UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------- -------------------------------------
Commission Registrant, State of Incorporation, IRS Employer
File Number Address and Telephone Number Identification No.
- - ----------- ---------------------------- ------------------
1-12459 MIDAMERICAN ENERGY HOLDINGS COMPANY 42-1451822
(AN IOWA CORPORATION)
666 GRAND AVE. PO BOX 657
DES MOINES, IOWA 50303
515-242-4300
1-11505 MIDAMERICAN ENERGY COMPANY 42-1425214
(AN IOWA CORPORATION)
666 GRAND AVE. PO BOX 657
DES MOINES, IOWA 50303
515-242-4300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X * No
---- ----
Indicate the number of shares outstanding of each issuer's respective class
of common stock as of the latest practicable date.
Registrant Class Shares Outstanding at October 31, 1997
- - ------------------ ----------------- --------------------------------------
MidAmerican Energy Common Stock 96,222,113
Holdings Company without par value
MidAmerican Energy Common Stock 70,980,203 (all of which were held by
Company without par value MidAmerican Energy Holdings Company)
* MidAmerican Energy Holdings Company (Holdings) became the parent holding
company for MidAmerican Energy Company (MidAmerican) pursuant to a
statutory share exchange. The effective date of the share exchange was
December 1, 1996, and prior to such effective date, Holdings had no assets
or operations. Prior to such effective date, MidAmerican was subject to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (Exchange Act), and accordingly filed in a timely manner all
reports required to be filed pursuant to Sections 13 or 15(d) of the
Exchange Act during the preceding 12 months.
<PAGE>
This combined Form 10-Q represents a separate filing by each of MidAmerican
Energy Holdings Company (Company or Holdings) and MidAmerican Energy Company
(MidAmerican). MidAmerican makes no representations as to the information
relating to Holdings' nonregulated operations.
MIDAMERICAN ENERGY HOLDINGS COMPANY
AND
MIDAMERICAN ENERGY COMPANY
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
ITEM 1. Financial Statements
MidAmerican Energy Holdings Company
Consolidated Statements of Income............................. 3
Consolidated Balance Sheets................................... 4
Consolidated Statements of Cash Flows......................... 5
Notes to Consolidated Financial Statements.................... 6
MidAmerican Energy Company
Consolidated Statements of Income............................. 10
Consolidated Balance Sheets................................... 11
Consolidated Statements of Cash Flows......................... 12
Notes to Consolidated Financial Statements.................... 13
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................. 33
ITEM 6. Exhibits and Reports on Form 8-K.............................. 34
Signatures............................................................. 35
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<PAGE>
<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED SEPT. 30 ENDED SEPT. 30 ENDED SEPT. 30
-------------------- ---------------------- ----------------------
1997 1996 1997 1996 1997 1996
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility................................... $ 334,336 $ 311,169 $ 850,453 $ 840,023 $1,109,438 $1,086,681
Gas utility........................................ 60,208 72,902 352,686 354,506 534,933 501,658
Nonregulated....................................... 46,154 50,607 212,569 139,211 310,209 169,765
--------- --------- ---------- ---------- ----------- ----------
440,698 434,678 1,415,708 1,333,740 1,954,580 1,758,104
--------- --------- ---------- ---------- ----------- ----------
OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity............... 67,258 61,164 178,682 177,662 235,337 230,229
Cost of gas sold................................ 34,320 48,300 221,252 219,725 346,541 309,558
Other operating expenses........................ 98,686 82,357 290,984 260,126 381,032 364,631
Maintenance..................................... 24,217 24,741 70,315 68,616 90,320 90,681
Depreciation and amortization................... 42,815 41,120 126,883 123,126 168,349 163,684
Property and other taxes........................ 26,139 22,686 76,482 71,788 97,324 90,455
--------- --------- ---------- ---------- ---------- ----------
293,435 280,368 964,598 921,043 1,318,903 1,249,238
--------- --------- ---------- ----------- ---------- ----------
Nonregulated:
Cost of sales................................... 42,565 47,247 198,366 124,497 292,125 148,432
Other........................................... 6,750 9,144 22,168 25,136 32,402 34,235
--------- --------- ---------- ---------- ---------- ----------
49,315 56,391 220,534 149,633 324,527 182,667
--------- --------- ---------- ---------- ---------- ----------
Total operating expenses........................ 342,750 336,759 1,185,132 1,070,676 1,643,430 1,431,905
--------- --------- ---------- ---------- ---------- ----------
OPERATING INCOME................................... 97,948 97,919 230,576 263,064 311,150 326,199
--------- --------- ---------- ---------- ---------- ----------
NON-OPERATING INCOME
Interest income.................................... 1,019 564 4,134 3,088 5,058 4,241
Dividend income.................................... 3,252 4,179 10,507 13,081 14,411 17,892
Realized gains and losses on securities, net....... (276) (30) 340 3,204 (969) 3,829
Other, net......................................... 5,573 (4,187) 12,837 541 8,276 (3,034)
--------- ---------- ---------- --------- ---------- ----------
9,568 526 27,818 19,914 26,776 22,928
--------- ---------- ---------- --------- ---------- ----------
FIXED CHARGES
Interest on long-term debt......................... 20,617 25,818 66,909 77,523 92,295 103,684
Other interest expense............................. 2,383 2,556 7,831 8,279 10,493 10,850
Preferred dividends of subsidiaries................ 3,234 2,087 11,234 6,748 15,175 8,567
Allowance for borrowed funds....................... (620) (830) (1,932) (3,286) (2,858) (4,872)
--------- --------- ---------- --------- ---------- ----------
25,614 29,631 84,042 89,264 115,105 118,229
--------- --------- ---------- --------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES............................. 81,902 68,814 174,352 193,714 222,821 230,898
INCOME TAXES....................................... 32,197 28,266 66,297 79,662 85,057 91,180
--------- --------- ---------- --------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS.................. 49,705 40,548 108,055 114,052 137,764 139,718
DISCONTINUED OPERATIONS
Income (Loss) from operations (net of income taxes) 407 (3,628) 1,105 2,910 312 4,024
Loss on disposal (net of income taxes)............. (3,200) (14,364) (3,724) (14,364) (4,192) (14,364)
--------- --------- ---------- --------- ---------- ----------
(2,793) (17,992) (2,619) (11,454) (3,880) (10,340)
--------- ---------- ---------- --------- ---------- ----------
NET INCOME......................................... $ 46,912 $ 22,556 $ 105,436 $ 102,598 $ 133,884 $ 129,378
========= ========== ========== ========= ========== ==========
AVERAGE COMMON SHARES OUTSTANDING.................. 97,097 100,752 98,752 100,752 99,213 100,752
EARNINGS PER COMMON SHARE
Continuing operations.............................. $ 0.51 $ 0.40 $ 1.09 $ 1.13 $ 1.39 $ 1.38
Discontinued operations............................ (0.03) (0.18) (0.02) (0.11) (0.04) (0.10)
--------- --------- ---------- --------- ---------- ----------
Earnings per average common share.................. $ 0.48 $ 0.22 $ 1.07 $ 1.02 $ 1.35 $ 1.28
========= ========= ========== ========= ========== ==========
DIVIDENDS DECLARED PER SHARE....................... $ 0.30 $ 0.30 $ 0.90 $ 0.90 $ 1.20 $ 1.20
========= ========= ========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
AS OF
-------------------------------------------
SEPTEMBER 30 DECEMBER 31
-------------------------------------------
1997 1996 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric.................................................... $4,062,408 $3,981,980 $4,010,847
Gas......................................................... 746,173 718,796 723,491
---------- ---------- ----------
4,808,581 4,700,776 4,734,338
Less accumulated depreciation and amortization.............. 2,250,667 2,132,456 2,153,058
---------- ---------- ----------
2,557,914 2,568,320 2,581,280
Construction work in progress............................... 53,236 56,452 49,305
---------- ---------- ----------
2,611,150 2,624,772 2,630,585
---------- ---------- ----------
POWER PURCHASE CONTRACT..................................... 188,860 207,725 190,897
---------- ---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS....................... 14,079 214,594 196,356
---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents................................... 12,290 23,138 97,749
Receivables................................................. 219,447 196,245 312,930
Inventories................................................. 94,969 91,061 90,864
Other....................................................... 12,169 10,275 11,696
---------- ---------- ----------
338,875 320,719 513,239
---------- ---------- ----------
INVESTMENTS................................................. 875,450 628,553 628,791
---------- ---------- ----------
OTHER ASSETS................................................ 376,814 399,755 399,415
---------- ---------- ----------
TOTAL ASSETS................................................ $4,405,228 $4,396,118 $4,559,283
========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity................................. $1,368,299 $1,238,615 $1,239,946
MidAmerican preferred securities, not subject to
mandatory redemption..................................... 31,765 77,534 31,769
Preferred securities, subject to mandatory redemption:
MidAmerican preferred securities......................... 50,000 50,000 50,000
MidAmerican-obligated preferred securities of
subsidiary trust holding solely MidAmerican
junior subordinated debentures........................ 100,000 - 100,000
Long-term debt (excluding current portion).................. 1,103,551 1,372,007 1,395,103
---------- ---------- ----------
2,653,615 2,738,156 2,816,818
---------- ---------- ----------
CURRENT LIABILITIES
Notes payable............................................... 141,354 157,728 161,990
Current portion of long-term debt .......................... 77,727 77,624 79,598
Current portion of power purchase contract.................. 13,718 13,029 13,718
Accounts payable............................................ 136,440 120,663 169,806
Taxes accrued............................................... 72,739 52,269 82,254
Interest accrued............................................ 20,503 24,091 28,513
Other....................................................... 55,892 50,500 30,229
---------- ---------- ----------
518,373 495,904 566,108
---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract..................................... 97,504 112,700 97,504
Deferred income taxes....................................... 808,781 732,233 752,336
Investment tax credit....................................... 84,556 90,692 88,842
Other....................................................... 242,399 226,433 237,675
---------- ---------- ----------
1,233,240 1,162,058 1,176,357
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES........................ $4,405,228 $4,396,118 $4,559,283
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------ -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Income..................................................... $ 46,912 $ 22,556 $ 105,436 $ 102,598
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization............................... 51,118 47,104 147,100 141,177
Net decrease in deferred income taxes and
investment tax credit, net................................ (3,028) 4,848 (44,602) 3,276
Amortization of other assets................................ 5,773 5,001 18,247 15,685
Capitalized cost of real estate sold........................ 627 397 1,423 2,895
Income from discontinued operations......................... 2,793 17,992 2,619 11,454
Gain on sale of securities, assets and other investments.... 189 (1,898) (1,638) (5,471)
Other-than-temporary decline in value of investments........ 3 - 255 2,566
Impact of changes in working capital, net of effects
from discontinued operations.............................. (2,818) (23,383) 63,678 (14,422)
Other....................................................... 7,366 15,430 6,616 17,327
-------- -------- --------- ---------
Net cash provided......................................... 108,935 88,047 299,134 277,085
-------- -------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures.............................. (49,815) (35,468) (113,844) (101,061)
Quad Cities Nuclear Power Station decommissioning trust fund... (2,779) (2,159) (7,060) (6,477)
Deferred energy efficiency expenditures........................ (5,909) (5,753) (12,258) (13,200)
Nonregulated capital expenditures.............................. (2,498) (11,860) (9,500) (36,989)
Purchase of securities......................................... (10,866) (33,755) (127,273) (168,049)
Proceeds from sale of securities............................... 36,168 33,381 168,217 197,472
Proceeds from sale of assets and other investments............. 1,472 16,681 15,142 17,989
Investment in discontinued operations.......................... - 5,221 182,749 (34,022)
Other investing activities, net................................ (6,382) 3,173 (9,046) 7,507
-------- -------- --------- ---------
Net cash provided (used).................................... (40,609) (30,539) 87,127 (136,830)
-------- -------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid.......................................... (29,122) (30,224) (88,845) (90,664)
Retirement of long-term debt, including reacquisition cost..... (58,069) (64,449) (119,859) (65,496)
Reacquisition of preferred shares.............................. - (1,075) (4) (12,800)
Reacquisition of common shares................................. (21,311) - (67,876) -
Increase (decrease) in MidAmerican Capital Company
unsecured revolving credit facility......................... - 44,000 (174,500) 46,000
Net increase (decrease) in notes payable....................... (4,831) (6,762) (20,636) (27,072)
-------- -------- --------- ---------
Net cash used............................................... (113,333) (58,510) (471,720) (150,032)
-------- -------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS...................... (45,007) (1,002) (85,459) (9,777)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 57,297 24,140 97,749 32,915
-------- -------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................... $ 12,290 $ 23,138 $ 12,290 $ 23,138
======== ======== ========= =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized...................... $ 27,085 $ 37,278 $ 77,063 $ 92,706
======== ======== ========= =========
Income taxes paid.............................................. $ 25,349 $ 23,198 $ 102,102 $ 77,082
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) GENERAL:
The consolidated financial statements included herein have been prepared by
Holdings, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and disclosures normally included
in 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 the Company, all adjustments have been made to
present fairly the financial position, the results of operations and the changes
in cash flows for the periods presented. Although the Company believes that the
disclosures 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 the
Company's latest Annual Report on Form 10-K.
B) ENVIRONMENTAL MATTERS:
1) Manufactured Gas Plant Facilities:
The United States Environmental Protection Agency (EPA) and state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant (MGP) facilities may pose a threat
to the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
MidAmerican is evaluating 26 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether MidAmerican has any responsibility for remedial action. MidAmerican
is currently conducting field investigations at seventeen of the sites and has
completed investigations at one of the sites. In addition, MidAmerican has
completed removals at three of the sites. MidAmerican is continuing to evaluate
several of the sites to determine the future liability, if any, for conducting
site investigations or other site activity.
