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 June 30, 1998
--------------------------------------------
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 of the issuers' classes
of common stock as of the latest practicable date.
Registrant Class Shares Outstanding at July 31, 1998
- - ------------------ ------------------- -------------------------------------
MidAmerican Energy Common Stock 94,104,682 *
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 common shares outstanding at July 31,
1998, exclude 437,131 shares which are held by a subsidiary.
<PAGE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
AND
MIDAMERICAN ENERGY COMPANY
This combined Form 10-Q is separately filed by MidAmerican Energy Holdings
Company (Company or Holdings) and MidAmerican Energy Company (MidAmerican).
Information herein relating to each individual registrant is filed by such
registrant on its own behalf. Accordingly, except for its subsidiaries,
MidAmerican makes no representation as to information relating to any other
subsidiary of Holdings.
TABLE OF CONTENTS
Part I. Financial Information Page No.
ITEM 1. Financial Statements
MidAmerican Energy Holdings Company
Consolidated Statements of Income....................... 3
Consolidated Statements of Comprehensive Income......... 4
Consolidated Balance Sheets............................. 5
Consolidated Statements of Cash Flows................... 6
Notes to Consolidated Financial Statements.............. 7
MidAmerican Energy Company
Consolidated Statements of Income....................... 12
Consolidated Balance Sheets............................. 13
Consolidated Statements of Cash Flows................... 14
Notes to Consolidated Financial Statements.............. 15
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 16
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk... 41
Part II. Other Information
ITEM 1. Legal Proceedings ........................................... 41
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 42
ITEM 6. Exhibits and Reports on Form 8-K............................. 42
Signatures ............................................................. 43
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<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, except per share amounts)
<CAPTION>
Three Months Six Months Twelve Months
Ended June 30 Ended June 30 Ended June 30
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility .............................. $ 287,094 $ 261,801 $ 543,448 $ 516,117 $1,153,631 $1,086,271
Gas utility ................................... 67,288 80,913 240,488 292,478 484,316 547,627
Nonregulated .................................. 39,041 42,549 81,015 156,827 183,863 305,074
---------- ---------- ---------- ---------- ---------- ----------
393,423 385,263 864,951 965,422 1,821,810 1,938,972
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Utility:
Cost of fuel, energy and capacity .......... 57,085 52,141 102,284 111,424 226,620 229,243
Cost of gas sold ........................... 32,648 45,099 137,969 186,932 297,053 360,521
Other operating expenses ................... 111,746 98,691 218,523 192,298 456,019 364,703
Maintenance ................................ 30,740 22,349 53,323 46,098 105,315 90,844
Depreciation and amortization .............. 44,191 42,060 88,382 84,068 174,854 166,654
Property and other taxes ................... 24,295 24,853 49,765 50,343 100,739 93,871
---------- ---------- ---------- ---------- ---------- ----------
300,705 285,193 650,246 671,163 1,360,600 1,305,836
---------- ---------- ---------- ---------- ---------- ----------
Nonregulated:
Cost of sales .............................. 24,197 37,243 63,233 146,213 157,202 287,219
Other ...................................... 14,180 7,432 20,489 15,418 35,147 34,796
---------- ---------- ---------- ---------- ---------- ----------
38,377 44,675 83,722 161,631 192,349 322,015
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses ................... 339,082 329,868 733,968 832,794 1,552,949 1,627,851
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME .............................. 54,341 55,395 130,983 132,628 268,861 311,121
---------- ---------- ---------- ---------- ---------- ----------
NON-OPERATING INCOME
Interest income ............................... 2,178 1,562 4,630 3,115 6,833 4,603
Dividend income ............................... 2,738 3,707 5,452 7,255 11,989 15,338
Realized gains and losses on securities, net .. 954 98 2,019 616 9,201 (723)
Other, net .................................... 778 3,279 6,435 7,264 21,282 (1,484)
---------- ---------- ---------- ---------- ---------- ----------
6,648 8,646 18,536 18,250 49,305 17,734
---------- ---------- ---------- ---------- ---------- ----------
FIXED CHARGES
Interest on long-term debt .................... 20,324 22,829 40,608 46,292 84,214 97,496
Other interest expense ........................ 3,416 4,119 6,628 5,448 11,214 10,666
Preferred dividends of subsidiaries ........... 3,233 3,231 6,465 8,000 12,933 14,028
Allowance for borrowed funds .................. (921) (603) (1,675) (1,312) (2,960) (3,068)
---------- ---------- ---------- ---------- ---------- ----------
26,052 29,576 52,026 58,428 105,401 119,122
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES ........................ 34,937 34,465 97,493 92,450 212,765 209,733
INCOME TAXES .................................. 13,937 10,289 37,760 34,100 72,050 81,126
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS ............. 21,000 24,176 59,733 58,350 140,715 128,607
---------- ---------- ---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS
Income (loss) from operations
(net of income taxes) ....................... - 408 - 698 (816) (3,723)
Loss on disposal (net of income taxes) ........ - - - (524) (3,586) (15,356)
---------- ---------- ---------- ---------- ---------- ----------
- 408 - 174 (4,402) (19,079)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME .................................... $ 21,000 $ 24,584 $ 59,733 $ 58,524 $ 136,313 $ 109,528
========== ========== ========== ========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING ............. 94,473 98,621 94,675 99,534 95,619 100,096
EARNINGS PER COMMON SHARE
-BASIC AND DILUTED:
Continuing operations ......................... $ 0.22 $ 0.24 $ 0.63 $ 0.59 $ 1.47 $ 1.28
Discontinued operations ....................... - 0.01 - - (0.04) (0.19)
---------- ---------- ---------- ---------- ---------- ----------
Earnings per average common share.............. $ 0.22 $ 0.25 $ 0.63 $ 0.59 $ 1.43 $ 1.09
========== ========== ========== ========== ========== ==========
DIVIDENDS DECLARED PER SHARE .................. $ 0.30 $ 0.30 $ 0.60 $ 0.60 $ 1.20 $ 1.20
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In Thousands)
<CAPTION>
Three Months Six Months Twelve Months
Ended June 30 Ended June 30 Ended June 30
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME ..................................... $ 21,000 $ 24,584 $ 59,733 $ 58,524 $ 136,313 $ 109,528
---------- ---------- ---------- ---------- ---------- ----------
OTHER COMPREHENSIVE INCOME
Unrealized (losses) gains on securities:
Unrealized holding gains (losses) during period. (29,603) (1,104) 53,253 3,022 274,158 5,810
Less reclassification adjustment for
realized gains (losses) reflected
in net income during period ............... 954 95 2,019 613 9,193 (729)
---------- ---------- ---------- ---------- ---------- ----------
(30,557) (1,199) 51,234 2,409 264,965 6,539
Income tax (benefit) expense ................... (10,535) (429) 18,014 789 92,792 2,234
---------- ---------- ---------- ---------- ---------- ----------
Other comprehensive income, net .............. (20,022) (770) 33,220 1,620 172,173 4,305
---------- ---------- ---------- ---------- ---------- ----------
COMPREHENSIVE INCOME ........................... $ 978 $ 23,814 $ 92,953 $ 60,144 $ 308,486 $ 113,833
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
As of
---------------------------------------
June 30 December 31
------------------------ -----------
1998 1997 1997
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
UTILITY PLANT
Electric ....................................................... $4,106,986 $4,050,767 $4,084,920
Gas ............................................................ 766,127 731,978 756,874
---------- ---------- ----------
4,873,113 4,782,745 4,841,794
Less accumulated depreciation and amortization ................. 2,350,265 2,215,077 2,275,099
---------- ---------- ----------
2,522,848 2,567,668 2,566,695
Construction work in progress .................................. 82,671 37,880 55,418
---------- ---------- ----------
2,605,519 2,605,548 2,622,113
---------- ---------- ----------
POWER PURCHASE CONTRACT ........................................ 168,430 190,504 173,107
---------- ---------- ----------
INVESTMENT IN DISCONTINUED OPERATIONS .......................... - 6,610 -
---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents ...................................... 121,720 57,297 10,468
Receivables .................................................... 160,212 203,511 207,471
Inventories .................................................... 64,471 69,796 86,091
Other .......................................................... 14,970 10,227 18,452
---------- ---------- ----------
361,373 340,831 322,482
---------- ---------- ----------
INVESTMENTS AND NONREGULATED PROPERTY, NET ..................... 883,797 605,669 799,524
---------- ---------- ----------
OTHER ASSETS ................................................... 388,378 386,543 360,865
---------- ---------- ----------
TOTAL ASSETS ................................................... $4,407,497 $4,135,705 $4,278,091
========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholders' equity .................................... $1,311,583 $1,186,313 $1,301,286
MidAmerican preferred securities, not subject to
mandatory redemption ......................................... 31,760 31,765 31,763
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 .. 100,000 100,000 100,000
Long-term debt (excluding current portion) ..................... 1,043,909 1,109,531 1,034,211
---------- ---------- ----------
2,537,252 2,477,609 2,517,260
---------- ---------- ----------
CURRENT LIABILITIES
Notes payable .................................................. 167,429 146,185 138,054
Current portion of long-term debt .............................. 219,260 129,756 144,558
Current portion of power purchase contract ..................... 14,361 13,717 14,361
Accounts payable ............................................... 90,593 87,515 145,855
Taxes accrued .................................................. 108,916 81,795 92,629
Interest accrued ............................................... 21,637 26,457 22,355
Other .......................................................... 69,475 48,969 38,766
---------- ---------- ----------
691,671 534,394 596,578
---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract ........................................ 83,143 97,504 83,143
Deferred income taxes .......................................... 772,609 710,431 761,795
Investment tax credit .......................................... 80,274 85,985 83,127
Other .......................................................... 242,548 229,782 236,188
---------- ---------- ----------
1,178,574 1,123,702 1,164,253
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES ........................... $4,407,497 $4,135,705 $4,278,091
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<TABLE>
MIDAMERICAN ENERGY HOLDINGS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
---------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ 21,000 $ 24,584 $ 59,733 $ 58,524
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization ............................ 49,624 47,573 98,060 95,982
Net decrease in deferred income taxes and
investment tax credit, net ............................. (4,748) (6,795) (10,121) (11,948)
Amortization of other assets ............................. 10,133 5,596 19,345 12,474
Capitalized cost of real estate sold ..................... 308 506 458 796
Loss from discontinued operations ........................ - (408) - (174)
Gain on sale of securities, assets and other investments.. (1,063) (362) (8,595) (1,827)
Other-than-temporary decline in value of investments ..... 72 92 110 252
Impact of changes in working capital, net of effects
from discontinued operations ........................... (31,556) (77,780) 63,377 71,709
Other .................................................... 13,826 3,584 15,902 (751)
--------- --------- --------- ---------
Net cash provided (used) ............................... 57,596 (3,410) 238,269 225,037
--------- --------- --------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures .......................... (43,906) (37,426) (68,592) (64,029)
Quad Cities Nuclear Power Station
decommissioning trust fund ............................... (2,844) (2,140) (5,658) (4,280)
Deferred energy efficiency expenditures .................... - (2,626) - (6,349)
Nonregulated capital expenditures .......................... (17,485) (4,377) (38,683) (7,002)
Purchase of real estate brokerage company................... (78,985) - (78,985) -
Purchase of securities ..................................... (45,125) (53,064) (98,354) (116,407)
Proceeds from sale of securities ........................... 52,772 53,397 104,817 132,049
Proceeds from sale of assets and other investments ......... 20,145 526 28,344 13,670
Investment in discontinued operations ...................... - (1,822) - 145,193
Other investing activities, net ............................ 2,765 (289) (13) 52
--------- --------- --------- ---------
Net cash (used) provided ................................ (112,663) (47,821) (157,124) 92,897
--------- --------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Common dividends paid ...................................... (28,310) (29,544) (56,686) (59,723)
Issuance of long-term debt, net of issuance cost ........... 158,440 - 158,440 -
Retirement of long-term debt, including reacquisition cost . (391) (34,672) (75,422) (61,790)
Reacquisition of preferred shares .......................... (1) (1) (3) (4)
Reacquisition of common shares ............................. (10,754) (26,235) (25,597) (46,564)
Decrease in MidAmerican Capital Company
unsecured revolving credit facility ...................... (3,200) - - (174,500)
Net increase(decrease) in notes payable .................... 26,366 105,975 29,375 (15,805)
--------- --------- --------- ---------
Net cash provided (used) ................................. 142,150 15,523 30,107 (358,386)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... 87,083 (35,708) 111,252 (40,452)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 34,637 93,005 10,468 97,749
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $ 121,720 $ 57,297 $ 121,720 $ 57,297
========= ========= ========= =========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .................. $ 18,865 $ 19,708 $ 43,999 $ 49,978
========= ========= ========= =========
Income taxes paid .......................................... $ 33,927 $ 76,690 $ 34,651 $ 76,753
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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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, comprehensive
income 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 the 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 27 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 its responsibility, if any, for conducting
site investigations or other site activity.
MidAmerican's present estimate of probable remediation costs for the sites
discussed above as of June 30, 1998 is $25 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 estimate of probable remediation costs is established on a site
specific basis. The costs are accumulated in a three-step process. First, a
determination is made as to whether MidAmerican has potential legal liability
for the site and whether information exists to indicate that contaminated wastes
remain at the site. Second, if potential legal liability exists, the costs of
performing a preliminary investigation and the costs of removing known
contaminated soil are accrued. Finally, as the investigation is performed and if
it is determined remedial action is required, the best estimate of remediation
costs is accrued. If necessary, the estimate is revised when a consent order is
issued. The estimated recorded liabilities for these properties include
incremental direct costs of the remediation effort, costs for future monitoring
at sites and costs of compensation to employees for time expected to be spent
directly on the remediation effort. The estimated recorded liabilities for these
properties are based upon preliminary data. Thus, actual costs could vary
significantly from the estimates. The estimate could change materially based on
facts and circumstances
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<PAGE>
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.
2) Clean Air Act:
On July 18, 1997, the EPA adopted revisions to the National Ambient Air
Quality Standards (NAAQS) for ozone and a new standard for fine particulate
matter. Based on data to be obtained from monitors located throughout each
state, the EPA will determine which states have 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. The attainment
status of areas in the state of Iowa will not be known for two to three years.
