(87,359
)
               
Net Decrease in Cash and Cash Equivalents
   
(66,856
)
 
(40,625
)
Cash and Cash Equivalents at Beginning of Period
   
70,914
   
88,113
 
Cash and Cash Equivalents at End of Period
 
$
4,058
 
$
47,488
 


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

9


MIDAMERICAN ENERGY COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
General

The consolidated financial statements included herein have been prepared by MidAmerican Energy Company (“MidAmerican Energy”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in a complete set of financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of MidAmerican Energy, all adjustments, consisting of normal recurring adjustments, have been made to present fairly its financial position, results of operations and changes in cash flows for the periods presented. Where applicable, prior year amounts have been reclassified to a basis consistent with the current year presentation. Such reclassifications did not impact previously reported net income or retained earnings. All significant intercompany transactions have been eliminated. Although MidAmerican Energy believes that the disclosures contained herein are adequate to make the information presented not misleading, it is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in MidAmerican Energy’s latest Annual Report on Form 10-K.

Certain classifications of amounts for 2005 are different than originally reported. The accompanying Consolidated Statement of Cash Flows for the nine months ended September 30, 2005, now reflects Purchases of Available-for-Sale Securities totaling $63.2 million and Proceeds from Sales of Available-for-Sale Securities totaling $54.0 million related to transactions of securities held in the Quad Cities Station nuclear decommissioning trusts.

MidAmerican Energy is a public utility with electric and natural gas operations and is the principal subsidiary of MHC Inc. (“MHC”). MHC is a direct, wholly owned subsidiary of MidAmerican Funding, LLC (“MidAmerican Funding”), whose sole member is MidAmerican Energy Holdings Company. MidAmerican Energy Holdings Company is 88.2% owned by Berkshire Hathaway Inc.

2.
New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”   (“FIN 48”) . FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return. Guidance is also provided on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. MidAmerican Funding and MidAmerican Energy are currently evaluating the impact of adopting FIN 48 on their respective consolidated financial positions and results of operations.
 
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans -an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires an employer to recognize in its statement of financial position the over- or under-funded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. SFAS 158 also requires entities to recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period, but were not recognized as components of net periodic benefit cost of the period pursuant to SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”) and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”(“SFAS 106”). MidAmerican Funding and MidAmerican Energy intend to recognize as regulatory assets (liabilities) those amounts attributable to its regulated operations that would otherwise be charged to other comprehensive income, net of tax, pursuant to SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.” SFAS 158 does not impact the calculation of net periodic benefit cost and the amounts recognized in either accumulated other comprehensive income or regulatory assets (liabilities) will be adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of SFAS 87 and SFAS 106.
 
10

 
The recognition and related disclosure provisions of SFAS 158 are effective for MidAmerican Funding’s and MidAmerican Energy’s fiscal year ending December 31, 2006, while the requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is not effective until fiscal years ending after December 15, 2008. MidAmerican Funding and MidAmerican Energy are currently evaluating the impact of adopting SFAS 158 on their consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 does not impose fair value measurements on items not already accounted for at fair value; rather it applies, with certain exceptions, to other accounting pronouncements that either require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. MidAmerican Funding and MidAmerican Energy are currently evaluating the impact of adopting SFAS 157 on their respective consolidated financial positions and results of operations.

3.
Commitments and Contingencies
   
 
(a)
Environmental Matters

MidAmerican Energy is subject to numerous environmental laws, including the federal Clean Air Act and various state air quality laws; the Endangered Species Act; the Comprehensive Environmental Response, Compensation and Liability Act and similar state laws relating to environmental cleanups; the Resource Conservation and Recovery Act and similar state laws relating to the storage and handling of hazardous materials; and the Clean Water Act and similar state laws relating to water quality. These laws have the potential for impacting MidAmerican Energy’s operations. Specifically, the Clean Air Act will likely continue to impact the operation of MidAmerican Energy’s generating facilities and will likely require MidAmerican Energy to reduce emissions from those facilities through the installation of additional or improved emission controls, the purchase of additional emission allowances, or some combination thereof.

Air Quality -

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

The EPA has in recent years implemented more stringent national ambient air quality standards for ozone and new standards for fine particulate matter. These standards set the minimum level of air quality that must be met throughout the United States. Areas that achieve the standards, as determined by ambient 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, and the current fine particulate matter, standards.

In December 2005, the EPA proposed a revision of the ambient air quality standards for fine particles that would maintain the current annual standard and set a new, more stringent 24-hour standard for the concentration of fine particulate in ambient air. The standards were published in the Federal Register on October 17, 2006, and become final on December 18, 2006.
 
11

 
In March 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 1999 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. Individual states are required to implement the CAMR or alternative requirements to achieve equivalent or greater mercury emission reductions through their state implementation plans.

In March 2005, the EPA released the final Clean Air Interstate Rule (“CAIR”), calling for reductions of sulfur dioxide (“SO 2 ”) and nitrogen oxides (“NO x ”) emissions 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 has implemented 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, from 2003 levels by 2015.

The CAMR or the CAIR 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 CAMR and the CAIR, the rules could be changed or overturned as a result of litigation. The sufficiency of the standards established by both the CAMR and the CAIR has been legally challenged in the United States District Court for the District of Columbia.

The EPA has initiated a regional haze program intended to improve visibility at specific federally protected areas. Some of MidAmerican Energy’s plants meet the threshold applicability criteria under the Clean Air Visibility Rules. MidAmerican Energy and other stakeholders are participating in the Central States Regional Air Partnership to help develop the technical and policy tools needed to comply with this program.

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 Iowa Utilities Board (“IUB”) its current multi-year plan and budget for managing SO 2 , NO X and mercury 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. 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 air quality 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, any facility that emits regulated pollutants 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 stationary source of such pollutants that increases certain levels of 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.
 
12

 
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. In October 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. The EPA also proposed additional changes to the NSR rules in September 2006 that are intended to simplify the permitting process and allow facilities to undertake activities that improve the safety, reliability and efficiency of plants without triggering NSR. The EPA plans to finalize the rules by May 2007.

In February 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. In 2005, the Senate 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. It is anticipated that the resolution may be further addressed by Congress in 2006. 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. In December 2005, the states of Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York and Vermont signed a mandatory regional pact to reduce greenhouse gas emissions that would become effective in 2009 and ultimately would require a reduction in greenhouse gas emissions of 10 percent from 1990 levels. An executive order signed by California’s governor in June 2005 would reduce greenhouse gas emissions in that state to 2000 levels by 2010, to 1990 levels by 2020 and 80 percent below 1990 levels by 2050. In August 2006, the California legislature adopted a greenhouse gas emission performance standard to all electricity generated within the state or delivered from outside the state that is no higher than the greenhouse gas emission levels of a state-of-the-art combined-cycle natural gas generation facility. California also adopted a statewide greenhouse gas emission cap to reduce greenhouse gas emissions by approximately 25 percent from 1990 levels by 2020. Both requirements have been signed by California’s governor and will move forward through the rulemaking and implementation process.

Litigation was filed in the federal district court for the southern district of New York seeking to require reductions of carbon dioxide emissions from generating facilities of five large electric utilities. The court dismissed the public nuisance suit, holding that such critical issues affecting the United States such as greenhouse gas emissions reductions are not the domain of the court and should be resolved by the Executive Branch and the U.S. Congress. This ruling has been appealed to the Second Circuit Court of Appeals. 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.

The EPA’s regulation of certain pollutants under the Clean Air Act, and its failure to regulate other pollutants, is being challenged by various lawsuits brought by both individual state attorney generals and environmental groups. To the extent that these actions may be successful in imposing additional and/or more stringent regulation of emissions on fossil-fueled facilities in general and MidAmerican Energy’s facilities in particular, such actions will likely impact MidAmerican Energy’s fossil-fueled facilities and, therefore, its results of operations.
 
13

 
 
(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.

The fair value of MidAmerican Energy’s share of estimated decommissioning costs for Quad Cities Station, as calculated in accordance with Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” was $170.1 million and $163.0 million as of September 30, 2006 and December 31, 2005, respectively, and is reflected in Asset Retirement Obligations on the Consolidated Balance Sheets. Refer to Note (14) of MidAmerican Energy’s most recently filed Form 10-K 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 as of September 30, 2006 and December 31, 2005, was $247.1 million and $228.1 million, respectively, and is reflected in Investments and Nonregulated Property, Net on the Consolidated Balance Sheets.

MidAmerican Energy’s depreciation and amortization includes costs for Quad Cities Station decommissioning. The regulatory provision charged to expense is equal to the funding that is being collected in Iowa rates.

 
(c)
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. In July 2005, MidAmerican Energy reached the total allowed amount of $200.0 million of deferred payments. On the Consolidated Balance Sheets, the $200.0 million liability is reflected in Accounts Payable as of September 30, 2006, in anticipation of its payment in the summer of 2007 and in Other Liabilities - Other as of December 31, 2005.

A $78.7 million asset representing the other owners’ share of the deferred payments is reflected on the Consolidated Balance Sheets in Other Current Assets as of September 30, 2006, and in Other Assets as of December 31, 2005. MidAmerican Energy will bill each of the other owners for its share of the deferred payments when payment is made to Mitsui.

4.
Rate Matters

Under a series of 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 base rates to become effective prior to January 1, 2013, unless its Iowa jurisdictional electric return on equity for any year falls below 10%. Prior to filing for a general increase in electric rates, MidAmerican Energy is required to conduct 30 days of good faith negotiations with the signatories to the settlement agreements to attempt to avoid a general increase in such rates. As a party to the settlement agreements, the OCA has agreed not to request or support any decrease in MidAmerican Energy’s Iowa electric base rates to become effective prior to January 1, 2013. 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.
 
14


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-powered generation 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. The settlement agreement also includes commitments by MidAmerican Energy and the OCA not to seek or support a general increase or decrease, respectively, in electric base rates to become effective prior to January 1, 2011.

On January 31, 2005, the IUB approved a settlement agreement filed in conjunction with MidAmerican Energy’s 2005 expansion of its wind-powered generation project. On April 18, 2006, the IUB approved a settlement agreement filed in conjunction with MidAmerican Energy’s application for up to 545 MW, based on nameplate ratings, of additional wind-powered generation capacity in Iowa. The settlement agreements extend the current revenue sharing mechanism through 2012 and extend MidAmerican Energy’s and the OCA’s commitments regarding general increases or decreases in electric base rates through December 31, 2012.

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. Regulatory liabilities created for the years through 2010 will be reduced as they are credited against plant in service associated with generating plant additions. As a result of such credits applied to generating plant balances, 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):

Balance January 1, 2006
 
$
213,135
 
Revenue sharing
   
46,000
 
Interest costs
   
7,751
 
Amounts applied to utility plant in service
   
(2,192
)
Balance September 30, 2006
 
$
264,694
 

5.
Retirement Plans

MidAmerican Energy sponsors a noncontributory defined benefit pension plan covering substantially all employees of MidAmerican Energy Holdings Company and its domestic energy subsidiaries other than PacifiCorp. MidAmerican Energy also sponsors certain postretirement health care and life insurance benefits covering substantially all retired employees of MidAmerican Energy Holdings Company and its domestic energy subsidiaries other than PacifiCorp. Non-union employees hired after June 30, 2004, and union employees hired after June 30, 2006, under contracts covering substantially all of MidAmerican Energy’s union employees are not eligible for postretirement benefits other than pensions. 
 
15

 
Net periodic benefit cost for the pension, including supplemental retirement, and postretirement benefit plans of MidAmerican Energy and the aforementioned affiliates included the following components for the three months and nine months ended September 30 (in thousands):

   
Three Months
 
Nine Months
 
   
Ended September 30,
 
Ended September 30,
 
 
   
2006
   
2005
   
2006
   
2005
 
Pension
                         
Components of net periodic benefit cost:
                         
Service cost
 
$
6,506
 
$
6,459
 
$
18,984
 
$
19,817
 
Interest cost
   
9,748
   
9,539
   
28,439
   
27,942
 
Expected return on plan assets
   
(9,839
)
 
(10,239
)
 
(28,704
)
 
(29,293
)
Amortization of prior service cost
   
657
   
740
   
1,913
   
2,089
 
Amortization of prior year loss
   
313
   
193
   
911
   
960
 
Net periodic benefit cost
 
$
7,385
 
$
6,692
 
$
21,543
 
$
21,515
 

   
Three Months
 
Nine Months
 
   
Ended September 30,
 
Ended September 30,
 
     
2006
   
2005
   
2006
   
2005
 
Postretirement
                         
Components of net periodic benefit cost:
                         
Service cost
 
$
1,971
 
$
1,786
 
$
5,386
 
$
5,081
 
Interest cost
   
3,857
   
3,074
   
10,540
   
10,251
 
Expected return on plan assets
   
(2,773
)
 
(2,680
)
 
(7,577
)
 
(7,322
)
Amortization of net transition balance
   
395
   
603
   
1,079
   
1,831
 
Amortization of prior service cost
   
(31
)
 
-
   
(84
)
 
-
 
Amortization of prior year loss
   
753
   
342
   
2,058
   
1,184
 
Net periodic benefit cost
 
$
4,172
 
$
3,125
 
$
11,402
 
$
11,025
 

MidAmerican Energy expects to contribute $5.9 million and $15.6 million in 2006 to its pension and postretirement plans, respectively. As of September 30, 2006, $4.4 million and $11.6 million of contributions have been made to the pension and postretirement plans, respectively.

6.
Segment Information
 
Beginning in 2006, MidAmerican Energy changed its reportable operating segments. Prior year amounts are reflected on a consistent basis with the 2006 amounts. MidAmerican Energy has identified two reportable operating segments: regulated electric and regulated gas. The regulated electric segment derives most of its revenue from regulated retail sales of electricity to residential, commercial, and industrial customers and from wholesale sales to other utilities. The regulated gas segment derives most of its revenue from regulated retail sales of natural gas to residential, commercial, and industrial customers and also obtains significant revenues by transporting gas owned by others through its distribution system. Pricing for regulated electric and gas sales are established separately by regulatory agencies; therefore, management also reviews each segment separately to make decisions regarding allocation of resources and in evaluating performance. Common operating costs, interest income, interest expense and income tax expense are allocated to each segment based on MidAmerican Energy allocators most related to the nature of the cost. “Nonregulated and other” in the tables below consists principally of nonregulated gas, nonregulated electric and parent company activities.
 
16


The following tables provide MidAmerican Energy’s operating revenues, earnings on common stock and total assets on a reportable operating segment basis (in thousands):

   
Three Months
 
Nine Months
 
   
Ended September 30,
 
Ended September 30,
 
     
2006
   
2005
   
2006
   
2005
 
Segment Profit Information
                         
Operating revenues:
                         
Regulated electric
 
$
494,525
 
$
467,586
 
$
1,370,322
 
$
1,127,434
 
Regulated gas
   
153,421
   
181,228
   
778,241
   
858,671
 
Nonregulated and other
   
117,414
   
72,843
   
418,250
   
209,158
 
Total
 
$
765,360
 
$
721,657
 
$
2,566,813
 
$
2,195,263
 
                           
Earnings on common stock:
                         
Regulated electric
 
$
83,868
 
$
88,643
 
$
196,966
 
$
154,969
 
Regulated gas
   
(5,455
)
 
(6,345
)
 
11,377
   
12,404
 
Nonregulated and other
   
5,944
   
(242
)
 
7,949
   
2,623
 
Total
 
$
84,357
 
$
82,056
 
$
216,292
 
$
169,996
 

   
As of
 
   
September 30,
 
December 31,
 
     
2006
   
2005
 
Segment Asset Information
             
Total assets:
             
Regulated electric
 
$
5,088,846
 
$
4,698,923
 
Regulated gas
   
781,855
   
1,052,978
 
Nonregulated and other
   
85,707
   
112,236
 
Total
 
$
5,956,408
 
$
5,864,137
 


7.
Risk Management

In 2006, MidAmerican Energy changed its management strategy with regard to certain nonregulated end-use gas contracts. This change resulted in recording prospectively the related revenues and cost of sales on a gross, rather than net, basis in accordance with Emerging Issues Task Force Issue No. 02-3, “Recognition and Reporting of Gains and Losses on Energy Trading Contracts Under Issues No. 98-10 and 00-17.” For the three months and nine months ended September 30, 2005, cost of sales netted in revenues for such end-use gas contracts totaled $64.7 million and $180.3 million, respectively.
 
17

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Managers and Member
MidAmerican Funding, LLC
Des Moines, Iowa

We have reviewed the accompanying consolidated balance sheet of MidAmerican Funding, LLC and subsidiaries (the “Company”) as of September 30, 2006, and the related consolidated statements of operations and comprehensive income for the three-month and nine-month periods ended September 30, 2006 and 2005, and of cash flows for the nine-month periods ended September 30, 2006 and 2005. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet and consolidated statement of capitalization (not presented herein) of MidAmerican Funding, LLC and subsidiaries as of December 31, 2005, and the related consolidated statements of operations, comprehensive income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated March 3, 2006 (May 16, 2006 as to Notes 1(m) and 10), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2005 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


/s/ Deloitte & Touche LLP

Des Moines, Iowa
November 3, 2006

18



MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
(In thousands)

   
As of
 
   
September 30,
 
December 31,
 
   
2006
 
2005
 
       
ASSETS
Utility Plant, Net
             
Electric
 
$
6,151,407
 
$
5,933,387
 
Gas
   
1,022,910
   
992,834
 
     
7,174,317
   
6,926,221
 
Accumulated depreciation and amortization
   
(3,237,309
)
 
(3,096,933
)
     
3,937,008
   
3,829,288
 
Construction work in progress
   
826,288
   
596,458
 
     
4,763,296
   
4,425,746
 
Current Assets
             
Cash and cash equivalents
   
4,189
   
71,207
 
Short-term investments
   
-
   
25,425
 
Receivables, net
   
276,892
   
469,128
 
Inventories
   
99,560
   
84,623
 
Other
   
130,970
   
61,577
 
     
511,611
   
711,960
 
               
Investments and Nonregulated Property, Net
   
401,253
   
380,835
 
Goodwill
   
1,269,204
   
1,265,979
 
Regulatory Assets
   
232,750
   
237,201
 
Other Assets
   
60,450
   
135,695
 
Total Assets
 
$
7,238,564
 
$
7,157,416
 
               
CAPITALIZATION AND LIABILITIES
Capitalization
             
Member’s equity
 
$
2,453,421
 
$
2,234,837
 
MidAmerican Energy preferred securities
   
30,329
   
30,329
 
Long-term debt, excluding current portion
   
2,170,497
   
2,171,251
 
     
4,654,247
   
4,436,417
 
Current Liabilities
             
Notes payable
   
70,000
   
-
 
Note payable to affiliate
   
58,053
   
54,283
 
Current portion of long-term debt
   
1,150
   
160,509
 
Accounts payable
   
392,122
   
360,225
 
Taxes accrued
   
114,583
   
105,029
 
Interest accrued
   
30,388
   
30,401
 
Other
   
129,356
   
94,712
 
     
795,652
   
805,159
 
Other Liabilities
             
Deferred income taxes
   
470,179
   
468,550
 
Investment tax credits
   
41,527
   
43,962
 
Asset retirement obligations
   
200,104
   
191,117
 
Regulatory liabilities
   
823,359
   
763,155
 
Other
   
253,496
   
449,056
 
     
1,788,665
   
1,915,840
 
Total Capitalization and Liabilities
 
$
7,238,564
 
$
7,157,416
 

The accompanying notes are an integral part of these financial statements

19

 
MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
(In thousands)

   
Three Months
 
Nine Months
 
   
Ended September 30,
 
Ended September 30,
 
   
2006
 
2005
 
2006
 
2005
 
                 
Operating Revenues
                         
Regulated electric
 
$
494,525
 
$
467,586
 
$
1,370,322
 
$
1,127,434
 
Regulated gas
   
153,421
   
181,228
   
778,241
   
858,671
 
Nonregulated
   
118,839
   
74,494
   
421,521
   
213,195
 
     
766,785
   
723,308
   
2,570,084
   
2,199,300
 
                           
Operating Expenses
                         
Regulated:
                         
Cost of fuel, energy and capacity
   
199,346
   
147,616
   
516,818
   
339,845
 
Cost of gas sold
   
113,791
   
145,641
   
619,344
   
699,594
 
Other operating expenses
   
100,490
   
92,044
   
287,900
   
276,949
 
Maintenance
   
34,114
   
32,996
   
104,794
   
104,810
 
Depreciation and amortization
   
57,722
   
77,102
   
219,161
   
214,150
 
Property and other taxes
   
23,808
   
23,555
   
72,844
   
71,237
 
     
529,271
   
518,954
   
1,820,861
   
1,706,585
 
Nonregulated:
                         
Cost of sales
   
103,655
   
68,415
   
392,652
   
189,062
 
Other
   
4,677
   
5,693
   
13,737
   
15,486
 
     
108,332
   
74,108
   
406,389
   
204,548
 
Total operating expenses
   
637,603
   
593,062
   
2,227,250
   
1,911,133
 
                           
Operating Income
   
129,182
   
130,246
   
342,834
   
288,167
 
                           
Non-Operating Income
                         
Interest and dividend income
   
751
   
988
   
5,988
   
3,475
 
Allowance for equity funds
   
10,233
   
7,815
   
25,484
   
17,720
 
Other income
   
4,173
   
3,158
   
52,700
   
17,114
 
Other expense
   
(582
)
 
(15,416
)
 
(6,860
)
 
(19,118
)
     
14,575
   
(3,455
)
 
77,312
   
19,191
 
                           
Fixed Charges
                         
Interest on long-term debt
   
32,428
   
30,543
   
103,206
   
93,408
 
Other interest expense
   
3,776
   
2,561
   
10,877
   
6,982
 
Preferred dividends of subsidiaries
   
312
   
312
   
935
   
935
 
Allowance for borrowed funds
   
(4,120
)
 
(3,199
)
 
(11,375
)
 
(7,771
)
     
32,396
   
30,217
   
103,643
   
93,554
 
                           
Income Before Income Taxes
   
111,361
   
96,574
   
316,503
   
213,804
 
Income Taxes
   
32,739
   
29,653
   
93,733
   
65,317
 
                           
Net Income
 
$
78,622
 
$
66,921
 
$
222,770
 
$
148,487
 


The accompanying notes are an integral part of these financial statements.
 
20


MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
(In thousands)

   
Three Months
 
Nine Months
 
   
Ended September 30,
 
Ended September 30,
 
   
2006
 
2005
 
2006
 
2005
 
               
                           
Net Income
 
$
78,622
 
$
66,921
 
$
222,770
 
$
148,487
 
                           
Other Comprehensive Income (Loss)
                         
Unrealized gains (losses) on cash flow hedges during
                         
      period:
                         
Before income taxes
   
(6,883
)
 
-
   
(6,883
)
 
-
 
Income tax (expense) benefit
   
2,730
   
-
   
2,730
   
-
 
Net unrealized gains (losses)
   
(4,153
)
 
-
   
(4,153
)
 
-
 
                           
Unrealized gains (losses) on available-for-sale securities:
                         
    Unrealized holding gains (losses) during period-
                         
Before income taxes
   
(33
)
 
284
   
32,046
   
669
 
Income tax (expense) benefit
   
12
   
(100
)
 
(11,217
)
 
(234
)
     
(21
)
 
184
   
20,829
   
435
 
Less realized gains (losses) reflected in net income during period-
                         
Before income taxes
   
-
   
313
   
32,113
   
652
 
Income tax (expense) benefit
   
-
   
(110
)
 
(11,240
)
 
(229
)
 
   
-
   
203
   
20,873
   
423
 
                           
Net unrealized gains (losses)
   
(21
)
 
(19
)
 
(44
)
 
12
 
                           
Minimum pension liability adjustment:
                         
Before income taxes
   
-
   
-
   
18
   
(4,924
)
Income tax (expense) benefit
   
-
   
-
   
(7
)
 
2,047
 
Net adjustment
   
-
   
-
   
11
   
(2,877
)
                           
Other comprehensive income (loss)
   
(4,174
)
 
(19
)
 
(4,186
)
 
(2,865
)
                           
Comprehensive Income
 
$
74,448
 
$
66,902
 
$
218,584
 
$
145,622
 


The accompanying notes are an integral part of these financial statements.
 
21


MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
(In thousands)

   
Nine Months
 
   
Ended September 30,
 
   
2006
 
2005
 
     
Net Cash Flows From Operating Activities
             
Net income
 
$
222,770
 
$
148,487
 
Adjustments to reconcile net income to net cash provided:
             
Depreciation and amortization
   
220,172
   
215,279
 
Deferred income taxes and investment tax credit, net
   
(1,782
)
 
(28,207
)
Amortization of other assets and liabilities
   
14,542
   
18,576
 
Gain on sale of securities, assets and other investments
   
(36,053
)
 
(10,648
)
Loss from impairment of assets and investments
   
-
   
15,841
 
Impact of changes in working capital:
             
Receivables, net
   
183,051
   
103,150
 
Inventories
   
(14,937
)
 
(2,725
)
Accounts payable
   
(131,718
)
 
(11,349
)
Taxes accrued
   
12,849
   
11,996
 
Other current assets and liabilities
   
21,045
   
4,944
 
Other, net
   
(11,974
)
 
2,544
 
Net cash provided by operating activities
   
477,965
   
467,888
 
               
Net Cash Flows From Investing Activities
             
Utility construction expenditures
   
(513,594
)
 
(497,411
)
Quad Cities Station decommissioning trust fund contributions
   
(6,224
)
 
(6,224
)
Purchases of available-for-sale securities
   
(518,309
)
 
(196,681
)
Proceeds from sales of available-for-sale securities
   
561,692
   
228,592
 
Proceeds from sales of assets and other investments
   
9,749
   
11,100
 
Other, net
   
13,603
   
9,863
 
Net cash used in investing activities
   
(453,083
)
 
(450,761
)
               
Net Cash Flows From Financing Activities
             
Retirement of long-term debt, including reacquisition cost
   
(160,441
)
 
(90,851
)
Net increase in note payable to affiliate
   
3,770
   
29,500
 
Net increase in notes payable
   
70,000
   
-
 
Other
   
(5,229
)
 
4,427
 
Net cash used in financing activities
   
(91,900
)
 
(56,924
)
               
Net Decrease in Cash and Cash Equivalents
   
(67,018
)
 
(39,797
)
Cash and Cash Equivalents at Beginning of Period
   
71,207
   
88,367
 
Cash and Cash Equivalents at End of Period
 
$
4,189
 
$
48,570
 


The accompanying notes are an integral part of these financial statements.
 
22


MIDAMERICAN FUNDING, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
General

The consolidated financial statements included herein have been prepared by MidAmerican Funding, LLC (“MidAmerican Funding”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in a complete set of financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of MidAmerican Funding, all adjustments, consisting of normal recurring adjustments, have been made to present fairly its financial position, results of operations and changes in cash flows for the periods presented. Where applicable, prior year amounts have been reclassified to a basis consistent with the current year presentation. Such reclassifications did not impact previously reported net income or retained earnings. All significant intercompany transactions have been eliminated. Although MidAmerican Funding believes that the disclosures contained herein are adequate to make the information presented not misleading, it is suggested that these financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in MidAmerican Funding’s latest Annual Report on Form 10-K.

Certain classifications of amounts for 2005 are different than originally reported. The accompanying Consolidated Statement of Cash Flows for the nine months ended September 30, 2005, now reflects Purchases of Available-for-Sale Securities totaling $63.2 million and Proceeds from Sales of Available-for-Sale Securities totaling $54.0 million related to transactions of securities held in the Quad Cities Station nuclear decommissioning trusts.