MidAmerican's estimate of probable remediation costs for the sites
discussed above as of September 30, 1997, is $23 million. This estimate has been
recorded as a liability and a regulatory asset for future recovery. The Illinois
Commerce Commission (ICC) has approved the use of a tariff rider which permits
recovery of the actual costs of litigation, investigation and remediation
relating to former MGP sites. MidAmerican's present rates in Iowa provide for a
fixed annual recovery of MGP costs. MidAmerican intends to pursue recovery of
the remediation costs from other PRPs and its insurance carriers.
The estimated recorded liabilities for these properties are based upon
preliminary data. Thus, actual costs could vary significantly from the
estimates. The estimate could change materially based on facts and circumstances
derived from site investigations, changes in required remedial action and
changes in technology relating to remedial alternatives. In addition, insurance
recoveries for some or all of the costs may be possible, but the liabilities
recorded have not been reduced by any estimate of such recoveries.
Although the timing of potential incurred costs and recovery of such costs
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on MidAmerican's financial position or results of operations.
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<PAGE>
2) Clean Air Act:
On July 18, 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards for ozone and a new standard for fine particulate matter.
Based on data to be obtained from monitors located throughout the states, the
EPA will make a determination of whether the states have any areas that do not
meet the air quality standards (i.e., areas that are classified as
nonattainment). If a state has area(s) classified as nonattainment area(s), the
state is required to submit a State Implementation Plan specifying how it will
reach attainment of the standards through emission reductions or other means.
The impact of the new standards on MidAmerican will depend on the
attainment status of the areas surrounding MidAmerican's operations and
MidAmerican's relative contribution to the nonattainment status. If
MidAmerican's operations contribute to nonattainment and modifications to
MidAmerican's operations or facilities are necessary, the cost of making
emissions reductions to meet the air quality standards will be dependent upon
the level of emissions reductions required and the available technology.
MidAmerican will continue to evaluate the potential impact of the new
regulations.
C) RATE MATTERS:
On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois. The proposal was later withdrawn in Illinois following negotiation of
a settlement in a related Illinois proceeding. The settlement resulted in annual
reductions of $13.1 million and $2.4 million, effective November 3, 1996, and
June 1, 1997, respectively.
On June 27, 1997, the Iowa Utilities Board (IUB) issued an order in a
consolidated rate proceeding involving MidAmerican's pricing proposal and a
filing by the Iowa Office of Consumer Advocate (OCA). The order approved a March
1997 settlement agreement between MidAmerican, the OCA and other parties to the
proceeding. The agreement includes a number of characteristics of MidAmerican's
pricing proposal. Prices for residential customers were reduced $8.5 million
annually and $10.0 million annually, effective November 1, 1996, and July 11,
1997, respectively, and will be reduced an additional $5.0 million annually on
June 1, 1998, for a total annual decrease of $23.5 million. Rates for commercial
and industrial customers will be reduced a total of $10 million annually by June
1, 1998, through pilot projects, negotiated rates with individual customers and,
if needed, a base rate reduction effective June 1, 1998. The agreement includes
a tracking mechanism to currently recover the cost of capital improvements
required by the Cooper Nuclear Station Power Purchase Contract. The tracking
mechanism will offset approximately $9 million of these reductions.
In addition, the agreement accepts MidAmerican's proposal to eliminate the
Iowa energy adjustment clause (EAC) which was the mechanism through which fuel
costs were collected from Iowa customers prior to July 11, 1997. The EAC flowed
the cost of fuel to customers on a current basis, and thus, fuel costs had
little impact on net income. Prospectively, base rates for Iowa customers will
include a factor for recovery of a representative level of fuel costs. To the
extent actual fuel costs vary from that factor, pre-tax earnings will be
impacted. The fuel cost factor will be reviewed in February 1999 and adjusted
prospectively if actual fuel costs vary 15% above or below the factor included
in base rates.
Under the agreement, if MidAmerican's annual Iowa electric jurisdictional
return on common equity exceeds 12%, then an equal sharing between customers and
shareholders of earnings above the 12% level begins; if it exceeds 14%, then
two-thirds of MidAmerican's share of those earnings will be used for accelerated
recovery of certain regulatory assets. The agreement permits MidAmerican to file
for increased rates if the return falls below 9%. Other parties signing the
agreement are prohibited from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.
-7-
<PAGE>
The agreement also provides that MidAmerican will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers. The pilot program, which is subject to approval by the
IUB and the Federal Energy Regulatory Commission (FERC), is limited to 60 MW of
participation the first year and can be expanded by 15 MW annually until the
conclusion of the program. Any loss of revenues associated with the pilot
program will be considered part of the $10 million annual reduction for
commercial and industrial customers but may not be recovered from other customer
classes. The program was filed with the IUB and the FERC in September 1997. The
Company anticipates that the necessary approvals will be received before the end
of the second quarter of 1998.
D) ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION:
Statement of Financial Accounting Standards (SFAS) No. 71 sets forth
accounting principles for operations that are regulated and meet certain
criteria. For operations that meet the criteria, SFAS 71 allows, among other
things, the deferral of costs that would otherwise be expensed when incurred. A
possible consequence of the changes in the utility industry is that SFAS 71 may
no longer apply. MidAmerican's electric and gas utility operations are currently
subject to the provisions of SFAS 71, but its applicability is periodically
reexamined. If a portion of MidAmerican's utility operations no longer meets the
criteria of SFAS 71, MidAmerican would be required to eliminate from its balance
sheet the regulatory assets and liabilities related to those operations that
resulted from actions of its regulators. Although the amount of such an
elimination would depend on the specific circumstances, a material adjustment to
earnings in the appropriate period could result from discontinuing SFAS 71. As
of September 30, 1997, MidAmerican had approximately $357 million of regulatory
assets in its Consolidated Balance Sheet because these costs are expected to be
recovered in future charges to utility customers.
E) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:
The MidAmerican-Obligated Mandatorily Redeemable Preferred Securities of
Subsidiary Trust Holding Solely MidAmerican Junior Subordinated Debentures
included in the Consolidated Balance Sheets were issued by MidAmerican Energy
Financing I (the Trust), a wholly-owned statutory business trust of MidAmerican.
The sole assets of the Trust are $103.1 million of MidAmerican 7.98% Series A
Debentures due 2045.
F) COMMON SHAREHOLDERS' EQUITY:
In March 1997, Holdings announced its plan to repurchase up to $200 million
of the Company's common stock. The Company plans to purchase the shares from
time to time as market conditions warrant, with the intent of completing the
entire repurchase program by December 31, 1998. As of September 30, 1997, the
Company had repurchased approximately 3.9 million shares for $67.8 million under
the plan. In addition, a subsidiary has acquired 445,000 shares of Holdings
common stock which are also excluded from shares outstanding.
G) ACCOUNTING FOR DERIVATIVES:
1) Preferred Stock Hedge Instruments:
The Company is exposed to market value risk from changes in interest rates
for certain fixed rate sinking fund preferred and perpetual preferred stocks
(fixed rate preferred stocks) included in Investments on the Consolidated
Balance Sheets. The Company reviews the interest rate sensitivity of these
securities and purchases put options on U.S. Treasury securities (put options)
to reduce interest rate risk on preferred stocks. The Company does not purchase
or sell put options for speculative purposes. The Company's intent is to
substantially offset any change in market value of the fixed rate preferred
stocks due to a change in interest rates with a change in market value of the
put options.
-8-
<PAGE>
The preferred stocks are publicly traded securities and, as such, changes
in their fair value are reported, net of income taxes, as a separate component
of shareholders' equity. Unrealized gains and losses on the associated put
options are included in the determination of the fair value of the preferred
stocks. The fair value of the put options, including unrealized gains and
losses, included in the determination of the fair value of the preferred
securities as of September 30, 1997 and 1996 and December 31, 1996 was $1.1
million, $5.4 million and $5.1 million, respectively. Realized gains and losses
on the put options are included in Realized Gains and Losses on Securities, Net
in the Consolidated Statements of Income in the period the underlying hedged
fixed rate preferred stocks are sold.
2) Gas Futures Contracts and Swaps:
The Company uses gas futures contracts and swap contracts to reduce its
exposure to changes in the price of natural gas purchased to meet the needs of
its customers and to manage margins on natural gas storage opportunities.
Investments in natural gas futures contracts, which total $2.3 million, $0.4
million and $0.8 million as of September 30, 1997 and 1996 and December 31,
1996, are included in Receivables on the Consolidated Balance Sheets. Gains and
losses on gas futures contracts that qualify for hedge accounting are deferred
and reflected as adjustments to the carrying value of the hedged item or
included in Other Assets on the Consolidated Balance Sheets until the underlying
physical transaction is recorded if the instrument is used to hedge an
anticipated future transaction. The net gain or loss on gas futures contracts is
included in the determination of income in the same period as the expense for
the physical delivery of the natural gas. Realized gains and losses on gas
futures contracts and the net amounts exchanged or accrued under the natural gas
swap contracts are included in Cost of Gas Sold, Other Net or Nonregulated-Costs
of Sales consistent with the expense for the physical commodity. Deferred net
gains (losses) related to the Company's gas futures contracts are $2.7, $(0.2)
million and $0.8 million as of September 30, 1997 and 1996 and December 31,
1996, respectively.
The Company periodically evaluates the effectiveness of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved, the contracts
are recorded at fair value and the gains or losses are included in the
determination of income.
H) MCLEODUSA INCORPORATED INVESTMENT:
Included in investments on the consolidated balance sheets is the Company's
investment in common stock of McLeodUSA Incorporated (McLeodUSA). McLeodUSA
common stock has been publicly traded since June 14, 1996. Investor agreements
related to McLeodUSA's initial public offering and subsequent merger with
Consolidated Communications Inc. prohibit the Company from selling or otherwise
disposing of any of the common stock of McLeodUSA prior to September 24, 1998,
which is one year after the completion of the merger. As a result of the
agreements, the Company's investment was considered restricted stock and, as
such, was recorded at cost in all periods prior to September 1997. Beginning in
September 1997, the investment is no longer considered restricted for accounting
purposes, and the investment is recorded at fair value. At September 30, 1997,
the cost and fair value of the McLeodUSA investment were $45.7 million and
$325.9 million, respectively. The unrealized gain is recorded, net of income
taxes, as a separate component of common shareholders' equity. At September 30,
1997, the unrealized gain and deferred income taxes for this investment were
$280.2 million and $98.1 million, respectively.