However, if MidAmerican's operations are determined to contribute to
nonattainment, the installation of additional control equipment, such as
scrubbers and/or selective catalytic reduction, on MidAmerican's units could be
required. The cost to install such equipment could be significant. MidAmerican
will continue to follow the attainment status of the areas in which it operates
and evaluate the potential impact of the status of these areas on MidAmerican
under the new regulations.
Following recommendations provided by the Ozone Transport Assessment Group,
the EPA, in November 1997, issued a Notice of Proposed Rulemaking which
identified 22 states and the District of Columbia as making significant
contribution to nonattainment of NAAQS for ozone. Iowa is not subject to these
emissions reduction requirements as EPA's rule is currently drafted, and, as
such, MidAmerican does not anticipate that its facilities will be subject to
additional emissions reductions as a result of this initiative. The EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.
C) RATE MATTERS:
As a result of a negotiated settlement in Illinois, MidAmerican reduced
its Illinois electric service rates by annual amounts of $13.1 million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.
On June 27, 1997, the IUB approved a March 1997 settlement agreement
between MidAmerican, the Iowa Office of Consumer Advocate (OCA) and other
parties in a consolidated rate proceeding involving MidAmerican's electric
pricing proposal and a filing by the OCA. The agreement includes a number of
components of MidAmerican's pricing proposal. Six major components of the
settlement and their status are as follows:
1) On an annualized basis, prices for residential customers were reduced
$8.5 million, $10.0 million and $5.0 million effective November 1, 1996, July
11, 1997, and June 1, 1998 respectively, for a total annual decrease of $23.5
million.
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<PAGE>
2) Rates for industrial customers will be reduced by $6 million annually
and rates for commercial customers will be reduced by $4 million annually.
MidAmerican has been given permission to implement these reductions through a
retail access pilot project and through negotiated individual contracts. In the
event that these contracts in the aggregate do not reduce rates by $6 million
and $4 million, respectively, MidAmerican is required to apply any remaining
amount to across-the-board rate reductions to customers who do not enter into
contracts.
The effective date for these rate reductions was set for June 1, 1998 in
the IUB Order approving the settlement. However, MidAmerican has pending before
the IUB a request to extend the deadlines until September 1, 1998 for industrial
customers, and December 31, 1998 for commercial customers. That request would
involve an obligation to increase the amount of the reduction on a one-time
basis to reflect the time value of money between June 1, 1998 and the new
requested deadlines. MidAmerican estimates it will not have any interest
obligation with respect to the industrial contracts, and will not incur any
material interest obligation with respect to its commercial contracts.
The negotiated contracts have differing terms and conditions as well as
prices. The contracts range in length from five to ten years, and some have
price renegotiation and early termination provisions exercisable by either
party. The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to 10-year contracts. Prices are set
as fixed prices; however, many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes, and transition costs. While the contract prices are fixed (except
for the potential adjustment elements), the costs MidAmerican incurs to fulfill
these contracts will vary. On an aggregate basis the annual revenues under
contract are approximately $125 million.
The IUB is currently considering the contracting process in two
proceedings. The outcome of those proceedings could impact further contracting
efforts, as well as determine whether any of the contracts will need to be
renegotiated, and the extent to which the annualized rate reduction will take
the form of negotiated contracts versus across-the-board rate reductions.
3) A tracking mechanism (Coooper Tracker) is being used to currently
recover costs for capital improvements required by the Cooper Nuclear Station
Power Purchase Contract which will offset approximately $6 million of the rate
reductions in 1998. Other operating expenses will correspondingly increase due
to currently expensing the related costs.
4) Elimination of the Iowa energy adjustment clause (EAC). Prior to July
11, 1997, MidAmerican collected fuel costs from Iowa customers on a current
basis through the EAC, and thus, fuel costs had little impact on net income.
Since then, base rates for Iowa customers 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 are impacted. The fuel cost factor will be
reviewed in February 1999 and adjusted prospectively if actual 1998 fuel costs
vary 15% above or below the factor included in base rates.
5) 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%.
6) 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
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<PAGE>
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 as described above, 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 by the fourth 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 the discontinued
applicability of SFAS 71. The majority of MidAmerican's electric and gas utility
operations currently meet the criteria of SFAS 71, but its applicability is
periodically reexamined. On December 16, 1997, MidAmerican's generation
operations serving Illinois were no longer subject to the provisions of SFAS 71
due to passage of restructuring legislation in Illinois. Thus, MidAmerican was
required to write off regulatory assets and liabilities from its balance sheet
related to its Illinois generation operations. The net amount of such write-offs
were immaterial. If other utility operations no longer meet the criteria of SFAS
71, MidAmerican would be required to write off the related regulatory assets and
liabilities from its balance sheet and thus, a material adjustment to earnings
in that period could result. As of June 30, 1998, MidAmerican had approximately
$312 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. As of June 30, 1998, the Company had
repurchased approximately 6.2 million shares for $114.8 million under the plan.
In addition, a subsidiary has acquired 437,131 shares of Holdings common stock
which are also excluded from shares outstanding.
G) DETAIL OF OTHER COMPREHENSIVE INCOME - INCOME TAXES
For fiscal years beginning after December 15, 1997, full sets of
general-purpose financial statements are required to display comprehensive
income and its components in a financial statement that is displayed with the
same prominence as the other financial statements. Comprehensive income refers,
in general, to changes in the Company's equity, except those resulting from
transactions with shareholders. "Unrealized holding gains (losses)" reflects the
overall increase (decrease) in the market value of marketable securities held by
the Company as available-for-sale. The "reclassification adjustment" removes any
gains (losses) that have been realized from sales of those securities and
reflected in the Company's Net Income.
-10-
<PAGE>
The following table shows the income tax expense or benefit related to each
component (in thousands):
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended June 30 Ended June 30 Ended June 30
-------------------- --------------------- --------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Unrealized holding (losses)/gains
during period
Before income taxes $(29,603) $ (1,104) $ 53,253 $ 3,022 $ 274,158 $ 5,810
Income tax benefit/(expense) 10,195 392 (18,697) (949) (95,903) (1,954)
-------- -------- -------- --------- --------- -------
(19,408) (712) 34,556 2,073 178,255 3,856
-------- -------- -------- --------- --------- -------
Less reclassification adjustment for
realized gains/(losses) reflected in
net income during period
Before income taxes 954 95 2,019 613 9,193 (729)
Income tax (expense)/benefit (340) (37) (683) (160) (3,111) 280
-------- -------- -------- --------- --------- -------
614 58 1,336 453 6,082 (449)
-------- -------- -------- --------- --------- -------
Other Comprehensive Income, Net $(20,022) $ (770) $ 33,220 $ 1,620 $ 172,173 $ 4,305
======== ======== ======== ========= ========= =======
</TABLE>
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,
without approval of McLeodUSA's board of directors. 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 is recorded at fair value. At June 30, 1998, the cost and fair
value of the McLeodUSA investment were $45.2 million and $313.3 million,
respectively. The unrealized gain is recorded, net of income taxes, as
accumulated comprehensive income in common shareholders' equity. At June 30,
1998, the unrealized gain and deferred income taxes for this investment were
$268.1 million and $93.8 million, respectively.
I) SUBSEQUENT EVENT:
On August 11, 1998, a definitive merger agreement was entered into between
the Company and CalEnergy, a global provider of energy services. Under the terms
of the agreement, the shareholders of the Company will receive $27.15 cash for
each share of their common stock reflecting a 36 percent premium over the August
11, 1998 closing price. The merger will need to be approved by the shareholders
of both companies, the Federal Energy Regulatory Commission, and the Nuclear
Energy Regulatory Commission. Filings will also be made with the Iowa Utilities
Board, which has the right to review the merger and to disapprove it only if
found not in the public interest, the Federal Trade Commission and the
Department of Justice. State regulators in Illinois will be notified of the
merger. Management believes completion of the merger could occur by the first
quarter of 1999.
-11-
<PAGE>
<TABLE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands)
<CAPTION>
Three Months Six Months Twelve Months
Ended June 30 Ended June 30 Ended June 30
1998 1997 1998 1997 1998 1997
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES
Electric utility .............................. $ 287,094 $ 261,801 $ 543,448 $ 516,117 $1,153,631 $1,086,271
Gas utility ................................... 67,288 80,913 240,488 292,478 484,316 547,627
---------- ---------- ---------- ---------- ---------- ----------
354,382 342,714 783,936 808,595 1,637,947 1,633,898
---------- ---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES
Cost of fuel, energy and capacity ............. 57,643 52,141 103,400 111,424 227,736 229,243
Cost of gas sold .............................. 32,648 45,099 137,969 186,932 297,053 360,521
Other operating expenses ...................... 111,746 98,691 218,523 192,298 456,019 364,703
Maintenance ................................... 30,740 22,349 53,323 46,098 105,315 90,844
Depreciation and amortization ................. 44,191 42,060 88,382 84,068 174,854 166,654
Property and other taxes ...................... 24,295 24,853 49,765 50,343 100,739 93,871
Income taxes .................................. 9,673 12,917 38,626 36,421 76,767 94,263
---------- ---------- ---------- ---------- ---------- ----------
310,936 298,110 689,988 707,584 1,438,483 1,400,099
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME .............................. 43,446 44,604 93,948 101,011 199,464 233,799
---------- ---------- ---------- ---------- ---------- ----------
NON-OPERATING INCOME
Interest and dividend income .................. 1,447 421 3,394 1,327 4,399 2,107
Non-operating income taxes .................... (3,436) (1,374) 1,490 (2,293) 2,028 (3,580)
Other, net .................................... (882) 3,008 (3,116) 4,339 4,912 6,335
---------- ---------- ---------- ---------- ---------- ----------
(2,871) 2,055 1,768 3,373 11,339 4,862
---------- ---------- ---------- ---------- ---------- ----------
FIXED CHARGES
Interest on long-term debt .................... 17,592 19,332 35,145 39,218 74,047 78,884
Other interest expense ........................ 3,529 4,113 6,697 5,442 11,282 10,654
Preferred dividends of subsidiary trust ....... 1,995 1,995 3,990 3,990 7,980 4,278
Allowance for borrowed funds .................. (921) (603) (1,675) (1,312) (2,960) (3,068)
---------- ---------- ---------- ---------- ---------- ----------
22,195 24,837 44,157 47,338 90,349 90,748
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS ............. 18,380 21,822 51,559 57,046 120,454 147,913
LOSS FROM DISCONTINUED OPERATIONS ............. - - - - - (20,599)
---------- ---------- ---------- ---------- ---------- ----------
NET INCOME .................................... 18,380 21,822 51,559 57,046 120,454 127,314
PREFERRED DIVIDENDS ........................... 1,238 1,236 2,475 4,010 4,953 9,750
---------- ---------- ---------- ---------- ---------- ----------
EARNINGS ON COMMON STOCK ...................... $ 17,142 $ 20,586 $ 49,084 $ 53,036 $ 115,501 $ 117,564
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-12-
<PAGE>
<TABLE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
As of
-------------------------------------
June 30 December 31
----------------------- -----------
1998 1997 1997
---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Utility Plant
Electric ....................................................... $4,109,989 $4,053,770 $4,087,924
Gas ............................................................ 766,127 731,978 756,874
---------- ---------- ----------
4,876,116 4,785,748 4,844,798
Less accumulated depreciation and amortization ................. 2,352,465 2,216,806 2,277,110
---------- ---------- ----------
2,523,651 2,568,942 2,567,688
Construction work in progress .................................. 82,671 37,880 55,418
---------- ---------- ----------
2,606,322 2,606,822 2,623,106
---------- ---------- ----------
POWER PURCHASE CONTRACT ........................................ 168,430 190,504 173,107
---------- ---------- ----------
CURRENT ASSETS
Cash and cash equivalents ...................................... 113,655 15,515 9,318
Receivables .................................................... 109,376 180,386 184,153
Inventories .................................................... 62,641 68,158 84,298
Other .......................................................... 1,799 4,243 6,174
---------- ---------- ----------
287,471 268,302 283,943
---------- ---------- ----------
INVESTMENTS AND NONREGULATED PROPERTY, NET ..................... 126,195 98,808 115,029
---------- ---------- ----------
OTHER ASSETS ................................................... 319,570 371,253 347,122
---------- ---------- ----------
TOTAL ASSETS ................................................... $3,507,988 $3,535,689 $3,542,307
========== ========== ==========
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
Common shareholder's equity .................................... $ 977,627 $ 968,569 $ 985,744
MidAmerican preferred securities, not subject to
mandatory redemption ......................................... 31,760 31,765 31,763
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 .. 100,000 100,000 100,000
Long-term debt (excluding current portion) ..................... 929,327 975,047 920,203
---------- ---------- ----------
2,088,714 2,125,381 2,087,710
---------- ---------- ----------
CURRENT LIABILITIES
Notes payable .................................................. 41,500 144,300 122,500
Current portion of long-term debt .............................. 199,351 99,900 124,460
Current portion of power purchase contract ..................... 14,361 13,717 14,361
Accounts payable ............................................... 85,542 73,677 128,390
Taxes accrued .................................................. 103,801 62,435 91,449
Interest accrued ............................................... 18,977 22,424 20,616
Other .......................................................... 26,942 24,153 22,598
---------- ---------- ----------
490,474 440,606 524,374
---------- ---------- ----------
OTHER LIABILITIES
Power purchase contract ........................................ 83,143 97,504 83,143
Deferred income taxes .......................................... 589,808 615,846 592,840
Investment tax credit .......................................... 80,274 85,985 83,127
Other .......................................................... 175,575 170,367 171,113
---------- ---------- ----------
928,800 969,702 930,223
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES ........................... $3,507,988 $3,535,689 $3,542,307
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
-13-
<PAGE>
<TABLE>
MIDAMERICAN ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
--------------------- ----------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income ................................................. $ 18,380 $ 21,822 $ 51,559 $ 57,046
Adjustments to reconcile net income to net cash provided:
Depreciation and amortization ............................ 48,642 46,784 96,415 94,428
Net decrease in deferred income taxes and
investment tax credit, net ............................. (2,960) (1,789) (5,885) (3,578)
Amortization of other assets ............................. 9,868 5,472 19,033 12,092
Impact of changes in working capital ..................... (20,212) (59,177) 73,018 28,477
Other .................................................... 2,487 (7,694) 1,559 (25,162)
-------- --------- -------- --------
Net cash provided ...................................... 56,205 5,418 235,699 163,303
-------- --------- -------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES
Utility construction expenditures .......................... (43,906) (37,426) (68,592) (64,029)
Quad Cities Nuclear Power Station
decommissioning trust fund ............................... (2,844) (2,140) (5,658) (4,280)
Deferred energy efficiency expenditures .................... - (2,626) - (6,349)
Nonregulated capital expenditures .......................... (188) (1,602) (20,154) (3,306)
Proceeds from sale of assets and other investments ......... 19,854 - 19,854 -
Other investing activities, net ............................ 371 829 1,038 927
-------- --------- -------- --------
Net cash used ............................................ (26,713) (42,965) (73,512) (77,037)
-------- --------- -------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid ............................................. (29,838) (41,236) (59,676) (75,510)
Issuance of long-term debt, net of issuance cost ........... 158,440 - 158,440 -
Retirement of long-term debt, including reacquisition cost . (486) (32,896) (75,611) (62,052)
Reacquisition of preferred shares .......................... (1) (1) (3) (4)
Net (decrease) increase in notes payable ................... (73,602) 104,275 (81,000) (17,400)
-------- --------- -------- --------
Net cash provided (used) ................................ 54,513 30,142 (57,850) (154,966)
-------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... 84,005 (7,405) 104,337 (68,700)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........... 29,650 22,920 9,318 84,215
-------- --------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................. $113,655 $ 15,515 $113,655 $ 15,515
======== ========= ======== ========
ADDITIONAL CASH FLOW INFORMATION:
Interest paid, net of amounts capitalized .................. $ 12,223 $ 12,215 $ 39,526 $ 42,663
======== ========= ======== ========
Income taxes paid .......................................... $ 33,352 $ 54,247 $ 33,436 $ 67,465
======== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-14-
<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) STATEMENT OF COMPREHENSIVE INCOME:
MidAmerican did not have other comprehensive income for the periods
presented, and accordingly, a statement of comprehensive income has been
omitted. MidAmerican's total comprehensive income is equal to its earnings on
common stock for each period presented.