MidAmerican Funding is an Iowa limited liability company with MidAmerican Energy Holdings Company as its sole member. MidAmerican Energy Holdings Company is 88.2% owned by Berkshire Hathaway Inc. 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 Company are public utility holding companies headquartered in Des Moines, Iowa. MHC’s principal subsidiary is MidAmerican Energy Company, a public utility with electric and natural gas operations. Other direct, wholly owned subsidiaries of MHC include InterCoast Capital Company, Midwest Capital Group, Inc., MidAmerican Services Company and MEC Construction Services Co.

2.
New Accounting Pronouncements

Refer to Note 2 of MidAmerican Energy’s Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.

3.
Commitments and Contingencies

Refer to Note 3 of MidAmerican Energy’s Notes to Consolidated Financial Statements for information regarding MidAmerican Funding’s commitments and contingencies.

4.
Rate Matters

Refer to Note 4 of MidAmerican Energy’s Notes to Consolidated Financial Statements for information regarding MidAmerican Funding’s rate matters.

5.
Retirement Plans

Refer to Note 5 of MidAmerican Energy’s Notes to Consolidated Financial Statements for information regarding MidAmerican Funding’s retirement plans.

23


6.
Segment Information

Beginning in 2006, MidAmerican Funding changed its reportable operating segments. Prior year amounts are reflected on a consistent basis with the 2006 amounts. MidAmerican Funding has identified two reportable operating segments: regulated electric and regulated gas. The regulated electric segment derives most of its revenue from regulated retail sales of electricity to residential, commercial, and industrial customers and from wholesale sales to other utilities. The regulated gas segment derives most of its revenue from regulated retail sales of natural gas to residential, commercial, and industrial customers and also obtains significant revenues by transporting gas owned by others through its distribution system. Pricing for regulated electric and gas sales are established separately by regulatory agencies; therefore, management also reviews each segment separately to make decisions regarding allocation of resources and in evaluating performance. Common operating costs, interest income, interest expense and income tax expense are allocated to each segment based on MidAmerican Funding allocators most related to the nature of the cost. “Nonregulated and other” in the tables below consists principally of nonregulated gas, nonregulated electric and parent company activities.

The following tables provide MidAmerican Funding’s operating revenues, net income and total assets on a reportable operating segment basis (in thousands):

   
Three Months
 
Nine Months
 
   
Ended September 30,
 
Ended September 30,
 
   
2006
 
2005
 
2006
 
2005
 
                           
Segment Profit Information
                         
Operating revenues:
                         
Regulated electric
 
$
494,525
 
$
467,586
 
$
1,370,322
 
$
1,127,434
 
Regulated gas
   
153,421
   
181,228
   
778,241
   
858,671
 
Nonregulated and other
   
118,839
   
74,494
   
421,521
   
213,195
 
Total
 
$
766,785
 
$
723,308
 
$
2,570,084
 
$
2,199,300
 
                           
Net income:
                         
Regulated electric
 
$
83,868
 
$
88,643
 
$
196,966
 
$
154,969
 
Regulated gas
   
(5,455
)
 
(6,345
)
 
11,377
   
12,404
 
Nonregulated and other
   
209
   
(15,377
)
 
14,427
   
(18,886
)
Total
 
$
78,622
 
$
66,921
 
$
222,770
 
$
148,487
 
                           

   
As of
 
   
September 30,
 
December 31,
 
     
2006
   
2005
 
Segment Asset Information
             
Total assets (a):
             
Regulated electric
 
$
6,279,570
 
$
5,886,632
 
Regulated gas
   
860,334
   
1,131,247
 
Nonregulated and other
   
98,660
   
139,537
 
Total
 
$
7,238,564
 
$
7,157,416
 

(a)
Total assets by operating segment reflect the assignment of goodwill to applicable reporting units in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

24

 
7.
Risk Management

Refer to Note 7 of MidAmerican Energy’s Notes to Consolidated Financial Statements for information regarding MidAmerican Funding’s risk management.

8.
Goodwill

In January 2006, MidAmerican Energy changed its reportable operating segments. Accordingly, goodwill has been reclassified to match the new segment presentation. For the nine months ended September 30, 2006, MidAmerican Funding adjusted goodwill for a change in deferred income taxes due to tax matters existing at the time of its purchase of MHC. The following table shows the change in the carrying amount of goodwill by reportable operating segment for the nine months ended September 30, 2006 (in thousands):

               
   
Electric
 
Gas
 
Total
 
                     
Balance at January 1, 2006
 
$
1,187,710
 
$
78,269
 
$
1,265,979
 
Income tax adjustment
   
3,015
   
210
   
3,225
 
Balance at September 30, 2006
 
$
1,190,725
 
$
78,479
 
$
1,269,204
 

9.
Other Income and Other Expense

During the second quarter of 2006, MidAmerican Funding sold a majority of the common shares it held of an electronic energy and metals trading exchange and recorded proceeds of $27.6 million and pre-tax gains totaling $27.6 million, or $16.5 million after-tax. MidAmerican Funding donated its remaining shares in the company to a charitable foundation and recognized $4.5 million of both pre-tax gain and donation expense.

25


Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MidAmerican Energy Company (“MidAmerican Energy”) is a public utility with electric and natural gas operations and is the principal subsidiary within MidAmerican Funding, LLC (“MidAmerican Funding”).

Management’s Discussion and Analysis (“MD&A”) addresses the financial statements of MidAmerican Funding and its subsidiaries and MidAmerican Energy and its subsidiary as presented in this joint filing. Information in MD&A 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 under the heading “MidAmerican Funding” to allow the reader to identify information applicable to MidAmerican Funding, excluding MidAmerican Energy.

MD&A should be read in conjunction with the financial statements included in this Form 10-Q and the notes to those statements, together with MD&A in MidAmerican Energy’s and MidAmerican Funding’s most recently filed Annual Report on Form 10-K.

Forward-Looking Statements

From time to time, MidAmerican Funding, or one of its subsidiaries individually, including MidAmerican Energy, may make forward-looking statements within the meaning of the federal securities laws that involve judgments, assumptions and other uncertainties beyond the control of MidAmerican Funding or any of its subsidiaries individually. These forward-looking statements may include, among others, statements concerning revenue and cost trends, cost recovery, cost reduction strategies and anticipated outcomes, pricing strategies, changes in the utility industry, planned capital expenditures, financing needs and availability, statements of MidAmerican Funding’s expectations, beliefs, future plans and strategies, anticipated events or trends and similar comments concerning matters that are not historical facts. These types of forward-looking statements are based on current expectations and involve a number of known and unknown risks and uncertainties that could cause the actual results and performance of MidAmerican Funding to differ materially from any expected future results or performance, expressed or implied, by the forward-looking statements. In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, MidAmerican Funding has identified important factors that could cause actual results to differ materially from those expectations, including weather effects on sales volumes and revenues, fuel prices, fuel transportation and other operating uncertainties, acquisition uncertainty, uncertainties relating to economic and political conditions and uncertainties regarding the impact of regulations, changes in government policy, utility industry deregulation and competition. Neither MidAmerican Funding, nor any one of its subsidiaries individually, assumes any responsibility to update forward-looking information contained herein.

Executive Summary

MidAmerican Energy’s earnings on common stock improved $2.3 million to $84.4 million for the third quarter of 2006 compared to $82.1 million for the third quarter of 2005. MidAmerican Funding’s net income increased $11.7 million to $78.6 million for the third quarter of 2006 compared to $66.9 million for the third quarter of 2005.

MidAmerican Energy’s earnings on common stock improved $46.3 million to $216.3 million for the first nine months of 2006 compared to $170.0 million for the first nine months of 2005. MidAmerican Funding’s net income increased $74.3 million to $222.8 million for the first nine months of 2006 compared to $148.5 million for the first nine months of 2005.
 
The following significant events and changes, as discussed in more detail herein, highlight some of the factors that had an effect on MidAmerican Energy’s and MidAmerican Funding’s operating results, liquidity and capital resources during the periods presented:
 
26


·        
MidAmerican Energy is currently constructing a 790-megawatt (“MW”) (expected accreditation) super-critical-temperature, coal-fired generation project and expects to invest approximately $850 million in the project through 2007, including transmission facilities. Through September 30, 2006, $725.4 million had been invested, including $121.3 million for MidAmerican Energy’s share of deferred payments allowed by contract.

·        
In the last half of 2005, MidAmerican Energy placed 200 MW (nameplate ratings) of wind-powered generation into service. On April 18, 2006, MidAmerican Energy received Iowa Utilities Board (“IUB”) approval of the ratemaking principles for up to 545 MW (nameplate ratings) of additional wind-powered generation capacity in Iowa. MidAmerican Energy has entered into agreements with wind project developers and contractors to add 99 MW and 123 MW (nameplate ratings) of wind-powered generation by the end of 2006 and 2007, respectively.

·        
MidAmerican Energy’s regulated electric gross margin decreased $24.8 million compared to the third quarter of 2005 due principally to a $29.0 million decrease in gross margin for electric wholesale sales driven by increased energy costs, which resulted in lower margins per megawatt hour sold.

·        
The regulatory expense related to the Iowa revenue sharing arrangement decreased by $20.5 million compared to the third quarter of 2005. Amounts under the arrangement are determined based upon Iowa electric returns on equity, which were negatively impacted by lower wholesale margins in the third quarter of 2006. Iowa revenue sharing is recorded as depreciation and amortization in the accompanying consolidated statement of operations.

·        
During the second quarter of 2006, MidAmerican Funding recognized pre-tax gains of $27.6 million, or $16.5 million after-tax, on the sales of its shares of common stock of an electronic energy and metals trading exchange.

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

Results of Operations for the Quarter Ended September 30, 2006 and 2005

Regulated Electric Gross Margin

   
Quarter
 
   
Ended September 30,
 
   
2006
 
2005
 
               
Gross margin (in millions):
             
Operating revenues
 
$
494.5
 
$
467.6
 
Less cost of fuel, energy and capacity
   
199.3
   
147.6
 
Electric gross margin
 
$
295.2
 
$
320.0
 
               
Sales (gigawatt-hours):
             
Retail
   
5,515
   
5,415
 
Wholesale
   
2,618
   
2,154
 
Total
   
8,133
   
7,569
 

Electric gross margin for the third quarter of 2006 decreased $24.8 million compared to the third quarter of 2005 due to a $29.0 million decrease in gross margin on wholesale sales due to a lower margin per megawatt hour sold offset partially by an increase in sales volumes. Gross margin on retail sales was relatively unchanged as an improvement due to customer growth was offset by a decrease due to milder temperature conditions. Transmission revenues increased $3.0 million due to an increase in the use of MidAmerican Energy’s transmission lines by other utilities.
 
27

 
Sales of energy to other utilities, municipalities and marketers inside and outside of MidAmerican Energy’s delivery system are classified as wholesale. A decrease in the average electric wholesale margins per megawatt hour sold reduced electric wholesale gross margin by $38.6 million compared to the third quarter of 2005. The decrease in margins per megawatt hour sold was due to reduced availability of MidAmerican Energy-owned base load generation, which resulted in an increase in purchases of higher cost replacement power. An increase in regional market opportunities contributed to a 21.5% increase in wholesale sales volumes during the third quarter of 2006 compared to the third quarter of 2005, resulting in a $9.6 million increase in wholesale gross margin.

Gross margin on electric retail sales increased $0.1 million, with electric retail sales volumes increasing 1.9% compared to the third quarter of 2005. An increase in the average number of retail customers, in particular the addition of a large steel manufacturer in the fourth quarter of 2005, improved electric retail gross margin by $10.0 million compared to the third quarter of 2005. The effect of temperature conditions during the third quarter of 2006 compared to the third quarter of 2005 resulted in a $10.6 million decrease in electric retail gross margin. Electricity usage factors not dependent on weather, such as changes in individual customer usage patterns, decreased electric margin by $2.7 million. A decrease in fuel costs related to Iowa retail electric sales improved electric retail gross margin by $0.7 million compared to the third quarter of 2005 due in part to an increase in the portion of energy requirements met with wind-powered generation. Recoveries of energy efficiency program costs increased electric retail gross margin by $2.8 million compared to the third quarter of 2005. Changes in revenues from the recovery of energy efficiency program costs are substantially matched with corresponding changes in other operating expenses.

Regulated Gas Gross Margin

   
Quarter
 
   
Ended September 30,
 
   
2006
 
2005
 
               
Gross margin (in millions):
             
Operating revenues
 
$
153.4
 
$
181.2
 
Less cost of gas sold
   
113.8
   
145.6
 
Gas gross margin
 
$
39.6
 
$
35.6
 
               
Sales (000’s decatherms):
             
Retail
   
6,323
   
5,918
 
Wholesale
   
11,494
   
10,170
 
Total
   
17,817
   
16,088
 

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. Compared to the third quarter of 2005, MidAmerican Energy’s average per-unit cost of gas sold decreased 29.4%, resulting in a $47.5 million decrease in cost of gas sold and revenues for the third quarter of 2006. The decrease in cost of gas sold and gas revenues as a result of the per-unit cost of gas was partially offset by a $15.7 million increase due to improved sales volumes for the third quarter of 2006.
 
28

 
The following table summarizes the variance in gas operating revenues based on the change in gas cost recoveries and margin components.

   
Quarter Ended
 
   
September 30,
 
   
2006 vs. 2005
 
 
   
(In millions)  
 
Change in cost of gas sold:
       
Sales volumes
 
$
15.7
 
Average cost per unit
   
(47.5
)
Total change in cost of gas sold
   
(31.8
)
Change in margin:
       
Weather
   
1.4
 
Other usage factors
   
(0.7
)
Customer growth
   
0.3
 
Energy efficiency cost recoveries
   
2.5
 
Other
   
0.5
 
Total change in margin
   
4.0
 
Total revenue variance
 
$
(27.8
)

The increase in gas gross margin due to weather was the result of cooler temperature conditions in the third quarter of 2006 compared to the same quarter in 2005. Other gas usage factors, such as changes in individual customer usage, decreased gas margin. MidAmerican Energy’s average number of gas retail customers increased 1.2% compared to the third quarter of 2005. Changes in revenues from the recovery of energy efficiency program costs are substantially matched with corresponding changes in other operating expenses.

Regulated Operating Expenses

Other operating expenses increased $8.4 million for the third quarter of 2006 compared to the third quarter of 2005 due primarily to a $5.2 million increase in energy efficiency program costs. Changes in energy efficiency program costs are substantially matched by changes in related electric and gas revenues.

Maintenance expenses for the third quarter of 2006 increased $1.1 million compared to the third quarter of 2005 due to a $1.3 million increase in electric and gas distribution maintenance.

Depreciation and amortization expense for the third quarter of 2006 decreased $19.4 million compared to the third quarter of 2005 due to a $20.5 million decrease in regulatory expense related to a revenue sharing arrangement in Iowa as a result of lower Iowa electric returns on equity primarily from a reduction in electric margins. Refer to the “Utility Regulatory Matters” section for an explanation of the revenue sharing arrangement.

29


Nonregulated Gross Margin

   
Quarter
 
   
Ended September 30,
 
     
2006
   
2005
 
  
 
(In millions)  
MidAmerican Energy -
             
Nonregulated operating revenues
 
$
117.4
 
$
72.8
 
Less nonregulated cost of sales
   
103.4
   
68.0
 
Nonregulated gross margin
 
$
14.0
 
$
4.8
 
               
MidAmerican Funding Consolidated -
             
Nonregulated operating revenues
 
$
118.8
 
$
74.5
 
Less nonregulated cost of sales
   
103.7
   
68.4
 
Nonregulated gross margin
 
$
15.1
 
$
6.1
 

Nonregulated revenues and cost of sales for the third quarter of 2006 increased due primarily to a change in the management strategy related to certain end-use gas contracts that resulted in recording prospectively the related revenues and cost of sales on a gross, rather than net, basis in accordance with Emerging Issues Task Force Issue No. 02-3, “Recognition and Reporting of Gains and Losses on Energy Trading Contracts Under Issues No. 98-10 and 00-17.” For the third quarter of 2005, cost of sales totaling $64.7 million was netted in nonregulated operating revenues for such end-use gas contracts. The increase in nonregulated gross margin compared to the third quarter of 2005 was due principally to higher realized margins and an increase in unrealized net gains on electric and gas financial instruments used for hedging purposes. Effective September 1, 2006, MidAmerican Energy began recognizing unrealized gains and losses on certain electric positions in other comprehensive income, reducing a portion of future market volatility on margins.

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 $2.4 million increase in income for the capitalized allowance on equity funds used during construction in the third quarter of 2006 was due to the increase in construction work in progress compared to the third quarter of 2005. 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 expense for the third quarter of 2005 included write-downs of some of MidAmerican Funding’s investments in commercial passenger aircraft. MidAmerican Funding’s evaluation of its investments in these aircraft resulted in $14.0 million of pre-tax write-downs during the third quarter of 2005. The write-downs reflected a continued deterioration in the airline industry, including the bankruptcy filings of two major carriers during 2005.

Fixed Charges

The $1.9 million increase in interest on long-term debt was due to the November 1, 2005 issuance of $300.0 million of MidAmerican Energy long-term debt, offset partially by maturities of higher rate debt in 2005 and 2006. 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. The $0.9 million increase in allowance for borrowed funds for the third quarter of 2006 was due to the increase in construction work in progress compared to the third quarter of 2005. 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.
 
30

 
Income Taxes

MidAmerican Energy -

Federal law currently provides for federal production tax credits for energy produced by renewable electricity generation projects, including wind power facilities. MidAmerican Energy’s income taxes for the third quarter of 2006 were reduced $1.8 million more by the production tax credits compared to the third quarter of 2005 due to wind power facilities placed in service in the third quarter of 2005.

State utility rate regulation 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.

Results of Operations for the Nine Months Ended September 30, 2006 and 2005

Regulated Electric Gross Margin

   
Nine Months
 
   
Ended September 30,
 
   
2006
 
2005
 
               
Gross margin (in millions):
             
Operating revenues
 
$
1,370.3
 
$
1,127.4
 
Less cost of fuel, energy and capacity
   
516.8
   
339.8
 
Electric gross margin
 
$
853.5
 
$
787.6
 
               
Sales (gigawatt-hours):
             
Retail
   
15,111
   
14,356
 
Wholesale
   
8,357
   
5,922
 
Total
   
23,468
   
20,278
 

Electric gross margin for the first nine months of 2006 increased $65.9 million compared to the first nine months of 2005 due to a $30.7 million increase in gross margin on wholesale sales due primarily to an increase in related sales volumes. Gross margin on retail sales increased $21.9 million due principally to customer growth. Additionally, transmission revenues increased $11.2 million due to an increase in the use of MidAmerican Energy’s transmission lines by other utilities.

Sales of energy to other utilities, municipalities and marketers inside and outside of MidAmerican Energy’s delivery system are classified as wholesale. The increased availability of MidAmerican Energy-owned base load generation, including generation available as a result of newly added wind generation supplying retail customers, as well as market opportunities, contributed to a 41.1% increase in wholesale sales volumes during the first nine months of 2006, resulting in a $22.1 million increase in wholesale gross margin. An increase in the average electric wholesale margins per megawatt hour sold due to higher market prices and a greater availability of MidAmerican Energy-owned base load generation improved electric wholesale gross margin by $8.6 million compared to the first nine months of 2005.
 
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Gross margin on electric retail sales increased $21.9 million, with electric retail sales volumes increasing 5.3% compared to the first nine months of 2005. An increase in the average number of retail customers, in particular the addition of a large steel manufacturer in the fourth quarter of 2005, improved electric retail gross margin by $27.7 million compared to the first nine months of 2005. Electricity usage factors not dependent on weather, such as changes in individual customer usage patterns, increased electric margin by $9.4 million. The effect of temperature conditions during the first nine months of 2006 compared to the first nine months of 2005 resulted in a $15.0 million decrease in electric retail gross margin. An increase in fuel costs related to Iowa retail electric sales decreased electric retail gross margin by $4.4 million compared to the first nine months of 2005 due in part to an increase in the cost of energy purchased to serve the retail load. Recoveries of energy efficiency program costs increased electric retail gross margin by $4.4 million compared to the first nine months of 2005. Changes in revenues from the recovery of energy efficiency program costs are substantially matched with corresponding changes in other operating expenses.
 
Regulated Gas Gross Margin

   
Nine Months
 
   
Ended September 30,
 
   
2006
 
2005
 
               
Gross margin (in millions)
             
Operating revenues
 
$
778.2
 
$
858.7
 
Less cost of gas sold
   
619.3
   
699.6
 
Gas gross margin
 
$
158.9
 
$
159.1
 
               
Sales (000’s decatherms):
             
Retail
   
46,266
   
50,990
 
Wholesale
   
34,811
   
41,112
 
Total
   
81,077
   
92,102
 

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. Compared to the first nine months of 2005, MidAmerican Energy’s average per-unit cost of gas sold increased 0.6%, resulting in a $3.5 million increase in cost of gas sold for the first nine months of 2006. The increase in cost of gas sold and gas revenues as a result of the per-unit cost of gas was more than offset by a $83.8 million decrease due to the reduction in sales volumes.
 
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The following table summarizes the variance in gas operating revenues based on the change in gas cost recoveries and margin components.

   
Nine Months
 
   
Ended September 30,
 
   
2006 vs. 2005
 
 
   
(In millions)  
 
Change in cost of gas sold:
       
Sales volumes
 
$
(83.8
)
Average cost per unit
   
3.5
 
Total change in cost of gas sold
   
(80.3
)
Change in margin:
       
Other usage factors
   
(4.8
)
Weather
   
(2.6
)
Customer growth
   
1.6
 
Energy efficiency cost recoveries
   
4.0
 
Other
   
1.6
 
Total change in margin
   
(0.2
)
Total revenue variance
 
$
(80.5
)

Other gas usage factors, such as changes in individual customer usage patterns, decreased gas margin. The decrease in gas gross margin due to weather was the result of mild temperature conditions in the first nine months of 2006 compared to the same period in 2005. MidAmerican Energy’s average number of gas retail customers increased 1.4% compared to the first nine months of 2005. Changes in revenues from the recovery of energy efficiency program costs are substantially matched with corresponding changes in other operating expenses.

Regulated Operating Expenses

Other operating expenses increased $11.0 million for the first nine months of 2006 compared to the first nine months of 2005 due primarily to an $8.4 million increase in energy efficiency program costs. Changes in energy efficiency program costs are substantially matched with changes in related electric and gas revenues. Additionally, steam generating plant operating costs increased $3.2 million.

Maintenance expenses for the first nine months of 2006 were unchanged compared to the first nine months of 2005. Steam generating plant maintenance decreased $5.8 million as a result of planned outages in 2005 but was offset by increases in maintenance costs related to wind-powered generating facilities and the electric and gas distribution systems.

Depreciation and amortization expense for the first nine months of 2006 increased $5.0 million compared to the first nine months of 2005 due to an increase in utility plant depreciation principally as a result of wind-powered generating facilities placed in service in the third quarter of 2005 offset partially by a decrease in amortization of software.
 
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Nonregulated Gross Margin

   
Nine Months
 
   
Ended September 30,
 
   
2006
 
2005
 
 
 
(In millions)  
MidAmerican Energy -
             
Nonregulated operating revenues
 
$
418.3
 
$
209.2
 
Less nonregulated cost of sales
   
391.9
   
188.1
 
Nonregulated gross margin
 
$
26.4
 
$
21.1
 
               
MidAmerican Funding Consolidated -
             
Nonregulated operating revenues
 
$
421.5
 
$
213.2
 
Less nonregulated cost of sales
   
392.7
   
189.1
 
Nonregulated gross margin
 
$
28.8
 
$
24.1
 

Nonregulated revenues and cost of sales for the first nine months of 2006 increased due primarily to a change in the management strategy related to certain end-use gas contracts that resulted in recording prospectively the related revenues and cost of sales on a gross, rather than net, basis in accordance with Emerging Issues Task Force Issue No. 02-3, “Recognition and Reporting of Gains and Losses on Energy Trading Contracts Under Issues No. 98-10 and 00-17.” For the first nine months of 2005, cost of sales totaling $180.3 million was netted in nonregulated operating revenues for such end-use gas contracts. The increase in nonregulated gross margin compared to the first nine months of 2005 was principally due to higher realized margins and an increase in unrealized net gains on gas financial instruments. Effective September 1, 2006, MidAmerican Energy began recognizing unrealized gains and losses on certain electric positions in other comprehensive income, reducing a portion of future market volatility on margins.

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 $7.8 million increase in income for the capitalized allowance on equity funds used during construction in the first nine months of 2006 was due to the increase in construction work in progress compared to the first nine months of 2005. 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 Energy -

Interest and dividend income increased $2.4 million compared to the first nine months of 2005 due to a more favorable cash position and higher interest rates.

MidAmerican Funding -

Other income for the first nine months of 2006 includes $27.6 million of pre-tax gains from the sales of MidAmerican Funding’s shares of common stock of an electronic energy and metals trading exchange. Additionally, $4.5 million of gain was recognized on shares of that common stock, which MidAmerican Funding donated to a charitable foundation. Other expense for the first nine months of 2006 reflects $4.5 million of expense for the donation of the shares. Refer to Note (9) of MidAmerican Funding’s Notes to Consolidated Financial Statements for further discussion of these transactions.
 
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Other income for the first nine months of 2006 also includes $8.5 million for a gain on the sale of MidAmerican Funding’s non-controlling interest in a non-utility gas-fired cogeneration facility. Additionally, other income reflects $5.2 million of income resulting from changes in a financing arrangement related to a non-strategic investment in a hydroelectric generating facility. Other income for the first nine months of 2005 includes $9.9 million of gains from the sale of two non-strategic, passive investments.

Other expense for the first nine months of 2005 includes write-downs of some of MidAmerican Funding’s investments in commercial passenger aircraft. MidAmerican Funding’s evaluation of its investments in these aircraft resulted in $15.8 million of pre-tax write-downs during the 2005 nine-month period. The write-downs reflected a continued deterioration in the airline industry, including the bankruptcy filings of two major carriers during 2005.

Fixed Charges

The $9.8 million increase in interest on long-term debt was due to the November 1, 2005 issuance of $300.0 million of MidAmerican Energy long-term debt, offset partially by maturities of higher rate debt in 2005 and 2006. 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. The $3.6 million increase in allowance for borrowed funds for the first nine months of 2006 was due to the increase in construction work in progress compared to the first nine months of 2005. 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 -

Federal law currently provides for federal production tax credits for energy produced by renewable electricity generation projects, including wind power facilities. MidAmerican Energy’s income taxes for the first nine months of 2006 were reduced $8.5 million more by the production tax credits compared to the first nine months of 2005 due to wind power facilities placed in service in the third quarter of 2005.

State utility rate regulation 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.

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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 $520.1 million and $509.6 million for the first nine months of 2006 and 2005, respectively. MidAmerican Funding’s net cash provided by operating activities was $478.0 million and $467.9 million for the first nine months of 2006 and 2005, respectively.

Utility Construction Expenditures
 
MidAmerican Energy’s primary need for capital is utility construction expenditures. For the first nine months of 2006, utility construction expenditures totaled $513.6 million, including Quad Cities Station nuclear fuel purchases. MidAmerican Energy’s capital requirements for 2006, which exclude the non-cash allowance for equity funds used during construction, are estimated to be approximately $752 million, which includes $352 million for the coal-fired and wind-powered generation projects discussed below, $53 million for emissions control equipment to address current and anticipated air quality regulations and $347 million for ongoing operational projects, including connections for new customers and facilities to accommodate load growth. 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 Council Bluffs Energy Center Unit No. 4 (“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 $850 million in CBEC Unit 4, including transmission facilities and approximately $64 million of non-cash allowance for equity funds used during construction. Through September 30, 2006, MidAmerican Energy has invested $725.4 million in the project, including $121.3 million for MidAmerican Energy’s share of deferred payments allowed by the construction contract and $40.8 million of non-cash allowance for equity funds used during construction.