-9-
<PAGE>
<TABLE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS NINE MONTHS TWELVE MONTHS
ENDED SEPT. 30 ENDED SEPT. 30 ENDED SEPT. 30
------------------- ---------------------- --------------------
1997 1996 1997 1996 1997 1996
-------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility.................................. $334,336 $311,169 $ 850,453 $ 840,023 $1,109,438 $1,086,681
Gas utility....................................... 60,208 72,902 352,686 354,506 534,933 501,658
-------- -------- ---------- ---------- ---------- ----------
394,544 384,071 1,203,139 1,194,529 1,644,371 1,588,339
-------- -------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Cost of fuel, energy and capacity................. 67,258 61,164 178,682 177,662 235,337 230,229
Cost of gas sold.................................. 34,320 48,300 221,252 219,725 346,541 309,558
Other operating expenses.......................... 98,686 82,357 290,984 260,126 381,032 364,631
Maintenance....................................... 24,217 24,741 70,315 68,616 90,320 90,680
Depreciation and amortization..................... 42,815 41,120 126,883 123,126 168,349 163,684
Property and other taxes.......................... 26,139 22,686 76,482 71,788 97,324 90,455
Income taxes...................................... 31,332 33,603 67,753 86,967 91,992 104,996
-------- -------- ---------- ---------- ---------- ----------
324,767 313,971 1,032,351 1,008,010 1,410,895 1,354,233
-------- -------- ---------- ---------- ---------- ----------
OPERATING INCOME.................................. 69,777 70,100 170,788 186,519 233,476 234,106
-------- -------- ---------- ---------- ---------- ----------
NON-OPERATING INCOME
Interest and dividend income...................... 358 192 1,685 1,010 2,273 1,361
Non-operating income taxes........................ (2,200) 2,654 (4,493) 2,220 (8,434) 3,723
Other, net........................................ 4,727 (7,689) 9,066 (7,285) 18,751 (7,697)
-------- -------- ---------- ---------- --------- ---------
2,885 (4,843) 6,258 (4,055) 12,590 (2,613)
-------- -------- ---------- ---------- --------- ---------
FIXED CHARGES
Interest on long-term debt........................ 18,650 19,879 57,868 59,647 77,655 79,699
Other interest expense............................ 2,382 2,550 7,824 8,180 10,486 10,744
Preferred dividends of subsidiary trust........... 1,995 - 5,985 - 6,273 -
Allowance for borrowed funds...................... (620) (830) (1,932) (3,286) (2,858) (4,872)
-------- -------- ---------- ---------- ---------- ----------
22,407 21,599 69,745 64,541 91,556 85,571
-------- -------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS................. 50,255 43,658 107,301 117,923 154,510 145,922
LOSS FROM DISCONTINUED OPERATIONS................. - (19,015) - (8,577) (1,584) (7,977)
-------- -------- ---------- ---------- ---------- ---------
NET INCOME........................................ 50,255 24,643 107,301 109,346 152,926 137,945
PREFERRED DIVIDENDS............................... 1,239 2,087 5,249 6,748 8,902 8,567
-------- -------- ---------- ---------- ---------- ---------
EARNINGS ON COMMON STOCK.......................... $ 49,016 $ 22,556 $ 102,052 $ 102,598 $ 144,024 $ 129,378
======== ======== ========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
-10-
<PAGE>
<TABLE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
AS OF
-------------------------------------------
SEPTEMBER 30 DECEMBER 31
------------------------ -----------
1997 1996 1996
---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric............................................... $4,065,411 $3,984,983 $4,013,851
Gas.................................................... 746,173 718,796 723,491
---------- ---------- ----------
4,811,584 4,703,779 4,737,342
Less accumulated depreciation and amortization......... 2,252,537 2,133,775 2,154,505
---------- ---------- ----------
2,559,047 2,570,004 2,582,837
Construction work in progress.......................... 53,236 56,452 49,305
---------- ---------- ----------
2,612,283 2,626,456 2,632,142
---------- ---------- ----------
POWER PURCHASE CONTRACT................................ 188,860 207,725 190,897
----------- ---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS.................. - 280,111 -
----------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents.............................. 7,065 16,756 84,215
Receivables............................................ 192,574 173,625 253,944
Inventories............................................ 93,142 91,061 90,864
Other.................................................. 6,024 6,666 7,776
----------- ---------- ----------
298,805 288,108 436,799
----------- ---------- ----------
INVESTMENTS............................................ 106,318 105,598 118,344
----------- ---------- ----------
OTHER ASSETS........................................... 361,807 397,582 396,471
----------- ---------- ----------
TOTAL ASSETS........................................... $3,568,073 $3,905,580 $3,774,653
========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity............................ $ 997,342 $1,238,615 $ 986,825
MidAmerican preferred securities, not subject to
mandatory redemption................................ 31,765 77,534 31,769
Preferred shares, subject to mandatory redemption:
MidAmerican preferred securities.................... 50,000 50,000 50,000
MidAmerican-obligated preferred securities of
subsidiary trust holding solely MidAmerican
junior subordinated debentures................... 100,000 - 100,000
Long-term debt (excluding current portion)............. 969,175 1,062,350 1,086,955
---------- ---------- ----------
2,148,282 2,428,499 2,255,549
---------- ---------- ----------
CURRENT LIABILITIES
Notes payable.......................................... 131,100 160,063 161,700
Current portion of long-term debt...................... 77,730 47,713 49,560
Current portion of power purchased contract............ 13,718 13,029 13,718
Accounts payable....................................... 118,436 103,300 122,974
Taxes accrued.......................................... 56,175 60,398 82,338
Interest accrued....................................... 16,062 18,524 24,245
Other.................................................. 26,438 29,532 24,452
---------- ---------- ----------
439,659 432,559 478,987
---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract................................ 97,504 112,700 97,504
Deferred income taxes.................................. 615,589 620,526 616,567
Investment tax credit.................................. 84,556 90,692 88,842
Other.................................................. 182,483 220,604 237,204
---------- ---------- ----------
980,132 1,044,522 1,040,117
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES................... $3,568,073 $3,905,580 $3,774,653
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-11-
<PAGE>
<TABLE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 50,255 $ 24,643 $107,301 $109,346
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization................................... 50,290 45,794 144,719 137,729
Net decrease in deferred income taxes and
investment tax credit, net................................... (1,686) (1,778) (5,264) (3,572)
Amortization of other assets.................................... 5,635 5,004 17,727 15,336
Income from discontinued operations............................. - 19,015 - 8,577
Other-than-temporary decline in value of investments............ - - - 2,230
Impact of changes in working capital, net of effects
from discontinued operations................................. (4,530) (30,701) 23,947 (34,695)
Other........................................................... 14,877 20,530 (10,284) 20,206
-------- -------- -------- --------
Net cash provided............................................ 114,841 82,507 278,146 255,157
-------- -------- -------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures.................................. (49,815) (35,468) (113,844) (101,061)
Quad Cities Nuclear Power Station decommissioning trust fund....... (2,779) (2,159) (7,060) (6,477)
Deferred energy efficiency expenditures............................ (5,909) (5,752) (12,258) (13,200)
Nonregulated capital expenditures.................................. (2,071) (531) (5,377) (1,804)
Investment in discontinued operations.............................. - 11,104 - 16,373
Other investing activities, net.................................... (176) (2,031) 751 (5,110)
-------- -------- -------- --------
Net cash used................................................... (60,750) (34,837) (137,788) (111,279)
-------- -------- -------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid..................................................... (21,238) (32,311) (96,749) (97,412)
Retirement of long-term debt, including reacquisition cost......... (28,102) (183) (90,155) (874)
Reacquisition of preferred shares.................................. - (1,432) (4) (12,800)
Net increase (decrease) in notes payable........................... (13,200) (6,254) (30,600) (24,737)
-------- -------- -------- --------
Net cash used................................................... (62,540) (40,180) (217,508) (135,823)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............... (8,449) 7,490 (77,150) 8,055
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD................... 15,514 9,266 84,215 8,701
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................... $ 7,065 $ 16,756 $ 7,065 $ 16,756
======== ======== ======== ========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized.......................... $ 25,525 $ 25,996 $ 68,188 $ 66,012
======== ======== ======== ========
Income taxes paid.................................................. $ 23,714 $ 28,796 $ 91,179 $ 90,066
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-12-
<PAGE>
MIDAMERICAN ENERGY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) GENERAL:
The consolidated financial statements included herein have been prepared by
MidAmerican, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and disclosures normally
included in 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, all adjustments have been made to
present fairly the financial position, the results of operations and the changes
in cash flows for the periods presented. Although MidAmerican believes that the
disclosures 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's latest Annual Report on Form 10-K.
B) ENVIRONMENTAL MATTERS:
Refer to Note B of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's environmental matters.
C) RATE MATTERS:
Refer to Note C of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's rate matters.
D) ACCOUNTING FOR THE EFFECTS OF CERTAIN TYPES OF REGULATION:
Refer to Note D of Holdings' Notes to Consolidated Financial Statements for
information regarding MidAmerican's accounting for the effects of certain types
of regulation.
E) MIDAMERICAN-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES:
Refer to Note E of Holdings' Notes to Consolidated Financial Statements for
information regarding the MidAmerican-Obligated Mandatorily Redeemable Preferred
Securities.
F) ACCOUNTING FOR DERIVATIVES:
1) Gas Futures Contracts and Swaps:
MidAmerican uses gas futures contracts and swap contracts to reduce its
exposure to changes in the price of natural gas purchased to meet the needs of
its customers and to manage margins on natural gas storage opportunities.
Investments in natural gas futures contracts, which total $2.2 million, $0.2
million, and $0.1 million as of September 30, 1997 and 1996 and December 31,
1996, are included in Receivables on the Consolidated Balance Sheets. Gains and
losses on gas futures contracts that qualify for hedge accounting are deferred
and reflected as adjustments to the carrying value of the hedged item or
included in Other Assets on the Consolidated Balance Sheets until the underlying
physical transaction is recorded if the instrument is used to hedge an
anticipated future transaction. The net gain or loss on gas futures contracts is
included in the determination of income in the same period as the expense for
the physical delivery of the natural gas.
-13-
<PAGE>
Realized gains and losses on gas futures contracts and the net amounts exchanged
or accrued under the natural gas swap contracts are included in Cost of Gas Sold
or Other Net consistent with the expense for the physical commodity. Deferred
net gains (losses) related to the Company's gas futures contracts are $2.6
million, $(0.2) million and $0.1 million as of September 30, 1997 and 1996 and
December 31, 1996, respectively
MidAmerican periodically evaluates the effectiveness of its natural gas
hedging programs. If a high degree of correlation between prices for the hedging
instruments and prices for the physical delivery is not achieved the contracts
are recorded at fair value and the gains or losses are included in the
determination of income.
-14-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
------------
COMPANY STRUCTURE
MidAmerican Energy Holdings Company (Holdings or the Company) is an exempt
public utility holding company headquartered in Des Moines, Iowa. Effective
December 1, 1996, Holdings became the parent company of MidAmerican Energy
Company (MidAmerican), MidAmerican Capital Company (MidAmerican Capital) and
Midwest Capital Group, Inc. (Midwest Capital). Prior to December 1, 1996,
MidAmerican Capital and Midwest Capital were subsidiaries of MidAmerican.
MidAmerican was formed on July 1, 1995, as a result of the merger of
Iowa-Illinois Gas and Electric Company, Midwest Resources Inc. (Resources) and
Midwest Power Systems Inc., the utility subsidiary of Resources.
MidAmerican is a public utility with electric and natural gas operations
and is the principal subsidiary of Holdings. MidAmerican Capital and Midwest
Capital are Holdings' nonregulated subsidiaries. Midwest Capital functions as a
regional business development company in MidAmerican's utility service
territory. MidAmerican Capital manages marketable securities and passive
investment activities, nonregulated wholesale and retail natural gas businesses,
rail service businesses and other energy related, nonregulated activities. The
Company completed the sale of MidAmerican Capital's oil and gas exploration and
development operations in January 1997.
DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS
The MidAmerican merger is accounted for as a pooling-of-interests. The
consolidated financial statements of MidAmerican present amounts related to
MidAmerican Capital and Midwest Capital as discontinued operations for all
periods that include months prior to December 1, 1996, in order to reflect their
transfer to Holdings in December 1996.
Management's discussion and analysis addresses the financial statements of
Holdings and MidAmerican as presented in this joint filing. Information related
to MidAmerican also relates to Holdings. Information related to MidAmerican
Capital and Midwest Capital pertains only to the discussion of the financial
condition and results of operations of Holdings. To the extent necessary,
certain discussions have been segregated to allow the reader to identify
information applicable only to Holdings.
-15-
<PAGE>
FORWARD-LOOKING STATEMENTS
From time to time, the Company or one of its subsidiaries individually may
make forward-looking statements within the meaning of the federal securities
laws that involve judgments, assumptions and other uncertainties beyond the
control of the Company 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
the Company's expectations, beliefs, future plans and strategies, anticipated
events or trends and similar comments concerning matters that are not historical
facts. Investors and other users of the forward-looking statements are cautioned
that such statements are not a guarantee of future performance of the Company
and that such forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those expressed in, or
implied by, such statements. Some, but not all, of the risks and uncertainties
include weather effects on sales and revenues, fuel prices, competitive factors,
general economic conditions in the Company's service territory, interest rates,
inflation and federal and state regulatory actions.
RESULTS OF OPERATIONS
---------------------
Holdings:
- - ---------
The following table provides a summary of the earnings contributions of the
Company's operations for each of the periods presented
<TABLE>
<CAPTION>
Periods Ended September 30
-------------------------------------------------------
Three Months Nine Months Twelve Months
---------------- ------------------ -----------------
1997 1996 1997 1996 1997 1996
------ ------ ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Income (in millions)
Continuing operations
Electric utility $ 55.8 $ 48.4 $ 90.2 $ 95.8 $ 117.2 $ 111.5
Gas utility (6.8) (6.8) 11.8 15.4 28.4 25.9
------ ------ ------- ------- ------- -------
Total 49.0 41.6 102.0 111.2 145.6 137.4
Nonregulated operations 0.7 (1.0) 6.0 2.9 (7.8) 2.3
Discontinued operations (2.8) (18.0) (2.6) (11.5) (3.9) (10.3)
------ ------ ------- ------- ------- -------
Consolidated earnings $ 46.9 $ 22.6 $ 105.4 $ 102.6 $ 133.9 $ 129.4
====== ====== ======= ======= ======= =======
Earnings Per Common Share
Continuing operations
Electric utility $ 0.57 $ 0.48 $ 0.91 $ 0.95 $ 1.18 $ 1.10
Gas utility (0.07) (0.07) 0.12 0.15 0.29 0.26
------ ------ ------- ------- ------- -------
Total 0.50 0.41 1.03 1.10 1.47 1.36
Nonregulated operations 0.01 (0.01) 0.06 0.03 (0.08) 0.02
Discontinued operations (0.03) (0.18) (0.02) (0.11) (0.04) (0.10)
------ ------ ------- ------- ------- -------
Consolidated earnings $ 0.48 $ 0.22 $ 1.07 $ 1.02 $ 1.35 $ 1.28
====== ====== ======= ======= ======= =======
</TABLE>
-16-
<PAGE>
MidAmerican:
- - ------------
The following table provides a summary of the earnings contributions of
MidAmerican's operations for each of the periods presented:
<TABLE>
<CAPTION>
Periods Ended September 30
------------------------------------------------
Three Months Nine Months Twelve Months
-------------- -------------- ---------------
1997 1996 1997 1996 1997 1996
------ ------ ------ ------- ------- -------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Earnings on Common Stock
Continuing operations
Electric utility $55.8 $48.4 $ 90.2 $ 95.8 $117.2 $111.5
Gas utility (6.8) (6.8) 11.8 15.4 28.4 25.9
----- ----- ------ ------ ------ ------
Total 49.0 41.6 102.0 111.2 145.6 137.4
Discontinued operations* -- (19.0) -- (8.6) (1.6) (8.0)
----- ----- ------ ------ ------ ------
Consolidated earnings $49.0 $22.6 $102.0 $102.6 $144.0 $129.4
===== ===== ====== ====== ====== ======
</TABLE>
* Includes the income (loss) of MidAmerican Capital and Midwest Capital
prior to their transfer to Holdings on December 1, 1996.