G) SUBSEQUENT EVENT:
Refer to Note I of Holdings' Notes to Consolidated Financial Statements for
information regarding subsequent events.
-15-
<PAGE>
ITEM 2. 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 is a public utility with electric and natural gas operations
and is the principal subsidiary of Holdings. MidAmerican Capital, Midwest
Capital and MidAmerican Realty Services Company (MidAmerican Realty) are
Holdings' nonregulated subsidiaries. MidAmerican Capital manages marketable
securities and passive investment activities, nonregulated retail and wholesale
natural gas businesses, security services and other energy-related, nonregulated
activities. Midwest Capital functions as a regional business development company
in MidAmerican's utility service territory. MidAmerican Realty includes the
Company's recently acquired real estate operations.
On May 27, 1998, the Company completed its purchase of AmerUs Home Services
Inc. The companies acquired in that transaction are now subsidiaries of
MidAmerican Realty and include real estate operations in five states: Iowa
Realty, the state's largest, and First Realty/Better Homes and Gardens in Iowa;
Edina Realty in Minnesota, North Dakota and Wisconsin; and Carol Jones,
Realtors, in Missouri. On a consolidated basis, the new MidAmerican real estate
companies have more than 800 employees and 3,400 sales agents and comprise the
nation's third largest residential real estate brokerage organization based on
over 46,000 buyer/seller transactions in 1997. In addition to residential
brokerage, the MidAmerican Realty companies offer relocation, title and abstract
services.
DESCRIPTION OF FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis (MD&A) addresses the financial
statements of Holdings and MidAmerican as presented in this joint filing.
Discussions related to MidAmerican also relate 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.
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.
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
-16-
<PAGE>
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, fuel transportation, competitive
factors, general economic conditions in the Company's service territory,
interest rates, inflation and federal and state regulatory actions.
MERGER ANNOUNCEMENT
On August 11, 1998, a definitive merger agreement was entered into between
the Company and CalEnergy, a global provider of energy services. Under the terms
of the agreement, the shareholders of the Company will receive $27.15 cash for
each share of their common stock reflecting a 36 percent premium over the August
11, 1998 closing price. The merger will need to be approved by the shareholders
of both companies, the Federal Energy Regulatory Commission, and the Nuclear
Energy Regulatory Commission. Filings will also be made with the Iowa Utilities
Board, which has the right to review the merger and to disapprove it only if
found not in the public interest, the Federal Trade Commission and the
Department of Justice. State regulators in Illinois will be notified of the
merger. Management believes completion of the merger could occur by the first
quarter of 1999.
RESULTS OF OPERATION
--------------------
Holdings:
- - ---------
The following tables provide a summary of the earnings contributions of
the Company's operations for each of the periods presented:
<TABLE>
<CAPTION>
Periods Ended June 30
------------------------------------------------------------
Three Months Six Months Twelve Months
------------------ ---------------- ----------------
1998 1997 1998 1997 1998 1997
------ ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net Income (in millions)
Continuing operations
Utility $ 17.1 $ 20.6 $ 49.1 $ 53.0 $115.5 $138.2
Nonregulated operations 3.9 3.6 10.6 5.3 25.2 (9.6)
Discontinued operations - 0.4 - 0.2 (4.4) (19.1)
------ ------ ------ ------ ------ ------
Consolidated earnings $ 21.0 $ 24.6 $ 59.7 $ 58.5 $136.3 $109.5
====== ====== ====== ====== ====== ======
Earnings Per Common Share -
Basic and Diluted
Continuing operations
Utility $ 0.18 $ 0.21 $ 0.52 $ 0.53 $ 1.21 $ 1.38
Nonregulated operations 0.04 0.03 0.11 0.06 0.26 (0.10)
Discontinued operations - 0.01 - - (0.04) (0.19)
------ ------ ------ ------ ------ ------
Consolidated earnings $ 0.22 $ 0.25 $ 0.63 $ 0.59 $ 1.43 $ 1.09
====== ====== ====== ====== ====== ======
</TABLE>
-17-
<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 June 30
----------------------------------------------------------
Three Months Six Months Twelve Months
---------------- ----------------- -------------------
1998 1997 1998 1997 1998 1997
------- ------ ------- ------- -------- --------
(in millions)
<S> <C> <C> <C> <C> <C> <C>
Earnings on Common Stock
Continuing operations $ 17.1 $ 20.6 $ 49.1 $ 53.0 $ 115.5 $ 138.2
Discontinued operations* - - - - - (20.6)
------- ------ ------- ------- -------- --------
Consolidated earnings $ 17.1 $ 20.6 $ 49.1 $ 53.0 $ 115.5 $ 117.6
======= ======= ======= ======= ======== ========
</TABLE>
* Discontinued operations for twelve months ended June 30, 1997, includes
the loss of MidAmerican Capital and Midwest Capital prior to their transfer to
Holdings on December 1, 1996.
EARNINGS DISCUSSION
Below is a list of some of the significant factors resulting in the
variances in earnings. The amounts represent the variance between the 1998 and
1997 periods. Therefore, a factor that had a negative impact on earnings in both
periods, but which had less of a negative impact in the 1998 period than in the
1997 period, would be displayed as a positive factor for comparison purposes.
The discussion that follows addresses these factors as well as other items
affecting the Company's results of operations.
In the second half of 1997, MidAmerican began charging to expense
additional amortization of deferred energy efficiency costs, ongoing energy
efficiency costs and certain Cooper Nuclear Station costs consistent with
ratemaking treatment. These items have had a significant impact on other
operating expenses. In conjunction with expensing these items, MidAmerican began
recovery of these costs from its customers, which is reflected in revenues. In
order to present more appropriately the effect of gross margin and O&M expenses
on the comparison of earnings shown below, the expenses related to these items
are netted against the related revenues.
-18-
<PAGE>
<TABLE>
<CAPTION>
Approximate Net Income Variances: 1998 vs 1997
-----------------------------------------------
For Periods Ended June 30
---------------------------------------
Three Months Six Months Twelve Months
------------ ---------- -------------
($ In Millions)
MidAmerican:
- - ------------
<S> <C> <C> <C>
Net reduction in electric and gas
gross margin due to -
Variation in the effect of weather $ - $(6.5) $(3.5)
Customer growth 1.3 2.9 7.7
Electric retail rates and accruals (1.2) (2.4) (6.4)
Off-system sales 2.7 2.1 5.1
Improvements due to other factors 3.0 11.7 18.1
Nuclear O&M expenses (1.6) 1.3 0.7
1996 inventory adjustment - - (3.7)
Other O&M expenses (5.6) (9.0) (38.9)
Property taxes - - (4.0)
Recognition of deferred energy
efficiency income (0.8) (1.9) (1.9)
1996 gain on sale of storage gas - - (2.4)
1996 merger proposal costs - - 5.1
Nonregulated subsidiaries:
Write-downs of certain assets - - 7.4
Realized gain on sale of McLeodUSA
Incorporated common stock - - 5.2
Donation of appreciated stock (2.4) (2.4) (2.4)
Gains on sales of certain assets - 3.2 8.0
Income from a venture capital investment - 1.2 1.2
Realty operations 1.7 1.7 1.7
Reduction of interest on long-term debt - 0.7 5.0
Discontinued operations (0.4) (0.2) 14.7
Average shares outstanding for 1997 period 98,621 99,534 100,096
</TABLE>
During the second quarter of 1998, one of MidAmerican's coal-fired
generating stations was shut down when a generation step-up transformer failed
and two intense storms struck MidAmerican's service territory. Also, the Quad
Cities Nuclear Power Station (Quad Cities Station) remained out of service until
June 1. These events reduced utility earnings for the second quarter of 1998.
Third quarter earnings will reflect most of the expenses for the storms since
much of the repair work occurred in July. The impact on third quarter earnings
is not expected to be material. Expenses for continued efforts in preparation
for a competitive utility environment also reduced earnings. Improved margins
helped to offset some of the increases in expenses.
In the past two years, the Company's strategic realignment of operations
has significantly affected earnings of nonregulated subsidiaries. During 1997
and the first quarter of 1998, the Company divested a number of its interests in
nonregulated assets which did not align with the corporate vision of becoming
the leading regional provider of energy and complementary services. Earnings for
the twelve months ended June 30, 1998, include 6 cents per share from the sale
of assets of railcar leasing and repair businesses in the fourth quarter of
1997. Earnings for the first six months of 1998 reflect 3 cents per share for
the sale of the
-19-
<PAGE>
Company's interest in a financial management company and the liquidation of a
partnership that owned commercial office buildings. Losses from discontinued
operations reduced earnings in each twelve-month period shown above, though to a
lesser degree in the 1997 period. Cash proceeds from the sale of discontinued
operations in early 1997 allowed the Company to pay off long-term debt,
significantly reducing its interest expense compared to the twelve months ended
June 30, 1997.
Although utility earnings for the current twelve-month period were lower
than in the prior year, a reduction was anticipated because of the electric
pricing settlements achieved in 1996 and 1997 in Iowa and Illinois.
Additionally, utility operating expenses increased as the Company continued its
strategic realignment which included strengthening its marketing and customer
service capabilities and adding to its information technology resources.
The Company's evaluation of its nonregulated investments has resulted in
write-downs of certain assets, primarily investments in alternative energy
projects, in the past two years. The write-downs, which reflect declines in the
value of those nonregulated investments, reduced earnings by approximately $2.0
million, or 2 cents per share, and $9.4 million, or 9 cents per share, in the
twelve months ended June 30, 1998 and 1997, respectively.
Discontinued Operations -
Holdings:
- - ---------
During 1996, the Company discontinued some of its nonregulated operations.
The Consolidated Statements of Income reflect the income or loss from those
operations and the losses on disposal in each of the periods presented. Net
assets of the discontinued operations are presented separately in the
Consolidated Balance Sheets as Investment in Discontinued Operations.
In the fourth quarter of 1996, the Company and KCS Energy, Inc. (KCS)
signed a definitive agreement to sell a portion of the Company's nonregulated
operations to KCS for $210 million in cash plus 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 twelve months ended
June 30, 1997, reflects a $7.6 million after-tax loss for the transaction. An
additional $0.4 million after-tax loss is included in the twelve months ended
June 30, 1998.
In October 1997, the Company 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 recorded a $4.0 million
anticipated after-tax loss on disposal of those operations in September 1996 and
an additional $3.2 million after-tax loss on disposal in September 1997.
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 includes the net earnings/loss of MidAmerican Capital and Midwest
Capital for periods prior to their December 1, 1996, transfer to Holdings.
-20-
<PAGE>
UTILITY GROSS MARGIN
Electric Gross Margin:
----------------------
<TABLE>
<CAPTION>
Periods Ended June 30
------------------------------------------------
Three Months Six Months Twelve Months
------------ ---------- -------------
1998 1997 1998 1997 1998 1997
------ ------ ------ ------ ------ ------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $287 $262 $543 $ 516 $1,154 $1,086
Cost of fuel, energy and capacity 58 52 103 111 228 229
---- ---- ---- ----- ------ ------
Electric gross margin $229 $210 $440 $ 405 $ 926 $ 857
==== ==== ==== ===== ====== ======
</TABLE>
A variety of factors contributed to the increase in MidAmerican's electric
gross margin for the 1998 periods compared to the 1997 periods. An increase in
revenues from energy efficiency cost recovery accounted for $9.1 million, $18.0
million and $26.9 million of the increase in margin for the three-, six- and
twelve-month comparisons, respectively. Revenues from the Cooper Tracker
(discussed below) contributed $1.6 million, $3.2 million and $7.3 million to the
increases for the three, six and twelve months ended June 30, 1998,
respectively. Revenues from these factors are substantially offset by increases
in other operating expenses.
Regarding the increase in energy efficiency revenues, on September 29,
1997, MidAmerican began collection of its remaining deferred energy efficiency
costs and current, ongoing energy efficiency costs. Including an allowed return
on the deferred costs, the annual increase in electric revenues is $36.1
million. The effect on earnings of this increase in revenues and gross margin is
partially offset by a corresponding increase in other operating expenses of
$31.1 million annually for currently incurred electric energy efficiency costs
and amortization of previously incurred costs.
The Cooper Tracker allows MidAmerican to collect on a current basis, the
Iowa portion of expenses for Cooper capital improvement advances.
The effect of temperatures contributed $4 million to the increase in margin
for the second quarter of 1998 compared to 1997. Compared to normal, 1998 second
quarter temperatures resulted in an increase in gross margin of $2 million,
while the 1997 second quarter was cooler than normal, resulting in a decrease in
margin of $2 million. An increase in sales not dependent on weather improved
electric margin for the quarter. Moderate customer growth resulted in a $1.9
million increase in electric gross margin compared to the 1997 second quarter.