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 wind-powered generation capacity in Iowa to be installed in 2006 and 2007. Generally speaking, accredited capacity ratings for wind-powered generation facilities are considerably less than the nameplate ratings due to the varying nature of wind. The settlement agreement was approved by the IUB on April 18, 2006. Refer to “Utility Regulatory Matters” below for more information regarding the rate aspects of the settlement agreement.
 
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MidAmerican Energy has been working with wind project developers and contractors to add new MidAmerican Energy-owned generation assets. In February 2006, MidAmerican Energy entered into agreements to add 99 MW (nameplate ratings) of wind-powered generation by the end of 2006. In June 2006, MidAmerican Energy entered into an additional agreement to add 123 MW (nameplate ratings) of wind-powered generation by the end of 2007.

While MidAmerican Energy continues to pursue additional wind-powered generation in the 2006-2007 timeframe, MidAmerican Energy will only add additional wind-powered generation if it views that it will be cost effective.

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 September 30, 2006, approximately 54.8% of the fair value of the trusts’ funds was invested in domestic common equity securities, 11.1% 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. There have been no material changes, other than the debt issuance discussed below, in the amount of such obligations and commitments from what was disclosed in the “Liquidity and Capital Resources” section of MD&A in MidAmerican Energy’s and MidAmerican Funding’s most recently filed Form 10-K. Refer to Note (3)(c) of Notes to Consolidated Financial Statements in this Form 10-Q for discussion regarding deferred construction payments and their balance sheet classification.

Debt Redemption and Issuance

MidAmerican Energy’s 6.375% series of medium-term notes, totaling $160.0 million, matured on June 15, 2006. On October 6, 2006, MidAmerican Energy issued $350.0 million of 5.8% medium-term notes due October 15, 2036.

Debt Authorizations and Credit Facilities

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 currently has in place a $500.0 million revolving credit facility that supports its $379.6 million commercial paper program and its variable rate pollution control revenue obligations. The facility expires July 6, 2011.

MidAmerican Energy currently has the necessary authorizations from the Securities and Exchange Commission to issue up to $480.0 million of additional long-term securities; from the FERC to issue up to $75.0 million of additional long-term securities through November 30, 2006, and up to $600 million for December 1, 2006, through November 30, 2008; and from the Illinois Commerce Commission (“ICC”) to issue up to $480.0 million of additional long-term debt securities through July 12, 2011.
 
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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. As of September 30, 2006, MidAmerican Energy’s common equity ratio was 53.9% computed on a basis consistent with its commitment.
 
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 October 31, 2006, MidAmerican Energy’s senior unsecured debt credit ratings were as follows: Fitch Ratings, “A/stable;” Moody’s Investor Service, “A2/stable;” 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 September 30, 2006, MidAmerican Energy’s estimated potential collateral requirements totaled approximately $173 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 a series of electric 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 base rates to become effective prior to January 1, 2013, unless its Iowa jurisdictional electric return on equity in 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 base rates 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 (4) of MidAmerican Energy’s Notes to Consolidated Financial Statements for further discussion of these rate matters.
 
38

 
In an order issued September 27, 2004, the IUB required 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 plan to reduce rates for some residential customers by a total of approximately $7.0 million in the 2008-2009 time frame 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. On June 19, 2006, without ruling on revenue requirement issues, the IUB issued an order requiring MidAmerican Energy to hold informal workshops in 2007 and file a comprehensive class cost-of-service study and a revenue neutral rate equalization/rate consolidation plan by mid-2009.

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. On October 17, 2006, an administrative law judge issued a proposed order in the 2001 purchased gas adjustment reconciliation proceeding accepting the staff’s position. That decision is now pending before the ICC to issue a final order. There have not been any orders issued in the 2002 purchased gas adjustment reconciliation proceeding. There can be no assurance that the gross margins earned in earlier periods in final purchased gas adjustment reconciliation proceedings back to 1996 will not be subject to challenge. If the ICC adopts the proposed order as its own in the 2001 purchased gas adjustment reconciliation proceeding 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. An appeal of the order from the ICC in the declaratory ruling proceeding was filed with the Illinois Appellate Court. On May 26, 2006, the court issued an Order dismissing MidAmerican Energy’s appeal of the ICC’s action. The court subsequently reaffirmed its decision in a July 19, 2006, order in response to MidAmerican Energy’s petition for rehearing.

Effective January 1, 2005, SB 2525 became law in Illinois. 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.

On April 18, 2006, MidAmerican Energy filed with the ICC an offer to eliminate its monthly adjustment clause for recovery of fuel for electric generation and purchased power costs in Illinois beginning January 1, 2007, pending satisfactory resolution of fuel adjustment clause reconciliation issues. On September 13, 2006, the ICC approved MidAmerican Energy’s 2005 fuel adjustment clause reconciliation, and, accordingly, MidAmerican Energy filed on October 18, 2006, a proposal to eliminate its monthly fuel adjustment clause. Under this proposal, base rates would be adjusted to include recoveries at average 2004/2005 cost levels. If approved by the ICC, the proposal would expose MidAmerican Energy to monthly market price changes for fuel and purchased power costs in Illinois, with rate case approval required for any base rate changes. Once the fuel adjustment clause is eliminated, MidAmerican Energy may not petition for its reinstatement for five years.
 
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Transmission Developments

On August 30, 2006, a third party vendor commenced operations as MidAmerican Energy’s transmission service coordinator (“TSC”). The TSC is the administrator of various MidAmerican Energy Open Access Transmission Tariff (“OATT”) functions for transmission service. The FERC previously conditionally approved MidAmerican Energy’s TSC agreement and selection of a third party vendor. Under the contract, the vendor provides its tariff administration and planning services for a three-year term. MidAmerican Energy does not believe that the incremental costs will have a material impact on its results of operations, financial position or cash flows.

Electric Market 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 (“CBST”) applicable to sales made within its control area to replace its market-based sales tariff. On March 17, 2006, the FERC issued an order (“March 17 Order”) accepting MidAmerican Energy’s commitment not to make sales using market-based rates in its control area but rejected the proposed applicable tariff language. The FERC directed MidAmerican Energy to file revised tariff language by April 17, 2006. MidAmerican Energy made such filing together with a request for clarification, or in the alternative, rehearing (“Request for Clarification”) of the March 17 Order. MidAmerican Energy estimates that its maximum potential refund obligation is $16 million and its minimum potential refund obligation is $50,000 for the period August 7, 2005 through September 30, 2006. The actual refund will depend upon the FERC’s ruling on the Request for Clarification and the applicability of the CBST to certain sales made within the control area for delivery outside the control area. MidAmerican Energy does not believe at this time that the ultimate outcome of this issue will have a material impact 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 expands 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 voting securities of MidAmerican Energy Holdings Company.

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.
 
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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. On April 1, 2006, MidAmerican Energy submitted to the IUB an updated plan, as required every two years by Iowa law, which increased its estimate of required expenditures. MidAmerican Energy currently estimates that the incremental capital expenditures for emission control equipment to comply with air quality requirements will total approximately $540 million for January 1, 2006, through December 31, 2015. Additionally, MidAmerican Energy expects to incur significant incremental operating costs in conjunction with the utilization of the emissions control equipment. Estimates of the environmental capital and operating requirements 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 (3)(a) of Notes to Consolidated Financial Statements for further discussion of air quality standards affecting MidAmerican Energy.

Generating Capability

On July 31, 2006, retail customer usage of electricity caused a new record hourly peak demand of 4,279 MW on MidAmerican Energy’s electric system, 239 MW greater than the previous record set in July 2005. 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 2006 was approximately 20%.

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.

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 contracts with fixed prices 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 and 2006 have resulted in the reduction of coal inventories to suboptimum levels. MidAmerican Energy believes the transportation issues are temporary and that its coal inventories will be restored to preferred levels by late-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 of its most recently filed Annual Report on Form 10-K.
 
41

 
New Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109”   (“FIN 48”) . FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return. Guidance is also provided on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. MidAmerican Funding and MidAmerican Energy are currently evaluating the impact of adopting FIN 48 on their respective consolidated financial positions and results of operations.
 
In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans -an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires an employer to recognize in its statement of financial position the over- or under-funded status of a defined benefit postretirement plan measured as the difference between the fair value of plan assets and the benefit obligation. For a pension plan, the benefit obligation is the projected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation. SFAS 158 also requires entities to recognize as a component of other comprehensive income, net of tax, the actuarial gains and losses and the prior service costs and credits that arise during the period, but were not recognized as components of net periodic benefit cost of the period pursuant to SFAS No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”) and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions”(“SFAS 106”). MidAmerican Funding and MidAmerican Energy intend to recognize as regulatory assets (liabilities) those amounts attributable to its regulated operations that would otherwise be charged to other comprehensive income, net of tax, pursuant to SFAS No. 71, “Accounting for the Effects of Certain Types of Regulation.” SFAS 158 does not impact the calculation of net periodic benefit cost and the amounts recognized in either accumulated other comprehensive income or regulatory assets (liabilities) will be adjusted as they are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of SFAS 87 and SFAS 106.
 
The recognition and related disclosure provisions of SFAS 158 are effective for MidAmerican Funding’s and MidAmerican Energy’s fiscal year ending December 31, 2006, while the requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is not effective until fiscal years ending after December 15, 2008. MidAmerican Funding and MidAmerican Energy are currently evaluating the impact of adopting SFAS 158 on their consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 does not impose fair value measurements on items not already accounted for at fair value; rather it applies, with certain exceptions, to other accounting pronouncements that either require or permit fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. MidAmerican Funding and MidAmerican Energy are currently evaluating the impact of adopting SFAS 157 on their respective consolidated financial positions and results of operations.

Other Matters

On May 25, 2006, the membership of the International Brotherhood of Electrical Workers locals 109 and 499, comprising more than 90% of MidAmerican Energy’s represented workforce, ratified a contract between MidAmerican Energy and the locals for a term extending through April 30, 2009.

42


Critical Accounting Policies and Estimates

MidAmerican Energy’s and MidAmerican Funding’s significant accounting policies are described in their respective Note (1) of Notes to Consolidated Financial Statements in Item 8 of their most recently filed Annual Report on Form 10-K. For a discussion of their critical accounting policies and estimates, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in their most recently filed Annual Report on Form 10-K. MidAmerican Energy’s and MidAmerican Funding’s critical accounting policies have not changed materially since December 31, 2005.

Item 3.      Quantitative and Qualitative Disclosures About Market Risk.

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. 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 September 30, 2006, MidAmerican Energy held derivative instruments used for non-trading and trading purposes with the following fair values (in thousands):

 
 
Maturity  
 
Contract Type
 
  Within 1
 
  1 to 3
 
  After
      
 
 
Year   
 
  Years
 
  3 Years
 
  Total
 
Non-trading:
                         
Regulated electric assets
 
$
12,283
 
$
7,853
 
$
-
 
$
20,136
 
Regulated electric (liabilities)
   
(2,343
)
 
(686
)
 
-
   
(3,029
)
Regulated gas assets
   
1,276
   
-
   
-
   
1,276
 
Regulated gas (liabilities)
   
(42,425
)
 
-
   
-
   
(42,425
)
Nonregulated electric assets
   
2,921
   
-
   
-
   
2,921
 
Nonregulated electric (liabilities)
   
(6,046
)
 
(2,557
)
 
-
   
(8,603
)
Nonregulated gas assets
   
18,538
   
2,736
   
30
   
21,304
 
Nonregulated gas (liabilities)
   
(18,107
)
 
(3,413
)
 
-
   
(21,520
)
Total
   
(33,903
)
 
3,933
   
30
   
(29,940
)
                           
Trading:
                         
Nonregulated electric assets
   
8,177
   
3,882
   
-
   
12,059
 
Nonregulated electric (liabilities)
   
(7,871
)
 
(3,888
)
 
-
   
(11,759
)
Total
   
306
   
(6
)
 
-
   
300
 
                           
Total MidAmerican Energy assets
 
$
43,195
 
$
14,471
 
$
30
 
$
57,696
 
Total MidAmerican Energy (liabilities)
 
$
(76,792
)
$
(10,544
)
$
-
 
$
(87,336
)
Regulatory net asset (liability)
 
$
31,209
 
$
(7,167
)
$
-
 
$
24,042
 

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.
 
43

 
Reference is made to MidAmerican Energy’s and MidAmerican Funding’s most recently filed Form 10-K, and in particular, Item 7A. Quantitative and Qualitative Disclosures About Market Risk, and Notes (1)(i) and (12) in Notes to Consolidated Financial Statements in Item 8 of that report.

Item 4.      Controls and Procedures.

With the supervision and participation of MidAmerican Funding’s and MidAmerican Energy’s management, including the 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 September 30, 2006. Based on that evaluation, MidAmerican Funding’s and MidAmerican Energy’s management, including the 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 quarter covered by this report 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.

44


PART II - OTHER INFORMATION

Item 1.

MidAmerican Energy was 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 alleged 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 during the period of January 1, 2000 to December 31, 2002. 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 would be dismissed from the lawsuit. The court approved the settlement on a preliminary basis on February 8, 2006, and signed its final judgment and order of dismissal on May 24, 2006. No appeal of the order was filed within the applicable appeal period and, accordingly, the matter is concluded. MidAmerican Energy’s obligation to the plaintiffs was an immaterial amount.

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 received settlement demands which totaled $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 the value of the replacement claim may be in the range of $35-45 million.

Two lawsuits naming MidAmerican Energy as a defendant are currently on file related to this incident. 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 decedents, and all sums associated with CenterPoint’s replacement program. MidAmerican Energy was served with a second Third Party Complaint filed in U.S. District Court, District of Minnesota by CenterPoint seeking contribution and indemnity on a property damage and business interruption claim filed by Ramsey Premier Partners, LLC, and all sums associated with CenterPoint’s replacement program. MidAmerican Energy’s motion for summary judgment filed in both of these cases has been heard by the court and a decision is pending. All claims arising from this incident have been settled by CenterPoint pursuant to Confidential Orders and Agreements; however, the Third Party actions by CenterPoint Energy Resources Corp. against MidAmerican Energy remain. MidAmerican Energy intends to vigorously defend its position in these lawsuits 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 the “Environmental Matters” section of MD&A in Item 2 of this Form 10-Q. Information regarding MidAmerican Energy’s regulatory matters is included in the “Utility Regulatory Matters” section of MD&A in Item 2 of this Form 10-Q.

Item 1A.

For a discussion of MidAmerican Funding’s and MidAmerican Energy’s risk factors, refer to Item 1A. Risk Factors in Part I of their latest Annual Report on Form 10-K. No material changes in MidAmerican Funding’s or MidAmerican Energy’s risk factors have occurred since the filing of the Form 10-K.
 
45

 
Item 2.

Not applicable.

Item 3.

Not applicable.

Item 4.

Not applicable.

Item 5.

Not applicable.

Item 6.

Reference is made to the accompanying Exhibit Index for a list of exhibits filed as a part of this Quarterly Report.

46


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


   
MIDAMERICAN FUNDING, LLC
   
MIDAMERICAN ENERGY COMPANY
   
(Registrants)
     
     
     
     
     
Date: November 3, 2006
 
/s/ Thomas B. Specketer
   
Thomas B. Specketer
   
Vice President and Controller
   
of MidAmerican Funding, LLC
   
and MidAmerican Energy Company
   
(principal financial and accounting officer)
     
     

47


EXHIBIT INDEX

Exhibit No.

MidAmerican Energy

15
Awareness Letter of Independent Registered Public Accounting Firm
   
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
Indenture, dated as of October 1, 2006 - Senior Debt Securities between MidAmerican Energy Company and The Bank of New York Trust Company, N.A., as Trustee
   
4.2
First Supplemental Indenture, dated as of October 6, 2006 - 5.800% Notes due 2036 between MidAmerican Energy Company and The Bank of New York Trust Company, N.A., as Trustee
   
4.3
Distribution Agreement, dated October 3, 2006 - Medium Term Notes between MidAmerican Energy Company and Credit Suisse Securities (USA) LLC, J. P. Morgan Securities, Inc., LaSalle Financial Services, Inc., and BNP Paribas Securities Corp.


48

 

EXHIBIT 4.1
 
EXECUTION COPY
 

 
MIDAMERICAN ENERGY COMPANY
 
AND
 
THE BANK OF NEW YORK TRUST COMPANY, N.A.,
 
as Trustee
 
Indenture
 
Dated as of October 1, 2006
 
Senior Debt Securities



Reconciliation and tie between
the Trust Indenture Act of 1939
and Indenture,
dated as of October 1, 2006*

 
   

  Trust Indenture   Indenture Section  
  Act Section    
     
Section 3.10(a)(1)
 
6.09
(a)(2)
 
6.09
(a)(3)
 
Not Applicable
(a)(4)
 
Not Applicable
(a)(5)
 
6.08, 6.10
(b)
 
6.08, 6.10
(c)
 
Not Applicable
Section 3.11(a)
 
6.13
(b)
 
6.13
Section 3.12(a)
 
7.01, 7.02(a)
(b)
 
7.02(b)
(c)
 
7.03
Section 3.13(a)
 
7.03
(b)
 
7.03
(c)
 
7.03
(d)
 
7.03
Section 3.14(a)
 
7.04, 10.05
(b)
 
Not Applicable
(c)(1)
 
1.02
(c)(2)
 
1.02
(c)(3)
 
Not Applicable
(d)
 
Not Applicable
(e)
 
1.02
(f)
 
Not Applicable
Section 3.15(a)
 
6.01
(b)
 
6.02
(c)
 
6.01
(d)
 
6.01
(e)
 
5.14
Section 3.16(a)
 
1.01
(a)(1)(A)
 
5.12
(a)(1)(B)
 
5.13
(a)(2)
 
Not Applicable
(b)
 
5.08
Section 3.17(a)(1)
 
5.03
(a)(2)
 
5.04
(b)
 
10.03
Section 3.18(a)
 
1.07
(c)
 
1.07
 
*   This table shall not, for any purpose, be deemed to be a part of the Indenture.

i


Table of Contents
Page
 
ARTICLE I.
 
DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION
 

Section 1.01
Definitions
1  
Section 1.02
Compliance Certificates and Opinions
Section 1.03
Form of Documents Delivered to Trustee
10 
Section 1.04
Acts of Holders; Record Dates
10  
Section 1.05
Notices, Etc., to Trustee and Company
12  
Section 1.06
Notice to Holders; Waiver
12  
Section 1.07
Conflict with Trust Indenture Act
13  
Section 1.08
Effect of Headings and Table of Contents
13  
Section 1.09
Successors and Assigns
13  
Section 1.10
Separability Clause
13  
Section 1.11
Benefits of Indenture
13  
Section 1.12
Governing Law
13  
Section 1.13
Legal Holidays
13  
Section 1.14
Waiver of Jury Trial
14  
     
ARTICLE II.
SECURITY FORMS
     
Section 2.01
Forms of Securities
14  
Section 2.02
Form of Trustee’s Certificate of Authentication
14  
Section 2.03
Securities in Global Form
15  
     
ARTICLE III
THE SECURITIES
     
Section 3.01
Amount Unlimited; Issuable in Series
15  
Section 3.02
Denominations
17  
Section 3.03
Execution, Authentication, Delivery and Dating
17  
Section 3.04
Temporary Securities
19  
Section 3.05
Registration, Registration of Transfer and Exchange and Book-Entry Securities
19  
Section 3.06
Mutilated, Destroyed, Lost and Stolen Securities
22  
Section 3.07
Payment of Interest; Interest Rights Preserved
23  
Section 3.08
Persons Deemed Owners
24  
Section 3.09
Cancellation
24  
Section 3.10
Computation of Interest
24  
Section 3.11
CUSIP Numbers
24  
 
ii


ARTICLE IV
SATISFACTION AND DISCHARGE
 
Section 4.01
Satisfaction and Discharge of Indenture
25  
Section 4.02
Application of Trust Money
26  
     
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
     
Section 5.01
Events of Default
26  
Section 5.02
Acceleration of Maturity; Rescission and Annulment
28  
Section 5.03
Collection of Indebtedness and Suits for Enforcement by Trustee
30  
Section 5.04
Trustee May File Proofs of Claim
31  
Section 5.05
Trustee May Enforce Claims Without Possession of Securities
31  
Section 5.06
Application of Money Collected
31  
Section 5.07
Limitation on Suits
32  
Section 5.08
Unconditional Right of Holders to Receive Principal, Premium and Interest
32  
Section 5.09
Restoration of Rights and Remedies
33  
Section 5.10
Rights and Remedies Cumulative
33  
Section 5.11
Delay or Omission Not Waiver
33  
Section 5.12
Control by Holders
33  
Section 5.13
Waiver of Defaults
34  
Section 5.14
Undertaking for Costs
35  
Section 5.15
Waiver of Stay or Extension Laws
35  
     
ARTICLE VI.
THE TRUSTEE
     
Section 6.01
Certain Duties and Responsibilities
35  
Section 6.02
Notice of Defaults
36  
Section 6.03
Certain Rights of Trustee
37  
Section 6.04
Not Responsible for Recitals or Issuance of Securities
38  
Section 6.05
May Hold Securities
38  
Section 6.06
Money Held in Trust
39  
Section 6.07
Compensation and Reimbursement
39  
Section 6.08
Disqualification; Conflicting Interests
39  
Section 6.09
Corporate Trustee Required; Eligibility
40  
Section 6.10
Resignation and Removal; Appointment of Successor
40  
Section 6.11
Acceptance of Appointment by Successor
41  
Section 6.12
Merger, Conversion, Consolidation or Succession to Business
42  
Section 6.13
Preferential Collection of Claims Against Company
43  
Section 6.14
Appointment of Authenticating Agent
43  


iii



ARTICLE VII.
HOLDERS’ LISTS AND REPORTS
BY TRUSTEE AND COMPANY
     
Section 7.01
Company to Furnish Trustee Names and Addresses of Holders
44  
Section 7.02
Preservation of Information; Communications to Holders
45  
Section 7.03
Reports by Trustee
45  
Section 7.04
Reports by Company
45  
Section 7.05
Holders’ Meetings
46  
     
ARTICLE VIII.
CONSOLIDATION, MERGER,
CONVEYANCE, TRANSFER OR LEASE
     
Section 8.01
Company May Consolidate, Etc., Only on Certain Terms
48  
Section 8.02
Successor Substituted
48  
     
ARTICLE IX
SUPPLEMENTAL INDENTURES
     
Section 9.01
Supplemental Indentures Without Consent of Holders
49  
Section 9.02
Supplemental Indentures With Consent of Holders
50  
Section 9.03
Execution of Supplemental Indentures
50  
Section 9.04
Effect of Supplemental Indentures
51  
Section 9.05
Conformity with Trust Indenture Act
51  
Section 9.06
Reference in Securities to Supplemental Indentures
51  
Section 9.07
Notice of Supplemental Indenture
51  
     
ARTICLE X.
 
COVENANTS
     
Section 10.01
Payment of Principal, Premium and Interest
51  
Section 10.02
Maintenance of Office or Agency
52  
Section 10.03
Money for Securities Payments to Be Held in Trust
52  
Section 10.04
Corporate Existence
53  
Section 10.05
Notice of Defaults
53  
Section 10.06
Waiver of Certain Covenants
54  
Section 10.07
Limitation upon Mortgages and Liens
54  

 
ARTICLE XI
REDEMPTION OF SECURITIES
 
Section 11.01
Applicability of Article
54  
Section 11.02
Election to Redeem; Notice to Trustee
54  
Section 11.03
Selection by Trustee of Securities to Be Redeemed
55  
Section 11.04
Notice of Redemption
55  
 
iv

 
Section 11.05
Deposit of Redemption Price
56  
Section 11.06
Securities Payable on Redemption Date
56  
Section 11.07
Securities Redeemed in Part
57  
     
ARTICLE XII
SINKING FUNDS
     
Section 12.01
Applicability of Article
57  
Section 12.02
Satisfaction of Mandatory Sinking Fund Payments with Securities
57  
Section 12.03
Redemption of Securities for Mandatory Sinking Fund
58  
     
ARTICLE XIII
REPAYMENT OF SECURITIES
AT OPTION OF HOLDERS
     
Section 13.01
Applicability of Article
58  
Section 13.02
Notice of Repayment Date
58  
Section 13.03
Deposit of Repayment Price
59  
Section 13.04
Securities Payable on Repayment Date
59  
Section 13.05
Securities Repaid in Part
59  
     
ARTICLE XIV
DEFEASANCE AND COVENANT DEFEASANCE
     
Section 14.01
Applicability of Article; Company’s Option to Effect Defeasance or Covenant Defeasance
60  
Section 14.02
Defeasance and Discharge
60  
Section 14.03
Covenant Defeasance
60  
Section 14.04
Conditions to Defeasance or Covenant Defeasance
61  
Section 14.05
Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions
63  
Section 14.06
Reinstatement
63  
     
ARTICLE XV
IMMUNITY OF INCORPORATORS,
STOCKHOLDERS, OFFICERS AND DIRECTORS
     
Section 15.01
Immunity of Incorporators, Stockholders, Officers and Directors
64  
 
 
 
 
v


 
INDENTURE, dated as of October 1, 2006, between MIDAMERICAN ENERGY COMPANY, a corporation duly organized and existing under the laws of the State of Iowa (herein called the “ Company ”), having its principal office at 666 Grand Avenue, Des Moines, Iowa 50303, and THE BANK OF NEW YORK TRUST COMPANY, N.A., a national banking association duly organized and existing under the laws of the United States, as Trustee (herein called the “ Trustee ”), having its Corporate Trust Office at 2 N. LaSalle Street, Suite 1020, Chicago, Illinois 60602.
 
RECITALS OF THE COMPANY
 
The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its unsubordinated debentures, notes or other evidences of indebtedness (herein called the “ Securities ”), to be issued in one or more series as in this Indenture provided.
 
All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done.
 
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
 
For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof, as follows:
 
ARTICLE I.   
 
DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION
 
Section 1.01    Definitions .
 
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
 
(1)    the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
 
(2)    all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
 
(3)    all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles;
 
(4)    the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
 
Certain terms, used principally in Article VI, are defined in that Article.
 

 
Act ,” when used with respect to any Holder, has the meaning specified in Section 1.04.
 
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 of this definition, “control,” when used with respect to any specified 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” have meanings correlative to the foregoing.
 
Authenticating Agent ” means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities of one or more series.
 
Authorized Newspaper ” means a newspaper of general circulation in the relevant area, printed in the English language and customarily published on each Business Day therein.
 
Board of Directors ” means either the board of directors of the Company or any duly authorized committee of that board or any director or directors and/or officer or officers of the Company to whom that board or committee shall have duly delegated its authority.
 
Board Resolution ” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
 
Business Day ,” when used with respect to any Place of Payment, means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in that Place of Payment are authorized or obligated by law or executive order to close.
 
Capital Stock ,” as applied to the stock of any corporation, means the capital stock of every class whether now or hereafter authorized, regardless of whether such capital stock shall be limited to a fixed sum or percentage with respect to the rights of the holders thereof to participate in dividends and in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of such corporation.
 
Commission ” means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
 
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.
 
Company ” means the Person named as the “Company” in the first paragraph of this Indenture until a successor corporation shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor corporation.
 
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Company Request ” or “ Company Order ” means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.
 