EARNINGS DISCUSSION
The Company's earnings per share for the 1997 three-month and nine-month
periods increased 26 cents and 5 cents, respectively, compared to the 1996
periods. Some of the significant variances which resulted in the increase are as
follows, on a Holdings per share basis:
<TABLE>
<CAPTION>
Three Months Nine Months
------------ -----------
<S> <C> <C>
MidAmerican
Net reduction in electric and gas
gross margin due to
Variation in the effect of weather $ 0.07 $ --
Customer growth 0.01 0.08
Electric retail rate reductions (0.03) (0.09)
Improvements due to other factors 0.06 0.04
Increase in nuclear O&M expenses (0.01) (0.05)
Increase in other O&M expenses (0.08) (0.14)
1996 merger proposal costs 0.05 0.05
Settlement of NPPD lawsuit 0.01 0.01
Gas procurement program award
and storage gas sale -- 0.03
Losses on reacquired preferred stock
and reacquired long-term debt -- (0.02)
Nonregulated subsidiaries continuing operations 0.02 0.03
Discontinued operations 0.15 0.09
</TABLE>
-17-
<PAGE>
Earnings for the twelve months ended September 30, 1997, increased 7 cents
per share compared to twelve months ended September 30, 1996. The impact of
discontinued operations resulted in a 6 centsper share increase. Utility
electric and gas margins increased 7 cents per share in spite of the electric
rate reductions. Losses on reacquired preferred stock reduced earnings by 2
cents per share for the 1997 twelve-month-period. For the Company's nonregulated
subsidiaries, earnings from continuing operations for the twelve months ended
September 30, 1997, decreased 3 cents per share, excluding the write-downs
discussed later in this section. Following is a discussion of several other
significant factors affecting the twelve months ended comparison.
In August 1996, the Company announced a proposal to merge with IES
Industries Inc. (IES), a holding company headquartered in Cedar Rapids, Iowa.
The IES board of directors rejected the Company's proposal in favor of a pending
merger with WPL Holdings and Interstate Power Co. (the Wisconsin Transaction).
At their September 5, 1996, annual meeting, the holders of a majority of IES
common stock voted in favor of the Wisconsin Transaction, and the Company
discontinued its attempt to merge with IES. In the effort, MidAmerican incurred
tax deductible costs of $8.7 million in 1996 which reduced earnings by 5 cents
per share for the 1996 twelve-month period.
Costs of the Company's restructuring plan implemented as part of the
process of combining its predecessors in 1995 reduced the Company's earnings by
2 cents per share for the twelve months ended September 30, 1996.
Write-downs of certain assets, primarily alternative energy projects, of
the Company's nonregulated subsidiaries reduced earnings for each of the twelve
months ended September 30. The write-downs, which reflect declines in the value
of those nonregulated investments, reduced earnings by approximately $9.4
million, or 9 cents per share, and $1.8 million, or 2 cents per share, in the
1997 and 1996 twelve-month periods, respectively. The pre-tax amounts of the
write-downs, which are included in Other, Net in the Consolidated Statements of
Income, totaled $15.6 million and $3.0 million for the 1997 and 1996
twelve-month periods ended September 30, respectively.
Discontinued Operations -
Holdings:
- - ---------
The Company is redeploying certain of its nonregulated investments as part
of its strategy of becoming the leading regional provider of energy and
complementary services. As discussed below, the Company discontinued some of its
nonregulated operations during the second half of 1996. The related income or
loss from operations and the anticipated losses on disposal are reflected as
discontinued operations in each of the periods presented in the Consolidated
Statements of Income. Net assets of the discontinued operations are separately
presented in the Consolidated Balance Sheets as Investment in Discontinued
Operations.
In the fourth quarter of 1996, the Company and KCS Energy, Inc. (KCS) of
Edison, New Jersey, signed a definitive agreement to sell a portion of the
Company's nonregulated operations to KCS for $210 million in cash and warrants
to purchase KCS common stock. The sale, which included the Company's oil and gas
exploration and development operations, was completed in January 1997. The
Company recorded an after-tax loss of $7.1 million for the transaction in 1996
and an additional $0.5 million in the first quarter of 1997.
-18-
<PAGE>
The Company has also divested a subsidiary that developed and operated a
computerized information system which facilitated real-time exchange of power in
the electric industry. The Company disposed of the investment in October 1997.
In September 1996, the Company recorded a $4.0 million anticipated after-tax
loss on disposal of those operations. The Company recorded in September 1997 an
additional $3.2 million after-tax loss on disposal.
MidAmerican:
- - ------------
MidAmerican received $15.3 million in cash in 1996 as final settlement for
the sale of a former coal mining subsidiary which was reflected as discontinued
operations in 1982 by one of MidAmerican's predecessors. The final settlement
included reacquisition by the buyer of preferred equity issued to MidAmerican
and the settlement of reclamation reserves. MidAmerican recorded an after-tax
loss on disposal of $3.3 million for the transaction in September 1996. This
transaction is included in discontinued operations in the consolidated financial
statements of MidAmerican as well as Holdings. Discontinued operations of
MidAmerican also includes the net earnings/loss of MidAmerican Capital and
Midwest Capital for periods prior to the December 1, 1996, transfer to Holdings.
UTILITY GROSS MARGIN
Electric Gross Margin:
----------------------
<TABLE>
<CAPTION>
Periods Ended September 30
--------------------------------------------------
Three Months Nine Months Twelve Months
------------ ----------- ---------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ------ ------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $334 $311 $850 $840 $1,109 $1,087
Cost of fuel, energy and capacity 67 61 179 178 235 230
----- ---- ---- ---- ------ ------
Electric gross margin $267 $250 $671 $662 $ 874 $ 857
==== ==== ==== ==== ====== ======
</TABLE>
Variations in gross margin are the result of changes in revenues due to
price and sales volume variances. Changes in the cost of electric fuel, energy
and capacity (collectively, Energy Costs) reflect fluctuations in generation
levels and mix, fuel cost, and energy and capacity purchases.
MidAmerican previously had been allowed to recover in revenues Energy Costs
from most of its electric utility customers through energy adjustment clauses
(EACs). Effective July 11, 1997, the EAC was eliminated for Iowa customers as
part of a recently approved settlement agreement in Iowa. Prior to July 11,
1997, variations in revenues collected through the EACs did not affect gross
margin or net income. With the elimination of the Iowa EAC, fluctuations in
Energy Costs now have an impact on gross margin and net income. Refer to "Rate
Matters" under the Operating Activities and Other Matters section of Liquidity
and Capital Resources for further discussion of the settlement agreement.
Electric gross margin for three months ended September 30, 1997, increased
compared to the 1996 three-month period. Though cooler than normal, temperatures
during the 1997 period were warmer than in the 1996 period. Cooler-than-normal
temperatures resulted in a $9 million reduction in electric gross margin in the
third quarter of 1997 compared to a $20 million reduction in the 1996 third
quarter. Moderate but steady growth in the number of customers and an
improvement in sales not dependent upon weather also contributed to the increase
in margin. In total, electric retail sales increased 4%. Energy Costs for the
period were below the amount recovered in rates under the new Iowa pricing plan
and resulted in an increase to gross margin of
-19-
<PAGE>
approximately $4.0 million. Reductions in electric retail rates decreased
revenues and gross margin by $5.0 million compared to the third quarter of 1996.
Reductions in electric retail service rates have affected customers in Iowa
and Illinois. In October 1996, the Illinois Commerce Commission (ICC) ordered
MidAmerican to reduce electric retail rates for its Illinois customers by 10%,
or $13.1 million in annual revenues, effective November 3, 1996. A negotiated
termination of the rate reduction proceeding left in place the initial $13.1
million annual reduction and included a second price reduction of $2.4 million
annually effective on June 1, 1997. In Iowa, MidAmerican reduced its electric
retail rates by $8.7 million effective November 1, 1996. The reduction lowered
rates to levels in MidAmerican's pricing proposal filed in June 1996. With
implementation of the approved settlement in July 1997, rates for Iowa
residential customers were reduced an additional $10.0 million annually. The
Iowa rate reductions are partially offset by a new tracking mechanism (Cooper
Tracker) for capital improvement costs at the Cooper Nuclear Station. The rate
reduction amount in the discussion of margin variance for each period is net of
the effect of the Cooper Tracker. Refer to "Rate Matters" in Liquidity and
Capital Resources later in this discussion for further information regarding the
Iowa proceeding.
Gross margin for the nine months ended September 30, 1997, improved for
reasons similar to those mentioned in the three-month discussion. Temperature
variation from normal reduced gross margin for the 1997 period by $14 million
compared to a decrease in margin of $17 million for the 1996 period.
Additionally, customer growth and increases in sales not dependent on weather
contributed to the increase. In total, electric retail sales increased 3% in the
1997 nine-month period compared to the nine months ended September 30, 1996. The
elimination of the ECA resulted in a $4.0 million increase in margin for the
1997 year to date period as well. Rate reductions reduced revenues and gross
margin by $14.3 million for the nine months ended September 30, 1997, relative
to the 1996 period.
Electric gross margin increased $17 million for the twelve months ended
September 30, 1997, compared to the 1996 period. Customer growth and an
improvement in sales not dependent upon weather contributed to the increase. The
variation in temperatures caused an increase in weather-related sales in the
1997 twelve-month period relative to the comparable 1996 period and improved
gross margin by approximately $5 million. In total, electric retail sales
increased 4% relative to the comparable 1996 twelve-month period. Revenues and
margin from non-retail sales increased due to a 19% increase in sales volumes
for the 1997 twelve-month period compared to the twelve months ended September
30, 1996. The $4.0 million benefit from the elimination of the ECA also
contributed to the improved twelve-month comparison. The rate reductions
discussed above reduced electric gross margin by $18.5 million for the twelve
months ended comparison.
Gas Gross Margin:
----------------
<TABLE>
<CAPTION>
Periods Ended September 30
---------------------------------------------
Three Months Nine Months Twelve Months
------------ ----------- -------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 60 $ 73 $353 $355 $535 $502
Cost of gas sold 34 48 221 220 347 310
---- ---- ---- ---- ---- ----
Gas gross margin $ 26 $ 25 $132 $135 $188 $192
==== ==== ==== ==== ==== ====
</TABLE>
-20-
<PAGE>
Variations in gas gross margin are the result of changes in revenues due to
price and sales volume variances. MidAmerican has been allowed to recover in
revenues the cost of gas sold from most of its gas utility customers through
purchase gas adjustment clauses (PGAs). Variations in revenues collected through
the PGAs, reflecting changes in the cost of gas per unit and volumes sold, do
not affect gross margin or net income.
Gas gross margin for the three months ended was relatively unchanged. The
decrease in revenues and cost of gas was due primarily to a decrease in the cost
of gas per unit.
Gas gross margin for the nine months ended September 30, 1997, decreased $3
million compared to the 1996 nine-month period due primarily to warmer
temperatures in 1997. Weather in the first quarter of 1997 was milder than
normal resulting in a $1 million decrease in gas gross margin while weather in
the 1996 first quarter was colder than normal, contributing $2 million to the
gas margin for that period. Retail sales of natural gas decreased 7% compared to
the nine months ended September 30, 1996.
Gas gross margin decreased $4 million for the twelve months ended September
30, 1997, compared to the 1996 period. Retail sales of natural gas decreased 6%
compared to twelve months ended September 30, 1996. The decrease is due
primarily to the impact of weather. The increase in revenues and cost of gas was
due to an increase in the cost of gas per unit.
UTILITY OPERATING EXPENSES
Utility other operating expenses increased for three, nine and twelve
months ended September 30, 1997, compared to the 1996 periods due in part to
increases of $3.9 million, $8.5 million and $5.8 million, respectively, in
nuclear operating costs. For the nine and twelve-month periods, the increase was
due primarily to increases at the Quad Cities Nuclear Station (Quad Cities
Station). Operating expenses related to Cooper Nuclear Station (Cooper)
increased in part due to the ratemaking treatment for Cooper capital
improvements. As a result of 1996 and 1997 rate settlements, Cooper capital
improvements are now expensed when incurred, instead of being capitalized. As
mentioned previously in the Electric Gross Margin section, MidAmerican is now
recovering on a current basis the Iowa portion of these costs from its Iowa
electric customers. This change accounted for $2.5 million of the nuclear
operating expense increase in the nine and twelve-month periods and $1.9 million
of the increase for the quarter.
In addition, the 1997 periods reflect increases in marketing salaries and
expenses, consulting services fees, uncollectible accounts expense, employee
incentive compensation, manufactured gas plant cleanup costs and certain
employee benefits expenses. Each of the 1997 periods reflects an increase in
transmission wheeling expense due to activities which also produced additional
revenues. The increases for the twelve months ended September 30, 1997, were
partially offset by a $2.8 million decrease due to restructuring costs included
in the 1996 twelve-month period.
Maintenance expenses decreased slightly for three months and twelve months
ended September 30, 1997, and increased $1.7 million for the 1997 nine-month
period relative to their comparable 1996 periods. Maintenance expenses at the
Quad Cities Station decreased $1.9 million for the 1997 quarter compared to the
1996 third quarter. For the 1997 nine-month and twelve-month periods,
maintenance expenses at the Quad Cities Station increased $0.6 million and $2.1
million, respectively, compared to the 1996 periods. There was a moderate
increase in non-nuclear maintenance expenses for the three-month and nine-month
comparisons. Steam power maintenance increased $3.4 million for the twelve-month
comparison, but was offset by a $6.2
-21-
<PAGE>
million reduction from an adjustment in the 1996 fourth quarter to align
inventory accounting of predecessor companies.