Total retail sales of electricity increased 4.7%.
Energy costs per unit in the second quarter of 1998 were above the per-unit
amount recovered in rates under the new Iowa pricing plan and resulted in a
decrease to gross margin compared to the second quarter of 1997. Prior to July
11, 1997, MidAmerican was allowed to recover its energy costs from most of its
electric utility customers through Energy Adjustment Clauses (EACs) included in
revenues. Effective July 11, 1997, the EAC was eliminated for Iowa customers as
part of a new Iowa pricing plan. Previously, variations in energy costs did not
affect gross margin or net income due to corresponding changes in revenues
collected through the EACs. With the elimination of the Iowa EAC, fluctuations
in energy costs now have an impact on gross margin and net income.
Reductions of electric retail rates, including the effect of related
accruals, resulted in a $2.0 million decrease in revenues and gross margin
compared to the second quarter of 1997.
-21-
<PAGE>
Sales for resale increased 16.7% for the quarter comparison. Margins on
those sales contributed $4.6 million more to gross margin in the 1998 quarter
than the sales in the second quarter of 1997. Refer to the discussion of the
energy market under "Competition" in the Operating Activities and Other Matters
section of MD&A.
For the comparison of the six-month periods ended June 30, the variance in
temperatures resulted in a $1 million decrease in electric gross margin.
Compared to normal, the 1998 temperatures resulted in a decrease in gross margin
of $6 million, while the 1997 period reflects a $5 million decrease in margin.
An increase in sales not dependent on weather more than offset the decrease in
margin due to weather for the 1998 period compared to 1997. Moderate but steady
customer growth improved gross margin by $4.0 million compared to the 1997
six-month period. Total retail sales of electricity increased 2.3% compared to
six months ended June 30, 1997.
Reductions of electric retail rates, including the effect of related
accruals, resulted in a $4.1 million decrease in revenues and gross margin
compared to the first six months of 1997.
Year-to-date sales for resale decreased 10.0% compared to the six months
ended June 30, 1997. However, margins on those sales contributed $3.6 million
more to gross margin in the 1998 period than the sales in the same period of
1997.
For the twelve months ended June 30 comparison, temperatures reduced
revenues and gross margin less in the 1998 period than in the 1997 period. When
compared to normal, the impact of temperatures resulted in a $14 million
reduction in electric gross margin for the 1998 twelve-month period compared to
a $23 million reduction in gross margin for the twelve months ended June 30,
1997. Moderate but steady growth in the number of customers increased gross
margin $10.5 million compared to the 1997 period. An increase in sales that are
not dependent on weather also contributed to the increase in gross margin.
Electric retail sales increased 2.7% for the 1998 twelve-month period compared
to the twelve months ended June 30, 1997.
Retail rate reductions, including the effect of related accruals, reduced
electric gross margin by approximately $10.9 million compared to the twelve
months ended June 30, 1997. Refer to "Rate Matters" in Liquidity and Capital
Resources later in this discussion for further information regarding the Iowa
proceeding.
Sales for resale increased 1% for the twelve months ended June 30
comparison, while margins on those sales increased approximately $8.6 million.
Transmission revenues increased $3.1 million compared to the 1997 twelve-month
period.
Energy costs per unit in the twelve months ended June 30, 1998 were below
the per-unit amount recovered in rates under the new Iowa pricing plan and
resulted in an increase to gross margin.
-22-
<PAGE>
Gas Gross Margin:
- - -----------------
Periods Ended June 30
------------------------------------------------
Three Months Six Months Twelve Months
------------- -------------- --------------
1998 1997 1998 1997 1998 1997
----- ----- ----- ----- ----- ------
(In millions)
Operating revenues $67 $81 $240 $292 $484 $548
Cost of gas sold 33 45 138 187 297 361
--- --- ---- ---- ---- ----
Gas gross margin $34 $36 $102 $105 $187 $187
=== === ==== ==== ==== ====
Revenues include purchase gas adjustment clauses (PGAs) through which
MidAmerican has been allowed to recover the cost of gas sold from most of its
gas utility customers. Consequently, fluctuations in the cost of gas sold do not
affect gross margin or net income because revenues reflect comparable
fluctuations in revenues from PGAs.
Temperatures in the second quarter of 1998 were warmer than normal,
resulting in a $2 million decrease in gas gross margin for the period, while
temperatures in the second quarter of 1997 were colder than normal, resulting in
a $2 million increase in margin. Total retail sales of natural gas decreased
25.0% compared to the second quarter of 1997.
Increased recovery of gas energy efficiency costs resulted in a $3.2
million positive impact on the comparison of revenues and gross margin for the
quarter. As discussed in the electric gross margin section, on September 29,
1997, MidAmerican began recovery of its energy efficiency costs which had not
previously been approved for recovery. Including an allowed return on deferred
costs, the annual increase in gas revenues is $12.8 million. The effect on
earnings of this increase is partially offset by a corresponding increase in
other operating expenses of approximately $11.1 million annually for deferred
and ongoing gas energy efficiency costs.
For the six months ended June 30, 1998, temperatures were 14.4% warmer than
normal resulting in a $10 million decrease in gas gross margin.
Colder-than-normal temperatures in the comparable 1997 period increased margin
by approximately $1 million. Retail sales decreased 15.6% compared to the 1997
six-month period. Customer growth contributed $0.9 million to gas margin, and
the mix of sales helped to offset the effect of a small decrease in usage not
related to weather. Energy efficiency revenues increased $6.2 million for the
six months ended June 30, 1998, compared to the same period in 1997.
Mild temperatures resulted in a $15 million decrease in gas gross margin
for the twelve months ended June 30, 1998, compared to the twelve months ended
June 30, 1997. When compared to normal, the impact of temperatures resulted in
an $11 million reduction in gas gross margin in the 1998 twelve-month period
compared to a $4 million increase in gas gross margin for the twelve months
ended June 30, 1997.
The increase in recovery of gas energy efficiency costs for the
twelve-month period recovered approximately $9.4 million of the loss in revenues
and margin resulting from milder temperatures. Moderate customer growth,
contributing $2.6 million to gross margin, and an increase from other usage
factors also helped offset decreases in gross margin for the 1998 period.
-23-
<PAGE>
UTILITY OPERATING EXPENSES
Other Operating Expenses -
Utility other operating expenses increased $13.1 million, $26.2 million and
$91.3 million for the three, six and twelve months ended June 30, 1998,
respectively, compared to the same periods in 1997.
As mentioned in the gross margin discussions, on September 29, 1997,
MidAmerican began additional recovery of deferred energy efficiency costs and
current recovery of ongoing costs. As the deferred costs are recovered in
revenues, they are amortized to expense. In addition, ongoing energy efficiency
costs, which historically were deferred until future periods, are now charged to
expense currently. The increase in energy efficiency costs accounted for $10.7
million, $21.5 million and $32.8 million of the increase in other operating
expenses for the three, six and twelve months ended June 30, 1998, respectively,
compared to the same periods in 1997.
In addition to the energy efficiency expense increase, operating expenses
related to Cooper increased due in part 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 in the Electric Gross Margin section, MidAmerican is
recovering on a current basis the Iowa portion of these costs from its Iowa
electric customers through the Cooper Tracker. Recovery in Illinois is included
in base rates. This change accounted for increases of $0.7 million and $4.7
million for the six-month and twelve-month comparisons, respectively, and a
decrease of $0.5 million for the three-month period due to an adjustment for a
prior estimate. Excluding these Cooper costs, nuclear operations expenses
decreased $2.9 million and $5.9 million, respectively, for the three-month and
six-month comparisons and were unchanged for the twelve-month periods.
Continued restructuring of the Company in preparation for a competitive
industry has required additional expenses. MidAmerican has increased its
emphasis on marketing-related efforts, as well as customer service operations,
resulting in increases in consulting costs, advertising, employee incentive
compensation and other related expenses. Increases in such expenses accounted
for the remainder of the increases for the quarter and six-month period
comparisons. In addition, the 1998 twelve-month period reflects increases in
certain employee benefits expenses, customer assistance and energy efficiency
administrative costs, manufactured gas plant site clean-up costs and
transmission wheeling expense due in part to changes required by FERC Order Nos.
888 and 889.
Maintenance -
Maintenance expenses increased $8.4 million and $7.2 million for the 1998
three-month and six-month periods ended June 30 compared to the same periods
ended June 30, 1997. Increased maintenance costs at the Quad Cities Station
accounted for $5.6 million and $3.7 million of the three-month and six-month
increases, respectively. Additionally, generating plant maintenance and
distribution system maintenance increased due in part to the outage at Louisa
Energy Center (Louisa) and storms in June 1998. Refer to Liquidity and Capital
Resources for a discussion of the shutdown at Louisa.
Maintenance expenses for the twelve months ended June 30, 1998, were $14.5
million greater than in the comparable 1997 period. In the fourth quarter of
1996, MidAmerican made an adjustment to align power plant inventory accounting
of predecessor companies. That adjustment reduced expenses by $6.2 million for
the twelve-month period ended June 30, 1997. In addition, the Company incurred
$2.0 million in maintenance expenses for restoration following a snowstorm in
October 1997. Costs related to the June 1998 storms, increased tree-trimming
costs and costs of the shutdown at Louisa also contributed to the increase.
-24-
<PAGE>
Maintenance expenses at the Quad Cities Station decreased $1.3 million in the
twelve-month period ended June 30, 1998, compared to the twelve months ended
June 30, 1997. Refer to the discussion of Quad Cities Nuclear Station in the
Liquidity and Capital Resources section of MD&A for information regarding the
status of Quad Cities Station.
Property and Other Taxes -
Property taxes increased for the twelve months ended June 30, 1998,
relative to the comparable 1997 period due primarily to an increase in the
assessed value for Iowa property taxes.
NONREGULATED OPERATING REVENUES AND OPERATING EXPENSES
Holdings:
- - ---------
Revenues of nonregulated subsidiaries decreased a total of $3.5 million,
$75.8 million and $121.2 million for the three-month, six-month and twelve-month
periods ended June 30, 1998, compared to their respective 1997 periods. Revenues
from the natural gas marketing subsidiaries decreased $20.0 million, $89.1
million and $134.6 million for the 1998 three-month, six-month and twelve-month
periods, respectively. Related sales volumes decreased 9 million MMBtu's (58%),
27 million MMBtu's (53%) and 53 million MMBtu's (49%) compared to the sales
volumes in the 1997 periods. The decrease in sales volumes is due primarily to
the expiration of contracts which have not been replaced. A decrease in the
average price per unit, reflective of a decrease in the cost of gas sold, also
reduced revenues in the six months ended June 30, 1998, for the natural gas
marketing subsidiaries.
Cost of sales includes expenses directly related to sales of natural gas.
The decrease in cost of sales related to natural gas marketing for the first six
months of 1998 reflects a 20% decrease in the average cost of gas per unit.
Total gross margin (total price less cost of gas) on nonregulated natural gas
sales decreased $1.3 million, $1.4 million and $0.4 million for the 1998 three,
six, and twelve months ended June 30, respectively, compared to the 1997
periods.
Nonregulated revenues for each of the 1998 periods reflect $18.3 million
from the real estate brokerage operations acquired in May 1998. Nonregulated
cost of sales and nonregulated other operating expenses for each 1998 period
presented include $6.5 million and $8.4 million, respectively, related to the
real estate brokerage companies.
Nonregulated other operating expenses for the 1998 twelve-month period
include a decrease of approximately $8.1 million due primarily to administrative
costs in the 1997 period which are no longer incurred because of the absence of
operations the Company sold in early 1997.
NON-OPERATING INCOME AND INTEREST EXPENSE
MidAmerican:
- - ------------
Interest and Dividend Income -
Interest income increased in each 1998 comparative period due to an
increase in temporary cash investments.
-25-
<PAGE>
Other, Net -
In the fourth quarter of 1997, MidAmerican sold a portion of its accounts
receivable. Other, Net for the 1998 quarter, six months and twelve months ended
June 30 includes deductions for discounts on receivables sold totaling $1.8
million, $4.0 million and $4.0 million, respectively. Refer to the Financing
Activities section of Liquidity and Capital Resources later in MD&A for a
discussion of the receivables sale.
Recognition of deferred income from energy efficiency programs totaled
zero, $0.1 million and $1.8 million for the 1998 three-month, six-month and
twelve-month periods ended June 30, respectively. The comparable 1997 periods
reflect income of $1.3 million, $3.3 million and $5.0 million, respectively.
Other, Net for the six-month and twelve-month periods ended June 30, 1997,
includes a reduction for net losses on reacquired long-term debt of $0.9 million
and $0.2 million, respectively.
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 was refunded to
MidAmerican's customers. The remaining amount was retained by MidAmerican for
recovery of litigation costs in the lawsuit. Other, Net for the 1998
twelve-month period reflects $2.2 million of pre-tax income for recovery of
litigation costs incurred in pre-1997 years.
MidAmerican was awarded pre-tax income in each of the periods presented for
performance under its incentive gas procurement program. In the second quarter
of 1998 and 1997, MidAmerican received $2.0 million and $1.7 million,
respectively. Twelve months ended June 30, 1998 and 1997, reflect amounts of
$5.3 million and $4.4 million, respectively.
Other, Net for the 1997 twelve-month period 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 initial pre-tax gain
of $3.2 million on its sale of certain storage gas supplies which is reflected
in the twelve months ended June 30, 1997. MidAmerican recorded an additional
$0.8 million gain in the second quarter of 1997, which is also reflected in the
twelve months ended June 30, 1997, after receiving favorable treatment on the
transaction from the Iowa Utilities Board (IUB).
The twelve months ended June 30, 1997, also includes $2.2 million of income
from the reversal of a reserve after successful resolution of a dispute with a
vendor.
Fixed Charges -
Interest on long-term debt decreased due to long-term debt reduction and
refinancing activities in 1996 and 1997. Preferred securities of a subsidiary
trust were issued in December 1996 resulting in the twelve months ended June 30,
1997, including only a partial year of dividends. MidAmerican preferred shares
were reacquired at the same time, resulting in a decrease in preferred dividends
deducted after net income in MidAmerican's Consolidated Statements of Income.