Corporate Trust Office ” means the principal corporate trust office of the Trustee at which, at any particular time, its corporate trust business shall be administered, which office at the date hereof is located at 2 N. LaSalle Street, Suite 1020, Chicago, Illinois 60602, Attn: Corporate Trust Administration.
 
Corporation ” includes corporations, associations, companies and business trusts.
 
Debt ” means, with respect to any Person, (a) any liability of such Person (i) for borrowed money or (ii) evidenced by a bond, note, debenture or similar instrument (including purchase money obligations but excluding trade payables), or (iii) for the payment of money relating to a lease that is required to be classified as a capitalized lease obligation in accordance with generally accepted accounting principles; (b) any liability of others described in the preceding clause (a) that such Person has guaranteed, that is recourse to such Person or that is otherwise such Person’s legal liability; and (c) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (a) and (b) above.
 
Defaulted Interest ” has the meaning specified in Section 3.07.
 
Depositary ” means, with respect to the Securities of any series issuable or issued in the form of a Global Security, a clearing agency registered under the Securities Exchange Act of 1934, as amended, or any successor thereto, which shall in either case be designated by the Company pursuant to Section 3.01 or 3.05 until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Depositary” shall mean or include each Person who is then a Depositary hereunder, and if at any time there is more than one such Person, “Depositary” as used with respect to the Securities of any such series shall mean the Depositary with respect to the Securities of that series.
 
ERISA ” means the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder.
 
Event of Default ” has the meaning specified in Section 5.01.
 
generally accepted accounting principles ” or “ GAAP ” means, as of any date of computation, generally accepted accounting principles in the United States, consistently applied, that are in effect on the date of such computation.
 
Global Security or Securities ” means one or more fully registered Securities in global form evidencing all or a part of a series of Securities issued to the Depositary for such series or its nominee or registered in the name of the Depositary or its nominee.
 
Holder ” means a Person in whose name a Security is registered in the Security Register.
 
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Indenture ” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 3.01.
 
Independent Investment Banker ” means one of the Reference Treasury Dealers appointed by the Trustee after consultation with the Company.
 
interest ,” when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
 
Interest Payment Date ,” when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
 
Loan Document ” has the meaning specified in Section 5.01(5).
 
Maturity ,” when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or by repayment or otherwise.
 
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, succeeded by BNY Midwest Trust Company, as successor trustee), and indentures supplemental thereto.
 
Notice of Default ” has the meaning specified in Section 5.01(4).
 
Officers’ Certificate ” means a certificate signed by at least two officers of the Company, one signature being that of the Chairman of the Board, the Vice Chairman of the Board, the President or a Vice President, and the other signature being that of the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee.
 
Opinion of Counsel ” means a written opinion of counsel, who may be counsel for the Company.
 
Original Issue Discount Security ” means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.02.
 
Outstanding ,” when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:
 
(i)      Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;
 
(ii)       Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made;
 
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   (iii)      Securities which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; and
 
(iv)      Securities with respect to which the Company has effected defeasance as provided in Article XIV;
 
provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (a) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding 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, and (b) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.
 
Paying Agent ” means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company.
 
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;
 
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(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 October 1, 2006 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;
 
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(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.”
 
Person ” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
 
Place of Payment ,” when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 3.01.
 
Predecessor Security ” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
 
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.
 
Redemption Date ,” when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
 
Redemption Price ,” when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
 
Reference Treasury Dealer ” means each of Credit Suisse Securities (USA) LLC and J.P. Morgan Securities Inc. and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a “ Primary Treasury Dealer ”), the Company shall substitute therefor another Primary Treasury Dealer.
 
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Reference Treasury Dealer Quotations ” means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the Trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Trustee by such Reference Treasury Dealer by 5:00 p.m. on the third Business Day preceding such redemption date.
 
Regular Record Date ” for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by Section 3.01.
 
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.
 
Repayment Date” means, when used with respect to any Security to be repaid at the option of the Holder, the date fixed for such repayment by or pursuant to this Indenture.
 
Repayment Price ” means, when used with respect to any Security to be repaid at the option of the Holder, the price at which it is to be repaid by or pursuant to this Indenture.
 
Responsible Officer ,” when used with respect to the Trustee, means any officer of the Trustee customarily performing corporate trust functions who shall have direct responsibility for the administration of this Indenture.
 
Securities ” has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.
 
Security Register ” and “ Security Registrar ” have the respective meanings specified in Section 3.05.
 
Special Record Date ” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07.
 
Stated Maturity ,” when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal or such installment of principal of (and premium, if any) or interest on such Security is due and payable.
 
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.
 
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Trustee ” means the Person named as the “Trustee” in the first paragraph of this indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, “Trustee” as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.
 
Trust Indenture Act ” means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “Trust Indenture Act” means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
 
United States ” means the United States of America.
 
U.S. Government Obligations ” has the meaning specified in Section 14.04.
 
Vice President ,” when used with respect to the Company, means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president.”
 
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.
 
Section 1.02    Compliance Certificates and Opinions .
 
Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
 
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than the certificate provided for in Section 10.05) shall include:
 
(1)    a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
 
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(2)    a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
 
(3)    a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
 
(4)    a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
 
Section 1.03    Form of Documents Delivered to Trustee .
 
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
 
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion are based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
 
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
 
Section 1.04    Acts of Holders; Record Dates .
 
(a)     Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “ Act ” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
 
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(b)    The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
 
(c)    The ownership of Securities shall be proved by the Security Register.
 
(d)    Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
 
(e)    The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders of Securities of any series entitled to give or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders of Securities of such series. If not set by the Company prior to the first solicitation of a Holder of Securities of such series made by any Person in respect of any such action, or in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation or vote, as the case may be. With regard to any record date for action to be taken by the Holders of one or more series of Securities, only the Holders of Securities of such series on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action.
 
(f)    Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. Any notice given or action taken by a Holder or its agents with regard to different parts of such principal amount pursuant to this paragraph shall have the same effect as if given or taken by separate Holders of each such different part.
 
(g)    Without limiting the generality of the foregoing, unless otherwise specified pursuant to Section 3.01 or pursuant to one or more indentures supplemental hereto, a Holder, including a Depositary that is the Holder of a Global Security, may make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders, and a Depositary that is the Holder of a Global Security may provide its proxy or proxies to the beneficial owners of interests in any such Global Security through such Depositary’s standing instructions and customary practices.
 
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(h)    The Trustee shall fix a record date for the purpose of determining the Persons who are beneficial owners of interests in any Global Security held by a Depositary entitled under the procedures of such Depositary to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other action provided in this Indenture to be made, given or taken by Holders. If such a record date is fixed, the Holders on such record date or their duly appointed proxy or proxies, and only such Persons, shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other action, whether or not such Holders remain Holders after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other action shall be valid or effective if made, given or taken more than 90 days after such record date.
 
Section 1.05    Notices, Etc., to Trustee and Company .
 
Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
 
(1)    the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Corporate Trust Administration, or
 
(2)    the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, Attention: Secretary, or at any other address previously furnished in writing to the Trustee by the Company.
 
Section 1.06    Notice to Holders; Waiver .
 
Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice to a Holder which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holder receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
 
In case, by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to give notice of any event to Holders by mail when such notice is required to be given pursuant to any provision of this Indenture, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
 
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Section 1.07    Conflict with Trust Indenture Act .
 
If any provision hereof limits, qualifies or conflicts with the duties imposed by any of Sections 3.10 through 3.17, inclusive, of the Trust Indenture Act through the operation of Section 3.18(c) thereof, such imposed duties shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or shall be deemed to be so excluded, as the case may be.
 
Section 1.08    Effect of Headings and Table of Contents .
 
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
 
Section 1.09    Successors and Assigns .
 
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
 
Section 1.10    Separability Clause .
 
In case any provision in this 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 1.11    Benefits of Indenture .
 
Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, any Paying Agent and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture; provided that this Section 1.11 shall not limit the rights of any Holder of a Global Security to give any notice or take any action, or appoint any agents, with regard to any part or different parts of the principal amount of such Global Security pursuant to Section 1.04.
 
Section 1.12    Governing Law .
 
This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York and for all purposes shall be governed by and construed in accordance with the laws of said state without regard to the conflicts of laws and rules of said state.
 
Section 1.13    Legal Holidays .
 
In any case where any Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, Repayment Date, sinking fund payment date or Stated Maturity, as the case may be.
 
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Section 1.14    Waiver of Jury Trial .
 
EACH OF THE COMPANY AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY.
 
ARTICLE II.  
 
SECURITY FORMS
 
Section 2.01    Forms of Securities .
 
The Securities of each series shall be in such form or forms (including global form) as shall be established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with any law or with any rules made pursuant thereto or the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of such Securities. If the form of Securities of any series is established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 3.03 for the authentication and delivery of such Securities.
 
The Trustee’s certificates of authentication shall be in substantially the form set forth in this Article.
 
The definitive Securities shall be printed, lithographed or engraved or may be produced in any other manner permitted by the rules of any securities exchange upon which the Securities may be listed and (with respect to Global Securities of any Series) the rules of the Depositary, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.
 
Section 2.02    Form of Trustee’s Certificate of Authentication .
 
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
 
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   as Trustee
     
  By:                                            
    Authorized Officer
   
 
Section 2.03    Securities in Global Form .
 
If any Security of a series is issuable in global form, such Security may provide that it shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and also may provide that the aggregate amount of Outstanding Securities represented thereby may from time to time be reduced to reflect exchanges. Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee and in such manner as shall be specified in such Security. Any instructions by the Company with respect to a Security in global form, after its initial issuance, shall be in writing but need not comply with Section 1.02.
 
ARTICLE III.
  
THE SECURITIES
 
Section 3.01    Amount Unlimited; Issuable in Series .
 
The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.
 
The Securities may be issued in one or more series. All Securities of each series issued under this Indenture shall in all respects be equally and ratably entitled to the benefits hereof with respect to such series without preference, priority or distinction on account of the actual time of the authentication and delivery or Maturity of the Securities of such series. There shall be established in or pursuant to a Board Resolution, and, to the extent not set forth therein, set forth in an Officers’ Certificate, or established in one or more indentures supplemental hereto, prior to the issuance of Securities of any series:
 
(1)    the title of the Securities of the series including CUSIP Numbers (which shall distinguish the Securities of the series from all other series of Securities);
 
(2)    the price or prices (expressed as a percentage of the aggregate principal amount thereof) at which the Securities will be issued;
 
(3)    any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of that series pursuant to Section 3.04, 3.05, 3.06, 9.06, 11.06, 13.05 or 14.03);
 
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(4)    the date or dates on which the principal and premium, if any, of the Securities of the series is payable;
 
(5)    the rate or rates (which may be fixed or variable), or the method of determination thereof, at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest shall be payable and the Regular Record Date for the interest payable on any Interest Payment Date or, if the principal amount payable at the Stated Maturity of any of the Securities will not be determinable as of any one or more dates prior to the Stated Maturity, the amount which will be deemed to be such principal amount as of any such date for any purpose, including the principal amount thereof which will be due and payable upon any Maturity other than the Stated Maturity or which will be deemed to be Outstanding as of any such date (or, in any such case, the manner in which such deemed principal amount is to be determined);
 
(6)    if other than the Corporate Trust Office, the place or places where the principal of (and premium, if any) and interest on Securities of the series shall be payable;
 
(7)    the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company;
 
(8)    the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any mandatory sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;
 
(9)    if other than denominations of $1,000 and any integral multiple thereof, the denominations in which Securities of the series shall be issuable;
 
(10)    if other than the principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.02;
 
(11)    if the Securities of the series shall be issued in whole or in part in the form of a Global Security or Securities, the terms and conditions upon which such Global Security may be exchanged in whole or in part for other individual securities and the Depositary for such Global Security or Securities;
 
(12)    any addition to or change in the Events of Default which applies to any Securities of the series;
 
(13)    any addition to or change in the covenants set forth in Article X which applies to Securities of the series;
 
(14)    the nature and terms of the security for any secured Securities;
 
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(15)    the form and terms of any guarantee of the Securities;
 
(16)    the application, if any, of Section 14.02 or 14.03 to the Securities of the series and any provisions in modification of, in addition to or in lieu of any of the provisions of Article XIV;
 
(17)    the listing of the Securities on any securities exchange or the inclusion in any other market or quotation or trading system;
 
(18)    any Trustee, Authenticating Agent, Paying Agent, issuing or transfer agent or Securities Registrar or any other Person appointed to act in connection with such Securities for or on behalf of the Holders thereof or the Company; and
 
(19)    any other terms of the series (which terms shall not be inconsistent with the provisions of this Indenture).
 
All Securities of any one series shall be substantially identical except as to denomination and except as may otherwise be provided in or pursuant to such Board Resolution and set forth in such Officers’ Certificate, to the extent applicable, or in any such indenture supplemental hereto. All Securities of any one series need not be issued at the same time and, unless otherwise provided, a series may be reopened, without the consent of the Holders, for issuance of additional Securities of such series.
 
If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Board Resolution or the Officers’ Certificate setting forth the terms of the series.
 
Section 3.02    Denominations .
 
The Securities of each series shall be issuable in registered form with or without coupons in such denominations as shall be specified as contemplated by Section 3.01. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $1,000 and any integral multiple thereof.
 
Section 3.03    Execution, Authentication, Delivery and Dating .
 
The Securities shall be executed on behalf of the Company by its Chairman of the Board, its Vice Chairman of the Board, its President or one of its Vice Presidents. The signature of any of these officers on the Securities may be manual or facsimile.
 
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
 
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, and the Trustee shall authenticate and deliver such Securities upon Company Order. If all the Securities of any one series are not to be originally issued at one time and if a Board Resolution relating to such Securities shall so permit, such Company Order may set forth procedures (acceptable to the Trustee) for the issuance and authentication of such Securities.
 
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If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Sections 2.01 and 3.01, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be provided with, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating:
 
(a)    if the form of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.01, that such form has been established in conformity with the provisions of this Indenture;
 
(b)    if the terms of such Securities have been established by or pursuant to Board Resolution as permitted by Section 3.01, that such terms have been established in conformity with the provisions of this Indenture; and
 
(c)    that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.
 
If such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee’s own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.
 
Notwithstanding the provisions of Section 3.01 and of the preceding paragraph, if all Securities of a series are not to be originally issued at one time, it shall not be necessary to deliver the Board Resolution or Officers’ Certificate otherwise required pursuant to Section 3.01 or the Company Order and Opinion of Counsel otherwise required pursuant to this Section 3.03 at or prior to the time of authentication of each Security of such series if such documents are delivered at or prior to the authentication upon original issuance of the first Security of such series to be issued and such documents reasonably contemplate the issuance of all Securities of such series.
 
Unless otherwise provided in the form of Security for any series, each Security shall be dated the date of its authentication.
 
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture.
 
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If the Company shall establish pursuant to Section 3.01 that the Securities of a series are to be issued in the form of one or more Global Securities, then the Company shall execute and the Trustee shall, in accordance with this Section and the Company Order with respect to such series, authenticate and deliver one or more Global Securities that (i) shall represent and shall be denominated in an amount equal to the aggregate principal amount of all of the Securities of such series having the same terms issued and not yet canceled, (ii) shall be registered in the name of the Depositary for such Global Security or Securities or the nominee of such Depositary, (iii) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary’s instructions and (iv) shall bear a legend substantially to the following effect: “Unless and until it is exchanged in whole or in part for Securities in definitive registered form, this Security may not be transferred except as a whole by the Depositary to the nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary.”
 
Section 3.04    Temporary Securities .
 
Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. Every such temporary Security shall be executed by the Company and shall be authenticated and delivered by the Trustee upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Security in lieu of which it is issued.
 
If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series of authorized denominations. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.
 
Section 3.05    Registration, Registration of Transfer and Exchange and Book-Entry Securities .
 
The Company shall cause to be kept at one of its offices or agencies maintained pursuant to Section 10.02 a register (the register maintained in such office being herein sometimes referred to as the “ Security Register ”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of exchanges and transfers of Securities. The Person responsible for the maintenance of the Security Register is referred to herein as the “ Security Registrar .” The Trustee is hereby initially appointed Security Registrar for the purpose of registering Securities and transfers of Securities as herein provided. The exchange of and the transfer of Securities also may be registered at the office of the Trustee.
 
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Upon surrender for registration of transfer of any Security of any series at the office or agency in a Place of Payment for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount.
 
At the option of the Holder, Securities of any series (except Global Securities) may be exchanged for other Securities of the same series (except Global Securities) of any authorized denominations and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.
 
All Securities issued upon any registration of transfer or exchange of Securities shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
 
Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.
 
No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06, 11.06, 13.05 or 14.03 not involving any transfer.
 
The Company shall not be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 11.02 and ending at the close of business on the day of such mailing, or (ii) to register the transfer or exchange of any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part.
 
Notwithstanding any other provision of this Section 3.05, unless and until it is exchanged in whole or in part for Securities in definitive registered form, a Global Security representing all or a portion of the Securities of a series may not be transferred except as a whole by the Depositary for such series to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by such Depositary or any such nominee to a successor Depositary for such series or a nominee of such successor Depositary.
 
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If at any time the Depositary for the Securities of a series notifies the Company that it is unwilling or unable to continue as Depositary for the Securities of such series or if at any time the Depositary for the Securities of a series shall no longer be registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, the Company shall appoint a successor Depositary with respect to the Securities of such series. If a successor Depositary for the Securities of such series is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, the Company shall execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, shall authenticate and deliver Securities of such series in definitive form in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing such series in exchange for such Global Security or Securities.
 
The Company may at any time and in its sole discretion determine that the Securities of any series issued in the form of one or more Global Securities shall no longer be represented by a Global Security or Securities. In such event the Company shall execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, shall authenticate and deliver, Securities of such series in definitive registered form without coupons, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the Global Security or Securities representing such series, in exchange for such Global Security or Securities.
 
If (1) an Event of Default shall occur and be continuing and (2) beneficial owners of interests representing a majority in aggregate principal amount of the Securities of a series represented by a Global Security or Securities shall advise the Trustee through the Depositary for such Global Security or Securities in writing that the maintenance of a Depositary for such series is no longer in such beneficial owners’ best interests, the Company shall execute, and the Trustee, upon receipt of a Company Order for the authentication and delivery of definitive Securities of such series, shall authenticate and deliver, Securities of such series in definitive registered form without coupons, in any authorized denominations, in an aggregate principal amount equal to the principal amount of the such Global Security or Securities, in exchange for such Global Security or Securities.
 
If specified by the Company pursuant to Section 3.01 with respect to a series of Securities, the Depositary for such series of Securities may surrender a Global Security for such series of Securities in exchange in whole or in part for Securities of such series in definitive registered form on such terms as are acceptable to the Company and such Depositary. Thereupon, the Company shall execute, and the Trustee shall authenticate and deliver, without service charge,
 
(i)    to the Person specified by such Depositary a new Security or Securities of the same series, of any authorized denomination as requested by such Person, in an aggregate principal amount equal to and in exchange for such Person’s beneficial interest in the Global Security; and
 
(ii)    to such Depositary a new Global Security in a denomination equal to the difference, if any, between the principal amount of the surrendered Global Security and the aggregate principal amount of Securities authenticated and delivered pursuant to Clause (i) above.
 
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Upon the exchange of a Global Security for Securities in definitive registered form, in authorized denominations, such Global Security shall be canceled by the Trustee. Securities in definitive registered form issued in exchange for a Global Security pursuant to this Section 3.05 shall be registered in such names and in such authorized denominations as the Depositary for such Global Security, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall not be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. The Trustee shall, at Company expense, deliver such Securities to or as directed by the Persons in whose names such Securities are so registered.
 
Section 3.06    Mutilated, Destroyed, Lost and Stolen Securities .
 
If any mutilated Security is surrendered to the Trustee, together with such other security or indemnity as may be reasonably required by the Trustee to save it harmless, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
 
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
 
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security, subject to satisfaction of the foregoing conditions. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
 
Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.
 
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
 
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Section 3.07    Payment of Interest; Interest Rights Preserved .
 
Except as otherwise provided as contemplated by Section 3.01 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. The Company and the Trustee understand that interest on any Global Security will be disbursed or credited by the Depositary to the Persons having ownership thereof pursuant to a book entry or other system maintained by the Depositary.
 
Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “ Defaulted Interest ”) shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or Clause (2) below:
 
(1)    The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
 
(2)    The Company may make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
 
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Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
 
Section 3.08    Persons Deemed Owners .
 
The Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 3.07) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
 
None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a Global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
 
Section 3.09    Cancellation .
 
Unless otherwise specified pursuant to Section 3.01(6) for Securities of any series all Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any mandatory sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee, except that if a Global Security is so surrendered, the Company shall execute and the Trustee shall authenticate and deliver to the Depositary for such Global Security, without service charge, a new Global Security or Securities in a denomination equal to and in exchange for the portion of the Global Security so surrendered not to be paid, redeemed, repaid or registered for transfer or exchange or for credit. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of in accordance with its customary procedures and a certificate of disposition shall be delivered to the Company upon its request therefor, unless, by a Company Order, the Company shall direct the canceled Securities be returned to it.
 
Section 3.10    Computation of Interest .
 
Except as otherwise specified as contemplated by Section 3.01 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months.
 
Section 3.11    CUSIP Numbers .
 
The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee in writing of any change in the “CUSIP” numbers.
 
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ARTICLE IV.   
 
SATISFACTION AND DISCHARGE
 
Section 4.01    Satisfaction and Discharge of Indenture .
 
Upon Company Request, this Indenture shall cease to be of further effect with respect to the Securities of a particular series, and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such Securities, when:
 
(1)    either:
 
(A)   all Securities of such series theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or
 
(B)     all Securities of such series not theretofore delivered to the Trustee for cancellation
 
                                 (i)    have become due and payable, or
 
(ii)    will become due and payable at their Stated Maturity within one year, or
 
(iii)    are to be called for redemption within one year, under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company;
 
and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be irrevocably deposited with the Trustee as trust funds in trust for such purpose sums sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; and
 
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(2)    the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to such Securities; and
 
(3)    the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture with respect to the Securities of such series have been complied with.
 
Notwithstanding the satisfaction and discharge of this Indenture with respect to the Securities of a particular series, the obligations of the Company to the Trustee under Section 6.07, the obligations, if any, of the Trustee to any Authenticating Agent under Section 6.14 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03, in each case with respect to such Securities, shall survive such satisfaction and discharge.
 
Notwithstanding the cessation, termination and discharge of all obligations, covenants and agreements of the Company under this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee under Section 6.07 and the obligations of the Trustee under Section 4.02 and the last paragraph of Section 10.03 shall survive with respect to such series of Securities.
 
Section 4.02    Application of Trust Money .
 
Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee.
 
ARTICLE V.   
 
EVENTS OF DEFAULT; REMEDIES
 
Section 5.01    Events of Default .
 
Unless otherwise provided in a supplemental indenture hereto, “ Event of Default ,” wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
 
(1)    default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or
 
(2)    default in the payment of the principal of (and premium, if any, on) any Security of that series at its Maturity; or
 
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(3)    default in the deposit of any mandatory sinking fund payment, when and as due by the terms of the Securities of that series, and continuance of such default for a period of 30 days; or
 
(4)     default in the performance of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section 5.01 specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than that series), and continuance of such default for a period of 90 days (unless the Company during such period shall have performed such covenant or warranty, or if such covenant or warranty cannot reasonably have been performed during such period, then the Company shall have commenced and be diligently pursuing such performance) after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least a majority in aggregate principal amount of the Outstanding Securities of that series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or
 
(5)    default (i) in the payment of any principal of or interest on any Debt of the Company (other than Securities of that series), aggregating more than $100,000,000 in principal amount, when due after giving effect to any applicable grace period or (ii) in the performance of any other term or provision of any Debt of the Company (other than Securities of that series) in excess of $100,000,000 in principal amount that results in such Debt becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such acceleration shall not have been rescinded or annulled, or such Debt shall not have been discharged, within a period of 30 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series, a written notice specifying such default or defaults and stating that such notice is a “Notice of Default” hereunder; or
 
(6)    the entry against the Company of one or more judgments, decrees or orders by a court having jurisdiction in the premises from which no appeal may be or is taken for the payment of money, either individually or in the aggregate, in excess of $100,000,000, and the continuance of such judgment, decree or order unsatisfied and in effect for any period of 45 consecutive days after the amount thereof is due without a stay of execution and there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series, a written notice specifying such entry and continuance of such judgment, decree or order and stating that such notice is a " Notice of Default " hereunder; or
 
(7)    the entry of a decree or order for relief in respect of the Company by a court having jurisdiction in the premises in an involuntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable federal or state law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 90 consecutive days; or
 
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(8)    the commencement by the Company of a voluntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, or the consent by it to the entry of an order for relief in an involuntary case under any such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of its creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action.
 
Upon receipt by the Trustee of any proposed Notice of Default from any Holder with respect to Securities of a series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities of such series entitled to join in such proposed Notice of Default, which record date shall be at the close of business on the day the Trustee receives such proposed Notice of Default. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such proposed Notice of Default, whether or not such Holders remain Holders after such record date; provided , that unless Holders of at least a majority in principal amount of the Outstanding Securities of such series, or their proxies, shall have joined in such proposed Notice of Default prior to the day which is 90 days after such record date, such proposed Notice of Default shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving (i) after expiration of such 90-day period, a new proposed Notice of Default identical to a proposed Notice of Default which has been canceled pursuant to the proviso to the preceding sentence, or (ii) during any such 90-day period, an additional proposed Notice of Default with respect to any new or different fact or circumstance permitting the giving of a proposed Notice of Default with respect to Securities of such series, in either of which events a new record date shall be established pursuant to the provisions of this Section 5.01. Any such proposed Notice of Default shall be considered a Notice of Default hereunder at such time, if any, that Holders of at least a majority in principal amount of the Outstanding Securities shall have joined in such proposed Notice of Default by giving timely notice to the Trustee hereunder.
 
Section 5.02    Acceleration of Maturity; Rescission and Annulment .
 
If an Event of Default with respect to Securities of any series (other than an Event of Default specified in Section 5.01(5)) at the time Outstanding occurs and is continuing, then in every such case, the Trustee or the Holders of not less than a majority in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if any of the Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof) of all of the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. Upon payment of said amounts, all obligations of the Company in respect of payment of principal of the Securities of such series shall terminate. Notwithstanding the foregoing, if an Event of Default specified in Section 5.01(5) hereof occurs with respect to the Company, all Outstanding Securities shall become immediately due and payable without further action or notice.
 
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At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:
 
(1)    the Company has paid or deposited with the Trustee a sum sufficient to pay
 
(A)    all overdue interest on all Securities of that series,
 
(B)    the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and any interest thereon at the rate or rates prescribed therefor in such Securities,
 
(C)    to the extent that payment of such interest is lawful, interest upon overdue interest at the rate or rates prescribed therefor in such Securities, and
 
(D)    all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel;
 
and
 
(2)    all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 5.13.
 
No such rescission shall affect any subsequent default or impair any right consequent thereon.
 
Upon receipt by the Trustee of written notice declaring such an acceleration, or rescission and annulment thereof, with respect to Securities of a series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities of such series entitled to join in such notice, which record date shall be at the close of business on the day the Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided , that unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving (i) after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment, as the case may be, that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, or (ii) during any such 90-day period, an additional written notice of declaration of acceleration with respect to Securities of such series, or an additional written notice of rescission and annulment of any declaration of acceleration with respect to any other Event of Default with respect to Securities of such series, in either of which events a new record date shall be established pursuant to the provisions of this Section 5.02.
 
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Section 5.03    Collection of Indebtedness and Suits for Enforcement by Trustee .
 