Based on information currently available, MidAmerican expects 1997 nuclear
operations and maintenance expenses to be $12-14 million above the 1996 level
due in part to scheduled outage costs, the change in treatment for Cooper
capital additions and other activities at the Quad Cities Station and Cooper.
MidAmerican is a 25% owner of the Quad Cities Station and purchases 50% of the
output of Cooper under a power sales contract. MidAmerican does not operate
either of the facilities. Actual nuclear operations and maintenance expenses
could differ significantly from the expected level due to, but not limited to,
unplanned outages, additional maintenance needs or regulatory intervention.
Property taxes increased $3.0 million, $3.8 million and $4.7 million for
the three, nine and twelve months ended September 30, 1997, respectively,
compared to the 1996 periods, due to an increase in assessed value.
NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES
Holdings:
- - ---------
Revenues of MidAmerican Capital and Midwest Capital decreased $4.5 million
for the third quarter of 1997 compared to the 1996 third quarter due to a 21%
decrease in sales volumes of nonregulated natural gas marketing subsidiaries.
For the nine-month and twelve-month periods ended September 30, 1997, revenues
of MidAmerican Capital and Midwest Capital increased a total of $73.4 and $140.4
million, compared to the respective 1996 periods. Revenues from the natural gas
marketing subsidiaries increased $74.5 million and $138.8 million for the
nine-month and twelve-month periods, respectively. Sales volumes for the natural
gas marketing firms increased 23 million MMBtu's (48%) and 50 million MMBtu's
(86%) for the 1997 nine and twelve months ended September 30 compared to the
1996 periods.
Cost of sales includes expenses directly related to sales of natural gas. A
fluctuation in gas sales volumes was the primary cause of the variance in the
cost of sales for each 1997 period compared to the 1996 periods. The average
cost of gas per unit also increased for each of the 1997 periods.
Compared to the 1996 periods, total gross margin on nonregulated natural
gas sales increased $0.3 million and $0.4 million for the three months and nine
months ended September 30, 1997, and decreased $0.8 million for the twelve-month
period.
NON-OPERATING INCOME AND INTEREST EXPENSE
MidAmerican:
- - ------------
Other, Net -
In September 1997, MidAmerican received a $15 million cash payment from
Nebraska Public Power District (NPPD) as settlement for a lawsuit filed by
MidAmerican against NPPD. Approximately $12 million is being refunded to
MidAmerican's customers. The remaining amount was retained by MidAmerican for
recovery of litigation costs in the lawsuit. Other, Net for each 1997 period
presented reflects $2.2 million of pre-tax income for recovery of litigation
costs incurred in prior years. (Refer to "Cooper Litigation I", in Part II, Item
1, of this document for additional information.)
-22-
<PAGE>
Other, Net for each of the 1996 periods includes approximately $8.7 million
of expenses for costs incurred by MidAmerican for its merger proposal to IES
Industries Inc. in 1996.
In the fourth quarter of 1996, MidAmerican recorded an award of $2.7
million of pre-tax income as a result of successful performance under its
incentive gas procurement program during the 1995-1996 heating season.
MidAmerican was awarded $1.7 million of pre-tax income in the second quarter of
1997 for its performance under the program during the May to October 1996
period.
In the first quarter of 1996, MidAmerican recorded a $2.2 million reserve
for an inventory dispute with a vendor. Following successful resolution of the
dispute in the fourth quarter of 1996, MidAmerican reversed the reserve and
recorded an initial pre-tax gain of $3.2 million on its sale of the related
storage gas supplies. MidAmerican reflected an additional $0.8 million gain in
the second quarter of 1997 after receiving favorable treatment on the
transaction from the Iowa Utilities Board (IUB). The impact of these
transactions on the comparison of Other, Net between the nine and twelve months
ended September 30 periods was an increase in income for the 1997 periods over
the 1996 periods of $3.0 million and $8.4 million, respectively.
In addition, the recognition of deferred income from energy efficiency
programs and income from gas marketing activities increased in each of the 1997
periods compared to the respective 1996 periods.
Interest Charges -
A decrease in the average amount of commercial paper outstanding compared
to the 1996 periods resulted in a decrease in related other interest expense for
the 1997 periods. The decreases for the 1997 nine-month and twelve-month periods
ended September 30 were partially offset by interest expense related to IRS
settlements in the second quarter of 1997.
Holdings:
- - ---------
Dividend Income
Dividend income decreased for the 1997 periods due MidAmerican Capital's
reduced holdings of preferred stock portfolios as discussed below.
Realized Gains and Losses on Securities, Net -
Net realized gains on securities decreased for the 1997 nine-month and
twelve-month periods compared to the 1996 periods. During the first quarter of
1996, MidAmerican Capital began liquidation of certain common equity fund
holdings, realizing gains on such sales. Losses on liquidation of managed
preferred stock portfolios in the last three months of 1996 resulted in a net
loss on securities for the twelve months ended September 30, 1997.
Other, Net -
As discussed in the "Earnings" section at the beginning of Results of
Operations, write-downs of nonregulated investments decreased Other, Net by
$15.6 million and $3.0 million for the 1997 and 1996 twelve months ended
September 30 periods, respectively. In the third quarter of 1996, Midwest
Capital recorded a $1.8 million pre-tax gain on the sale of a building which was
previously written-down in
-23-
<PAGE>
expectation of a lower market value. Each of the period comparisons was also
affected by reductions in the 1997 periods of income from equity investments due
to liquidation activity discussed above.
INCOME TAXES
Holdings:
- - ---------
During the second quarter of 1997, the Company contributed part of an
appreciated common stock investment to its tax exempt foundation and realized
$2.9 million of tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has available a variety of sources of liquidity and capital
resources, both internal and external. These resources provide funds required
for current operations, construction expenditures, dividends, debt retirement
and other capital requirements.
As reflected on the Consolidated Statements of Cash Flows, for the first
nine months of 1997, Holdings had net cash provided from operating activities of
$299 million compared to $277 million for the same period in 1996. MidAmerican's
net cash provided from operating activities was $278 million for the first nine
months of 1997 and $255 million for the first nine months of 1996.
INVESTING ACTIVITIES AND PLANS
MidAmerican:
- - ------------
MidAmerican's primary need for capital is utility construction
expenditures. For the first nine months of 1997, utility construction
expenditures totaled $114 million, including allowance for funds used during
construction (AFUDC), Quad Cities Station nuclear fuel purchases and Cooper
capital improvements. All such expenditures were met with cash generated from
utility operations, net of dividends.
Beginning with July 1997 expenditures, Cooper capital improvements are no
longer included in utility construction expenditures but are expensed when
incurred in Other Operating Expenses. As part of the recent settlement of
MidAmerican's pricing proposal, MidAmerican is recovering on a current basis the
Iowa portion of Cooper capital improvements from its Iowa electric customers
through a tracking mechanism.
Forecasted utility construction expenditures for 1997 are $200 million
including AFUDC. Capital expenditures needs are reviewed regularly by
MidAmerican's management and may change significantly as a result of such
reviews. For the years 1997 through 2001, MidAmerican forecasts $840 million for
utility construction expenditures. MidAmerican presently expects that all
utility construction expenditures for 1997 through 2001 will be met with cash
generated from utility operations, net of dividends. The actual level of cash
generated from utility operations is affected by, among other things, economic
conditions in the utility service territory, weather and federal and state
regulatory actions.
Operators of a nuclear facility are required to set aside funds to provide
for costs of future decommissioning of their nuclear facility. In general,
decommissioning of a nuclear facility means to safely remove the facility from
service and restore the property to a condition allowing unrestricted use by the
operator. Based on information presently available, MidAmerican expects to
contribute approximately $47 million during the period 1997 through 2001 to an
external trust established for the investment of funds for
-24-
<PAGE>
decommissioning the Quad Cities Station. Currently, a majority of the funds are
invested in investment grade municipal and U.S. Treasury bonds. In 1997,
MidAmerican directed the trust to begin investing a portion of the funds in
domestic corporate debt and common equity securities. Approximately 30% of the
trust's funds are now invested in domestic corporate debt and common equity
securities. In addition, MidAmerican makes payments to Nebraska Public Power
District (NPPD) related to decommissioning Cooper. These payments are reflected
in Other Operating Expenses in the Consolidated Statements of Income. Based on
NPPD estimates, MidAmerican expects to pay approximately $57 million to NPPD for
Cooper decommissioning during the period 1997 through 2001. NPPD invests the
funds predominantly in U.S. Treasury Bonds. MidAmerican's obligation for Cooper
decommissioning may be affected by the actual plant shutdown date and the status
of the power purchase contract at that time. See Part II, Item 1 Legal
Proceedings for a discussion of a lawsuit filed by NPPD seeking a declaration of
MidAmerican's rights and obligations in connection with Cooper nuclear
decommissioning funding. MidAmerican currently recovers Quad Cities Station
decommissioning costs charged to Illinois customers through a rate rider on
customer billings. Cooper and Quad Cities Station decommissioning costs charged
to Iowa customers are included in base rates, and recovery of increases in those
amounts must be sought through the normal ratemaking process.
Holdings:
- - ---------
Capital expenditures of nonregulated subsidiaries were $10 million for the
first nine months of 1997. Capital expenditures of nonregulated subsidiaries
depend primarily upon the availability of suitable investment opportunities
which meet the Company's objectives. The Company continues to evaluate
nonstrategic, nonregulated investments and may redeploy certain assets in the
next year. External financing may also be used to provide for nonregulated
capital expenditures.
MidAmerican Capital invests in a variety of marketable securities which it
holds for indefinite periods of time. In the Consolidated Statements of Cash
Flows, the lines Purchase of Securities and Proceeds from Sale of Securities
consist primarily of the gross amounts of these activities, including realized
gains and losses on investments in marketable securities.
Included in investments on the consolidated balance sheets is the Company's
investment in common stock of McLeodUSA Incorporated (McLeodUSA). McLeodUSA
common stock has been publicly traded since June 14, 1996. Investor agreements
related to McLeodUSA's initial public offering and subsequent merger with
Consolidated Communications Inc. prohibit the Company from selling or otherwise
disposing of any of the common stock of McLeodUSA prior to September 24, 1998,
which is one year after the completion of the merger. As a result of the
agreements, the Company's investment was considered restricted stock and, as
such, was recorded at cost in all periods prior to September 1997. Beginning in
September 1997, the investment is no longer considered restricted for accounting
purposes, and the investment is recorded at fair value. At September 30, 1997,
the cost and fair value of the McLeodUSA investment were $45.7 million and
$325.9 million, respectively. The unrealized gain is recorded, net of income
taxes, as a separate component of common shareholders' equity. At September 30,
1997, the unrealized gain and deferred income taxes for this investment were
$280.2 million and $98.1 million, respectively.
MidAmerican Capital has received approximately $28 million from 1997 sales
of most of its venture capital funds. Most of the proceeds of these sales have
been transferred to Holdings by way of a dividend for use in the repurchase of
the Company's common stock.
-25-
<PAGE>
FINANCING ACTIVITIES, PLANS AND AVAILABILITY
MidAmerican:
- - ------------
MidAmerican currently has authority from the Federal Energy Regulatory
Commission (FERC) to issue short-term debt in the form of commercial paper and
bank notes aggregating $400 million. As of September 30, 1997, MidAmerican had a
$250 million revolving credit facility agreement and a $10 million line of
credit to provide short-term financing for utility operations. MidAmerican's
commercial paper borrowings, which totaled $131 million at September 30, 1997,
are supported by the revolving credit facility and the line of credit.
MidAmerican also has a revolving credit facility which is dedicated to provide
liquidity for its obligations under outstanding pollution control revenue bonds
that are periodically remarketed.
During 1996, MidAmerican redeemed all shares of its $1.7375 Series of
preferred securities. In October 1996, MidAmerican reacquired $28 million of its
6.95% Series first mortgage bonds due 2025 and $3.5 million of its 7.45% Series
first mortgage bonds due 2023. In December 1996, MidAmerican issued $103 million
of 7.98% Series subordinated debt debentures to a subsidiary statutory business
trust which in turn issued $100 million of 7.98% Series A redeemable preferred
securities. MidAmerican also issued in December 1996 $100 million of 6 1/2%
Medium-Term Notes due 2001. Proceeds from these financings were used to redeem
all $40 million of MidAmerican's 8.15% Series first mortgage bonds due 2001 and
the remaining $45.8 million of $1.7375 Series preferred securities mentioned
above. The balance of the proceeds was used to reduce commercial paper
outstanding.
During the first nine months of 1997, MidAmerican repurchased $42.4 million
of first mortgage bonds with annual interest rates from 6.95% to 7.70%.
MidAmerican currently has regulatory authority to issue an additional $300
million of preferred securities and long-term debt, including issues under its
medium-term note program. It is management's intent to refinance certain
MidAmerican debt securities with additional issuances of unsecured debt and
preferred securities of a subsidiary trust as market conditions allow.
As of September 30, 1997, MidAmerican had $401 million of long-term debt
maturities and sinking fund requirements for 1997 through 2001.
Credit Ratings -
MidAmerican's access to external capital and its cost of capital are
influenced by the credit ratings of its securities. MidAmerican's credit ratings
as of November 1, 1997, are shown in the table below. The ratings reflect only
the views of such rating agencies, and each rating should be evaluated
independently of any other rating. Generally, rating agencies base their ratings
on information furnished to them by the issuing company and on investigation,
studies and assumptions by the rating agencies. There is no assurance that any
particular rating will continue for any given period of time or that it will not
be changed or withdrawn entirely
-26-
<PAGE>
if in the judgment of the rating agency circumstances so warrant. Such ratings
are not a recommendation to buy, sell or hold securities.