-26-
<PAGE>
Holdings:
- - ---------
Dividend Income -
Dividend income decreased for each of the periods ended June 30, 1998,
compared to the respective 1997 periods due to MidAmerican Capital's reduced
holdings of preferred stock portfolios, a portion of which MidAmerican Capital
liquidated in 1996.
Realized Gains and Losses on Securities, Net -
Net realized gains on securities for twelve months ended June 30, 1998,
includes an $8.0 million pre-tax gain on the sale of shares of McLeodUSA common
stock.
Other, Net -
The first six months of 1998 includes $4.7 million from the divestment
of nonregulated assets in the first quarter, including the sale of the Company's
interest in a financial management company, the sale of a commercial office
building and liquidation of a partnership interest concurrent with the sale of
its commercial property. In addition, the Company recorded $2.1 million of
income from an equity investment in a venture capital fund.
In addition to the above items, the twelve months ended June 30 periods
were also affected by the factors discussed in the next paragraph.
During the twelve months ended June 30, 1998, the Company sold all of
the assets of its railcar repair services subsidiary and most of the assets of
its railcar leasing subsidiary and recorded pre-tax gains totaling $10.0
million. Write-downs of nonregulated investments, as discussed in the Earnings
Discussion section at the beginning of Results of Operations, decreased Other,
Net by $3.4 million and $15.6 million for the 1998 and 1997 twelve months ended
June 30, respectively. Excluding the investment mentioned above, income from
equity investments decreased for the 1998 twelve-month period due to the
liquidation of such investments during 1996 and early 1997.
Interest Charges -
Interest on long-term debt of nonregulated subsidiaries decreased $8.5
million for the twelve-month comparison due primarily to the reduction in
MidAmerican Capital's long-term debt in early 1997.
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.
-27-
<PAGE>
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 of June 30, 1998, common equity represented 51.7% of the Company's total
capitalization compared to 51.7% and 47.9% as of December 31, 1997, and June 30,
1997, respectively. Several factors other than earnings, dividends and scheduled
maturities of debt affected the change in the percent of common equity.
Recording accumulated comprehensive income for an investment in McLeodUSA to
reflect its market value, and repurchases and retirement of debt prior to its
scheduled maturity were major contributors to the move to a higher percentage of
common equity since June 30, 1997. The Company's common stock repurchase program
has reduced common equity during that period.
MidAmerican's common equity as of June 30, 1998, represented 46.8% of its
capitalization compared to 45.6% as of June 30, 1997. A reduction of long-term
debt was the primary cause of the change.
As reflected on the Consolidated Statements of Cash Flows, Holdings had net
cash provided from operating activities of $238 million for the first six months
of 1998 compared to $225 million for the same period in 1997. MidAmerican's net
cash provided from operating activities was $236 million for the first six
months of 1998 and $163 million for the first six months of 1997.
INVESTING ACTIVITIES AND PLANS
MidAmerican:
- - ------------
Utility Construction Expenditures -
MidAmerican's primary need for capital is utility construction
expenditures. For the first six months of 1998, utility construction
expenditures totaled $69 million, including allowance for funds used during
construction (AFUDC) and Quad Cities Station nuclear fuel purchases. In
addition, MidAmerican's nonregulated railway subsidiary had $20 million of
construction expenditures in the same period. All such expenditures were met
with cash generated from utility operations, net of dividends.
Beginning with July 1997 expenditures, advances for Cooper capital
improvements are no longer included in utility construction expenditures but are
expensed when incurred in other operating expenses. Previously, MidAmerican
capitalized these expenses in accordance with then applicable rate regulation.
As part of the 1997 settlement of MidAmerican's electric pricing proposal,
MidAmerican is recovering on a current basis the Iowa portion of expenses for
Cooper capital improvements advances from its Iowa electric customers through a
tracking mechanism.
Forecasted utility construction expenditures, including AFUDC, for 1998 are
$201 million and $609 million for 1999 through 2002. Capital expenditure needs
are reviewed regularly by MidAmerican's management and may change significantly
as a result of such reviews. MidAmerican presently expects that all utility
construction expenditures for the next five years 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.
-28-
<PAGE>
Deferred Energy Efficiency Expenditures -
The Company stopped reflecting costs of its energy efficiency programs as
an investing activity on its Consolidated Statement of Cash Flows following the
IUB's approval in September 1997 of current recovery of ongoing energy
efficiency program costs. Under prior energy efficiency regulations, program
costs were deferred for several years prior to beginning their recovery over a
four-year period, and accordingly, the Company reflected them as an investing
activity.
Nuclear Decommissioning -
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 $50 million during the period 1998 through 2002 to an
external trust established for the investment of funds for decommissioning the
Quad Cities Station. Historically, the funds were invested in investment grade
municipal and U.S. Treasury bonds; however, in 1997 MidAmerican directed the
trust to begin investing a portion of the funds in domestic corporate debt and
common equity securities. Approximately 50% of the trust's funds are now
invested in domestic corporate debt and common equity securities.
In addition, MidAmerican makes payments to NPPD related to decommissioning
Cooper. These payments are reflected in other operating expenses in the
Consolidated Statements of Income. NPPD estimates call for MidAmerican to pay
approximately $57 million to NPPD for Cooper decommissioning during the period
1998 through 2002. NPPD invests the funds predominately in U.S. Treasury Bonds.
MidAmerican's obligation for Cooper decommissioning may be effected by the
actual plant shutdown date and the status of the power purchase contract at that
time. In July 1997, NPPD filed a lawsuit in United States District Court for the
District of Nebraska naming MidAmerican as the defendant and 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:
- - ---------
Nonregulated Capital Expenditures -
Capital expenditures of MidAmerican Capital, Midwest Capital and
MidAmerican Realty totaled $19 million for the first six months of 1998. Capital
expenditures of these subsidiaries depend primarily upon the availability of
suitable investment opportunities which meet the Company's objectives. The
Company continues to evaluate nonregulated investments and may redeploy certain
assets in the future. External financing may also be used to provide for
nonregulated capital expenditures.
As discussed in the Introduction section of MD&A, the Company purchased
AmerUs Home Services Inc. in May 1998 for approximately $80 million. The
acquired companies are now the subsidiaries of MidAmerican Realty. Total assets
of MidAmerican Realty as of June 30, 1998, were $120 million. The line items
significantly affected on the Company's Consolidated Balance Sheet as of June
30, 1998, are as follows ($ in millions): Receivables ($40.4); Other Assets
($56.1); Notes Payable ($50.5); and Other Current Liabilities ($30.6).
-29-
<PAGE>
During the second quarter of 1998, the Company also acquired the assets of
two security services companies in the Midwest.
Investments -
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. 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, without the approval of
McLeodUSA's board of directors. 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 is recorded at
fair value. As of June 30, 1998, the cost and fair value of the McLeodUSA
investment were $45.2 million and $313.3 million, respectively. The unrealized
gain is recorded, net of income taxes, as accumulated comprehensive income in
common shareholders' equity. As of June 30, 1998, the unrealized gain and
deferred income taxes for this investment were $268.1 million and $93.8 million,
respectively.
MidAmerican Capital received approximately $302 million in cash, before
income taxes, during 1997 from sales of investments primarily as part of its
efforts to align them with the Company's strategy. A portion of the after-tax
proceeds from these sales was used for retirement of $174 million of MidAmerican
Capital long-term debt in the first quarter of 1997, additional retirement of
long-term debt in 1997 and for dividends to Holdings for use in the repurchase
of the Company's common stock.
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 June 30, 1998, MidAmerican had a $250
million revolving credit facility agreement and a $5 million line of credit to
provide short-term financing for utility operations. MidAmerican's commercial
paper borrowings, which totaled $41.5 million at June 30, 1998, 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.
In 1997, MidAmerican entered into a revolving agreement, which expires in
2002, to sell all of its right, title and interest in the majority of its billed
accounts receivable to MidAmerican Energy Funding Corporation (Funding Corp.), a
special purpose entity established to purchase accounts receivable from
MidAmerican. Funding Corp. in turn sold receivable interests to outside
investors. In consideration for the sale, MidAmerican received $70 million in
cash and the remaining balance in the form of a subordinated note from Funding
Corp. The agreement is structured as a true sale, as determined by Statement of
Financial Accounting Standards (SFAS) No. 125, under which the creditors of
Funding Corp. will be entitled to be satisfied out of the assets of Funding
Corp. prior to any value being returned to MidAmerican or its creditors.
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Therefore, the accounts receivable sold are not reflected on Holdings' or
MidAmerican's Consolidated Balance Sheets. As of June 30, 1998, $106.3 million,
net of reserves, was sold under the agreement.
On June 16, 1998, MidAmerican issued $160 million of 8-year Medium Term
Notes (MTN's) at a 6.38% coupon rate. Proceeds from the sale were used to refund
$50 million of the 8% Series General Mortgage Bonds due February 15, 2022, and
$100 million of the 8.125% Series General Mortgage Bonds due February 1, 2023.
The refund occurred on the July 15, 1998 redemption date. Consequently, the
Consolidated Balance Sheets as of June 30, 1998, reflect these series in current
maturities and the proceeds in cash, to the extent they were not used to
temporarily reduce short-term borrowings.
As of July 31, 1998, MidAmerican had $325 million of long-term debt
maturities and sinking fund requirements for 1998 through 2002.
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 July 31, 1998, 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 if in the judgment of the rating agency
circumstances so warrant. Such ratings are not a recommendation to buy, sell or
hold securities.
Moody's
Investors Standard
Service & Poor's
--------- --------
Mortgage Bonds A2 AA-
Unsecured Medium-Term Notes A3 A
Preferred Stocks a3 A
Commercial Paper P-1 A-1
Preferred Dividends -
Preferred dividends include net gains or losses on the reacquisition of
MidAmerican preferred shares. Net losses on reacquisitions totaled $1.4 million
and $2.8 million for the six-month and twelve-month periods ended June 30, 1997,
respectively.
Holdings:
As of June 30, 1998, Holdings had lines of credit totaling $130 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.
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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. As of June 30, 1998, the Company
had repurchased approximately 6.2 million shares for $114.8 million. The Company
believes repurchasing Holding's common stock is the best investment of Company
funds at this time. Repurchasing the common stock will reduce total common
dividend requirements and aid in improving the Company's dividend payout ratio.
In addition, a subsidiary of the Company holds approximately 437,000 shares of
Holdings common stock which are also excluded from shares outstanding.
On July 28, 1998, Holdings' board of directors declared a quarterly
dividend on common shares of $0.30 per share payable August 1, 1998. The
dividend represents an annual rate of $1.20 per share.
Nonregulated Subsidiaries -
As of June 30, 1998, MidAmerican Capital had unsecured revolving credit
facilities in the amount of $114 million, under which no debt was outstanding.
MidAmerican Capital has $135 million of long-term debt maturities and sinking
fund requirements, including $20 million of current maturities, for 1998 through
2002 related to debt outstanding at June 30, 1998.
Midwest Capital currently has a $25 million line of credit with
MidAmerican, of which $5 million was outstanding at June 30, 1998.
OPERATING ACTIVITIES AND OTHER MATTERS
Throughout the country, the utility industry continues to move towards a
competitive environment. Although the extent of deregulation varies between
states, increased competition is becoming a reality in virtually every region of
the country. Numerous states have passed restructuring legislation, some of
which initiated a phase-in of customer choice in 1998. Legislators and
regulators in many other states are addressing the issue.
As part of many restructuring legislation packages, electric utilities are
required to unbundle traditional services previously provided as a "packaged
product" under their rate tariffs. Unbundling allows customers to choose their
energy supplier and the level of energy delivery and retail services they
desire. Gas utilities are also experiencing separation of the merchant and
delivery functions for all classes of customers.
The generation segment of the electric industry will be significantly
impacted by competition. The introduction of competition in the wholesale market
has resulted in a proliferation of power marketers and a substantial increase in
market activity. As retail competition evolves, margins will be pressured by
competition from other utilities, power marketers, and self-generation.
Additionally, increased volatility in the energy marketplace can be expected.
As evidence of this, in late June 1998, utility energy markets in the
Midwest experienced substantial price volatility due to a number of factors. The
market volatility did not have a material impact on MidAmerican's energy costs.
As the industry moves into a competitive utility environment, the Company
expects such volatility to continue. MidAmerican cannot predict the effect of
that volatility on its future revenues, energy costs or net income.
MidAmerican has been active in promoting and monitoring legislative and
regulatory changes that affect the jurisdictions in which it operates. In order
to successfully compete in the new environment, the Company believes it must
become the leading regional provider of energy and complementary services. The
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Company is evaluating all aspects of its business to determine what adjustments
are necessary to align them with this strategy. Aligning nonregulated businesses
with the Company's strategy has resulted, and may continue to result in the next
year, in negative impacts on Holdings' earnings in the form of write-downs for
the sale, revaluation or discontinuance of nonregulated operations and
investments. (Refer to the Results of Operations section of MD&A for comments on
the earnings impact of such actions.) The following discussion further addresses
changes affecting the industry and actions the Company is taking to implement
its strategy.
Competition -
MidAmerican is subject to regulation by several utility regulatory agencies
which significantly influences the operating environment and the recoverability
of costs from utility customers. That regulatory environment has, in general,
given MidAmerican an exclusive right to serve customers within its service
territory and, in turn, the obligation to provide electric service to those
customers.
Although the anticipated changes in the electric utility industry may
create opportunities, they will also create additional challenges and risks for
utilities. Competition will put pressure on margins for traditional electric
services. In order to lessen the impact of reduced margins, MidAmerican will
continue to focus on controlling the cost of traditional services. As part of an
electric pricing settlement approved by the IUB in 1997, MidAmerican reduced its
prices for most of its Iowa electric retail customers. In the IUB order
approving the settlement, MidAmerican was also authorized to enter into
long-term contracts with industrial and commercial electric customers. Refer to
"Rate Matters" later in this discussion for further information. In addition,
MidAmerican is positioning itself to offer complementary products and services
as expected opportunities become available in a competitive utility retail
market. Additional products and services may provide avenues to replace margins
lost on traditional electric services. The Company anticipates its recently
purchased real estate brokerage organization to benefit its utility operations
through the additional contact with customers and potential customers at times
when the Company can meet a variety of their needs.