The Company covenants that if:
 
(1)    default is made in the payment of any interest upon any Security when it becomes due and payable and such default continues for a period of 30 days, or
 
(2)    default is made in the payment of the principal of (or premium, if any, on) any Security at its Maturity, or
 
(3)    default is made in the making or satisfaction of any mandatory sinking fund payment when it becomes due pursuant to the terms of the Securities of any series,
 
the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
 
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may, but shall not be obligated to, institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
 
If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
 
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Section 5.04    Trustee May File Proofs of Claim .
 
In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to file and prove a claim for the whole amount of principal, premium and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07.
 
No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
 
Section 5.05    Trustee May Enforce Claims Without Possession of Securities .
 
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
 
Section 5.06    Application of Money Collected .
 
Any money collected by the Trustee pursuant to this Article with respect to the Securities of any series shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities of any series and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
 
FIRST: To the payment of all amounts due the Trustee under Section 6.07;
 
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SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities of such series in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and
 
THIRD: The balance, if any, to the Company or as a court of competent jurisdiction may direct.
 
Section 5.07    Limitation on Suits .
 
No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:
 
(1)    such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series;
 
(2)    the Holders of not less than a majority in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
 
  (3)    such Holder or Holders have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;
 
(4)    the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
 
(5)    no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of that series;
 
it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or of the Holders of Outstanding Securities of any other series, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.
 
Section 5.08    Unconditional Right of Holders to Receive Principal, Premium and Interest .
 
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 3.07) interest on such Security on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption or repayment at the option of the Holder, on the Redemption Date or the Repayment Date, as the case may be) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
 
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Section 5.09    Restoration of Rights and Remedies .
 
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
 
Section 5.10    Rights and Remedies Cumulative .
 
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
 
Section 5.11    Delay or Omission Not Waiver .
 
No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
 
Section 5.12    Control by Holders .
 
The Holders of at least a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that
 
(1)    such direction shall not be in conflict with any rule of law or with this Indenture, expose the Trustee to personal liability or be unduly prejudicial to Holders not joining therein, and
 
(2)    the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
 
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Upon receipt by the Trustee of any such direction with respect to Securities of a series all or part of which is represented by a Global Security, a record date shall be established for determining Holders of Outstanding Securities of such series entitled to join in such direction, which record date shall be determined in accordance with Section 1.04(e). The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such direction, whether or not such Holders remain Holders after such record date; provided , that unless Holders of at least a majority in principal amount of the outstanding Securities of such series, or their proxies, shall have been joined in such direction prior to the day which is 90 days after such record date, such direction shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving (i) after expiration of such 90-day period, a new direction identical to a direction which has been canceled pursuant to the provisions of the preceding sentence or (ii) during any such 90-day period, a new direction contrary to or different from such direction, in either of which events a new record date shall be established pursuant to the provisions of this Section 5.12.
 
Section 5.13    Waiver of Defaults .
 
By Act delivered to the Company and the Trustee, the Holders of not less than a majority in principal amount of the Outstanding Securities of any affected series may on behalf of the Holders of all the Securities of such series waive any existing Event of Default hereunder with respect to such series and its consequences (including an acceleration and its consequences, including any related payment default that resulted from such acceleration), except an Event of Default
 
(1)    in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any mandatory sinking fund installment with respect to the Securities of such series, or
 
(2)    in respect of a covenant or provision hereof which under Article IX cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected thereby.
 
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to waive any past default hereunder. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to waive any default hereunder, whether or not such Holders remain Holders after such record date; provided , that unless such majority in principal amount shall have been obtained prior to the date which is 90 days after such record date, any such waiver previously given shall automatically and without further action by any Holder be canceled and of no further effect.
 
Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
 
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Section 5.14    Undertaking for Costs .
 
In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, including reasonable attorneys’ fees and expenses, in the manner and to the extent provided in the Trust Indenture Act; provided that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Trustee, by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the Stated Maturity expressed in such Security (or, in the case of redemption or repayment at the option of the Holder, on or after the Redemption Date or Repayment Date, as the case may be).
 
Section 5.15    Waiver of Stay or Extension Laws .
 
The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
 
ARTICLE VI.   

THE TRUSTEE
 
Section 6.01    Certain Duties and Responsibilities .
 
(a)    Except during the continuance of an Event of Default:
 
(1)    the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
 
(2)    in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision of this Indenture are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of any mathematical calculations or other facts stated therein).
 
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(b)     In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
 
(c)     No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:
 
(1)    this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
 
(2)    the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
 
(3)    the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities of any series relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture; and
 
(4)    no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
 
(d)    Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
 
Section 6.02    Notice of Defaults .
 
Within 90 days after the occurrence of any default hereunder with respect to Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series, as their names and addresses appear in the Security Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal, premium or interest on any Security of such series or in the payment of any mandatory sinking fund installment with respect to the Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee of the board of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the interests of the Holders of the Securities of such series; and provided, further, that in the case of any default of the character specified in Section 5.01(4) with respect to the Securities of such series no such notice to Holders shall be given until at least 60 days after the occurrence thereof. For the purpose of this Section, the term “ default ” means any event which is, or after notice or lapse of time or both would become, an Event of Default.
 
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Section 6.03    Certain Rights of Trustee .
 
Subject to the provisions of Section 6.01:
 
(a)    the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
 
(b)    any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
 
(c)    whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate;
 
(d)    the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
 
(e)    the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
 
(f)    the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
 
(g)    the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
 
(h)    the Trustee shall not be required to take notice or be deemed to have notice of any default hereunder (except failure by the Company to pay principal of (or premium, if any) or interest on any series of Securities so long as the Trustee is also acting as Paying Agent for such series of Securities) unless the Trustee shall be specifically notified in writing of such default by the Company or by the Holders of at least a 10% in aggregate principal amount of all Outstanding Securities, and all such notices or other instruments required by this Indenture to be delivered to the Trustee must, in order to be effective, be delivered at the principal Corporate Trust Office of the Trustee, and in the absence of such notice the Trustee may conclusively assume there is no default except as aforesaid;
 
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(i)    the Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture;
 
(j)    in no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action;
 
(k)    the Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless other written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture; and
 
(l)    the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed by the Trustee to act hereunder pursuant to the terms of this Indenture.
 
Section 6.04    Not Responsible for Recitals or Issuance of Securities .
 
The recitals contained herein and in the Securities, except the Trustee’s certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. The Trustee shall not be deemed to have knowledge of the identity of any Subsidiary unless either (A) a Responsible Officer of the Trustee shall have actual knowledge thereof or (B) the Trustee shall have received written notice thereof from the Company or any Holder.
 
Section 6.05    May Hold Securities .
 
The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.
 
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Section 6.06    Money Held in Trust .
 
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
 
Section 6.07    Compensation and Reimbursement .
 
The Company agrees:
 
(1)   to pay to the Trustee from time to time reasonable compensation for the Trustee’s services rendered hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
 
  (2)    except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee’s own negligence or bad faith; and
 
  (3)    to indemnify the Trustee for, and to hold it harmless against, in each case to the extent permitted by law, any loss, claim, damage, liability or expense incurred without negligence or bad faith on the Trustee’s part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the Trustee’s costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of the Trustee’s powers or duties hereunder.
 
As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the Holders of particular Securities.
 
The benefits of this Section shall survive the termination of this Indenture.
 
Section 6.08    Disqualification; Conflicting Interests .
 
If the Trustee has or shall acquire a conflicting interest within the meaning of Section 3.10 of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. To the extent permitted by the Trust Indenture Act, the Trustee shall not be deemed to have a conflicting interest with respect to the Securities of any series by virtue of being Trustee with respect to the Securities of any particular series of Securities except as may be otherwise provided by the terms of the Securities of that series.
 
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Section 6.09    Corporate Trustee Required; Eligibility .
 
There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of Federal, State, Territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
 
Section 6.10    Resignation and Removal; Appointment of Successor .
 
(a)      No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 6.11.
 
 (b)     The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may at the expense of the Company petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
 
 (c)    The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.11 shall not have been delivered to the Trustee within 60 days after the removal of Trustee, the removed Trustee may at the expense of the Company petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
 
(d)    If at any time:
 
(1)    the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or
 
(2)    the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or
 
(3)    the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
 
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then, in any such case, (i) the Company may remove the Trustee with respect to any or all Securities, or (ii) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to any or all Securities and the appointment of a successor Trustee or Trustees with respect to such series.
 
(e)    If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 6.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of that or those series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.11, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 6.11, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.
 
(f)    The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series to all Holders of Securities of such series in the manner provided in Section 1.06. Each notice of appointment shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.
 
Section 6.11    Acceptance of Appointment by Successor .
 
(a)    In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its lien, if any, provided for in Section 6.07.
 
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(b)    In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates.
 
(c)    Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be.
 
(d)    No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
 
Section 6.12    Merger, Conversion, Consolidation or Succession to Business .
 
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. In case any Securities shall not have been authenticated by such predecessor Trustee, any such successor Trustee may authenticate and deliver such Securities, in either its own name or that of its predecessor Trustee, with the full force and effect which this Indenture provides for the certificate of authentication of the Trustee.
 
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Section 6.13    Preferential Collection of Claims Against Company .
 
If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of Section 3.11 of the Trust Indenture Act regarding the collection of such claims against the Company (or any such other obligor). A Trustee that has resigned or been removed shall be subject to and comply with said Section 3.11 to the extent required thereby.
 
Section 6.14    Appointment of Authenticating Agent .
 
The Trustee may appoint an Authenticating Agent or Agents with respect to one or more series of Securities (which may be an Affiliate of the Company) which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon registration of transfer or partial redemption or repayment thereof or pursuant to Section 3.06, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business and in good standing under the laws of the United States, any State or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of no less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.
 
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent for any series of Securities may resign at any time by giving written notice thereof to the Trustee for such series and to the Company. The Trustee for any series of Securities may at any time terminate the agency of an Authenticating Agent for such series by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee of such series may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
 
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Except with respect to an Authenticating Agent appointed at the request of the Company, the Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, pursuant to the provisions of Section 6.07.
 
If an appointment with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternative certificate of authentication in the following form:
 
This is one of the Securities of the series described therein referred to in the within-mentioned Indenture.
 
     
                                                      ,
 
 
 as Trustee
 
  By:                                                
    As Authenticating Agent
  By:                                       
  Authorized Officer
   
 
 
ARTICLE VII.   
 
HOLDERS’ LISTS AND REPORTS
BY TRUSTEE AND COMPANY
 
Section 7.01    Company to Furnish Trustee Names and Addresses of Holders .
 
With respect to each series of Securities, the Company will furnish or cause to be furnished to the Trustee for the Securities of such Series
 
(a)    semiannually, not more than 15 days after each Regular Record Date relating to that series (or, if there is no Regular Record Date relating to that series, on June 30 and December 31), a list, in such form as such Trustee may reasonably require, of the names and addresses of the Holders of that series as of such date, and
 
(b)    at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that if and so long as the Trustee is Security Registrar with respect to Securities of a particular series no such list shall be required with respect to the Securities of such series.
 
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Section 7.02    Preservation of Information; Communications to Holders .
 
(a)    The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished.
 
(b)    The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities, and the corresponding rights and privileges of the Trustee, shall be as provided by the Trust Indenture Act.
 
(c)    Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of the disclosure of information as to the names and addresses of the Holders made pursuant to the Trust Indenture Act.
 
Section 7.03    Reports by Trustee .
 
(a)    Within 60 days after May 15 of each year commencing with the year 2007, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act if and to the extent and in the manner provided pursuant thereto.
 
(b)    A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which any Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when any Securities are listed on any stock exchange.
 
Section 7.04    Reports by Company .
 
The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, shall be filed with the Trustee within 15 days after the same is filed with the Commission. Delivery of such reports to the Trustee is for informational purposes only and the Trustee’s receipt of such reports shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).
 
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Section 7.05    Holders’ Meetings .
 
(a)    A meeting of Holders of any or all series may be called at any time and from time to time pursuant to the provisions of this Section 7.05 for any of the following purposes:
 
(1)    to give any notice to the Company or to the Trustee for such series, or to give any directions to the Trustee for such series, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Holders pursuant to any of the provisions of Article V;
 
(2)    to remove the Trustee for such series and appoint a successor Trustee pursuant to the provisions of Article VI;
 
(3)    to consent to the execution of an indenture or supplemental indentures hereto pursuant to the provisions of Section 9.02; and
 
(4)    to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Outstanding Securities of any one or more or all series, as the case may be, under any other provision of this Indenture or under applicable law.
 
(b)    The Trustee for any series may at any time call a meeting of Holders of such series to take any action specified in paragraph (a) of this Section 7.05, to be held at such time or times and at such place or places as the Trustee for such series shall determine. Notice of every meeting of the Holders of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given to Holders of such series in the manner and to the extent provided in Section 1.05. Such notice shall be given not less than 20 days nor more than 90 days prior to the date fixed for the meeting.
 
(c)    In case at any time the Company, or the Holders of at least 10% in aggregate principal amount of the Outstanding Securities of a series or of all series, as the case may be, shall have requested the Trustee for such series to call a meeting of Holders of any or all such series by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have given the notice of such meeting within 20 days after the receipt of such request, then the Company or such Holders may determine the time or times and the place or places for such meetings and may call such meetings to take any action authorized by giving notice thereof as provided in the preceding paragraph.
 
(d)    To be entitled to vote at any meeting of Holders a Person shall be (a) a Holder of a Security of the series with respect to which such meeting is being held or (b) a Person appointed by an instrument in writing as agent or proxy by such Holder. The only Persons who shall be entitled to be present or to speak at any meeting of Holders shall be the Persons entitled to vote at such meeting and their counsel and any representatives of the Trustee for the series with respect to which such meeting is being held and its counsel and any representatives of the Company and its counsel.
 
(e)    Notwithstanding any other provisions of this Indenture, the Trustee for any series may make such reasonable regulations as it may deem advisable for any meeting of Holders of such series, in regard to proof of the holding of Securities of such series and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate.
 
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The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of such series as provided in paragraph (c) of this Section 7.05, in which case the Company or the Holders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by a majority vote of the meeting.
 
Subject to the provisos in the definition of “Outstanding,” at any meeting each Holder of a Debt Security of the series with respect to which such meeting is being held or proxy therefor shall be entitled to one vote for each $1,000 principal amount (or such other amount as shall be specified as contemplated by Section 3.01) of Securities of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Outstanding Securities of such series held by him or instruments in writing duly designating him as the person to vote on behalf of Holders of Securities of such series. Any meeting of Holders with respect to which a meeting was duly called pursuant to the provisions of paragraph (b) or (c) of this Section 7.05 may be adjourned from time to time by a majority of such Holders present and the meeting may be held as so adjourned without further notice.
 
(f)    The vote upon any resolution submitted to any meeting of Holders with respect to which such meeting is being held shall be by written ballots on which shall be subscribed the signatures of such Holders or of their representatives by proxy and the serial number or numbers of the Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Holders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was transmitted as provided in paragraph (b) of this Section 7.05. The record shall show the serial numbers of the Securities voting in favor of or against any resolution. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee.
 
Any record so signed and verified shall be conclusive evidence of the matters therein stated.
 
(g)    Nothing contained in this Section 7.05 shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Holders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to any Holder under any of the provisions of this Indenture or of the Securities of any series.
 
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ARTICLE VIII.   
 
CONSOLIDATION, MERGER,
CONVEYANCE, TRANSFER OR LEASE
 
Section 8.01    Company May Consolidate, Etc., Only on Certain Terms .
 
The Company shall not consolidate with or merge with or into any other Person or convey, transfer or lease all or substantially all of its property or assets to any Person unless:
 
(1)    in case the Company shall consolidate with or merge into another Person or convey, transfer or lease all or substantially all of its property or assets to any Person, the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company shall be either the Company or a corporation or limited liability company, shall be organized and validly existing under the laws of the United States, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto executed and delivered to the Trustee, all obligations hereunder, including the due and punctual payment of the principal of and any premium and interest on all the Securities and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed; and
 
(2)    after giving effect to such transaction, no Event of Default shall have occurred and be continuing.
 
Notwithstanding the foregoing, any Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company.
 
Section 8.02    Successor Substituted .
 
Upon any consolidation of the Company with, or merger of the Company into, any other Person or conveyance, transfer or lease of all or substantially all of the property or assets of the Company in accordance with Section 8.01, the successor Person formed by such consolidation or into which the Company is merged or to which conveyance, transfer or lease of all or substantially all of its property or assets is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. In the case of a lease, the predecessor Person shall not be released from its obligations to pay the principal of, premium, if any, and interest on the Securities. All Securities issued by the successor Person shall in all respects have the same legal priority as the Securities theretofore or thereafter authenticated, issued and delivered in accordance with the terms of this Indenture.
 
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ARTICLE IX.  
 
SUPPLEMENTAL INDENTURES
 
Section 9.01    Supplemental Indentures Without Consent of Holders .
 
Without the consent of any Holders, the Company and the Trustee, at any time and from time to time, may amend the Securities of a series or enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
 
(1)    to make such provision in regard to matters or questions arising under this Indenture as may be necessary or desirable and not inconsistent with this Indenture or for the purpose of supplying any omission, curing any ambiguity, or curing, correcting or supplementing any defective or inconsistent provision, provided that such provision shall not adversely affect the interests of Holders of Outstanding Securities created prior to the execution of such supplemental indenture in any material respect; or
 
(2)    to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination shall become effective only when there is no Outstanding Security of any series created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision; or
 
(3)    to secure the Securities; or
 
(4)    to establish the form of Securities of any series as permitted by Sections 2.01 and 3.01; or
 
(5)    to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company herein and in the Securities; or
 
(6)    to grant to or confer upon the Trustee for the benefit of the Holders any additional rights, remedies, powers or authority; or
 
(7)    to permit the Trustee to comply with any duties imposed upon it by law; or
 
(8)    to specify further the duties and responsibilities of, and to define further the relationships among, the Trustee, any Authenticating Agent and any Paying Agent; or
 
(9)    to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender a right or power conferred on the Company herein; or
 
(10)    to add any additional Events of Default (and if such Events of Default are to be applicable to less than all series of Securities, stating that such Events of Default are expressly being included for the benefit of such series).
 
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Section 9.02    Supplemental Indentures With Consent of Holders .
 
With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall:
 
 (1)    change the Stated Maturity of any Security; or reduce the rate of interest on any Security; or change the method of calculating interest, or any term used in the calculation of interest, or the period for which interest is payable, on any Security; or reduce the principal amount of any Security or any premium thereon; or reduce the payment of any mandatory sinking fund or analogous obligation; or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof; or adversely affect the right of repayment or renewal, if any, at the option of the Holders; or change the coin or currency in which the principal of any Security or any premium or interest thereon is payable; or change the date on which any Security may be redeemed; or adversely affect the rights of any Holding to institute suit for the enforcement of any payment of principal of or any premium or interest on any Security, in each case without the consent of the Holder of each Outstanding Security that would be affected thereby (for purposes of this Section 9.02(1) only, the term “Security” shall include Securities for which an offer to purchase has been accepted by the Company); or
 
 (2)    reduce the aforesaid percentage of Securities, the Holders of which are required to consent to any such supplemental indenture, or the percentage in aggregate principal amount of the Outstanding Securities the consent of the Holders of which is required for any waiver of certain past defaults or Events of Default hereunder or the consequences thereof, in each case without the consent of the Holders of all of the Outstanding Securities.
 
A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.
 
It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
 
Section 9.03    Execution of Supplemental Indentures .
 
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be provided with, and (subject to Section 6.01) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.
 
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Section 9.04    Effect of Supplemental Indentures .
 
Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
 
Section 9.05    Conformity with Trust Indenture Act .
 
Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect.
 
Section 9.06    Reference in Securities to Supplemental Indentures .
 
Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series.
 
Section 9.07    Notice of Supplemental Indenture .
 
Promptly after the execution by the Company and the appropriate Trustee of any supplemental indenture, the Company shall transmit, as provided herein, to all Holders of any series of the Securities affected thereby, a notice setting forth in general terms the substance of such supplemental indenture.
 
ARTICLE X.   
 
COVENANTS
 
Section 10.01    Payment of Principal, Premium and Interest .
 
The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture.
 
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Section 10.02    Maintenance of Office or Agency .
 
The Company will maintain in each Place of Payment an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company terminates the appointment of a Paying Agent or Security Registrar or otherwise shall fail to maintain any such required office or agency, the Company shall use its reasonable best efforts to appoint a successor Paying Agent or Security Registrar reasonably acceptable to the Trustee. If the Company fails to maintain a Paying Agent or Security Registrar, the Trustee will act as such, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
 
The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
 
Section 10.03    Money for Securities Payments to Be Held in Trust .
 
If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee in writing of its action or failure so to act.
 
Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee in writing of its action or failure so to act.
 
The Company will cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:
 
 (1)     hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
 
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(2)    give the Trustee written notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium, if any) or interest on the Securities of that series; and
 
(3)    at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
 
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
 
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security of any series and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
 
Section 10.04    Corporate Existence .
 
Subject to Article VIII, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided, however , that the Company shall not be required to preserve any such right or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company.

Section 10.05    Notice of Defaults .
 
The Company will give to the Trustee written notice of the occurrence of an Event of Default within five days after the Company becomes aware of such occurrence.
 
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Section 10.06    Waiver of Certain Covenants .
 
The Company may omit in any particular instance to comply with any term, provision or condition set forth in Section 8.01 or Section 10.07 with respect to the Securities of any series if, before the time for such compliance, the Holders of at least a majority in principal amount of the Outstanding Securities of such series shall, by Act of such Holders, either waive compliance in such instance or generally waive compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect.
 
Section 10.07    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.
 
ARTICLE XI.   
 
REDEMPTION OF SECURITIES
 
Section 11.01    Applicability of Article .
 
Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated in Section 3.01 for Securities of any series) in accordance with this Article.
 
Section 11.02    Election to Redeem; Notice to Trustee .
 
The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities of any series, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date, of the principal amount of Securities of such series to be redeemed and, if applicable, of the tenor of the Securities to be redeemed. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers’ Certificate evidencing compliance with such restriction.
 
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Section 11.03    Selection by Trustee of Securities to Be Redeemed .
 
If less than all the Securities of any series are to be redeemed (unless all of the Securities of such series and of a specified tenor are to be redeemed), the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities of such series not previously called for redemption, in a manner which the Trustee deems fair and appropriate, which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of Securities of such series of a denomination larger than the minimum authorized denomination for Securities of that series. If the Company shall so specify and identify the appropriate Securities, Securities owned of record and beneficially by the Company or any Subsidiary shall not be included in the Securities selected for redemption.
 
The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.
 
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.
 
Section 11.04    Notice of Redemption .
 
Notice of redemption shall, unless otherwise specified by the terms of the Securities to be redeemed, be given not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, in accordance with Section 1.06.
 
All notices of redemption shall state:
 
(1)    the Redemption Date;
 
(2)    the Redemption Price;
 
(3)    the place or places where such Securities are to be surrendered for payment of the Redemption Price, which shall be the office or agency of the Company in each Place of Payment;
 
(4)    that payment of the Redemption Price will be made on the surrender of such Securities at such place or places of redemption;
 
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(5)    that accrued interest to the Redemption Date will be paid as specified in such notice and that from and after the Redemption Date interest on such Securities will cease to accrue;
 
(6)    if less than all the Outstanding Securities of any series are to be redeemed (unless all the Securities of such series of a specified tenor are to be redeemed), the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular Securities to be redeemed;
 
(7)    in the case of partial redemption of any Securities, that upon surrender of such Securities, a new Security or new Securities having the same terms will be issued in aggregate principal amount equal to the unredeemed portion;
 
(8)    that redemption is subject to the receipt by the Trustee or a Paying Agent prior to the Redemption Date of sufficient funds to make the redemption, if such is the case; and
 
(9)    that the redemption is for a sinking fund, if such is the case.
 
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company’s request, by the Trustee in the name and at the expense of the Company.
 
Section 11.05    Deposit of Redemption Price .
 
Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date.
 
Section 11.06    Securities Payable on Redemption Date .
 
Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that , unless otherwise specified as contemplated by Section 3.01, installments of interest whose Stated Maturity is on or prior to the Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 3.07.
 
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.
 
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Section 11.07    Securities Redeemed in Part .
 
Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Global Security is so surrendered, such new Security so issued shall be a new Global Security.
 
ARTICLE XII.   
 
SINKING FUNDS
 
Section 12.01    Applicability of Article .
 
The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series except as otherwise specified as contemplated by Section 3.01 for Securities of such series.
 
The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a “ mandatory sinking fund payment ,” and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an “ optional sinking fund payment .” If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.
 
Section 12.02    Satisfaction of Mandatory Sinking Fund Payments with Securities .
 
The Company (1) may deliver Outstanding Securities of a series to the Trustee for cancellation (other than any previously called for redemption) and (2) may apply as a credit Securities of a series which have been redeemed either at the election of the Company or the Holders, if applicable, pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any mandatory sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series or may apply Securities of such series which have been previously cancelled; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of such mandatory sinking fund and the amount of such mandatory sinking fund payment shall be reduced accordingly.
 
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Section 12.03    Redemption of Securities for Mandatory Sinking Fund .
 
Not less than 60 days prior to each mandatory sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers’ Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities or applying previously cancelled Securities of that series pursuant to Section 12.02 and the basis for such credit and will also deliver to the Trustee any Securities to be so delivered which have not theretofore been delivered to the Trustee. Not less than 30 days before each such mandatory sinking fund payment date, the Trustee shall select the Securities to be redeemed upon such mandatory sinking fund payment date in the manner specified in Section 11.02 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.03. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.04, 11.05 and 11.06.
 
ARTICLE XIII.   
 
REPAYMENT OF SECURITIES
 
AT OPTION OF HOLDERS
 
Section 13.01    Applicability of Article .
 
Securities of any series that are repayable before their Stated Maturity at the option of the Holders shall be repaid in accordance with their terms and (except as otherwise specified as contemplated by Section 3.01 for Securities of any series) in accordance with this Article.
 
Section 13.02    Notice of Repayment Date .
 
Notice of any Repayment Date with respect to Securities of any series shall, unless otherwise specified by the terms of the Securities of such series, be given by the Company not less than 45 nor more than 60 days prior to such Repayment Date, to the Trustee and to each Holder of Securities of such series in accordance with Sections 1.05 and 1.06, respectively.
 
The notice as to Repayment Date shall state:
 
(1)    the Repayment Date;
 
(2)    the Repayment Price;
 
(3)    the place or places where such Securities are to be surrendered for payment of the Repayment Price, which shall be the office or agency of the Company in each Place of Payment, and the date by which Securities must be so surrendered in order to be repaid;
 
(4)    a description of the procedure which a Holder must follow to exercise a repayment right; and
 
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(5)    that exercise of the option to elect repayment is irrevocable.
 
No failure of the Company to give the foregoing notice shall limit any Holder’s right to exercise a repayment right.
 
Section 13.03    Deposit of Repayment Price .
 
On or prior to any Repayment Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money sufficient to pay the Repayment Price of and (except if the Repayment Date shall be an Interest Payment Date) accrued interest on, all the Securities of such series which are to be repaid on that date.
 
Section 13.04    Securities Payable on Repayment Date .
 
The form of option to elect repayment having been delivered as specified in the form of Security for such series as provided in Section 2.01, the Securities so to be repaid shall, on the Repayment Date, become due and payable at the Repayment Price applicable thereto, and from and after such date (unless the Company shall default in the payment of the Repayment Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for repayment in accordance with said notice, such Security shall be paid by the Company at the Repayment Price, together with accrued interest to the Repayment Date; provided, however, that, unless otherwise specified as contemplated by Section 3.01, installments of interest whose Stated Maturity is on or prior to such Repayment Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Date according to their terms and the provisions of Section 3.07.
 