<TABLE>
<CAPTION>
Moody's
Investors Standard
Service & Poor's
--------- --------
<S> <C> <C>
Mortgage Bonds A2 A+
Unsecured Medium-Term Notes A3 A
Preferred Stocks a3 A
Commercial Paper P-1 A-1
</TABLE>
Preferred Dividends -
Preferred dividends include net gains or losses on the reacquisition of
MidAmerican preferred shares. Net losses on reacquisitions totaled zero, $1.4
million and $2.7 million for the 1997 three-month, nine-month and twelve-month
periods, respectively, and zero, $0.3 million and $0.3 million for the
comparable 1996 periods. Excluding these losses, preferred dividends increased
for the 1997 periods compared to the 1996 periods due to the increase in
preferred stock outstanding.
Holdings:
- - ---------
As of September 30, 1997, Holdings had lines of credit totaling $75 million
available to provide for short-term financing needs.
In addition, Holdings has the necessary authority to issue shares of its
common stock through its Shareholder Options Plan (a dividend reinvestment and
stock purchase plan). Since July 1, 1995, the Company has used open market
purchases of its common stock rather than original issue shares to meet share
obligations under its Employee Stock Purchase Plan and the Shareholder Options
Plan. Holdings currently plans to continue using open market purchases to meet
share obligations under these plans.
In March 1997, Holdings announced its plan to repurchase up to $200 million
of the Company's common stock. The Company plans to purchase the shares from
time to time as market conditions warrant, with the intent of completing the
entire repurchase program by December 31, 1998. As of September 30, 1997, the
Company had repurchased approximately 3.9 million shares for $67.8 million. In
addition, a subsidiary has acquired 445,000 shares of Holdings common stock
which are also excluded from shares outstanding.
On October 29, 1997, Holdings' board of directors declared a quarterly
dividend on common shares of $0.30 per share payable December 1, 1997. The
dividend represents an annual rate of $1.20 per share.
As of September 30, 1997, MidAmerican Capital had unsecured revolving
credit facilities in the amount of $114 million. Currently MidAmerican Capital
has a zero balance outstanding under these facilities. MidAmerican Capital has
$112 million of long-term debt maturities and sinking fund requirements for 1997
through 2001.
Midwest Capital currently has a $25 million line of credit with
MidAmerican, of which $5 million was outstanding at September 30, 1997.
-27-
<PAGE>
OPERATING ACTIVITIES AND OTHER MATTERS
The Company continues to adjust its strategies and operations for changes
it expects in the electric utility industry. The merger that resulted in
MidAmerican and the subsequent reorganization of utility operations were some of
the first steps taken to better position the Company for competition. The
following discussion addresses some of the changes affecting the industry and
actions the Company is taking to better position itself as the industry evolves.
Holdings:
- - ---------
During 1996, the Company began to reevaluate its nonregulated investments.
Through the evaluation process, management will determine which investments fit
the Company's objectives and which should be divested. The method of divestiture
could include alternatives from finding an immediate buyer to holding the
investment until maturity. The evaluation of nonregulated investments has
resulted in a net reduction in earnings since the Company began the process in
1996. Losses on disposal of discontinued nonregulated operations and the
write-downs discussed in the "Earnings" section of this discussion account for
substantially all of the reductions. The Company expects the process will
continue for the next year and could result in additional losses if the Company
decides to divest of investments for less than carrying value.
MidAmerican:
- - ------------
Regulatory Evolution and Competition -
MidAmerican is subject to regulation by several utility regulatory
agencies. The operating environment and the recoverability of costs from utility
customers are significantly influenced by the regulation of those agencies.
MidAmerican supports changes in the electric utility industry that will create a
more competitive environment for the entire electric industry, as long as
appropriate transitional steps are in place to accommodate moving from a
regulated cost-of-service industry to a competitive industry. Although these
anticipated changes may create opportunities, they will also create additional
challenges and risks for utilities.
MidAmerican has been authorized in an order from the IUB approving the
electric pricing settlement to enter into long-term contracts with industrial
and commercial customers. MidAmerican is, and will be, negotiating long-term
contracts with several of its industrial and commercial customers. In addition
to initiating a brand identity advertising campaign within MidAmerican's service
territory, MidAmerican is investigating potential complementary products and
services it can provide in preparation for opportunities expected to be
available in a competitive utility retail market.
In October 1997 the IUB adopted rules to encourage gas transportation
service for small volume customers starting in 1999. MidAmerican has until
November 15, 1998, to file its own plan to unbundle service for its small volume
customers. MidAmerican presently believes that these rules will not have a
material impact on its results of operations.
On October 30, 1997, the Illinois Senate passed a bill to restructure
Illinois' electric industry. The bill must go before the Illinois House of
Representatives, which previously passed a similar bill, and, if approved, be
signed by the Governor. The bill provides for residential electric rate
reductions, but MidAmerican is granted credit for rate reductions implemented in
Illinois in 1996 and 1997. In addition, the bill provides for a sharing between
customers and shareholders if MidAmerican's Illinois electric returns on common
equity exceed an amount determined by a formula in the statute. MidAmerican is
assessing the impact of the
-28-
<PAGE>
legislation on its operations, but, at this time, does not believe the foregoing
provisions will have a material impact on its Illinois results of operations or
financial condition.
In Iowa, no legislation has been introduced to allow generation or retail
service competition.
In April 1996, the FERC issued Order Nos. 888 and 889 which require public
utilities and other transmission providers and users to provide other companies
the same transmission access, service and pricing that they provide themselves.
In compliance with Order 888, which was effective July 9, 1996, MidAmerican has
filed a pro forma open access transmission tariff and is currently operating
under it. In May 1997, MidAmerican filed revisions to the tariff in accordance
with Order No. 888-A which was issued in March 1997. In accordance with Order
889, which was effective January 3, 1997, MidAmerican has separated its electric
wholesale marketing and transmission operation functions. Order 889 establishes
standards of conduct for this functional separation and further requires
transmission providers such as MidAmerican to either create or participate in an
Open Access Same Time Information System (OASIS). MidAmerican is a long-time
member of the Mid-Continent Area Power Pool (MAPP) and has elected to
participate in the MAPP OASIS.
A possible consequence of competition in the utility industry is that
Statement of Financial Accounting Standards (SFAS) No. 71 may no longer apply.
SFAS 71 sets forth accounting principles for operations that are regulated and
meet certain criteria. For operations that meet the criteria, SFAS 71 allows,
among other things, the deferral of costs that would otherwise be expensed when
incurred. MidAmerican's electric and gas utility operations currently meet the
criteria required by SFAS 71, but its applicability is periodically reexamined.
If a portion of MidAmerican's utility operations no longer meets the criteria of
SFAS 71, MidAmerican would be required to eliminate from its balance sheet the
assets and liabilities related to those operations that resulted from actions of
its regulators. Although the amount of such an elimination would depend on the
specific circumstances, a material adjustment to earnings in the appropriate
period could result from the discontinuance of SFAS 71. As of September 30,
1997, MidAmerican had $357 million of regulatory assets in its Consolidated
Balance Sheet.
Energy Efficiency -
MidAmerican's regulatory assets as of September 30, 1997, included $116.4
million of deferred energy efficiency costs. MidAmerican is currently collecting
amounts related to $16.1 million of that total in accordance with previously
received approvals. On September 29, 1997, MidAmerican received approval from
the IUB to begin recovery of the remaining deferred energy efficiency costs,
effective immediately. Accordingly, $95.1 million will be collected over a
four-year period, along with a return of $26.6 million on those costs.
MidAmerican also received approval to recover current energy efficiency costs,
which are expected to be $18.5 million for the period May 1997 through April
1998. The projected $18.5 million of current costs, $5.3 million of which were
deferred from May through September 1997, will be collected in the twelve-month
period ending in September 1998. The filing is subject to periodic prudence
reviews by the IUB. Deferred and current energy efficiency costs will be
reflected in operating expenses over the related periods of recovery.
Rate Matters -
On June 4, 1996, MidAmerican filed an electric pricing proposal in Iowa and
Illinois. The proposal was later withdrawn in Illinois following negotiation of
a settlement in a related Illinois proceeding. The settlement resulted in annual
reductions of $13.1 million and $2.4 million, effective November 3, 1996, and
June 1, 1997, respectively.
-29-
<PAGE>
On June 27, 1997, the IUB issued an order in a consolidated rate proceeding
involving MidAmerican's pricing proposal and a filing by the Iowa Office of
Consumer Advocate (OCA). The order approved a March 1997 settlement agreement
between MidAmerican, the OCA and other parties to the proceeding. The agreement
includes a number of characteristics of MidAmerican's pricing proposal. Prices
for residential customers were reduced $8.5 million annually and $10.0 million
annually, effective November 1, 1996, and July 11, 1997, respectively, and will
be reduced an additional $5.0 million annually on June 1, 1998, for a total
annual decrease of $23.5 million. Rates for commercial and industrial customers
will be reduced a total of $10 million annually by June 1, 1998, through pilot
projects, negotiated rates with individual customers and, if needed, a base rate
reduction effective June 1, 1998. The agreement includes a tracking mechanism to
currently recover the cost of capital improvements required by the Cooper
Nuclear Station Power Purchase Contract. The tracking mechanism will offset
approximately $9 million of these reductions.
In addition, the agreement accepts MidAmerican's proposal to eliminate the
energy adjustment clause (EAC) which was the mechanism through which fuel costs
were collected from Iowa customers prior to July 11, 1997. The EAC flowed the
cost of fuel to customers on a current basis, and thus, fuel costs had little
impact on net income. Prospectively, base rates for Iowa customers will include
a factor for recovery of a representative level of fuel costs. To the extent
actual fuel costs vary from that factor, pre-tax earnings will be impacted. The
fuel cost factor will be reviewed in February 1999 and adjusted prospectively if
actual fuel costs vary 15% above or below the factor included in base rates.
Under the agreement, if MidAmerican's annual return on common equity
exceeds 12%, then an equal sharing between customers and shareholders of
earnings above the 12% level begins; if it exceeds 14%, then two-thirds of
MidAmerican's share of those earnings will be used for accelerated recovery of
certain regulatory assets. The agreement permits MidAmerican to file for
increased rates if the return falls below 9%. Other parties signing the
agreement are prohibited from filing for reduced rates prior to 2001 unless the
return, after reflecting credits to customers, exceeds 14%.
The agreement also provides that MidAmerican will develop a pilot program
for a market access service which allows customers with at least 4 MW of load to
choose energy suppliers. The pilot program, which is subject to approval by the
IUB and the FERC, is limited to 60 MW of participation the first year and can be
expanded by 15 MW annually until the conclusion of the program. Any loss of
revenues associated with the pilot program will be considered part of the $10
million annual reduction for commercial and industrial customers but may not be
recovered from other customer classes. The program was filed with the IUB and
the FERC in September 1997. MidAmerican anticipates that the necessary approvals
will be received before the end of the second quarter of 1998.
Environmental Matters -
The United States Environmental Protection Agency (EPA) and state
environmental agencies have determined that contaminated wastes remaining at
certain decommissioned manufactured gas plant facilities may pose a threat to
the public health or the environment if such contaminants are in sufficient
quantities and at such concentrations as to warrant remedial action.
The Company is evaluating 26 properties which were, at one time, sites of
gas manufacturing plants in which it may be a potentially responsible party
(PRP). The purpose of these evaluations is to determine whether waste materials
are present, whether such materials constitute an environmental or health risk,
and whether the Company has any responsibility for remedial action. The
Company's present estimate of probable remediation costs for these sites is $23
million. This estimate has been recorded as a liability and a regulatory
-30-
<PAGE>
asset for future recovery through the regulatory process. Refer to Note (B) of
Notes for further discussion of the Company's environmental activities related
to manufactured gas plant sites and cost recovery.
Although the timing of potential incurred costs and recovery of such cost
in rates may affect the results of operations in individual periods, management
believes that the outcome of these issues will not have a material adverse
effect on the Company's financial position or results of operations.
On July 18, 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards for ozone and a new standard for fine particulate matter.
Based on data to be obtained from monitors located throughout the states, the
EPA will make a determination of whether the states have any areas that do not
meet the air quality standards (i.e., areas that are classified as
nonattainment). If a state has area(s) classified as nonattainment area(s), the
state is required to submit a State Implementation Plan specifying how it will
reach attainment of the standards through emission reductions or other means.
The impact of the new standards on MidAmerican will depend on the
attainment status of the areas surrounding MidAmerican's operations and
MidAmerican's relative contribution to the nonattainment status. If
MidAmerican's operations contribute to nonattainment and modifications to
MidAmerican's operations or facilities are necessary, the cost of making
emissions reductions to meet the air quality standards will be dependent upon
the level of emissions reductions required and the available technology.
MidAmerican will continue to evaluate the potential impact of the new
regulations.
Coal Deliveries -
A coal transportation provider of MidAmerican has been experiencing
nationwide operational problems. Consequently, coal deliveries to MidAmerican's
Neal station have been delayed resulting in reduced coal inventory at that site.
MidAmerican has discussed the situation with the transportation provider and has
received assurance that adequate deliveries can be made to the four Neal units.
If deliveries decrease or cease, MidAmerican's off-system sales may be adversely
affected. It is not expected that sales to retail customers will be affected.