In December 1997, an Iowa industrial customer located within MidAmerican's
IUB-approved exclusive electric service territory, filed a lawsuit against
Holdings and MidAmerican in the United States District Court for the Southern
District of Iowa (the Court) alleging various violations of federal antitrust
laws. The lawsuit stemmed from a claim that because the customer is not free to
choose its retail energy supplier, MidAmerican is engaging in illegal
monopolistic behavior. In addition to damages, the customer sought the right to
choose its electric retail supplier. MidAmerican maintains that its provision of
retail electric service is in accordance with Iowa laws and regulations
governing electric service territories, and all other applicable legal
requirements. The Court issued a judgment in favor of MidAmerican. An Appeal
filed by the customer is currently pending. A ruling in favor of the plaintiff
could have the effect of accelerating retail competition in MidAmerican's Iowa
service territory.
Legislative and Regulatory Evolution -
On December 16, 1997, the Governor of Illinois signed into law a bill to
restructure Illinois' electric utility industry and transition it to a
competitive market beginning October 1, 1999. MidAmerican is presently
participating in proceedings which detail the new competitive environment and
continues to evaluate the impact of the law on its operations.
The law requires a 15% electric rate reduction for all Illinois residential
customers in 1998. To satisfy its obligation, the law specifically permitted
MidAmerican to receive credit for the $15.5 million, or approximately 13%, rate
reductions implemented in Illinois in 1996 and 1997. MidAmerican is also
exempted from the requirement to join an independent system operator (ISO) or to
form an in-state ISO.
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In addition, the law provides for Illinois earnings above a certain level
of return on equity (ROE) to be shared equally between customers and MidAmerican
beginning in April 2000. The ROE level at which MidAmerican will be required to
share earnings is a multi-step calculation of average 30-year Treasury Bond
rates plus 5.50% for 1998 and 1999 and 6.50% for 2000 through 2004. If the
resulting average Treasury Bond rate approximated rates which existed in 1997,
the ROE level above which sharing must occur would be approximately 12%. The law
allows for methods to mitigate the sharing of earnings above the threshold ROE
which would reduce MidAmerican's earnings. MidAmerican continues to evaluate its
strategy regarding the sharing mechanism.
Beginning October 1, 1999, larger non-residential customers and 33% of the
remaining non-residential customers will be allowed to select their provider of
electric supply services. All other non-residential customers will have supplier
choice starting December 31, 2000. Residential customers all receive the
opportunity to select their electric supplier on May 1, 2002. Customer choice
will create opportunities for MidAmerican to add customers who are currently
served by other utilities. At the same time, it will introduce the risk of
losing current MidAmerican customers to other energy providers.
The law also addresses charges to customers for transition costs based on a
lost-revenue approach. These transition fees, designed to help utilities address
stranded costs, will end December 31, 2006, subject to possible extension.
MidAmerican's Iowa legislative priority for 1998 has been utility property
tax reform, a condition it considers precedent to utility industry
restructuring. A bill to replace the current utility property tax system, which
was supported by MidAmerican, was approved by the Iowa legislature and signed
into law by the Governor. The legislation becomes effective on January 1, 1999.
Because energy costs are relatively low in Iowa, industry restructuring has
not been an issue aggressively pursued in the state to date. During the 1998
Iowa legislative session, a group of industrial customers introduced legislation
to allow retail service competition, but it did not develop further. With
resolution of the utility property tax issue, MidAmerican intends to pursue the
adoption of restructuring legislation in the 1999 Iowa legislative session.
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 May 4, 1998, MidAmerican filed a proposal with the IUB to allow at least
15,000 Iowa families and 2,000 small businesses to have the opportunity to
select among competing electricity providers. If approved, the two-year program
would allow participating retail customers in a selected test area to choose
among several electricity providers, including MidAmerican, and to have that
energy delivered by MidAmerican. MidAmerican would select a test market later
this year, and customers would begin choosing among electricity providers in
December 1998. Businesses in the test area would be eligible for the program if
their annual peak demand is less than four megawatts. New suppliers
participating in the program would have to be certified by the IUB and meet
specified requirements. Under the proposal, lost revenues during the program
would be recorded as a regulatory asset for future recovery.
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Accounting Effects of Industry Restructuring -
A possible consequence of competition in the utility industry is that SFAS
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. A majority of MidAmerican's electric and
gas utility operations currently meet the criteria required by SFAS 71, but its
applicability is periodically reexamined. On December 16, 1997, MidAmerican's
generation operations serving Illinois were no longer subject to the provisions
of SFAS 71 due to passage of restructuring legislation in Illinois. Thus,
MidAmerican was required to write off those amounts of regulatory assets and
liabilities from its balance sheet related to its Illinois generation
operations. These write-offs were not material. If other portions of its utility
operations no longer meet the criteria of SFAS 71, MidAmerican would be required
to write off the related regulatory assets and liabilities from its balance
sheet, and thus, a material adjustment to earnings in that period could result.
As of June 30, 1998, MidAmerican had $312 million of regulatory assets in its
Consolidated Balance Sheet.
Energy Efficiency -
MidAmerican's regulatory assets as of June 30, 1998, included $87.5 million
of deferred energy efficiency costs. On September 29, 1997, MidAmerican received
approval from the IUB, effective immediately, to begin recovery of deferred
energy efficiency costs not previously approved for recovery. Based on the
current level of recovery, MidAmerican expects to recover approximately $35
million of the deferred energy efficiency costs in 1998. MidAmerican also
received approval to recover ongoing energy efficiency costs. Recovery of these
costs is currently being collected from customers based on projected annual
costs of $16.8 million. Amortization of deferred energy efficiency costs and
current expenditures for energy efficiency costs will be reflected in other
operating expenses over the related periods of recovery. The total of such costs
for the years 1998, 1999, 2000 and 2001, is estimated to be $52 million, $43
million, $41 million and $35 million, respectively.
Rate Matters -
As a result of a negotiated settlement in Illinois, MidAmerican reduced its
Illinois electric service rates by annual amounts of $13.1 million and $2.4
million, effective November 3, 1996, and June 1, 1997, respectively.
On June 27, 1997, the IUB approved a March 1997 settlement agreement
between MidAmerican, the Iowa Office of Consumer Advocate (OCA) and other
parties in a consolidated rate proceeding involving MidAmerican's electric
pricing proposal and a filing by the OCA. The agreement includes a number of
components of MidAmerican's pricing proposal. Six major components of the
settlement and their status are as follows:
1) On an annualized basis, prices for residential customers were reduced
$8.5 million, $10.0 million and $5.0 million effective November 1, 1996, July
11, 1997, and June 1, 1998 respectively, for a total annual decrease of $23.5
million.
2) Rates for industrial customers will be reduced by $6 million annually
and rates for commercial customers will be reduced by $4 million annually.
MidAmerican has been given permission to implement these reductions through a
retail access pilot project and through negotiated individual contracts. In the
event that these contracts in the aggregate do not reduce rates by $6 million
and $4 million, respectively, MidAmerican is required to apply any remaining
amount to across-the-board rate reductions to customers who do not enter into
contracts.
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The effective date for these rate reductions was set for June 1, 1998 in
the IUB Order approving the settlement. However, MidAmerican has pending before
the IUB a request to extend the deadlines until September 1, 1998 for industrial
customers, and December 31, 1998 for commercial customers. That request would
involve an obligation to increase the amount of the reduction on a one-time
basis to reflect the time value of money between June 1, 1998 and the new
requested deadlines. MidAmerican estimates it will not have any interest
obligation with respect to the industrial contracts, and will not incur any
material interest obligation with respect to its commercial contracts.
The negotiated contracts have differing terms and conditions as well as
prices. The contracts range in length from five to ten years, and some have
price renegotiation and early termination provisions exercisable by either
party. The vast majority of the contracts are for terms of seven years or less,
although, some large customers have agreed to 10-year contracts. Prices are set
as fixed prices; however, many contracts allow for potential price adjustments
with respect to environmental costs, government imposed public purpose programs,
tax changes, and transition costs. While the contract prices are fixed (except
for the potential adjustment elements), the costs MidAmerican incurs to fulfill
these contracts will vary. On an aggregate basis the annual revenues under
contract are approximately $125 million.
The IUB is currently considering the contracting process in two
proceedings. The outcome of those proceedings could impact further contracting
efforts, as well as determine whether any of the contracts will need to be
renegotiated, and the extent to which the annualized rate reduction will take
the form of negotiated contracts versus across-the-board rate reductions.
3) A tracking mechanism (Cooper Tracker) is being used to currently recover
costs for capital improvements required by the Cooper Nuclear Station Power
Purchase Contract which will offset approximately $6 million of the rate
reductions in 1998. Other operating expenses will correspondingly increase due
to currently expensing the related costs.
4) Elimination of the Iowa energy adjustment clause (EAC). Prior to July
11, 1997, MidAmerican collected fuel costs from Iowa customers on a current
basis through the EAC, and thus, fuel costs had little impact on net income.
Since then, base rates for Iowa customers 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 are impacted. The fuel cost factor will be
reviewed in February 1999 and adjusted prospectively if actual 1998 fuel costs
vary 15% above or below the factor included in base rates.
5) 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%.
6) 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 as described above, 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 by
the fourth quarter of 1998.
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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 27 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 $25
million. This estimate has been recorded as a liability and a regulatory 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 (NAAQS) 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. The attainment
status of areas in the state of Iowa will not be known for two to three years.
However, if MidAmerican's operations are determined to contribute to
nonattainment, the installation of additional control equipment, such as
scrubbers and/or selective catalytic reduction, on MidAmerican's units could be
required. The cost to install such equipment could be significant. MidAmerican
will continue to follow the attainment status of the areas in which it operates
and evaluate the potential impact of the status of these areas on MidAmerican
under the new regulations.
Following recommendations provided by the Ozone Transport Assessment Group,
the EPA, in November 1997, issued a Notice of Proposed Rulemaking which
identified 22 states and the District of Columbia as making significant
contribution to nonattainment of NAAQS for ozone. Iowa is not subject to these
emissions reduction requirements as EPA's rule is currently drafted, and, as
such, MidAmerican does not anticipate that its facilities will be subject to
additional emissions reductions as a result of this initiative. The EPA
anticipates issuing its final rules in September 1998. MidAmerican will continue
to closely monitor this rulemaking proceeding.
In December 1997, negotiators from more than 150 nations met in Kyoto,
Japan to negotiate an international agreement designed to address global climate
change impacts by attempting to reduce so-called greenhouse gas emissions. Some
scientists contend that these gases build up in the Earth's atmosphere and cause
global temperatures to rise. The primary target of these emissions is carbon
dioxide (CO2) which is formed by, among other things, the combustion of fossil
fuels. The agreement currently calls for the United States to reduce its
emissions of CO2 and other greenhouse gases to 7 percent below 1990 levels in
the 2008-
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2012 time frame. In order for the agreement to become binding upon the United
States, ratification by the U.S. Senate is necessary. The cost to the utility
industry in general, and to MidAmerican, of reducing its CO2 emissions levels by
7 percent below 1990 levels would depend on available technology at the time,
but could be material.
Coal Inventories -
Coal inventory levels at MidAmerican's coal-fired generating stations
declined approximately 40% (in terms of tons of coal) in the twelve months ended
June 30, 1998. A major factor contributing to the decrease was nationwide
operational problems experienced by a rail transportation provider of
MidAmerican. Inadequate delivery service to MidAmerican's Neal Energy Center
(Neal Center) in the fourth quarter of 1997 resulted in reduced coal inventory
at that site.
Inventory levels at other MidAmerican coal-fired generating stations also
decreased in part due to higher-than-expected generation levels at those
stations caused in part by the effort to conserve coal at the Neal Center. An
extended outage at the Quad Cities Nuclear Station also affected the need for
additional generation at MidAmerican's coal-fired generating stations.
Deliveries to the Neal Center have improved in 1998. Also, during the
second quarter, MidAmerican made progress in rebuilding its coal inventories
with the use of an additional train set and deliveries from other carriers.
Although MidAmerican's total coal inventory remains below the desired level, the
situation has been stabilized and is being managed. Coal delivery is affected by
factors MidAmerican does not control in its ability to manage coal inventories,
including but not limited to, weather, derailments and operational problems of
rail transportation providers. MidAmerican will be working throughout the year
to build its coal inventory to higher than the current level.
Quad Cities Nuclear Power Station Outage -
Quad Cities Station, which is operated by and 75% owned by Commonwealth
Edison Company (ComEd), began 1998 with Unit 1 and Unit 2 out of service under a
Confirmatory Action Letter (CAL) addressing safety system concerns in the event
of certain postulated fires. Also, in January, ComEd was informed by the Nuclear
Regulatory Commission (NRC) that the performance of Quad Cities Station is
trending adversely. The NRC lifted the CAL in May, and Unit 2 returned to
service on May 26, 1998. On June 1, 1998, Unit 1 returned to service. During
discussions with the NRC, ComEd made numerous commitments to the NRC with
respect to additional long-term analysis and improvements related to those
safety systems. ComEd has made significant changes in senior management
positions in its nuclear program and at the Quad Cities Station since November
1997 in an effort to improve its nuclear operations.
A refueling outage is scheduled for Quad Cities Unit 1 in November 1998. No
refueling outage is scheduled for either unit in 1999.
Louisa Energy Center -
On May 27, 1998, MidAmerican shut down its Louisa Energy Center (Louisa), a
700 MW coal-fired electric generating plant, when a generator step-up
transformer failed. In June, MidAmerican installed an interim replacement
transformer and restarted the Louisa plant on June 26. A repaired or new
transformer will be installed in the spring of 1999. The interim replacement
transformer, which can be recalled by the owner, is smaller than the original
transformer resulting in a slightly lower maximum output. MidAmerican does not
expect the lower maximum output to affect electric service to its customers.
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Generating Capability -
In July, 1998, customer usage of electricity caused an hourly peak demand
of over 3,600 megawatts (MW) on MidAmerican's energy system. MidAmerican's
previous record peak demand was 3,553 MW set in 1995. MidAmerican is
interconnected with certain Iowa and neighboring utilities and is involved in an
electric power pooling agreement known as Mid-Continent Area Power Pool (MAPP).
Each MAPP participant is required to maintain for emergency purposes a net
generating capability reserve of at least 15% above its system peak demand.
MidAmerican's accredited net generating capability under the MAPP rules is 4,425
MW. Accordingly, its maximum peak demand would be 3,798 MW in order to maintain
the required reserve.