If any Security to be repaid shall not be so paid upon surrender thereof for repayment, the principal shall, until paid, bear interest from the Repayment Date at the rate prescribed in the Security.
 
Section 13.05    Securities Repaid in Part .
 
Any Security which by its terms may be repaid in part at the option of the Holder thereof and which is to be repaid only in part shall be surrendered at any office or agency of the Company designated for that purpose pursuant to Section 10.02 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unrepaid portion of the principal of the Security so surrendered. If a Global Security is so surrendered, such new Security so issued shall be a new Global Security.
 
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ARTICLE XIV.   
 
DEFEASANCE AND COVENANT DEFEASANCE
 
Section 14.01    Applicability of Article; Company’s Option to Effect Defeasance or Covenant Defeasance .
 
If pursuant to Section 3.01 provision is made for either or both of (a) defeasance of the Securities of a series under Section 14.02 or (b) covenant defeasance of the Securities of a series under Section 14.03, then the provisions of such Section or Sections, as the case may be, together with the other provisions of this Article XIV, shall be applicable to the Securities of such series, and the Company may at its option at any time with respect to the Securities of such series, elect to have either Section 14.02 (if applicable) or Section 14.03 (if applicable) be applied to the Outstanding Securities of such series upon compliance with the conditions set forth below in this Article XIV.
 
Section 14.02    Defeasance and Discharge .
 
Upon the Company’s exercise of the above option applicable to this Section with respect to the Outstanding Securities of a particular series, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities of such series (except for certain obligations to register the transfer or exchange of Securities of such series, to replace stolen, lost or mutilated Securities of such series, and to maintain paying agencies) on and after the date the conditions precedent set forth below are satisfied (hereinafter, “ defeasance ”). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company and upon Company Request, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Securities of such series to receive, solely from the trust fund described in Section 14.04 as more fully set forth in such Section, payments of the principal of and any premium and interest on such Securities when such payments are due, (B) the Company’s obligations with respect to such Securities under Section 3.04, 3.05, 3.06, 6.07, 10.02 and 10.03 and such obligations as shall be ancillary thereto, (C) the rights, powers, trusts, duties, immunities and other provisions in respect of the Trustee hereunder and (D) this Article XIV. Subject to compliance with this Article XIV, the Company may exercise its option under this Section 14.02 notwithstanding the prior exercise of its option under Section 14.03 with respect to the Securities of such series.
 
Section 14.03    Covenant Defeasance .
 
Upon the Company’s exercise of the above option applicable to this Section with respect to the Outstanding Securities of a particular series, the Company shall be released from its obligations under Sections 8.01 and 10.08 (and any other covenant applicable to such Securities that is determined pursuant to Section 3.01 to be subject to covenant defeasance under this Section) and the occurrence of an event specified in Clause (4) of Section 5.01 with respect to any of Sections 8.01 or 10.08 (and any other Event of Default applicable to such Securities that is determined pursuant to Section 3.01 to be subject to covenant defeasance under this Section) shall not be deemed to be an Event of Default with respect to the Outstanding Securities of such series on and after the date the conditions set forth below are satisfied (hereinafter, “ covenant defeasance ”). For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition, limitation or restrictive covenant set forth in any such Section or Clause whether directly or indirectly by reason of any reference elsewhere herein to any such Section or Clause or by reason of any reference in any such Section or Clause to any other provision herein or in any other document, including any supplement hereto, any Board Resolution or Officers’ Certificate delivered hereto but the remainder of this Indenture and such Securities shall be unaffected thereby.
 
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Section 14.04    Conditions to Defeasance or Covenant Defeasance .
 
The following shall be the conditions precedent to application of either Section 14.02 or Section 14.03 to the Outstanding Securities of a particular series:
 
(1)    The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09 who shall agree to comply with the provisions of this Article XIV applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, without reinvestment, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereto delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of and any premium, if any, and interest on the Outstanding Securities of such series on the maturity of such principal, premium or interest and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the day on which such payments are due in accordance with the terms of this Indenture and of such Securities. Before such a deposit, the Company may make arrangements satisfactory to the Trustee for the redemption of Securities at a future date or dates in accordance with Article XI, which shall be given effect in applying the foregoing. For this purpose, “ U.S. Government Obligations ” means securities that are (x) direct obligations of the United States for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depositary receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depositary receipt.
 

 
(2)    No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing (A) on the date of such deposit or (B) insofar as subsections 5.01(5) and (6) are concerned, at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period applicable to the Company in respect of such deposit (it being understood that the condition in this condition shall not be deemed satisfied until the expiration of such period).
 
(3)    Such defeasance or covenant defeasance shall not (A) cause the Trustee for the Securities of such series to have a conflicting interest as defined in Section 6.08 or for purposes of the Trust Indenture Act with respect to any securities of the Company or (B) result in the trust arising from such deposit to constitute, unless it is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended.
 
(4)    Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound.
 
(5)    In the case of an election under Section 14.02, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for United States federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred.
 
(6)    In the case of an election under Section 14.03, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for United States federal income tax purposes as a result of such covenant defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred.
 
(7)    Such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 3.01.
 
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(8)    The Company shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 14.02 or the covenant defeasance under Section 14.03 (as the case may be) have been complied with.
 
Section 14.05    Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions .
 
Subject to the provisions of the last paragraph of Section 10.03, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee - collectively, for purposes for this Section 14.05, the “Trustee”) pursuant to Section 14.04 in respect of the Outstanding Securities of such series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (but not including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal, premium and interest, but such money need not be segregated from other funds except to the extent required by law.
 
The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the money or U.S. Government Obligations deposited pursuant to Section 14.04 or the principal and interest received in respect thereof.
 
Anything herein to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 14.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance.
 
Section 14.06    Reinstatement .
 
If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 14.02 or 14.03 with respect to the Securities of any series by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company’s obligations under this Indenture and the Securities of such series shall be revived and reinstated as though no deposit had occurred pursuant to this Article XIV until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 14.02 or 10.03; provided, however, that if the Company makes any payment of the principal of or any premium or interest on any such Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or the Paying Agent.
 
ARTICLE XV.   
 
IMMUNITY OF INCORPORATORS,
 
STOCKHOLDERS, OFFICERS AND DIRECTORS
 
Section 15.01    Immunity of Incorporators, Stockholders, Officers and Directors .
 
No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors, as such, of the Company or any successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by this Indenture or in any of the Securities or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Securities.
 
* * *
 

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This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
 
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, as of the day and year first above written.
 
MIDAMERICAN ENERGY COMPANY
 

By: /s/ Brian K. Hankel
Name: Brian K. Hankel
Title: Vice President and Treasurer
 


THE BANK OF NEW YORK TRUST COMPANY, N.A.,
as Trustee
 

By: /s/ Roxane Ellwanger
Name: Roxane Ellwanger
Title: Assistant Vice President
 
 
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EXHIBIT 4.2
 
Execution Copy
 
 
 
 
MIDAMERICAN ENERGY COMPANY
 
and
 
THE BANK OF NEW YORK TRUST COMPANY, NA,
 
as Trustee
 
________________
 
5.800 % Notes due 2036
 
________________
 
First Supplemental Indenture
 
________________
 
Dated as of October 6, 2006
 

 

 


 

 



FIRST SUPPLEMENTAL INDENTURE, dated as of October 6, 2006 (herein called the “ First 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, 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 October 1, 2006 (herein called the “ Original Indenture ”), 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 “ 5.800 % Notes due 2036” and all action on the part of the Company necessary to authorize the issuance of up to three hundred fifty million dollars ($350,000,000) aggregate principal amount of such securities (the “ Securities ”) under the Original Indenture and this First 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 FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
 
 
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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 “ 5.800 % Notes due 2036”, 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 First 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).
 
 
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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 First 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 February 1   or August 1   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
MISCELLANEOUS
 
Section 4.01. Execution as Supplemental Indenture . This First Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture and, as provided in the Original Indenture, this First Supplemental Indenture forms a part thereof.
 
Section 4.02. Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction hereof.
 
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Section 4.03. Successors and Assigns . All covenants and agreements contained in this First Supplemental Indenture made by the Company shall bind its successors and assigns, whether so expressed or not.
 
Section 4.04. Separability Clause . In case any provision in this First 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 4.05. Benefits of First Supplemental Indenture . Nothing in this First 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 First Supplemental Indenture.
 
Section 4.06. Execution and Counterparts . This First 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 4.07. 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 First 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 ]
 
 
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IN WITNESS WHEREOF, the parties hereof have caused this First 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 and Treasurer
 
     
 
THE BANK OF NEW YORK TRUST COMPANY, NA,
 
 
 
 
 as Trustee
 
  By:   /s/  Roxane Ellwanger 
  Name: Roxane Ellwanger
  Title: Assistant Vice President

 
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EXHIBIT 4.3
 
MIDAMERICAN ENERGY COMPANY
 
Medium-Term Notes Due Not Less Than 9 Months from Date of Issue
 
DISTRIBUTION AGREEMENT
 
October 3, 2006
Credit Suisse Securities (USA) LLC
11 Madison Avenue
New York, NY 10010

J.P. Morgan Securities Inc.
270 Park Avenue
New York, NY 10017

LaSalle Financial Services, Inc.
55 East 52 nd Street
6 th Floor
New York, NY 10055

BNP Paribas Securities Corp.
787 Seventh Avenue
New York, NY 10019

 
Dear Sirs:
 
MidAmerican Energy Company, an Iowa corporation (the “Company”), confirms its agreement with Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc., LaSalle Financial Services, Inc. and BNP Paribas Securities Corp. (each, a “Principal Agent” and, together, the “Principal Agents” and collectively with the subagents listed in the Prospectus, the “Agents”), with respect to the issue and sale by the Company of its Medium-Term Notes described herein (the “Notes”). The Notes are to be issued pursuant to an indenture, dated as of October 1, 2006 (the “Indenture”), between the Company and The Bank of New York Trust Company, N.A., as trustee (the “Trustee”). As of the date hereof, the Company has authorized the issuance and sale of up to $350,000,000 aggregate principal amount of Notes through the Agents pursuant to the terms of this Agreement. It is understood, however, that the Company from time to time may reduce the maximum principal amount of Notes which it may issue and sell or authorize the issuance of additional Notes and that such additional Notes may be sold through or to the Agents pursuant to the terms of this Agreement, all as though the issuance of such Notes were authorized as of the date hereof.

This Agreement provides both for the sale of Notes by the Company directly to purchasers, in which case the Agents will act as agents of the Company in soliciting Note purchases, and (as may from time to time be agreed to by the Company and the Agents) to the Agents as principal for resale to purchasers.
 

 
The Company has filed with the Securities and Exchange Commission (the “SEC”) registration statements on Form S-3 (Nos. 333-110398 and 333-134163) for the registration of certain securities, including the Notes, under the Securities Act of 1933, as amended (the “1933 Act”) and the offering thereof from time to time in accordance with Rule 415 of the rules and regulations of the SEC under the 1933 Act (the “1933 Act Regulations”). Such registration statements have been declared effective by the SEC and the Indenture has been qualified under the Trust Indenture Act of 1939, as amended (the “1939 Act”). Such registration statements (and any further registration statements which may be filed by the Company for the purpose of registering additional Notes and in connection with which this Agreement is included or incorporated by reference as an exhibit) and the prospectus specifically relating to the Notes constituting a part thereof (the “Base Prospectus”), and any prospectus supplements specifically relating to the Notes, including all documents incorporated therein by reference, as from time to time amended or supplemented by the filing of documents pursuant to the Securities Exchange Act of 1934, as amended (the “1934 Act”) or the 1933 Act or otherwise, are referred to herein as the “Registration Statement” and the “Prospectus”, respectively, except that if any revised prospectus specifically relating to Notes shall be provided to the Agents by the Company for use in connection with the offering of Notes which is not required to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations, the term “Prospectus” shall refer to such revised prospectus from and after the time it is first provided to an Agent for such use. A “Preliminary Prospectus” shall be deemed to refer to any prospectus and any prospectus supplement furnished by the Company after the Registration Statement became effective and before the Time of Sale with respect to a series of Notes which, pursuant to Rule 430B of the 1933 Act Regulations, omitted information to be included upon pricing in a form of prospectus and prospectus supplement filed with the SEC pursuant to Rule 424(b) of the 1933 Act Regulations. The term “Free Writing Prospectus” has the meaning set forth in Rule 405 of the 1933 Act Regulations. The term “Time of Sale Prospectus” means the Base Prospectus, as amended or supplemented from time to time prior to the Time of Sale and together with the most recent Preliminary Prospectus or preliminary Pricing Supplement relating to the offer and sale of such series of Notes immediately prior to the Time of Sale, and Pricing Supplement relating to the offer and sale of such Series of Notes filed or used prior to the Time of Sale, and Final Term Sheet relating to the offer and sale of such Notes and each Free Writing Prospectus in the form furnished to the Agents by the Company or approved or adopted by the Company for use prior to the Time of Sale. The term “Time of Sale” means the time or date set forth in the applicable Terms Agreement. For purposes of this Agreement, all references to the Registration Statement, Prospectus, Time of Sale Prospectus, Free Writing Prospectus, Pricing Supplement or Preliminary Prospectus or to any amendment or supplement thereto shall be deemed to include any copy filed with the SEC pursuant to its Electronic Data Gathering, Analysis and Retrieval system (“EDGAR”).

SECTION 1.    Appointment As Agents .
 
(a)    Appointment of Agents . Subject to the terms and conditions stated herein and subject to the reservation by the Company of the right to sell Notes directly on its own behalf, the Company hereby appoints each Agent as its agent for the purpose of soliciting purchases of Notes from the Company by others and agrees that, except as otherwise contemplated herein, whenever the Company determines to sell Notes directly to an Agent or Agents as principal for resale to others, it will enter into a Terms Agreement (hereafter defined) relating to such sale in accordance with the provisions of Section 3(b) hereof. The Agents are authorized to appoint sub-agents or to engage the services of any other broker or dealer in connection with the offer or sale of Notes. The Company agrees that, during the period any Agent is acting as the Company’s Agent hereunder, the Company will not contact or solicit potential investors introduced to it by such Agent to purchase Notes. The Company may appoint, upon one day prior written notice to the Agents, additional persons to serve as Agent hereunder, but only if each such additional person agrees to be bound by all of the terms of this Agreement as an agent.
 
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(b)    Reasonable Efforts Solicitations; Right to Reject Offers . Upon receipt of instructions from the Company, the Agents will use their reasonable efforts to solicit purchases of such principal amount of Notes as the Company and the Agents shall agree upon from time to time during the term of this Agreement, it being understood that the Company shall not approve the solicitation of purchases of Notes in excess of the amount which shall be authorized by the Company from time to time or in excess of the principal amount of Notes registered pursuant to the Registration Statement. The Agents will have no responsibility for maintaining records with respect to the aggregate principal amount of Notes sold, or of otherwise monitoring the availability of Notes for sale under the Registration Statement. The Agents will communicate to the Company, orally or in writing, each offer to purchase Notes, other than those offers rejected by an Agent. Each Agent shall have the right, in its discretion reasonably exercised, to reject any proposed purchase of Notes, as a whole or in part, and any such rejection shall not be deemed a breach of such Agent’s agreement contained herein. The Company may accept or reject any proposed purchase of Notes, in whole or in part.
 
(c)    Solicitations as Agent; Purchases as Principal . In soliciting purchases of Notes on behalf of the Company, each Agent shall act solely as agent for the Company and not as principal. Each Agent shall make reasonable efforts to assist the Company in obtaining performance by each purchaser whose offer to purchase Notes has been solicited by such Agent and accepted by the Company. Such Agent shall not have any liability to the Company in the event any such purchase is not consummated for any reason. Such Agent shall not have any obligation to purchase Notes from the Company as principal, but an Agent may agree from time to time to purchase Notes as principal. Any such purchase of Notes by an Agent as principal shall be made pursuant to a Terms Agreement in accordance with Section 3(b) hereof.
 
(d)    Reliance . The Company and each Agent agree that any Notes the placement of which such Agent arranges shall be placed by such Agent, and any Notes purchased by such Agent shall be purchased, in reliance on the representations, warranties, covenants and agreements of the Company contained herein and on the terms and conditions and in the manner provided herein.
 
SECTION 2.    Representations and Warranties .
 
(a)    The Company represents and warrants to each Agent as of the date hereof, as of the date of each acceptance by the Company of an offer for the purchase of Notes (whether through any Agent as agent or to any Agent as principal), as of the date of each delivery of Notes (whether through such Agent as agent or to such Agent as principal) (the date of each such delivery to such Agent as principal being hereafter referred to as a “Settlement Date”), as of the date that the Registration Statement became effective (the “Initial Effective Date”), as of any time that the Registration Statement or the Prospectus shall be amended or supplemented (other than by an amendment or supplement providing solely for a change in the interest rates of the Notes or similar changes) (with respect to the Registration Statement, a “Subsequent Effective Date”) or there is filed with the SEC any document incorporated by reference into the Prospectus (other than any Current Report on Form 8-K relating exclusively to the issuance of debt securities under the Registration Statement, unless the Agents shall otherwise specify), as of the relevant new effective date as determined pursuant to Rule 430B(f)(2) of the 1933 Act Regulations with respect to the applicable series of Notes (the “Note Effective Date” and together with the Initial Effective Date and any Subsequent Effective Date, the “Registration Statement Effective Date”) (each of the times referenced above being referred to herein as a “Representation Date”) as follows:
 
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(i)    Due Incorporation and Qualification . The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the state of Iowa with corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Time of Sale Prospectus; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure to so qualify and be in good standing would not have a material adverse effect on the condition, financial or otherwise, or the earnings, business affairs or business prospects of the Company.
 
(ii)    Public Utility . The Company has the legal right to function and operate as an electric public utility company in the States of Iowa, Illinois and South Dakota, and as a gas public utility company in the States of Iowa, Illinois, South Dakota and Nebraska.
 
(iii)    Subsidiaries .  The Company has no significant subsidiaries, as “significant subsidiary” is defined in Rule 405 of Regulation C of the 1933 Act Regulations.
 
(iv)    Ineligible Issuer Status . At the time of initial filing of the Registration Statement and at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 162(h)(2) of the 1933 Act Regulations) of any Notes and at each Representation Date at the date of this Agreement, the Company was not and is not an “ineligible issuer,” as defined in Rule 405.
 
(v)    Registration Statement, Prospectus, Time of Sale Prospectus and Free Writing Prospectus .  At the respective times that each part of the Registration Statement became effective, the Registration Statement and any applicable amendments complied, and as of each Representation Date will comply, in all material respects, with the requirements of the 1933 Act and the 1933 Act Regulations and the 1939 Act and the rules and regulations of the SEC promulgated thereunder. The Registration Statement, at the time it became effective and at the Initial Effective Date, did not, and at each time thereafter at which any amendment to the Registration Statement becomes effective or any Annual Report on Form 10-K is filed by the Company with the SEC and as of each Representation Date, will not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Prospectus filed as part of the Registration Statement complied when so filed in all material respects with the 1933 Act and the 1933 Act Regulations. At the date of this Agreement, at the date of the Base Prospectus and each amendment or supplement thereto and at each Representation Date, neither the Base Prospectus nor any amendment or supplement thereto included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Time of Sale Prospectus does not, and at the Time of Sale and at the applicable Settlement Date, the Time of Sale Prospectus, as then amended or supplemented by the Company, if applicable, will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by the Agents expressly for use in the Registration Statement or Prospectus, it being understood and agreed that the only such information furnished by any Agent consists of the information described as such in the applicable Terms Agreement.
 
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(vi)    Incorporated Documents .  The documents incorporated by reference in the Prospectus and the Time of Sale Prospectus, at the time they were or hereafter are filed with the SEC, complied or when so filed will comply, as the case may be, in all material respects with the requirements of the 1934 Act and the rules and regulations promulgated thereunder (“1934 Act Regulations”), and, when read together with the other information in the Prospectus and the Time of Sale Prospectus, did not and will at all times during the period specified in Section 5(e) hereof not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were or are made, not misleading. The Company is in compliance in all material respects with all the applicable provisions of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder.
 
(vii)    Accountants .  The accountants who issued their reports on the financial statements included or incorporated by reference in the Registration Statement and the Time of Sale Prospectus are an independent registered public accounting firm within the meaning of the 1933 Act and the 1933 Act Regulations.
 
(viii)    Financial Statements .  The financial statements and any supporting schedules of the Company included or incorporated by reference in the Registration Statement, the Prospectus and the Time of Sale Prospectus present fairly the financial position of the Company as of the dates indicated and the results of its operations for the periods specified; and, except as stated therein, said financial statements have been prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis; and any supporting schedules included or incorporated by reference in the Registration Statement, the Prospectus and the Time of Sale Prospectus present fairly the information required to be stated therein.
 
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(ix)    Authorization and Validity of this Agreement, any Applicable Terms Agreement, the Indenture and the Notes .  Each of this Agreement and any applicable Terms Agreement has been duly authorized and, upon execution and delivery by the Agents, will be a legal, valid and binding agreement of the Company; the Indenture has been duly authorized and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms; the Notes have been duly and validly authorized for issuance, offer and sale pursuant to this Agreement and, when issued, authenticated and delivered pursuant to the provisions of this Agreement and the Indenture against payment of the consideration therefor specified in the Prospectus or pursuant to any Terms Agreement, the Notes will constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms; except as enforcement of the Indenture and the Notes may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting the enforcement of creditors’ rights generally and general equitable principles; the Notes and the Indenture will be substantially in the form heretofore delivered to the Agents and conform in all material respects to all statements relating thereto contained in the Time of Sale Prospectus; and the Notes will be entitled to the benefits provided by the Indenture.
 
(x)    Material Changes or Material Transactions .  Since the respective dates as of which information is given in the Registration Statement, the Prospectus and the Time of Sale Prospectus, except as may otherwise be stated therein or contemplated thereby, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business, and (B) there have been no material transactions entered into by the Company other than those in the ordinary course of business.
 
(xi)    No Defaults .  The Company is not in violation of its Restated Articles of Incorporation, as amended, or bylaws, or in default in the performance or observance of any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which it is a party or by which it or its properties may be bound; the execution and delivery of this Agreement, the Indenture and any applicable Terms Agreement and the consummation of the transactions contemplated herein and therein have been duly authorized by all necessary corporate action and will not conflict with, constitute a breach of or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any material property or assets of the Company or any of its subsidiaries pursuant to, any contract, indenture, mortgage, loan agreement, note, lease or other instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries may be bound or to which any of the material property or assets of the Company or any such subsidiary is subject, nor will such action result in any violation of the Restated Articles of Incorporation, as amended, or bylaws of the Company or any law, administrative regulation or administrative or court order or decree.
 
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(xii)    Regulatory Approvals . The Company has made all necessary filings and obtained all necessary consents, orders or approvals from the Federal Energy Regulatory Commission (“FERC”) and the Illinois Commerce Commission (“ICC”) in connection with the issuance and sale of the Notes and the application of the proceeds thereof, and no consent, approval, authorization, order or decree of any other court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement, except such as may be required under state securities (“Blue Sky”) laws.
 
(xiii)    Legal Proceedings; Contracts . Except as may be set forth in the Registration Statement and the Time of Sale Prospectus, there is no action, suit or proceeding before or by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened against or affecting, the Company which would be reasonably likely to result in any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, or would be reasonably likely to materially and adversely affect its properties or assets or would be reasonably likely to materially and adversely affect the consummation of this Agreement, the Indenture or any applicable Terms Agreement; and there are no contracts or documents of the Company which are required to be filed as exhibits to the Registration Statement by the 1933 Act or by the 1933 Act Regulations which have not been so filed.
 
(b)    Additional Certifications . Any certificate signed by any director or officer of the Company and delivered to the Agents or to counsel for the Agents in connection with an offering of Notes or the sale of Notes to the Agents as principal shall be deemed a representation and warranty by the Company to the Agents as to the matters covered thereby on the date of such certificate and at each Representation Date subsequent thereto.
 
SECTION 3.    Solicitations as Agents; Purchases as Principal .
 
(a)    Solicitations as Agents . On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, each Agent agrees, as the agent of the Company, to use its reasonable efforts to solicit offers to purchase the Notes upon the terms and conditions set forth herein and in the Prospectus.
 
The Company reserves the right, in its sole discretion, to suspend solicitation of purchases of Notes through any Agent, as agent, commencing at any time for any period of time or permanently. Upon receipt of instructions from the Company, such Agent will forthwith suspend solicitation of purchases from the Company until such time as the Company has advised such Agent that such solicitation may be resumed.
 
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The Company agrees to pay each Agent a commission, in the form of a discount, equal to a percentage of the principal amount of each Note sold by the Company as a result of a solicitation made by such Agent, such percentage to be as agreed upon by the Company and the Agents. The Agents may allow any portion of the commission payable pursuant hereto to dealers or purchasers in connection with the offer and sale of any Notes.
 
The purchase price, interest rate, maturity date and other terms of the Notes shall be agreed upon by the Company and the Agents and set forth in a pricing supplement (each, a “Pricing Supplement”) to the Prospectus to be prepared following each acceptance by the Company of an offer for the purchase of Notes. Except as may be otherwise provided in such supplement to the Prospectus, the Notes will be issued in denominations of $1,000 or any larger amount that is an integral multiple of $1,000. All Notes sold through any Agent as agent will be sold at 100% of their principal amount unless otherwise agreed to by the Company and such Agent.
 
(b)    Purchases as Principal . Each sale of Notes to an Agent as principal shall be made in accordance with the terms contained herein and (unless the Company and such Agent shall otherwise agree) pursuant to a separate agreement which will provide for the sale of such Notes to, and the purchase and reoffering thereof by, such Agent. Each such separate agreement (which may be an oral agreement) between such Agent and the Company is herein referred to as a “Terms Agreement”. Unless the context otherwise requires, each reference contained herein to “this Agreement” shall be deemed to include any applicable Terms Agreement between the Company and such Agent. Each such Terms Agreement, whether oral or in writing, shall be with respect to such information (as applicable) as is specified in the form of Terms Agreement attached as Exhibit A hereto. Such Agent’s commitment to purchase Notes as principal pursuant to any Terms Agreement or otherwise shall be deemed to have been made on the basis of the representations and warranties of the Company herein contained and shall be subject to the terms and conditions herein set forth. Each Terms Agreement shall specify the principal amount of Notes to be purchased by such Agent pursuant thereto, the price to be paid to the Company for such Notes (which, if not so specified in a Terms Agreement, shall be at a discount equivalent to the applicable commission as agreed upon by the Company and the Agents), the time and place of delivery of and payment for such Notes, any provisions relating to rights of, and default by, purchasers acting together with such Agent in the reoffering of the Notes, and such other provisions (including further terms of the Notes) as may be mutually agreed upon. Such Agent may utilize a selling or dealer group in connection with the resale of the Notes purchased. Such Terms Agreement shall also specify the requirements for the opinions of counsel, officers’ certificate and comfort letter pursuant to Sections 6(c), 6(d), 6(e) and 6(f) hereof.
 
(c)    Administrative Procedures . Administrative procedures with respect to the sale of Notes shall be agreed upon from time to time by the Agents and the Company (the “Procedures”). The Agents and the Company agree to perform the respective duties and obligations specifically provided to be performed by them in the Procedures.
 
SECTION 4.    Free Writing Prospectuses.
 