Quad Cities Nuclear Station Outage -
Commonwealth Edison Company (ComEd), operator and 75% owner of Quad Cities
Station Units 1 and 2, has extended a scheduled outage at Unit 2 pending
resolution of concerns expressed by the Nuclear Regulatory Commission relating
to safety systems and procedures common to both units. ComEd has until December
2, 1997, to complete the necessary modifications to Unit 1. During the extended
outage of Unit 2 or a possible outage of Unit 1, MidAmerican will be required,
at different times and to varying extents, to operate more expensive units,
purchase more off-system energy and/or curtail off-system sales. The use of the
more expensive replacement power could result in reduced off-system sales
opportunities and lower margins on those sales.
Other Matters -
MidAmerican has initiated an incentive compensation plan which covers all
of its salaried employees. One goal in the plan is achievement of a designated
threshold earnings target. The 1997 earnings target, which was established by
management, reflects a 12.9% return on average common equity for MidAmerican.
-31-
<PAGE>
YEAR 2000
The Company has undertaken an extensive project to ensure the ability of
its information technology systems, including hardware, software and
applications programs, to perform correctly on January 1, 2000. The Company, in
addition to its internal resources, has engaged independent contractors to
assist with the conversion project. The project timetable specifies completion
of all conversion work and testing sufficiently in advance of January 1, 2000 to
identify any residual concerns. Although management believes that the project
will be completed within the required time frame, unforeseen and other factors,
including failure of the contractors to perform, could cause delays in the
project, the results of which could be material to the Company.
ACCOUNTING ISSUES
The staff of the Securities and Exchange Commission has questioned certain
of the current accounting practices of the electric utility industry regarding
the recognition, measurement and classification of nuclear decommissioning costs
in the financial statements. In response to these questions, the FASB has issued
an Exposure Draft, "Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets," which addresses the accounting for closure and
removal costs, including decommissioning of nuclear power plants. If current
electric utility industry accounting practices for such decommissioning are
changed, the annual provision for decommissioning could increase relative to the
current level, and the total estimated cost for decommissioning could be
recorded as a liability with recognition of an increase in the cost of related
nuclear power plant. Due to the continuing evolution of the exposure draft, the
Company is uncertain as to the impact on its results of operations and financial
position.
The Financial Accounting Standards Board has issued SFAS No. 128 and SFAS
No. 130. SFAS 128, which addresses the calculation of earnings per share, is
effective for periods ending after December 15, 1997. The standard is not
expected to have a material effect on the Company's calculation of earnings per
share. SFAS 130, which is effective for fiscal years beginning after December
15, 1997, requires that all items required to be recognized under accounting
standards as changes in equity during a period, except those resulting from
investments by owners and distributions to owners, be reported in a financial
statement that is displayed with the same prominence as the other financial
statements. The display can be a separate statement or an addition to an
existing statement. The material components of the Company's comprehensive
income will include net income and the aftertax effect of changes in the fair
value of investments classified as available for resale.
-32-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries have no material legal proceedings
except for the following:
Environmental Matters
- - ---------------------
For information relating to the Company's Environmental Matters,
reference is made to Part I, Note (B) of Holdings' Notes to Consolidated
Financial Statements.
Cooper Litigation I
- - -------------------
On May 26, 1995, the Company filed a lawsuit naming Nebraska Public
Power District (NPPD) as defendant. The action was filed in the U.S. District
Court for the Southern District of Iowa and was identified as No. 4-95-CV-80356.
The legal proceeding was based upon a long-term power purchase agreement between
the Company and NPPD, pursuant to which the Company purchases one-half the
output of NPPD's Cooper Nuclear Station (Cooper) and pays one-half the cost of
operating Cooper. NPPD, in turn, is obligated to operate the plant in an
efficient and economical manner consistent with good business and utility
practices and in compliance with the terms of its operating license issued to it
by the Nuclear Regulatory Commission (NRC). In 1993 and 1994, as a response to
NPPD actions, the NRC issued numerous notices of violations to NPPD; as a result
of these violations and other safety issues identified by the NRC and NPPD,
Cooper experienced unplanned outages and outages were unduly extended. NPPD's
failure to meet its obligations with respect to the operation of Cooper deprived
the Company of the benefits it was entitled to under the power purchase
contract, causing the Company to lose profits and incur increased costs of
operation. Similar litigation has been filed against NPPD by the Lincoln
Electric System (LES), a municipal utility serving the City of Lincoln,
Nebraska, and purchasing one-eighth of the output of Cooper pursuant to a
similar power purchase contract. The LES legal proceeding is pending in Nebraska
state court.
MidAmerican and NPPD reached an agreement settling the parties'
disputes and resolving MidAmerican's claims without the need for a trial. Under
the settlement, NPPD paid MidAmerican $15 million on September 2, 1997.
MidAmerican retained approximately $3 million for recovery of expert and
attorney fees, and is refunding approximately $12 million to its customers. The
parties also amended the existing power purchase contract. The amendment
concerns operating standards at the plant.
MidAmerican dismissed the lawsuit, with prejudice.
Cooper Litigation II
- - --------------------
On July 23, 1997, NPPD filed a Complaint, in the United States District
Court for the District of Nebraska, naming MidAmerican as the defendant and
seeking declaratory judgment as to three issues under the parties' long-term
power purchase agreement for Cooper capacity and energy. More specifically, NPPD
seeks a declaratory judgment in the following respects: (1) that MidAmerican is
obligated to pay 50% of all costs and expenses associated with decommissioning
Cooper, and that in the event NPPD continues to operate Cooper after expiration
of the power purchase agreement (September, 2004), MidAmerican is not entitled
to reimbursement of any decommissioning funds it has paid to date or will pay in
the future; (2) that the current method of allocating transition costs as a part
of the decommissioning cost is proper under the power purchase
-33-
<PAGE>
agreement; and (3) that the current method of investing decommissioning funds is
proper under the power purchase agreement. On September 12, 1997, MidAmerican
filed a "Motion to Dismiss or Transfer Venue" (the Motion). NPPD filed a brief
in opposition to the Motion on October 16, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits Filed Herewith
-----------------------
Holdings and MidAmerican
Exhibit 10.1 - Amendment No. 5, dated September 2, 1997, to the
Power Sales Contract between MidAmerican Energy Company and
Nebraska Public Power District, dated September 22, 1967.
Exhibit 10.2 - Amendment No. 1, dated October 29, 1997, to the
MidAmerican Energy Company 1995 Long-Term Incentive Plan.
Holdings
Exhibit 12.1 - Computation of ratios of earnings to fixed charges
and computation of ratios of earnings to fixed charges plus
preferred dividend requirements.
MidAmerican
Exhibit 12.2 - Computation of ratios of earnings to fixed charges
and computations of ratios of earnings to fixed charges plus
preferred dividend requirements.
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
None.
-34-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIDAMERICAN ENERGY HOLDINGS COMPANY
MIDAMERICAN ENERGY COMPANY
(Registrants)
Date November 10, 1997 A. L. Wells
------------------- -------------------------------------------------
A. L. Wells
Senior Vice President and Chief Financial Officer
-35-
AMENDMENT NUMBER 5 TO THE
POWER SALES CONTRACT
BETWEEN
MIDAMERICAN ENERGY COMPANY
AND
NEBRASKA PUBLIC POWER DISTRICT
THIS AMENDMENT NUMBER 5 is made and entered into as of the 2nd day of
September, 1997, by and between MidAmerican Energy Company ("MidAmerican"),
formerly Iowa Power and Light Company, and Nebraska Public Power District (the
"District"), formerly Consumers Public Power District.
WHEREAS, MidAmerican and the District entered into a Settlement Agreement
as of May 7, 1997, settling the lawsuit entitled: MidAmerican Energy Company v.
Nebraska Public Power District, Civil Action No. 4-95-CV-80356 in the United
States District Court For The District of Iowa, Central Division; and
WHEREAS, MidAmerican and the District, as a result of said settlement,
reached agreement to amend further the Power Sales Contract made and entered
into by them as of September 22, 1967 and heretofore amended as of February 20,
1968, May 24, 1968, August 31, 1970, and March 28, 1974, respectively.
NOW, THEREFORE, MidAmerican and the District hereby agree as follows:
1. Section 15 of the Power Sales Contract shall be deleted in its entirety
and the following shall be substituted in its place:
"Section 15. Operation and Maintenance
The District agrees that it will operate and maintain and make
renewals and replacements to the Nuclear Facility and the EHV
Facilities consistent with Prudent Utility Practice. Prudent Utility
Practice shall mean any of the practices, methods and acts which, in
the exercise of reasonable judgment in the light of the facts,
including but not limited to the practices, methods and acts engaged
in or approved by a significant portion of the electric utility
industry prior thereto, known at the time the decision was made, would
have been expected to accomplish the desired result at the lowest
reasonable cost consistent with reliability, safety, and expedition.
It is recognized that Prudent Utility Practice is not intended to be
limited to a
-1-
<PAGE>
single best practice, method or act to the exclusion of all others,
but rather can be within a spectrum of possible practices, methods or
acts which could reasonably have been expected to accomplish the
desired result at the lowest reasonable cost consistent with
reliability, safety and expedition. The District agrees to confer with
the Purchaser at all reasonable times when requested by the Purchaser
and to give good faith consideration to the Purchaser's reasonable
recommendations in regard to operating practices of the District as
related to the Nuclear Facility and the EHV Facilities. The District
and the Purchaser shall each appoint an authorized representative to
an advisory operating committee, and designate an alternate to act in
the absence of such representative. The committee shall meet at
monthly intervals and at other times upon the request of either
representative to consider problems and policies in connection with
operation, maintenance, repair and scheduled outages of the Nuclear
Facility and to make recommendations to the District and to the
Purchaser."
IN WITNESS WHEREOF, MidAmerican and the District have caused this Amendment
Number 5 to be executed, in two originals, and delivered by their respective
officers hereunto duly authorized.
NEBRASKA PUBLIC POWER DISTRICT MIDAMERICAN ENERGY COMPANY
By: William R. Mayben By: Stanley J. Bright
-------------------------- ------------------------
William R. Mayben Stanley J. Bright
President and CEO Chairman and CEO
-2-
MIDAMERICAN ENERGY COMPANY
1995 LONG-TERM INCENTIVE PLAN
AMENDMENT NO. 1
The MidAmerican Energy Company 1995 Long-Term Incentive Plan, adopted by the
Board of Directors on July 26, 1995 and approved by the shareholders on April
24, 1996, is hereby amended by the Board of Directors of MidAmerican Energy
Holdings Company on October 29, 1997, as follows:
1. Section 2.1(c) of the Plan is hereby amended by deleting the second
sentence thereof in its entirety and substituting the following therefor:
"The Committee may, in its sole discretion, at the time of the grant
of an option, which shall be set forth in the Agreement relating to the
option, authorize the optionee to select the method of making such payment
pursuant to any of clauses (B)-(E) and in the case of an optionee who is
subject to Section 16 of the Exchange Act, the Company may require that the
method of making such payment be in compliance with Section 16 and the
rules and regulations thereunder."
2. Section 6.8(b) of the Plan is hereby amended by deleting subparagraph (2)
thereof in its entirety and reformatting Section 6.8(b) to read as follows:
"(b) 'Change in Control' shall be deemed to have occurred as of the
closing date of the restructuring of the Company as a result of merger,
consolidation, takeover or reorganization unless at least sixty percent
(60%) of the members of the Board of Directors of the Corporation resulting
from such merger, consolidation, takeover or reorganization were members of
the Incumbent Board."
In no other respects is the Plan amended or otherwise affected by the foregoing.