If MidAmerican fails to maintain the appropriate reserve, significant
penalties would be contractually imposed by MAPP. MidAmerican believes it has an
adequate reserve; however, significantly higher-than-normal temperatures could
cause MidAmerican's reserve to fall below the 15% minimum.
YEAR 2000
The Company has undertaken an extensive ongoing project to identify and
assess its information technology (IT) and non-IT systems potentially affected
by the year 2000 date change and to repair or replace those systems which are
not year 2000 compliant. Currently, the Company is conducting an inventory of
its non-IT systems and equipment to identify potential year 2000 problems,
including components of its generation and delivery infrastructure. The
Company's operations utilize systems and equipment provided by other
organizations. As a result, year 2000 efforts of suppliers, vendors or service
providers could impact the Company's operations. The Company is assessing the
efforts of such constituent entities and the impacts on those entities that rely
upon the Company's services, including utilities interconnected with the
Company's electrical system. However, there is no assurance that the Company
will not be affected by year 2000 problems of those organizations or their
failure to repair or replace systems or equipment which is incompatible with
year 2000 dates.
In support of its year 2000 effort, a project team has designed and
developed a database that allows the year 2000 readiness status of each item,
component, system and project to be monitored throughout the course of the
project. In addition, the database provides a repository for all information
obtained about vendors and their products, business partners' services, customer
inquiries, test results, and MidAmerican project contacts. The Company
classifies all systems ranging from low- to high-priority based on its
importance to carrying out the business mission. For most high- and
medium-priority system components or items that must be replaced or upgraded in
order to achieve year 2000 readiness, the project schedule calls for completion
of all work by June 30, 1999. In the case of low-priority systems,
implementation dates may be delayed until as late as September 30, 1999.
To date, approximately $4 million in operating expenses have been incurred
to carry out year 2000 activities that include assessment of system readiness
and bringing IT systems into compliance. An additional $2.25 million in
operating expenses will need to be incurred to complete the assessment and IT
system compliance efforts, although additional unforeseen costs may be incurred.
By year-end the Company will have replaced two major IT systems with ones that
are year 2000 compliant.
The Company expects to complete the inventory of its non-IT systems and
equipment, and the systems and equipment of third parties with which the Company
has a material relationship, with regard to potential year 2000 exposure by the
end of the third quarter. By that time, an estimate of the actions required to
be undertaken, the schedule of when those actions must be completed, and the
cost of resolving the year 2000 problems, including possible replacement of such
systems and equipment, will be determined. At this stage
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of the assessment, the Company has not become aware of any material costs needed
to be incurred to bring non-IT systems into compliance, although future
assessments could change this outlook.
Despite testing and remedial work preparing for the advent of year 2000,
the Company may experience random, widespread and simultaneous failures in its
generation, distribution and information systems during January 2000.
Contingency plans for any known or reasonably anticipated risk of interruption
to the generation or distribution of energy are being developed to either
eliminate the risk or plan for resources needed to be put in place to reduce the
potential outage period to a minimum. Although the impact on future operations
and revenues is unknown, failure of the Company's IT and non-IT systems to
perform because of year 2000 implications could result in operating problems and
costs material to the Company.
Although management believes the project will be completed sufficiently in
advance of January 1, 2000, unforeseen and other factors, including failure of
contractors to perform, could cause delays in the project, the results of which
could likely have a material effect on the Company's results of operations,
liquidity and financial condition.
ACCOUNTING ISSUES
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" effective for
fiscal years beginning after June 15, 1999. SFAS 133 requires an entity to
recognize all of its derivatives as either assets or liabilities in its
statement of financial position and measure those instruments at fair value. If
certain conditions are met, such instruments may be designated as hedges.
Changes in the value of hedge instruments would not impact earnings, except to
the extent that the instrument is not perfectly effective as a hedge. An entity
that elects to apply hedge accounting is required to establish at the inception
of the hedge the method it will use in assessing the effectiveness of the
derivative. If the pronouncement was currently in effect, the Company believes
it would not have a material impact on its results of operations or financial
condition. The Company continues to analyze the pronouncement.
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PART I. (continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- - ------ ----------------------------------------------------------
As of June 30, 1998, the Company's and MidAmerican's financial positions
related to financial instruments and assets that are sensitive to changes in
interest rates or commodity price changes have not changed materially since
December 31, 1997. Refer to the Company's 1997 Annual Report on Form 10-K under
Item 7A for the applicable information as of December 31, 1997.
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
- - -----------------
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 agreement; and
(3) that the current method of investing decommissioning funds is proper under
the power purchase agreement.
MidAmerican filed its answer and contingent counterclaims. The contingent
counterclaims filed by MidAmerican are generally as follows: (1) that
MidAmerican has no duty under the contract to reimburse or pay 50% of the
decommissioning costs unless certain conditions occur; (2) that NPPD has the
equitable duty to repay all amounts that MidAmerican has prefunded for
decommissioning in the event NPPD operates the plant after the term of the
contract; (3) that NPPD is equitably estopped from continuing to operate the
plant after the term of the contract; (4) that NPPD has granted MidAmerican an
option to continue taking 50% of the power from the plant; (5) that the term
"monthly power costs" as defined in the contract does not include costs and
expenses associated with decommissioning the plant; (6) that MidAmerican has no
duty to pay for nuclear fuel, O&M projects or capital improvements that have
useful lives after the term of the contract; (7) that transition costs are not
included in any decommissioning costs and expenses; (8) that NPPD has breached
its duty to MidAmerican in making investments of certain funds; (9) that
reserves in certain accounts are excessive and should be refunded to
MidAmerican; and (10) that NPPD must credit MidAmerican for certain payments by
MidAmerican for low-level radioactive waste disposal.
MidAmerican and NPPD are currently involved in discovery. The trial in this
case is presently scheduled for March 1999. MidAmerican is vigorously defending
and pursuing its interest in this proceeding.
-41-
<PAGE>
North Star Steel Company
- - ------------------------
On December 8, 1997, North Star Steel Company (NSS), a retail MidAmerican
electric customer, filed a Complaint in the United States District Court for the
Southern District of Iowa naming Holdings and MidAmerican as defendants. The
Complaint alleges that MidAmerican's refusal to allow NSS to obtain retail
electric service from an unspecified alternative energy company amounts to a
violation of federal antitrust laws. NSS sought to recover an unspecified level
of damages, and to require MidAmerican to provide retail wheeling service so
that NSS could obtain electricity from an unnamed supplier. On June 23, 1998,
the District Court issued an Order Granting Summary Judgment in favor of
MidAmerican. On July 20, 1998, NSS appealed that decision to the United States
Court of Appeals for the Eighth Circuit. That appeal is currently pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------- ---------------------------------------------------
The Company held its 1998 Annual Meeting of Shareholders on April 29, 1998.
At the annual meeting, shareholders elected the thirteen persons nominated. The
results of the votes are as follows:
Election of Directors:
Name For Against
------------------- ---------- ---------
J. W. Aalfs 76,832,303 1,319,294
S. J. Bright 76,852,902 1,298,695
R. D. Christensen 76,811,208 1,340,389
R. E. Christiansen 76,296,769 1,854,828
J. W. Colloton 76,681,295 1,470,302
F. S. Cottrell 76,875,238 1,276,359
J. W. Eugster 76,845,938 1,305,659
N. Gentry 76,882,315 1,269,282
R. L. Lawson 76,789,137 1,362,460
R. L. Peterson 76,689,607 1,461,990
N. L. Seifert 76,754,895 1,396,702
W. S. Tinsman 76,875,213 1,276,384
L. L. Woodruff 76,788,312 1,363,285
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - ------- --------------------------------
(A) EXHIBITS
Exhibits Filed Herewith
- - -----------------------
The exhibits filed herewith are attached to this combined Form 10-Q in
numerical order. They are listed below under the heading of the registrant or
registrants to whom they apply.
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.
-42-
<PAGE>
MidAmerican
Exhibit 12.2 - Computation of ratios of earnings to fixed charges and
computation of ratios of earnings to fixed charges plus preferred dividend
requirements.
Holdings and MidAmerican
Exhibit 27 - Financial Data Schedules (for electronic filing only).
(B) REPORTS ON FORM 8-K
On May 29, 1998, Holdings and MidAmerican filed a joint report on Form 8-K,
dated May 28, 1998. The report included an announcement of Holdings' acquisition
of AmerUs Home Services Inc. on May 27, 1998, and a copy of the related press
release.
On June 1, 1998, Holdings and MidAmerican filed a joint report on Form 8-K,
dated May 29, 1998, stating MidAmerican shut down its Louisa Energy Center on
May 27, 1998, due to the failure of a generator step-up transformer. The report
included a copy of the related press release.
On June 9, 1998, Holdings & MidAmerican filed a joint report on Form 8-K,
dated June 9, 1998. The report updated the Louisa Energy Center status stating
arrangements for an interim replacement transformer were made with an expected
return to service in early July. A copy of the related press release was
attached.
On June 17, 1998, Holdings & MidAmerican filed a joint report on Form 8-K,
dated June 17, 1998, to include exhibits in MidAmerican's previously filed and
effective registration statement on Form S-3, Registration No. 333-15387. The
report included the opinion of legal counsel related to the stated registration
statement.
On June 18, 1998, MidAmerican filed a report on Form 8-K/A, dated June 16,
1998. The report included the opinion of legal counsel relating to tax matters
concerning Medium-Term Notes, dated June 16, 1998, and the consent of
independent accountants of their report dated January 23, 1998, in their audits
of the financial statements and financial statement schedule of MidAmerican and
its subsidiaries.
-43-
<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 August 13, 1998 /s/ A. L. Wells
- - ----------------------- -------------------------------------------------
A. L. Wells
Senior Vice President and Chief Financial Officer
-44-
EXHIBIT 12.1
<TABLE>
<CAPTION>
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)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, 1998 DECEMBER 31,1997
---------------------------- ----------------------------
Supplemental (a) Supplemental (a)
-------------------- --------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................... $140,715 $ - $140,715 $139,332 $ - $139,332
Pre-tax (gain) loss of less than 50% owned persons .......... (785) - (785) 2,234 - 2,234
-------- ------ -------- -------- ------ --------
139,930 - 139,930 141,566 - 141,566
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes .......................................... 72,050 - 72,050 68,390 - 68,390
Interest on long-term debt .................................. 84,214 3,370 87,584 89,898 3,760 93,658
Other interest charges ...................................... 11,214 - 11,214 10,034 - 10,034
Preferred stock dividends of subsidiary...................... 4,953 - 4,953 6,488 - 6,488
Preferred stock dividends of subsidiary trust................ 7,980 - 7,980 7,980 - 7,980
Interest on leases .......................................... 235 - 235 268 - 268
-------- ------ -------- -------- ------ --------
180,646 3,370 184,016 183,058 3,760 186,818
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges ...................... 320,576 3,370 323,946 324,624 3,760 328,384
-------- ------ -------- -------- ------ --------
Fixed Charges:
Interest on long-term debt .................................. 84,214 3,370 87,584 89,898 3,760 93,658
Other interest charges ...................................... 11,214 - 11,214 10,034 - 10,034
Preferred stock dividends of subsidiary trust................ 7,980 - 7,980 7,980 - 7,980
Interest on leases .......................................... 235 - 235 268 - 268
-------- ------ -------- -------- ------ --------
Total fixed charges ....................................... 103,643 3,370 107,013 108,180 3,760 111,940
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges .......................... 3.09 - 3.03 3.00 - 2.93
======== ====== ======== ======== ====== ========
Preferred stock dividends of subsidiary ..................... $ 4,953 $ - $ 4,953 $ 6,488 $ - $ 6,488
Ratio of net income before income taxes to net income ....... 1.4946 - 1.4946 1.4690 - 1.4690
-------- ------ -------- -------- ------ --------
Preferred stock dividend requirements before income tax ..... 7,403 - 7,403 9,531 - 9,531
-------- ------ -------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements .... 111,046 3,370 114,416 117,711 3,760 121,471
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) .............. 2.89 - 2.83 2.76 - 2.70
======== ====== ======== ======== ====== ========
</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>
EXHIBIT 12.1
<TABLE>
<CAPTION>
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)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31,1996 DECEMBER 31,1995
------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
--------------------- --------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................... $143,761 $ - $143,761 $119,705 $ - $119,705
Pre-tax (gain) loss of less than 50% owned persons .......... (698) - (698) 9,079 - 9,079
-------- ------ -------- -------- ------ --------
143,063 - 143,063 128,784 - 128,784
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes .......................................... 98,422 - 98,422 66,803 - 66,803
Interest on long-term debt .................................. 102,909 3,615 106,524 105,550 4,595 110,145
Other interest charges ...................................... 10,941 - 10,941 9,449 - 9,449
Preferred stock dividends of subsidiary...................... 10,401 - 10,401 8,059 - 8,059
Preferred stock dividends of subsidiary trust................ 288 - 288 - - -
Interest on leases .......................................... 375 - 375 1,088 - 1,088
-------- ------ -------- -------- ------ --------
223,336 3,615 226,951 190,949 4,595 195,544
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges ...................... 366,399 3,615 370,014 319,733 4,595 324,328
-------- ------ --------- -------- ------ --------
Fixed Charges:
Interest on long-term debt .................................. 102,909 3,615 106,524 105,550 4,595 110,145
Other interest charges ...................................... 10,941 - 10,941 9,449 - 9,449
Preferred stock dividends of subsidiary trust................ 288 - 288 - - -
Interest on leases .......................................... 375 - 375 1,088 - 1,088
-------- ------ --------- -------- ------ --------
Total fixed charges ....................................... 114,513 3,615 118,128 116,087 4,595 120,682
-------- ------ --------- -------- ------ --------
Ratio of earnings to fixed charges .......................... 3.20 - 3.13 2.75 - 2.69
======== ====== ========= ======== ====== ========
Preferred stock dividends of subsidiary ..................... $ 10,401 $ - $ 10,401 $ 8,059 $ - $ 8,059
Ratio of net income before income taxes to net income ....... 1.6384 - 1.6384 1.5229 - 1.5229
-------- ------ --------- -------- ------ --------
Preferred stock dividend requirements before income tax ..... 17,041 - 17,041 12,273 - 12,273
-------- ------ --------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements .... 131,554 3,615 135,169 128,360 4,595 132,955
-------- ------ --------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) .............. 2.79 - 2.74 2.49 - 2.44
======== ====== ========= ======== ====== ========
</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>
EXHIBIT 12.1
<TABLE>
<CAPTION>
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)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31,1994 DECEMBER 31,1993
------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
--------------------- --------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations .......................... $123,098 $ - $123,098 $134,325 $ - $134,325
Pre-tax (gain) loss of less than 50% owned persons ......... (270) - (270) (597) - (597)
-------- ------ -------- -------- ------ --------
122,828 - 122,828 133,728 - 133,728
-------- ------ --------- -------- ------ --------
Add (Deduct):
Total income taxes ......................................... 60,457 - 60,457 67,485 - 67,485
Interest on long-term debt ................................. 101,267 5,428 106,695 107,044 5,678 112,722
Other interest charges ..................................... 6,446 - 6,446 5,066 - 5,066
Preferred stock dividends of subsidiary..................... 10,551 - 10,551 8,367 - 8,367
Preferred stock dividends of subsidiary trust............... - - - - - -
Interest on leases ......................................... 1,211 - 1,211 1,876 - 1,876
-------- ------ -------- -------- ------ --------
179,932 5,428 185,360 189,838 5,678 195,516
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges ..................... 302,760 5,428 308,188 323,566 5,678 329,244
-------- ------ -------- -------- ------ --------
Fixed Charges:
Interest on long-term debt ................................. 101,267 5,428 106,695 107,044 5,678 112,722
Other interest charges ..................................... 6,446 - 6,446 5,066 - 5,066
Preferred stock dividends of subsidiary trust............... - - - - - -
Interest on leases ......................................... 1,211 - 1,211 1,876 - 1,876
-------- ------ --------- -------- ------ --------
Total fixed charges ...................................... 108,924 5,428 114,352 113,986 5,678 119,664
-------- ------ --------- -------- ------ --------
Ratio of earnings to fixed charges ......................... 2.78 - 2.70 2.84 - 2.75
======== ====== ========= ======== ====== ========
Preferred stock dividends of subsidiary .................... $ 10,551 $ - $ 10,551 $ 8,367 $ - $ 8,367
Ratio of net income before income taxes to net income ...... 1.4524 - 1.4524 1.4729 - 1.4729
-------- ------ --------- -------- ------ --------
Preferred stock dividend requirements before income tax .... 15,324 - 15,324 12,324 - 12,324
-------- ------ --------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements ... 124,248 5,428 129,676 126,310 5,678 131,988
-------- ------ --------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ............. 2.44 - 2.38 2.56 - 2.49
======== ====== ========= ======== ====== ========
</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-
EXHIBIT 12.2
<TABLE>
<CAPTION>
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)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30,1998 DECEMBER 31,1997
-------------------------------- --------------------------------
Supplemental (a) Supplemental (a)
--------------------- ---------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ......................... $120,454 $ - $120,454 $125,941 $ - $125,941
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes ........................................ 74,739 - 74,739 76,317 - 76,317
Interest on long-term debt ................................ 74,047 3,370 77,417 78,120 3,760 81,880
Other interest charges .................................... 11,282 - 11,282 10,027 - 10,027
Preferred stock dividends of subsidiary trust.............. 7,980 - 7,980 7,980 - 7,980
Interest on leases ........................................ 235 - 235 268 - 268
-------- ------ -------- -------- ------ --------
168,283 3,370 171,653 172,712 3,760 176,472
-------- ------ -------- -------- ------ --------
Earnings available for fixed charges .................... 288,737 3,370 292,107 298,653 3,760 302,413
-------- ------ -------- -------- ------ --------
Fixed Charges:
Interest on long-term debt ................................ 74,047 3,370 77,417 78,120 3,760 81,880
Other interest charges .................................... 11,282 - 11,282 10,027 - 10,027
Preferred stock dividends of subsidiary trust.............. 7,980 - 7,980 7,980 - 7,980
Interest on leases ........................................ 235 - 235 268 - 268
-------- ------ -------- -------- ------ --------
Total fixed charges...................................... 93,544 3,370 96,914 96,395 3,760 100,155
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges ........................ 3.09 - 3.01 3.10 - 3.02
======== ====== ======== ======== ====== ========
Preferred stock dividends ................................. $ 4,953 $ - $ 4,953 $ 6,488 $ - $ 6,488
Ratio of net income before income taxes to net income ..... 1.6205 - 1.6205 1.6060 - 1.6060
-------- ------ -------- -------- ------ --------
Preferred stock dividend requirements before income tax ... 8,026 - 8,026 10,420 - 10,420
-------- ------ -------- -------- ------ --------
Fixed charges plus preferred stock dividend requirements .. 101,570 3,370 104,940 106,815 3,760 110,575
-------- ------ -------- -------- ------ --------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ............ 2.84 - 2.78 2.80 - 2.73
======== ====== ======== ======== ====== ========
</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>
EXHIBIT 12.2
<TABLE>
<CAPTION>
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)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31,1996 DECEMBER 31,1995
------------------------------ --------------------------------
Supplemental (a) Supplemental (a)
-------------------- ---------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations ........................... $165,132 $ - $165,132 $132,489 $ - $132,489
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes .......................................... 112,927 - 112,927 84,098 - 84,098
Interest on long-term debt .................................. 79,434 3,615 83,049 80,133 4,595 84,728
Other interest charges ...................................... 10,842 - 10,842 9,396 - 9,396
Preferred stock dividends of subsidiary trust................ 288 - 288 - - -
Interest on leases .......................................... 375 - 375 1,088 - 1,088
-------- ------ -------- -------- ------ -------
203,866 3,615 207,481 174,715 4,595 179,310
-------- ------ -------- -------- ------ -------
Earnings available for fixed charges ...................... 368,998 3,615 372,613 307,204 4,595 311,799
-------- ------ -------- -------- ------ -------
Fixed Charges:
Interest on long-term debt .................................. 79,434 3,615 83,049 80,133 4,595 84,728
Other interest charges ...................................... 10,842 - 10,842 9,396 - 9,396
Preferred stock dividends of subsidiary trust................ 288 - 288 - - -
Interest on leases .......................................... 375 - 375 1,088 - 1,088
-------- ------ -------- -------- ------ -------
Total fixed charges 90,939 3,615 94,554 90,617 4,595 95,212
-------- ------ ------- -------- ------ --------
Ratio of earnings to fixed charges .......................... 4.06 - 3.94 3.39 - 3.27
======== ====== ======== ======== ====== =======
Preferred stock dividends ................................... $ 10,401 $ - $ 10,401 $ 8,059 $ - $ 8,059
Ratio of net income before income taxes to net income ....... 1.6839 - 1.6839 1.6348 - 1.6348
-------- ------ -------- -------- ------ -------
Preferred stock dividend requirements before income tax ..... 17,514 - 17,514 13,175 - 13,175
-------- ------ -------- -------- ------ -------
Fixed charges plus preferred stock dividend requirements .... 108,453 3,615 112,068 103,792 4,595 108,387
-------- ------ -------- -------- ------ -------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) .............. 3.40 - 3.32 2.96 - 2.88
======== ====== ======== ======== ====== =======
</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>
EXHIBIT 12.2
<TABLE>
<CAPTION>
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)
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31,1994 DECEMBER 31,1993
------------------------------ --------------------------------
Supplemental (a) Supplemental (a)
-------------------- ---------------------
As As
Adjustment Adjusted Adjustment Adjusted
---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from continuing operations .......................... $121,145 $ - $121,145 $133,888 $ - $133,888
-------- ------ -------- -------- ------ --------
Add (Deduct):
Total income taxes ......................................... 66,759 - 66,759 75,917 - 75,917
Interest on long-term debt ................................. 73,922 5,428 79,350 80,642 5,678 86,320
Other interest charges ..................................... 6,639 - 6,639 5,068 - 5,068
Preferred stock dividends of subsidiary trust............... - - - - - -
Interest on leases ......................................... 1,211 - 1,211 1,876 - 1,876
-------- ------ -------- -------- ------ -------
148,531 5,428 153,959 163,503 5,678 169,181
-------- ------ -------- -------- ------ -------
Earnings available for fixed charges ..................... 269,676 5,428 275,104 297,391 5,678 303,069
-------- ------ -------- -------- ------ -------
Fixed Charges:
Interest on long-term debt ................................. 73,922 5,428 79,350 80,642 5,678 86,320
Other interest charges ..................................... 6,639 - 6,639 5,068 - 5,068
Preferred stock dividends of subsidiary trust............... - - - - - -
Interest on leases ......................................... 1,211 - 1,211 1,876 - 1,876
-------- ------ -------- -------- ------ -------
Total fixed charges 81,772 5,428 87,200 87,586 5,678 93,264
-------- ------ -------- -------- ------ -------
Ratio of earnings to fixed charges ......................... 3.30 - 3.15 3.40 - 3.25
======== ====== ======== ======== ====== =======
Preferred stock dividends .................................. $ 10,551 $ - $ 10,551 $ 8,367 $ - $ 8,367
Ratio of net income before income taxes to net income ...... 1.5511 - 1.5511 1.5670 - 1.5670
-------- ------ -------- -------- ------ -------
Preferred stock dividend requirements before income tax .... 16,366 - 16,366 13,111 - 13,111
-------- ------ -------- -------- ------ -------
Fixed charges plus preferred stock dividend requirements ... 98,138 5,428 103,566 100,697 5,678 106,375
-------- ------ -------- -------- ------ -------
Ratio of earnings to fixed charges plus preferred stock
dividend requirements (pre-income tax basis) ............. 2.75 - 2.66 2.95 - 2.85
======== ====== ======== ======== ====== =======
</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 June
30, 1998, and the related consolidated statements of income and cash flows for
the six months ended June 30, 1998, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,605,519
<OTHER-PROPERTY-AND-INVEST> 883,797
<TOTAL-CURRENT-ASSETS> 361,373
<TOTAL-DEFERRED-CHARGES> 388,378
<OTHER-ASSETS> 168,430
<TOTAL-ASSETS> 4,407,497
<COMMON> 742,684
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 396,341
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,311,583
150,000
31,760
<LONG-TERM-DEBT-NET> 1,043,909
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 167,429
<LONG-TERM-DEBT-CURRENT-PORT> 219,260
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,483,556
<TOT-CAPITALIZATION-AND-LIAB> 4,407,497
<GROSS-OPERATING-REVENUE> 864,951
<INCOME-TAX-EXPENSE> 37,760<F1>
<OTHER-OPERATING-EXPENSES> 733,968
<TOTAL-OPERATING-EXPENSES> 733,968
<OPERATING-INCOME-LOSS> 130,983
<OTHER-INCOME-NET> 18,536
<INCOME-BEFORE-INTEREST-EXPEN> 149,519
<TOTAL-INTEREST-EXPENSE> 52,026
<NET-INCOME> 59,733
0
<EARNINGS-AVAILABLE-FOR-COMM> 59,733
<COMMON-STOCK-DIVIDENDS> 56,686
<TOTAL-INTEREST-ON-BONDS> 35,145
<CASH-FLOW-OPERATIONS> 238,269
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
<FN>
<F1> Tag 37, Income Tax Expense, includes operating and nonoperating income
taxes and is excluded from total operating expenses in Tag 39 and on the
Consolidated Statement of Income.
</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 June 30, 1998,
and the related consolidated statements of income and cash flows for the six
months ended June 30, 1998, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,606,322
<OTHER-PROPERTY-AND-INVEST> 126,195
<TOTAL-CURRENT-ASSETS> 287,471
<TOTAL-DEFERRED-CHARGES> 319,570
<OTHER-ASSETS> 168,430
<TOTAL-ASSETS> 3,507,988
<COMMON> 560,562
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 417,065
<TOTAL-COMMON-STOCKHOLDERS-EQ> 977,627
150,000
31,760
<LONG-TERM-DEBT-NET> 929,327
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 41,500
<LONG-TERM-DEBT-CURRENT-PORT> 199,351
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,178,423
<TOT-CAPITALIZATION-AND-LIAB> 3,507,988
<GROSS-OPERATING-REVENUE> 783,936
<INCOME-TAX-EXPENSE> 38,626
<OTHER-OPERATING-EXPENSES> 651,362
<TOTAL-OPERATING-EXPENSES> 689,988
<OPERATING-INCOME-LOSS> 93,948
<OTHER-INCOME-NET> 1,768
<INCOME-BEFORE-INTEREST-EXPEN> 95,716
<TOTAL-INTEREST-EXPENSE> 44,157
<NET-INCOME> 51,559
2,475
<EARNINGS-AVAILABLE-FOR-COMM> 49,084
<COMMON-STOCK-DIVIDENDS> 57,200
<TOTAL-INTEREST-ON-BONDS> 35,145
<CASH-FLOW-OPERATIONS> 235,699
<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 Holdings Company as of June
30, 1997, and the related consolidated statements of income and cash flows for
the six months ended June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,605,548
<OTHER-PROPERTY-AND-INVEST> 612,279
<TOTAL-CURRENT-ASSETS> 340,831
<TOTAL-DEFERRED-CHARGES> 386,543
<OTHER-ASSETS> 190,504
<TOTAL-ASSETS> 4,135,705
<COMMON> 772,484
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 414,665
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,186,313
150,000
31,765
<LONG-TERM-DEBT-NET> 1,109,531
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 146,185
<LONG-TERM-DEBT-CURRENT-PORT> 129,756
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,382,155
<TOT-CAPITALIZATION-AND-LIAB> 4,135,705
<GROSS-OPERATING-REVENUE> 965,422
<INCOME-TAX-EXPENSE> 34,100<F1>
<OTHER-OPERATING-EXPENSES> 832,794
<TOTAL-OPERATING-EXPENSES> 832,794
<OPERATING-INCOME-LOSS> 132,628
<OTHER-INCOME-NET> 18,424<F2>
<INCOME-BEFORE-INTEREST-EXPEN> 151,052
<TOTAL-INTEREST-EXPENSE> 58,428
<NET-INCOME> 58,524
0
<EARNINGS-AVAILABLE-FOR-COMM> 58,524
<COMMON-STOCK-DIVIDENDS> 59,839
<TOTAL-INTEREST-ON-BONDS> 39,218
<CASH-FLOW-OPERATIONS> 225,037
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
<FN>
<F1> Tag 37, Income Tax Expense, includes operating and nonoperating income
taxes and is excluded from total operating expenses in Tag 39 and on the
Consolidated Statement of Income.
<F2> Tag 41 includes $174,000 of income from Discontinued Operations, net of
income taxes.
</FN>
</TABLE>