 
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(a)    Issuer Free Writing Prospectuses . The Company represents and agrees that, unless it obtains the prior consent of the Principal Agents, and each Agent represents and agrees that, unless it obtains the prior consent of the Company and the Principal Agents, it has not made and will not make any offer relating to the Notes that would constitute a free writing prospectus, as defined in rule 433, relating to the Notes in the form filed as required to be filed with the SEC or, if not required to be filed, in the form retained in the Company's records pursuant to Rule 433(g) (an “Issuer Free Writing Prospectus”), or that would otherwise constitute a Free Writing Prospectus,   required to be filed with the SEC. The Company represents that it has treated and agrees that it will treat each Permitted Free Writing Prospectus as an “issuer free writing prospectus,” as defined in Rule 433,   and has complied and will comply with the requirements of Rules 164 and 433 applicable to any Permitted Free Writing Prospectus, including timely SEC filing where required, legending and record keeping.
 
(b)    Term Sheets . The Company will prepare a final term sheet relating to the Notes, containing only information that describes the final terms of the Notes in a form as attached hereto as Exhibit B or otherwise as consented to by the Principal Agents, and will file such final term sheet within the period required by Rule 433(d)(5)(ii) following the date such final terms have been established for all classes of the offering of the Offered Securities. Any such final term sheet is an Issuer Free Writing Prospectus and a Permitted Free Writing Prospectus for purposes of this Agreement. The Company also consents to the use by any Agent of a free writing prospectus that contains only (i) information that describes the final terms of the Notes or their offering and that is included in the final term sheet of the Company contemplated in the first sentence of this subsection or (ii) other information that is not “issuer information,” as defined in Rule 433, it being understood that any such free writing prospectus referred to in clause (i) or (ii) above shall not be an Issuer Free Writing Prospectus for purposes of this Agreement.
 
(c)    No Conflicting Information . In connection with the offer and sale of the Notes, any Free Writing Prospectus (i) that is required to be filed pursuant to Rule 433(d) of the 1933 Act Regulations (including any Final Term Sheet), (ii) that is or will be a part of the Time of Sale Prospectus relating to or to be used in connection with such offer and sale of the Notes or (iii) the use of which has been consented to by the applicable Agents pursuant to this Section 4, is referred to herein as a “Permitted Free Writing Prospectus”. Each Agent represents, warrants, covenants and agrees that it shall not prepare and disseminate any Free Writing Prospectus that contains information that conflicts with the information contained in the Registration Statement, the applicable Time of Sale Prospectus or the applicable Prospectus; provided, however, that no representation, warranty, covenant and agreement is made with respect to information in such Free Writing Prospectus that has been furnished in writing by the Company to such Agent specifically for the use therein.
 
(d)    Issuer Free Writing Prospectuses . Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Offered Securities or until any earlier date that the Company notified or notifies the Principal Agents as described in the next sentence, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information then contained in the Registration Statement. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information then contained in the Registration Statement or as a result of which such Issuer Free Writing Prospectus, if republished immediately following such event or development, would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (i) the Company has promptly notified or will promptly notify the Principal Agents and (ii) the Company has promptly amended or will promptly amend or supplement such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
 
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(e)    Copies . The Company will deliver to each Agent, without charge, such number of copies of each Free Writing Prospectus prepared by or on behalf of or used or referred to by the Company as each such Agent may reasonably request. To the extent applicable, each such document furnished to the Agents will be identical to any electronically transmitted copies thereof filed with the SEC pursuant to EDGAR, except to the extent permitted by Regulation S-T.
 
SECTION 5.    Covenants of the Company .
 
The Company covenants with the Principal Agents as follows:
 
(a)    Rule 424(b) Filing . Promptly following execution of this Agreement, to cause the Prospectus, including as part thereof a prospectus supplement relating to the Notes, to be filed with, or mailed for filing to, the SEC pursuant to Rule 424(b)(2) and (3) under the 1933 Act and the Company will promptly advise the Principal Agents when such filing or mailing has been made. Prior to such filing or mailing, the Company will cooperate with the Principal Agents in the preparation of such supplement to the Prospectus to assure that the Principal Agents have no reasonable objection to the form or content thereof when filed or mailed.
 
(b)    FERC or ICC Action . To advise the Principal Agents promptly of any additional action by the FERC or ICC pertaining to the Notes.
 
(c)    Copies of 1933 Act Documents . To furnish promptly to the Principal Agents and to counsel for the Agents one signed copy of the Registration Statement as originally filed and each amendment thereto filed prior to the date hereof and relating to the Notes, and a copy of the Prospectus filed with the SEC, including all documents incorporated therein by reference and all consents and exhibits filed therewith.
 
(d)    Conformed Copies . To deliver promptly to the Principal Agents such reasonable number of the following documents as the Agents may request: (i) conformed copies of the Registration Statement (excluding exhibits other than the computation of the ratio of earnings to fixed charges, the Indenture, and this Agreement), (ii) the Prospectus and the Time of Sale Prospectus and (iii) any documents incorporated by reference in the Prospectus.
 
(e)    Revisions of Prospectus — Material Changes . Except as otherwise provided in subsection (q) of this Section, if at any time during the term of this Agreement any event shall occur or condition exist as a result of which it is necessary, in the reasonable opinion of counsel for the Principal Agents or counsel for the Company, to further amend or supplement the Registration Statement or Prospectus in order that the Registration Statement or Prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time the Registration Statement or Prospectus is delivered to a Note purchaser, or if it shall be necessary, in the reasonable opinion of either such counsel, to amend or supplement the Registration Statement or the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, immediate notice shall be given, and confirmed in writing, to the Principal Agents to cease the solicitation of offers to purchase the Notes in each Principal Agent’s capacity as agent and to cease sales of any Notes any Principal Agent may then own as principal pursuant to a Terms Agreement, and the Company will promptly prepare and file with the SEC such amendment or supplement, whether by filing documents pursuant to the 1934 Act, the 1933 Act or otherwise, as may be necessary to correct such untrue statement or omission or to make the Registration Statement and Prospectus comply with such requirements.
 
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(f)    Principal Agents’ Review . Prior to filing with the SEC during the term of this Agreement, (i) any amendment to the Registration Statement, (ii) the Prospectus, the Time of Sale Prospectus or any supplement thereto or (iii) any document incorporated by reference in any of the foregoing or any amendment or supplement to such incorporated document, to furnish a copy thereof to the Principal Agents and to counsel for the Principal Agents, and the Company will not file any amendment to the Registration Statement or supplement to the Prospectus or Time of Sale Prospectus unless the Company has furnished to the Principal Agents a copy of such document for review prior to filing and will not file any such proposed amendment or supplement to which the Agents reasonably object.
 
(g)    Notices to Principal Agents . To advise the Principal Agents promptly during the term of this Agreement, (i) when any post-effective amendment to the Registration Statement becomes effective, (ii) of any request or proposed request by the SEC for an amendment or supplement to the Registration Statement, to the Time of Sale Prospectus, to any document incorporated by reference in any of the foregoing or for any additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement or any order directed to the Time of Sale Prospectus or any document incorporated therein by reference or the initiation or threat of any stop order proceeding or of any challenge by the SEC to the accuracy or adequacy of any document incorporated by reference in the Time of Sale Prospectus, (iv) of receipt by the Company of any notification with respect to the suspension of the qualification of the Notes for sale in any jurisdiction or the initiation or threat of any proceeding for that purpose and (v) of the happening of any event which makes untrue any statement of a material fact made in the Registration Statement (insofar as the Registration Statement relates to or covers the Notes) or the Time of Sale Prospectus or which requires the making of a change in the Registration Statement or the Time of Sale Prospectus in order to make any material statement therein not misleading.
 
(h)    Preparation of Pricing Supplements . The Company will prepare, with respect to any Notes to be sold through or to any of the Agents pursuant to this Agreement, a Pricing Supplement with respect to such Notes in a form previously approved by the Agents and will file such Pricing Supplement pursuant to Rule 424(b)(3) under the 1933 Act not later than the close of business of the SEC on the fifth business day after the date on which such Pricing Supplement is first used.
 
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(i)    Prospectus Revisions — Periodic Financial Information . Except as otherwise provided in subsection (q) of this Section, on or prior to the date on which there shall be released to the general public interim financial statement information related to the Company with respect to each of the first three quarters of any fiscal year or preliminary financial statement information with respect to any fiscal year, the Company shall furnish such information to the Principal Agents, confirmed in writing, and shall cause the Prospectus to be amended or supplemented to include or incorporate by reference financial information with respect thereto and corresponding information for the comparable period of the preceding fiscal year, as well as such other information and explanations as shall be necessary for an understanding thereof or as shall be required by the 1933 Act or the 1933 Act Regulations.
 
(j)    Prospectus Revisions — Audited Financial Information . Except as otherwise provided in subsection (q) of this Section, on or prior to the date on which there shall be released to the general public financial information included in or derived from the audited financial statements of the Company for the preceding fiscal year, the Company shall cause the Registration Statement and the Time of Sale Prospectus to be amended, whether by the filing of documents pursuant to the 1934 Act, the 1933 Act or otherwise, to include or incorporate by reference such audited financial statements and the report or reports, and consent or consents to such inclusion or incorporation by reference, of the independent registered public accounting firm with respect thereto, as well as such other information and explanations as shall be necessary for an understanding of such financial statements or as shall be required by the 1933 Act or the 1933 Act Regulations.
 
(k)    Stop Order . If, during the term of this Agreement, the SEC shall issue a stop order suspending the effectiveness of the Registration Statement, to make every reasonable effort to obtain the lifting of that order at the earliest possible time.
 
(l)    Earnings Statement . As soon as practicable, to make generally available to its security holders and to deliver to the Principal Agents an earnings statement, conforming with the requirements of Section 11(a) of the 1933 Act and Rule 158 of the 1933 Act Regulations, covering a period of at least twelve months beginning after the effective date of the Registration Statement as defined in Rule 158(c) of the 1933 Act Regulations.
 
(m)    Shareholder and Other Reports . During the period of five years hereafter, or such lesser period as any of the Notes shall be outstanding, to furnish to the Principal Agents, (i) as soon as available, a copy of each report of the Company mailed to its shareholders or report filed by the Company with the SEC and (ii) from time to time such other information concerning the Company as the Principal Agents may reasonably request.
 
(n)    Blue Sky Qualifications . The Company will endeavor, in cooperation with the Agents, to qualify the Notes for offering and sale under the applicable securities laws of such states and other jurisdictions of the United States as the Principal Agents may designate, and will maintain such qualifications in effect for as long as may be required for the distribution of the Notes; provided, however, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified. The Company will file such statements and reports as may be required by the laws of each jurisdiction in which the Notes have been qualified as above provided. The Company will promptly advise the Principal Agents of the receipt by the Company of any notification with respect to the suspension of the qualification of the Notes for sale in any such state or jurisdiction or the initiating or threatening of any proceeding for such purpose.
 
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(o)    1934 Act Filings . The Company, during the period when the Prospectus is required to be delivered under the 1933 Act, will file promptly all documents required to be filed with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act.
 
(p)    Stand-Off Agreement . If required pursuant to the terms of a Terms Agreement, between the date of any Terms Agreement and the Settlement Date with respect to such Terms Agreement, the Company will not, without the prior consent of the Principal Agents, offer or sell, or enter into any agreement to sell, any debt securities of the Company (other than the Notes that are to be sold pursuant to such Terms Agreement and commercial paper in the ordinary course of business).
 
(q)    Suspension of Certain Obligations . The Company shall not be required to comply with the provisions of subsections (e), (i) or (j) of this Section during any period from the time (i) the Agents shall have suspended solicitation of purchases of the Notes in their capacity as agents pursuant to a request from the Company and (ii) the Agents shall not then hold any Notes as principal purchased pursuant to a Terms Agreement, to the time the Company shall determine that solicitation of purchases of the Notes should be resumed or shall subsequently enter into a new Terms Agreement with an Agent.
 
(r)    Condition to Agency Transactions . Any person who has agreed to purchase Notes as the result of an offer to purchase solicited by an Agent shall have the right to refuse to purchase and pay for such Notes if, on the related settlement date fixed pursuant to the Procedures, (i) there shall have occurred, subsequent to the date on which such person agreed to purchase the Notes (the “Trade Date”) or subsequent to the respective dates as of which information is given in the Registration Statement, (A) any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business, (B) any attack on, or outbreak or escalation of hostilities or act of terrorism involving, the United States, any declaration of war by Congress or any other national or international calamity or emergency, if in the reasonable judgment of such person the effect of any such attack, outbreak, escalation, act of terrorism, declaration of war, calamity or emergency makes it impracticable or inadvisable to purchase the Notes, (C) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market, or (D) any banking moratorium declared by U.S. Federal or New York authorities; or (ii) the rating assigned by any nationally recognized securities rating agency to any debt securities of the Company as of the Trade Date shall have been lowered since that date or if any such rating agency shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any debt securities of the Company.
 
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(s)    Costs . To pay all costs incident to the authorization, issuance, sale and delivery of the Notes; the costs incident to the preparation, printing and filing under the 1933 Act of the Registration Statement and the Prospectus and any amendments, supplements and exhibits thereto; the costs incident to the preparation, printing and filing of the documents and any amendments and exhibits thereto required to be filed by the Company under the 1934 Act; the costs of distributing the Registration Statement as originally filed and each amendment and post-effective amendment thereto (including exhibits), any preliminary prospectus, the Prospectus and any documents incorporated by reference in any of the foregoing documents; the costs of printing this Agreement, the Indenture and any Terms Agreement; the costs of any filings with the National Association of Securities Dealers, Inc.; fees paid to rating agencies in connection with the rating of the Notes; the fees and expenses of qualifying the Notes under the securities laws of the several jurisdictions as provided in subsection (n) of this Section and of preparing and printing a Blue Sky Memorandum (including fees of counsel to the Agents in such connection not to exceed $10,000 in the aggregate); the reasonable fees and expenses of counsel for the Agents; and all other costs and expenses incident to the performance of the Company’s obligations under this Agreement (including fees and expenses of the Company’s counsel); provided that, except as provided in this Section 5(s), the Agents shall pay their own costs and expenses, any transfer taxes on the Notes which they may sell and the expenses of advertising any offering of the Notes made by the Agents.
 
SECTION 6.    Conditions of Obligations .
 
The obligations of each Agent to solicit offers to purchase Notes as agent of the Company, the obligations of any purchasers of Notes sold through such Agent as agent, and any obligation of such Agent to purchase Notes pursuant to a Terms Agreement or otherwise will be subject to the accuracy of the representations and warranties on the part of the Company herein and to the accuracy of the statements of the Company’s officers made in any certificate furnished pursuant to the provisions hereof, to the performance and observance by the Company of all of its covenants and agreements herein contained and to each of the following additional terms and conditions applicable to the Notes:
 
(a)    No Stop Order . At or before the date hereof, no stop order suspending the effectiveness of the Registration Statement nor any order directed to any document incorporated by reference in the Prospectus shall have been issued and prior to that time no stop order proceeding shall have been initiated or threatened by the SEC and no challenge shall have been made by the SEC to the accuracy or adequacy of any document incorporated by reference in the Prospectus; any request of the SEC for inclusion of additional information in the Registration Statement or the Prospectus or otherwise shall have been complied with and there shall be no material adverse change in the financial condition of the Company.
 
(b)    Legal Matters . All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Indenture, any Terms Agreement, the Notes, the form of the Registration Statement, the Prospectus and the Time of Sale Prospectus (other than financial statements and other financial data) and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be satisfactory in all respects to LeBoeuf, Lamb, Greene & MacRae LLP, counsel for the Agents, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters.
 
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(c)    Opinion of Company Counsel . Paul J. Leighton, Esq., counsel to the Company, shall have furnished to the Principal Agents a letter addressed to the Principal Agents and dated the date hereof stating his opinion to the effect that:
 
(i)    the Company is a validly organized and existing corporation in good standing under the laws of the State of Iowa; and the Company is an indirect subsidiary of MidAmerican Energy Holdings Company, an Iowa corporation;
 
(ii)    this Agreement and each Terms Agreement, if any, has been duly authorized, executed and delivered by the Company and is a valid and binding agreement of the Company in accordance with its terms, except as rights to indemnity hereunder may be limited by applicable law and except as enforcement hereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors’ rights generally and general principles of equity;
 
(iii)    the Indenture is in due and proper form, has been duly and validly authorized by the necessary corporate action, has been duly and validly executed and delivered and is a valid instrument legally binding on the Company, except as enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors’ rights generally or by general equitable principles;
 
(iv)    the Notes are in due and proper form; the issue and sale of the Notes by the Company in accordance with the terms of this Agreement have been duly and validly authorized by the necessary corporate action; the Notes, when duly executed (which execution may include facsimile signatures of officers of the Company), authenticated and delivered to the purchasers or to an Agent pursuant to any Terms Agreement, against payment of the agreed consideration therefor, will constitute legal, valid and binding obligations of the Company enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting enforcement of creditors’ rights generally or by general equitable principles; and each holder of Notes will be entitled to the benefits of the Indenture;
 
(v)    the Notes, the Indenture and any Terms Agreement conform in all material respects with the statements concerning them made in the Prospectus and Time of Sale Prospectus, and such statements accurately set forth the matters respecting the Notes, the Indenture and the Terms Agreement required to be set forth in the Prospectus and Time of Sale Prospectus;
 
(vi)    the Indenture is qualified under the 1939 Act;
 
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(vii)    the orders of the FERC and the ICC referred to in Section 2(a)(xi) hereof pertaining to the Notes have been duly issued and, to the best of the knowledge of such counsel, are still in force and effect; and no further approval, authorization, consent, certificate or order of any state or federal commission or regulatory authority (other than in connection or compliance with the provisions of the securities or Blue Sky laws of any jurisdiction) is necessary with respect to the issue and sale of the Notes as contemplated by this Agreement and any applicable Terms Agreement or the application of the proceeds thereof;
 
(viii)    the Registration Statement has become effective under the 1933 Act and, to the best of the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or threatened under the 1933 Act;
 
(ix)    the Registration Statement and the Time of Sale Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the 1933 Act, the 1933 Act Regulations and Sections 305(a)(2) and 305(c) of the 1939 Act (except that such counsel need express no opinion as to the financial statements and financial or statistical data contained therein);
 
(x)    such counsel does not know of any legal or governmental proceeding required to be described in the Time of Sale Prospectus which is not described as required, or of any contract or document of a character required to be described or incorporated in the Registration Statement or the Time of Sale Prospectus or to be filed as an exhibit to the Registration Statement which is not described, incorporated or filed as required;
 
(xi)    neither the execution and delivery of this Agreement and the Indenture nor the issuance and sale of the Notes in accordance with the terms of this Agreement or Terms Agreements nor the consummation of the transactions herein or therein contemplated, nor compliance with the terms and provisions hereof or thereof, will conflict with, or violate or result in a breach of, any law, any administrative regulation or any court decree known to such counsel to be applicable to the Company, conflict with or result in a breach of any of the terms, conditions or provisions of the Restated Articles of Incorporation, as amended, or the bylaws of the Company, as amended, or of any material agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or constitute a default thereunder, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the material properties or assets of the Company or any such subsidiary;
 
(xii)    the documents referred to in Section 2(a)(v) hereof, as of their respective filing dates, complied as to form in all material respects with the applicable requirements of the 1934 Act and the 1934 Act Regulations (except that such counsel does not need to express any opinion as to the financial statements and financial or statistical data contained therein);
 
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(xiii)    the statements made in the Prospectus and Time of Sale Prospectus which are stated therein to have been made on the authority of such counsel have been reviewed by him and, as to matters of law and legal conclusion, are correct;
 
(xiv)    the Company is a public utility authorized by its Restated Articles of Incorporation, as amended, to carry on the businesses in which it is engaged, as set forth in the Prospectus and Time of Sale Prospectus; the Company has the legal right to function and operate as an electric public utility company in the States of Iowa, Illinois and South Dakota, and as a gas public utility company in the States of Iowa, Illinois, South Dakota and Nebraska; and the franchises and permits of the Company are valid and subsisting and authorize the Company to carry on the utility businesses in which it is engaged in the communities and territory covered by such franchises and permits;
 
(xv)    the descriptions in the Registration Statement, the Prospectus and the Time of Sale Prospectus of statutes, legal and governmental proceedings and contracts and other documents are accurate and fairly present the information required to be presented; and
 
(xvi)    except as set forth in the Prospectus and Time of Sale Propectus, (A) there are no pending legal proceedings to which the Company is a party or in which any of its property is the subject which are material to the Company, other than ordinary routine legal proceedings incident to the business in which the Company is engaged, and (B) there are no material pending administrative or judicial proceedings to which the Company is a party or in which any of its property is the subject arising under any federal, state or local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment, and, to the best of the knowledge of said counsel, no such proceedings are threatened by governmental authorities;
 
and such letter shall additionally state that nothing has come to the attention of such counsel that would lead him to believe that the Registration Statement, at the time it became effective, and if an amendment to the Registration Statement or an Annual Report on Form 10-K has been filed by the Company with the SEC subsequent to the effectiveness of the Registration Statement, then at the time such amendment became effective or at the time of the most recent such filing, and at the date hereof, or (if such opinion is being delivered in connection with a Terms Agreement pursuant to Section 3(b) hereof) at the date of any Terms Agreement and at the Settlement Date with respect thereto, as the case may be, contains or contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of its date or as amended or supplemented at the date hereof and the Time of Sale Prospectus at the Time of Sale, or (if such opinion is being delivered in connection with a Terms Agreement pursuant to Section 3(b) hereof) at the date of any Terms Agreement and at the Settlement Date with respect thereto, as the case may be, contains or contained any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
 
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(d)    Officers’ Certificate . The Company shall have furnished to the Agents on the date hereof a certificate, dated the date hereof, of its Chief Executive Officer, its President or a Vice President and its Treasurer or an Assistant Treasurer stating that, to the best of their knowledge after reasonable investigation, the representations and warranties of the Company in Section 2 hereof are true and correct as of the date hereof; the Company has complied with all its agreements contained herein; and the conditions set forth in Sections 5(a), 5(g) and 5(h) hereof have been fulfilled.
 
(e)    Comfort Letter . On the date hereof, the Agents shall have received a letter from the Company’s independent registered public accounting firm dated as of the date hereof and in form and substance satisfactory to the Agents, to the effect that:
 
(i)    They are an independent registered public accounting firm with respect to the Company within the meaning of the 1933 Act and the 1933 Act Regulations;
 
(ii)    In their opinion, the financial statements and supporting schedule(s) of the Company audited by them and included or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations with respect to registration statements on Form S-3 and the 1934 Act and the 1934 Act Regulations;
 
(iii)    They have performed specified procedures, not constituting an audit, including a reading of the latest available interim financial statements of the Company, a reading of the minute books of the Company since the end of the most recent fiscal year with respect to which an audit report has been issued, inquiries of and discussions with certain officials of the Company responsible for financial and accounting matters with respect to the unaudited consolidated financial statements of the Company included or incorporated by reference in the Registration Statement, the Prospectus and the Time of Sale Prospectus and the latest available interim unaudited financial statements of the Company, and such other inquiries and procedures as may be specified in such letter, and on the basis of such inquiries and procedures nothing came to their attention that caused them to believe that: (A) the unaudited consolidated financial statements of the Company included or incorporated by reference in the Registration Statement, the Prospectus and the Time of Sale Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the 1934 Act and the 1934 Act Regulations or were not fairly presented in conformity with generally accepted accounting principles in the United States applied on a basis substantially consistent with that of the audited financial statements included or incorporated by reference therein, or (B) at a specified date not more than three days prior to the date of such letter, there was any change in the capital stock or any increase in long-term debt of the Company or any decrease in the consolidated total assets or common shareholder’s equity of the Company other than for the declaration of regular quarterly dividends, in each case as compared with the amounts shown on the most recent balance sheet of the Company included or incorporated by reference in the Registration Statement, the Prospectus and the Time of Sale Prospectus or, during the period from the date of such balance sheet to a specified date not more than three days prior to the date of such letter, there were any decreases, as compared with the corresponding period in the preceding year, in operating revenues or net income of the Company, except in each such case as set forth in or contemplated by the Registration Statement, the Prospectus and the Time of Sale Prospectus or except for such exceptions (e.g., inability to determine such decreases because of insufficient accounting information available after the date of such most recent balance sheet) enumerated in such letter as shall have been agreed to by the Agents and the Company; and
 
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(iv)    In addition to the examination referred to in their report included or incorporated by reference in the Registration Statement, the Prospectus and the Time of Sale Prospectus, and the limited procedures referred to in clause (iii) above, they have carried out certain other specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information which are included or incorporated by reference in the Registration Statement, Prospectus and the Time of Sale Prospectus and which are specified by the Agents, and have found such amounts, percentages and financial information to be in agreement with the relevant accounting, financial and other records of the Company identified in such letter.
 
(f)    Opinion of Agents’ Counsel . LeBoeuf, Lamb, Greene & MacRae LLP, as counsel for the Agents, shall have furnished to the Agents the date hereof such opinions with respect to the validity of the Notes and with respect to the Registration Statement, the Prospectus, and the Time of Sale Prospectus and other related matters as the Agents may reasonably require.
 
(g)    FERC and ICC Order s. The orders of the FERC and the ICC referred to in Section 2(a)(xi) hereof shall be in full force and effect and no proceedings to suspend the effectiveness of either such order shall be pending or threatened.
 
(h)    Ratings . Subsequent to the execution of this Agreement, there shall not have been any decrease in the ratings of any of the Company’s debt securities by Standard & Poor’s Rating Service or Moody’s Investors Service, Inc.
 
(i)    No Material Adverse Change . Subsequent to the date of the most recent financial statements incorporated by reference in the Registration Statement, Prospectus and the Time of Sale Prospectus, there shall have been no material adverse change in the condition (financial or otherwise), business or results of operations of the Company, except as set forth in the Registration Statement, the Prospectus and the Time of Sale Prospectus, including the documents incorporated by reference therein, as of the effective date of this Agreement.
 
(j)    Other Documents . On the date hereof and on each Settlement Date with respect to any applicable Terms Agreement, counsel to the Agents shall have been furnished with such documents and opinions as such counsel may reasonably require for the purpose of enabling such counsel to pass upon the issuance and sale of Notes as herein contemplated and related proceedings, or in order to evidence the accuracy and completeness of any of the representations and warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of Notes as herein contemplated shall be satisfactory in form and substance to the Agents and to counsel to the Agents.
 
19

 
If any condition specified in this Section 5 shall not have been fulfilled when and as required to be fulfilled, this Agreement (or, at the option of the Agents, any applicable Terms Agreement) may be terminated by the Agents by notice to the Company at any time and any such termination shall be without liability of any party to any other party, except that the covenant regarding provision of an earnings statement set forth in Section 5(1) hereof, the provisions concerning payment of expenses under Section 5(s) hereof, the indemnity and contribution agreement set forth in Section 9 hereof, the provisions concerning the representations, warranties and agreements to survive delivery in Section 10 hereof and the provisions set forth under “Parties” of Section 14 hereof shall remain in effect.
 
SECTION 7.    Conditions to the Obligations of the Company .
 
The obligations of the Company to sell and deliver the Notes are subject to the following conditions precedent:
 
(a)    No Stop Order . At or before the date hereof, no stop order suspending the effectiveness of the Registration Statement nor any order directed to any document incorporated by reference in the Prospectus or the Time of Sale Prospectus shall have been issued and prior to that time no stop order proceeding shall have been initiated or threatened by the SEC and no challenge shall have been made by the SEC to the accuracy or adequacy of any document incorporated by reference in the Prospectus or the Time of Sale Prospectus; any request of the SEC for inclusion of additional information in the Registration Statement, the Prospectus or the Time of Sale Prospectus or otherwise shall have been complied with.
 