<TABLE>
EXHIBIT 12.1
MIDAMERICAN ENERGY HOLDINGS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
September 30, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $137,764 -- $137,764 $143,761 -- $143,761
Pre-tax (gain) loss of less than 50% owned persons ....... 2,287 -- 2,287 (698) -- (698)
-------- ----- -------- -------- ----- --------
140,051 -- 140,051 143,063 -- 143,063
Add (Deduct):
Total income taxes ....................................... 85,057 -- 85,057 98,422 -- 98,422
Interest on long-term debt ............................... 92,295 3,397 95,692 102,909 3,615 106,524
Other interest charges ................................... 10,493 -- 10,493 10,941 -- 10,941
Preferred stock dividends of subsidiary .................. 8,902 -- 8,902 10,401 -- 10,401
Preferred stock dividends of subsidiary trust ............ 6,273 -- 6,273 288 -- 288
Interest on leases ....................................... 288 -- 288 375 -- 375
-------- ----- -------- -------- ----- --------
203,308 3,397 206,705 223,336 3,615 226,951
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 343,359 3,397 346,756 366,399 3,615 370,014
-------- ----- -------- -------- -------- --------
Fixed Charges:
Interest on long-term debt ............................... 92,295 3,397 95,692 102,909 3,615 106,524
Other interest charges ................................... 10,493 -- 10,493 10,941 -- 10,941
Preferred stock dividends of subsidiary trust ............ 6,273 -- 6,273 288 -- 288
Interest on leases ....................................... 288 -- 288 375 -- 375
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 109,349 3,397 112,746 114,513 3,615 118,128
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 3.14 -- 3.08 3.20 -- 3.13
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,902 -- $ 8,902 $ 10,401 -- $ 10,401
Ratio of net income before income taxes to net income .... 1.5799 -- 1.5799 1.6384 -- 1.6384
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 14,065 -- 14,065 17,041 -- 17,041
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 123,414 3,397 126,811 131,554 3,615 135,169
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.78 -- 2.73 2.79 -- 2.74
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-1-
<PAGE>
<TABLE>
EXHIBIT 12.1
MIDAMERICAN ENERGY HOLDINGS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $119,705 -- $119,705 $123,098 -- $123,098
Pre-tax (gain) loss of less than 50% owned persons ....... 9,079 -- 9,079 (270) -- (270)
-------- ----- -------- -------- ----- --------
128,784 -- 128,784 122,828 -- 122,828
Add (Deduct):
Total income taxes ....................................... 66,803 -- 66,803 60,457 -- 60,457
Interest on long-term debt ............................... 105,550 4,595 110,145 101,267 5,428 106,695
Other interest charges ................................... 9,449 -- 9,449 6,446 -- 6,446
Preferred stock dividends of subsidiary .................. 8,059 -- 8,059 10,551 -- 10,551
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,088 -- 1,088 1,211 -- 1,211
-------- ----- -------- -------- ----- --------
190,949 4,595 195,544 179,932 5,428 185,360
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 319,733 4,595 324,328 302,760 5,428 308,188
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 105,550 4,595 110,145 101,267 5,428 106,695
Other interest charges ................................... 9,449 -- 9,449 6,446 -- 6,446
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,088 -- 1,088 1,211 -- 1,211
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 116,087 4,595 120,682 108,924 5,428 114,352
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 2.75 -- 2.69 2.78 -- 2.70
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,059 -- $ 8,059 $ 10,551 -- $ 10,551
Ratio of net income before income taxes to net income .... 1.5229 -- 1.5229 1.4524 -- 1.4524
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 12,273 -- 12,273 15,324 -- 15,324
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 128,360 4,595 132,955 124,248 5,428 129,676
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.49 -- 2.44 2.44 -- 2.38
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-2-
<PAGE>
<TABLE>
EXHIBIT 12.1
MIDAMERICAN ENERGY HOLDINGS COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
-------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $134,325 -- $134,325 $ 75,045 -- $ 75,045
Pre-tax (gain) loss of less than 50% owned persons ....... (597) -- (597) (1,297) -- (1,297)
-------- ----- -------- -------- ----- --------
133,728 -- 133,728 73,748 -- 73,748
Add (Deduct):
Total income taxes ....................................... 67,485 -- 67,485 24,566 -- 24,566
Interest on long-term debt ............................... 107,044 5,678 112,722 114,732 7,391 122,123
Other interest charges ................................... 5,066 -- 5,066 5,899 -- 5,899
Preferred stock dividends of subsidiary .................. 8,367 -- 8,367 8,735 -- 8,735
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,876 -- 1,876 2,386 -- 2,386
-------- ----- -------- -------- ----- --------
189,838 5,678 195,516 156,318 7,391 163,709
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 323,566 5,678 329,244 230,066 7,391 237,457
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 107,044 5,678 112,722 114,732 7,391 122,123
Other interest charges ................................... 5,066 -- 5,066 5,899 -- 5,899
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,876 -- 1,876 2,386 -- 2,386
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 113,986 5,678 119,664 123,017 7,391 130,408
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 2.84 -- 2.75 1.87 -- 1.82
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,367 -- $ 8,367 $ 8,735 -- $ 8,735
Ratio of net income before income taxes to net income .... 1.4729 -- 1.4729 1.2932 -- 1.2932
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 12,324 -- 12,324 11,296 -- 11,296
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 126,310 5,678 131,988 134,313 7,391 141,704
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.56 -- 2.49 1.71 -- 1.68
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-3-
<TABLE>
EXHIBIT 12.2
MIDAMERICAN ENERGY COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
-------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $154,510 -- $154,510 $165,132 -- $165,132
Add (Deduct):
Total income taxes ....................................... 100,426 -- 100,426 112,927 -- 112,927
Interest on long-term debt ............................... 77,655 3,397 81,052 79,434 3,615 83,049
Other interest charges ................................... 10,486 -- 10,486 10,842 -- 10,842
Preferred stock dividends of subsidiary trust ............ 6,273 -- 6,273 288 -- 288
Interest on leases ....................................... 288 -- 288 375 -- 375
-------- ----- -------- -------- ----- --------
195,128 3,397 198,525 203,866 3,615 207,481
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 349,638 3,397 353,035 368,998 3,615 372,613
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 77,655 3,397 81,052 79,434 3,615 83,049
Other interest charges ................................... 10,486 -- 10,486 10,842 -- 10,842
Preferred stock dividends of subsidiary trust ............ 6,273 -- 6,273 288 -- 288
Interest on leases ....................................... 288 -- 288 375 -- 375
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 94,702 3,397 98,099 90,939 3,615 94,554
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 3.69 -- 3.60 4.06 -- 3.94
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,902 -- $ 8,902 $ 10,401 -- $ 10,401
Ratio of net income before income taxes to net income .... 1.6500 -- 1.6500 1.6839 -- 1.6839
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 14,688 -- 14,688 17,514 -- 17,514
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 109,390 3,397 112,787 108,453 3,615 112,068
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 3.20 -- 3.13 3.40 -- 3.32
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-1-
<PAGE>
<TABLE>
EXHIBIT 12.2
MIDAMERICAN ENERGY COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
-------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $132,489 -- $132,489 $121,145 -- $121,145
Add (Deduct):
Total income taxes ....................................... 84,098 -- 84,098 66,759 -- 66,759
Interest on long-term debt ............................... 80,133 4,595 84,728 73,922 5,428 79,350
Other interest charges ................................... 9,396 -- 9,396 6,639 -- 6,639
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,088 -- 1,088 1,211 -- 1,211
-------- ----- -------- -------- ----- --------
174,715 4,595 179,310 148,531 5,428 153,959
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 307,204 4,595 311,799 269,676 5,428 275,104
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 80,133 4,595 84,728 73,922 5,428 79,350
Other interest charges ................................... 9,396 -- 9,396 6,639 -- 6,639
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,088 -- 1,088 1,211 -- 1,211
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 90,617 4,595 95,212 81,772 5,428 87,200
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 3.39 -- 3.27 3.30 -- 3.15
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,059 -- $ 8,059 $ 10,551 -- $ 10,551
Ratio of net income before income taxes to net income .... 1.6348 -- 1.6348 1.5511 -- 1.5511
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 13,175 -- 13,175 16,366 -- 16,366
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 103,792 4,595 108,387 98,138 5,428 103,566
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.96 -- 2.88 2.75 -- 2.66
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-2-
<PAGE>
<TABLE>
EXHIBIT 12.2
MIDAMERICAN ENERGY COMPANY
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
AND COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
PLUS PREFERRED STOCK DIVIDEND REQUIREMENTS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1992
-------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
---------------------- ----------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................ $133,888 -- $133,888 $ 86,713 -- $ 86,713
Add (Deduct):
Total income taxes ....................................... 75,917 -- 75,917 39,144 -- 39,144
Interest on long-term debt ............................... 80,642 5,678 86,320 87,233 7,391 94,624
Other interest charges ................................... 5,068 -- 5,068 4,373 -- 4,373
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,876 -- 1,876 2,386 -- 2,386
-------- ----- -------- -------- ----- --------
163,503 5,678 169,181 133,136 7,391 140,527
-------- ----- -------- -------- ----- --------
Earnings available for fixed charges ................... 297,391 5,678 303,069 219,849 7,391 227,240
-------- ----- -------- -------- ----- --------
Fixed Charges:
Interest on long-term debt ............................... 80,642 5,678 86,320 87,233 7,391 94,624
Other interest charges ................................... 5,068 -- 5,068 4,373 -- 4,373
Preferred stock dividends of subsidiary trust ............ -- -- -- -- -- --
Interest on leases ....................................... 1,876 -- 1,876 2,386 -- 2,386
-------- ----- -------- -------- ----- --------
Total fixed charges .................................... 87,586 5,678 93,264 93,992 7,391 101,383
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges ....................... 3.40 -- 3.25 2.34 -- 2.24
======== ===== ======== ======== ===== ========
Preferred stock dividends of subsidiary .................. $ 8,367 -- $ 8,367 $ 8,735 -- $ 8,735
Ratio of net income before income taxes to net income .... 1.5670 -- 1.5670 1.4514 -- 1.4514
-------- ----- -------- -------- ----- --------
Preferred stock dividend requirements before income tax .. 13,111 -- 13,111 12,678 -- 12,678
-------- ----- -------- -------- ----- --------
Fixed charges plus preferred stock dividend requirements . 100,697 5,678 106,375 106,670 7,391 114,061
-------- ----- -------- -------- ----- --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ........... 2.95 -- 2.85 2.06 -- 1.99
======== ===== ======== ======== ===== ========
</TABLE>
Note: (a) Amounts in the supplemental columns are to reflect the Company's
portion of the net interest component of payments to Nebraska Public Power
District under a long-term purchase agreement for one-half of the plant
capacity from Cooper Nuclear Station.
-3-
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Holdings Company as of
September 30, 1997, and the related consolidated statements of income and cash
flows for the nine months ended September 30, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001009526
<NAME> MIDAMERICAN ENERGY HOLDINGS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,611,150
<OTHER-PROPERTY-AND-INVEST> 889,529
<TOTAL-CURRENT-ASSETS> 338,875
<TOTAL-DEFERRED-CHARGES> 376,814
<OTHER-ASSETS> 188,860
<TOTAL-ASSETS> 4,405,228
<COMMON> 947,240
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 421,059
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,368,299
150,000
31,765
<LONG-TERM-DEBT-NET> 1,103,551
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 141,354
<LONG-TERM-DEBT-CURRENT-PORT> 77,727
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,532,532
<TOT-CAPITALIZATION-AND-LIAB> 4,405,228
<GROSS-OPERATING-REVENUE> 1,415,708
<INCOME-TAX-EXPENSE> 66,297<F1>
<OTHER-OPERATING-EXPENSES> 1,185,132
<TOTAL-OPERATING-EXPENSES> 1,185,132
<OPERATING-INCOME-LOSS> 230,576
<OTHER-INCOME-NET> 25,199<F2>
<INCOME-BEFORE-INTEREST-EXPEN> 255,775
<TOTAL-INTEREST-EXPENSE> 84,042
<NET-INCOME> 105,436
0
<EARNINGS-AVAILABLE-FOR-COMM> 105,436
<COMMON-STOCK-DIVIDENDS> 89,103
<TOTAL-INTEREST-ON-BONDS> 57,868
<CASH-FLOW-OPERATIONS> 299,134
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
<FN>
<F1> Tag 37 includes operating and nonoperating income taxes and is excluded
from operating expenses in Tag 39 and on the Consolidated Statement of Income.
<F2> Tag 41 includes $2,619,000 of loss from Discontinued Operations, net of
income taxes.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Company as of September 30,
1997, and the related consolidated statements of income and cash flows for the
nine months ended September 30, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000928576
<NAME> MIDAMERICAN ENERGY COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,612,283
<OTHER-PROPERTY-AND-INVEST> 106,318
<TOTAL-CURRENT-ASSETS> 298,805
<TOTAL-DEFERRED-CHARGES> 361,807
<OTHER-ASSETS> 188,860
<TOTAL-ASSETS> 3,568,073
<COMMON> 563,544
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 433,798
<TOTAL-COMMON-STOCKHOLDERS-EQ> 997,342
150,000
31,765
<LONG-TERM-DEBT-NET> 969,175
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 131,100
<LONG-TERM-DEBT-CURRENT-PORT> 77,730
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,210,961
<TOT-CAPITALIZATION-AND-LIAB> 3,568,073
<GROSS-OPERATING-REVENUE> 1,203,139
<INCOME-TAX-EXPENSE> 67,753
<OTHER-OPERATING-EXPENSES> 964,598
<TOTAL-OPERATING-EXPENSES> 1,032,351
<OPERATING-INCOME-LOSS> 170,788
<OTHER-INCOME-NET> 6,258
<INCOME-BEFORE-INTEREST-EXPEN> 177,046
<TOTAL-INTEREST-EXPENSE> 69,745
<NET-INCOME> 107,301
5,249
<EARNINGS-AVAILABLE-FOR-COMM> 102,052
<COMMON-STOCK-DIVIDENDS> 91,500
<TOTAL-INTEREST-ON-BONDS> 57,868
<CASH-FLOW-OPERATIONS> 278,146
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of MidAmerican Energy Company as of September 30,
1996, and the related consolidated statements of income and cash flows for the
nine months ended September 30, 1996, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000928576
<NAME> MidAmerican Energy Company
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,626,456
<OTHER-PROPERTY-AND-INVEST> 385,709
<TOTAL-CURRENT-ASSETS> 288,108
<TOTAL-DEFERRED-CHARGES> 397,582
<OTHER-ASSETS> 207,725
<TOTAL-ASSETS> 3,905,580
<COMMON> 801,442
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 442,593
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,238,615
50,000
77,534
<LONG-TERM-DEBT-NET> 1,062,350
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 160,063
<LONG-TERM-DEBT-CURRENT-PORT> 47,713
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,269,305
<TOT-CAPITALIZATION-AND-LIAB> 3,905,580
<GROSS-OPERATING-REVENUE> 1,194,529
<INCOME-TAX-EXPENSE> 86,967
<OTHER-OPERATING-EXPENSES> 921,043
<TOTAL-OPERATING-EXPENSES> 1,008,010
<OPERATING-INCOME-LOSS> 186,519
<OTHER-INCOME-NET> (12,632)<F1>
<INCOME-BEFORE-INTEREST-EXPEN> 173,887
<TOTAL-INTEREST-EXPENSE> 64,541
<NET-INCOME> 109,346
6,748
<EARNINGS-AVAILABLE-FOR-COMM> 102,598
<COMMON-STOCK-DIVIDENDS> 90,594
<TOTAL-INTEREST-ON-BONDS> 59,647
<CASH-FLOW-OPERATIONS> 255,157
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Tag 41 includes a $8,577,000 Loss from Discontinued Operations, net of
income taxes.
</FN>
</TABLE>