(b)    FERC and ICC Orders . The orders of the FERC and the ICC referred to in Section (2)(a)(xi) hereof shall be in full force and effect and no proceeding to suspend the effectiveness of either such order shall be pending or threatened.
 
In case any of the conditions specified above in this Section 7 shall not have been fulfilled on the date hereof, this Agreement may be terminated by the Company by delivering written notice of termination to the Agents. Any such termination shall be without liability of any party to any other party except to the extent provided in Section 5(s), and Section 9 hereof.
 
SECTION 8.    Delivery of and Payment for Notes Sold through the Agents
 
Delivery of Notes sold through any Agent as agent shall be made by the Company to such Agent for the account of any purchaser only against payment therefor in immediately available funds. In the event that a purchaser shall fail either to accept delivery of or to make payment for a Note on the date fixed for settlement, such Agent shall promptly notify the Company and deliver the Note to the Company, and, if such Agent has theretofore paid the Company for such Note, the Company will promptly return such funds to such Agent. If such failure occurred for any reason other than default by such Agent in the performance of its obligations hereunder, the Company will reimburse such Agent on an equitable basis for its loss of the use of the funds for the period such funds were credited to the Company’s account.
 
20

 
SECTION 9.    Indemnification .
 
(a)    Indemnification of the Agents . The Company agrees to indemnify and hold harmless each Agent, its directors and officers, and each person, if any, who controls such Agent within the meaning of Section 15 of the 1933 Act as follows:
 
(i)    against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact contained in the Prospectus or Time of Sale Prospectus (or any amendment or supplement thereto) or the omission or alleged omission therefrom of a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
 
(ii)    against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Company (which consent shall not be unreasonably withheld, delayed or conditioned); and
 
(iii)    against any and all expense whatsoever, as incurred (including, subject to Section 9(c) hereof, the fees and disbursements of counsel), reasonably incurred in investigating, preparing or defending against any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided, however, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such Agent expressly for use in the Registration Statement (or any amendment thereto) or any preliminary prospectus, the Prospectus or the Time of Sale Prospectus (or any amendment or supplement thereto), it being understood and agreed that the only such information furnished by any Agent shall consist of the information described as such in the applicable Terms Agreement.
 
(b)    Indemnification of the Company . Each Agent agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto) or any preliminary prospectus or the Prospectus or the Time of Sale Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Agent expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus or the Time of Sale Prospectus (or any amendment or supplement thereto), it being understood and agreed that the only such information furnished by any Agent shall consist of the information described as such in the applicable Terms Agreement.
 
21

 
(c)    General .  Each indemnified party shall give prompt notice to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability which it may have otherwise than on account of this indemnity agreement. An indemnifying party may participate at its own expense in the defense of such action. In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld, delayed or conditioned), effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act by or behalf of such indemnified party.
 
(d)    Contribution . In order to provide for just and equitable contribution in circumstances in which (i)   the indemnity agreements provided for in this Section 10 are for any reason held to be unenforceable by the indemnified parties although applicable in accordance with their terms   or (ii) such indemnity is insufficient to hold harmless an indemnified party under subsection (a) or (b) above , the Company and each Agent shall contribute to the aggregate losses, liabilities, claims, damages or expenses of the nature contemplated by said indemnity agreements incurred by the Company and such Agent, as incurred, (x)   in such proportion as is   appropriate to reflect the relative benefits received by the Company   o n the one   hand and the Agents on the other from the offering of the Notes or (y) if the allocation provided by clause (x) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (x) above but also the relative fault of the Company on the one hand and the Agents on the other in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Agents on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total   underwriting discounts   and commissions received by   the Agents. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Agents and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Agent   shall be required to contribute any amount in excess o f the amount by which   the total price a t which   the Notes underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which   such Agent   has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.   The Agents' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint.   For purposes of this Section, (1) each director and officer of an Agent, and   each person, if any, who controls an Agent within the meaning of Section 15 of the 1933 Act , shall have the same rights to contribution as such Agent , and (2) each director of the Company and each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act, shall have the same rights to contribution as the Company.
 
22

 
SECTION 10.    Representations, Warranties, Indemnities and Agreements to Survive Delivery .
 
All representations, warranties, indemnities and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto or thereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Agent or any controlling person of such Agent, or by or on behalf of the Company, and shall survive each delivery of and payment for any of the Notes.
 
SECTION 11.    Termination .
 
(a)    Termination of this Agreement . This Agreement (excluding any Terms Agreement) may be terminated for any reason, at any time by either the Company or the Agents, upon the giving of 30 days’ written notice of such termination to the other party hereto.
 
(b)    Termination of a Terms Agreement . An Agent may terminate any Terms Agreement, immediately upon notice to the Company at any time prior to the Settlement Date relating thereto, if (i) there shall have occurred, subsequent to the date of such Terms Agreement or subsequent to the respective dates as of which information is given in the Registration Statement, (A) any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, (B) any material adverse change in the financial markets in the United States, the effect of which is such as to make it, in the reasonable judgment of such Agent, impracticable to market the Notes or enforce contracts for the sale of Notes, (C) any attack on, or outbreak or escalation of hostilities or act of terrorism involving, the United States, any declaration of war by Congress or any other national or international calamity or emergency, if in the reasonable judgment of such person the effect of any such attack, outbreak, escalation, act of terrorism, declaration of war, calamity or emergency makes it impracticable or inadvisable to purchase the Notes, (D) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market, or (E) any banking moratorium declared by U.S. Federal or New York authorities; (ii) the rating assigned by any nationally recognized securities rating agency to any debt securities of the Company as of the date of any applicable Terms Agreement shall have been lowered since that date or if any such rating agency shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any debt securities of the Company; or (iii) there shall have come to such Agent’s attention any facts that would cause such Agent to believe that the Prospectus, at the time it was required to be delivered to a purchaser of Notes, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in light of the circumstances existing at the time of such delivery, not misleading.
 
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(c)    General . In the event of any such termination, neither party will have any liability to the other party hereto, except that (i) each Agent shall be entitled to any commission earned in accordance with the third paragraph of Section 3(a) hereof, (ii) if at the time of termination (a) each Agent shall own any Notes purchased pursuant to a Terms Agreement with the intention of reselling them or (b) an offer to purchase any of the Notes has been accepted by the Company but the time of delivery to the purchaser or his agent of the Note or Notes relating thereto has not occurred, the covenants set forth in Sections 4 and 7 hereof shall remain in effect until such Notes are so resold or delivered, as the case may be, and (iii) the covenant set forth in Section 5(s) hereof, the indemnity and contribution agreements set forth in Section 9 hereof, and the provisions of Sections 9 and 13 hereof shall remain in effect.
 
SECTION 12.    Notices .
 
Unless otherwise provided herein, all notices required under the terms and provisions hereof shall be in writing, either delivered by hand, by mail or by telex, telecopier or telegram, and any such notice shall be effective when received at the address specified below.
 
If to the Company:
 
MidAmerican Energy Company
666 Grand Avenue
Des Moines, IA 50309
Attention: Treasurer
Phone: (515) 281-2904
Fax: (515) 242-4261
 
If to the Agents:
 
Credit Suisse Securities (USA) LLC
11 Madison Avenue
New York, NY 10010
Attention: LCD-IBD Group
Fax: (212) 325-4008 
 
24

 
J.P. Morgan Securities Inc.
270 Park Avenue
New York, NY 10017
Attention: High Grade Syndicate Desk, 8 th Floor
Phone: (212) 834-4533
Fax: (212) 834-6081

LaSalle Financial Services, Inc.
55 East 52 nd Street, 6 th Floor
New York, NY 10055
Attention: Debt Capital Markets
Phone: (212) 409-7553
Fax: (212) 409-7860

and to

BNP Paribas Securities Corp.
787 7 th Avenue
New York, NY 10019
Attention: Debt Capital Markets
Phone: (212) 471-8294
Fax: (212) 841-3785

 
or at such other address as such party or parties may designate from time to time by notice duly given in accordance with the terms of this Section 12.
 
SECTION 13.    No Fiduciary Duty .
 
25

 
The Company acknowledges and agrees that (i) the purchase and sale of the Notes, including the determination of the offering price of such Notes and any related discounts and commissions, is an arm’s-length commercial transaction between the Company, on the one hand, and each applicable purchasing Agent, on the other hand; (ii) each applicable Agent is acting solely in the capacity of an arm’s length contractual counterparty to the Company in connection with the offering of such Notes and the process leading to such transaction (including in connection with determining the terms of the offering) and not as a financial advisor or a fiduciary to, or an agent of, the Company; (iii) no Agent has assumed or will assume an advisory or fiduciary responsibility in favor of the Company with respect to the offering of such Notes or the process leading thereto (irrespective of whether such Agent has advised or is currently advising the Company on other matters) and no Agent has any obligation to the Company with respect to the offering of the Notes except the obligations expressly set forth in this Agreement; and (iv) the Agents are not advising the Company as to any legal, tax, investment, accounting or regulatory matters in any jurisdiction and the Company shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the transactions contemplated by this Agreement, and the Agents shall have no responsibility or liability to the Company with respect thereto.
 
SECTION 14.    Governing Law .
 
This Agreement and all the rights and obligations of the parties shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any suit, action or proceeding brought by the Company against the Agents in connection with or arising under this Agreement shall be brought solely in the state or federal court of appropriate jurisdiction located in the Borough of Manhattan, The City of New York.
 
SECTION 15.    Parties .
 
This Agreement shall inure to the benefit of and be binding upon each Agent and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Section 9 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and respective successors and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Notes shall be deemed to be a successor by reason merely of such purchase.
 
SECTION 16.    Integration .
 
This Agreement represents and contains the entire agreement and understanding among the parties hereto with respect to the subject matter covered herein, and supercedes any and all prior oral and written agreements and understandings among the parties hereto, including, without limitation, the Distribution Agreement, dated February 5, 2002, among the Company, Credit Suisse First Boston Corporation, Banc One Capital Markets, Inc., BNY Capital Markets, Inc., Commerzbank Capital Markets Corp. and UBS Warburg LLC, the Distribution Agreement, dated January 9, 2003, among the Company, Lehman Brothers Inc., Banc One Capital Markets, Inc., ABN AMRO Incorporated, BNP Paribas Securities Corp., BNY Capital Markets, Inc., Commerzbank Capital Markets Corp., Credit Suisse First Boston Corporation and U.S. Bancorp Piper Jaffrey Inc., the Distribution Agreement, dated September 28, 2004, among the Company, ABN AMRO Incorporated, BNP Paribas Securities Corp. and J.P. Morgan Securities Inc., and the Distribution Agreement, dated October 24, 2005, among the Company, J.P. Morgan Securities Inc., LaSalle Financial Services, Inc. and Lehman Brothers Inc. (other than with respect to transactions consummated thereunder prior to the date hereof).
 
26

 
SECTION 17.    Execution in Counterparts .
 
This Agreement may be executed in counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
 
[Signatures follow]

27


If the foregoing is in accordance with each Principal Agent’s understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between each Agent and the Company in accordance with its terms.

Very truly yours,
 
MIDAMERICAN ENERGY COMPANY
 
By:   /s/ Brian K. Hankel  
Name: Brian K. Hankel
Title: Vice President and Treasurer  
 

28


Accepted:

CREDIT SUISSE SECURITIES (USA) LLC
J.P. MORGAN SECURITIES INC.
LASALLE FINANCIAL SERVICES, INC.
BNP PARIBAS SECURITIES CORP.,
as Principal Agents, on behalf of the Agents


 
 
     
  CREDIT SUISSE SECURITIES (USA) LLC
 
 
 
 
 
 
  By:   /s/  Gavin Wolfe
  Name: Gavin Wolfe
  Title: Managing Director

     
  J.P. MORGAN SECURITIES INC.
 
 
 
 
 
 
  By:   /s/  Robert Bottamedi
  Name: Robert Bottamedi
  Title: Vice President

     
  LASALLE FINANCIAL SERVICES, INC.
 
 
 
 
 
 
  By:   /s/  Vincent Murray
  Name: Vincent Murray
  Title: Managing Director


     
  BNP PARIBAS SECURITIES CORP.
 
 
 
 
 
 
  By:   /s/  Timothy D. McCann
  Name: Timothy D. McCann
  Title: Director



EXHIBIT A

MIDAMERICAN ENERGY COMPANY

Notes
[____] % Series due 20 [__]

FORM OF
TERMS AGREEMENT


[__________ ___, 20___]

[Names and Addresses of Underwriters]

Dear Sirs:

MidAmerican Energy Company, an Iowa corporation (" MEC "), confirms its agreement with [Name of Underwriters] (collectively, the " Underwriters ") with respect to the issue and sale by MEC of its Notes, [___] % Series due 20 [__] (the " Notes "). The Notes are to be issued pursuant to the Indenture, dated as of October 1, 2006   (the " Base Indenture "), between MEC and The Bank of New York Trust Company, N.A., as trustee (the “ Trustee ”), and the First Supplemental Indenture to be entered into between MEC and the Trustee (together with Base Indenture, the “ Indenture ”).

This Terms Agreement is entered into pursuant to, and hereby incorporates by reference all of the terms of, the Distribution Agreement, dated October 3, 2006 (the " Distribution Agreement "), among MEC and Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc., LaSalle Financial Services, Inc.   and BNP Paribas Securities Corp., as Agents thereunder. Capitalized terms used in this Terms Agreement have the definitions given to them in the Distribution Agreement.

SECTION 1. Representations and Warranties . MEC represents and warrants to the Underwriters as of the date hereof and as of the Settlement Date for the purchase, sale and delivery of the Notes to the Underwriters, that the representations and warranties of MEC in Section 2 of the Distribution Agreement are true and correct (except to the extent that such representations and warranties are specifically limited to a prior date, in which case such representations and warranties were true and correct as of such prior date).

SECTION 2. Purchase and Offering . Subject to the terms and conditions hereof and incorporated by reference herein and in reliance upon the representations and warranties herein set forth and incorporated by reference herein, MEC agrees to sell to each Underwriter, severally and not jointly, and each Underwriter agrees, severally and not jointly, to purchase from MEC, at the purchase price and on the other terms set forth in Schedule I hereto, the principal amount of the Notes set forth opposite its name in Schedule I hereto, and the Notes shall have the terms set forth in Schedule I hereto, which is incorporated by reference in this Terms Agreement.
 
EXHIBIT A-1

 
SECTION 3. Conditions to the Obligations of the Underwriters . The respective obligations of the Underwriters under this Terms Agreement with respect to the Notes are subject to the accuracy, on the date hereof and on the Settlement Date, of the representations and warranties of MEC contained, and incorporated by reference, herein, to the performance by MEC of its obligations contained in the Distribution Agreement and this Terms Agreement, and to the satisfaction of the conditions contained in the Distribution Agreement.
 
 SECTION 4.  Stand-Off Agreement . Between the date of this Terms Agreement and the Settlement Date, MEC will not, without the prior consent of the Underwriters, offer or sell, or enter into any agreement to sell, any debt securities of MEC (other than the Notes and commercial paper in the ordinary course of business).
 
SECTION 5.   Information Furnished by Underwriters . For purposes of Sections 2(a)(iv) , 9(a)(iii) and 9(b) of the Distribution Agreement, the only information furnished to the Company by any Underwriter for use in the Prospectus consists of (i) the following information in the Prospectus furnished on behalf of each Underwriter: [Describe Information] , and (ii) the following information in the prospectus supplement furnished on behalf of [Name of Underwriter] : [Describe Information].
 
SECTION 6.   Governing Law . This Terms Agreement and all rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of New York, without regard to principles of conflicts of laws. Any suit, action or proceeding brought by MEC against the Underwriters in connection with or arising under this Terms Agreement shall be brought solely in the state or federal court of appropriate jurisdiction located in the Borough of Manhattan, The City of New York.

SECTION 7.   Parties . This Terms Agreement shall inure to the benefit of and be binding upon the Underwriters and MEC and their respective successors. Nothing expressed or mentioned in this Terms Agreement is intended or shall be construed to give any person, firm or corporation, other than the parties hereto and their respective successors and the controlling persons and officers and directors referred to in Section 9 of the Distribution Agreement and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Terms Agreement or any provision herein contained. This Terms Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the parties hereto and their respective successors and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Notes shall be deemed to be a successor by reason merely of such purchase.

SECTION 8.   Several Obligations . The obligations of the Underwriters hereunder are several and not joint.
 
EXHIBIT A-2

 
SECTION 9.   Execution in Counterparts . This Terms Agreement may be executed in counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.
 
EXHIBIT A-3


If the foregoing is in accordance with the Underwriters' understanding of our agreement, please sign and return to MEC a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between the Underwriters and MEC in accordance with its terms.

Very truly yours,

MIDAMERICAN ENERGY COMPANY

By:   ___________________________
Name:
Title:

Accepted:

[SIGNATURE BLOCKS FOR UNDERWRITERS]
 
 
EXHIBIT A-4

 

SCHEDULE I

This is Schedule I to the Terms Agreement, dated [_________ ___, 20__] , entered into pursuant to the Distribution Agreement, dated October 3, 2006, among MidAmerican Energy Company and Credit Suisse Securities (USA) LLC, J.P. Morgan Securities Inc., LaSalle Financial Services, Inc . and BNP Paribas Securities Corp., as Agents thereunder. Capitalized terms used but not defined in this Schedule have the meanings given to such terms in the Distribution Agreement.

Agents:  
[Names of Agents]

SEC Registration Number: 333-110398 and 333-134163

Designation of Notes: [___] % Series due 20 [__]

Terms of Notes :
Principal Amount: $ [___________]
Issue Price: ƒ 100% ƒ Other:
Authorized Denominations: ƒ $1,000 and integral multiples of $1,000 ƒ Other:
Original Issue Date: [_________ ___, 20__]  
Stated Maturity: [_________ ___, 20__]

Extension of Stated Maturity:    MEC does not have the option to extend the stated maturity.
MEC does have the option to extend the stated maturity.
Extension Period(s): _____ period(s) of [one] [two] [three] [four] [five] year(s)
Final Maturity Date:

Form:
The notes are book-entry notes.
 
The notes are certificated notes.
 
 
  Fixed Rate Notes      
  Interest Rate:
     
  Interest Payment Dates: 
  January 15 and July 15    Other:  
  Interest Rate Reset:  
  MEC does not have the option to reset the interest rate.    
    MEC does have the option to reset the interest rate.    
 
  Reset Date(s):
   
 
  Reset Formula:
   
  Record Dates: 
  January 1 and July 1    Other:  
       
  Floating Rate Notes      
  Initial Interest Rate:
     
  Interest Rate Basis:  
     
  Commercial Paper Rate
     
  LIBOR
     
  Designated LIBOR Page:
  LIBOR Reuters, page ____
  LIBOR Telerate, page ____
 
  Prime Rate
     
  Treasury Rate
     
  Other:
     
  Interest Reset Period:
  Daily       Weekly      Monthly       Quarterly    
    Semiannual beginning in ________ and ________
  Annual beginning in ________
 
  Interest Reset Dates:
  As specified in the Prospectus
  Other:
 
  Interest Payment Period:
  Monthly      Quarterly       Semiannual       Annual    
 
 

 
 
  Interest Payment Dates:
     
  Third Wednesday of each month
Third Wednesday of each March, June, September and December
 
  Third Wednesday of each ______   and ________   Third Wednesday of each _________  
  Other:      
  Interest Determination Date:   As specified in the Prospectus   Other:  
  Calculation Date:   As specified in the Prospectus   Other:  
  Index Maturity:      
  Spread:   None   _____ basis points  
  Spread Reset:   MEC does not have the option to reset the spread.    
    MEC does have the option to reset the spread.    
 
  Reset Date(s):
   
 
  Reset Formula:
   
       
  Spread Multiplier:   None    
  Spread Multiplier Reset:   MEC does not have the option to reset the spread multiplier.    
    MEC does have the option to reset the spread multiplier.    
    Reset Date(s):    
    Reset Formula:    
       
  Maximum Interest Rate:   None    
  Minimum Interest Rate:   None    
  Calculation Agent:   The Bank of New York Trust Company, N.A.   Other:  
       
  Original Issue Discount Notes      
  Yield-to-Maturity:
     
  Amortizing Notes.   An amortization schedule is attached to this Schedule and is incorporated in this Schedule by reference.  
     
  Redemption:     The notes may not be redeemed prior to maturity at the option of MEC.  
 
  The notes may be redeemed prior to maturity at the option of MEC.
 
    The redemption provisions are attached to this Schedule as Annex 1.  
  Repayment:    The notes may not be repaid prior to maturity at the option of the holders.  
    The notes may be repaid prior to maturity at the option of the holders.  
 
    Repayment Date(s):   At any time   On the following dates:
    Repayment Price:    
       
 
  Sinking Fund:   The notes do not have the benefit of sinking fund provisions.    
    The notes do have the benefit of sinking fund provisions.    
    A schedule of mandatory sinking fund payments is attached to this Schedule and is incorporated in this Schedule by reference.
   
  Renewal:   The notes are not renewable at the option of the holders.
    The notes are renewable at the option of the holders
 
 
  Principal amount of Notes to be severally purchased by each Agent:    
     
    Agent      Amount  
    [_______________]      $ [___________]  
    [_______________]      [___________]  
    Total Principal Amount of Notes    $ [___________]  
       
  Agents' Discount: [___] %      
  Time of Sale: [     ]    [A.M.] [P.M.] on [ , 20 ]    
       
 

 
 
Settlement Date: [__________ ___, 20__]

Settlement Time: At or about [_____]   [A.M.] [P.M.]

Location of Closing: New York, New York

Payment Instructions: MidAmerican Energy Company, Account No. [_________] , [Name of Bank] , ABA No. [________]
 
[Stand-Off Period: As stated in Section 5 of the foregoing Terms Agreement.]
 
 


 
[INCLUDE IF APPLICABLE]

ANNEX 1

REDEMPTION PROVISIONS

The notes will be redeemable as a whole at any time or in part, from time to time, at the option of MidAmerican Energy Company, at a redemption price equal to the sum of (a) the greater of (i) 100% of the principal amount of the notes being redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the redemption date to the maturity date, computed by discounting such payments, in each case, to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus [___] basis points, plus (b) accrued interest on the principal amount thereof to the date of redemption.

‘‘Treasury Rate’’ means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.

‘‘Comparable Treasury Issue’’ means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such notes. ‘‘Independent Investment Banker’’ means one of the Reference Treasury Dealers appointed by the trustee after consultation with MidAmerican Energy Company.

‘‘Comparable Treasury Price’’ means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated ‘‘Composite 3:30 p.m. Quotations for U.S. Government Securities’’, or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, the average of the Reference Treasury Dealer Quotations actually obtained by the trustee for such redemption date. ‘‘Reference Treasury Dealer Quotations’’ means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the trustee, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. on the third Business Day preceding such redemption date.

‘‘Reference Treasury Dealer’’ means each of [Names of Underwriters] , and their respective successors; provided, however, that if any of the foregoing shall cease to be a primary U.S. Government securities dealer in New York City (a ‘‘Primary Treasury Dealer’’), MidAmerican Energy Company shall substitute therefor another Primary Treasury Dealer.

Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of the notes to be redeemed. If, at the time notice of redemption is given, the redemption moneys are not held by the trustee, the redemption may be made subject to their receipt on or before the date fixed for redemption and such notice shall be of no effect unless such moneys are so received. Upon payment of the redemption price, on and after the redemption date interest will cease to accrue on notes or portions thereof called for redemption.
 


 
Capitalized terms used but not defined in this annex have the meanings given to such terms in the Indenture as supplemented from time to time.




EXHIBIT B

MIDAMERICAN ENERGY COMPANY

FORM OF
TERM SHEET


Filed Pursuant to Rule 433
Registration No. 333-110398 and 333-134163
Free Writing Prospectus dated October 3, 2006
 
MIDAMERICAN ENERGY COMPANY
5.800% Notes due 2036

 
Issuer:
 
 
MidAmerican Energy Company
 
 
Ratings:
 
 
A2 / A- / A (stable / stable /stable)
 
 
Note type:
 
 
Senior Notes
 
 
Trade date:
 
 
October 3, 2006
 
 
Settlement date:
 
 
October 6, 2006
 
 
Maturity date:
 
 
October 15, 2036
 
 
Principal amount:
 
 
$350,000,000
 
 
Benchmark:
 
 
UST 4.500% due February 15, 2036
 
 
Re-offer spread:
 
 
+105 basis points
 
 
Re-offer yield to maturity:
 
 
5.812%
 
 
Coupon:
 
 
5.800%
 
 
Public offering price:
 
 
Variable
 
 
Make-whole spread:
 
 
T + 20 basis points
 
 
Interest payment dates:
 
 
February 15 and August 15, commencing February 15, 2007
 
 
CUSIP:
 
 
59562EAH8
 
 
ISIN:
 
 
US59562EAH80
 
 
Active Bookrunners:
 
 
Credit Suisse Securities (USA) LLC
J.P. Morgan Securities Inc.
 
 
Passive Bookrunners:
 
 
BNP Paribas Securities Corp.
LaSalle Financial Services, Inc.
 
 
Co-Managers:
 
 
Calyon Securities (USA)
Citigroup Global Markets Inc.
Wedbush Morgan Securities Inc.
Wells Fargo Securities, LLC
 
 
EXHIBIT B-1

 
 
************************
The issuer has filed a registration statement (including a prospectus) with the SEC to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about the issuer and this offering. You may get these documents for free by visiting EDGAR on the SEC web site at www.sec.gov . Alternatively, the issuer, any underwriter or any dealer participating in this offering will arrange to send you the prospectus if you request it by calling Credit Suisse Securities (USA) LLC toll-free at (800) 221-1037 or J.P. Morgan Securities Inc. collect at (212) 834-4533.
 
EXHIBIT B-2



EXHIBIT 15

AWARENESS LETTER OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


MidAmerican Energy Company
Des Moines, Iowa

We have reviewed in accordance with the standards of the Public Company Accounting Oversight Board (United States), of the unaudited consolidated interim financial information of MidAmerican Energy Company and subsidiary for the three-month and nine-month periods ended September 30, 2006 and 2005, as indicated in our report dated November 3, 2006; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended September 30, 2006, is incorporated by reference in Registration Statement No. 333-134163 on Form S-3.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.


/s/ Deloitte & Touche LLP

Des Moines, Iowa
November 3, 2006




EXHIBIT 31.1

CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, Todd M. Raba, certify that:

1.
 
I have reviewed this quarterly report on Form 10-Q 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 officer(s) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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: November 3, 2006
/s/ Todd M. Raba
Todd M. Raba
President
(chief executive officer)
 

EXHIBIT 31.2


CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, Thomas B. Specketer, certify that:

1.
 
I have reviewed this quarterly report on Form 10-Q 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 officer(s) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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: November 3, 2006
/s/ Thomas B. Specketer
Thomas B. Specketer
Vice President and Controller(chief financial officer)

EXHIBIT 31.3

CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, Gregory E. Abel, certify that:

1.
 
I have reviewed this quarterly report on Form 10-Q 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 officer(s) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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: November 3, 2006
/s/ Gregory E. Abel
Gregory E. Abel
President(chief executive officer)



EXHIBIT 31.4

CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

CERTIFICATIONS

I, Thomas B. Specketer, certify that:

1.
 
I have reviewed this quarterly report on Form 10-Q 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 officer(s) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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: November 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 Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2006 (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: November 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 Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2006 (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: November 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, Chief Executive Officer 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 Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2006 (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: November 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 Treasurer 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 Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2006 (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: November 3, 2006


/s/ Thomas B. Specketer
Thomas B. Specketer
Vice President and Controller
(chief financial officer)